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Table of Contents

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, 20202021
OR
☐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 Jersey22-3703799
(State or Other Jurisdiction of

Incorporation or Organization)
(I.R.S. Employer

Identification Number)
751 Broad Street
Newark,, NJ07102
(973) (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 $.01PRUNew York Stock Exchange
5.75%5.625% Junior Subordinated NotesPJHPRSNew York Stock Exchange
5.70%4.125% Junior Subordinated NotesPRHPFHNew York Stock Exchange
5.625% Junior Subordinated NotesPRSNew 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 FilerxAccelerated 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, 2020, 3952021, 386 million shares of the registrant’s Common Stock (par value $0.01) were outstanding.


Table of Contents
TABLE OF CONTENTS
 
Page
Item 1.
Unaudited Interim Consolidated Statements of Financial Position as of June 30, 20202021 and December 31, 20192020
1
Unaudited Interim Consolidated Statements of Operations for the three and six months ended June 30, 20202021 and 20192020
2
Unaudited Interim Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 20202021 and 20192020
3
Unaudited Interim Consolidated Statements of Equity for the three and six months ended June 30, 20202021 and 20192020
4
Unaudited Interim Consolidated Statements of Cash Flows for the six months ended June 30, 20202021 and 20192020
5
6
1. Business and Basis of Presentation
6
2. Significant Accounting Policies and Pronouncements
87
3. Investments
1510
4. Variable Interest Entities
2926
5. Derivative InstrumentsDerivatives and Hedging
3028
6. Fair Value of Assets and Liabilities
4038
7. Closed Block
5653
8. Income Taxes
5855
9. Short-Term and Long-Term Debt
5956
10. Employee Benefit Plans
6157
11. Equity
6258
12. Earnings Per Share
6561
13. Segment Information
6863
14. Commitments and Contingent Liabilities
7366
15. Subsequent Events
71
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7873
Item 3.
155149
Item 4.
155149
Item 1.
156150
Item 1A.
156150
Item 2.
157150
Item 6.
159151
160152
162154



Table of Contents
Forward-Looking Statements

Certain of the statements included in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Financial, Inc. and its subsidiaries. There can be no assurance that future developments affecting Prudential Financial, Inc. and its subsidiaries will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) 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; (3) losses on insurance products due to mortality experience, morbidity experience or policyholder behavior experience that differs significantly from our expectations when we price our products; (4) changes in interest rates, equity prices and foreign currency exchange rates that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; (5) guarantees within certain of our products which are market sensitive and may decrease our earnings or increase the volatility of our results of operations or financial position; (6) liquidity needs resulting from (a) derivative collateral market exposure, (b) asset/liability mismatches, (c) the lack of available funding in the financial markets or (d) unexpected cash demands due to severe mortality calamity or lapse events; (7) financial or customer losses, or regulatory and legal actions, due to inadequate or failed processes or systems, external events, and human error or misconduct such as (a) disruption of our systems and data, (b) an information security breach, (c) a failure to protect the privacy of sensitive data, (d) reliance on third-parties or (e) labor and employment matters; (8) changes in the regulatory landscape, including related to (a) financial sector regulatory reform, (b) changes in tax laws, (c) fiduciary rules and other standards of care, (d) U.S. state insurance laws and developments regarding group-wide supervision, capital and reserves, (e) insurer capital standards outside the U.S. and (f) privacy and cybersecurity regulation; (9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; (10) an inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (11) ratings downgrades; (12) market conditions that may adversely affect the sales or persistency of our products; (13) competition; (14) reputational damage; (15) the costs, effects, timing, or success of our plans to accelerateexecute our strategy; and (16) costs associated with the acquisitionintegration 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, 20192020 for discussion of certain risks relating to our businesses and investment in our securities.












































i
Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Financial Position
June 30, 20202021 and December 31, 20192020 (in millions, except share amounts)
June 30,
2021		December 31,
2020
ASSETS
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2021-$80; 2020-$133) (amortized cost: 2021-$338,942; 2020-$354,470)(1)$382,981 $412,905 
Fixed maturities, held-to-maturity, at amortized cost (net of allowance for credit losses: 2021-$7; 2020-$9) (fair value: 2021-$1,987; 2020-$2,298)(1)1,662 1,930 
Fixed maturities, trading, at fair value (amortized cost: 2021-$6,690; 2020-$3,670)(1)6,567 3,914 
Assets supporting experience-rated contractholder liabilities, at fair value24,596 24,115 
Equity securities, at fair value (cost: 2021-$5,413; 2020-$5,968)(1)8,018 8,135 
Commercial mortgage and other loans (net of $172 and $235 allowance for credit losses; includes $304 and $1,092 of loans measured at fair value under the fair value option at June 30, 2021 and December 31, 2020, respectively)(1)64,359 65,425 
Policy loans10,652 11,271 
Other invested assets (net of $2 and $2 allowance for credit losses; includes $7,667 and $6,407 of assets measured at fair value at June 30, 2021 and December 31, 2020, respectively)(1)20,384 18,125 
Short-term investments (net of allowance for credit losses: 2021-$0; 2020-$1)6,325 7,800 
Total investments525,544 553,620 
Cash and cash equivalents(1)15,145 13,701 
Accrued investment income(1)3,037 3,193 
Deferred policy acquisition costs19,029 19,027 
Value of business acquired1,057 1,103 
Other assets (net of allowance for credit losses: 2021-$15; 2020-$11)(1)21,957 22,801 
Separate account assets340,692 327,277 
TOTAL ASSETS$926,461 $940,722 
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits$289,233 $306,343 
Policyholders’ account balances159,548 161,682 
Policyholders’ dividends8,555 9,524 
Securities sold under agreements to repurchase9,557 10,894 
Cash collateral for loaned securities4,431 3,499 
Income taxes10,196 12,022 
Short-term debt909 925 
Long-term debt19,670 19,718 
Other liabilities (net of allowance for credit losses: 2021-$20; 2020-$20 )(1)19,702 20,323 
Notes issued by consolidated variable interest entities(1)284 305 
Separate account liabilities340,692 327,277 
Total liabilities862,777 872,512 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14)00
EQUITY
Preferred Stock ($0.01 par value; 10,000,000 shares authorized; NaN issued)0 0 
Common Stock ($0.01 par value; 1,500,000,000 shares authorized; 666,305,189 shares issued as of both June 30, 2021 and December 31, 2020)6 6 
Additional paid-in capital25,644 25,584 
Common Stock held in treasury, at cost (279,534,275 and 269,867,738 shares at June 30, 2021 and December 31, 2020, respectively)(20,687)(19,652)
Accumulated other comprehensive income (loss)23,277 30,738 
Retained earnings34,808 30,749 
Total Prudential Financial, Inc. equity63,048 67,425 
Noncontrolling interests636 785 
Total equity63,684 68,210 
TOTAL LIABILITIES AND EQUITY$926,461 $940,722 
__________
(1)See Note 4 for details of balances associated with variable interest entities.
  June 30,
2020		 December 31,
2019
ASSETS    
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) 23,245
 21,597
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) 12,283
 12,096
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) 11,416
 5,467
Total investments 547,932
 522,760
Cash and cash equivalents(1)(3) 21,149
 16,327
Accrued investment income(1)(3) 3,296
 3,330
Deferred policy acquisition costs(2)(3) 19,667
 19,912
Value of business acquired 1,040
 1,110
Other assets (2020-net of $8 allowance for credit losses)(1)(2)(3) 21,301
 20,832
Separate account assets(3) 301,002
 312,281
TOTAL ASSETS $915,387
 $896,552
LIABILITIES AND EQUITY    
LIABILITIES    
Future policy benefits(3) $312,759
 $293,527
Policyholders’ account balances(3) 158,237
 152,110
Policyholders’ dividends(2)(3) 8,623
 6,988
Securities sold under agreements to repurchase 10,488
 9,681
Cash collateral for loaned securities 3,447
 4,213
Income taxes(2)(3) 13,261
 11,378
Short-term debt 1,130
 1,933
Long-term debt 20,162
 18,646
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) 301,002
 312,281
Total liabilities 848,879
 832,833
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14) 

 

EQUITY    
Preferred Stock ($.01 par value; 10,000,000 shares authorized; none issued) 0
 0
Common Stock ($.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 25,513
 25,532
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) 30,837
 24,039
Retained earnings 29,326
 32,991
Total Prudential Financial, Inc. equity 65,897
 63,115
Noncontrolling interests 611
 604
Total equity 66,508
 63,719
TOTAL LIABILITIES AND EQUITY $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

1
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Operations
Three and Six Months Ended June 30, 20202021 and 20192020 (in millions, except per share amounts)
 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
REVENUES
Premiums$6,779 $7,693 $14,322 $15,357 
Policy charges and fee income1,400 1,523 2,890 3,012 
Net investment income4,552 4,186 8,934 8,388 
Asset management and service fees1,198 991 2,374 2,024 
Other income (loss)1,353 1,474 1,635 (1,117)
Realized investment gains (losses), net635 (3,752)2,714 (2,085)
Total revenues15,917 12,115 32,869 25,579 
BENEFITS AND EXPENSES
Policyholders’ benefits7,615 8,450 15,725 17,456 
Interest credited to policyholders’ account balances1,074 1,832 1,842 2,224 
Dividends to policyholders833 531 1,437 454 
Amortization of deferred policy acquisition costs392 287 1,133 1,244 
General and administrative expenses3,230 3,347 6,545 6,871 
Total benefits and expenses13,144 14,447 26,682 28,249 
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES2,773 (2,332)6,187 (2,670)
Total income tax expense (benefit)609 115 1,245 57 
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES2,164 (2,447)4,942 (2,727)
Equity in earnings of operating joint ventures, net of taxes19 42 45 52 
NET INCOME (LOSS)2,183 (2,405)4,987 (2,675)
Less: Income (loss) attributable to noncontrolling interests25 4 1 5 
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.$2,158 $(2,409)$4,986 $(2,680)
EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.$5.44 $(6.12)$12.47 $(6.80)
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.$5.40 $(6.12)$12.39 $(6.80)
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
REVENUES       
Premiums$7,693
 $8,135
 $15,357
 $16,035
Policy charges and fee income1,523
 1,473
 3,012
 2,944
Net investment income4,186
 4,390
 8,388
 8,606
Asset management and service fees991
 1,083
 2,024
 2,099
Other income (loss)1,474
 643
 (1,117) 1,897
Realized investment gains (losses), net(3,752) (336) (2,085) (1,102)
Total revenues12,115
 15,388
 25,579
 30,479
BENEFITS AND EXPENSES       
Policyholders’ benefits8,450
 8,877
 17,456
 17,315
Interest credited to policyholders’ account balances1,832
 1,278
 2,224
 2,623
Dividends to policyholders531
 437
 454
 1,014
Amortization of deferred policy acquisition costs287
 782
 1,244
 1,217
General and administrative expenses3,347
 3,138
 6,871
 6,294
Total benefits and expenses14,447
 14,512
 28,249
 28,463
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES(2,332) 876
 (2,670) 2,016
Total income tax expense (benefit)115
 162
 57
 394
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES(2,447) 714
 (2,727) 1,622
Equity in earnings of operating joint ventures, net of taxes42
 24
 52
 53
NET INCOME (LOSS)(2,405) 738
 (2,675) 1,675
Less: Income (loss) attributable to noncontrolling interests4
 30
 5
 35
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.$(2,409) $708
 $(2,680) $1,640
EARNINGS PER SHARE       
Basic earnings per share-Common Stock:       
Net income (loss) attributable to Prudential Financial, Inc.$(6.12) $1.73
 $(6.80) $3.98
Diluted earnings per share-Common Stock:       
Net income (loss) attributable to Prudential Financial, Inc.$(6.12) $1.71
 $(6.80) $3.93







See Notes to Unaudited Interim Consolidated Financial Statements

2
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Comprehensive Income
Three and Six Months Ended June 30, 20202021 and 20192020 (in millions)
 
Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 2019 2021202020212020
NET INCOME (LOSS)$(2,405) $738
 $(2,675) $1,675
NET INCOME (LOSS)$2,183 $(2,405)$4,987 $(2,675)
Other comprehensive income (loss), before tax:       Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period88
 213
 (207) 108
Foreign currency translation adjustments for the period(48)88 (729)(207)
Net unrealized investment gains (losses)10,101
 8,506
 8,747
 16,795
Net unrealized investment gains (losses)5,353 10,101 (8,775)8,747 
Defined benefit pension and postretirement unrecognized periodic benefit (cost)72
 17
 144
 81
Defined benefit pension and postretirement unrecognized periodic benefit (cost)74 72 170 144 
Total10,261
 8,736
 8,684
 16,984
Total5,379 10,261 (9,334)8,684 
Less: Income tax expense (benefit) related to other comprehensive income (loss)2,023
 1,966
 1,885
 3,910
Less: Income tax expense (benefit) related to other comprehensive income (loss)1,319 2,023 (1,857)1,885 
Other comprehensive income (loss), net of taxes8,238
 6,770
 6,799
 13,074
Other comprehensive income (loss), net of taxes4,060 8,238 (7,477)6,799 
Comprehensive income (loss)5,833
 7,508
 4,124
 14,749
Comprehensive income (loss)6,243 5,833 (2,490)4,124 
Less: Comprehensive income (loss) attributable to noncontrolling interests5
 36
 6
 40
Less: Comprehensive income (loss) attributable to noncontrolling interests27 5 (15)6 
Comprehensive income (loss) attributable to Prudential Financial, Inc.$5,828
 $7,472
 $4,118
 $14,709
Comprehensive income (loss) attributable to Prudential Financial, Inc.$6,216 $5,828 $(2,475)$4,118 
 



See Notes to Unaudited Interim Consolidated Financial Statements
 

3
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Equity
Three and Six Months Ended June 30, 20202021 and 20192020 (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, 20206

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  
 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, 2020$6 $25,584 $30,749 $(19,652)$30,738 $67,425 $785 $68,210 
Common Stock acquired(375)(375)(375)
Contributions from noncontrolling interests3 3 
Distributions to noncontrolling interests(6)(6)
Stock-based compensation programs(5)149 144 144 
Dividends declared on Common Stock(467)(467)(467)
Comprehensive income:
Net income (loss)2,828 2,828 (24)2,804 
Other comprehensive income (loss), net of tax(11,519)(11,519)(18)(11,537)
Total comprehensive income (loss)(8,691)(42)(8,733)
Balance, March 31, 20216 25,579 33,110 (19,878)19,219 58,036 740 58,776 
Common Stock acquired(875)(875)(875)
Contributions from noncontrolling interests9 9 
Distributions to noncontrolling interests(22)(22)
Consolidations (deconsolidations) of noncontrolling interests(118)(118)
Stock-based compensation programs65 66 131 131 
Dividends declared on Common Stock(460)(460)(460)
Comprehensive income:
Net income (loss)2,158 2,158 25 2,183 
Other comprehensive income (loss), net of tax4,058 4,058 2 4,060 
Total comprehensive income (loss)6,216 27 6,243 
Balance, Balance, June 30, 2021$6 $25,644 $34,808 $(20,687)$23,277 $63,048 $636 $63,684 
 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, 2018$6
 $24,828
 $30,470
 $(17,593) $10,906
 $48,617
 $414
 $49,031
Cumulative effect of adoption of accounting changes(2)    (21)   7
 (14)   (14)
Common Stock acquired      (500)   (500)   (500)
Contributions from noncontrolling interests            26
 26
Distributions to noncontrolling interests            (4) (4)
Stock-based compensation programs  (46)   131
   85
   85
Dividends declared on Common Stock    (415)     (415)   (415)
Comprehensive income:               
Net income (loss)    932
     932
 5
 937
Other comprehensive income (loss), net of tax        6,305
 6,305
 (1) 6,304
Total comprehensive income (loss)          7,237
 4
 7,241
Balance, March 31, 20196
 24,782
 30,966
 (17,962) 17,218
 55,010
 440
 55,450
Common Stock acquired      (500)   (500)   (500)
Contributions from noncontrolling interests            25
 25
Distributions to noncontrolling interests            (16) (16)
Consolidations (deconsolidations) of noncontrolling interests            8
 8
Stock-based compensation programs  43
   46
   89
   89
Dividends declared on Common Stock    (411)     (411)   (411)
Comprehensive income:               
Net income (loss)    708
     708
 30
 738
Other comprehensive income (loss), net of tax        6,764
 6,764
 6
 6,770
Total comprehensive income (loss)          7,472
 36
 7,508
Balance, June 30, 2019$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, 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 interests31 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, 20206 25,506 32,176 (19,841)22,600 60,447 625 61,072 
Common Stock acquired
Contributions from noncontrolling interests4 4 
Distributions to noncontrolling interests(23)(23)
Stock-based compensation programs7 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 tax8,237 8,237 1 8,238 
Total comprehensive income (loss)5,828 5 5,833 
Balance, Balance, June 30, 2020$6 $25,513 $29,326 $(19,785)$30,837 $65,897 $611 $66,508 
__________
(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 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.

(1)Includes the impact from the adoption of ASU 2016-13. 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, 2020 for additional information.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Cash Flows
Six Months Ended June 30, 20202021 and 20192020 (in millions)
 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES   
Net income (loss)$(2,675) $1,675
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Realized investment (gains) losses, net2,085
 1,102
Policy charges and fee income(1,366) (1,483)
Interest credited to policyholders’ account balances2,224
 2,623
Depreciation and amortization383
 (89)
(Gains) losses on assets supporting experience-rated contractholder liabilities, net(142) (741)
Change in:   
Deferred policy acquisition costs(120) (258)
Future policy benefits and other insurance liabilities5,186
 5,603
Income taxes(4) (382)
Derivatives, net10,629
 2,010
Other, net(2,721) (1,736)
Cash flows from (used in) operating activities13,479
 8,324
CASH FLOWS FROM INVESTING ACTIVITIES   
Proceeds from the sale/maturity/prepayment of:   
Fixed maturities, available-for-sale20,664
 25,681
Fixed maturities, held-to-maturity58
 35
Fixed maturities, trading276
 187
Assets supporting experience-rated contractholder liabilities14,015
 9,014
Equity securities1,274
 1,377
Commercial mortgage and other loans2,639
 2,885
Policy loans1,291
 1,154
Other invested assets939
 724
Short-term investments21,107
 16,682
Payments for the purchase/origination of:   
Fixed maturities, available-for-sale(26,815) (32,847)
Fixed maturities, trading(446) (570)
Assets supporting experience-rated contractholder liabilities(15,453) (8,813)
Equity securities(1,370) (1,376)
Commercial mortgage and other loans(2,463) (4,352)
Policy loans(1,288) (945)
Other invested assets(1,435) (1,011)
Short-term investments(27,076) (16,278)
Derivatives, net841
 638
Other, net(107) (222)
Cash flows from (used in) investing activities(13,349) (8,037)
CASH FLOWS FROM FINANCING ACTIVITIES   
Policyholders’ account deposits25,452
 13,280
Policyholders’ account withdrawals(20,306) (13,045)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities41
 97
Cash dividends paid on Common Stock(886) (827)
Net change in financing arrangements (maturities 90 days or less)306
 166
Common Stock acquired(500) (983)
Common Stock reissued for exercise of stock options73
 75
Proceeds from the issuance of debt (maturities longer than 90 days)1,563
 1,439
Repayments of debt (maturities longer than 90 days)(791) (924)
Proceeds from notes issued by consolidated VIEs0
 925
Repayments of notes issued by consolidated VIEs(18) (638)
Other, net(247) 196
Cash flows from (used in) financing activities4,687
 (239)
Effect of foreign exchange rate changes on cash balances6
 27
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS4,823
 75
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF YEAR16,474
 15,495
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD$21,297
 $15,570
NON-CASH TRANSACTIONS DURING THE PERIOD   
Treasury Stock shares issued for stock-based compensation programs$144
 $168
Significant Pension Risk Transfer transactions:   
Assets received, excluding cash and cash equivalents$238
 $445
Liabilities assumed505
 447
                   Net cash received$267
 $2
RECONCILIATION TO THE UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION   
Cash and cash equivalents$21,149
 $15,421
Restricted cash and restricted cash equivalents (included in “Other assets”)148
 149
Total cash, cash equivalents, restricted cash and restricted cash equivalents$21,297
 $15,570

Six Months Ended
June 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$4,987 $(2,675)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses, net(2,714)2,085 
Policy charges and fee income(1,142)(1,366)
Interest credited to policyholders’ account balances1,842 2,224 
Depreciation and amortization45 383 
(Gains) losses on assets supporting experience-rated contractholder liabilities, net89 (142)
Change in:
Deferred policy acquisition costs(167)(120)
Future policy benefits and other insurance liabilities2,663 5,186 
Income taxes221 (4)
Derivatives, net(3,466)10,629 
Other, net(1,296)(2,721)
Cash flows from (used in) operating activities1,062 13,479 
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale34,913 20,664 
Fixed maturities, held-to-maturity144 58 
Fixed maturities, trading2,141 276 
Assets supporting experience-rated contractholder liabilities9,048 14,015 
Equity securities2,266 1,274 
Commercial mortgage and other loans3,739 2,639 
Policy loans1,091 1,291 
Other invested assets1,319 939 
Short-term investments15,998 21,107 
Payments for the purchase/origination of:
Fixed maturities, available-for-sale(29,501)(26,815)
Fixed maturities, trading(5,345)(446)
Assets supporting experience-rated contractholder liabilities(9,727)(15,453)
Equity securities(1,923)(1,370)
Commercial mortgage and other loans(3,554)(2,463)
Policy loans(676)(1,288)
Other invested assets(1,426)(1,435)
Short-term investments(14,552)(27,076)
Dispositions, net of cash disposed132 0 
Derivatives, net(776)841 
Other, net(149)(107)
Cash flows from (used in) investing activities3,162 (13,349)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits15,182 25,452 
Policyholders’ account withdrawals(15,575)(20,306)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities(405)41 
Cash dividends paid on Common Stock(926)(886)
Net change in financing arrangements (maturities 90 days or less)73 306 
Common Stock acquired(1,238)(500)
Common Stock reissued for exercise of stock options113 73 
Proceeds from the issuance of debt (maturities longer than 90 days)71 1,563 
Repayments of debt (maturities longer than 90 days)(173)(791)
Repayments of notes issued by consolidated VIEs0 (18)
Other, net211 (247)
Cash flows from (used in) financing activities(2,667)4,687 
Effect of foreign exchange rate changes on cash balances(217)6 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS1,340 4,823 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF YEAR13,855 16,474 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD$15,195 $21,297 
NON-CASH TRANSACTIONS DURING THE PERIOD
Treasury Stock shares issued for stock-based compensation programs$131 $144 
Significant Pension Risk Transfer transactions:
Assets received, excluding cash and cash equivalents$0 $238 
Liabilities assumed0 505 
                   Net cash received$0 $267 
RECONCILIATION TO THE UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Cash and cash equivalents$15,145 $21,149 
Restricted cash and restricted cash equivalents (included in “Other assets”)50 148 
Total cash, cash equivalents, restricted cash and restricted cash equivalents$15,195 $21,297 
See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements

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

The Company’s principal operations are comprisedconsist of PGIM (the Company’s global investment management business), the U.S. Businesses (consisting of the U.S. Workplace Solutions, U.S.Retirement, Group Insurance, Individual Solutions,Annuities, Individual Life and Assurance IQ divisions)businesses), the International Businesses, the Closed Block division, and the Company’s Corporate and Other operations. The U.S. Workplace Solutions division consists of the Retirement and Group Insurance businesses, the U.S. Individual Solutions division consists of the Individual Annuities and Individual Life businesses, and the Assurance IQ division consists of the Assurance IQ business. In October 2019, the Company completed the acquisition of 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. Divested and Run-off Businesses consist of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind-down status that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments as well as the Divested and businesses that have been or will be divested or placed in run-off, excluding the Closed Block division.Run-off Businesses described above.
 
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”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The Unaudited Interim Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner and variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. See Note 4 for additional information 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, 2019.2020.

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.

COVID-19

Beginning in 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. While markets andhave rebounded, the pandemic has adversely impacted, and may continue to adversely impact, ourthe Company’s results of operations, financial condition and cash flows. Due to the highly uncertain nature of these conditions, it is not possible to estimate the ultimate impacts at this time. The risks may have manifested, and may continue to manifest, in ourthe Company’s financial statements in the areas of, among others, i) investments:

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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; and ii) insurance liabilities and related balances: potential changes to assumptions regarding investment returns, mortality, morbidity and policyholder behavior which are reflected in our insurance liabilities and certain related balances (e.g., DAC, 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. The Company cannot predict what impact the COVID-19 pandemic will ultimately have on the global economy, markets or ourits businesses.

Business Held for SaleDispositions

On April 10, 2020,The Prudential Life Insurance Company of Taiwan Inc.

In June 2021, Prudential International Insurance Holdings, Ltd. (“PIIH”), a subsidiary of Prudential Financial, entered into a Share Purchase Agreement (the “Share Purchase Agreement”completed the sale of The Prudential Life Insurance Company of Taiwan Inc. (“POT”) with KBto Taishin Financial Group Inc.Holding Co, Ltd. (the “Buyer”), pursuant for cash consideration of approximately NT5.5 billion, equal to which PIIH has agreed to sellapproximately $200 million at then current exchange rates, and contingent consideration with a fair value of approximately $25 million as of June 30, 2021. The fair value of the contingent consideration is tied to the Buyer alllevel of yields for the 10-year Taiwanese Government bond for two years after the signing of the issuedtransaction and outstanding capital stockcan result in a maximum payout of $100 million if yields increase by 40 basis points. In connection with the transaction, the Company recognized a liability with a fair value of approximately $34 million as of June 30, 2021, representing its financial guarantee of certain insurance obligations of POT.

The after-tax loss on the sale of POT was approximately $400 million, of which approximately $350 million was recorded during 2020, and approximately $40 million and $10 million were recorded during the first and second quarters of 2021, respectively.

Prior to the sale, in the third quarter of 2020, the Company transferred the results of POT and the anticipated impact of its sale from the International Businesses segment to Divested and Run-off Businesses within Corporate & Other operations. Prior period amounts were restated at that time, which impacted both segment reporting and adjusted operating income, but did not impact results reported under GAAP. Results for the six months ended June 30, 2020 contained herein reflect this restatement.

Pramerica SGR (PGIM Italy Joint Venture)

In March 2021, the Company sold its 35% ownership stake in Pramerica SGR, PGIM’s asset management joint venture in Italy, to its partner UBI Banca, which was acquired in 2020 by Intesa Sanpaolo Group. The after-tax gain on the sale of Pramerica SGR was approximately $330 million, which was recognized in adjusted operating income in the first quarter of 2021.

The Prudential Life Insurance Company of Korea, Ltd.

In August 2020, PIIH completed the sale of The Prudential Life Insurance Company of Korea, Ltd. (“POK”) to KB Financial Group Inc., the Company’s Korean insurance business, for cash consideration of approximately 2.3₩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.billion. The Company expectsrecognized an approximate $800 million after-tax loss on the transaction in 2020.

Prior to close by the end of 2020, subject to regulatory approval and the satisfaction of customary closing conditions.
Beginning withsale, in 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 adjusttransferred the carrying valueresults of POK toand the fair market value as reflected in the purchase price. The after-tax charge excludes theanticipated impact of currency hedging transactionsits sale from the International Businesses segment to Divested and Run-off Businesses within Corporate & Other operations. Prior period amounts were restated at that time, which impacted both segment reporting and adjusted operating income, but did not impact results reported under GAAP. Results for the Company expects to settle at transaction closing, the fair value of which was approximately $40 million in assets atsix months ended 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.2020 contained herein reflect this restatement.
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 securities264
Commercial mortgage and other loans3
Policy loans777
Other invested assets109
Short-term investments69
Cash and cash equivalents218
Accrued investment income134
Deferred policy acquisition costs1,178
Other assets(2)254
Separate account assets3,427
Total assets held for sale$20,835
Liabilities held for sale: 
Future policy benefits$10,527
Policyholders’ account balances1,357
Policyholders’ dividends26
Income taxes989
Other liabilities(2)815
Separate account liabilities3,427
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 (“ASUs”) to the FASB Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
and/or those that have been issued but not yet adopted as of June 30, 2020,2021, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

Adoption of ASU 2016-13

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

This ASU requires the use of a new current expected credit loss (“CECL”) model to account for expected credit losses on certain financial assets reported at amortized cost (e.g., loans held for investment, 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 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 investment.

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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$(9)
Commercial mortgage and other loans(115)
Other invested assets(1)
Deferred policy acquisition costs9
Other assets(6)
Total assets$(122)
  
Policyholders' dividends$(14)
Other liabilities21
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 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 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 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.

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

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

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

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

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 generally determined based on probability of default and loss given default assumptions according to 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 CECL allowance.

The CECL allowance represents the Company’s best estimate of expected credit losses over the remaining life of the assets or off-balance sheet credit exposures. The determination of the allowance considers historical credit loss experience, current conditions, and reasonable and supportable forecasts. The allowance is calculated separately for commercial mortgage loans, agricultural mortgage loans, and other collateralized and uncollateralized loans.
For commercial mortgage and agricultural mortgage loans (and related unfunded commitments where the Company cannot unconditionally cancel the commitment), the allowance is calculated using an internally developed CECL model.

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

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

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

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

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

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


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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 ASUs adopted during the six months ended June 30, 2020
StandardDescriptionEffective date and method of adoptionEffect on the financial statements or other significant matters
ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This ASU 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 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 reporting unit).January 1, 2020 using the prospective method.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.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

This ASU 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 modification date or reassessment of a previous accounting determination. The ASU also temporarily (until December 31, 2022) allows hedge relationships to continue without de-designation upon changes due to reference rate reform.March 12, 2020 to December 31, 2022 using the prospective method.
This ASU did not have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.

The Company made the election under ASU 2020-04 for all applicable contracts as they converted from the current reference rate to the new reference rate.



ASU0ASU issued but not yet adopted as of June 30, 20202021 — ASU 2018-12

ASU 2018-12, Financial Services—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 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, in November 2020 the FASB voted in June 2020issued ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application 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 either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2021)2020 or January 1, 2021, respectively) 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. The Company currently intends to adopt ASU 2018-12 effective January 1, 2023 using the modified retrospective transition method where permitted. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. 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 howthe pattern of earnings emerge thereafter.emergence following the transition date.





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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

ASU 2018-12 Amended TopicDescriptionMethod of adoptionEffect 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 willmay choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or 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 AOCIAccumulated other comprehensive income (loss) (“AOCI”) or (2) a full retrospective transition method.The options for method of adoption andCompany currently intends to adopt this guidance effective January 1, 2023 using the modified retrospective transition method. The impacts of electing such methodsmethod are currently 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, andwhich will be required to be updated each quarter with the impact recorded through OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the discount rate assumptions.As noted above, 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 either the beginning of the prior year (if early adoption is elected) or the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.As noted above, the Company currently intends to adopt the guidance for the liability for future policy benefits effective January 1, 2023 using the modified retrospective transition method. 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 raterates locked-in at contract inception versus current discount rates at transition. The magnitude of such adjustment is currently being assessed.
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Amortization of deferred acquisition costs (DAC) and other balances
Requires DAC and other balances, such as unearned revenue reserves and DSI, to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.An entity may apply one of two adoption methods: (1) a modified retrospective transition method whereby the entity willmay choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or 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 full retrospective transition method for DAC and other balances.The options for method of adoption andCompany currently intends to adopt this guidance effective January 1, 2023 using the impacts of such methods are under assessment.modified retrospective transition method. 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 (“MRB”)
Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record market risk benefitMRB 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 isin MRB liabilities attributable to changes in an entity’s non-performance risk (“NPR”), which is recognized in OCI.
An entity shall adopt the guidance for market risk benefits using the retrospective transition method, which includes a cumulative effect adjustment on the balance sheet as of either the beginning of prior year (if early adoption is elected) or the beginning 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.

The Company currently intends to adopt this guidance effective January 1, 2023 using the retrospective transition method. 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.


Modifications related to COVID-19

We assess modifications to certain fixed income instruments on a case-by-case basis to evaluate whether a troubled debt restructuring ("TDR") has occurred. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") provides a temporary suspension of TDR accounting for certain COVID-19 related modifications where the investment was not more than 30 days past due as of December 31, 2019 (“TDR Relief”). The TDR Relief was set to expire on December 31, 2020, but was extended through December 31, 2021 by the Consolidated Appropriations Act of 2021. The Company elected to apply the TDR Relief beginning in the first quarter of 2021. The TDR Relief does not apply to modifications completed 60 days after the national emergency related to COVID-19 ends, or December 31, 2021, whichever comes earlier. As of June 30, 2021, any such modifications did not have a material impact on the Company's results of operations. For additional information regarding the Company’s policies for troubled debt restructurings, 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, 2020.
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



3. INVESTMENTS
 
Fixed Maturity Securities
 
The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:
 
 June 30, 2021
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
 (in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$24,448 $5,642 $38 $0 $30,052 
Obligations of U.S. states and their political subdivisions10,461 1,909 6 0 12,364 
Foreign government bonds85,829 13,028 412 0 98,445 
U.S. public corporate securities95,625 14,915 272 11 110,257 
U.S. private corporate securities(1)36,968 3,324 148 44 40,100 
Foreign public corporate securities25,733 3,041 74 22 28,678 
Foreign private corporate securities29,735 2,290 265 3 31,757 
Asset-backed securities(2)13,463 163 13 0 13,613 
Commercial mortgage-backed securities13,764 899 16 0 14,647 
Residential mortgage-backed securities(3)2,916 160 8 0 3,068 
Total fixed maturities, available-for-sale(1)$338,942 $45,371 $1,252 $80 $382,981 
 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 subdivisions10,387
 2,012
 1
 0
 12,398
Foreign government bonds98,357
 18,657
 206
 38
 116,770
U.S. public corporate securities91,777
 15,518
 627
 51
 106,617
U.S. private corporate securities(1)35,145
 3,281
 215
 52
 38,159
Foreign public corporate securities26,070
 3,328
 248
 32
 29,118
Foreign private corporate securities28,167
 1,145
 925
 64
 28,323
Asset-backed securities(2)13,989
 152
 205
 0
 13,936
Commercial mortgage-backed securities15,089
 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, 2021
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		Allowance for Credit LossesAmortized Cost,
Net of Allowance
 (in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds$865 $240 $0 $1,105 $0 $865 
Foreign public corporate securities502 58 0 560 7 495 
Foreign private corporate securities81 2 0 83 0 81 
Residential mortgage-backed securities(3)221 18 0 239 0 221 
Total fixed maturities, held-to-maturity(4)$1,669 $318 $0 $1,987 $7 $1,662 
__________

(1)Excludes notes with amortized cost of $5,616 million(fair value, $5,674 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, credit cards and other asset types.
(3)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.
(4)Excludes notes with amortized cost of $4,748 million (fair value, $5,427 million), which have been offset with the associated debt under a netting agreement.
 
10
 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 securities625
 61
 0
 686
 9
 616
Foreign private corporate securities83
 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)

 December 31, 2020
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
 (in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$30,766 $9,699 $17 $0 $40,448 
Obligations of U.S. states and their political subdivisions10,668 2,144 1 0 12,811 
Foreign government bonds94,110 16,373 239 0 110,244 
U.S. public corporate securities95,299 18,516 213 47 113,555 
U.S. private corporate securities(1)36,894 4,196 134 19 40,937 
Foreign public corporate securities25,857 3,768 64 24 29,537 
Foreign private corporate securities28,668 3,183 226 33 31,592 
Asset-backed securities(2)14,489 176 74 0 14,591 
Commercial mortgage-backed securities15,036 1,288 11 10 16,303 
Residential mortgage-backed securities(3)2,683 205 1 0 2,887 
Total fixed maturities, available-for-sale(1)$354,470 $59,548 $980 $133 $412,905 
 December 31, 2019
 
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$30,625
 $5,195
 $161
 $35,659
 $0
Obligations of U.S. states and their political subdivisions10,068
 1,437
 8
 11,497
 0
Foreign government bonds98,356
 20,761
 63
 119,054
 (34)
U.S. public corporate securities87,566
 11,030
 257
 98,339
 (6)
U.S. private corporate securities(1)34,410
 2,243
 120
 36,533
 0
Foreign public corporate securities26,841
 3,054
 70
 29,825
 (1)
Foreign private corporate securities27,619
 1,201
 580
 28,240
 0
Asset-backed securities(2)13,067
 147
 40
 13,174
 (77)
Commercial mortgage-backed securities14,978
 610
 14
 15,574
 0
Residential mortgage-backed securities(3)3,044
 159
 2
 3,201
 (1)
       Total fixed maturities, available-for-sale(1)$346,574
 $45,837
 $1,315
 $391,096
 $(119)
 December 31, 2020
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		Allowance for Credit LossesAmortized
Cost, Net of Allowance
 (in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds$935 $270 $0 $1,205 $0 $935 
Foreign public corporate securities651 68 0 719 9 642 
Foreign private corporate securities87 1 0 88 0 87 
Residential mortgage-backed securities(3)266 20 0 286 0 266 
Total fixed maturities, held-to-maturity(4)$1,939 $359 $0 $2,298 $9 $1,930 
__________
(1)Excludes notes with amortized cost of $5,966 million (fair value, $6,100 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 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, $5,821 million), which have been offset with the associated debt under a netting agreement.

11
 December 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 (in millions)
Fixed maturities, held-to-maturity:       
Foreign government bonds$891
 $282
 $0
 $1,173
Foreign public corporate securities649
 64
 0
 713
Foreign private corporate securities83
 2
 0
 85
Residential mortgage-backed securities(3)310
 21
 0
 331
       Total fixed maturities, held-to-maturity(5)$1,933
 $369
 $0
 $2,302
__________
(1)Excludes notes with amortized cost of $4,751 million (fair value, $4,757 million), which have been offset with the associated debt under a netting agreement.
(2)Includes collateralized loan obligations, auto loans, education loans, 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 $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 $4,998 million (fair value, $5,401 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)

 
The following table setstables set forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the datedates indicated:
 
 June 30, 2021
 Less Than
Twelve Months		Twelve Months
or More		Total
 Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
 (in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$1,213 $38 $1 $0 $1,214 $38 
Obligations of U.S. states and their political subdivisions222 6 0 0 222 6 
Foreign government bonds7,424 254 1,806 158 9,230 412 
U.S. public corporate securities7,799 219 804 45 8,603 264 
U.S. private corporate securities2,666 76 867 72 3,533 148 
Foreign public corporate securities2,050 43 631 28 2,681 71 
Foreign private corporate securities3,346 88 1,863 174 5,209 262 
Asset-backed securities5,023 10 561 3 5,584 13 
Commercial mortgage-backed securities603 13 66 3 669 16 
Residential mortgage-backed securities522 8 12 0 534 8 
Total fixed maturities, available-for-sale$30,868 $755 $6,611 $483 $37,479 $1,238 
  June 30, 2020
  Less Than
Twelve Months		 Twelve Months
or More		 Total
  Fair
Value		 Gross
Unrealized
Losses		 Fair
Value		 Gross
Unrealized
Losses		 Fair
Value		 Gross
Unrealized
Losses
  (in millions)
Fixed maturities, available-for-sale:  
U.S. Treasury securities and obligations of U.S. government authorities and agencies $950
 $22
 $0
 $0
 $950
 $22
Obligations of U.S. states and their political subdivisions 47
 1
 0
 0
 47
 1
Foreign government bonds 4,589
 192
 31
 3
 4,620
 195
U.S. public corporate securities 6,595
 372
 1,504
 236
 8,099
 608
U.S. private corporate securities 2,393
 118
 1,017
 97
 3,410
 215
Foreign public corporate securities 2,875
 169
 400
 60
 3,275
 229
Foreign private corporate securities 5,775
 245
 5,223
 675
 10,998
 920
Asset-backed securities 6,741
 120
 3,510
 85
 10,251
 205
Commercial mortgage-backed securities 105
 4
 75
 3
 180
 7
Residential mortgage-backed securities 24
 0
 2
 0
 26
 0
Total fixed maturities, available-for-sale $30,094
 $1,243
 $11,762
 $1,159
 $41,856
 $2,402

 December 31, 2020
 Less Than
Twelve Months		Twelve Months
or More		Total
 Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
 (in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$750 $17 $0 $0 $750 $17 
Obligations of U.S. states and their political subdivisions73 1 0 0 73 1 
Foreign government bonds6,536 231 39 8 6,575 239 
U.S. public corporate securities3,905 87 1,197 106 5,102 193 
U.S. private corporate securities1,712 52 843 82 2,555 134 
Foreign public corporate securities1,412 30 376 23 1,788 53 
Foreign private corporate securities798 34 2,371 192 3,169 226 
Asset-backed securities4,132 25 4,685 49 8,817 74 
Commercial mortgage-backed securities284 8 93 3 377 11 
Residential mortgage-backed securities116 1 1 0 117 1 
Total fixed maturities, available-for-sale$19,718 $486 $9,605 $463 $29,323 $949 
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:

12
  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

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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, 2021 and December 31, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $1,450$977 million and $636 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 $952$261 million and $313 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of June 30, 2020,2021, the $1,159$483 million of gross unrealized losses of twelve months or more were concentrated in the Company’senergy, utility and finance sectors within corporate securities within the energy, finance and consumer non-cyclical sectors.

foreign government securities. As of December 31, 2019,2020, the 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$463 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the energy, consumer non-cyclicalutility 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, 2020, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at June 30, 2020. These conclusions were2021. This conclusion was based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to increases in interest rates, general credit spread widening, increases in interest rates, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of June 30, 2020,2021, 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, 2020June 30, 2021
Available-for-Sale Held-to-MaturityAvailable-for-SaleHeld-to-Maturity
Amortized Cost Fair Value Amortized Cost, Net of Allowance Fair Value Amortized CostFair ValueAmortized Cost, Net of AllowanceFair Value
(in millions)(in millions)
Fixed maturities:       Fixed maturities:
Due in one year or less$17,494
 $18,078
 $114
 $116
Due in one year or less$12,858 $13,332 $0 $0 
Due after one year through five years51,138
 54,309
 0
 0
Due after one year through five years53,062 57,163 495 560 
Due after five years through ten years67,575
 75,812
 588
 659
Due after five years through ten years66,502 74,127 104 108 
Due after ten years(1)185,427
 226,207
 893
 1,153
Due after ten years(1)176,377 207,031 842 1,080 
Asset-backed securities13,989
 13,936
 0
 0
Asset-backed securities13,463 13,613 0 0 
Commercial mortgage-backed securities15,089
 16,262
 0
 0
Commercial mortgage-backed securities13,764 14,647 0 0 
Residential mortgage-backed securities3,100
 3,340
 280
 303
Residential mortgage-backed securities2,916 3,068 221 239 
Total$353,812
 $407,944
 $1,875
 $2,231
Total$338,942 $382,981 $1,662 $1,987 
__________
(1)
Excludes available-for-sale notes with amortized cost of $6,466
(1)Excludes available-for-sale notes with amortized cost of $5,616 million(fair value, $5,674 million) and held-to-maturity notes with amortized cost of $4,748 million (fair value, $5,427 million), which have been offset with the associated debt under a netting agreement.

(fair value, $6,466 million) and held-to-maturity 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.

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:

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13
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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, Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 2019 2021202020212020
(in millions) (in millions)
Fixed maturities, available-for-sale:       Fixed maturities, available-for-sale:
Proceeds from sales(1)$5,217
 $6,659
 $10,370
 $16,821
Proceeds from sales(1)$5,078 $5,217 $19,768 $10,370 
Proceeds from maturities/prepayments5,539
 4,704
 10,422
 9,192
Proceeds from maturities/prepayments8,002 5,539 14,896 10,422 
Gross investment gains from sales and maturities405
 228
 873
 711
Gross investment gains from sales and maturities361 405 1,963 873 
Gross investment losses from sales and maturities(149) (95) (210) (283)Gross investment losses from sales and maturities(99)(149)(489)(210)
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
Write-downs recognized in earnings(2)Write-downs recognized in earnings(2)0 (64)0 (155)
(Addition to) release of allowance for credit losses(Addition to) release of allowance for credit losses51 (80)53 (238)
Fixed maturities, held-to-maturity:       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
Proceeds from maturities/prepayments(3)Proceeds from maturities/prepayments(3)$132 $22 $144 $63 
(Addition to) release of allowance for credit losses(Addition to) release of allowance for credit losses0 02 0
__________ 
(1)Includes $128 million and $332 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2020 and 2019, respectively.
(2)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 $5 million and $2 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2020 and 2019, respectively.

(1)Includes $(249) million and $128 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2021 and 2020, respectively.
(2)Amounts represent write-downs on credit adverse securities, write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.
(3)Includes $0 million and $5 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2021 and 2020, respectively.


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

June 30, 2020Three Months Ended June 30, 2021
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 TotalU.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)(in millions)
Fixed maturities, available-for-sale:             Fixed maturities, available-for-sale:
Balance, beginning of year$0
 $0
 $0
 $0
 $0
 $0
 $0
Balance, beginning of periodBalance, beginning of period$0 $0 $122 $0 $9 $0 $131 
Additions to allowance for credit losses not previously recorded0
 38
 205
 0
 1
 0
 244
Additions to allowance for credit losses not previously recorded0 0 9 0 0 0 9 
Reductions for securities sold during the period0
 0
 (28) 0
 0
 0
 (28)Reductions for securities sold during the period0 0 (4)0 (9)0 (13)
Additions/reductions on securities with previous allowance0
 0
 22
 0
 0
 0
 22
Additions (reductions) on securities with previous allowanceAdditions (reductions) on securities with previous allowance0 0 (47)0 0 0 (47)
Balance, end of period$0
 $38
 $199
 $0
 $1
 $0
 $238
Balance, end of period$0 $0 $80 $0 $0 $0 $80 



19
14
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Three Months Ended June 30, 2020
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period$0 $38 $119 $0 $1 $0 $158 
Additions to allowance for credit losses not previously recorded0 0 86 0 0 0 86 
Reductions for securities sold during the period0 0 (28)0 0 0 (28)
Additions (reductions) on securities with previous allowance0 0 22 0 0 0 22 
Balance, end of period$0 $38 $199 $0 $1 $0 $238 
 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 2016-130
 0
 9
 0
 0
 0
 9
Balance, end of period$0
 $0
 $9
 $0
 $0
 $0
 $9


See Note 2 for
Six Months Ended June 30, 2021
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period$0 $0 $123 $0 $10 $0 $133 
Additions to allowance for credit losses not previously recorded0 0 40 0 0 0 40 
Reductions for securities sold during the period0 0 (30)0 (9)0 (39)
Additions (reductions) on securities with previous allowance0 0 (53)0 (1)0 (54)
Balance, end of period$0 $0 $80 $0 $0 $0 $80 

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Six Months Ended June 30, 2020
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period$0 $0 $0 $0 $0 $0 $0 
Additions to allowance for credit losses not previously recorded0 38 205 0 1 0 244 
Reductions for securities sold during the period0 0 (28)0 0 0 (28)
Additions (reductions) on securities with previous allowance0 0 22 0 0 0 22 
Balance, end of period$0 $38 $199 $0 $1 $0 $238 


Three Months Ended June 30, 2021
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period$0 $0 $7 $0 $0 $0 $7 
Current period provision for expected losses0 0 0 0 0 0 0 
Balance, end of period$0 $0 $7 $0 $0 $0 $7 

Three Months Ended June 30, 2020
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period$0 $0 $9 $0 $0 $0 $9 
Current period provision for expected losses0 0 0 0 0 0 0 
Balance, end of period$0 $0 $9 $0 $0 $0 $9 


16
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Six Months Ended June 30, 2021
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period$0 $0 $9 $0 $0 $0 $9 
Current period provision for expected losses0 0 (2)0 0 0 (2)
Balance, end of period$0 $0 $7 $0 $0 $0 $7 

Six Months Ended June 30, 2020
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period$0 $0 $0 $0 $0 $0 $0 
Cumulative effect of adoption of ASU 2016-130 0 9 0 0 0 9 
Balance, end of period$0 $0 $9 $0 $0 $0 $9 

For additional information about the Company’s methodology for developing our allowance and expected losses.losses, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

As ofFor the three months ended June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment within the consumer cyclical, energy and communication sectors within corporate securities. For the three months ended June 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows on publicin the consumer cyclical, energy and privatecommunications sectors within corporate securities.

For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment within the energy and consumer cyclical sectors within corporate securities. For the six months ended June 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in the energy, communications and consumer cyclical sectors within corporate securities.

The Company did not0t have any fixed maturity securities purchased with credit deterioration, as of June 30, 2021 or December 31, 2020.

17
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Assets Supporting Experience-Rated Contractholder Liabilities
 
The following table sets forth the composition of “Assets supporting experience-rated contractholder liabilities,” as of the dates indicated:
  June 30, 2020 December 31, 2019
  Amortized
Cost or Cost		 Fair
Value		 Amortized
Cost or Cost		 Fair
Value
  (in millions)
Short-term investments and cash equivalents $1,234
 $1,234
 $277
 $277
Fixed maturities:        
Corporate securities 13,492
 14,190
 13,143
 13,603
Commercial mortgage-backed securities 1,832
 1,921
 1,845
 1,896
Residential mortgage-backed securities(1) 1,142
 1,200
 1,134
 1,158
Asset-backed securities(2) 1,762
 1,772
 1,639
 1,662
Foreign government bonds 803
 808
 802
 814
U.S. government authorities and agencies and obligations of U.S. states 354
 437
 341
 397
Total fixed maturities(3) 19,385
 20,328
 18,904
 19,530
Equity securities 1,533
 1,683
 1,465
 1,790
Total assets supporting experience-rated contractholder liabilities(4) $22,152
 $23,245
 $20,646
 $21,597

 June 30, 2021December 31, 2020
 Amortized
Cost or Cost		Fair
Value		Amortized
Cost or Cost		Fair
Value
 (in millions)
Short-term investments and cash equivalents$518 $518 $658 $658 
Fixed maturities:
Corporate securities14,913 15,682 14,442 15,472 
Commercial mortgage-backed securities1,594 1,662 1,743 1,839 
Residential mortgage-backed securities(1)785 820 964 1,018 
Asset-backed securities(2)1,811 1,836 1,665 1,697 
Foreign government bonds1,011 1,016 934 945 
U.S. government authorities and agencies and obligations of U.S. states529 598 371 443 
Total fixed maturities(3)20,643 21,614 20,119 21,414 
Equity securities2,052 2,464 1,661 2,043 
Total assets supporting experience-rated contractholder liabilities(4)$23,213 $24,596 $22,438 $24,115 
__________ 
(1)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.
(2)Includes collateralized loan obligations, auto loans, education loans, home equity and other asset types. Collateralized loan obligations at fair value were $1,141 million and $1,060 million as of June 30, 2020 and December 31, 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 June 30, 2020 and December 31, 2019, respectively.
(4)As a percentage of amortized cost, 78% and 77% of the portfolio consisted of public securities as of June 30, 2020 and December 31, 2019, respectively.

(1)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.
(2)Includes collateralized loan obligations, auto loans, education loans, home equity and other asset types. Collateralized loan obligations at fair value were $1,314 million and $1,102 million as of June 30, 2021 and December 31, 2020, respectively, all of which were rated A or higher.
(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 June 30, 2021 and December 31, 2020, respectively.
(4)As a percentage of amortized cost, 80% and 79% of the portfolio consisted of public securities as of June 30, 2021 and December 31, 2020, 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 $984$165 million and $300$984 million during the three months ended June 30, 20202021 and 2019,2020, respectively, and $142$(294) million and $769$142 million during the six months ended June 30, 20202021 and 2019,2020, respectively.


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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 $825$86 million and $51$825 million during the three months ended June 30, 20202021 and 2019,2020, respectively, and $(656)$438 million and $581$(656) million during the six months ended June 30, 20202021 and 2019,2020, 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:
 
18
  June 30, 2020 December 31, 2019
  Amortized
Cost		 
Fair
Value
 Amortized
Cost		 
Fair
Value
  (in millions)
Investments in Japanese government and government agency securities:        
Fixed maturities, available-for-sale $74,765
 $87,747
 $74,118
 $89,546
Fixed maturities, held-to-maturity 874
 1,127
 869
 1,143
Fixed maturities, trading 23
 22
 23
 23
Assets supporting experience-rated contractholder liabilities 647
 652
 653
 664
Total $76,309
 $89,548
 $75,663
 $91,376
  June 30, 2020 December 31, 2019
  Amortized
Cost		 
Fair
Value
 Amortized
Cost		 
Fair
Value
  (in millions)
Investments in South Korean government and government agency securities:        
Fixed maturities, available-for-sale $10,783
 $13,402
 $10,823
 $13,322
Assets supporting experience-rated contractholder liabilities 15
 16
 15
 16
Total $10,798
 $13,418
 $10,838
 $13,338


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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
 June 30, 2021December 31, 2020
 Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
 (in millions)
Investments in Japanese government and government agency securities:
Fixed maturities, available-for-sale$75,523 $85,965 $80,273 $92,764 
Fixed maturities, held-to-maturity843 1,077 912 1,173 
Fixed maturities, trading24 24 25 25 
Assets supporting experience-rated contractholder liabilities872 873 849 855 
Total$77,262 $87,939 $82,059 $94,817 

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, 2020 December 31, 2019 June 30, 2021December 31, 2020
 
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:        Commercial mortgage and agricultural property loans by property type:
Office $12,642
 20.2% $13,462
 21.4%Office$12,347 19.4 %$12,750 19.7 %
Retail 7,739
 12.3
 8,379
 13.3
Retail7,160 11.2 7,326 11.3 
Apartments/Multi-Family 18,031
 28.8
 17,348
 27.6
Apartments/Multi-Family17,434 27.3 18,330 28.3 
Industrial 13,292
 21.2
 13,226
 21.1
Industrial15,390 24.1 14,954 23.1 
Hospitality 2,378
 3.8
 2,415
 3.9
Hospitality2,356 3.7 2,395 3.7 
Other 4,617
 7.4
 4,533
 7.2
Other4,951 7.8 4,981 7.7 
Total commercial mortgage loans 58,699
 93.7
 59,363
 94.5
Total commercial mortgage loans59,638 93.5 60,736 93.8 
Agricultural property loans 3,978
 6.3
 3,472
 5.5
Agricultural property loans4,162 6.5 4,048 6.2 
Total commercial mortgage and agricultural property loans by property type 62,677
 100.0% 62,835
 100.0%
Total commercial mortgage and agricultural property loansTotal commercial mortgage and agricultural property loans63,800 100.0 %64,784 100.0 %
Allowance for credit losses (238)   (117)  Allowance for credit losses(166)(227)
Total net commercial mortgage and agricultural property loans by property type 62,439
   62,718
  
Total net commercial mortgage and agricultural property loansTotal net commercial mortgage and agricultural property loans63,634 64,557 
Other loans:   
   
Other loans:
Uncollateralized loans 680
 
 656
 
Uncollateralized loans579 655 
Residential property loans 109
 
 124
 
Residential property loans81 101 
Other collateralized loans 248
 
 65
 
Other collateralized loans71 120 
Total other loans 1,037
 
 845
 
Total other loans731 876 
Allowance for credit losses (7) 
 (4) 
Allowance for credit losses(6)(8)
Total net other loans 1,030
 
 841
 
Total net other loans725 868 
Total commercial mortgage and other loans(1) $63,469
 
 $63,559
 
Total net commercial mortgage and other loans(1)Total net commercial mortgage and other loans(1)$64,359 $65,425 
__________ 
(1)Includes loans held for sale which are carried at fair value and are collateralized primarily by apartment complexes. As of June 30, 2020 and December 31, 2019, the net carrying value of these loans was $682 million and $228 million, respectively.
(1)Includes loans held for sale which are carried at fair value and are collateralized primarily by apartment complexes. As of June 30, 2021 and December 31, 2020, the net carrying value of these loans was $304 million and $1,092 million, respectively.

As of June 30, 2020,2021, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (28%), Texas (9%(8%) and New York (8%(7%)) and included loans secured by properties in Europe (7%(8%), Asia (2%Australia (1%) and AustraliaAsia (1%).


22
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The following table setstables set forth the activity in the allowance for credit losses for commercial mortgage and other loans, as of the dates indicated:
Three Months Ended June 30, 2021
 Commercial
Mortgage
Loans		Agricultural
Property
Loans		Residential
Property
Loans		Other
Collateralized
Loans		Uncollateralized
Loans		Total
(in millions)
Allowance, beginning of period$209 $8 $0 $2 $5 $224 
Addition to (release of) allowance for expected losses(49)(2)0 0 (1)(52)
Other0 0 0 0 0 0 
Allowance, end of period$160 $6 $0 $2 $4 $172 
  
Commercial
Mortgage
Loans
 
Agricultural
Property
Loans
 
Residential
Property
Loans
 
Other
Collateralized
Loans
 
Uncollateralized
Loans
 Total
  (in millions)
Balance at December 31, 2018 $120
 $3
 $0
 $0
 $5
 $128
Addition to (release of) allowance for credit losses (5) 0
 0
 0
 (1) (6)
Charge-offs, net of recoveries (1) 0
 0
 0
 0
 (1)
Change in foreign exchange 0
 0
 0
 0
 0
 0
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

Three Months Ended June 30, 2020
 Commercial
Mortgage
Loans		Agricultural
Property
Loans		Residential
Property
Loans		Other
Collateralized
Loans		Uncollateralized
Loans		Total
(in millions)
Allowance, beginning of period$225 $8 $0 $3 $4 $240 
Addition to (release of) allowance for expected losses5 0 0 0 0 5 
Other0 0 0 0 0 0 
Allowance, end of period$230 $8 $0 $3 $4 $245 
 
See Note 2 for
Six Months Ended June 30, 2021
 Commercial
Mortgage
Loans		Agricultural
Property
Loans		Residential
Property
Loans		Other
Collateralized
Loans		Uncollateralized
Loans		Total
(in millions)
Allowance, beginning of period$218 $9 $0 $3 $5 $235 
Addition to (release of) allowance for expected losses(58)(3)0 0 (1)(62)
Other0 0 0 (1)0 (1)
Allowance, end of period$160 $6 $0 $2 $4 $172 

Six Months Ended June 30, 2020
 Commercial
Mortgage
Loans		Agricultural
Property
Loans		Residential
Property
Loans		Other
Collateralized
Loans		Uncollateralized
Loans		Total
(in millions)
Allowance, beginning of period$114 $3 $0 $0 $4 $121 
Cumulative effect of adoption of ASU 2016-13110 5 0 0 0 115 
Addition to (release of) allowance for expected losses6 0 0 0 0 6 
Other0 0 0 3 0 3 
Allowance, end of period$230 $8 $0 $3 $4 $245 

For additional information about the Company’s methodology for developing our allowance and expected losses.losses, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

As
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
For the three months ended June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment. For the three months ended June 30, 2020, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to new loan originations and net negative credit migration within the existing loan portfolio.

For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment. For the six months ended June 30, 2020, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.

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

June 30, 2021
Amortized Cost by Origination Year
20212020201920182017PriorTotal
(in millions)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%$760 $627 $2,678 $3,230 $3,491 $16,677 $27,463 
60%-69.99%1,410 1,992 4,835 4,125 2,334 6,338 21,034 
70%-79.99%1,073 2,310 2,428 1,467 926 2,397 10,601 
80% or greater33 0 3 61 55 388 540 
Total$3,276 $4,929 $9,944 $8,883 $6,806 $25,800 $59,638 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$3,161 $4,812 $9,166 $8,427 $6,545 $23,084 $55,195 
1.0 - 1.2x115 115 655 303 259 2,018 3,465 
Less than 1.0x0 2 123 153 2 698 978 
Total$3,276 $4,929 $9,944 $8,883 $6,806 $25,800 $59,638 
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%$472 $946 $504 $343 $388 $1,374 $4,027 
60%-69.99%51 10 34 38 2 0 135 
70%-79.99%0 0 0 0 0 0 0 
80% or greater0 0 0 0 0 0 0 
Total$523 $956 $538 $381 $390 $1,374 $4,162 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$515 $934 $527 $373 $332 $1,263 $3,944 
1.0 - 1.2x8 22 10 2 58 42 142 
Less than 1.0x0 0 1 6 0 69 76 
Total$523 $956 $538 $381 $390 $1,374 $4,162 
23
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

December 31, 2020
Amortized Cost by Origination Year
20202019201820172016PriorTotal
(in millions)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%$828 $2,693 $3,217 $3,854 $3,223 $15,360 $29,175 
60%-69.99%2,678 4,981 4,291 2,239 2,667 4,058 20,914 
70%-79.99%2,492 2,587 1,500 1,057 918 1,409 9,963 
80% or greater23 3 61 69 23 505 684 
Total$6,021 $10,264 $9,069 $7,219 $6,831 $21,332 $60,736 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$5,901 $9,429 $8,587 $6,954 $6,382 $18,904 $56,157 
1.0 - 1.2x118 711 383 263 384 1,719 3,578 
Less than 1.0x2 124 99 2 65 709 1,001 
Total$6,021 $10,264 $9,069 $7,219 $6,831 $21,332 $60,736 
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%$956 $494 $349 $527 $367 $1,254 $3,947 
60%-69.99%8 51 39 3 0 0 101 
70%-79.99%0 0 0 0 0 0 0 
80% or greater0 0 0 0 0 0 0 
Total$964 $545 $388 $530 $367 $1,254 $4,048 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$941 $544 $381 $468 $308 $1,202 $3,844 
1.0 - 1.2x23 0 1 59 1 40 124 
Less than 1.0x0 1 6 3 58 12 80 
Total$964 $545 $388 $530 $367 $1,254 $4,048 

 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 greater0
 10
 0
 18
 61
 208
 0
 297
Subtotal2,420
 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 greater0
 0
 0
 0
 0
 0
 0
 0
Subtotal646
 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 greater0
 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


 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 - 1.2x2,465
 80
 2,708
 57
Less than 1.0x313
 28
 309
 14
Total$58,699
 $3,978
 $59,363
 $3,472


See Note 2 forFor additional information about the Company’s commercial mortgage and other loans credit quality monitoring process.process, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
 
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:
 
 June 30, 2021
 Current30-59 Days
Past Due		60-89 Days
Past Due		90 Days or More Past Due(1)Total Past
Due		Total
Loans		Non-Accrual
Status(2)
 (in millions)
Commercial mortgage loans$59,638 $0 $0 $0 $0 $59,638 $2 
Agricultural property loans4,098 49 0 15 64 4,162 17 
Residential property loans79 1 0 1 2 81 1 
Other collateralized loans71 0 0 0 0 71 0 
Uncollateralized loans579 0 0 0 0 579 0 
Total$64,465 $50 $0 $16 $66 $64,531 $20 

24
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

  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)
  (in millions)
Commercial mortgage loans $58,386
 $0
 $313
 $0
 $313
 $58,699
 $44
Agricultural property loans 3,971
 0
 1
 6
 7
 3,978
 15
Residential property loans 107
 1
 0
 1
 2
 109
 1
Other collateralized loans 248
 0
 0
 0
 0
 248
 0
Uncollateralized loans 680
 0
 0
 0
 0
 680
 4
Total $63,392
 $1
 $314
 $7
 $322
 $63,714
 $64
__________
(1)__________As of June 30, 2021, there were 0 loans in this category accruing interest.
(1)As of June 30, 2020, there were 0 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, 2019.

(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, 2020.
  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)
  (in millions)
Commercial mortgage loans $59,363
 $0
 $0
 $0
 $0
 $59,363
 $44
Agricultural property loans 3,458
 1
 0
 13
 14
 3,472
 13
Residential property loans 121
 1
 0
 2
 3
 124
 2
Other collateralized loans 65
 0
 0
 0
 0
 65
 0
Uncollateralized loans 656
 0
 0
 0
 0
 656
 0
Total $63,663
 $2
 $0
 $15
 $17
 $63,680
 $59

 December 31, 2020
 Current30-59 Days
Past Due		60-89 Days
Past Due		90 Days or More Past Due(1)Total Past
Due		Total
Loans		Non-Accrual
Status(2)
 (in millions)
Commercial mortgage loans$60,614 $3 $119 $0 $122 $60,736 $5 
Agricultural property loans3,996 37 0 15 52 4,048 15 
Residential property loans99 1 0 1 2 101 1 
Other collateralized loans120 0 0 0 0 120 0 
Uncollateralized loans655 0 0 0 0 655 0 
Total$65,484 $41 $119 $16 $176 $65,660 $21 
__________
(1)As of December 31, 2019, there were 0 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, 2019.
(1)As of December 31, 2020, there were 0 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, 2020.

Loans on non-accrual status recognized interest income of less than $1 million and $2 million for both the three months and six months ended June 30, 2021 and 2020, respectively, and $19 million of these loansrespectively. Loans on non-accrual status that did not have a related allowance for credit losses were $17 million and $15 million as of June 30, 2020.2021 and December 31, 2020, respectively.

The Company did not0t have any significant losses on commercial mortgage and other loans purchased with credit deterioration as of both June 30, 2021 and December 31, 2020.


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Table of Contents
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, 2021December 31, 2020
 (in millions)
LPs/LLCs:
Equity method:
Private equity(1)$5,250 $4,311 
Hedge funds2,856 2,451 
Real estate-related(1)2,117 1,985 
Subtotal equity method10,223 8,747 
Fair value:
Private equity1,885 1,786 
Hedge funds2,245 2,036 
Real estate-related319 314 
Subtotal fair value4,449 4,136 
Total LPs/LLCs14,672 12,883 
Real estate held through direct ownership(2)1,872 2,027 
Derivative instruments2,850 1,915 
Other(3)990 1,300 
Total other invested assets$20,384 $18,125 
_________ 
(1)Prior period amounts have been updated to conform to current period presentation.
(2)As of June 30, 2021 and December 31, 2020, real estate held through direct ownership had mortgage debt of $361 million and $409 million, respectively.
  June 30, 2020 December 31, 2019
  (in millions)
LPs/LLCs:    
Equity method:    
Private equity $3,830
 $3,625
Hedge funds 2,166
 1,947
Real estate-related 1,381
 1,372
Subtotal equity method 7,377
 6,944
Fair value:    
Private equity 1,548
 1,705
Hedge funds 2,100
 2,172
Real estate-related 331 336
Subtotal fair value 3,979
 4,213
Total LPs/LLCs 11,356
 11,157
Real estate held through direct ownership(1) 2,451
 2,388
Derivative instruments 1,655
 877
Other(2) 1,295
 1,184
Total other invested assets $16,757
 $15,606
23
_________ Table of Contents
(1)As of June 30, 2020 and December 31, 2019, real estate held through direct ownership had mortgage debt of $459 million and $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 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
(3)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 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Accrued Investment Income

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

 June 30, 2021December 31, 2020
 (in millions)
Fixed maturities$2,560 $2,676 
Equity securities4 7 
Commercial mortgage and other loans192 205 
Policy loans257 274 
Other invested assets22 27 
Short-term investments and cash equivalents2 4 
Total accrued investment income$3,037 $3,193 
 June 30, 2020
 (in millions)
Fixed maturities$2,739
Equity securities9
Commercial mortgage and other loans198
Policy loans301
Other invested assets36
Short-term investments and cash equivalents13
Total accrued investment income$3,296


ThereWrite-downs on accrued investment income were less than $1 million and $9 million for the three months ended June 30, 2021 and 2020, respectively, and less than $1 million and $12 million of write-downs on accrued investment income for the three months and six months ended June 30, 2021 and 2020, respectively.


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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


Net Investment Income
 
The following table sets forth “Net investment income” by investment type, for the periods indicated:
 Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
June 30,		Six Months Ended
June 30,
 2020 2019 2020 2019 2021202020212020
 (in millions) (in millions)
Fixed maturities, available-for-sale(1) $3,067
 $3,150
 $6,179
 $6,238
Fixed maturities, available-for-sale(1)$3,006 $3,067 $6,005 $6,179 
Fixed maturities, held-to-maturity(1) 58
 58
 117
 115
Fixed maturities, held-to-maturity(1)55 58113 117 
Fixed maturities, trading 34
 38
 68
 72
Fixed maturities, trading37 3461 68 
Assets supporting experience-rated contractholder liabilities 164
 182
 348
 367
Assets supporting experience-rated contractholder liabilities167 164326 348 
Equity securities 55
 51
 83
 81
Equity securities58 5581 83 
Commercial mortgage and other loans 618
 627
 1,258
 1,227
Commercial mortgage and other loans644 6181,261 1,258 
Policy loans 150
 152
 303
 303
Policy loans126 150271 303 
Other invested assets 147
 271
 278
 476
Other invested assets617 1471,133 278 
Short-term investments and cash equivalents 65
 115
 152
 233
Short-term investments and cash equivalents20 6530 152 
Gross investment income 4,358
 4,644
 8,786
 9,112
Gross investment income4,730 4,358 9,281 8,786 
Less: investment expenses (172) (254) (398) (506)Less: investment expenses(178)(172)(347)(398)
Net investment income $4,186
 $4,390
 $8,388
 $8,606
Net investment income$4,552 $4,186 $8,934 $8,388 
__________ 
(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.

(1)Includes income on credit-linked notes which are reported on the same financial statement line items as related surplus notes, as conditions are met for right to offset.
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
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,
 2020 2019 2020 2019 2021202020212020
 (in millions) (in millions)
Fixed maturities(1) $112
 $69
 $270
 $329
Fixed maturities(1)$313 $112 $1,529 $270 
Commercial mortgage and other loans 2
 4
 24
 14
Commercial mortgage and other loans61 2 91 24 
Investment real estate 11
 0
 10
 0
Investment real estate12 11 64 10 
LPs/LLCs (3) 2
 (6) (3)LPs/LLCs17 (3)17 (6)
Derivatives (3,881) (411) (2,389) (1,443)Derivatives239 (3,881)1,014 (2,389)
Other 7
 0
 6
 1
Other(7)7 (1)6 
Realized investment gains (losses), net $(3,752) $(336) $(2,085) $(1,102)Realized investment gains (losses), net$635 $(3,752)$2,714 $(2,085)
__________ 
(1)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading.
(1)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading.
 

Net Unrealized Gains (Losses) on Investments within AOCI

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

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2021December 31, 2020
June 30,
2020		 December 31,
2019		 (in millions)
(in millions)
Fixed maturity securities, available-for-sale—with OTTI(1)
$                    N/A
 $243
Fixed maturity securities, available-for-sale—all other(1)N/A
 44,279
Fixed maturity securities, available-for-sale with an allowance(40) N/A
Fixed maturity securities, available-for-sale with an allowance$6 $(25)
Fixed maturity securities, available-for-sale without an allowance54,410
 N/A
Fixed maturity securities, available-for-sale without an allowance44,113 58,593 
Derivatives designated as cash flow hedges(2)2,498
 832
Derivatives designated as cash flow hedges(1)Derivatives designated as cash flow hedges(1)261 (168)
Derivatives designated as fair value hedges(1)Derivatives designated as fair value hedges(1)(17)10 
Other investments(3)(2)(2) (15)2 7 
Net unrealized gains (losses) on investments$56,866
 $45,339
Net unrealized gains (losses) on investments$44,365 $58,417 
__________ 
(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 additional information on cash flow hedges, see Note 5.
(3)As of June 30, 2020, there were 0 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.”

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

(2)As of June 30, 2021, there were 0 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:

25
 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 securities414
 0
 414
 250
 0
 250
Total securities sold under agreements to repurchase(1)$9,930
 $558
 $10,488
 $9,681
 $0
 $9,681
__________ 
(1)The Company did 0t have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.


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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
June 30, 2021December 31, 2020
Remaining Contractual Maturities of the AgreementsRemaining Contractual Maturities of the Agreements
 Overnight & ContinuousUp to 30 DaysTotal Overnight & ContinuousUp to 30 DaysTotal
(in millions)
U.S. Treasury securities and obligations of U.S.
government authorities and agencies
$8,761 $482 $9,243 $9,548 $546 $10,094 
Commercial mortgage-backed securities30 0 30 463 0 463 
Residential mortgage-backed securities284 0 284 337 0 337 
Total securities sold under agreements to repurchase(1)$9,075 $482 $9,557 $10,348 $546 $10,894 
__________ 
(1)The Company did 0t have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.

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

 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
$0
 $0
 $0
 $9
 $0
 $9
Obligations of U.S. states and their political
subdivisions
101
 0
 101
 33
 0
 33
Foreign government bonds381
 0
 381
 244
 0
 244
U.S. public corporate securities2,375
 0
 2,375
 2,996
 0
 2,996
Foreign public corporate securities536
 0
 536
 762
 0
 762
Commercial mortgage-backed securities2
 0
 2
 2
 0
 2
Equity securities52
 0
 52
 167
 0
 167
       Total cash collateral for loaned securities(1)$3,447
 $0
 $3,447
 $4,213
 $0
 $4,213

June 30, 2021December 31, 2020
Remaining Contractual Maturities of the AgreementsRemaining Contractual Maturities of the Agreements
 Overnight & ContinuousUp to 30 DaysTotal Overnight & ContinuousUp to 30 DaysTotal
(in millions)
Obligations of U.S. states and their political
subdivisions
$103 $0 $103 $108 $0 $108 
Foreign government bonds274 0 274 426 0 426 
U.S. public corporate securities3,038 0 3,038 2,360 0 2,360 
Foreign public corporate securities706 0 706 567 0 567 
Equity securities310 0 310 38 0 38 
Total cash collateral for loaned securities(1)$4,431 $0 $4,431 $3,499 $0 $3,499 
__________ 
(1)The Company did 0t have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.

(1)The Company did 0t have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.


4. VARIABLE INTEREST ENTITIES
 
In the normal course of its activities, the Company enters into relationships with various special-purpose entities and other entities that are deemed to be variable interest entities (“VIEs”). For additional information, see Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
 
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.

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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-maturity83
 83
 843
 839
Fixed maturities, trading1,043
 1,112
 0
 0
Assets supporting experience-rated contractholder liabilities0
 0
 2
 4
Equity securities29
 47
 0
 0
Commercial mortgage and other loans943
 883
 0
 0
Other invested assets2,379
 2,199
 151
 89
Cash and cash equivalents153
 166
 0
 0
Accrued investment income5
 4
 4
 4
Other assets422
 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

 Consolidated VIEs for which the
Company is the Investment
Manager(1)		Other Consolidated VIEs(1)
 June 30,
2021		December 31,
2020		June 30,
2021		December 31,
2020
 (in millions)
Fixed maturities, available-for-sale$109 $110 $274 $296 
Fixed maturities, held-to-maturity81 87 820 882 
Fixed maturities, trading177 160 0 0 
Equity securities57 42 0 0 
Commercial mortgage and other loans899 975 0 0 
Other invested assets2,671 2,221 145 127 
Cash and cash equivalents99 101 0 0 
Accrued investment income1 2 3 4 
Other assets456 594 844 768 
Total assets of consolidated VIEs$4,550 $4,292 $2,086 $2,077 
Other liabilities$592 $256 $0 $2 
Notes issued by consolidated VIEs(2)284 305 0 0 
Total liabilities of consolidated VIEs$876 $561 $0 $2 
 __________
(1)Total assets of consolidated VIEs reflect $2,742 million and $2,668 million as of June 30, 2020 and December 31, 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, 2020, the maturities of these obligations were between
(1)Total assets of consolidated VIEs reflect $2,560 million and $2,538 million as of June 30, 2021 and December 31, 2020, 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, 2021, the maturity of this obligation was within 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 $1,015$954 million and $1,021$935 million at June 30, 20202021 and December 31, 2019,2020, respectively. These investments are reflected in “Fixed maturities, available-for-sale,” “Fixed maturities, trading,” “Equity securities” and “Other invested assets.” There are 0 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 $11,356$14,672 million and $11,157$12,883 million as of June 30, 20202021 and December 31, 2019,2020, 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.

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


5. DERIVATIVE INSTRUMENTSDERIVATIVES AND HEDGING
 
Types of Derivative Instruments and Derivative StrategiesHedging Instruments

The Company utilizes various derivatives instruments and strategieshedging instruments to manage its risk. Commonly used derivative and non-derivative hedging instruments include, but are not necessarily limited to:
•Interest rate contracts: futures, swaps, forwards, options, caps and floors
•Equity contracts: futures, options and total return swaps

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

•Foreign exchange contracts: futures, options, forwards, swaps, and swapsforeign currency debt instruments
•Credit contracts: single and index reference credit default swaps

Other types of financial contracts that the Company accounts for as derivatives are:
•To-be-announced (“TBA”) forward contracts, loan commitments, embedded derivatives and synthetic guaranteed investment contracts (“GICs”).

For detailed information 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, 2019.2020.

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. This netting impact results in total derivative assets of $1,644$2,827 million and $867$1,906 million as of June 30, 20202021 and December 31, 2019,2020, respectively, and total derivative liabilities of $684$1,556 million and $831$792 million as of June 30, 20202021 and December 31, 2019,2020, respectively, reflected in the Unaudited Interim Consolidated Statements of Financial Position.


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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Primary Underlying Risk /Instrument TypeJune 30, 2020 December 31, 2019Primary Underlying Risk /Instrument TypeJune 30, 2021December 31, 2020
 Fair Value   Fair Value Fair Value Fair Value
Gross Notional Assets Liabilities Gross Notional Assets LiabilitiesGross NotionalAssetsLiabilitiesGross NotionalAssetsLiabilities
(in millions) (in millions)
Derivatives Designated as Hedge Accounting Instruments:           Derivatives Designated as Hedge Accounting Instruments:
Interest Rate           Interest Rate
Interest Rate Swaps$3,227
 $1,220
 $(105) $3,257
 $628
 $(73)Interest Rate Swaps$3,012 $760 $(75)$3,065 $978 $(90)
Interest Rate Forwards202
 36
 (1) 205
 4
 (1)Interest Rate Forwards298 8 (15)249 0 (8)
Foreign Currency           Foreign Currency
Foreign Currency Forwards2,155
 73
 (12) 1,461
 22
 (57)Foreign Currency Forwards2,812 55 (124)2,577 68 (116)
Currency/Interest Rate           Currency/Interest Rate
Foreign Currency Swaps23,372
 3,049
 (59) 22,746
 1,467
 (302)Foreign Currency Swaps23,510 893 (611)22,642 878 (1,037)
Total Derivatives Designated as Hedge Accounting Instruments$28,956
 $4,378
 $(177) $27,669
 $2,121
 $(433)Total Derivatives Designated as Hedge Accounting Instruments$29,632 $1,716 $(825)$28,533 $1,924 $(1,251)
Derivatives Not Qualifying as Hedge Accounting Instruments:           Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate           Interest Rate
Interest Rate Swaps$153,866
 $22,286
 $(11,151) $141,162
 $10,249
 $(4,861)Interest Rate Swaps$207,176 $11,897 $(15,771)$178,803 $17,174 $(13,172)
Interest Rate Futures17,326
 6
 (44) 17,095
 4
 (38)Interest Rate Futures16,653 62 (6)15,778 99 (5)
Interest Rate Options14,518
 1,813
 (267) 16,496
 339
 (238)Interest Rate Options15,418 610 (229)14,593 914 (233)
Interest Rate Forwards2,745
 28
 0
 2,218
 18
 (3)Interest Rate Forwards2,335 25 0 2,910 25 0 
Foreign Currency    ��      Foreign Currency
Foreign Currency Forwards30,785
 308
 (235) 26,604
 208
 (214)Foreign Currency Forwards29,672 854 (1,038)35,478 764 (647)
Foreign Currency Options0
 0
 0
 0
 0
 0
Foreign Currency Options0 0 0 0 0 0 
Currency/Interest Rate           Currency/Interest Rate
Foreign Currency Swaps12,819
 1,243
 (337) 13,874
 740
 (345)Foreign Currency Swaps12,716 622 (333)13,661 537 (601)
Credit           Credit
Credit Default Swaps2,529
 20
 (17) 798
 21
 0
Credit Default Swaps3,921 131 0 3,360 63 (28)
Equity           Equity
Equity Futures7,243
 2
 (84) 1,802
 0
 (3)Equity Futures5,719 8 (6)5,668 10 (25)
Equity Options45,519
 494
 (302) 32,657
 679
 (765)Equity Options48,571 951 (1,368)36,250 1,731 (1,028)
Total Return Swaps24,798
 184
 (1,071) 18,218
 6
 (636)Total Return Swaps18,363 84 (421)22,489 32 (1,277)
OtherOther
Other(1)           1,260 0 0 1,262 0 0 
Other(1)1,260
 0
 0
 1,258
 0
 0
Synthetic GICs82,325
 1
 0
 80,009
 1
 0
Synthetic GICs83,805 1 0 86,264 0 0 
Total Derivatives Not Qualifying as Hedge Accounting Instruments$395,733
 $26,385
 $(13,508) $352,191
 $12,265
 $(7,103)Total Derivatives Not Qualifying as Hedge Accounting Instruments$445,609 $15,245 $(19,172)$416,516 $21,349 $(17,016)
Total Derivatives(2)(3)$424,689
 $30,763
 $(13,685) $379,860
 $14,386
 $(7,536)Total Derivatives(2)(3)$475,241 $16,961 $(19,997)$445,049 $23,273 $(18,267)
__________
(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 $27,110 million and $14,035 million as of June 30, 2020 and December 31, 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.

(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 $15,656 million and $20,119 million as of June 30, 2021 and December 31, 2020, 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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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of June 30, 2020,2021, 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, 2019June 30, 2021December 31, 2020
Balance Sheet Line Item in which Hedged Item is RecordedCarrying 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)		Balance Sheet Line Item in which Hedged Item is RecordedCarrying 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$397
 $92
 $389
 $64
Fixed maturities, available-for-sale, at fair value$372 $67 $402 $79 
Commercial mortgage and other loans$22
 $2
 $23
 $2
Commercial mortgage and other loans$19 $1 $20 $2 
Policyholders’ account balances$(1,721) $(425) $(1,376) $(107)Policyholders’ account balances$(1,545)$(193)$(1,627)$(303)
Future policy benefits$(1,277) $(443) $(676) $(172)Future policy benefits$(1,511)$(294)$(1,585)$(372)
__________
(1)There were no material fair value hedging adjustments for hedged assets and liabilities for which hedge accounting has been discontinued.
(1)There were no material fair value hedging adjustments for hedged assets and liabilities for which hedge accounting has been discontinued.

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

Offsetting Assets and Liabilities
 
The following 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, 2020 June 30, 2021
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:         Offsetting of Financial Assets:
Derivatives(1)$30,611
 $(29,119) $1,492
 $(849) $643
DerivativesDerivatives$16,817 $(14,134)$2,683 $(704)$1,979 
Securities purchased under agreement to resell2,355
 0
 2,355
 (2,355) 0
Securities purchased under agreement to resell427 0 427 (427)0 
Total assets$32,966
 $(29,119) $3,847
 $(3,204) $643
Total assets$17,244 $(14,134)$3,110 $(1,131)$1,979 
Offsetting of Financial Liabilities:         Offsetting of Financial Liabilities:
Derivatives(1)$13,676
 $(13,001) $675
 $(40) $635
DerivativesDerivatives$19,990 $(18,441)$1,549 $(816)$733 
Securities sold under agreement to repurchase10,488
 0
 10,488
 (10,488) 0
Securities sold under agreement to repurchase9,557 0 9,557 (9,527)30 
Total liabilities$24,164
 $(13,001) $11,163
 $(10,528) $635
Total liabilities$29,547 $(18,441)$11,106 $(10,343)$763 
 

3330
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

December 31, 2019 December 31, 2020
Gross
Amounts of
Recognized
Financial
Instruments
 
Gross
Amounts
Offset in the
Statements
of Financial
Position
 
Net
Amounts
Presented in
the Statements
of Financial
Position
 Financial
Instruments/
Collateral(1)		 
Net
Amount
 Gross
Amounts of
Recognized
Financial
Instruments		Gross
Amounts
Offset in the
Statements
of Financial
Position		Net
Amounts
Presented in
the Statements
of Financial
Position		Financial
Instruments/
Collateral(1)		Net
Amount
(in millions) (in millions)
Offsetting of Financial Assets:         Offsetting of Financial Assets:
Derivatives(1)$14,303
 $(13,519) $784
 $(607) $177
DerivativesDerivatives$23,144 $(21,367)$1,777 $(806)$971 
Securities purchased under agreement to resell1,012
 0
 1,012
 (1,012) 0
Securities purchased under agreement to resell252 0 252 (252)0 
Total assets$15,315
 $(13,519) $1,796
 $(1,619) $177
Total assets$23,396 $(21,367)$2,029 $(1,058)$971 
Offsetting of Financial Liabilities:         Offsetting of Financial Liabilities:
Derivatives(1)$7,528
 $(6,705) $823
 $(244) $579
DerivativesDerivatives$18,265 $(17,475)$790 $(790)$0 
Securities sold under agreement to repurchase9,681
 0
 9,681
 (9,681) 0
Securities sold under agreement to repurchase10,894 0 10,894 (10,432)462 
Total liabilities$17,209
 $(6,705) $10,504
 $(9,925) $579
Total liabilities$29,159 $(17,475)$11,684 $(11,222)$462 
__________
(1)
(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, 2019.2020.
 
Cash Flow, Fair Value and Net Investment Hedges
 
The primary derivative and non-derivative instruments used by the Company in its fair value, cash flow and net investment hedge accounting relationships are interest rate swaps, currency swaps, currency forwards, and foreign currency forwards.denominated debts. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, or equity derivatives in any of its fair value, cash flow or net investment hedge accounting relationships.
 
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.





















34
31
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
 Three Months Ended June 30, 2021
 Realized
Investment
Gains
(Losses)		Net
Investment
Income		Other
Income (Loss)		Interest
Expense		Interest
Credited to
Policyholders’
Account
Balances		Policyholders’ BenefitsAOCI(1)
 (in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate$(7)$(2)$0 $0 $100 $92 $0 
Currency0 0 0 0 0 1 0 
Total gains (losses) on derivatives designated as hedge instruments(7)(2)0 0 100 93 0 
Gains (losses) on the hedged item:
Interest Rate7 4 0 0 (96)(92)0 
Currency0 0 0 0 0 (1)0 
Total gains (losses) on hedged item7 4 0 0 (96)(93)0 
Amortization for gains (losses) excluded from assessment of the effectiveness
Currency0 0 0 0 0 (1)(29)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness0 0 0 0 0 (1)(29)
Total gains (losses) on fair value hedges net of hedged item0 2 0 0 4 (1)(29)
Cash flow hedges
Interest Rate8 0 0 0 0 0 16 
Currency(2)0 0 0 0 0 15 
Currency/Interest Rate13 67 (24)0 0 0 389 
Total gains (losses) on cash flow hedges19 67 (24)0 0 0 420 
Net investment hedges
Currency0 0 11 0 0 0 (13)
Currency/Interest Rate0 0 0 0 0 0 0 
Total gains (losses) on net investment hedges0 0 11 0 0 0 (13)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate3,348 0 0 0 0 0 0 
Currency(58)0 (1)0 0 0 0 
Currency/Interest Rate133 0 (1)0 0 0 0 
Credit24 0 0 0 0 0 0 
Equity(898)0 0 0 0 0 0 
Other0 0 0 0 0 0 0 
Embedded Derivatives(2,332)0 0 0 0 0 0 
Total gains (losses) on derivatives not qualifying as hedge accounting instruments217 0 (2)0 0 0 0 
Total$236 $69 $(15)$0 $4 $(1)$378 






32
 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) $0
Currency0
 0
 0
 0
 0
 2
 0
Total gains (losses) on derivatives designated as hedge instruments1
 (2) 0
 0
 6
 1
 0
Gains (losses) on the hedged item:             
Interest Rate(1) 4
 0
 0
 5
 9
 0
Currency0
 0
 0
 0
 0
 (2) 0
Total gains (losses) on hedged item(1) 4
 0
 0
 5
 7
 0
Amortization for gains (losses) excluded from assessment of the effectiveness             
Currency0
 0
 0
 0
 0
 0
 (3)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness0
 0
 0
 0
 0
 0
 (3)
Total gains (losses) on fair value hedges net of hedged item0
 2
 0
 0
 11
 8
 (3)
Cash flow hedges             
Interest Rate10
 0
 0
 0
 0
 0
 (8)
Currency2
 0
 0
 0
 0
 0
 (10)
Currency/Interest Rate49
 82
 (99) 0
 0
 0
 (669)
Total gains (losses) on cash flow hedges61
 82
 (99) 0
 0
 0
 (687)
Net investment hedges             
Currency0
 0
 0
 0
 0
 0
 (4)
Currency/Interest Rate0
 0
 0
 0
 0
 0
 0
Total gains (losses) on net investment hedges0
 0
 0
 0
 0
 0
 (4)
Derivatives Not Qualifying as Hedge Accounting Instruments:             
Interest Rate(232) 0
 0
 0
 0
 0
 0
Currency(103) 0
 0
 0
 0
 0
 0
Currency/Interest Rate(86) 0
 0
 0
 0
 0
 0
Credit(1) 0
 0
 0
 0
 0
 0
Equity(5,221) 0
 0
 0
 0
 0
 0
Other1
 0
 0
 0
 0
 0
 0
Embedded Derivatives1,702
 0
 0
 0
 0
 0
 0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments(3,940) 0
 0
 0
 0
 0
 0
Total$(3,879) $84
 $(99) $0
 $11
 $8
 $(694)









35
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
 Six Months Ended June 30, 2021
 Realized
Investment
Gains
(Losses)		Net
Investment
Income		Other
Income (Loss)		Interest
Expense		Interest
Credited to
Policyholders’
Account
Balances		Policyholders’ BenefitsAOCI(1)
 (in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate$14 $(5)$0 $0 $(91)$(79)$0 
Currency(2)0 0 0 0 8 0 
Total gains (losses) on derivatives designated as hedge instruments12 (5)0 0 (91)(71)0 
Gains (losses) on the hedged item:
Interest Rate(14)8 0 0 111 88 0 
Currency2 0 0 0 0 (8)0 
Total gains (losses) on hedged item(12)8 0 0 111 80 0 
Amortization for gains (losses) excluded from assessment of the effectiveness
Currency0 0 0 0 0 (3)(27)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness0 0 0 0 0 (3)(27)
Total gains (losses) on fair value hedges net of hedged item0 3 0 0 20 6 (27)
Cash flow hedges
Interest Rate13 1 0 0 0 0 (31)
Currency(3)0 0 0 0 0 (2)
Currency/Interest Rate38 138 29 0 0 0 462 
Total gains (losses) on cash flow hedges48 139 29 0 0 0 429 
Net investment hedges
Currency0 0 11 0 0 0 (13)
Currency/Interest Rate0 0 0 0 0 0 0 
Total gains (losses) on net investment hedges0 0 11 0 0 0 (13)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate(2,576)0 0 0 0 0 0 
Currency(336)0 (4)0 0 0 0 
Currency/Interest Rate415 0 (1)0 0 0 0 
Credit27 0 0 0 0 0 0 
Equity(1,887)0 0 0 0 0 0 
Other1 0 0 0 0 0 0 
Embedded Derivatives5,320 0 0 0 0 0 0 
Total gains (losses) on derivatives not qualifying as hedge accounting instruments964 0 (5)0 0 0 0 
Total$1,012 $142 $35 $0 $20 $6 $389 








33
 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
 $0
Currency2
 0
 0
 0
 0
 2
 0
Total gains (losses) on derivatives designated as hedge instruments(27) (4) 0
 0
 330
 281
 0
Gains (losses) on the hedged item:             
Interest Rate29
 9
 0
 0
 (318) (270) 0
Currency(1) 1
 0
 0
 0
 (2) 0
Total gains (losses) on hedged item28
 10
 0
 0
 (318) (272) 0
Amortization for gains (losses) excluded from assessment of the effectiveness             
Currency0
 0
 0
 0
 0
 0
 (3)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness0
 0
 0
 0
 0
 0
 (3)
Total gains (losses) on fair value hedges net of hedged item1
 6
 0
 0
 12
 9
 (3)
Cash flow hedges             
Interest Rate8
 0
 0
 0
 0
 0
 44
Currency4
 0
 0
 0
 0
 0
 91
Currency/Interest Rate67
 160
 193
 0
 0
 0
 1,531
Total gains (losses) on cash flow hedges79
 160
 193
 0
 0
 0
 1,666
Net investment hedges             
Currency0
 0
 0
 0
 0
 0
 10
Currency/Interest Rate0
 0
 0
 0
 0
 0
 0
Total gains (losses) on net investment hedges0
 0
 0
 0
 0
 0
 10
Derivatives Not Qualifying as Hedge Accounting Instruments:             
Interest Rate8,992
 0
 0
 0
 0
 0
 0
Currency230
 0
 (7) 0
 0
 0
 0
Currency/Interest Rate731
 0
 2
 0
 0
 0
 0
Credit(42) 0
 0
 0
 0
 0
 0
Equity216
 0
 0
 0
 0
 0
 0
Other1
 0
 0
 0
 0
 0
 0
Embedded Derivatives(12,593) 0
 0
 0
 0
 0
 0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments(2,465) 0
 (5) 0
 0
 0
 0
Total$(2,385) $166
 $188
 $0
 $12
 $9
 $1,673







36
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
 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’ BenefitsAOCI(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)$0 
Currency0 0 0 0��0 2 0 
Total gains (losses) on derivatives designated as hedge instruments1 (2)0 0 6 1 0 
Gains (losses) on the hedged item:
Interest Rate(1)4 0 0 5 9 0 
Currency0 0 0 0 0 (2)0 
Total gains (losses) on hedged item(1)4 0 0 5 7 0 
Amortization for gains (losses) excluded from assessment of the effectiveness
Currency0 0 0 0 0 0 (3)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness0 0 0 0 0 0 (3)
Total gains (losses) on fair value hedges net of hedged item0 2 0 0 11 8 (3)
Cash flow hedges
Interest Rate10 0 0 0 0 0 (8)
Currency2 0 0 0 0 0 (10)
Currency/Interest Rate49 82 (99)0 0 0 (669)
Total gains (losses) on cash flow hedges61 82 (99)0 0 0 (687)
Net investment hedges
Currency0 0 0 0 0 0 (4)
Currency/Interest Rate0 0 0 0 0 0 0 
Total gains (losses) on net investment hedges0 0 0 0 0 0 (4)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate(232)0 0 0 0 0 0 
Currency(103)0 0 0 0 0 0 
Currency/Interest Rate(86)0 0 0 0 0 0 
Credit(1)0 0 0 0 0 0 
Equity(5,221)0 0 0 0 0 0 
Other1 0 0 0 0 0 0 
Embedded Derivatives1,702 0 0 0 0 0 0 
Total gains (losses) on derivatives not qualifying as hedge accounting instruments(3,940)0 0 0 0 0 0 
Total$(3,879)$84 $(99)$0 $11 $8 $(694)








34
 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
 $0
Currency2
 0
 0
 0
 0
 0
 0
Total gains (losses) on derivatives designated as hedge instruments(7) (2) 0
 0
 101
 80
 0
Gains (losses) on the hedged item:             
Interest Rate9
 5
 0
 0
 (98) (73) 0
Currency(1) 1
 0
 0
 0
 0
 0
Total gains (losses) on hedged item8
 6
 0
 0
 (98) (73) 0
Total gains (losses) on fair value hedges net of hedged item1
 4
 0
 0
 3
 7
 0
Cash flow hedges             
Interest Rate0
 0
 0
 0
 0
 0
 (1)
Currency1
 0
 0
 0
 0
 0
 14
Currency/Interest Rate47
 69
 40
 0
 0
 0
 229
Total gains (losses) on cash flow hedges48
 69
 40
 0
 0
 0
 242
Net investment hedges             
Currency0
 0
 0
 0
 0
 0
 1
Currency/Interest Rate0
 0
 0
 0
 0
 0
 0
Total gains (losses) on net investment hedges0
 0
 0
 0
 0
 0
 1
Derivatives Not Qualifying as Hedge Accounting Instruments:             
Interest Rate2,346
 0
 0
 0
 0
 0
 0
Currency122
 0
 (5) 0
 0
 0
 0
Currency/Interest Rate20
 0
 0
 0
 0
 0
 0
Credit36
 0
 0
 0
 0
 0
 0
Equity(617) 0
 0
 0
 0
 0
 0
Other0
 0
 0
 0
 0
 0
 0
Embedded Derivatives(2,368) 0
 0
 0
 0
 0
 0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments(461) 0
 (5) 0
 0
 0
 0
Total$(412) $73
 $35
 $0
 $3
 $7
 $243









37
Table of Contents
PRUDENTIAL FINANCIAL, INC.
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’ BenefitsAOCI(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 $0 
Currency2 0 0 0 0 2 0 
Total gains (losses) on derivatives designated as hedge instruments(27)(4)0 0 330 281 0 
Gains (losses) on the hedged item:
Interest Rate29 9 0 0 (318)(270)0 
Currency(1)1 0 0 0 (2)0 
Total gains (losses) on hedged item28 10 0 0 (318)(272)0 
Amortization for gains (losses) excluded from assessment of the effectiveness
Currency0 0 0 0 0 0 (3)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness0 0 0 0 0 0 (3)
Total gains (losses) on fair value hedges net of hedged item1 6 0 0 12 9 (3)
Cash flow hedges
Interest Rate8 0 0 0 0 0 44 
Currency4 0 0 0 0 0 91 
Currency/Interest Rate67 160 193 0 0 0 1,531 
Total gains (losses) on cash flow hedges79 160 193 0 0 0 1,666 
Net investment hedges
Currency0 0 0 0 0 0 10 
Currency/Interest Rate0 0 0 0 0 0 0 
Total gains (losses) on net investment hedges0 0 0 0 0 0 10 
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate8,992 0 0 0 0 0 0 
Currency230 0 (7)0 0 0 0 
Currency/Interest Rate731 0 2 0 0 0 0 
Credit(42)0 0 0 0 0 0 
Equity216 0 0 0 0 0 0 
Other1 0 0 0 0 0 0 
Embedded Derivatives(12,593)0 0 0 0 0 0 
Total gains (losses) on derivatives not qualifying as hedge accounting instruments(2,465)0 (5)0 0 0 0 
Total$(2,385)$166 $188 $0 $12 $9 $1,673 
_______
(1)Net change in AOCI, excluding changes related to net investment hedges using non-derivative instruments, of $3 million and $14 million for the three and six months ended June 30, 2021, respectively, and $0 million for both the three and six months ended June 30, 2020.

 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
 $0
Currency1
 0
 0
 0
 0
 0
 0
Total gains (losses) on derivatives designated as hedge instruments(14) (4) 0
 0
 168
 131
 0
Gains (losses) on the hedged item:             
Interest Rate11
 11
 0
 0
 (164) (119) 0
Currency0
 2
 0
 0
 0
 0
 0
Total gains (losses) on hedged item11
 13
 0
 0
 (164) (119) 0
Total gains (losses) on fair value hedges net of hedged item(3) 9
 0
 0
 4
 12
 0
Cash flow hedges             
Interest Rate(1) 0
 0
 0
 0
 0
 22
Currency2
 0
 0
 0
 0
 0
 5
Currency/Interest Rate40
 137
 (6) 0
 0
 0
 170
Total gains (losses) on cash flow hedges41
 137
 (6) 0
 0
 0
 197
Net investment hedges             
Currency0
 0
 0
 0
 0
 0
 2
Currency/Interest Rate0
 0
 0
 0
 0
 0
 0
Total gains (losses) on net investment hedges0
 0
 0
 0
 0
 0
 2
Derivatives Not Qualifying as Hedge Accounting Instruments:             
Interest Rate3,734
 0
 0
 0
 0
 0
 0
Currency84
 0
 0
 0
 0
 0
 0
Currency/Interest Rate204
 0
 0
 0
 0
 0
 0
Credit104
 0
 0
 0
 0
 0
 0
Equity(2,427) 0
 0
 0
 0
 0
 0
Other0
 0
 0
 0
 0
 0
 0
Embedded Derivatives(3,180) 0
 0
 0
 0
 0
 0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments(1,481) 0
 0
 0
 0
 0
 0
Total$(1,443) $146
 $(6) $0
 $4
 $12
 $199
_________
(1)Net change in AOCI.


 

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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)
Balance, December 31, 2020$(168)
Amount recorded in AOCI:
    Interest Rate(17)
    Currency(5)
    Currency/Interest Rate667 
Total amount recorded in AOCI645 
Amount reclassified from AOCI to income:
    Interest Rate(14)
    Currency3 
    Currency/Interest Rate(205)
Total amount reclassified from AOCI to income(216)
Balance, June 30, 2021$261 
 (in millions)
Balance, December 31, 2019$832
Amount recorded in AOCI 
    Interest Rate52
    Currency95
    Currency/Interest Rate1,951
Total amount recorded in AOCI2,098
Amount reclassified from AOCI to income 
    Interest Rate(8)
    Currency(4)
    Currency/Interest Rate(420)
Total amount reclassified from AOCI to income(432)
Balance, June 30, 2020$2,498


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, 20202021 values, it is estimated that a pre-tax gain of approximately $328$235 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending June 30, 2021.2022.

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 10 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 net investment hedges, in addition to derivatives, the Company uses foreign currency denominated debt to hedge the risk of change in the net investment in a foreign subsidiary due to changes in exchange rates. For effective net investment hedges, the amounts, before applicable taxes, recorded in the cumulative translation adjustment within AOCI were $546$1 million and $536 million as offor the six months ended June 30, 20202021 and December 31, 2019, respectively.$9 million for the six months ended June 30, 2020.


Credit Derivatives
 
The following table provides a summary of the notional and fair value of written credit protection. The Company’s maximum amount at risk under these credit derivatives, assuming the value of the underlying referenced securities become worthless, is equal to the notional amounts. These credit derivatives have maturities of less than 1 year and less than 2726 years for single name and index references, respectively.Index Reference.

June 30, 2021
NAIC Rating Designation of Underlying Credit Obligation(1)
NAIC 1NAIC 2NAIC 3NAIC 4NAIC 5NAIC 6Total
Gross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair Value
(in millions)
Single name reference(2)$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 
Index reference(2)49 0 0 0 3,342 76 0 0 0 0 530 55 3,921 131 
Total$49 $0 $0 $0 $3,342 $76 $0 $0 $0 $0 $530 $55 $3,921 $131 
36
 June 30, 2020
 NAIC Rating Designation of Underlying Credit Obligation(1)
 NAIC 1NAIC 2NAIC 3NAIC 4NAIC 5NAIC 6Total
 Gross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair 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


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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

December 31, 2019December 31, 2020
NAIC Rating Designation of Underlying Credit Obligation(1)NAIC Rating Designation of Underlying Credit Obligation(1)
NAIC 1NAIC 2NAIC 3NAIC 4NAIC 5NAIC 6TotalNAIC 1NAIC 2NAIC 3NAIC 4NAIC 5NAIC 6Total
Gross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair ValueGross NotionalFair Value
(in millions)(in millions)
Single name reference(2)$36
$0
$60
$1
$4
$0
$0
$0
$0
$0
$0
$0
$100
$1
Single name reference(2)$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 
Index reference(2)50
0
0
0
570
13
0
0
0
0
72
7
692
20
Index reference(2)50 0 0 0 3,003 63 0 0 0 0 0 0 3,053 63 
Total$86
$0
$60
$1
$574
$13
$0
$0
$0
$0
$72
$7
$792
$21
Total$50 $0 $0 $0 $3,003 $63 $0 $0 $0 $0 $0 $0 $3,053 $63 
_________
(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.
(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, 20202021 and December 31, 2019,2020, the Company had $440$0 million and $6$307 million of outstanding notional amounts and reported at fair value as a liability of $10$0 million and $0$28 million, respectively. 

Counterparty Credit Risk

The Company is exposed to 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-counterover-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, 2020,2021, there were no net liability derivative positions with counterparties with credit risk-related contingent features. All derivatives have been appropriately collateralized by the Company or the counterparty in accordance with the terms of the derivative agreements.

37
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
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.

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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, 2019.

2020.

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.

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of June 30, 2020 As of June 30, 2021
Level 1 Level 2 Level 3 Netting(1) Total Level 1Level 2Level 3Netting(1)Total
(in millions) (in millions)
Fixed maturities, available-for-sale:         Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$0
 $42,899
 $122
 $ $43,021
U.S. Treasury securities and obligations of U.S. government authorities and agencies$0 $29,902 $150 $$30,052 
Obligations of U.S. states and their political subdivisions0
 12,394
 4
   12,398
Obligations of U.S. states and their political subdivisions012,355912,364
Foreign government bonds0
 116,749
 21
   116,770
Foreign government bonds098,4351098,445
U.S. corporate public securities0
 106,181
 436
   106,617
U.S. corporate public securities0110,147110110,257
U.S. corporate private securities(2)0
 36,305
 1,854
   38,159
U.S. corporate private securities(2)037,8792,22140,100
Foreign corporate public securities0
 29,033
 85
   29,118
Foreign corporate public securities028,54912928,678
Foreign corporate private securities0
 25,794
 2,529
   28,323
Foreign corporate private securities028,6893,06831,757
Asset-backed securities(3)0
 13,246
 690
   13,936
Asset-backed securities(3)013,04556813,613
Commercial mortgage-backed securities0
 16,262
 0
   16,262
Commercial mortgage-backed securities014,647014,647
Residential mortgage-backed securities0
 3,229
 111
   3,340
Residential mortgage-backed securities02,7623063,068
Subtotal0
 402,092
 5,852
   407,944
Subtotal0376,4106,571382,981
Assets supporting experience-rated contractholder liabilities:         Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies0
 208
 0
   208
U.S. Treasury securities and obligations of U.S. government authorities and agencies03770377
Obligations of U.S. states and their political subdivisions0
 229
 0
   229
Obligations of U.S. states and their political subdivisions02210221
Foreign government bonds0
 784
 24
   808
Foreign government bonds0999171,016
Corporate securities0
 13,566
 624
   14,190
Corporate securities015,13354915,682
Asset-backed securities(3)0
 1,673
 99
   1,772
Asset-backed securities(3)01,7221141,836
Commercial mortgage-backed securities0
 1,921
 0
   1,921
Commercial mortgage-backed securities01,66201,662
Residential mortgage-backed securities0
 1,200
 0
   1,200
Residential mortgage-backed securities08200820
Equity securities1,444
 239
 0
   1,683
Equity securities1,0601,40402,464
All other(4)360
 548
 7
   915
All other(4)454070452
Subtotal1,804
 20,368
 754
��  22,926
Subtotal1,10522,74568024,530
Fixed maturities, trading0
 3,697
 236
   3,933
Fixed maturities, trading06,2982696,567
Equity securities5,249
 1,030
 594
   6,873
Equity securities5,8211,3227157,858
Commercial mortgage and other loans0
 682
 0
   682
Commercial mortgage and other loans03040304
Other invested assets(5)69
 30,693
 658
 (29,119) 2,301
Other invested assets(5)22216,737393(14,134)3,218
Short-term investments2,685
 6,247
 44
   8,976
Short-term investments3074,4034455,155
Cash equivalents4,653
 5,439
 1
   10,093
Cash equivalents2,0574,99717,055
Other assets0
 0
 377
   377
Other assets00190190
Separate account assets(6)(7)47,429
 228,772
 1,684
   277,885
Separate account assets(6)(7)59,368255,5391,476316,383
Total assets$61,889
 $699,020
 $10,200
 $(29,119) $741,990
Total assets$68,880 $688,755 $10,740 $(14,134)$754,241 
Future policy benefits(8)$0
 $0
 $26,439
 $ $26,439
Future policy benefits(8)$0 $0 $13,579 $$13,579 
Policyholders’ account balances0
 0
 1,441
   1,441
Policyholders’ account balances002,6902,690
Other liabilities130
 13,163
 0
 (13,001) 292
Other liabilities2219,5640(18,441)1,145
Notes issued by consolidated VIEs0
 0
 741
   741
Notes issued by consolidated VIEs0000
Total liabilities$130
 $13,163
 $28,621
 $(13,001) $28,913
Total liabilities$22 $19,564 $16,269 $(18,441)$17,414 
 

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of December 31, 2019 As of December 31, 2020
Level 1 Level 2 Level 3 Netting(1) Total Level 1Level 2Level 3Netting(1)Total
(in millions) (in millions)
Fixed maturities, available-for-sale:         Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$0
 $35,554
 $105
 $ $35,659
U.S. Treasury securities and obligations of U.S. government authorities and agencies$0 $40,298 $150 $$40,448 
Obligations of U.S. states and their political subdivisions0
 11,493
 4
   11,497
Obligations of U.S. states and their political subdivisions0 12,807 4 12,811 
Foreign government bonds0
 119,032
 22
   119,054
Foreign government bonds0 110,233 11 110,244 
U.S. corporate public securities0
 97,959
 380
   98,339
U.S. corporate public securities0 113,486 69 113,555 
U.S. corporate private securities(2)0
 34,749
 1,784
   36,533
U.S. corporate private securities(2)0 38,689 2,248 40,937 
Foreign corporate public securities0
 29,756
 69
   29,825
Foreign corporate public securities0 29,384 153 29,537 
Foreign corporate private securities0
 27,237
 1,003
   28,240
Foreign corporate private securities0 28,727 2,865 31,592 
Asset-backed securities(3)0
 12,238
 936
   13,174
Asset-backed securities(3)0 14,068 523 14,591 
Commercial mortgage-backed securities0
 15,574
 0
   15,574
Commercial mortgage-backed securities0 16,294 9 16,303 
Residential mortgage-backed securities0
 3,189
 12
   3,201
Residential mortgage-backed securities0 2,876 11 2,887 
Subtotal0
 386,781
 4,315
   391,096
Subtotal0 406,862 6,043 412,905 
Assets supporting experience-rated contractholder liabilities:         Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies0
 185
 0
   185
U.S. Treasury securities and obligations of U.S. government authorities and agencies0 212 0 212 
Obligations of U.S. states and their political subdivisions0
 212
 0
   212
Obligations of U.S. states and their political subdivisions0 231 0 231 
Foreign government bonds0
 790
 24
   814
Foreign government bonds0 926 19 945 
Corporate securities0
 12,966
 637
   13,603
Corporate securities0 14,990 482 15,472 
Asset-backed securities(3)0
 1,593
 69
   1,662
Asset-backed securities(3)0 1,583 114 1,697 
Commercial mortgage-backed securities0
 1,896
 0
   1,896
Commercial mortgage-backed securities0 1,839 0 1,839 
Residential mortgage-backed securities0
 1,158
 0
   1,158
Residential mortgage-backed securities0 1,018 0 1,018 
Equity securities1,505
 285
 0
   1,790
Equity securities1,784 259 0 2,043 
All other(4)0
 261
 0
   261
All other(4)50 549 20 619 
Subtotal1,505
 19,346
 730
   21,581
Subtotal1,834 21,607 635 24,076 
Fixed maturities, trading0
 3,597
 287
   3,884
Fixed maturities, trading0 3,671 243 3,914 
Equity securities5,813
 939
 633
   7,385
Equity securities6,207 1,131 660 7,998 
Commercial mortgage and other loans0
 228
 0
   228
Commercial mortgage and other loans0 1,092 0 1,092 
Other invested assets(5)6
 14,379
 567
 (13,519) 1,433
Other invested assets(5)227 23,045 366 (21,367)2,271 
Short-term investments1,806
 1,975
 155
   3,936
Short-term investments405 5,728 177 6,310 
Cash equivalents2,079
 6,796
 131
   9,006
Cash equivalents1,476 4,005 1 5,482 
Other assets0
 0
 113
   113
Other assets0 0 268 268 
Separate account assets(6)(7)46,574
 240,433
 1,717
   288,724
Separate account assets(6)(7)51,826 250,623 1,821 304,270 
Total assets$57,783
 $674,474
 $8,648
 $(13,519) $727,386
Total assets$61,975 $717,764 $10,214 $(21,367)$768,586 
Future policy benefits(8)$0
 $0
 $12,831
 $ $12,831
Future policy benefits(8)$0 $0 $18,879 $$18,879 
Policyholders’ account balances0
 0
 1,316
   1,316
Policyholders’ account balances0 0 1,914 1,914 
Other liabilities41
 7,495
 105
 (6,705) 936
Other liabilities3217,828 0 (17,475)385
Notes issued by consolidated VIEs0
 0
 800
   800
Notes issued by consolidated VIEs0 0 0 0 
Total liabilities$41
 $7,495
 $15,052
 $(6,705) $15,883
Total liabilities$32 $17,828 $20,793 $(17,475)$21,178 
__________
(1)“Netting” amounts represent cash collateral of $16,118 million and $6,814 million as of June 30, 2020 and December 31, 2019, respectively.
(2)Excludes notes with fair value of $6,466 million (carrying amount of $6,466 million) and $4,757 million (carrying amount of $4,751 million) as of June 30, 2020 and December 31, 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.
(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, 2020 and December 31, 2019, the fair values of such investments were $3,979 million and $4,213 million respectively.

(1)“Netting” amounts represent cash collateral of $(4,307) and $3,892 million as of June 30, 2021 and December 31, 2020, respectively.
(2)Excludes notes with fair value of $5,674 million (carrying amount of $5,616 million) and $6,100 million (carrying amount of $5,966 million) as of June 30, 2021 and December 31, 2020, 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.
43
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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, 2021 and December 31, 2020, the fair values of such investments were $4,449 and $4,136 million respectively.
(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, 2021 and December 31, 2020, the fair value of such investments was $24,309 and $23,007 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, 2021, the net embedded derivative liability position of $13.6 billion includes $0.7 billion of embedded derivatives in an asset position and $14.3 billion of embedded derivatives in a liability position. As of December 31, 2020, the net embedded derivative liability position of $18.9 billion includes $0.5 billion of embedded derivatives in an asset position and $19.4 billion of embedded derivatives in a liability position.

(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, 2020 and December 31, 2019, the fair value of such investments was $23,117 million and $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, 2020, the net embedded derivative liability position of $26.4 billion includes $0.3 billion of embedded derivatives in an asset position and $26.7 billion of embedded derivatives in a liability position. As of December 31, 2019, the net embedded derivative liability position of $12.8 billion includes $0.7 billion of embedded derivatives in an asset position and $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, 2020
  
Fair Value 
Valuation
Techniques
 Unobservable Inputs Minimum Maximum 
Weighted
Average
 
Impact of
Increase in
Input on
Fair
Value(1)
 (in millions)            
Assets:             
Corporate securities(2)$3,382
 
Discounted 
cash flow(4)
 Discount rate 0.56% 30% 5.31% Decrease
   Market comparables EBITDA multiples(3) 6.5X 15.0X 9.3X Increase
   Liquidation Liquidation value 14.98% 92.79% 67.50% Increase
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(6)$26,439
 
Discounted
cash flow
 Lapse rate(8) 1% 20%   Decrease
     Spread over LIBOR(9) 0.17% 1.69%   Decrease
     Utilization rate(10) 39% 96%   Increase
     Withdrawal rate See table footnote (11) below.
     Mortality rate(12) 0% 15%   Decrease
     Equity volatility curve 18% 29%   Increase
Policyholders’ account balances(7)$1,441
 
Discounted
cash flow
 Lapse rate(8) 1% 42%   Decrease
     Spread over LIBOR(9) 0.17% 1.69%   Decrease
     Mortality rate(12) 0% 24%   Decrease
     Equity volatility curve 6% 38%   Increase
 As of June 30, 2021

Fair ValueValuation
Techniques		Unobservable InputsMinimumMaximumWeighted
Average		Impact of
Increase in
Input on
Fair
Value(1)
 (in millions)
Assets:
Corporate securities(2)(3)$4,740 Discounted
cash flow(5)		Discount rate0.37%20%4.58%Decrease
Market comparablesEBITDA multiples(4)3.8X15.6X9.4XIncrease
  LiquidationLiquidation value14.27%43.76%33.75%Increase
Equity securities$256 Discounted
cash flow(5)		Discount rate0.5%20%Decrease
Market comparablesEBITDA multiples(4)1.0X10.7X1.3XIncrease
Net Asset ValueShare price$0$1,498$506Increase
Separate account assets-commercial mortgage loans(6)$162 Discounted
cash flow		Spread0.90%1.94%1.03%Decrease
Liabilities:
Future policy benefits(7)$13,579 Discounted
cash flow		Lapse rate(9)1%20%Decrease
Spread over LIBOR(10)0.05%1.12%Decrease
Utilization rate(11)39%96%Increase
Withdrawal rateSee table footnote (12) below.
Mortality rate(13)0%15%Decrease
   Equity volatility curve16%25% Increase
Policyholders’ account balances(8)$2,690 Discounted
cash flow		Lapse rate(9)1%42%Decrease
Spread over LIBOR(10)0.05%1.12%Decrease
Mortality rate(13)0%23%Decrease
Equity volatility curve6%30%Increase
 

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

 As of December 31, 2019
  
Fair Value 
Valuation
Techniques
 Unobservable Inputs Minimum Maximum 
Weighted
Average
 
Impact of
Increase in
Input on
Fair
Value(1)
 (in millions)            
Assets:             
Corporate securities(2)$1,424
 
Discounted 
cash flow(4)
 Discount rate 0.49% 20% 7.41% Decrease
   Market comparables EBITDA multiples(3) 5.7X
9.2X 7.3X Increase
   Liquidation Liquidation value 14.25% 83.61% 59.47% Increase
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(6)$12,831
 
Discounted
cash flow
 Lapse rate(8) 1% 18%   Decrease
     Spread over LIBOR(9) 0.10% 1.23%   Decrease
     Utilization rate(10) 43% 97%   Increase
     Withdrawal rate See table footnote (11) below.
     Mortality rate(12) 0% 15%   Decrease
     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
 As of December 31, 2020

Fair ValueValuation
Techniques		Unobservable InputsMinimumMaximumWeighted
Average		Impact of
Increase in
Input on
Fair
Value(1)
 (in millions)
Assets:
Corporate securities(2)(3)$3,697 Discounted 
cash flow(5)		Discount rate0.40%25%4.28%Decrease
Market comparablesEBITDA multiples(4)7.0X15.0X9.0XIncrease
  LiquidationLiquidation value12.13%15.00%13.02%Increase
Equity securities$195 Discounted 
cash flow(5)		Discount rate0.5%20%Decrease
Market comparablesEBITDA multiples(4)1X8.8X3.3XIncrease
Net Asset ValueShare price$1$1,414$495Increase
Separate account assets-commercial mortgage loans(6)$775 Discounted
cash flow		Spread1.60%2.98%1.80%Decrease
Liabilities:
Future policy benefits(7)$18,879 Discounted
cash flow		Lapse rate(9)1%20%Decrease
Spread over LIBOR(10)0.06%1.17%Decrease
Utilization rate(11)39%96%Increase
Withdrawal rateSee table footnote (12) below.
Mortality rate(13)0%15%Decrease
   Equity volatility curve18%26% Increase
Policyholders’ account balances(8)$1,914 Discounted
cash flow		Lapse rate(9)1%42%Decrease
Spread over LIBOR(10)0.06%1.17%Decrease
Mortality rate(13)0%24%Decrease
Equity volatility curve6%42%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.
(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.
(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.

(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)Excludes notes which have been offset with the associated payables under a netting agreement.
(4)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.
(5)For these investments, a range of discount rates is typically used (10% to 20%) and is therefore a more meaningful representation of the unobservable inputs used in the valuation rather than weighted average.
(6)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.
(7)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.
(8)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.
45
42
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
(9)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.
(10)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.
(11)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.
(12)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, 2021 and December 31, 2020, the minimum withdrawal rate assumption is 76% and the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.
(13)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.

(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.
(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.
(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.
(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, 2020 and December 31, 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%.
(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. Examples of such interrelationships for significant internally-priced Level 3 assets and liabilities 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 extent that increases in equity volatility are correlated with overall declines in the 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. Transfers into Level 3 are generally the 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 Company can validate.

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Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Three Months Ended June 30, 2021
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)Transfers into
Level 3		Transfers out of Level 3Fair Value, end of periodUnrealized gains (losses) for assets still held(2)
(in millions)
Fixed maturities, available-for-sale:
U.S. government$150 $0 $0 $0 $0 $0 $0 $0 $0 $150 $0 
U.S. states40000050090
Foreign government110000(1)000100
Corporate securities(3)5,277183444(21)20(317)(1)70(127)5,528159
Structured securities(4)83010557(1)0(106)20(418)8740
Assets supporting experience-rated contractholder liabilities:
Foreign government190000(2)000170
Corporate securities(3)53815200(9)03054913
Structured securities(4)219(1)3600(11)00(129)114(1)
Equity securities00000000000
All other activity200000(20)00000
Other assets:
Fixed maturities, trading2421122(6)0020(2)26911
Equity securities7281933(59)0(6)(1)36(35)71516
Other invested assets378524(14)000003934
Short-term investments396119700(153)(1)504450
Cash equivalents4(1)1000(3)001(1)
Other assets144361200(2)00019033
Separate account assets(5)1,30616581(14)0(6)08(64)1,476141
Liabilities:
Future policy benefits(11,314)(1,946)00(331)01200(13,579)(1,939)
Policyholders’ account balances(6)(2,171)(413)00(106)0000(2,690)(363)
Other liabilities00000000000
Notes issued by consolidated VIEs00000000000

 Three Months Ended June 30, 2021
Total realized and unrealized gains (losses)Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)
(in millions)
Fixed maturities, available-for-sale$57 $0 $0 $136 $0 $38 $0 $0 $121 
Assets supporting experience-rated contractholder liabilities01200201200
Other assets:
Fixed maturities, trading01100001100
Equity securities01900001600
Other invested assets410002200
Short-term investments100000000
Cash equivalents(1)0000(1)000
Other assets36000033000
Separate account assets(5)0016500001410
Liabilities:
Future policy benefits(1,946)0000(1,939)000
Policyholders’ account balances(413)0000(363)000
Other liabilities000000000
Notes issued by consolidated VIEs000000000

44
 Three Months Ended June 30, 2020
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)
Transfers into
Level 3
Transfers out of Level 3Fair Value, end of periodUnrealized 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. states4
0
0
0
0
0
0
0
0
4
0
Foreign government21
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 government24
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 securities0
0
0
0
0
0
0
0
0
0
0
All other activity7
0
0
0
0
0
0
0
0
7
0
Other assets:           
Fixed maturities, trading249
(1)4
(26)0
0
10
0
0
236
(1)
Equity securities594
(14)19
(5)0
0
0
0
0
594
(16)
Other invested assets581
(4)54
0
4
(3)26
0
0
658
3
Short-term investments53
0
1
0
0
0
(10)0
0
44
0
Cash equivalents1
0
0
0
0
0
0
0
0
1
0
Other assets382
(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), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment income Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded 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 liabilities0
18
0
0
3
 0
19
0
0
Other assets:          
Fixed maturities, trading0
(2)0
0
1
 0
(1)0
0
Equity securities0
(14)0
0
0
 0
(16)0
0
Other invested assets0
(4)0
0
0
 7
(4)0
0
Short-term investments0
0
0
0
0
 0
0
0
0
Cash equivalents0
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 benefits1,820
0
0
0
0
 1,565
0
0
0
Policyholders’ account balances(134)0
0
0
0
 (127)0
0
0
Other liabilities0
47
0
0
0
 0
47
0
0
Notes issued by consolidated VIEs(1)59
0
0
0
 0
59
0
0

47
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Six Months Ended June 30, 2021
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)Transfers into
Level 3		Transfers out of Level 3Fair Value, end of periodUnrealized gains (losses) for assets still held(2)
(in millions)
Fixed maturities, available-for-sale:
U.S. government$150 $0 $0 $0 $0 $0 $0 $0 $0 $150 $0 
U.S. states40000050090
Foreign government110000(1)000100
Corporate securities(3)5,335(162)687(21)20(494)1289(127)5,528(203)
Structured securities(4)54329776(1)0(180)14311(618)87412
Assets supporting experience-rated contractholder liabilities:
Foreign government190000(2)000170
Corporate securities(3)48281600(28)0710549(1)
Structured securities(4)114(4)17300(22)00(147)114(4)
Equity securities00000000000
All other activity200000(20)00000
Other assets:
Fixed maturities, trading2431123(8)0020(2)26911
Equity securities6605791(62)0(9)(23)36(35)71551
Other invested assets3661724(14)0000039317
Short-term investments177045300(163)(27)50445(1)
Cash equivalents1(1)4000(3)001(1)
Other assets268(97)2400(5)000190(100)
Separate account assets(5)1,821208149(27)0(12)(615)30(78)1,476215
Liabilities:
Future policy benefits(18,879)5,95000(662)01200(13,579)5,530
Policyholders’ account balances(6)(1,914)(548)00(228)0000(2,690)(462)
Other liabilities00000000000
Notes issued by consolidated VIEs00000000000

 Six Months Ended June 30, 2021
Total realized and unrealized gains (losses)Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)
(in millions)
Fixed maturities, available-for-sale$29 $0 $0 $(164)$2 $(2)$0 $0 $(189)
Assets supporting experience-rated contractholder liabilities000040(5)00
Other assets:
Fixed maturities, trading01100001100
Equity securities05700005100
Other invested assets15200015200
Short-term investments00000(1)000
Cash equivalents(1)0000(1)000
Other assets(97)0000(100)000
Separate account assets(5)0020800002150
Liabilities:
Future policy benefits5,95000005,530000
Policyholders’ account balances(548)0000(462)000
Other liabilities000000000
Notes issued by consolidated VIEs000000000

45
 Six Months Ended June 30, 2020
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)
Transfers into
Level 3
Transfers out of Level 3Fair Value, end of periodUnrealized 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. states4
0
0
0
0
0
0
0
0
4
0
Foreign government22
(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 government24
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 securities0
0
0
0
0
0
0
0
0
0
0
All other activity0
0
7
0
0
0
0
0
0
7
0
Other assets:           
Fixed maturities, trading287
(16)22
(32)0
0
8
15
(48)236
(16)
Equity securities633
(58)28
(10)0
0
1
0
0
594
(60)
Other invested assets567
4
81
0
4
(4)6
0
0
658
5
Short-term investments155
2
44
0
0
(110)(47)0
0
44
0
Cash equivalents131
0
0
0
0
0
(130)0
0
1
0
Other assets113
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), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment income Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded 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 liabilities0
(29)0
0
0
 0
(25)0
0
Other assets:          
Fixed maturities, trading0
(17)0
0
1
 0
(16)0
0
Equity securities0
(58)0
0
0
 0
(60)0
0
Other invested assets0
4
0
0
0
 1
4
0
0
Short-term investments2
0
0
0
0
 0
0
0
0
Cash equivalents0
0
0
0
0
 0
0
0
0
Other assets228
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 balances72
0
0
0
0
 63
0
0
0
Other liabilities0
105
0
0
0
 0
104
0
0
Notes issued by consolidated VIEs0
59
0
0
0
 0
59
0
0

48
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

 Three Months Ended June 30, 2020
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)Transfers into
Level 3		Transfers out of Level 3Fair Value, end of periodUnrealized 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. states4 0 0 0 0 0 0 0 0 4 0 
Foreign government21 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 government24 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 securities0 0 0 0 0 0 0 0 0 0 0 
All other activity7 0 0 0 0 0 0 0 0 7 0 
Other assets:
Fixed maturities, trading249 (1)4 (26)0 0 10 0 0 236 (1)
Equity securities594 (14)19 (5)0 0 0 0 0 594 (16)
Other invested assets581 (4)54 0 4 (3)26 0 0 658 3 
Short-term investments53 0 1 0 0 0 (10)0 0 44 0 
Cash equivalents1 0 0 0 0 0 0 0 0 1 0 
Other assets382 (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), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)
(in millions)
Fixed maturities, available-for-sale$(88)$0 $0 $407 $3 $(80)$0 $0 $406 
Assets supporting experience-rated contractholder liabilities0 18 0 0 3 0 19 0 0 
Other assets:
Fixed maturities, trading0 (2)0 0 1 0 (1)0 0 
Equity securities0 (14)0 0 0 0 (16)0 0 
Other invested assets0 (4)0 0 0 7 (4)0 0 
Short-term investments0 0 0 0 0 0 0 0 0 
Cash equivalents0 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 benefits1,820 0 0 0 0 1,565 0 0 0 
Policyholders’ account balances(134)0 0 0 0 (127)0 0 0 
Other liabilities0 47 0 0 0 0 47 0 0 
Notes issued by consolidated VIEs(1)59 0 0 0 0 59 0 0 

46
 Three Months Ended June 30, 2019
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)
Transfers into
Level 3
Transfers out of Level 3Fair Value, end of periodUnrealized 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. states4
0
0
0
0
0
0
0
0
4
0
Foreign government138
(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 government29
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 securities1
1
0
(1)0
0
0
0
0
1
0
All other activity0
0
3
0
0
(2)0
0
0
1
0
Other assets:           
Fixed maturities, trading240
(7)36
(13)0
0
1
39
0
296
(7)
Equity securities674
16
23
(13)0
(59)6
1
(24)624
15
Other invested assets373
0
61
0
0
0
2
0
0
436
0
Short-term investments168
0
273
0
0
(153)0
0
0
288
0
Cash equivalents1
0
0
0
0
0
0
0
0
1
0
Other assets48
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 liabilities0
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
 Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
 Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment income Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balances
 (in millions)
Fixed maturities, available-for-sale$(11)$0
$0
$18
$6
 $(5)$0
$0
Assets supporting experience-rated contractholder liabilities0
6
0
0
1
 0
12
0
Other assets:         
Fixed maturities, trading0
(8)0
0
1
 0
(7)0
Equity securities0
16
0
0
0
 0
15
0
Other invested assets0
0
0
0
0
 0
0
0
Short-term investments0
0
0
0
0
 0
0
0
Cash equivalents0
0
0
0
0
 0
0
0
Other assets42
0
0
0
0
 41
0
0
Separate account assets(5)0
0
43
0
1
 0
0
41
Liabilities:         
Future policy benefits(2,400)0
0
0
0
 (2,503)0
0
Policyholders’ account balances(828)0
0
0
0
 (821)0
0
Other liabilities0
0
0
0
0
 0
0
0
Notes issued by consolidated VIEs1
0
0
0
0
 1
0
0

49
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

 Six Months Ended June 30, 2020
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)Transfers into
Level 3		Transfers out of Level 3Fair Value, end of periodUnrealized 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. states4 0 0 0 0 0 0 0 0 4 0 
Foreign government22 (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 government24 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 securities0 0 0 0 0 0 0 0 0 0 0 
All other activity0 0 7 0 0 0 0 0 0 7 0 
Other assets:
Fixed maturities, trading287 (16)22 (32)0 0 8 15 (48)236 (16)
Equity securities633 (58)28 (10)0 0 1 0 0 594 (60)
Other invested assets567 4 81 0 4 (4)6 0 0 658 5 
Short-term investments155 2 44 0 0 (110)(47)0 0 44 0 
Cash equivalents131 0 0 0 0 0 (130)0 0 1 0 
Other assets113 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), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (losses)
(in millions)
Fixed maturities, available-for-sale$(115)$0 $0 $(76)$5 $(106)$0 $0 $(74)
Assets supporting experience-rated contractholder liabilities0 (29)0 0 0 0 (25)0 0 
Other assets:
Fixed maturities, trading0 (17)0 0 1 0 (16)0 0 
Equity securities0 (58)0 0 0 0 (60)0 0 
Other invested assets0 4 0 0 0 1 4 0 0 
Short-term investments2 0 0 0 0 0 0 0 0 
Cash equivalents0 0 0 0 0 0 0 0 0 
Other assets228 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 balances72 0 0 0 0 63 0 0 0 
Other liabilities0 105 0 0 0 0 104 0 0 
Notes issued by consolidated VIEs0 59 0 0 0 0 59 0 0 
47
 Six Months Ended June 30, 2019
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOther(1)
Transfers into
Level 3
Transfers out of Level 3Fair Value, end of periodUnrealized 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. states5
0
0
0
0
(1)0
0
0
4
0
Foreign government125
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 government225
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 securities1
1
0
(1)0
0
0
0
0
1
1
All other activity0
0
3
0
0
(2)0
0
0
1
0
Other assets:           
Fixed maturities, trading206
(11)74
(14)0
0
3
39
(1)296
(7)
Equity securities671
24
46
(24)0
(74)4
1
(24)624
22
Other invested assets263
(1)218
0
0
(42)(2)0
0
436
(1)
Short-term investments89
0
426
0
0
(227)0
0
0
288
0
Cash equivalents77
0
1
0
0
(77)0
0
0
1
0
Other assets25
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 liabilities0
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
 Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
 Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balancesIncluded in other comprehensive income (loss)Net investment income Realized investment gains (losses), netOther income (loss)Interest credited to policyholders’ account balances
 (in millions)
Fixed maturities, available-for-sale$(13)$0
$0
$40
$10
 $(26)$0
$0
Assets supporting experience-rated contractholder liabilities0
9
0
0
3
 0
8
0
Other assets:         
Fixed maturities, trading0
(12)0
0
1
 0
(7)0
Equity securities0
24
0
0
0
 0
22
0
Other invested assets(1)0
0
0
0
 (1)0
0
Short-term investments0
0
0
0
0
 0
0
0
Cash equivalents0
0
0
0
0
 0
0
0
Other assets56
0
0
0
0
 55
0
0
Separate account assets(5)0
0
123
0
2
 0
0
115
Liabilities:         
Future policy benefits(3,210)0
0
0
0
 (3,364)0
0
Policyholders’ account balances(879)0
0
0
0
 (872)0
0
Other liabilities0
0
0
0
0
 0
0
0
Notes issued by consolidated VIEs(1)0
0
0
0
 (1)0
0

50
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

__________
__________
(1)“Other,” for the periods ended June 30, 2020 and June 30, 2019, primarily represent deconsolidation of VIE,(1)“Other,” for the periods ended June 30, 2021 and June 30, 2020, primarily represents the deconsolidation of VIEs, 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)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.
(6)Issuances and settlements for Policyholders’ account balances are presented net in the rollforward.
(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 adoption of ASU 2018-13. Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

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

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, 2020
 Level 1 Level 2 Level 3 Netting(1) Total
 (in millions)
Derivative Assets:   
Interest Rate$6
 $25,383
 $1
 $ $25,390
Currency0
 381
 0
   381
Credit0
 20
 0
   20
Currency/Interest Rate0
 4,292
 0
   4,292
Equity63
 617
 0
   680
Other0
 0
 0
   0
Netting(1)      (29,119) (29,119)
Total derivative assets$69
 $30,693
 $1
 $(29,119) $1,644
Derivative Liabilities:         
Interest Rate$44
 $11,524
 $0
 $ $11,568
Currency0
 247
 0
   247
Credit0
 17
 0
   17
Currency/Interest Rate0
 396
 0
   396
Equity84
 1,373
 0
   1,457
Other0
 0
 0
   0
Netting(1)      (13,001) (13,001)
Total derivative liabilities$128
 $13,557
 $0
 $(13,001) $684


 As of June 30, 2021
 Level 1Level 2Level 3Netting(1)Total
 (in millions)
Derivative Assets:
Interest Rate$62 $13,300 $1 $$13,363 
Currency0 909 0 909 
Credit0 131 0 131 
Currency/Interest Rate0 1,515 0 1,515 
Equity132 911 0 1,043 
Other0 0 0 0 
Netting(1)(14,134)(14,134)
Total derivative assets$194 $16,766 $1 $(14,134)$2,827 
Derivative Liabilities:
Interest Rate$6 $16,090 $0 $$16,096 
Currency0 1,162 0 1,162 
Credit0 0 0 0 
Currency/Interest Rate0 944 0 944 
Equity11 1,784 0 1,795 
Other0 0 0 0 
Netting(1)(18,441)(18,441)
Total derivative liabilities$17 $19,980 $0 $(18,441)$1,556 
51
48
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of December 31, 2019 As of December 31, 2020
Level 1 Level 2 Level 3 Netting(1) Total Level 1Level 2Level 3Netting(1)Total
(in millions) (in millions)
Derivative Assets:   Derivative Assets:
Interest Rate$4
 $11,238
 $1
 $ $11,243
Interest Rate$99 $19,091 $0 $$19,190 
Currency0
 230
 0
   230
Currency0 832 0 832 
Credit0
 21
 0
   21
Credit0 63 0 63 
Currency/Interest Rate0
 2,207
 0
   2,207
Currency/Interest Rate0 1,415 0 1,415 
Equity2
 683
 0
   685
Equity128 1,645 0 1,773 
Other0
 0
 0
   0
Other0 0 0 0 
Netting(1)

 

 

 (13,519) (13,519)Netting(1)(21,367)(21,367)
Total derivative assets$6
 $14,379
 $1
 $(13,519) $867
Total derivative assets$227 $23,046 $0 $(21,367)$1,906 
Derivative Liabilities:         Derivative Liabilities:
Interest Rate$38
 $5,176
 $0
 $ $5,214
Interest Rate$5 $13,503 $0 $$13,508 
Currency0
 271
 0
   271
Currency0 763 0 763 
Credit0
 0
 0
   0
Credit0 28 0 28 
Currency/Interest Rate0
 647
 0
   647
Currency/Interest Rate0 1,638 0 1,638 
Equity3
 1,401
 0
   1,404
Equity25 2,305 0 2,330 
Other0
 0
 0
   0
Other0 0 0 0 
Netting(1)

 

 

 (6,705) (6,705)Netting(1)(17,475)(17,475)
Total derivative liabilities$41
 $7,495
 $0
 $(6,705) $831
Total derivative liabilities$30 $18,237 $0 $(17,475)$792 
__________ 
(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.
(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, 2021
Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate0 1 0 0 0 0 0 0 0 1 1

Six Months Ended June 30, 2021
Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate0 1 0 0 0 0 0 0 0 1 1

49
 Three Months Ended June 30, 2020
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate1
0
0
0
0
0
0
0
0
1
0

 Six Months Ended June 30, 2020
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate1
0
0
0
0
0
0
0
0
1
0


52
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Three Months Ended June 30, 2020
Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate1 0 0 0 0 0 0 0 0 1 0 

 Three Months Ended June 30, 2019
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate1
0
0
0
0
0
0
0
0
1
0

 Six Months Ended June 30, 2019
 Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate2
(1)0
0
0
0
0
0
0
1
(1)

Six Months Ended June 30, 2020
Fair Value, beginning of periodTotal realized and unrealized gains (losses)(1)PurchasesSalesIssuancesSettlementsOtherTransfers into
Level 3(2)		Transfers out of Level 3(2)Fair Value, end of periodUnrealized 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 Rate1 0 0 0 0 0 0 0 0 1 0 
______ 
(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.

(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.

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,
2021202020212020
(in millions)
Realized investment gains (losses) net:
Commercial mortgage loans(1)$0 $(3)$0 $(3)
Mortgage servicing rights(2)$(1)$(26)$(5)$(29)
Investment real estate$0 $0 $(9)$0 

June 30, 2021December 31, 2020
(in millions)
Carrying value after measurement as of period end:
Commercial mortgage loans(1)$0 $0 
Mortgage servicing rights(2)$279 $307 
Investment real estate$17 $31 
__________ 
(1)Commercial mortgage loans are valued based on discounted cash flows utilizing market rates or the fair value of the underlying real estate collateral.
(2)Mortgage servicing rights are valued using a discounted cash flow model. The model incorporates assumptions for servicing revenues, which are adjusted for expected prepayments, delinquency rates, escrow deposit income and estimated loan servicing expenses. The discount rates incorporated into the model are determined based on the estimated returns a market participant would require for this business including a liquidity and risk premium. This estimate includes available relevant data from any active market sales of mortgage servicing rights.
50
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
 (in millions)
Realized investment gains (losses) net:       
Commercial mortgage loans(1)$(3) $0
 $(3) $0
Mortgage servicing rights(2)$(26) $(1) $(29) $(2)

 June 30, 2020 December 31, 2019
 (in millions)
Carrying value after measurement as of period end:   
Commercial mortgage loans(1)$11
 $15
Mortgage servicing rights(2)$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.

53
Table of Contents
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 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,
 2020 2019 2020 2019
 (in millions)
Liabilities:       
Notes issued by consolidated VIEs:       
Changes in fair value$(59) $(1) $(59) $1

 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
 (in millions)
Liabilities:
Notes issued by consolidated VIEs:
Changes in fair value$0 $(59)$0 $(59)
Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 20192021202020212020
(in millions)(in millions)
Commercial mortgage and other loans:       Commercial mortgage and other loans:
Interest income$4
 $5
 $6
 $11
Interest income$2 $4 $5 $6 
Notes issued by consolidated VIEs:       Notes issued by consolidated VIEs:
Interest expense$11
 $13
 $22
 $22
Interest expense$0 $11 $0 $22 

June 30, 2020 December 31, 2019June 30, 2021December 31, 2020
(in millions)(in millions)
Commercial mortgage and other loans(1):   Commercial mortgage and other loans(1):
Fair value as of period end$682
 $228
Fair value as of period end$304 $1,092 
Aggregate contractual principal as of period end$670
 $224
Aggregate contractual principal as of period end$300 $1,073 
Other assets:   Other assets:
Fair value as of period end$10
 $10
Fair value as of period end$10 $10 
Notes issued by consolidated VIEs:   Notes issued by consolidated VIEs:
Fair value as of period end$741
 $800
Fair value as of period end$0 $0 
Aggregate contractual principal as of period end$857
 $857
Aggregate contractual principal as of period end$0 $0 
__________ 
(1)As of June 30, 2020, for loans for which the fair value option has been elected, there were 0 loans in non-accrual status and NaN of the loans were more than 90 days past due and still accruing.

(1)As of June 30, 2021, for loans for which the fair value option has been elected, there were 0 loans in non-accrual status and 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.

5451
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

June 30, 2020 June 30, 2021
Fair Value 
Carrying
Amount(1)
 Fair ValueCarrying
Amount(1)
Level 1 Level 2 Level 3 Total Total Level 1Level 2Level 3TotalTotal
(in millions) (in millions)
Assets:         Assets:
Fixed maturities, held-to-maturity(2)$0
 $2,146
 $85
 $2,231
 $1,875
Fixed maturities, held-to-maturity(2)$0 $1,904 $83 $1,987 $1,662 
Assets supporting experience-rated contractholder liabilities219
 100
 0
 319
 319
Assets supporting experience-rated contractholder liabilities66 0 0 66 66 
Commercial mortgage and other loans0
 108
 65,666
 65,774
 62,787
Commercial mortgage and other loans0 69 67,993 68,062 64,055 
Policy loans0
 0
 12,283
 12,283
 12,283
Policy loans0 0 10,652 10,652 10,652 
Other invested assets0
 200
 0
 200
 200
Other invested assets0 86 0 86 86 
Short-term investments2,351
 89
 0
 2,440
 2,440
Short-term investments1,142 28 0 1,170 1,170 
Cash and cash equivalents8,785
 2,271
 0
 11,056
 11,056
Cash and cash equivalents7,660 430 0 8,090 8,090 
Accrued investment income0
 3,296
 0
 3,296
 3,296
Accrued investment income0 3,037 0 3,037 3,037 
Other assets148
 2,548
 276
 2,972
 2,971
Other assets49 2,517 474 3,040 3,038 
Total assets$11,503
 $10,758
 $78,310
 $100,571
 $97,227
Total assets$8,917 $8,071 $79,202 $96,190 $91,856 
Liabilities:         Liabilities:
Policyholders’ account balances—investment contracts$0
 $37,374
 $71,832
 $109,206
 $106,501
Policyholders’ account balances—investment contracts$0 $33,951 $71,086 $105,037 $103,026 
Securities sold under agreements to repurchase0
 10,488
 0
 10,488
 10,488
Securities sold under agreements to repurchase0 9,557 0 9,557 9,557 
Cash collateral for loaned securities0
 3,447
 0
 3,447
 3,447
Cash collateral for loaned securities0 4,431 0 4,431 4,431 
Short-term debt0
 1,036
 102
 1,138
 1,130
Short-term debt0 772 143 915 909 
Long-term debt(3)1,900
 19,884
 1,206
 22,990
 20,162
Long-term debt(3)632 21,770 1,059 23,461 19,670 
Notes issued by consolidated VIEs0
 0
 456
 456
 456
Notes issued by consolidated VIEs0 0 284 284 284 
Other liabilities0
 7,546
 48
 7,594
 7,594
Other liabilities0 7,077 82 7,159 7,159 
Separate account liabilities—investment contracts0
 77,492
 23,687
 101,179
 101,179
Separate account liabilities—investment contracts0 95,598 23,585 119,183 119,183 
Total liabilities$1,900
 $157,267
 $97,331
 $256,498
 $250,957
Total liabilities$632 $173,156 $96,239 $270,027 $264,219 
 

5552
Table of Contents
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

December 31, 2019 December 31, 2020
Fair Value 
Carrying
Amount(1)
 Fair ValueCarrying
Amount(1)
Level 1 Level 2 Level 3 Total Total Level 1Level 2Level 3TotalTotal
(in millions) (in millions)
Assets:         Assets:
Fixed maturities, held-to-maturity(2)$0
 $2,217
 $85
 $2,302
 $1,933
Fixed maturities, held-to-maturity(2)$0 $2,209 $89 $2,298 $1,930 
Assets supporting experience-rated contractholder liabilities16
 0
 0
 16
 16
Assets supporting experience-rated contractholder liabilities39 0 0 39 39 
Commercial mortgage and other loans0
 107
 65,558
 65,665
 63,331
Commercial mortgage and other loans0 107 67,477 67,584 64,333 
Policy loans0
 0
 12,096
 12,096
 12,096
Policy loans0 0 11,271 11,271 11,271 
Other invested assets0
 36
 0
 36
 36
Other invested assets0 153 0 153 153 
Short-term investments1,492
 39
 0
 1,531
 1,531
Short-term investments1,464 26 0 1,490 1,490 
Cash and cash equivalents6,278
 1,043
 0
 7,321
 7,321
Cash and cash equivalents7,951 268 0 8,219 8,219 
Accrued investment income0
 3,330
 0
 3,330
 3,330
Accrued investment income0 3,193 0 3,193 3,193 
Other assets147
 2,526
 643
 3,316
 3,315
Other assets154 2,917 449 3,520 3,517 
Total assets$7,933
 $9,298
 $78,382
 $95,613
 $92,909
Total assets$9,608 $8,873 $79,286 $97,767 $94,145 
Liabilities:         Liabilities:
Policyholders’ account balances—investment contracts$0
 $32,940
 $69,216
 $102,156
 $101,241
Policyholders’ account balances—investment contracts$0 $36,820 $73,653 $110,473 $107,526 
Securities sold under agreements to repurchase0
 9,681
 0
 9,681
 9,681
Securities sold under agreements to repurchase0 10,894 0 10,894 10,894 
Cash collateral for loaned securities0
 4,213
 0
 4,213
 4,213
Cash collateral for loaned securities0 3,499 0 3,499 3,499 
Short-term debt0
 1,748
 205
 1,953
 1,933
Short-term debt0 794 146 940 925 
Long-term debt(3)1,950
 18,188
 1,186
 21,324
 18,646
Long-term debt(3)644 21,685 1,139 23,468 19,718 
Notes issued by consolidated VIEs0
 0
 474
 474
 474
Notes issued by consolidated VIEs0 0 305 305 305 
Other liabilities0
 6,403
 579
 6,982
 6,982
Other liabilities0 7,626 48 7,674 7,674 
Separate account liabilities—investment contracts0
 77,134
 24,407
 101,541
 101,541
Separate account liabilities—investment contracts0 86,046 23,631 109,677 109,677 
Total liabilities$1,950
 $150,307
 $96,067
 $248,324
 $244,711
Total liabilities$644 $167,364 $98,922 $266,930 $260,218 
__________ 
(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 $5,603 million (carrying amount of $4,998 million) and $5,401 million (carrying amount of $4,998 million) as of June 30, 2020 and December 31, 2019, respectively, which have been offset with the associated payables under a netting agreement.
(3)Includes notes with fair value of $12,069 million (carrying amount of $11,464 million) and $10,158 million (carrying amount of $9,749 million) as of June 30, 2020 and December 31, 2019, respectively, which have been offset with the associated receivables under a netting agreement.

(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 $5,427 million (carrying amount of $4,748 million) and $5,821 million (carrying amount of $4,998 million) as of June 30, 2021 and December 31, 2020, respectively, which have been offset with the associated payables under a netting agreement.
(3)Includes notes with fair value of $11,102 million (carrying amount of $10,364 million) and $11,921 million (carrying amount of $10,964 million) as of June 30, 2021 and December 31, 2020, respectively, which have been offset with the associated receivables under a netting agreement.

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 additional information on the Closed Block, see Note 15 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.2020.
 
As of June 30, 20202021 and December 31, 2019,2020, the Company recognized a policyholder dividend obligation of $2,450$3,649 million and $2,816$2,920 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 $5,305$4,160 million and $3,332$5,867 million at June 30, 20202021 and December 31, 2019,2020, respectively, to be paid to Closed Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.
 

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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,
2021		December 31,
2020
 (in millions)
Closed Block liabilities
Future policy benefits$46,123 $46,762 
Policyholders’ dividends payable626 635 
Policyholders’ dividend obligation7,809 8,787 
Policyholders’ account balances4,805 4,874 
Other Closed Block liabilities3,329 3,141 
Total Closed Block liabilities62,692 64,199 
Closed Block assets
Fixed maturities, available-for-sale, at fair value39,657 41,959 
Fixed maturities, trading, at fair value274 277 
Equity securities, at fair value2,494 2,345 
Commercial mortgage and other loans8,176 8,421 
Policy loans3,927 4,064 
Other invested assets3,903 3,610 
Short-term investments300 124 
Total investments58,731 60,800 
Cash and cash equivalents862 269 
Accrued investment income409 431 
Other Closed Block assets111 92 
Total Closed Block assets60,113 61,592 
Excess of reported Closed Block liabilities over Closed Block assets2,579 2,607 
Portion of above representing accumulated other comprehensive income (loss):
Net unrealized investment gains (losses)4,105 5,810 
Allocated to policyholder dividend obligation(4,160)(5,867)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities$2,524 $2,550 
  June 30,
2020		 December 31,
2019
  (in millions)
Closed Block liabilities    
Future policy benefits $47,142
 $47,613
Policyholders’ dividends payable 728
 717
Policyholders’ dividend obligation 7,755
 6,149
Policyholders’ account balances 4,914
 4,973
Other Closed Block liabilities 3,322
 4,049
Total Closed Block liabilities 63,861
 63,501
Closed Block assets    
Fixed maturities, available-for-sale, at fair value 42,058
 41,146
Fixed maturities, trading, at fair value 239
 256
Equity securities, at fair value 2,047
 2,245
Commercial mortgage and other loans 8,388
 8,629
Policy loans 4,158
 4,264
Other invested assets 3,259
 3,333
Short-term investments 95
 227
Total investments 60,244
 60,100
Cash and cash equivalents 462
 191
Accrued investment income 436
 456
Other Closed Block assets 86
 93
Total Closed Block assets 61,228
 60,840
Excess of reported Closed Block liabilities over Closed Block assets 2,633
 2,661
Portion of above representing accumulated other comprehensive income (loss):    
Net unrealized investment gains (losses) 5,250
 3,280
Allocated to policyholder dividend obligation (5,305) (3,332)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities $2,578
 $2,609


Information regarding the policyholder dividend obligation is as follows:
  
 Six Months Ended
June 30, 2020
  (in millions)
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 (353)
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation 1,972
Balance, June 30, 2020 $7,755

__________
(1)See Note 2 for more information.Six Months Ended
June 30, 2021
(in millions)
Balance, December 31, 2020$8,787 
Impact from earnings allocable to policyholder dividend obligation729 
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation(1,707)
Balance, June 30, 2021$7,809 


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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,
 2020 2019 2020 2019
 (in millions)
Revenues       
Premiums$519
 $581
 $999
 $1,108
Net investment income515
 576
 1,063
 1,141
Realized investment gains (losses), net(8) 49
 248
 105
Other income (loss)318
 97
 (285) 325
Total Closed Block revenues1,344
 1,303
 2,025
 2,679
Benefits and Expenses       
Policyholders’ benefits725
 780
 1,372
 1,489
Interest credited to policyholders’ account balances32
 32
 64
 64
Dividends to policyholders517
 415
 423
 968
General and administrative expenses82
 89
 167
 178
Total Closed Block benefits and expenses1,356
 1,316
 2,026
 2,699
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes(12) (13) (1) (20)
Income tax expense (benefit)(28) (29) (34) (53)
Closed Block revenues, net of Closed Block benefits and expenses and income taxes$16
 $16
 $33
 $33

 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
 (in millions)
Revenues
Premiums$463 $519 $894 $999 
Net investment income632 515 1,222 1,063 
Realized investment gains (losses), net265 (8)337 248 
Other income (loss)255 318 531 (285)
Total Closed Block revenues1,615 1,344 2,984 2,025 
Benefits and Expenses
Policyholders’ benefits652 725 1,286 1,372 
Interest credited to policyholders’ account balances31 32 62 64 
Dividends to policyholders814 517 1,395 423 
General and administrative expenses79 82 158 167 
Total Closed Block benefits and expenses1,576 1,356 2,901 2,026 
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes39 (12)83 (1)
Income tax expense (benefit)25 (28)54 (34)
Closed Block revenues, net of Closed Block benefits and expenses and income taxes$14 $16 $29 $33 
 
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 $57$1,245 million, or (2.1)%20.1% of income (loss) before income taxes and equity in earnings of operating joint ventures, in the first six months of 2020,2021, compared to an income tax expense of $394$57 million, or 19.5%(2.1)%, in the first six months of 2019.2020. The Company’s current and prior effective tax rates 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.rate, and the items discussed below.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic SecurityCARES Act (the “CARES Act”) was enacted into law. One provision of the CARES Act amendsamended the Tax Cuts and Jobs Act (“TCJA”) and allowsallowed 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 2020 effective tax rate an income tax benefit of $512 million that would resultresulted 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 2020. The first six months of 2020 also include a $47 million reduction in income tax expense 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 allowallows an annual election to exclude from the U.S. tax return certain GILTI amounts when the taxes paid by a foreign affiliate exceedsexceed 18.9% (90% of U.S. statutory rate of 21%) of the 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 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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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 inplans to make the process of reviewinghigh-tax exception election for the 2021 tax year and estimatingreflected the impactsimpact of the regulations and will record any such impactselection in its full year projected effective tax rate used to calculate year-to-date taxes for the third quarterfirst six months of 2020.2021.
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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The Treasury Department and the IRS also issued Proposed Regulations on July 20th20, 2020 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, 2021December 31, 2020
 ($ in millions)
Commercial paper:
Prudential Financial$25 $25 
Prudential Funding, LLC341 355 
Subtotal commercial paper366 380 
Current portion of long-term debt:
Senior Notes400 399 
Mortgage Debt134 128 
Surplus notes subject to set-off arrangements (1)500 500 
Subtotal current portion of long-term debt1,034 1,027 
Other(2)9 18 
Subtotal1,409 1,425 
Less: assets under set-off arrangements(1)500 500 
Total short-term debt(3)$909 $925 
Supplemental short-term debt information:
Portion of commercial paper borrowings due overnight$125$75
Daily average commercial paper outstanding for the quarter ended$1,056$1,602
Weighted average maturity of outstanding commercial paper, in days918
Weighted average interest rate on outstanding commercial paper0.06 %0.11 %
 June 30, 2020 December 31, 2019
 ($ in millions)
Commercial paper:   
Prudential Financial$25
 $25
Prudential Funding, LLC475
 524
Subtotal commercial paper500
 549
Current portion of long-term debt:   
Senior Notes528
 1,179
Mortgage Debt95
 192
Surplus notes subject to set-off arrangements (1)250
 0
Subtotal current portion of long-term debt873
 1,371
Other(2)7
 13
Subtotal1,380
 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$240
 $224
Daily average commercial paper outstanding for the quarter ended$1,869
 $1,702
Weighted average maturity of outstanding commercial paper, in days14
 6
Weighted average interest rate on outstanding commercial paper0.13% 1.61%
_________
_________(1)The surplus notes have corresponding assets where rights to set-off exist, thereby reducing the amount of surplus notes.
(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.
(2)Includes $9 million and $18 million drawn on a revolving line of credit held by a subsidiary at June 30, 2021 and December 31, 2020, respectively.
(3)Includes Prudential Financial debt of $553$425 million and $1,204$424 million at June 30, 20202021 and December 31, 2019,2020, 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 contingent financing 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, 2020,2021, 0 amounts were drawn on these credit facilities. For additional information on these sources of liquidity, 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.

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

2020.
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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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:
 
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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
(in millions) (in millions)
Fixed-rate obligations:   Fixed-rate obligations:
Surplus notes$343
 $342
Surplus notes$343 $343 
Surplus notes subject to set-off arrangements(1)8,884
 7,484
Surplus notes subject to set-off arrangements(1)7,534 8,134 
Senior notes11,575
 10,084
Senior notes11,184 11,179 
Mortgage debt(2)100
 104
Mortgage debtMortgage debt24 24 
Floating-rate obligations:   Floating-rate obligations:
Line of credit300
 300
Line of credit300 300
Surplus notes subject to set-off arrangements(1)2,330
 2,265
Surplus notes subject to set-off arrangements(1)2,330 2,330 
Mortgage debt(3)(2)264
 241
204 257 
Junior subordinated notes(4)(3)7,580
 7,575
7,615 7,615 
Subtotal31,376
 28,395
Subtotal29,534 30,182 
Less: assets under set-off arrangements(1)11,214
 9,749
Less: assets under set-off arrangements(1)9,864 10,464 
Total long-term debt(5)(4)$20,162
 $18,646
$19,670 $19,718 
 __________    
(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 $40 million and $43
(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 $31 million and $29 million of debt denominated in foreign currency at June 30, 2020 and December 31, 2019, respectively.
(3)
Includes $50 million and $53 million of debt denominated in foreign currency at June 30, 2020 and December 31, 2019, respectively.
(4)Includes Prudential Financial debt of $7,522 million and $7,518 million at June 30, 2020 and December 31, 2019, respectively. Also includes subsidiary debt of $58 million and $57 million denominated in foreign currency at June 30, 2020 and December 31, 2019, respectively.
(5)
Includes Prudential Financial debt of $18,925 million and $17,430 million at June 30, 2020 and December 31, 2019, respectively.

At June 30, 20202021 and December 31, 2019,2020, respectively.
(3)Includes Prudential Financial debt of $7,559 million and $7,554 million at June 30, 2021 and December 31, 2020, respectively. Also includes subsidiary debt of $56 million and $60 million denominated in foreign currency at June 30, 2021 and December 31, 2020, respectively.
(4)Includes Prudential Financial debt of $18,570 million and $18,561 million at June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021 and December 31, 2020, the Company was in compliance with all debt covenants related to the borrowings in the table above.



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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Senior Debt Redemption
Surplus Notes.
In March 2020, Prudential Legacy Insurance Company of New Jersey issued $800 million of surplus 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,July 2021, the Company establishedissued notices to redeem, at 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 $700make-whole redemption price, $910 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, 2020, the outstanding balance of the Company’s senior notes was $12.1 billion, an increase of $0.8 billion from December 31, 2019. The increase is due to the issuance of $1.5 billion of medium-term notes, in March 2020: $500 million with anon a redemption date on or about August 30, 2021. See Note 15 for additional information.

Credit Facility Extension

In July 2021, the Company amended and restated its $4.0 billion five-year credit facility, extending the term of the facility to July 2026. The extension also includes certain sustainability-linked pricing adjustments, by which the applicable interest rate of 1.5% maturing in March 2026, $500 million with an interest rate of 2.1% maturing in March 2030,margins and $500 million with an interest rate of 3.0% maturing in March 2040, offset by $651 million of debt maturities in June 2020.commitment fee may be adjusted based on the Company’s ability to meet certain targets. See Note 15 for additional information.

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, length of 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 Benefitsother 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,
 Pension BenefitsOther Postretirement Benefits
 2021202020212020
 (in millions)
Components of net periodic (benefit) cost:
Service cost$82 $81 $7 $6 
Interest cost92 107 12 16 
Expected return on plan assets(207)(202)(25)(25)
Amortization of prior service cost(1)(1)1 1 
Amortization of actuarial (gain) loss, net61 66 4 4 
Settlements1 4 0 0 
Special termination benefits(1)0 0 0 0 
Net periodic (benefit) cost$28 $55 $(1)$2 
 Six Months Ended June 30,
 Pension BenefitsOther Postretirement Benefits
 2021202020212020
(in millions)
Components of net periodic (benefit) cost:
Service cost$165 $161 $13 $12 
Interest cost182 215 24 32 
Expected return on plan assets(412)(403)(50)(50)
Amortization of prior service cost(2)(2)3 3 
Amortization of actuarial (gain) loss, net123 131 8 8 
Settlements2 4 0 0 
Special termination benefits(1)1 2 0 0 
Net periodic (benefit) cost$59 $108 $(2)$5 
 Three Months Ended June 30,
 Pension Benefits Other Postretirement Benefits
 2020 2019 2020 2019
 (in millions)
Components of net periodic (benefit) cost:       
Service cost$81
 $72
 $6
 $5
Interest cost107
 123
 16
 20
Expected return on plan assets(202) (204) (25) (23)
Amortization of prior service cost(1) (1) 1
 1
Amortization of actuarial (gain) loss, net66
 54
 4
 6
Settlements4
 48
 0
 0
Special termination benefits(1)(2)0
 1
 0
 0
Net periodic (benefit) cost$55
 $93
 $2
 $9
        
 Six Months Ended June 30,
 Pension Benefits Other Postretirement Benefits
 2020 2019 2020 2019
 (in millions)
Components of net periodic (benefit) cost:       
Service cost$161
 $145
 $12
 $11
Interest cost215
 246
 32
 39
Expected return on plan assets(403) (408) (50) (47)
Amortization of prior service cost(2) (2) 3
 2
Amortization of actuarial (gain) loss, net131
 108
 8
 12
Settlements4
 48
 0
 0
Special termination benefits(1)(2)2
 1
 0
 0
Net periodic (benefit) cost$108
 $138
 $5
 $17
__________ 
(1)For 2021 and 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.
(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.

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 IssuedHeld In
Treasury		Outstanding
Issued 
Held In
Treasury
 Outstanding (in millions)
(in millions)
Balance, December 31, 2019666.3
 267.5
 398.8
Balance, December 31, 2020Balance, December 31, 2020666.3 269.9 396.4 
Common Stock issued0.0
 0.0
 0.0
Common Stock issued0.0 0.0 0.0 
Common Stock acquired0.0
 6.7
 (6.7)Common Stock acquired0.0 12.7 (12.7)
Stock-based compensation programs(1)0.0
 (2.5) 2.5
Stock-based compensation programs(1)0.0 (3.1)3.1 
Balance, June 30, 2020666.3
 271.7
 394.6
Balance, June 30, 2021Balance, June 30, 2021666.3 279.5 386.8 
__________ 
(1)Represents net shares issued from treasury pursuant to the Company’s stock-based compensation programs.
(1)Represents net shares issued from treasury pursuant to the Company’s stock-based compensation programs.

In December 2019,February 2021, Prudential Financial’s Board of Directors (the “Board”) authorized the Company to repurchase at management’s discretion up to $2.0$1.5 billion of its outstanding Common Stock during the period from January 1, 20202021 through

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

December 31, 2020.2021. In May 2021, the Board authorized a $500 million increase to this authorization, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.0 billion. In July 2021, the Board further increased this authorization by an additional $500 million, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.5 billion. As of June 30, 2020, 6.72021, 12.7 million shares of the Company’s Common Stock were repurchased under this authorization at a total cost of $500$1,250 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 effectedexecuted 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, but not limited to: compliance with laws, 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.conditions.

Dividends declared per share of Common Stock are as follows for the periods indicated:
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Dividends declared per share of Common Stock$1.15 $1.10 $2.30 $2.20 
 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, 20202021 and 2019,2020, are as follows:

 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, 2020$52 $34,065 $(3,379)$30,738 
Change in OCI before reclassifications(650)(7,033)38 (7,645)
Amounts reclassified from AOCI(63)(1,742)132 (1,673)
Income tax benefit (expense)(63)1,961 (41)1,857 
Balance, June 30, 2021$(724)$27,251 $(3,250)$23,277 
 
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, 2019$(536) $28,112
 $(3,537) $24,039
Change in OCI before reclassifications(213) 9,449
 4
 9,240
Amounts reclassified from AOCI5
 (702) 140
 (557)
Income tax benefit (expense)28
 (1,881) (32) (1,885)
Balance, June 30, 2020$(716) $34,978
 $(3,425) $30,837


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) $10,906
Balance, December 31, 2019Balance, December 31, 2019$(536)$28,112 $(3,537)$24,039 
Change in OCI before reclassifications98
 17,296
 (39) 17,355
Change in OCI before reclassifications(213)9,449 4 9,240 
Amounts reclassified from AOCI5
 (501) 120
 (376)Amounts reclassified from AOCI5 (702)140 (557)
Income tax benefit (expense)8
 (3,899) (19) (3,910)Income tax benefit (expense)28 (1,881)(32)(1,885)
Cumulative effect of adoption of ASU 2017-120
 7
 0
 7
Balance, June 30, 2019$(453) $27,648
 $(3,213) $23,982
Balance, June 30, 2020Balance, June 30, 2020$(716)$34,978 $(3,425)$30,837 
__________
(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 fair value hedges of $(3) million and $0 million as of June 30, 2020 and December 31, 2019, respectively.
(1)Includes cash flow hedges of $261 million and $(168) million as of June 30, 2021 and December 31, 2020, respectively, and $2,498 million and $832 million as of June 30, 2020 and December 31, 2019, respectively, and fair value hedges of $(17) million and $10 million as of June 30, 2021 and December 31, 2020, respectively, and $(3) million and $0 million as of June 30, 2020 and December 31, 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
2020 2019 2020 2019  2021202020212020
(in millions)   (in millions) 
Amounts reclassified from AOCI(1)(2):        Amounts reclassified from AOCI(1)(2):
Foreign currency translation adjustment:        Foreign currency translation adjustment:
Foreign currency translation adjustments$(2) $0
 $(5) $(5) Realized investment gains (losses), netForeign currency translation adjustments$0 $(2)$0 $(5)Realized investment gains (losses), net
Foreign currency translation adjustments0
 0
 0
 0
 Other income (loss)Foreign currency translation adjustments60 0 63 0 Other income (loss)
Total foreign currency translation adjustment(2) 0
 (5) (5) Total foreign currency translation adjustment60 (2)63 (5)
Net unrealized investment gains (losses):        Net unrealized investment gains (losses):
Cash flow hedges—Interest rate9
 0
 8
 (1) (3)Cash flow hedges—Interest rate9 9 14 8 (3)
Cash flow hedges—Currency3
 1
 4
 2
 (3)Cash flow hedges—Currency(2)3 (3)4 (3)
Cash flow hedges—Currency/Interest rate32
 156
 420
 171
 (3)Cash flow hedges—Currency/Interest rate57 32 205 420 (3)
Fair value hedges—CurrencyFair value hedges—Currency(1)0 (3)0 (3)
Net unrealized investment gains (losses) on available-for-sale securities112
 69
 270
 329
 Net unrealized investment gains (losses) on available-for-sale securities313 112 1,529 270 Realized investment gains (losses), net
Total net unrealized investment gains (losses)156
 226
 702
 501
 (4)Total net unrealized investment gains (losses)376 156 1,742 702 (4)
Amortization of defined benefit pension items:        Amortization of defined benefit pension items:
Prior service cost0
 0
 (1) 0
 (5)Prior service cost0 0 (1)(1)(5)
Actuarial gain (loss)(70) (60) (139) (120) (5)Actuarial gain (loss)(65)(70)(131)(139)(5)
Total amortization of defined benefit pension items(70) (60) (140) (120) Total amortization of defined benefit pension items(65)(70)(132)(140)
Total reclassifications for the period$84
 $166
 $557
 $376
 Total reclassifications for the period$371 $84 $1,673 $557 
__________
(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 10 for information on employee benefit plans.
(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 and fair value 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 10 for information on employee benefit plans.
 
Net Unrealized Investment Gains (Losses)
 
Net unrealized investment gains (losses) on available-for-sale fixed maturity securities 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 net unrealized investment gains (losses) on available-for-sale fixed maturity securities on which an 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 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)
 (in millions)
Balance, December 31, 2019(1)$0
 $0
 $0
 $0
 $0
 $0
Net investment gains (losses) on investments arising during the period34
       (7) 27
Reclassification adjustment for (gains) losses included in net income13
       (3) 10
Increase (Decrease) due to non-credit related losses recognized in AOCI during the period(87)       19
 (68)
Impact of net unrealized investment (gains) losses on DAC, DSI, VOBA and reinsurance recoverables  2
     0
 2
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders’ account balances and reinsurance payables    0
   0
 0
Impact of net unrealized investment (gains) losses on policyholders’ dividends      (5) 1
 (4)
Balance, June 30, 2020$(40) $2
 $0
 $(5) $10
 $(33)
Net Unrealized Investment Gains (Losses) on Available-for-Sale Fixed Maturity Securities on Which an Allowance for Credit Losses has been RecognizedNet Unrealized
Gains (Losses)
on All Other Investments(1)		DAC, DSI, VOBA and Reinsurance RecoverablesFuture Policy
Benefits,
Policyholders’
Account
Balances and
Reinsurance Payables		Policyholders’
Dividends		Income Tax Benefit (Expense)Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
 (in millions)
Balance, December 31, 2020$(25)$58,442 $(1,229)$(6,588)$(5,892)$(10,643)$34,065 
Net investment gains (losses) on investments arising during the period24 (12,334)2,715 (9,595)
Reclassification adjustment for (gains) losses included in net income10 (1,752)384 (1,358)
Reclassification due to allowance for credit losses recorded during the period(3)3 0 0 
Impact of net unrealized investment (gains) losses457 3,107 1,713 (1,138)4,139 
Balance, June 30, 2021$6 $44,359 $(772)$(3,481)$(4,179)$(8,682)$27,251 
__________
(1)Allowance for credit losses on available-for-sale fixed maturity securities effective January 1, 2020.

(1)Includes cash flow and fair value hedges. See Note 5 for information on cash flow and fair value hedges.
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, 2019(2)$45,339
 $(1,585) $(2,909) $(3,366) $(9,367) $28,112
Net investment gains (losses) on investments arising during the period12,195
       (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 period87
       (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)Includes net unrealized gains (losses) for which an OTTI loss had been previously recognized.


12. EARNINGS PER SHARE
 

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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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,
 20212020
 IncomeWeighted
Average
Shares		Per Share
Amount		IncomeWeighted
Average
Shares		Per Share
Amount
 (in millions, except per share amounts)
Basic earnings per share
Net income (loss)$2,183 $(2,405)
Less: Income (loss) attributable to noncontrolling interests25 4 
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards31 6 
Net income (loss) attributable to Prudential Financial available to holders of Common Stock$2,127 391.1 $5.44 $(2,415)394.6 $(6.12)
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic$31 $6 
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted31 6 
Stock options0.9 0.0 
Deferred and long-term compensation programs2.1 0.0 
Diluted earnings per share(1)
Net income (loss) attributable to Prudential Financial available to holders of Common Stock$2,127 394.1 $5.40 $(2,415)394.6 $(6.12)
 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 interests4
     30
    
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards6
     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—Diluted6
     8
    
Stock options  0.0
     1.3
  
Deferred and long-term compensation programs  0.0
     1.1
  
Exchangeable Surplus Notes0
 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
__________ 
(1)
(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.

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,
 20212020
 IncomeWeighted
Average
Shares		Per Share
Amount		IncomeWeighted
Average
Shares		Per Share
Amount
 (in millions, except per share amounts)
Basic earnings per share
Net income (loss)$4,987 $(2,675)
Less: Income (loss) attributable to noncontrolling interests1 5 
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards75 11 
Net income (loss) attributable to Prudential Financial available to holders of Common Stock$4,911 393.7 $12.47 $(2,691)395.8 $(6.80)
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic$75 $11 
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted75 11 
Stock options0.7 0.0 
Deferred and long-term compensation programs2.0 0.0 
Diluted earnings per share(1)
Net income (loss) attributable to Prudential Financial available to holders of Common Stock$4,911 396.4 $12.39 $(2,691)395.8 $(6.80)
 Six 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)$(2,675)     $1,675
    
Less: Income (loss) attributable to noncontrolling interests5
     35
    
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards11
     18
    
Net income (loss) attributable to Prudential Financial available to holders of Common Stock$(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$11
     $18
    
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted11
     18
    
Stock options  0.0
     1.2
  
Deferred and long-term compensation programs  0.0
     1.1
  
Exchangeable Surplus Notes0
 0.0
   11
 6.2
  
Diluted earnings per share(1)           
Net income (loss) attributable to Prudential Financial available to holders of Common Stock$(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.

(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 and six months ended June 30, 20202021 and 2019,2020, as applicable, were based on 5.05.9 million and 4.5 million of such awards, respectively, and for the six months ended June 30, 2020 and 2019, as applicable, were based on 5.0 million and 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,
 20212020
 SharesExercise Price
Per Share		SharesExercise Price
Per Share
 (in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method0.9 $106.87 4.7 $74.92 
Antidilutive stock options due to net loss available to holders of Common Stock0.0 0.2 
Antidilutive shares based on application of the treasury stock method0.0 0.2 
Antidilutive shares due to net loss available to holders of Common Stock0.0 1.3 
Total antidilutive stock options and shares0.9 6.4 

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 20212020
Shares 
Exercise Price
Per Share
 Shares 
Exercise Price
Per Share
 SharesExercise Price
Per Share		SharesExercise 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 method4.7
 $74.92
 0.9
 $105.95
Antidilutive stock options based on application of the treasury stock method1.5 $100.25 3.5 $79.06 
Antidilutive stock options due to net loss available to holders of Common Stock0.2
   0.0
  Antidilutive stock options due to net loss available to holders of Common Stock0.0 0.5 
Antidilutive shares based on application of the treasury stock method0.2
   0.0
  Antidilutive shares based on application of the treasury stock method0.0 0.2 
Antidilutive shares due to net loss available to holders of Common Stock1.3
   0.0
  Antidilutive shares due to net loss available to holders of Common Stock0.0 1.5 
Total antidilutive stock options and shares6.4
   0.9
  Total antidilutive stock options and shares1.5 5.7 

 Six 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 method3.5
 $79.06
 1.0
 $104.57
Antidilutive stock options due to net loss available to holders of Common Stock0.5
   0.0
  
Antidilutive shares based on application of the treasury stock method0.2
   0.0
  
Antidilutive shares due to net loss available to holders of Common Stock1.5
   0.0
  
Total antidilutive stock options and shares5.7
   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. 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.

13. SEGMENT INFORMATION
 
Segments
 
The Company’s principal operations are comprisedconsist of PGIM (the Company’s global investment management business), the U.S. Businesses (consisting of the U.S. Workplace Solutions, U.S.Retirement, Group Insurance, Individual Solutions,Annuities, Individual Life and Assurance IQ divisions)businesses), the International Businesses, the Closed Block division, and the Company’s Corporate and Other operations. The U.S. Workplace Solutions division consists of the Retirement and Group Insurance businesses, the U.S. Individual Solutions division consists of the Individual Annuities and Individual Life businesses, and the Assurance IQ division consists of the Assurance IQ business. In October 2019, the Company completed the acquisition of 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. Divested and Run-off Businesses are comprisedconsist of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind downwind-down status that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments as well as the Divested and businesses that have been or will be divested or placed in run-off, excluding the Closed Block division.Run-off Businesses described above.


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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 investment gains (losses), net, and related adjustments;
•Charges related to realized investment gains (losses), net;
•Market experience updates;
•Divested and Run-off Businesses;
Other adjustments; and
•Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests.interests; and
•Other adjustments.
 
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
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 additional information on these reconciling items, see Note 22 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. The Company has historically reflected the results of its variable annuities hedging programs in adjusted operating income over time. 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.

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”:
 

 Three Months Ended
June 30,		Six Months Ended
June 30,
 20212020(1)20212020(1)
Adjusted operating income before income taxes by segment:(in millions)
PGIM$315 $324 $966 $488 
U.S. Businesses:
Retirement491 281 1,114 526 
Group Insurance17 5 (115)49 
Individual Annuities(2)472 249 916 622 
Individual Life146 (64)102 (84)
Assurance IQ(38)(16)(77)(39)
Total U.S. Businesses1,088 455 1,940 1,074 
International Businesses803 691 1,674 1,387 
Corporate and Other(300)(541)(586)(883)
Total segment adjusted operating income before income taxes1,906 929 3,994 2,066 
Reconciling items:
Realized investment gains (losses), net, and related adjustments360 (3,268)1,624 (2,969)
Charges related to realized investment gains (losses), net4 519 (235)(283)
Market experience updates225 56 529 (882)
Divested and Run-off Businesses:
Closed Block division31 (22)65 (23)
Other Divested and Run-off Businesses255 (524)285 (593)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests5 (54)(49)(63)
Other adjustments(3)(13)32 (26)77 
Income (loss) before income taxes and equity in earnings of operating joint ventures per Unaudited Interim Consolidated Financial Statements$2,773 $(2,332)$6,187 $(2,670)
________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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.
(2)Individual Annuities segment results reflect DAC as if the 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.
(3)Represents adjustments not included in the above reconciling items. Also includes 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 the associated contingent consideration (see Note 14 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
Adjusted operating income before income taxes by segment:(in millions)
PGIM$324
 $264
 $488
 $478
U.S. Businesses:       
U.S. Workplace Solutions division:       
Retirement281
 467
 526
 718
Group Insurance5
 81
 49
 134
Total U.S. Workplace Solutions division286
 548
 575
 852
U.S. Individual Solutions division:       
Individual Annuities(1)249
 462
 622
 934
Individual Life(64) (135) (84) (30)
Total U.S. Individual Solutions division185
 327
 538
 904
Assurance IQ division(2):       
Assurance IQ(16) 0
 (39) 0
Total Assurance IQ division(16) 0
 (39) 0
Total U.S. Businesses455
 875
 1,074
 1,756
International Businesses(3)693
 790
 1,391
 1,649
Corporate and Other(541) (335) (883) (747)
Total segment adjusted operating income before income taxes931
 1,594
 2,070
 3,136
Reconciling items:       
Realized investment gains (losses), net, and related adjustments(4)(3,191) (572) (2,982) (1,194)
Charges related to realized investment gains (losses), net519
 (82) (283) (57)
Market experience updates(5)55
 (207) (886) (207)
Divested and Run-off Businesses:       
Closed Block division(22) (21) (23) (40)
Other Divested and Run-off Businesses(3)(602) 168
 (580) 415
Other adjustments(6)32
 0
 77
 0
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(54) (4) (63) (37)
Income (loss) before income taxes and equity in earnings of operating joint ventures per Unaudited Interim Consolidated Financial Statements$(2,332) $876
 $(2,670) $2,016

________
(1)Individual Annuities segment results reflect DAC as if the Individual 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)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.
(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.
June 30,
2021		December 31,
2020
Assets by segment:(in millions)
PGIM$48,513 $48,680 
U.S. Businesses:
Retirement217,019 213,726 
Group Insurance43,568 45,601 
Individual Annuities200,829 200,718 
Individual Life114,877 110,953 
Assurance IQ2,713 2,703 
Total U.S. Businesses579,006 573,701 
International Businesses223,057 231,128 
Corporate and Other15,329 25,124 
Closed Block division60,556 62,089 
Total assets per Unaudited Interim Consolidated Financial Statements$926,461 $940,722 

Three Months Ended
June 30,		Six Months Ended
June 30,
 20212020(1)20212020(1)
Revenues on an adjusted operating income basis:(in millions)
PGIM$1,009 $957 $2,323 $1,735 
U.S. Businesses:
Retirement2,683 2,992 5,274 5,429 
Group Insurance1,518 1,471 3,074 2,895 
Individual Annuities1,228 953 2,427 2,101 
Individual Life1,616 1,563 3,251 3,093 
Assurance IQ113 59 221 119 
Total U.S. Businesses7,158 7,038 14,247 13,637 
International Businesses5,093 5,084 11,024 10,720 
Corporate and Other(159)(150)(278)(355)
Total revenues on an adjusted operating income basis13,101 12,929 27,316 25,737 
Reconciling items:
Realized investment gains (losses), net, and related adjustments557 (2,318)1,561 (2,682)
Charges related to realized investment gains (losses), net(42)(20)(118)(81)
Market experience updates113 (14)214 (348)
Divested and Run-off Businesses:
Closed Block division1,613 1,340 2,978 2,017 
Other Divested and Run-off Businesses596 208 967 900 
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(21)(57)(49)(69)
Other adjustments(2)0 47 0 105 
Total revenues per Unaudited Interim Consolidated Financial Statements$15,917 $12,115 $32,869 $25,579 
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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:   
Retirement203,191
 198,153
Group Insurance43,900
 43,712
Total U.S. Workplace Solutions division247,091
 241,865
U.S. Individual Solutions division:   
Individual Annuities191,259
 189,040
Individual Life100,429
 96,072
Total U.S. Individual Solutions division291,688
 285,112
Assurance IQ division(1):   
Assurance IQ2,599
 2,639
Total Assurance IQ division2,599
 2,639
Total U.S. Businesses541,378
 529,616
International Businesses(2)226,611
 220,381
Corporate and Other(2)37,927
 37,573
Closed Block division61,749
 61,327
Total assets per Unaudited Interim Consolidated Financial Statements$915,387
 $896,552
__________
(1)__________Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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.
(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 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.

(2)Represents adjustments not included in the above reconciling items. Also includes 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 the associated contingent consideration (see Note 14 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:       
Retirement2,992
 3,586
 5,429
 6,225
Group Insurance1,471
 1,461
 2,895
 2,902
Total U.S. Workplace Solutions division4,463
 5,047
 8,324
 9,127
U.S. Individual Solutions division:       
Individual Annuities953
 1,288
 2,101
 2,523
Individual Life1,563
 1,508
 3,093
 2,990
Total U.S. Individual Solutions division2,516
 2,796
 5,194
 5,513
Assurance IQ division(1):       
Assurance IQ59
 0
 119
 0
Total Assurance IQ division59
 0
 119
 0
Total U.S. Businesses7,038
 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 basis13,078
 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 division1,340
 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 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,
 2020 2019 2020 2019
 (in millions)
PGIM segment intersegment revenues$208
 $194
 $425
 $374

 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
 (in millions)
PGIM segment intersegment revenues$226 $208 $449 $425 
 

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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.

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,Three Months Ended June 30,Six Months Ended June 30,
2020 2019 2020 20192021202020212020
(in millions) (in millions)
Asset-based management fees$840
 $872
 $1,715
 $1,715
Asset-based management fees$1,017 $840 $2,012 $1,715 
Performance-based incentive fees16
 62
 30
 98
Performance-based incentive fees23 16 50 30 
Other fees135
 149
 279
 286
Other fees158 135 312 279 
Total asset management and service fees$991
 $1,083
 $2,024
 $2,099
Total asset management and service fees$1,198 $991 $2,374 $2,024 



14. COMMITMENTS AND CONTINGENT LIABILITIES
 
Commitments and Guarantees
 
Commercial Mortgage Loan Commitments
 June 30,
2020		 December 31,
2019
 (in millions)
Total outstanding mortgage loan commitments$1,754
 $2,129
Portion of commitment where prearrangement to sell to investor exists$787
 $751

June 30,
2021		December 31,
2020
 (in millions)
Total outstanding mortgage loan commitments$2,801 $2,357 
Portion of commitment where prearrangement to sell to investor exists$909 $882 
 
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$0 million as of June 30, 2021 and December 31, 2020. The change in allowance is $0 million for both the three months ended June 30, 2021 and 2020, which is a change ofrespectively, and $0 million and $(1)a reduction of $1 million for the three and six months ended June 30, 2021 and 2020, respectively.
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Commitments to Purchase Investments (excluding Commercial Mortgage Loans)
June 30,
2021		December 31,
2020
 (in millions)
Expected to be funded from the general account and other operations outside the separate accounts$9,999 $9,567 
Expected to be funded from separate accounts$362 $336 
 June 30,
2020		 December 31,
2019
 (in millions)
Expected to be funded from the general account and other operations outside the separate accounts$8,394
 $7,372
Expected to be funded from separate accounts$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 either the three andor six months ended June 30, 2021 or 2020.


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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

June 30,
2021		December 31,
2020
 (in millions)
Indemnification provided to certain clients for securities lending and securities repurchase transactions(1)$8,162 $7,108 
Fair value of related collateral associated with above indemnifications(1)$8,331 $7,254 
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.
(1)Includes $64 million and $34 million related to securities repurchase transactions as of June 30, 2021 and December 31, 2020, 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,
2020		 December 31,
2019
 (in millions)
Guaranteed value of third-parties’ assets$82,325
 $80,009
Fair value of collateral supporting these assets$86,247
 $81,604
Asset (liability) associated with guarantee, carried at fair value$1
 $1

June 30,
2021		December 31,
2020
 (in millions)
Guaranteed value of third-parties’ assets$83,805 $86,264 
Fair value of collateral supporting these assets$86,850 $90,612 
Asset (liability) associated with guarantee, carried at fair value$1 $0 
 
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.
 
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Indemnification of Serviced Mortgage Loans
 June 30,
2020		 December 31,
2019
 (in millions)
Maximum exposure under indemnification agreements for mortgage loans serviced by the Company$2,278
 $2,113
First-loss exposure portion of above$668
 $622
Accrued liability associated with guarantees(1)$37
 $19

June 30,
2021		December 31,
2020
 (in millions)
Maximum exposure under indemnification agreements for mortgage loans serviced by the Company$2,800 $2,684 
First-loss exposure portion of above$817 $784 
Accrued liability associated with guarantees(1)$40 $41 
__________
(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.
(1)The accrued liability associated with guarantees includes an allowance for credit losses of $19 million and $20 million as of June 30, 2021 and December 31, 2020, respectively. The change in allowance is $0 million for both the three months ended June 30, 2021, and 2020, respectively, and a reduction of $1 million for the six months ended June 30, 2021 and 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

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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 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 $18,154$22,115 million and $16,878$21,465 million of mortgages subject to these loss-sharing arrangements as of June 30, 20202021 and December 31, 2019,2020, respectively, all of which are collateralized by first priority liens on the underlying multi-family residential properties. As of June 30, 2021, these mortgages had a weighted-average debt service coverage ratio of 2.00 times and a weighted-average loan-to-value ratio of 63%. As of December 31, 2020, these mortgages had a weighted-average debt service coverage ratio of 1.961.99 times and a weighted-average loan-to-value ratio of 62%. As of December 31, 2019, these mortgages had a weighted average debt service coverage ratio of 1.88 times and a weighted-average loan-to-value ratio of 61%63%. The Company had 0$1 million of losses related to indemnifications that were settled for both the six months ended June 30, 20202021 and 2019.0 losses for the six months ended June 30, 2020.
 
Other Guarantees
 June 30,
2020		 December 31,
2019
 (in millions)
Other guarantees where amount can be determined$51
 $55
Accrued liability for other guarantees and indemnifications$0
 $0

June 30,
2021		December 31,
2020
 (in millions)
Other guarantees where amount can be determined$96 $52 
Accrued liability for other guarantees and indemnifications$34 $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 reflects $9 million and $12 million asAs of June 30, 20202021 and December 31, 2019,2020, there are $0 million and $9 million, 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 liabilitiesliability identified above do not include retained liabilities associated with sold businesses.relates to the sale of POT and represents a financial guarantee of certain insurance obligations of POT. See Note 1 for additional information regarding the sale. 

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, 2019.2020.
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

“Other “Other income.” The fair value of the contingent consideration liability was less than $1 million0 as ofof June 30, 20202021 and $105 million as of December 31, 2019 (see Note 6 for additional information).2020. 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 downwind-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
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
material, is disclosed, including matters discussed below. The Company estimates that as of June 30, 2020,2021, 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.

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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 23 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, and should be read in conjunction with the complete descriptions provided in the Form 10-K.
Individual Annuities, Individual Life,Escheatment Litigation
Total Asset Recovery Services, LLC v. MetLife, Inc., et al., Prudential Financial, Inc., The Prudential Insurance Company of America, and GroupPrudential Insurance Agency, LLC
Behfarin v. Pruco Life
In June 2020,March 2021, the court issued an order: (i) granting plaintiffs’ motionplaintiff filed a third amended complaint asserting claims against all defendants for certificationviolation of the settlement class; (ii) approving the proposed nationwide class settlement agreement; (iii) approving the class notice; (iv) awardingNew York False Claims Act, and seeking injunctive relief, compensatory and treble damages, 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.costs.

Securities Litigation
City of WarrenDonel Davidson v. PFI,Charles F. Lowrey, et alal.

In March 2020,2021, the court issued an order consolidating this action with Donald P. CrawfordRobert Lalor, Derivatively on behalf of Prudential Financial, Inc. v. PFI,Charles F. Lowrey, et al.al. under the caption In re Prudential Financial, Inc. Securities Litigation. Derivative Litigation. In June 2020, plaintiffsMay 2021, the Company filed an amended complaint and added Robert M. Falzon, PFI’s vice chairman, as an individual defendant.a motion to dismiss the complaint.

Donald P. CrawfordRobert Lalor v. PFI,Charles F. Lowrey, et al.

In March 2020,2021, the court issued an order consolidating this action with CityDonel Davidson, Derivatively on Behalf of WarrenPrudential Financial, Inc. v. PFI,Charles F. Lowrey, et al.al. under the caption In re Prudential Financial, Inc. Securities Litigation.Derivative Litigation. Case updates arewill be consolidated with the City of WarrenDonel Davidson action.

Assurance IQ, LLC
Shareholder DemandsThe Company has received a civil investigative demand and other inquiries related to the appropriateness of Assurance IQ’s supplemental health product sales and marketing activity. The Company is cooperating with regulators and may become subject to additional regulatory inquiries and other investigations and actions related to this matter.

William James Griffin, et al. v. Benefytt Technologies, Inc., et al. and Assurance IQ, LLC
In January 2020, the Board of Directors received February 2021, an amended putative class action complaint entitled William James Griffin, et al. v. Benefytt Technologies, Inc. (f/k/a shareholder demand letter containing allegations: (i) of wrongdoing similar to those allegedHealth Insurance Innovations, Inc.), Health Plan Intermediaries Holdings, Inc. and Assurance IQ, LLC, was filed in the CityUnited States District Court for the Southern District 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 requestsFlorida, alleging that the Boarddefendants violated the Racketeering Influenced and Corrupt Organizations Act, and engaged in a conspiracy to defraud customers through the sale of Directors investigatelimited indemnity and commence legal proceedings against the namedshort term health insurance products to individuals to recover for the Company’s benefit theseeking comprehensive medical insurance. The complaint seeks unspecified treble damages, purportedly sustained bydeclaratory and injunctive relief. In June 2021, the Company asfiled a result ofmotion to dismiss 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 2020, the Company received additional shareholder demands raising allegations similar to those contained in the January 2020 demand, and may be subject prospectively to additional activity relating to these matters.amended complaint.

Other 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 FundDoyle C. Stone v. Bank of America Corporation,PFI, et al.

In April 2021, defendants filed a motion to dismiss the complaint. In June 2021, plaintiff filed a notice of voluntary dismissal of the complaint, without prejudice.
In May 2020,
Regulatory

Variable Products

The Company has received regulatory inquiries and requests for information from state and federal regulators, including a subpoena from the court issued two orders approving stipulations dismissingU.S. Securities and Exchange Commission, concerning the appropriateness of variable product sales and
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
replacement activity. The Company is cooperating with prejudice Prudential’s claims against Barclays Bank PLC, Barclays Capital Inc.,regulators and Barclays PLC.may become subject to additional regulatory inquiries and other actions related to this matter.

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.statements. 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.statements.


15.SUBSEQUENT EVENTS
Entry into Agreement to Sell Full Service Retirement Business

On July 21, 2021, the Company entered into an agreement with Great-West Life & Annuity Insurance Company (“Great-West”) pursuant to which the Company has agreed to sell to Great-West the Company’s Full Service Retirement business, primarily through a combination of (i) the sale of all of the outstanding equity interests of certain legal entities, including Prudential Retirement Insurance and Annuity Company (“PRIAC”); (ii) the ceding of certain insurance policies through reinsurance; and (iii) the sale, transfer and/or novation of certain in-scope contracts and brokerage accounts.

The transaction is expected to close by the first quarter of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. Total proceeds expected from the sale are approximately $2.8 billion, which includes cash consideration for the sale of PRIAC, ceding commission for the reinsured business and capital available to be released from PICA, less approximately $400 million of transaction related costs and taxes. The Company plans to use the proceeds for general corporate purposes.

Share Repurchase Authorization

On July 21, 2021, the Company announced that its Board of Directors authorized a $500 million increase to the Company’s share repurchase authorization for calendar year 2021. As a result, the Company’s aggregate common stock share repurchase authorization for the full year 2021 is now $2.5 billion. As of June 30, 2021, the Company had repurchased $1.25 billion of shares of its common stock under this authorization.

Credit Facility Extension

On July 28, 2021, the Company amended and restated its $4.0 billion five-year credit facility that has both Prudential Financial and Prudential Funding as borrowers and a syndicate of financial institutions as lenders, extending the term of the facility to July 2026. Borrowings under the credit facility may be used for general corporate purposes, and the Company expects that it may borrow under the facility from time to time to fund its working capital needs and those of its subsidiaries. In addition, amounts under the credit facility may be drawn in the form of standby letters of credit that can be used to meet the operating needs of the Company and its subsidiaries. The credit facility contains customary representations and warranties, covenants and events of default, and borrowings are not contingent on the borrowers’ credit ratings nor subject to material adverse change clauses. Borrowings under the facility are conditioned on the continued satisfaction of customary conditions, including the Company’s maintenance of consolidated net worth of at least $23.5 billion, which is calculated as U.S. GAAP equity, excluding AOCI, equity of noncontrolling interests and equity attributable to the Closed Block. The amended and restated facility also includes certain sustainability-linked pricing adjustments, by which the applicable interest rate margins and commitment fee may be decreased or increased if the Company achieves, or fails to achieve, certain specified targets relating to its reduction of domestic greenhouse gas emissions and its increase in diversity among its senior leaders.

Senior Debt Redemption

On July 29, 2021, the Company issued notices to redeem, at a make-whole redemption price, $700 million principal amount of its 3.500% medium-term notes due 2024 (representing the entire principal amount) and $210 million of the currently outstanding $600 million principal amount of its 3.878% medium-term notes due 2028. The Company intends to redeem these
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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
notes on or about August 30, 2021. On the redemption date, the Company expects to incur a pre-tax charge of approximately $90 million, primarily reflecting the make-whole premiums associated with this redemption.

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

TABLE OF CONTENTS
 
Page
7974
COVID-19
7974
Regulatory Developments
82
Impact of a Low Interest Rate Environment
8276
8579
Consolidated Results of Operations
8579
Segment Results of Operations
8680
Segment Measures
9083
Impact of Foreign Currency Exchange Rates
9084
9387
9488
PGIM
9488
U.S. Businesses
9992
Retirement
10094
Group Insurance
10296
Individual Annuities
10498
Individual Life
109103
Assurance IQ
111105
International Businesses
112105
Corporate and Other
117111
Divested and Run-off Businesses
118111
Closed Block Division
118112
120114
120114
121116
123118
144138
154148
155148

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, 2020,2021, compared with December 31, 2019,2020, and its consolidated results of operations for the three and six months ended June 30, 20202021 and 2019.2020. 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, 2019,2020, as well as the statements under “Forward-Looking Statements,” the “Risk Factors” section, and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
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Overview

Prudential Financial, a financial services leader with approximately $1.605$1.730 trillion of assets under management as of June 30, 2020,2021, 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 comprisedconsist of PGIM (our global investment management business), our U.S. Businesses (consisting of our U.S. Workplace Solutions, U.S.Retirement, Group Insurance, Individual Solutions,Annuities, Individual Life and Assurance IQ divisions)businesses), our International Businesses, the Closed Block division, and our Corporate and Other operations. The U.S. Workplace Solutions division consists of our Retirement and Group Insurance businesses, the U.S. Individual Solutions division consists of our Individual Annuities and Individual Life businesses, and the Assurance IQ division consists of our Assurance IQ business. In October 2019, we completed the acquisition of 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. Divested and Run-off Businesses are comprisedconsist of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind downwind-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 customersDivested and tap into significant market opportunities through our U.S.Run-off Businesses PGIM (our investment management business) and our International Businesses.described above.

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.


Management expects that results will continue to benefit from our differentiated mix of market-leading businesses that complement each other to provide competitive advantages, earnings diversification and capital benefits from a balanced risk profile. While challenges exist in the form of a low interest rate environment (see “Impact of a Low Interest Rate Environment” below), fee compression in certain of our businesses and other market factors, we expect that our businesses will produce appropriate returns for the current market environment. We believe we are well-positioned to tap into market opportunities to meet the evolving needs of individual customers, workplace clients, and society at large. Our mix of high-quality protection, retirement and investment management businesses enables us to offer solutions that cover a broad range of financial needs and to engage with our clients through multiple channels, including the ability to sell solutions across a broad socio-economic spectrum through Assurance IQ’s digital platform. We aim to expand our addressable market, build deeper and longer-lasting relationships with customers and clients, and meaningfully improve their financial wellness.

In order to further increase our competitive advantage, we are working to enhance the experience of our customers and the capabilities of our businesses, which we expect will also help us realize improved margins. In 2019, we launched programs in pursuit of these objectives that will result in multi-year investments in technology, systems and employee reskilling, as well as severance and related charges, which we expect will result in significant expense efficiencies over the next several years. For the three and six months ended June 30, 2021, the Company estimates that the impact to results from these programs was a benefit of $130 million and $242 million, respectively, and, as of June 30, 2021, we continue to remain on track to accumulate approximately $750 million of annual run-rate cost savings by the end of 2023.

COVID-19

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 impactedThe pandemic continues to impact our results of operations in the current period and areis expected to drivecontinue to be a driver of future impacts to our results of operations.operations; however, the overall impacts to the Company have moderated recently and are expected to continue to moderate. The Company has taken several measures to manage the impacts of this crisis. The actual and expected impacts of these events and other items are included in the following update:

Outlook

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 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 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.Outlook.

U.S. Businesses:

While the virus continues to mutate and transmission remains high in select geographies, the vaccine rollout continues at an effective pace (with approximately 70% of the U.S. Workplace Solutions. Inadult population receiving at least one dose) and appears to be highly effective against hospitalization and death for variants to date; consequently, the Company has seen impacts begin to moderate and expects that the impacts from the pandemic on our Retirement business, we expect that account values in our full-service businessU.S. Businesses 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 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 indecline.
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•Specific outlook considerations for certain of our U.S. businesses include the current market, including in our funded pension risk transfer business, where we have seen a slowdown in the pipeline as a result of the impact of these market conditions on pension plan funding levels.following:

Retirement. Given that many of the products in our institutional investment products business assume longevity risk, elevated levels of mortality resulting from COVID-19 may continue resulting into contribute to a higher level of underwriting gainsgains; however, high vaccination rates among pensioners in this business. In our both the U.S. and the U.K. suggest that mortality rates will continue to normalize toward pre-pandemic mortality levels. The pandemic may also impact sales volumes.

Group Insurance business, weInsurance. We expect COVID-19 to drivecontinue to contribute to elevated levels of mortality resulting in increased life insurance claims in the near-term. In both Retirement and 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 individuals at the workplace; however,addition, we expect near-term revenue growth prospectselevated unemployment to be slowed by thedrive increased disability claims in this business. The pandemic may also impact of social distancing on new business sales volumes and the impact of employee financial hardships on utilization of workplace benefits.

U.S. Individual SolutionsLife. . In our Individual Life insurance business, weWe expect COVID-19 to drivecontinue to contribute to elevated levels of mortality, resulting in increased life insurance claims in the near-term. In our Individual Annuities business, we expect account values and fee income will be impacted by market volatility. Across our Individual Solutions businesses,addition, while we have taken pricingseen strong sales of key products, COVID-19 could impact sales prospects in the near-term.

International Businesses:

Through the first half of 2021, we continued to see an elevated level of claims due to COVID-19, mostly in Brazil and product actions, includingJapan; however, expenses to support our captive agents have decreased significantly compared to 2020. Japan has declared a series of COVID-19 driven states of emergency in 2021 across various prefectures, which are expected to be in effect through August, but are less restrictive than those from 2020. As the suspensionglobal pandemic continues to evolve, further tightening of our single life guaranteed universal life productCOVID-19 restrictions is possible, both in July 2020, to ensure we realize appropriate returns forJapan and in other markets, and depending on the current economic environment,specific circumstances 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 togeographies impacted, could adversely impact our sales prospects infor a period of time. We believe our needs-based selling and death protection focus are even more valuable to consumers based on the near-term. Sales to employeesglobal experience of COVID-19 and will help support the continued long-term growth of our Workplace Solutions clients may also be delayed asbusinesses.

•Results of Operations. See “—Results of Operations” and “—Results of Operations by Segment” for a resultdiscussion 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 inresults for the second quarter.quarter and the first six months of 2021.

Assurance IQ•Investment Portfolio. We expectWhile the economy continues to re-open and recover from the impacts of COVID-19, there could still be periods of volatility. The market expectations for credit migration and related losses continue to decrease. The sectors most impacted by the pandemic, including energy, consumer cyclical and retail related investments, have started to recover but may lag the general economic improvement. In certain instances, the Company may agree to modify an investment to provide forbearance, which grants borrowers additional time to make payments. As of June 30, 2021, approximately 1.6% 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 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.investment value.
International Businesses
•Sales and Flows. Our International Businesses remain focused on meeting customers’ protection and financial needs and maintaining the underlying strengthSee “—Segment Results 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 lower than expected returns on plan assets and 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-

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 sales and flows in each of our liquidity.segments.

•
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 quarterfirst six months of 2020,2021, we estimate that COVID-19 had a net positivenegative impact on our underwriting results reflecting unfavorable mortality impacts in our Group Insurance, Individual Life and International businesses, partially offset by favorable mortality impacts in our Retirement business. For the complementary risk profilethird quarter of our mortality and longevity exposures. Going forward, we estimate that our net2021, the Company expects underwriting results willto be adversely impacted by approximately $70$25 million for every incremental 100,000 fatalities in theour U.S. However,Businesses and approximately $20 million in our International Businesses; however, the ultimate impact on our underwriting results will depend on factors such as age,as: an insured’s age; geographic location, andconcentration; insured versus uninsured populations among the fatalities.fatalities; the transmissibility and virulence of the virus, including the potential for further mutation; and the acceptance rate and efficacy of the vaccine rollout.

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

•
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 insured 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
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even distribution of increased mortality across the population, whilewhich is more punitive to our business than our current understanding of COVID-19 mortality, which is sharply skewed toward older ages. As the COVID-19 eventpandemic continues to unfold, we continue to update our analysis and take management actions in response to this specific event.

As of June 30, 20202021, the COVID-19 pandemic hashad not reached the most severe levels of financial impacts included in the Company’s stress testing.

In addition, we expect the impact of COVID-19-relatedCOVID-19 related claims received to bedate have been moderated by the balance between our mortality exposure (such as in our individualIndividual Life and group lifeGroup Insurance businesses) and our longevity exposure (such as in our retirementRetirement 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” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

•Business Continuity. Throughout the COVID-19 pandemic, we have 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.

. 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 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-relatedCOVID-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 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 not aware of any new or proposed government mandates that could materially impact the Company’s solvency or liquidity position.


Regulatory Developments

DOL Fiduciary Rules

In June 2020, the 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 investments to qualified plans and IRAs. The DOL also reinstated the prior investment advice regulation and other existing exemptions and provided its current interpretation of the pre-2016 fiduciary investment advice regulation. We cannot predict what impact the newly proposed exemption or interpretative guidance will have on the 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;
•hedging costs and other risk mitigation activities;
•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, 2019.2020.

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 related 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 the first quarter of 2020.lows. 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 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 divisionBusinesses and our Corporate and Other operations, we estimate annual principal payments and prepayments that we would be required to reinvest to be approximately 5.5%6.8% of the fixed maturity security and commercial mortgage loan portfolios through 2021.2022. The portion of the general account attributable to these operations has approximately $248$234 billion of such assets (based on net carrying value) as of June 30, 2020.2021. The average portfolio yield for fixed maturity securities and commercial mortgage loans is approximately 4.1%3.8% as of June 30, 2020.2021.

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Included in the $248$234 billion of fixed maturity securities and commercial mortgage loans are approximately $155$173 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 $155$173 billion, approximately 55%52% 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. Operationsoperations excluding the Closed Block Division, by type, for the date indicated:
As of
June 30, 2021
(in billions)
Long-duration insurance products with fixed and guaranteed terms$146 
Contracts with adjustable crediting rates subject to guaranteed minimums61 
Participating contracts where investment income risk ultimately accrues to contractholders14 
Total$221 
 
As of
June 30, 2020
 (in billions)
Long-duration insurance products with fixed and guaranteed terms$157
Contracts with adjustable crediting rates subject to guaranteed minimums60
Participating contracts where investment income risk ultimately accrues to contractholders14
Total$231

The $157$146 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 $60$61 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, 2020,2021, 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:
           Range of Guaranteed Minimum
Crediting Rates:
Less than 1.00%$0.6
 $1.3
 $0.4
 $0.1
 $0.0
 $2.4
Less than 1.00%$1.0 $1.2 $0.1 $0.0 $0.0 $2.3 
1.00% - 1.99%1.1
 5.0
 11.5
 2.6
 1.1
 21.3
1.00% - 1.99%4.1 13.2 2.1 1.8 1.3 22.5 
2.00% - 2.99%1.3
 0.9
 0.5
 2.6
 1.2
 6.5
2.00% - 2.99%1.3 1.5 1.5 0.9 1.6 6.8 
3.00% - 4.00%24.8
 3.8
 0.2
 0.2
 0.0
 29.0
3.00% - 4.00%27.9 0.4 0.3 0.2 0.0 28.8 
Greater than 4.00%0.9
 0.0
 0.0
 0.0
 0.0
 0.9
Greater than 4.00%0.9 0.0 0.0 0.0 0.0 0.9 
Total(1)$28.7
 $11.0
 $12.6
 $5.5
 $2.3
 $60.1
Total(1)$35.2 $16.3 $4.0 $2.9 $2.9 $61.3 
Percentage of total48% 18% 21% 9% 4% 100%Percentage of total56 %27 %7 %5 %5 %100 %
 __________
(1)Includes approximately $0.68 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity.
(1)Includes approximately $0.51 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity.

The remaining $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 0.65%1.45% (which is reasonably consistent with recent rates) for the period from July 1, 20202021 through June 30, 20212022 (and credit spreads remain unchanged from average levels as of June 30, 2020)experienced during the second quarter 2021), 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
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and other loans (excluding assets supporting participating contracts), would be between $40$50 million and $80 million for the period from July 1, 20202021 through June 30, 2021.2022.

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. We also regularly examine our product offerings and their profitability. As a result, we may reprice certain products and discontinue sales of other products that do not meet our profit expectations.

Closed Block Division
Substantially all of the $61$59 billion of general account assets in the Closed Block division support obligations and 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.

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 also regularly examine our product offerings and their profitability. As a result, we have repricedmay reprice certain products, adjustedadjust commissions for certain products and have discontinueddiscontinue 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, 2021
(in billions)
Insurance products with fixed and guaranteed terms$138 
Contracts with a market value adjustment if invested amount is not held to maturity25 
Contracts with adjustable crediting rates subject to guaranteed minimums11 
Total$174 
 
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 maturity25
Contracts with adjustable crediting rates subject to guaranteed minimums11
Total$168

The $132$138 billion above is primarily comprised of long-duration insurance products that have fixed and guaranteed terms,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 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%0.65% and the 10-year U.S. Treasury rate is 0.65%1.45% (which is reasonably consistent with recent rates) for the period from July 1, 20202021 through June 30, 2021
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2022 (and credit spreads remain unchanged from average levels as of June 30, 2020)experienced during the second quarter 2021), 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$20 million and $80$40 million for the period from July 1, 20202021 through June 30, 2021.2022.
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,
2021202020212020
(in millions)
Revenues$15,917 $12,115 $32,869 $25,579 
Benefits and expenses13,144 14,447 26,682 28,249 
Income (loss) before income taxes and equity in earnings of operating joint ventures2,773 (2,332)6,187 (2,670)
Income tax expense (benefit)609 115 1,245 57 
Income (loss) before equity in earnings of operating joint ventures2,164 (2,447)4,942 (2,727)
Equity in earnings of operating joint ventures, net of taxes19 42 45 52 
Net income (loss)2,183 (2,405)4,987 (2,675)
Less: Income attributable to noncontrolling interests25 4 1 5 
Net income (loss) attributable to Prudential Financial, Inc.$2,158 $(2,409)$4,986 $(2,680)
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
 (in millions)
Revenues$12,115
 $15,388
 $25,579
 $30,479
Benefits and expenses14,447
 14,512
 28,249
 28,463
Income (loss) before income taxes and equity in earnings of operating joint ventures(2,332) 876
 (2,670) 2,016
Income tax expense (benefit)115
 162
 57
 394
Income (loss) before equity in earnings of operating joint ventures(2,447) 714
 (2,727) 1,622
Equity in earnings of operating joint ventures, net of taxes42
 24
 52
 53
Net income (loss)(2,405) 738
 (2,675) 1,675
Less: Income attributable to noncontrolling interests4
 30
 5
 35
Net income (loss) attributable to Prudential Financial, Inc.$(2,409) $708
 $(2,680) $1,640


Three Month Comparison. The $3,117$4,567 million decreaseincrease in “Net income (loss) attributable to Prudential Financial, Inc.” for the second quarter of 20202021 compared to the second quarter of 20192020 reflected the following notable items:

$2,136 million unfavorable variance,items on a pre-tax basis,basis:

•$2,283 million favorable variance from realized investment gains and losses for PFI excluding the Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities discussed below (see “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);
$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(losses) 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);
$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:

$114 million favorable variance, on a pre-tax basis, from realized investment gains and lossescharges for PFI excluding Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities and market experience updates discussed abovebelow (see “General Account Investments” for additional information).;

•$977 million favorable variance from higher adjusted operating income from our business segments (see “Segment Results of Operations” for additional information);

•$873 million favorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
•$832 million favorable variance from a gain in the current period from our Divested and Run-off Businesses compared to a loss in the prior year period (see “Results of Operations by Segment—Divested and Run-off Businesses” for additional information); and
•$169 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses (see Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information).

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” was a $494 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings.

Six Month Comparison. The$7,666 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” for the first six months of 2021 compared to the first six months of 2020 reflected the following notable items on a pre-tax basis:

•$3,109 million favorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
•$1,928 million favorable variance from higher adjusted operating income from our business segments, including a gain from the sale of the Company’s 35% ownership stake in Pramerica SGR in the current year period;
•$1,411 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses;
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•$1,203 million favorable variance from realized investment gains (losses) and related charges for PFI excluding Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities and market experience updates;
•$966 million favorable variance from a gain in the current period from our Divested and Run-off Businesses compared to a loss in the prior year period; and
•$331 million favorable variance from investment related activities that are primarily within “Other income (loss)” for PFI excluding our Divested and Run-off Businesses.

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” was a $1,188 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings.

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.

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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 and Six Months Ended
June 30,		Three and Six Months Ended
June 30,
2020 201920212020(1)
(in millions)(in millions)
Favorable (unfavorable) impact to adjusted operating income before income taxes by segment:   Favorable (unfavorable) impact to adjusted operating income before income taxes by segment:
U.S. Businesses:   U.S. Businesses:
U.S Workplace Solutions division:   
Retirement$(22) $154
Retirement$(18)$(22)
Group Insurance11
 9
Group Insurance1 11 
Total U.S. Workplace Solutions division(11) 163
U.S. Individual Solutions division:   
Individual Annuities(136) (12)Individual Annuities(15)(136)
Individual Life(92) (208)Individual Life7 (92)
Total U.S. Individual Solutions division(228) (220)
Total U.S. Businesses(239) (57)Total U.S. Businesses(25)(239)
International Businesses(1)(95) 11
International BusinessesInternational Businesses(14)(94)
Corporate and Other0
 0
Corporate and Other5 0 
Total segment favorable (unfavorable) impact to adjusted operating income before income taxes(334) (46)Total segment favorable (unfavorable) impact to adjusted operating income before income taxes(34)(333)
Reconciling items:   Reconciling items:
Realized investment gains (losses), net, and related adjustments302
 9
Realized investment gains (losses), net, and related adjustments6 302 
Charges related to realized investment gains (losses), net(41) 16
Charges related to realized investment gains (losses), net192 (41)
Divested and Run-off Businesses:   Divested and Run-off Businesses:
Closed Block division0
 (7)Closed Block division0 0 
Other Divested and Run-off Businesses(1)(33) (12)
Other Divested and Run-off BusinessesOther Divested and Run-off Businesses62 (34)
Favorable (unfavorable) impact to consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$(106) $(40)Favorable (unfavorable) impact to consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$226 $(106)
__________
(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.
(1)Effective third quarter of 2020, the results of POT and the impact of its 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.


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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 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,
2020 2019 2020 201920212020(1)20212020(1)
(in millions)(in millions)
Adjusted operating income before income taxes by segment:       Adjusted operating income before income taxes by segment:
PGIM$324
 $264
 $488
 $478
PGIM$315 $324 $966 $488 
U.S. Businesses:       U.S. Businesses:
U.S. Workplace Solutions division:
 
 
 
Retirement281
 467
 526
 718
Retirement491 281 1,114 526 
Group Insurance5
 81
 49
 134
Group Insurance17 5 (115)49 
Total U.S. Workplace Solutions division286
 548
 575
 852
U.S. Individual Solutions division:       
Individual Annuities249
 462
 622
 934
Individual Annuities472 249 916 622 
Individual Life(64) (135) (84) (30)Individual Life146 (64)102 (84)
Total U.S. Individual Solutions division185
 327
 538
 904
Assurance IQ division(1):       
Assurance IQ(16) 0
 (39) 0
Assurance IQ(38)(16)(77)(39)
Total Assurance IQ division(16) 0
 (39) 0
Total U.S. Businesses455
 875
 1,074
 1,756
Total U.S. Businesses1,088 455 1,940 1,074 
International Businesses(2)693
 790
 1,391
 1,649
International BusinessesInternational Businesses803 691 1,674 1,387 
Corporate and Other(541) (335) (883) (747)Corporate and Other(300)(541)(586)(883)
Total segment adjusted operating income before income taxes931
 1,594
 2,070
 3,136
Total segment adjusted operating income before income taxes1,906 929 3,994 2,066 
Reconciling items:       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):       
Realized investment gains (losses), net, and related adjustments(2)Realized investment gains (losses), net, and related adjustments(2)360 (3,268)1,624 (2,969)
Charges related to realized investment gains (losses), net(3)Charges related to realized investment gains (losses), net(3)4 519 (235)(283)
Market experience updatesMarket experience updates225 56 529 (882)
Divested and Run-off Businesses(4):Divested and Run-off Businesses(4):
Closed Block division(22) (21) (23) (40)Closed Block division31 (22)65 (23)
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)
Other Divested and Run-off BusinessesOther Divested and Run-off Businesses255 (524)285 (593)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(5)Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(5)5 (54)(49)(63)
Other adjustments(6)Other adjustments(6)(13)32 (26)77 
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$(2,332) $876
 $(2,670) $2,016
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$2,773 $(2,332)$6,187 $(2,670)
__________
(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)
(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. Effective third quarter of 2020, the results of POT and the impact of its 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)
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)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 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.

(2)See “—General Account Investments” and Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.
(3)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 (“URR”).
(4)Represents 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” for additional information.
(5)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.
(6)Represents adjustments not included in the above reconciling items. Also includes 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 the associated contingent consideration (see Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information).

Segment results for the period presented above reflect the following:

PGIM. Results for the second quarter of 20202021 decreased in comparison to the prior year period, primarily reflecting lower
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other related revenues and higher expenses, partially offset by an increase in asset management fees. Results for the first six months of 2021 increased in comparison to the prior year period, primarily reflecting increasesa gain from the sale of our 35% ownership stake in Pramerica SGR in the current year period, as well as an increase 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.higher expenses.


Retirement. Results for both the second quarter and the first six months of 2020 decreased2021 increased in comparison to the prior year periods, primarily reflecting an unfavorable comparative net impact from our annual reviews and updateinclusive 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 decreasedincreased, primarily reflecting lower underwriting results and lowerhigher net investment spread results.

Individual Annuities. Group Insurance.Results for both the second quarter and the first six months of 2020 decreased in comparison to the prior year periods, including2021 include 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 wereof 2021 increased in comparison to the prior year period, reflecting higher net spread results and more favorable underwriting results, partially offset by higher expenses. Results for the first six months of 2021 decreased in comparison to the prior year period, primarily reflecting lower underwriting results, partially offset by higher net investment spread results.

Individual Life.Annuities. Results for both the second quarter and the first six months of 2020 reflected a decrease in losses2021 increased in comparison to the prior year period, and results for the first six monthsperiods, inclusive 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 decreasedresults for both periods primarily reflecting lower net investment spread results and lower underwriting resultsincreased, driven by an unfavorable impact from mortality experience,higher fee income, net of reinsurance, partially offset by lower expenses.distribution expenses and other associated costs.

Assurance IQIndividual Life.. 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,2021 increased in comparison to the prior year periods, inclusive of a favorable comparative net impact from our annual reviews and update of marketingassumptions and distribution expenses,other refinements. Excluding this item, results for both periods increased, primarily due to higher net investment spread results. The results for the first six months of 2021 were partially offset by lower underwriting results.

Assurance IQ. Results for both the second quarter and the first six months of 2021 decreased in comparison to the prior year periods, reflecting an increase in 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).supporting business growth, partially offset by higher revenues.

International Businesses. Results for both the second quarter and the first six months of 2020 decreased2021 increased in comparison to the prior year periods, inclusive of an unfavorable net impact from foreign currency exchange rates and an unfavorablea favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding these items, results for the second
quarter of 2020both periods increased, primarily 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 bymore favorable underwriting results.results from business growth.

Corporate and Other. Results for both the second quarter of 2020 and the first six months of 20202021 reflected increaseddecreased losses in comparison to the prior year periods, reflecting higherprimarily driven by lower 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.results and lower interest expense on debt.


Closed Block Division. Results for both the second quarter and the first six months of 2020 reflected an increase in losses2021 increased in comparison to the prior year period,periods, primarily reflectingdriven by higher net investment activity results, partially offset by 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.obligation.

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,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 13 to the Unaudited Interim Consolidated Financial Statements for additional information on the presentation of segment results and our definition of adjusted operating income.

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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.

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.Japan.

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-

denominatedUSD-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.

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June 30,
2020		 December 31,
2019		June 30,
2021		December 31,
2020
(in billions) (in billions)
Foreign currency hedging instruments:   Foreign currency hedging instruments:
Hedging USD-equivalent earnings:   Hedging USD-equivalent earnings:
Forward currency contracts (notional amount outstanding)$0.4
 $0.6
Forward currency contracts (notional amount outstanding)$0.3 $0.4 
Hedging USD-equivalent equity:   Hedging USD-equivalent equity:
USD-denominated assets held in yen-based entities(1)10.9
 13.1
USD-denominated assets held in yen-based entities(1)9.5 10.1 
Dual currency and synthetic dual currency investments(2)0.6
 0.6
Dual currency and synthetic dual currency investments(2)0.5 0.5 
Total USD-equivalent equity foreign currency hedging instruments11.5
 13.7
Total USD-equivalent equity foreign currency hedging instruments10.0 10.6 
Total foreign currency hedges$11.9
 $14.3
Total foreign currency hedges$10.3 $11.0 
__________
(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.
(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 $68.5 billion and $65.8 billion as of June 30, 2021 and December 31, 2020, 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 aretransactions 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 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 our 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, 2020,2021, approximately 4%9% of the segment’s earnings were yen-based and, as of June 30, 2020,2021, we have hedged 100%, 92% and 50% of expected yen-based earnings for 2020, 2021, 2022 and 2022,2023, 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.
 
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As a result of these arrangements, our International Businesses’ results for 20202021 and 20192020 reflect the impact of translating yen-denominated earnings at fixed currency exchange rates of 104103 and 105104 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,		 Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 2019 2021202020212020
(in millions) (in millions)
Segment impacts of intercompany arrangements:       Segment impacts of intercompany arrangements:
International Businesses(3)$19
 $11
 $31
 $26
International BusinessesInternational Businesses$0 $19 $1 $31 
PGIM2
 2
 2
 3
PGIM(1)2 (1)2 
Impact of intercompany arrangements(1)21
 13
 33
 29
Impact of intercompany arrangements(1)(1)21 0 33 
Corporate and Other:       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
Impact of intercompany arrangements(1)Impact of intercompany arrangements(1)1 (21)0 (33)
Settlement gains (losses) on forward currency contracts(2)Settlement gains (losses) on forward currency contracts(2)6 20 14 42 
Net benefit (detriment) to Corporate and Other(1) 3
 9
 0
Net benefit (detriment) to Corporate and Other7 (1)14 9 
Net impact on consolidated revenues and adjusted operating income$20
 $16
 $42
 $29
Net impact on consolidated revenues and adjusted operating income$6 $20 $14 $42 
__________ 
(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)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.
(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, 2021 and 2020, the total notional amounts of these forward currency contracts within our Corporate and Other operations were $0.9 billion and $1.1 billion, respectively, of which $0.3 billion and $0.4 billion, respectively, were related to our Japanese insurance operations.

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,currencies. This is most notablynotable in our Japanese operations, which currently offer USD- andprimarily USD-denominated products, but have also historically offered 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 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$2.1 billion and $2.7$2.3 billion as of June 30, 20202021 and December 31, 2019,2020, 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%6% of the $2.5$2.1 billion balance as of June 30, 20202021 will be recognized throughout the remainder of 2020,2021, approximately 13%12% will be recognized in 2021,2022, and the remaining balance will be recognized from 20222023 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,
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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.

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 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

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 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
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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. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of June 30, 2020,2021, our domestic variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a 5.1%0% 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%0.5% 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 20202021 annual reviews and update of assumptions and other refinements, we reducedkept 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 pointsunchanged and nowcontinue to grade to a raterates of 3.25% and 1.00%, respectively, 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.

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, 20192020.

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, in November 2020 the FASB voted in June 2020 issued ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application 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 either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2021)2020 or January 1, 2021, respectively) 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. The Company currently intends to adopt ASU 2018-12 effective January 1, 2023. 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 howthe pattern of earnings emerge thereafter.emergence following the transition date. 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


Business Updates

•In March 2021, we sold our 35% ownership stake in Pramerica SGR, an asset management joint venture in Italy, to our partner UBI Banca, (acquired in 2020 by Intesa Sanpaolo Group), resulting in a pre-tax gain of $378 million. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.
•In July 2021, we signed a definitive agreement to acquire Montana Capital Partners, a European-based private equity secondaries asset manager with approximately $3 billion of assets under management, subject to regulatory approvals and customary closing conditions.

Operating Results

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

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Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 20192021202020212020
(in millions)(in millions)
Operating results(1):       Operating results(1):
Revenues$957
 $926
 $1,735
 $1,796
Revenues$1,009 $957 $2,323 $1,735 
Expenses633
 662
 1,247
 1,318
Expenses694 633 1,357 1,247 
Adjusted operating income324
 264
 488
 478
Adjusted operating income315 324 966 488 
Realized investment gains (losses), net, and related adjustments(1) 1
 3
 1
Realized investment gains (losses), net, and related adjustments(1)(1)(3)3 
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(6) 30
 (42) 35
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests25 (6)(3)(42)
Income (loss) before income taxes and equity in earnings of operating joint ventures$317
 $295
 $449
 $514
Income (loss) before income taxes and equity in earnings of operating joint ventures$339 $317 $960 $449 
 __________
(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.
(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 bydecreased $9 million, reflecting 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 earnedfavorable seed and co-investment results from the impact of tightening credit spreads on fixed income investments in the prior year period. These increasesperiod, and higher compensation expenses associated with certain long-term employee compensation plans and business growth. Also contributing to the decrease were partially offset by a decrease inlower service, distribution and other revenues primarily reflectingdriven by the absence of feesearnings from our Pramerica SGR joint venture that was sold 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 infirst quarter of 2021. The decreases were partially offset by higher asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation including strong investment performance, and fixed income inflows. Theflows.

Six Month Comparison. Adjusted operating income increased $478 million, primarily reflecting an 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 todriven by a gain from the absencesale of feesour Pramerica SGR joint venture in the current year period and higher asset management fees, net of related expenses, due to the Wells Fargo agreement.higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows. The increases were partially offset by higher compensation expenses associated with certain long-term employee compensation plans and business growth.

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.

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Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 20192021202020212020
(in millions)(in millions)
Revenues by type:       Revenues by type:
Asset management fees by source:       Asset management fees by source:
Institutional customers$325
 $319
 $653
 $631
Institutional customers$349 $325 $697 $653 
Retail customers(1)227
 220
 456
 429
Retail customers(1)307 227 609 456 
General account138
 132
 274
 255
General account147 138 292 274 
Total asset management fees690
 671
 1,383
 1,315
Total asset management fees803 690 1,598 1,383 
Other related revenues by source:       Other related revenues by source:
Incentive fees17
 62
 35
 98
Incentive fees24 17 51 35 
Transaction fees4
 10
 8
 12
Transaction fees4 4 9 8 
Strategic investing64
 18
 37
 54
Seed and co-investmentsSeed and co-investments33 64 38 37 
Commercial mortgage(2)32
 25
 59
 51
Commercial mortgage(2)25 32 70 59 
Total other related revenues(3)117

115

139

215
Service, distribution and other revenues(4)150
 140
 213
 266
Total other related revenuesTotal other related revenues86 117 168 139 
Service, distribution and other revenuesService, distribution and other revenues120 150 557 213 
Total revenues$957
 $926
 $1,735
 $1,796
Total revenues$1,009 $957 $2,323 $1,735 
__________
(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 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.
(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 revenues from our commercial mortgage origination and servicing business.

Three Month Comparison. Revenues increased $31$52 million.Asset management fees increased primarily reflecting an increase inhigher average assets under management as a result of market appreciation including strong investment performance, and fixed income inflows.flows. Other related revenues increaseddecreased 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 earnedfavorable seed and co-investment results from the impact of tightening credit spreads in the prior year period. Service, distribution and other revenues increaseddecreased 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 absencesale of feesour Pramerica SGR joint venture in the current year period related to the Wells Fargo agreement.prior quarter.

Expenses decreased $29increased $61 million. Expenses decreased,This increase primarily reflects higher variable expenses associated with an increase in overall segment earnings, and higher compensation expenses 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.well as business growth.

Six Month Comparison. Revenues decreased $61increased $588 million. Service, distribution and other revenues increased primarily reflecting a gain from the sale of our Pramerica SGR joint venture in the current year period. Asset management fees increased primarily reflecting an increase inhigher average assets under management as a result of market appreciation including strong investment performance, 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.flows.

Expenses decreased $71increased $110 million. Expenses for service, distribution and other revenues decreasedThis increase primarily driven by lower revenues associated with certain consolidated funds as discussed above. Also contributing to the decrease were lowerreflects higher variable expenses associated with lower performance-based incentive fee revenuesan increase in overall segment earnings, and a temporary pause in travel and entertainment duehigher compensation expenses driven by certain long-term employee compensation plans tied to COVID-19.performance factors, as well as business growth.


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Assets Under Management

The following table sets forth assets under management by asset class and source as of the dates indicated.
June 30, 2021December 31, 2020June 30, 2020(1)
June 30, 2020 December 31, 2019 June 30, 2019 (in billions)
(in billions)
Assets Under Management(1) (at fair value):     
Institutional customers:     
Assets Under Management(2) (at fair value):Assets Under Management(2) (at fair value):
Public equity$48.9
 $57.1
 $54.9
Public equity$212.6 $202.4 $162.6 
Public fixed income443.9
 418.6
 404.7
Public fixed income987.4 1,004.5 950.7 
Real estate48.9
 49.1
 48.3
Real estate125.6 121.5 117.9 
Private credit and other alternatives24.7
 23.5
 23.0
Private credit and other alternatives104.8 106.5 102.3 
Multi-asset4.8
 4.5
 4.0
Multi-asset81.0 63.7 61.0 
Institutional customers(2)571.2
 552.8
 534.9
Retail customers:     
Public equity109.7
 104.2
 105.2
Public fixed income152.0
 138.7
 119.7
Real estate1.8
 2.0
 1.9
Private credit and other alternatives0.5
 0.5
 0.3
Multi-asset56.2
 60.2
 60.8
Retail customers(3)320.2
 305.6
 287.9
General account:     
Public equity4.0
 4.4
 4.0
Public fixed income354.8
 328.6
 321.9
Real estate67.2
 66.0
 63.5
Private credit and other alternatives77.1
 73.5
 70.3
Multi-asset0.0
 0.1
 0.1
General account503.1
 472.6
 459.8
Total PGIM assets under management(4)$1,394.5
 $1,331.0
 $1,282.6
Total PGIM assets under managementTotal PGIM assets under management$1,511.4 $1,498.6 $1,394.5 
     
Assets under management within other reporting segments(4)(5)$210.8
 $219.9
 $214.8
Assets under management within other reporting segments(3)Assets under management within other reporting segments(3)218.6 222.3 210.8 
Total PFI assets under management$1,605.3
 $1,550.9
 $1,497.4
Total PFI assets under management$1,730.0 $1,720.9 $1,605.3 
__________
(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.
(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.

(1)Prior period amounts have been updated to conform to current period presentation.
(2)“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 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.
(3)Primarily includes certain product-related assets in our U.S. Businesses and certain general account assets in 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 by our Chief Investment Officer Organization.

PGIM’s assets under management as of June 30, 2021increased $112$117 billion in comparison to the prior year quarter, primarily reflecting market appreciation including strong investment performance, and public fixed income inflows, partially offset by public equity outflows. PGIM’s assets under management increased $64$13 billion in comparison to the prior year-endyear end, primarily reflecting market appreciationappreciation.

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

 June 30, 2021December 31, 2020June 30, 2020
 (in billions)
Assets Under Management(1) (at fair value):
Institutional customers$618.6 $614.9 $571.2 
Retail customers401.2 372.0 320.2 
General account491.6 511.7 503.1 
Total PGIM assets under management$1,511.4 $1,498.6 $1,394.5 
Assets under management within other reporting segments(2)218.6 222.3 210.8 
Total PFI assets under management$1,730.0 $1,720.9 $1,605.3 
__________
(1)“Institutional customers” consist of third-party institutional assets and publicgroup insurance contracts. “Retail customers” consist 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. “General account” also includes fixed income inflows, partially offsetannuities and the fixed-rate accounts of variable annuities and variable life insurance.
(2)Primarily includes certain product-related assets in our U.S. Businesses and certain general account assets in our International Businesses. These assets are not directly managed by public equity outflows.PGIM, but rather are invested in non-proprietary funds or are managed by either the divisions themselves or by our Chief Investment Officer Organization.

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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 management571.2
 534.9
 571.2
 534.9
 571.2
Retail Customers(4):         
Beginning assets under management282.4
 279.1
 305.6
 260.2
 287.9
Net additions (withdrawals), excluding money market activity:         
Third-party9.4
 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 management320.2
 287.9
 320.2
 287.9
 320.2
General Account:         
Beginning assets under management488.5
 441.0
 472.6
 427.8
 459.8
Net additions (withdrawals), excluding money market activity:         
Third-party0.0
 0.0
 0.0
 0.0
 0.0
Affiliated0.1
 1.0
 0.8
 1.6
 5.3
Total0.1
 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 management503.1
 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
Three Months Ended June 30,Six Months Ended June 30,Twelve
Months
Ended
June 30,
20212020(1)20212020(1)2021
 (in billions)
Beginning assets under management$1,451.3 $1,295.7 $1,498.6 $1,331.0 $1,394.5 
Institutional third-party flows5.6 (5.7)6.7 (1.5)11.2 
Retail third-party flows(0.3)9.4 4.1 8.1 13.2 
Total third-party flows5.3 3.7 10.8 6.6 24.4 
Affiliated flows(2)(6.2)(14.2)(9.6)(3.4)(14.7)
Market appreciation (depreciation)(3)60.2 103.3 16.9 39.6 124.0 
Foreign exchange rate impact(0.3)1.1 (7.7)(0.7)(0.2)
Net money market activity and other increases (decreases)1.1 4.9 2.4 21.4 (16.6)
Ending assets under management$1,511.4 $1,394.5 $1,511.4 $1,394.5 $1,511.4 
__________
(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.

(1)Prior period amounts have been updated to conform to current period presentation.
Strategic Investments(2)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.
(3)Includes income reinvestment, where applicable.

Private Capital Deployment

Private capital deployment is indicative of the pace and magnitude of capital that is invested and will result in future revenues that may include management fees, transaction fees, incentive fees and servicing revenues, as well as future costs to manage these assets.

Private capital deployment represents the gross value of private capital invested in real estate debt and equity, and private credit and equity asset classes. Assets under management resulting from private capital deployment are included in “Real estate” and “Private credit and other alternatives” in the “—Assets Under Management— by asset class table” above. As of June 30, 2021, these assets increased approximately $3.6 billion compared to December 31, 2020, primarily reflecting private capital deployed, partially offset by capital returned to investors.

Private capital deployment includes PGIM’s real estate agency debt business, which consists of agency commercial loans that are originated and sold to third party investors. PGIM continues to service these commercial loans; however, they are not included in assets under management.

The following table sets forth PGIM’s strategicprivate capital deployed by asset class for the periods indicated.

 Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
 (in billions)
Private capital deployed:
Real estate debt and equity$6.4 $3.6 $12.2 $7.9 
Private credit and equity4.5 2.4 6.6 4.8 
Total private capital deployed$10.9 $6.0 $18.8 $12.7 

Seed and Co-Investments

As of June 30, 2021 and December 31, 2020, PGIM had approximately $1,186 million and $1,205 million of seed investments and $551 million and $685 million of co-investments at carrying value, (including the valuerespectively, primarily consisting 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 estate210
 228
Private credit and other alternatives22
 19
Seed Investments(1):   
Public equity635
 671
Public fixed income343
 325
Real estate31
 34
Private credit and other alternatives61
 59
Multi-asset63
 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, public equity and real estate co-investments.investments.

U.S. Businesses

Operating Results
 
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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 Three Months Ended
June 30,		Six Months Ended June 30,
2020 2019 2020 2019 2021202020212020
(in millions)(in millions)
Adjusted operating income before income taxes:       Adjusted operating income before income taxes:
U.S. Businesses:       U.S. Businesses:
U.S. Workplace Solutions division:       
Retirement$281
 $467
 $526
 $718
Retirement$491 $281 $1,114 $526 
Group Insurance5
 81
 49
 134
Group Insurance17 5 (115)49 
Total U.S. Workplace Solutions division286
 548
 575
 852
U.S. Individual Solutions division:       
Individual Annuities249
 462
 622
 934
Individual Annuities472 249 916 622 
Individual Life(64) (135) (84) (30)Individual Life146 (64)102 (84)
Total U.S. Individual Solutions division185
 327
 538
 904
Assurance IQ division(1):       
Assurance IQ(16) 0
 (39) 0
Assurance IQ(38)(16)(77)(39)
Total Assurance IQ division(16) 0
 (39) 0
Total U.S. Businesses455
 875
 1,074
 1,756
Total U.S. Businesses1,088 455 1,940 1,074 
Reconciling Items:       Reconciling Items:
Realized investment gains (losses), net, and related adjustments(2)(2,188) (677) (2,428) (1,771)
Realized investment gains (losses), net, and related adjustmentsRealized investment gains (losses), net, and related adjustments(165)(2,188)1,724 (2,428)
Charges related to realized investment gains (losses), net551
 2
 (265) 33
Charges related to realized investment gains (losses), net10 551 (226)(265)
Market experience updates(3)96
 (170) (844) (170)
Other adjustments(4)32
 0
 77
 0
Market experience updatesMarket experience updates223 96 530 (844)
Other adjustments(1)Other adjustments(1)(13)32 (26)77 
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests0
 1
 1
 1
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests2 0 2 1 
Income (loss) before income taxes and equity in earnings of operating joint ventures$(1,054) $31
 $(2,385) $(151)Income (loss) before income taxes and equity in earnings of operating joint ventures$1,145 $(1,054)$3,944 $(2,385)
________
(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.

(1)Represents adjustments not included in the above reconciling items. Also includes 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 the associated contingent consideration (see Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information).
(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)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.

Three Month Comparison. Adjusted operating income for our U.S. Businesses decreasedincreased by $420$633 million primarily due to:

Lower•Higher net investment spread results driven by lowerhigher income on non-coupon investments;

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

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

•Partially offsetting these decreasesincreases were the following items:

Higherlower underwriting results primarily driven by our Retirement business due to higher reserve gains driven bylower COVID-19 related mortality gains; andgains in our Retirement business.

Lower expenses, including costs associated with strategic initiatives.

Six Month Comparison. Adjusted operating income for our U.S. Businesses decreasedincreased by $682$866 million primarily due to:

Lower•Higher net investment spread results driven by lowerhigher income on non-coupon investments;

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

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

•Partially offsetting these increases were lower underwriting results primarily driven by COVID-19 related mortality claims in our Group Insurance and Individual Life businesses.

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Table of profitability inContents
Retirement

Business Update

•In July 2021, the prior year period, which beginning withCompany entered into a definitive agreement to sell its Full Service Retirement business (the Company’s retirement plan recordkeeping and administration business) to Great-West Life & Annuity Insurance Company. The transaction involves the secondsale of legal entities, reinsurance, and the transfer of contracts and brokerage accounts, and is expected to close by the first quarter of 2019 is excluded from adjusted operating income (see2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. See Note 1315 to the Unaudited Interim Consolidated Financial Statements for additional information).

Partially offsetting these decreases was the following item:

Lower expenses, including costs associated with strategic initiatives.

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

Retirement

Operating Results

The following table sets forth Retirement’s operating results for the periods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results:
Revenues$2,683 $2,992 $5,274 $5,429 
Benefits and expenses2,192 2,711 4,160 4,903 
Adjusted operating income491 281 1,114 526 
Realized investment gains (losses), net, and related adjustments365 16 (115)(5)
Charges related to realized investment gains (losses), net(20)12 (7)(11)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests2 0 2 1 
Income (loss) before income taxes and equity in earnings of operating joint ventures$838 $309 $994 $511 
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
 (in millions)
Operating results:       
Revenues$2,992
 $3,586
 $5,429
 $6,225
Benefits and expenses2,711
 3,119
 4,903
 5,507
Adjusted operating income281
 467
 526
 718
Realized investment gains (losses), net, and related adjustments(1)16
 38
 (5) 168
Charges related to realized investment gains (losses), net12
 8
 (11) 11
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests0
 1
 1
 1
Income (loss) before income taxes and equity in earnings of operating joint ventures$309
 $514
 $511
 $898
__________ 
(1)Prior period amounts have been updated to conform to current period presentation.


Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $186increased $210 million, primarily reflecting an unfavorableincluding a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of 2021 and 2020 included a net chargecharges of $18 million and $22 million, respectively, 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 these updates, primarily driven by a reduction in expected benefit payments. Excluding this item, adjusted operating income decreased $10increased $206 million, primarily driven by lower net investment spread results, partially offset by higher reserve gains. The decrease in net investment spread results, primarily reflected lowerreflecting higher income on non-coupon investments. The higherThis increase was partially offset by a lower contribution from reserve experience was primarily driven by highera decline in COVID-19 related mortality gains.gains compared to the prior year period.

Six Month Comparison. Adjusted operating income decreased $192increased $588 million, primarily reflecting an unfavorableincluding 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 decreased $16increased $584 million, primarily driven by lower net investment spread results, partially offset by higher reserve gains. The decrease in net investment spread results, primarily reflected lowerreflecting higher income on non-coupon investments. The higher contribution from reserve experience was primarily driven by higher COVID-19 related mortality gains.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues decreased $594 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $600 million. This decrease primarily reflected$309 million, reflecting lower pension risk transfer premiums with corresponding offsets in policyholders’ benefits, as discussed below. This decrease also reflected lowerwas partially offset by higher net investment income and other income, primarily reflecting lowerhigher income on non-coupon investments.

Benefits and expenses decreased $408$519 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $590$515 million. Policyholders’ benefits, including the change in policy reserves, decreased primarily related to the decrease in pension risk transfer premiums discussed above, as well as a higher contribution frompartially offset by less favorable reserve experience primarily driven by highera decline in COVID-19 related mortality gains.

Six Month Comparison. Revenues decreased $796 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $802 million. This decrease primarily reflected$155 million, reflecting lower pension risk transfer premiums with corresponding offsets in policyholders’ benefits, as discussed below. This decrease also reflected lowerwas partially offset by higher net investment income and other income, primarily reflecting lowerhigher income on non-coupon investments.
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Benefits and expenses decreased $604$743 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $786$739 million. Policyholders’ benefits, including the change in policy reserves, decreased primarily related to the decrease in pension risk transfer premiums discussed above, as well as a higher contribution frompartially offset by less favorable reserve experience primarily driven by highera decline in COVID-19 related 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 sinceas 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,		Three Months Ended
June 30,		Six Months Ended
June 30,		Twelve
Months
Ended
June 30,
2020 2019 2020 2019 202020212020202120202021
(in millions)(in millions)
Full Service:         Full Service:
Beginning total account value$238,435
 $251,071
 $272,448
 $231,669
 $262,133
Beginning total account value$326,156 $238,435 $315,227 $272,448 $266,433 
Deposits and sales5,455
 11,047
 14,407
 20,614
 30,187
Deposits and sales7,420 5,455 18,353 14,407 44,860 
Withdrawals and benefits(7,040) (7,259) (15,708) (16,364) (35,050)Withdrawals and benefits(8,006)(7,040)(17,366)(15,708)(36,310)
Change in market value, interest credited and interest income and other activity29,583
 7,274
 (4,714) 26,214
 9,163
Change in market value, interest credited and interest income and other activity16,404 29,583 25,760 (4,714)66,991 
Ending total account value$266,433
 $262,133
 $266,433
 $262,133
 $266,433
Ending total account value$341,974 $266,433 $341,974 $266,433 $341,974 
Institutional Investment Products:         Institutional Investment Products:
Beginning total account value$227,346
 $203,101
 $227,596
 $200,759
 $215,978
Beginning total account value$247,496 $227,346 $243,387 $227,596 $231,142 
Additions(1)4,545
 15,044
 11,438
 17,291
 25,248
Additions(1)661 4,545 10,421 11,438 21,452 
Withdrawals and benefits(3,527) (4,161) (9,037) (7,810) (17,970)Withdrawals and benefits(5,744)(3,527)(11,386)(9,037)(20,637)
Change in market value, interest credited and interest income3,000
 2,826
 5,435
 5,470
 9,054
Change in market value, interest credited and interest income1,346 3,000 693 5,435 4,112 
Other(2)(222) (832) (4,290) 268
 (1,168)Other(2)84 (222)728 (4,290)7,774 
Ending total account value$231,142
 $215,978
 $231,142
 $215,978
 $231,142
Ending total account value$243,843 $231,142 $243,843 $231,142 $243,843 
__________
(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)
(1)Additions primarily include: group annuities and funded pension reinsurance calculated based on premiums received; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust; and funding agreements issued.
(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, 2021 and 2020, and 2019, “Other” activity also includes $581 million in receipts offset by $731 million in payments and $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, 2021 and 2020, includes $1,302 million in receipts offset by $1,496 million in payments and $5,366 million in receipts offset by $5,276 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, 2021 primarily reflected unfavorablefavorable changes in the market value of customer funds and net withdrawals and benefits.

Thebenefits, while the increase in institutional investment products account values for the three months, six months and twelve months ended June 30, 20202021 primarily reflected favorable changes in the market value of customer funds and net additions.

The decrease in Institutional Investment Products account assets. Account values for the three months ended June 30, 2020 also2021 reflected net additions fromwithdrawals primarily driven by pension risk transfer activityrun-off and investment-only stable value accounts. Accountaccount withdrawals. The increase in account values for the six months ended June 30, 2020 also2021 reflected net additions from collateralized funding agreements and investment-only stable value accounts, which were partially offset by pension risk transfer activity, and a decreasean increase in other activity primarily driven by the negative impactspositive impact of foreign exchange rate changes. Accountchanges, a favorable change in the market value of account assets, partially offset by net withdrawals. The increase in account values for the twelve months ended June 30, 2020 also2021 primarily reflected net additions from pension risk transferan increase in
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other activity primarily driven by the positive impact of foreign exchange rate changes, and collateralized funding agreements.an increase in the market value of account assets.

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,		Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 20192021202020212020
($ in millions)($ in millions)
Operating results:       Operating results:
Revenues$1,471
 $1,461
 $2,895
 $2,902
Revenues$1,518 $1,471 $3,074 $2,895 
Benefits and expenses1,466
 1,380
 2,846
 2,768
Benefits and expenses1,501 1,466 3,189 2,846 
Adjusted operating income5
 81
 49
 134
Adjusted operating income17 5 (115)49 
Realized investment gains (losses), net, and related adjustments(10) 8
 71
 9
Realized investment gains (losses), net, and related adjustments9 (10)(25)71 
Income (loss) before income taxes and equity in earnings of operating joint ventures$(5) $89
 $120
 $143
Income (loss) before income taxes and equity in earnings of operating joint ventures$26 $(5)$(140)$120 
Benefits ratio(1)(4):       Benefits ratio(1)(4):
Group life(2)93.0% 90.2% 90.7% 89.6%Group life(2)91.1 %93.0 %97.8 %90.7 %
Group disability(2)74.0% 65.3% 75.0% 69.9%Group disability(2)80.9 %74.0 %80.7 %75.0 %
Total Group Insurance(2)89.0% 84.7% 87.3% 85.3%Total Group Insurance(2)88.7 %89.0 %93.9 %87.3 %
Administrative operating expense ratio(3)(4):       Administrative operating expense ratio(3)(4):
Group life11.8% 12.2% 12.1% 11.9%Group life11.0 %11.8 %10.9 %12.1 %
Group disability26.1% 24.2% 25.4% 25.5%Group disability32.7 %26.1 %32.5 %25.4 %
Total Group Insurance14.9% 14.8% 15.0% 14.8%Total Group Insurance16.1 %14.9 %15.9 %15.0 %
__________ 
(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.
(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 91.1%, 80.9% and 88.8% for the three months ended June 30, 2021, respectively, 97.8%, 80.7% and 93.9% for the six months ended June 30, 2021, respectively, 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, and 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively.
(3)Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.
(4)The benefits and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $76increased $12 million, including a favorablean unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of 20202021 and 20192020 included a net benefit from this update of $11$1 million and $9$11 million, respectively. Excluding this item, adjusted operating income decreased $78increased $22 million, primarily reflecting lowermore favorable underwriting results in our group life business driven by unfavorable claim experience mostly due toa decline in COVID-19 impacts on non-experience-rated contracts. The decrease also reflected lowercontracts, and higher net investment spread results driven by lowerhigher income on non-coupon investments. These increases were partially offset by lower underwriting results in our group disability business driven by less favorable claims experience on long-term disability contracts and higher expenses.

Six Month Comparison. Adjusted operating income decreased $85$164 million, including a favorablean unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income decreased $87$154 million, primarily reflecting lower underwriting results in our group life business driven by unfavorableless favorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts, and lower underwriting results in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts. The decrease also reflected lowerThese decreases were partially offset by higher net investment spread results driven by lowerhigher income on non-coupon investments.

Revenues, Benefits and Expenses
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Three Month ComparisonComparison. . Revenues increased $10$47 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $21increased $69 million. The decreaseincrease 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.and group disability businesses, and higher net investment income driven by higher income on non-coupon investments.

Benefits and expenses increased $86$35 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $57$47 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves which reflected increases in our group lifedisability business mostly due to COVID-19 impacts. The increase was partially offsetdriven by lower interest credited to policyholder account balances, with partial offsets in net investment income, as discussed above.a less favorable impact from claims experience on long-term disability contracts and higher general and administrative expenses.


Six Month ComparisonComparison. . Revenues decreased $7increased $179 million. Excluding the impact fromof our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $38increased $201 million. The decreaseincrease 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 byin our group life business due to COVID-19 impacts on experience-rated contracts, with offsets in policyholders’ benefits and changes in reserves, as discussed below, as well as growth in our group life and group disability businesses.

Benefits and expenses increased $78$343 million. Excluding the impact fromof our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $49$355 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, which reflectedincluding increases in our group life business mostly due to COVID-19 impacts. The increase was partially offsetimpacts on both experience- and non-experience-rated contracts, and increases in our group disability business driven by lower interest credited to policyholder account balances, with partial offsets in net investment income, as discussed above.a less favorable impact from claims experience on long-term disability contracts.

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,		 Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 2019 2021202020212020
(in millions) (in millions)
Annualized new business premiums(1):       Annualized new business premiums(1):
Group life$8
 $17
 $181
 $191
Group life$16 $8 $191 $181 
Group disability18
 16
 126
 135
Group disability35 18 155 126 
Total$26
 $33
 $307
 $326
Total$51 $26 $346 $307 
__________ 
(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.
(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 and six months ended June 30, 2020 decreased $72021 increased $25 million and $39 million, respectively, compared to the prior year period,periods, primarily driven by lowerhigher 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 ourdisability and group life and group disability businesses. Sales levels reflect pricing competitiveness and reduced levels

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

Individual AnnuitiesAccount 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 as 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,
20212020202120202021
(in millions)
Full Service:
Beginning total account value$326,156 $238,435 $315,227 $272,448 $266,433 
Deposits and sales7,420 5,455 18,353 14,407 44,860 
Withdrawals and benefits(8,006)(7,040)(17,366)(15,708)(36,310)
Change in market value, interest credited and interest income and other activity16,404 29,583 25,760 (4,714)66,991 
Ending total account value$341,974 $266,433 $341,974 $266,433 $341,974 
Institutional Investment Products:
Beginning total account value$247,496 $227,346 $243,387 $227,596 $231,142 
Additions(1)661 4,545 10,421 11,438 21,452 
Withdrawals and benefits(5,744)(3,527)(11,386)(9,037)(20,637)
Change in market value, interest credited and interest income1,346 3,000 693 5,435 4,112 
Other(2)84 (222)728 (4,290)7,774 
Ending total account value$243,843 $231,142 $243,843 $231,142 $243,843 
__________
(1)Additions primarily include: group annuities and funded pension reinsurance calculated based on premiums received; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust; and funding agreements issued.
(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, 2021 and 2020, “Other” activity also includes $581 million in receipts offset by $731 million in payments and $2,614 million in receipts offset by $2,740 million in payments, respectively, and for the six months ended June 30, 2021 and 2020, includes $1,302 million in receipts offset by $1,496 million in payments and $5,366 million in receipts offset by $5,276 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, 2021 primarily reflected favorable changes in the market value of customer funds and net withdrawals and benefits, while the increase for the six and twelve months ended June 30, 2021 primarily reflected favorable changes in the market value of customer funds and net additions.

The decrease in Institutional Investment Products account values for the three months ended June 30, 2021 reflected net withdrawals primarily driven by pension risk transfer run-off and investment-only stable value account withdrawals. The increase in account values for the six months ended June 30, 2021 reflected an increase in other activity primarily driven by the positive impact of foreign exchange rate changes, a favorable change in the market value of account assets, partially offset by net withdrawals. The increase in account values for the twelve months ended June 30, 2021 primarily reflected an increase in
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other activity primarily driven by the positive impact of foreign exchange rate changes, and an increase in the market value of account assets.

Group Insurance

Operating Results

The following table sets forth Individual Annuities’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,
2021202020212020
($ in millions)
Operating results:
Revenues$1,518 $1,471 $3,074 $2,895 
Benefits and expenses1,501 1,466 3,189 2,846 
Adjusted operating income17 5 (115)49 
Realized investment gains (losses), net, and related adjustments9 (10)(25)71 
Income (loss) before income taxes and equity in earnings of operating joint ventures$26 $(5)$(140)$120 
Benefits ratio(1)(4):
Group life(2)91.1 %93.0 %97.8 %90.7 %
Group disability(2)80.9 %74.0 %80.7 %75.0 %
Total Group Insurance(2)88.7 %89.0 %93.9 %87.3 %
Administrative operating expense ratio(3)(4):
Group life11.0 %11.8 %10.9 %12.1 %
Group disability32.7 %26.1 %32.5 %25.4 %
Total Group Insurance16.1 %14.9 %15.9 %15.0 %
__________ 
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
 (in millions)
Operating results:       
Revenues$953
 $1,288
 $2,101
 $2,523
Benefits and expenses704
 826
 1,479
 1,589
Adjusted operating income249
 462
 622
 934
Realized investment gains (losses), net, and related adjustments(2,178) (881) (3,043) (2,225)
Charges related to realized investment gains (losses), net474
 56
 99
 190
Market experience updates(1)18
 (10) (628) (10)
Income (loss) before income taxes and equity in earnings of operating joint ventures$(1,437) $(373) $(2,950) $(1,111)
(1)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 91.1%, 80.9% and 88.8% for the three months ended June 30, 2021, respectively, 97.8%, 80.7% and 93.9% for the six months ended June 30, 2021, respectively, 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, and 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively.
________(3)Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.
(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.
(4)The benefits and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $213increased $12 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of 2021 and 2020 included a $136net benefit from this update of $1 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 $12and $11 million, net charge from these updates.respectively. Excluding this item, adjusted operating income decreased $89increased $22 million, primarily reflecting more favorable underwriting results in our group life business driven by lower fee income, net of distribution expensesa decline in COVID-19 impacts on non-experience-rated contracts, 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 adriven by higher level of invested assets.income on non-coupon investments. These increases were partially offset by lower underwriting results in our group disability business driven by less favorable claims experience on long-term disability contracts and higher expenses.

Six Month Comparison. Adjusted operating income decreased $312$164 million, including an unfavorable 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 $188 million. The decrease was$154 million, primarily reflecting lower underwriting results in our group life business driven by lower fee income, net of distribution expenses and other associated costs,less favorable claim experience mostly due to unfavorableCOVID-19 impacts from our living benefit guarantees, certain products reaching contractual milestones for fee tier reduction,on non-experience-rated contracts, and lower average account values.underwriting results in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts. These decreases were partially offset by higher net investment spread results driven by higher income on non-coupon investments.

Revenues, Benefits and Expenses
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Three Month ComparisonComparison. . Revenues decreased $335increased $47 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $203increased $69 million. The decrease wasincrease primarily driven by lowerreflected higher premiums and policy charges and fee income as well as a decreasedriven by growth in asset managementour group life and service feesgroup disability businesses, 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 adriven by higher level of invested assets.income on non-coupon investments.

Benefits and expenses decreased $122increased $35 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $114 millionincreased $47 million. The increase primarily driven byreflected higher policyholders’ benefits includingand changes in reserves due to lower reserve provisions resultingin our group disability business driven by a less favorable impact from a decrease in single premium immediate annuity sales, with offsets in premiums, as discussed above. Also contributing to the decrease were lowerclaims experience on long-term disability contracts and higher general and administrative expenses, net of capitalization, driven by lower distribution expenses reflecting lower average account values.expenses.

Six Month ComparisonComparison. . Revenues decreased $422increased $179 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $290increased $201 million. The decrease wasincrease primarily driven by lowerreflected higher premiums and policy charges and fee income as well as a decrease in asset management and service fees and other income, reflecting unfavorableour group life business due to COVID-19 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,on experience-rated contracts, with offsets in policyholders’ benefits and changes in reserves, as discussed below.below, as well as growth in our group life and group disability businesses.

Benefits and expenses decreased $110increased $343 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $102increased $355 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, including increases in our group life business mostly due to COVID-19 impacts on both experience- and non-experience-rated contracts, and increases in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts.

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,
 2021202020212020
 (in millions)
Annualized new business premiums(1):
Group life$16 $8 $191 $181 
Group disability35 18 155 126 
Total$51 $26 $346 $307 
__________ 
(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 and six months ended June 30, 2021 increased $25 million and $39 million, respectively, compared to the prior year periods, primarily driven by policyholders’ benefits, including changeshigher sales 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 generalour group disability and administrative expenses, netgroup life businesses.

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Table of capitalization, driven by lower distribution expenses reflecting lower average account values.Contents

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 as 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,
20212020202120202021
(in millions)
Full Service:
Beginning total account value$326,156 $238,435 $315,227 $272,448 $266,433 
Deposits and sales7,420 5,455 18,353 14,407 44,860 
Withdrawals and benefits(8,006)(7,040)(17,366)(15,708)(36,310)
Change in market value, interest credited and interest income and other activity16,404 29,583 25,760 (4,714)66,991 
Ending total account value$341,974 $266,433 $341,974 $266,433 $341,974 
Institutional Investment Products:
Beginning total account value$247,496 $227,346 $243,387 $227,596 $231,142 
Additions(1)661 4,545 10,421 11,438 21,452 
Withdrawals and benefits(5,744)(3,527)(11,386)(9,037)(20,637)
Change in market value, interest credited and interest income1,346 3,000 693 5,435 4,112 
Other(2)84 (222)728 (4,290)7,774 
Ending total account value$243,843 $231,142 $243,843 $231,142 $243,843 
__________
(1)Additions primarily include: group annuities and funded pension reinsurance calculated based on premiums received; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust; and funding agreements issued.
(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, 2021 and 2020, “Other” activity also includes $581 million in receipts offset by $731 million in payments and $2,614 million in receipts offset by $2,740 million in payments, respectively, and for the six months ended June 30, 2021 and 2020, includes $1,302 million in receipts offset by $1,496 million in payments and $5,366 million in receipts offset by $5,276 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, 2021 primarily reflected favorable changes in the market value of customer funds and net withdrawals and benefits, while the increase for the six and twelve months ended June 30, 2021 primarily reflected favorable changes in the market value of customer funds and net additions.

The decrease in Institutional Investment Products account values for the three months ended June 30, 2021 reflected net withdrawals primarily driven by pension risk transfer run-off and investment-only stable value account withdrawals. The increase in account values for the six months ended June 30, 2021 reflected an increase in other activity primarily driven by the positive impact of foreign exchange rate changes, a favorable change in the market value of account assets, partially offset by net withdrawals. The increase in account values for the twelve months ended June 30, 2021 primarily reflected an increase in
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other activity primarily driven by the positive impact of foreign exchange rate changes, and an increase in the market value of account assets.

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,
2021202020212020
($ in millions)
Operating results:
Revenues$1,518 $1,471 $3,074 $2,895 
Benefits and expenses1,501 1,466 3,189 2,846 
Adjusted operating income17 5 (115)49 
Realized investment gains (losses), net, and related adjustments9 (10)(25)71 
Income (loss) before income taxes and equity in earnings of operating joint ventures$26 $(5)$(140)$120 
Benefits ratio(1)(4):
Group life(2)91.1 %93.0 %97.8 %90.7 %
Group disability(2)80.9 %74.0 %80.7 %75.0 %
Total Group Insurance(2)88.7 %89.0 %93.9 %87.3 %
Administrative operating expense ratio(3)(4):
Group life11.0 %11.8 %10.9 %12.1 %
Group disability32.7 %26.1 %32.5 %25.4 %
Total Group Insurance16.1 %14.9 %15.9 %15.0 %
__________ 
(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 91.1%, 80.9% and 88.8% for the three months ended June 30, 2021, respectively, 97.8%, 80.7% and 93.9% for the six months ended June 30, 2021, respectively, 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, and 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively.
(3)Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.
(4)The benefits and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $12 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of 2021 and 2020 included a net benefit from this update of $1 million and $11 million, respectively. Excluding this item, adjusted operating income increased $22 million, primarily reflecting more favorable underwriting results in our group life business driven by a decline in COVID-19 impacts on non-experience-rated contracts, and higher net investment spread results driven by higher income on non-coupon investments. These increases were partially offset by lower underwriting results in our group disability business driven by less favorable claims experience on long-term disability contracts and higher expenses.

Six Month Comparison. Adjusted operating income decreased $164 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income decreased $154 million, primarily reflecting lower underwriting results in our group life business driven by less favorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts, and lower underwriting results in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts. These decreases were partially offset by higher net investment spread results driven by higher income on non-coupon investments.

Revenues, Benefits and Expenses
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Three Month Comparison. Revenues increased $47 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $69 million. The increase primarily reflected higher premiums and policy charges and fee income driven by growth in our group life and group disability businesses, and higher net investment income driven by higher income on non-coupon investments.

Benefits and expenses increased $35 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $47 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts and higher general and administrative expenses.

Six Month Comparison. Revenues increased $179 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $201 million. The increase primarily reflected higher premiums and policy charges and fee income in our group life business due to COVID-19 impacts on experience-rated contracts, with offsets in policyholders’ benefits and changes in reserves, as discussed below, as well as growth in our group life and group disability businesses.

Benefits and expenses increased $343 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $355 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, including increases in our group life business mostly due to COVID-19 impacts on both experience- and non-experience-rated contracts, and increases in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts.

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,
 2021202020212020
 (in millions)
Annualized new business premiums(1):
Group life$16 $8 $191 $181 
Group disability35 18 155 126 
Total$51 $26 $346 $307 
__________ 
(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 and six months ended June 30, 2021 increased $25 million and $39 million, respectively, compared to the prior year periods, primarily driven by higher sales in our group disability and group life businesses.

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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,
2021202020212020
(in millions)
Operating results:
Revenues$1,228 $953 $2,427 $2,101 
Benefits and expenses756 704 1,511 1,479 
Adjusted operating income472 249 916 622 
Realized investment gains (losses), net, and related adjustments(656)(2,178)1,899 (3,043)
Charges related to realized investment gains (losses), net37 474 (370)99 
Market experience updates228 18 404 (628)
Income (loss) before income taxes and equity in earnings of operating joint ventures$81 $(1,437)$2,849 $(2,950)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $223 million, including a favorable comparative impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2021 included a $15 million net charge from these updates primarily reflecting the impact of unfavorable policyholder behavior updates. 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. Excluding this item, adjusted operating income increased $102 million primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows. Also contributing to the increase were lower operating expenses.

Six Month Comparison. Adjusted operating income increased $294 million, 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 $173 million. The increase was primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows. Also contributing to the increase were higher net investment spread results and lower operating expenses.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $275 million. Excluding the impact of our annual review and update of assumptions and other refinements, as discussed above, revenues increased $146 million primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees.

Benefits and expenses increased $52 million. Excluding the impact of our annual review and update of assumptions and other refinements, as discussed above, benefits and expenses increased $44 million primarily driven by higher general and administrative expenses, net of capitalization, driven by higher distribution and asset management expenses reflecting higher average separate account values, partially offset by lower operating expenses.

Six Month Comparison. Revenues increased $326 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $197 million. The increase was primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees.

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Benefits and expenses increased $32 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $24 million primarily driven by higher general and administrative expenses, net of capitalization, driven by higher distribution and asset management expenses reflecting higher average separate account values, partially offset by lower operating expenses. This increase was partially offset by lower interest expense.

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 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.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,
2020 2019 2020 2019 202020212020202120202021
(in millions)(in millions)
Total Individual Annuities(1):         Total Individual Annuities(1):
Beginning total account value$143,976
 $161,890
 $169,681
 $151,080
 $165,313
Beginning total account value$176,442 $143,976 $176,280 $169,681 $159,276 
Sales1,346
 2,675
 3,273
 4,982
 8,011
Sales1,693 1,346 3,548 3,273 7,090 
Full surrenders and death benefits(1,410) (2,397) (3,929) (4,337) (8,966)Full surrenders and death benefits(2,683)(1,410)(5,175)(3,929)(9,091)
Sales, net of full surrenders and death benefits(64) 278
 (656) 645
 (955)Sales, net of full surrenders and death benefits(990)(64)(1,627)(656)(2,001)
Partial withdrawals and other benefit payments(1,146) (1,229) (2,545) (2,465) (5,243)Partial withdrawals and other benefit payments(1,328)(1,146)(2,757)(2,545)(5,403)
Net flows(1,210) (951) (3,201) (1,820) (6,198)Net flows(2,318)(1,210)(4,384)(3,201)(7,404)
Change in market value, interest credited and other activity17,358
 5,289
 (5,464) 17,862
 3,747
Change in market value, interest credited and other activity9,208 17,358 12,350 (5,464)34,174 
Policy charges(848) (915) (1,740) (1,809) (3,586)Policy charges(921)(848)(1,835)(1,740)(3,635)
Ending total account value$159,276
 $165,313
 $159,276
 $165,313
 $159,276
Ending total account value$182,411 $159,276 $182,411 $159,276 $182,411 
__________
(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 our Retirement business. Variable annuity account values were $154.1 billion and $161.0 billion as of June 30, 2020 and 2019, respectively. Fixed annuity account values were $5.2 billion and $4.3 billion as of June 30, 2020 and 2019, respectively.
(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 our Retirement business. Variable annuity account values were $176.6 billion and $154.1 billion as of June 30, 2021 and 2020, respectively. Fixed annuity account values were $5.9 billion and $5.2 billion as of June 30, 2021 and 2020, respectively.

Sales, net of full surrenders and death benefits, for the three months and the six months ended June 30, 2021 declined in comparison to the prior year periods driven by an increase in surrender activity from market value appreciation and the general uncertainty about COVID-19 in the prior year periods. Sales for the three months and the six months ended June 30, 2021 reflect our product pivot strategy and consisted largely of indexed variable annuities, as sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020.

The increase in account values for the three months, ended June 30, 2020six months and the decrease for the sixtwelve months ended June 30, 20202021 were largely driven by market value appreciation, and depreciation, respectively. For both periods, in comparison to the prior year period, the decrease inpartially offset by net flows primarily reflected a decline in gross sales largely driven by benefit rate reductionsoutflows and pricing actions in response to capital market pressures.

The decrease in account values for the twelve months ended June 30, 2020 was largely driven by partial withdrawals and other benefit payments on contracts as well as policy charges on contractholder accounts, partially offset by market value appreciation.accounts.

Risks and Risk Mitigants

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

Fixed Annuity Risks and Risk Mitigants. The primary risk exposuresexposure of our fixed annuity products relaterelates 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, includingwhich include interest rate fluctuations and/or sustained periods of low interest rates, and credit risk related to the underlying investments. We manage these risk exposures primarily through our investment strategies and product design features, which include credit rate resetting subject to the minimum guaranteed interest rate as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, a portion of our fixed products has a market value adjustment provision that providesaffords 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.
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Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term. We manage this risk primarily through our investment strategies including derivatives and product design features, which include credit rate resetting subject to contractual minimums as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, our indexed variable annuity strategies have an interim value provision that provides protection from lapse in the case of rising interest rates.

Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. We manage our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of i) Product Design Features, ii) our Asset Liability Management Strategy, and iii) our Capital Hedge Program, as discussed below. We also manage these risk exposures through external reinsurance for certain of our variable annuity products. Sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020.


i.Product Design Features:

A portion of the variable annuity contracts that we offeroffered 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 purchase payments, as well as a required minimum allocation to our general account for certain of our products. We continue to introduce products that diversify our risk profile and have incorporated provisions in product design allowing frequent revisions of key pricing elements for certain of our products. In addition, there is diversity in our fee arrangements, as certain fees are primarily based on the benefit guarantee amount, the contractholder account value and/or premiums, which helps preserve certain revenue streams when market fluctuations cause account values to decline.

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

We employ an ALM strategy that utilizes a combination of both traditional fixed income instruments and derivatives to help defray potential claimsmeet expected liabilities 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 an ALM strategy through the accumulation of fixed income and derivative instruments, derivatives, or a combination thereof, 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.meet expected liabilities. For the portion of our ALM strategy executed with derivatives, we enter into a range of exchange-traded and over-the-counter (“OTC”) equity, and interest rate and credit derivatives, including, but not limited to: equity and treasury futures; total return, credit default and interest rate swaps; and options including equity options, swaptions, and floors and caps. The intent of this strategy is to more efficiently manage the capital and liquidity associated with these products while continuing to mitigate fluctuations in net income due to movements in capital markets.

Under our To achieve this, we periodically review and recalibrate the ALM strategy by optimizing the mix of derivatives and fixed income instruments to achieve expected outcomes.

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”) (inin order to maximize protection irrespective of the possibility of our own default),default, as well as risk margins (required by U.S. GAAP but different from our best estimate) and valuation methodology differences. The following table provides a reconciliation between the liability reported under U.S. GAAP and the economic liability we manage through our ALM strategy as of the periods indicated:

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June 30,
2021		December 31,
2020
June 30,
2020
 
December 31,
2019
(in millions)
(in millions)
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
U.S. GAAP liability, including NPR, net of reinsurance recoverablesU.S. GAAP liability, including NPR, net of reinsurance recoverables$13,385 $18,537 
NPR adjustment, net of reinsurance recoverablesNPR adjustment, net of reinsurance recoverables3,104 4,103 
Subtotal32,316
 16,134
Subtotal16,489 22,640 
Adjustments including risk margins and valuation methodology differences(8,907) (4,385)Adjustments including risk margins and valuation methodology differences(3,497)(5,080)
Economic liability managed through the ALM strategy$23,409
 $11,749
Economic liability managed through the ALM strategy$12,992 $17,560 
________
(1)Prior period amounts have been updated to conform to current period presentation.

As of June 30, 2020,2021, the fair value of our fixed income instruments and derivative assets exceed the economic liability within the entities in which the risks reside.

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

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

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

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

iii. Capital Hedge Program:


We employ a capital hedge program 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 have historically been recognized in adjusted operating income over the expected duration of the capital hedge program. Beginning with the second quarter of 2020, changes in value of these impactsderivatives are excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

Results excluded from adjusted operating income

The 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 as described above, and the related amortization of DAC and other costs.
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Three Months Ended
June 30,		Six Months Ended
June 30,
Three Months Ended
June 30,		 Six Months Ended
June 30,		2021202020212020
2020 2019 2020 2019(in millions)(1)
Results excluded from adjusted operating income(2)(in millions)(1)
Results excluded from adjusted operating income:Results excluded from adjusted operating income:
Change in value of U.S. GAAP liability, pre-NPR(3)(2)$5,467
 $(2,545) $(15,071) $(2,265)$(1,952)$5,467 $6,440 $(15,071)
Change in the NPR adjustment(3,582) 190
 3,017
 (873)Change in the NPR adjustment(116)(3,582)(1,000)3,017 
Change in fair value of hedge assets, excluding capital hedges(4)(3)(3,349) 1,410
 8,605
 1,265
1,480 (3,349)(3,512)8,605 
Change in fair value of capital hedges(5)(4)(704) (159) 248
 (631)(498)(704)(793)248 
Other(10) 223
 158
 279
Other430 (10)764 158 
Realized investment gains (losses), net, and related adjustments(2,178) (881) (3,043) (2,225)Realized investment gains (losses), net, and related adjustments(656)(2,178)1,899 (3,043)
Market experience updates(6)(5)18
 (10) (628) (10)228 18 404 (628)
Charges related to realized investment gains (losses), net474
 56
 99
 190
Charges related to realized investment gains (losses), net37 474 (370)99 
Total results excluded from adjusted operating income(7)(6)$(1,686) $(835) $(3,572) $(2,045)$(391)$(1,686)$1,933 $(3,572)
__________
(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)
(1)Positive amounts represent income; negative amounts represent a loss.
(2)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.
(3)Represents the change in fair value of the derivatives utilized to hedge potential claims associated with our variable annuity living benefit guarantees.
(4)Represents the changes in fair value of equity derivatives of the capital hedge program intended to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets.
(5)Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability.
(6)Excludes amounts from the change in unrealized gains and losses on fixed income instruments recorded in OCI (versus net income) of $132 million, and $(4) million for the three months ended June 30, 2021 and 2020, respectively, and $(1,738) million and $1,702 million for the six months ended June 30, 2021 and 2020, respectively.

For the three months ended June 30, 2021, the loss of $391 million was driven by an unfavorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to declining interest rates, partially offset by favorable equity market performance, as well as losses associated with our capital hedge program and an unfavorable NPR adjustment. This was partially offset by favorable market experience updates from higher 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 werewas driven by an unfavorable NPR adjustment unfavorable hedge breakage driven by tightening credit spreads tightening, and losses associated with our capital hedge program driven by favorable equity markets. These losses were partially offset by the favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to tightening credit spreads and favorable equity markets, as well as benefits related to the amortization of DAC and other costs.
For the six months ended June 30, 2021, the gain of $1,933 million was driven by a favorable impact related to the portions of the U.S. GAAP liability before NPR, (excluded from ournet of the change in fair value of hedge target) driven by tightening of credit spreads.assets (excluding capital hedges) as well as favorable market experience updates largely due to favorable equity markets and rising interest rates. These net lossesimpacts were partially offset by a benefitan unfavorable NPR adjustment, losses associated with our capital hedge program and charges 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 werewas driven by an unfavorable impact related to the portions of the U.S. GAAP liability before NPR, (excluded from ournet of the change in fair value of hedge target)assets (excluding capital hedges) driven by declining interest rates, widening of credit spreads and unfavorable equity market performance. Also contributingperformance, as well as unfavorable market experience updates due to the resultsunfavorable equity markets and declining interest rates. These losses 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 toadjustment, reflecting the amortizationimpact of DAC and other costs.widening credit spreads.
For the three months ended June 30, 2019, the loss of $835 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 with partial offsets driven by favorable equity market performance, losses associated with 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 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 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 our 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 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.

indicated:
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 June 30, 2020 December 31, 2019 June 30, 2019June 30, 2021December 31, 2020June 30, 2020
 
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):            Living benefit/GMDB features(1):
Both ALM strategy and automatic rebalancing(2)(3) $102,137
 66% $111,535
 68% $109,819
 68%Both ALM strategy and automatic rebalancing(2)(3)$114,543 65 %$112,177 66 %$102,137 66 %
ALM strategy only(3) 6,836
 4% 7,703
 5% 7,855
 5%ALM strategy only(3)7,491 4 %7,410 4 %6,836 4 %
Automatic rebalancing only 646
 1% 732
 1% 778
 1%Automatic rebalancing only608 1 %634 1 %646 1 %
External reinsurance(4) 2,855
 2% 3,150
 2% 3,096
 2%External reinsurance(4)3,299 2 %3,173 2 %2,855 2 %
PDI 17,646
 12% 16,296
 9% 14,248
 9%PDI17,604 10 %18,540 11 %17,646 12 %
Other products 2,225
 1% 2,457
 1% 2,475
 1%Other products2,547 1 %2,492 1 %2,225 1 %
Total living benefit/GMDB features $132,345
   $141,873
   $138,271
  Total living benefit/GMDB features$146,092 $144,426 $132,345 
GMDB features and other(5) 21,734
 14% 23,055
 14% 22,746
 14%GMDB features and other(5)30,465 17 %26,120 15 %21,734 14 %
Total variable annuity account value $154,079
   $164,928
   $161,017
  Total variable annuity account value$176,557 $170,546 $154,079 
__________
(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 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 covering certain new Highest Daily Lifetime Income (“HDI”) v.3.0 business for the period April 1, 2015 through December 31, 2016. These contracts with living benefits also have an automatic rebalancing feature.
(5)Includes contracts that have a GMDB feature and do not have an automatic rebalancing feature.

(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 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 covering certain Highest Daily Lifetime Income (“HDI”) v.3.0 business for the period April 1, 2015 through December 31, 2016. These contracts with living benefits also have an automatic rebalancing feature.
(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 Individual Life’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:       
Revenues$1,563
 $1,508
 $3,093
 $2,990
Benefits and expenses1,627
 1,643
 3,177
 3,020
Adjusted operating income(64) (135) (84) (30)
Realized investment gains (losses), net, and related adjustments(16) 158
 549
 277
Charges related to realized investment gains (losses), net65
 (62) (353) (168)
Market experience updates(1)78
 (160) (216) (160)
Income (loss) before income taxes and equity in earnings of operating joint ventures$63
 $(199) $(104) $(81)

__________
(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.

Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results:
Revenues$1,616 $1,563 $3,251 $3,093 
Benefits and expenses1,470 1,627 3,149 3,177 
Adjusted operating income146 (64)102 (84)
Realized investment gains (losses), net, and related adjustments117 (16)(35)549 
Charges related to realized investment gains (losses), net(7)65 151 (353)
Market experience updates(5)78 126 (216)
Income (loss) before income taxes and equity in earnings of operating joint ventures$251 $63 $344 $(104)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income reflected a decrease in losses of $71increased $210 million, primarily reflecting a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2021 included a $7 million net benefit from these updates, mainly driven by favorable impacts related to assumptions for investment returns, partially offset by updates to reinsurance premiums. 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 these updates, mainly driven by unfavorable impacts related to mortality assumptions. Excluding this item, adjusted operating income decreased $45increased $111 million, primarily reflecting lowerhigher net investment spread results driven by lowerhigher 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 an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims. These decreases were partially offset by lower expenses from cost savings initiatives, as well as the absence of certain expenses incurred in the prior year period.investments.

Six Month Comparison. Adjusted operating income reflected an increase in losses of $54increased $186 million, 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 decreased $170increased $87 million, primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, and higher fee income. These increases were partially offset by lower underwriting results, driven by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims, and 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 was the absenceclaims.
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Table 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 decreases were partially offset by lower expenses from cost savings initiatives, as well as the absence of certain expenses incurred in the prior year period.Contents

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $55 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $16 million. This decrease was primarily driven by lower net investment income due to lower income on non-coupon investments and lower investment yields, partially offset by the impact of higher average invested assets resulting from business growth. The decrease was partially offset by higher policy charges and fee income driven by business growth.

Benefits and expenses decreased $16 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $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 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 driven by business growth.

Six Month Comparison. Revenues increased $103$53 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $32$160 million. This increase was primarily driven by higher income on non-coupon investments and higher net investment income due to higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by business growth.

Benefits and expenses increaseddecreased $157 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $202$49 million. This increase reflected higher policyholders’ benefits, including changes in reserves, driven by business growth, partially offset by a less unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims in the prior year period.

Six Month Comparison. Revenues increased $158 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $265 million. This increase was primarily driven by higher income on non-coupon investments and higher net investment income due to higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by business growth.

Benefits and expenses decreased $28 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $178 million. This increase reflected higher policyholders’ benefits, including changes in reserves, primarily 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 driven by business 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 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’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, 2020 Three Months Ended June 30, 2019Three Months Ended June 30, 2021Three Months Ended June 30, 2020
 
Prudential
Advisors
 
Third-
Party
 Total 
Prudential
Advisors
 
Third-
Party
 TotalPrudential
Advisors		Third-
Party		TotalPrudential
Advisors		Third-
Party		Total
 (in millions)(in millions)
Term Life $7
 $33
 $40
 $7
 $46
 $53
Term Life$6 $28 $34 $7 $33 $40 
Guaranteed Universal Life(1) 1
 33
 34
 2
 22
 24
Guaranteed Universal Life(1)0 18 18 1 33 34 
Other Universal Life(1) 5
 18
 23
 11
 37
 48
Other Universal Life(1)2 14 16 5 18 23 
Variable Life 22
 65
 87
 19
 37
 56
Variable Life32 80 112 22 65 87 
Total $35
 $149
 $184
 $39
 $142
 $181
Total$40 $140 $180 $35 $149 $184 
            
 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019Six Months Ended June 30, 2021Six Months Ended June 30, 2020
 
Prudential
Advisors
 
Third-
Party
 Total 
Prudential
Advisors
 
Third-
Party
 TotalPrudential
Advisors		Third-
Party		TotalPrudential
Advisors		Third-
Party		Total
 (in millions)(in millions)
Term Life $13
 $67
 $80
 $14
 $90
 $104
Term Life$12 $53 $65 $13 $67 $80 
Guaranteed Universal Life(1) 3
 60
 63
 4
 41
 45
Guaranteed Universal Life(1)0 30 30 3 60 63 
Other Universal Life(1) 12
 41
 53
 20
 58
 78
Other Universal Life(1)4 27 31 12 41 53 
Variable Life 42
 133
 175
 35
 82
 117
Variable Life60 198 258 42 133 175 
Total $70
 $301
 $371
 $73
 $271
 $344
Total$76 $308 $384 $70 $301 $371 
__________
(1)Single pay life premiums and excess (unscheduled) premiums are included in annualized new business premiums based on a 10% credit and represented approximately 12% and 7% of Guaranteed Universal Life and 11% and 17% of Other Universal Life annualized new business premiums for the three months ended June 30, 2020 and 2019, respectively, and approximately 9% and 7% of Guaranteed Universal Life and 10% and 14% of Other Universal Life annualized new business premiums for the six months ended June 30, 2020 and 2019, respectively. Prior period percentages have been updated to conform to current period presentation.
(1)Single pay life premiums and excess (unscheduled) premiums are included in annualized new business premiums based on a 10% credit and represented approximately 1% and 12% of Guaranteed Universal Life and 7% and 11% of Other Universal Life annualized new business premiums for the three months ended June 30, 2021 and 2020, respectively, and approximately 1% and 9% of Guaranteed Universal Life and 4% and 10% of Other Universal Life annualized new business premiums for the six months ended June 30, 2021 and 2020, respectively.

Total annualized new business premiums for the second quarter of 2021 decreased $4 million compared to the prior year period, primarily driven by lower sales due to pricing and product actions across guaranteed universal life, other universal life and term life products, partially offset by higher sales of variable universal life products. Total annualized new business premiums for the first six months of 20202021 increased $3$13 million and $27 million, respectively, compared to the prior year periodsperiod, primarily driven by higher sales of variable life products, as a result of product design and pricing actions, and higher sales of guaranteed universal life products. The increases for both periods were partially offset by lower sales across all other products.
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Table of term life products due to pricing actions and lower other universal life products due to the absence of large case activity in the second quarter of 2020.Contents

U.S. Businesses—Assurance IQ Division
Assurance IQ

Operating Results

The following table sets forth Assurance IQ’s operating results for the periodperiods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
 Three Months Ended
June 30, 2020		 Six Months Ended
June 30, 2020		 2021202020212020
 (in millions)(in millions)
Operating results:    Operating results:
Revenues $59
 $119
Revenues$113 $59 $221 $119 
Expenses 75
 158
Expenses151 75 298 158 
Adjusted operating income (16) (39)Adjusted operating income(38)(16)(77)(39)
Other adjustments(1) 32
 77
Other adjustments(1)(13)32 (26)77 
Income (loss) before income taxes and equity in earnings of operating joint ventures $16
 $38
Income (loss) before income taxes and equity in earnings of operating joint ventures$(51)$16 $(103)$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.

(1)Includes 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 the associated contingent consideration. See Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information.

Adjusted Operating Income

The acquisition of Assurance IQ was completed in October 2019.Three Month Comparison. Adjusted operating income for the second quarterdecreased $22 million, reflecting higher operating and the first six months of 2020 was $(16) million and $(39) million, respectively, reflectingvariable expenses supporting business growth, partially offset by increased revenues net of marketing and distribution expenses, primarily related to our health (Health Under 65)the Medicare and life insurancePersonal Finance product lines. Results also included

Six Month Comparison. Adjusted operating income decreased $38 million, reflecting higher operating and variable expenses and amortization expensessupporting business growth, partially offset by increased revenues primarily related to intangible assets recognized as part of purchase accounting (see Note 1the Medicare, Personal Finance 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).Life product lines.

Revenues and Expenses

Three Month Comparison.Revenues for the second quarter and the first six months of 2020 were $59increased $54 million, and $119 million, respectively, primarily reflectingdue to commissions and marketingcase referral revenues from our health (Health Under 65)the Medicare product line, driven by business growth and life insurancefrom a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in the Personal Finance and other product lines. Expenses for the second quarter and the first six months of 2020 were $75increased $76 million, and $158 million, respectively, driven by higher marketing and distribution costs primarily related to the Medicare and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

Six Month Comparison. Revenues increased $102 million, primarily due to commissions and amortization expensescase referral revenues from the Medicare product line, driven by business growth and from a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in the Personal Finance and Life product lines. Expenses increased $140 million, driven by higher marketing and distribution costs primarily related to intangible assets.the Medicare, Life and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

International Businesses
 
Business UpdateUpdates

•In April 2020, we entered into a definitive agreement with KB Financial Group, Inc., a Korean financial services provider, to sellJune 2021, the Company completed the sale of The Prudential Life Insurance Company of Korea,Taiwan Inc. (“POT”) to Taishin Financial Holding Co, Ltd. (“POK”) for cash consideration of approximately $1.9NT 5.5 billion, (based onequal to approximately $200 million at then current exchange rates) to be paid at closing. The transaction is consistentrates, and contingent consideration 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 carryinga fair value of POK to the fair market value reflected in the purchase price (seeapproximately $25 million as of June 30, 2021. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information).information. Effective in the secondthird quarter of 2020, the results of this business and the impact of the anticipatedits sale arewere 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 intendSee “—Divested and Run-off Businesses.”

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•In the first quarter of 2021, the Company acquired a 24% interest (through a private equity limited partnership managed by LeapFrog Investments) in ICEA LION, a Kenya-based insurer and asset manager, for approximately $100 million. This investment is consistent with the Company’s strategic focus internationally on higher-growth emerging markets, and furthers the partnership’s specific objective to use the proceeds of the transaction for general corporate purposes.identify and make strategic investments in high quality financial services companies in selected African geographies.

We are exploring strategic options for our Taiwanese insurance business, which may include a sale.

Operating Results
 
The results of our International 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 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 USD at uniform exchange rates for all periods presented, including for constant dollar information discussed below. TheFor our Japan operations, we used an exchange rate used was Japanese yen at a rate of 104103 yen per USD, which 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 USD is generally reported based on the amounts as transacted in 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 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,		 20212020(1)20212020(1)
2020 2019 2020 2019 (in millions)
(in millions)
Operating results(1):       
Operating results:Operating results:
Revenues:       Revenues:
Life Planner$2,474
 $2,409
 $5,333
 $5,156
Life Planner$2,483 $2,325 $5,413 $5,043 
Gibraltar Life and Other2,759
 2,649
 5,677
 5,626
Gibraltar Life and Other2,610 2,759 5,611 5,677 
Total revenues5,233
 5,058
 11,010
 10,782
Total revenues5,093 5,084 11,024 10,720 
Benefits and expenses:       Benefits and expenses:
Life Planner2,170
 2,030
 4,665
 4,359
Life Planner2,076 2,023 4,542 4,379 
Gibraltar Life and Other2,370
 2,238
 4,954
 4,774
Gibraltar Life and Other2,214 2,370 4,808 4,954 
Total benefits and expenses4,540
 4,268
 9,619
 9,133
Total benefits and expenses4,290 4,393 9,350 9,333 
Adjusted operating income:       Adjusted operating income:
Life Planner304
 379
 668
 797
Life Planner407 302 871 664 
Gibraltar Life and Other389
 411
 723
 852
Gibraltar Life and Other396 389 803 723 
Total adjusted operating income693
 790
 1,391
 1,649
Total adjusted operating income803 691 1,674 1,387 
Realized investment gains (losses), net, and related adjustments(2)177
 261
 662
 783
Realized investment gains (losses), net, and related adjustmentsRealized investment gains (losses), net, and related adjustments606 100 (183)675 
Charges related to realized investment gains (losses), net(15) (3) (22) (3)Charges related to realized investment gains (losses), net(6)(15)(20)(22)
Market experience updates(3)(37) (37) (46) (37)
Market experience updatesMarket experience updates0 (36)0 (42)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(34) (28) (30) (58)Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(16)(34)(38)(30)
Income (loss) before income taxes and equity in earnings of operating joint ventures$784
 $983
 $1,955
 $2,334
Income (loss) before income taxes and equity in earnings of operating joint ventures$1,387 $706 $1,433 $1,968 
__________
(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)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.
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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.

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Adjusted Operating Income
 
Three Month Comparison.Adjusted operating income from our Life Planner operations decreased $75increased $105 million, including a net unfavorable impact of $3$4 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$2 million net benefit in the second quarter of 2021 compared to a $42 million net charge in the second quarter of 2020 compared to a $4 million net benefit in the second quarter of 2019.2020. The net charge in 2020 iswas 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 $25increased $65 million primarily reflecting lowerhigher net investment spread results driven by lower investment yields and lowerhigher 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 byinvestments, and more favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations.operations, partially offset by unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil. Also partially offsetting the increase were higher expenses supporting business growth, partially offset by the absence of certain costs associated with COVID-19 incurred in the prior year period.

Adjusted operating income from our Gibraltar Life and Other operations decreased $22increased $7 million, including a net unfavorable impact of $2$7 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 $16 million net charge in the second quarter of 2021 compared to a $52 million net charge in the second quarter of 2020 compared2020. The net charge in 2021 reflected unfavorable impacts primarily related to a $7 million net benefit in the second quarter of 2019.lapse assumption updates. The net charge in 2020 was primarily driven by updates of reserves reflecting the impact of a decrease in long-term interest rate assumptions, as well as other refinements.

Excluding these items, adjusted operating income from our Gibraltar Life and Other operations increased $39decreased $22 million primarily reflecting higherlower earnings from our joint venture investments, due to market performance and lower expenses driven by lower costs associated with business initiatives, partially offset by costs associated with COVID-19 (see “Overview—COVID-19”).

Also contributing to the increase were favorable underwriting results driven by a favorable impact from mortality experience, and higher net investment spread results driven by higher income on non-coupon investments,lower reinvestment yields, partially offset by higher prepayment fee income. Also partially offsetting the decrease were lower investment yields.expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Six Month Comparison. Adjusted operating income from our Life Planner operations decreased $129increased $207 million, including a net unfavorable impact of $3$7 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 Life Planner operations decreased $79increased $170 million primarily reflecting lowerhigher net investment spread results driven by lowerhigher income on non-coupon investments, andpartially offset by lower investmentreinvestment yields. Also contributing to the decreaseincrease 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 bymore favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations, partially offset by an unfavorable impactimpacts from mortality experience.experience due to COVID-19 related claims, primarily in Brazil.

Adjusted operating income from our Gibraltar Life and Other operations decreased $129increased $80 million, including a net unfavorable impact of $4$7 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 $66increased $51 million primarily reflecting lowerhigher net investment spread results driven by lower investment yields and lowerhigher income on non-coupon investments.investments, partially offset by lower reinvestment yields. Also contributing to the decreaseincrease were lower earnings from our joint venture investmentsexpenses primarily due to market performance, as well as higher expenses driven bythe absence of certain 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 byincurred in the growth of business in force and a favorable impact from mortality experience.prior year period.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues from our Life Planner operations increased $65$158 million, including a net unfavorable impact of $21$30 million from currency fluctuations and a net benefitcharge of $33$34 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $53$222 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force, partially offset by lower net investment results driven by lower investment yields and lower income on non-coupon investments.force.

Benefits and expenses of our Life Planner operations increased $140$53 million, including a net favorable impact of $18$26 million from currency fluctuations and a net chargebenefit of $80$78 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $78 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force, and higher expenses driven by costs associated with COVID-19.

Revenues from our Gibraltar Life and Other operations increased $110 million, including a net favorable impact of $18 million from currency fluctuations and a net charge of $9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $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 attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $306 million, including a net favorable impact of $42 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, benefits and expenses increased $268$157 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force as well as an unfavorable

impact impacts from mortality experience.experience due to COVID-19 related claims, primarily in Brazil. Also contributing to the decreaseincrease were higher
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expenses driven by updates to legal reserves, as well as higher costs related tosupporting business growth, and business initiatives, andpartially offset by the absence of certain costs associated with COVID-19.COVID-19 incurred in the prior year period.

Revenues from our Gibraltar Life and Other operations increased $51decreased $149 million, including a net favorableunfavorable impact of $20$2 million from currency fluctuations. Excluding the impactfluctuations and a net benefit of currency fluctuations, as well as the impact$9 million from our annual reviews and update of assumptions and other refinements as discussed above,refinements. Excluding these items, revenues increased $40decreased $156 million, primarily driven by higherreflecting lower premiums attributable to the growth of business in force. The increase was partially offset byand policy charges and fee income, and lower other income driven by an unfavorablea less favorable impact from our joint venture investments dueinvestments. Also contributing to market performance, andthe decrease was lower net investment resultsincome driven by lower investmentreinvestment yields, and lower income on non-coupon investments.partially offset by higher prepayment fee income.

Benefits and expenses of our Gibraltar Life and Other operations increased $180decreased $156 million, including a net unfavorable impact of $24$5 million from currency fluctuations. Excluding the impactfluctuations and a net benefit of currency fluctuations, as well as the impact$27 million from our annual reviews and update of assumptions and other refinements as discussed above,refinements. Excluding these items, benefits and expenses decreased $134 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Six Month Comparison. Revenues from our Life Planner operations increased $370 million, including a net unfavorable impact of $25 million from currency fluctuations and a net charge of $34 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $429 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $163 million, including a net favorable impact of $18 million from currency fluctuations and a net benefit of $78 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $106$259 million, primarily driven byreflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force. Also contributing

Revenues from our Gibraltar Life and Other operations decreased $66 million, including a net favorable impact of $44 million from currency fluctuations and a net benefit of $9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues decreased $119 million, primarily reflecting lower premiums and policy charges and fee income. The decrease was partially offset by higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields.

Benefits and expenses of our Gibraltar Life and Other operations decreased $146 million, including a net unfavorable impact of $51 million from currency fluctuations and a net benefit of $27 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses decreased $170 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses primarily due to the increase was higher expenses driven byabsence of certain costs associated with COVID-19 partially offset by lower costs associated with business initiatives.incurred in the prior year period.

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.
 
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Three Months Ended
June 30,		Six Months Ended
June 30,
Three Months Ended
June 30,		 Six Months Ended
June 30,		20212020(1)20212020(1)
2020 2019 2020 2019 (in millions)
(in millions)
Annualized new business premiums(1):       
Annualized new business premiums:Annualized new business premiums:
On an actual exchange rate basis:       On an actual exchange rate basis:
Life Planner$166
 $253
 $487
 $608
Life Planner$231 $155 $479 $458 
Gibraltar Life and Other197
 296
 504
 619
Gibraltar Life and Other261 197 519 504 
Total$363
 $549
 $991
 $1,227
Total$492 $352 $998 $962 
On a constant exchange rate basis:       On a constant exchange rate basis:
Life Planner$178
 $255
 $505
 $613
Life Planner$244 $164 $503 $470 
Gibraltar Life and Other198
 298
 507
 623
Gibraltar Life and Other263 198 522 507 
Total$376
 $553
 $1,012
 $1,236
Total$507 $362 $1,025 $977 
__________
(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.
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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 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, 2021Three Months Ended June 30, 2020(1)
Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 LifeAccident
&
Health		Retirement(2)AnnuityTotalLifeAccident
&
Health		Retirement(2)AnnuityTotal
Life 
Accident
&
Health
 Retirement(1) Annuity Total Life 
Accident
&
Health
 Retirement(1) Annuity Total (in millions)
(in millions)
Life Planner(2)$89
 $18
 $71
 $0
 $178
 $137
 $23
 $95
 $0
 $255
Life PlannerLife Planner$131 $19 $93 $1 $244 $81 $13 $70 $0 $164 
Gibraltar Life and Other:                   Gibraltar Life and Other:
Life Consultants$59
 $7
 $6
 $17
 $89
 $84
 $10
 $19
 $56
 $169
Life Consultants$61 $7 $8 $62 $138 $58 $7 $6 $17 $88 
Banks(3)57
 0
 3
 2
 62
 73
 0
 9
 3
 85
Banks(3)48 0 2 11 61 57 0 3 2 62 
Independent Agency18
 2
 27
 0
 47
 19
 3
 18
 4
 44
Independent Agency17 20 25 2 64 19 2 27 0 48 
Subtotal134
 9
 36
 19
 198
 176
 13
 46
 63
 298
Subtotal126 27 35 75 263 134 9 36 19 198 
Total$223
 $27
 $107
 $19
 $376
 $313
 $36
 $141
 $63
 $553
Total$257 $46 $128 $76 $507 $215 $22 $106 $19 $362 
__________
(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.
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)Includes retirement income, endowment and savings variable universal life.
(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 0% and 65%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended June 30, 2021, and 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.

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Three Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations decreased $77increased $80 million, primarily driven by restrictions in sales activities due to COVID-19 (see “Overview—COVID-19”), which resulted in lowerreflecting higher sales across products.all products primarily resulting from an easing of COVID-19 restrictions compared to the prior year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations decreased $100increased $65 million. Life Consultants sales increased $50 million, primarily resulting from an easing of COVID-19 restrictions compared to the prior year period, and Bank channel sales decreased $80 million and $23 million, respectively, primarily driven by COVID-19 impacts. Life Consultants sales also reflected lowerhigher sales of USD-denominated fixed annuity products driven by declines in crediting rates and lower Life Consultant headcount. These decreases were partially offset by a $3 million increase inrising interest rates. Independent Agency sales increased $16 million primarily driven by higher sales of accident & health products to a single large client in the current period. Bank channel sales remained relatively flat reflecting lower sales of USD-denominated endowmentprotection products resulting from pricing increases in the third quarter of 2020, offset by higher sales of USD-denominated annuity 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, 2021Six Months Ended June 30, 2020(1)
Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 LifeAccident
&
Health		Retirement(2)AnnuityTotalLifeAccident
&
Health		Retirement(2)AnnuityTotal
Life 
Accident
&
Health
 Retirement(1) Annuity Total Life 
Accident
&
Health
 Retirement(1) Annuity Total (in millions)
(in millions)
Life Planner(2)$268
 $42
 $194
 $1
 $505
 $345
 $56
 $209
 $3
 $613
Life PlannerLife Planner$273 $38 $191 $1 $503 $245 $34 $191 $0 $470 
Gibraltar Life and Other:                   Gibraltar Life and Other:
Life Consultants$141
 $16
 $24
 $39
 $220
 $171
 $21
 $42
 $101
 $335
Life Consultants$134 $14 $17 $78 $243 $141 $16 $24 $39 $220 
Banks(3)177
 0
 13
 4
 194
 167
 0
 18
 8
 193
Banks(3)148 0 5 26 179 177 0 13 4 194 
Independent Agency40
 3
 48
 2
 93
 50
 6
 27
 12
 95
Independent Agency35 21 41 3 100 40 3 48 2 93 
Subtotal358
 19
 85
 45
 507
 388
 27
 87
 121
 623
Subtotal317 35 63 107 522 358 19 85 45 507 
Total$626
 $61
 $279
 $46
 $1,012
 $733
 $83
 $296
 $124
 $1,236
Total$590 $73 $254 $108 $1,025 $603 $53 $276 $45 $977 
__________
(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.

(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)Includes retirement income, endowment and savings variable universal life.
(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 5% and 66%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the six months ended June 30, 2021, and 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.

Six Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations decreased $108increased $33 million, reflecting higher sales across all products primarily driven byresulting from an easing of COVID-19 impacts. Also contributingrestrictions compared to the decrease were lower sales of corporate term products in Japan driven by the corporate product tax rule change effective July 2019.prior year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations decreased $116increased $15 million. Life Consultants sales decreased $115increased $23 million, primarily driven byresulting from an easing of COVID-19 impacts, as well as lowerrestrictions compared to the prior year period, and higher sales of USD-denominated fixed annuity products driven by declinesrising interest rates. Independent Agency sales increased $7 million primarily driven by higher sales of accident & health products to a single large client in crediting rates and lower Life Consultant headcount.the current period. Bank channel sales remained relatively flat reflecting higher sales of USD-denominated protection products, offsetdecreased $15 million, primarily driven by lower sales due to COVID-19 impacts. Independent Agency sales also remained flat reflecting lower sales of USD-denominated protection and fixed annuity products resulting from pricing increases in the third quarter of 2020, partially offset by higher sales of USD-denominated endowment products.annuity products driven by rising interest rates.

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CorporateClosed Block Division
Substantially all of the $59 billion of general account assets in the Closed Block division support obligations and Otherliabilities relating to the Closed Block policies only. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information on the Closed Block.

CorporateInternational 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 corporateat times, negative yields for certain tenors of government bonds. Our international insurance operations after allocationsemploy 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 also regularly examine our product offerings and their profitability. As a result, we may reprice certain products, adjust commissions for certain products and discontinue 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, 2021
(in billions)
Insurance products with fixed and guaranteed terms$138 
Contracts with a market value adjustment if invested amount is not held to maturity25 
Contracts with adjustable crediting rates subject to guaranteed minimums11 
Total$174 

The $138 billion 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 0.65% and the 10-year U.S. Treasury rate is 1.45% (which is reasonably consistent with recent rates) for the period from July 1, 2021 through June 30,
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2022 (and credit spreads remain unchanged from average levels experienced during the second quarter 2021), 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 $20 million and $40 million for the period from July 1, 2021 through June 30, 2022.
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,
2021202020212020
(in millions)
Revenues$15,917 $12,115 $32,869 $25,579 
Benefits and expenses13,144 14,447 26,682 28,249 
Income (loss) before income taxes and equity in earnings of operating joint ventures2,773 (2,332)6,187 (2,670)
Income tax expense (benefit)609 115 1,245 57 
Income (loss) before equity in earnings of operating joint ventures2,164 (2,447)4,942 (2,727)
Equity in earnings of operating joint ventures, net of taxes19 42 45 52 
Net income (loss)2,183 (2,405)4,987 (2,675)
Less: Income attributable to noncontrolling interests25 4 1 5 
Net income (loss) attributable to Prudential Financial, Inc.$2,158 $(2,409)$4,986 $(2,680)

Three Month Comparison. The $4,567 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” for the second quarter of 2021 compared to the second quarter of 2020 reflected the following notable items on a pre-tax basis:

•$2,283 million favorable variance from realized investment gains (losses) and related charges for PFI excluding Divested and Run-off Businesses, other than those that qualifyand excluding the impact of the hedging program associated with certain variable annuities and market experience updates discussed below (see “General Account Investments” for “discontinued operations” accounting treatment under U.S. GAAP.
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
 (in millions)
Operating results:       
Interest expense on debt(1)$(227) $(222) $(445) $(439)
Investment income(1)26
 64
 74
 126
Pension and employee benefits58
 36
 108
 60
Other corporate activities(2)(398) (213) (620) (494)
Adjusted operating income(541) (335) (883) (747)
Realized investment gains (losses), net, and related adjustments(1,179) (157) (1,219) (207)
Charges related to realized investment gains (losses), net(17) (81) 4
 (87)
Market experience updates(3)(4) 0
 4
 0
Divested and Run-off Businesses(4)(602) 168
 (580) 415
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(14) (7) 8
 (15)
Income (loss) before income taxes and equity in earnings of operating joint ventures$(2,357) $(412) $(2,666) $(641)
__________ 
(1)Prior period amounts have been updated to conform to current period presentation.
(2)Includes consolidating adjustments.
(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)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.

additional information);
Three Month Comparison•. The loss$977 million favorable variance from Corporate and Other operations, on anhigher adjusted operating income basis, increased $206 million. Net charges from other corporate activities increased $185 million primarily driven by increases to legal reserves, partially offset by lower costs related to corporate initiatives. Investment income decreased $38 million primarily due to lower income on non-coupon investments and highly liquid assets. Interest expense on debt increased $5 million reflecting higher average debt balances.our business segments (see “Segment Results from pension and employee benefits increased $22 million primarily driven by a decrease in employee health benefit costs.of Operations” for additional information);

•$873 million favorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
Six Month Comparison•. The loss$832 million favorable variance from Corporate and Other operations, on an adjusted operating income basis, increased $136 million. Net charges from other corporate activities increased $126 million primarily driven by increases to legal reserves, partially offset by lower costs for deferred and long-term compensation plans tied to Company stock and equity market performance, as well as lower costs related to corporate initiatives. Investment income decreased $52 million primarily driven by lower income on non-coupon investments and highly liquid assets. Interest expense on debt increased $6 million reflecting higher average debt balances. Results from pension and employee benefits increased $48 million primarily driven by a decreasegain in employee health benefit costs.

Divested and Run-off Businesses

Divested and Run-off Businesses Included in Corporate and Other
Incomethe current period from our Divested and Run-off Businesses compared to a loss in the prior year period (see “Results of Operations by Segment—Divested and Run-off Businesses” for additional information); and
•$169 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses (see Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information).

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” was a $494 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings.

Six Month Comparison. The$7,666 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” for the first six months of 2021 compared to the first six months of 2020 reflected the following notable items on a pre-tax basis:

•$3,109 million favorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
•$1,928 million favorable variance from higher adjusted operating income from our business segments, including a gain from the sale of the Company’s 35% ownership stake in Pramerica SGR in the current year period;
•$1,411 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses;
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•$1,203 million favorable variance from realized investment gains (losses) and related charges for PFI excluding Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities and market experience updates;
•$966 million favorable variance from a gain in the current period from our Divested and Run-off Businesses compared to a loss in the prior year period; and
•$331 million favorable variance from investment related activities that are primarily within “Other income (loss)” for PFI excluding our Divested and Run-off Businesses.

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” was a $1,188 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings.

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.

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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 and Six Months Ended
June 30,
20212020(1)
(in millions)
Favorable (unfavorable) impact to adjusted operating income before income taxes by segment:
U.S. Businesses:
Retirement$(18)$(22)
Group Insurance1 11 
Individual Annuities(15)(136)
Individual Life7 (92)
Total U.S. Businesses(25)(239)
International Businesses(14)(94)
Corporate and Other5 0 
Total segment favorable (unfavorable) impact to adjusted operating income before income taxes(34)(333)
Reconciling items:
Realized investment gains (losses), net, and related adjustments6 302 
Charges related to realized investment gains (losses), net192 (41)
Divested and Run-off Businesses:
Closed Block division0 0 
Other Divested and Run-off Businesses62 (34)
Favorable (unfavorable) impact to consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$226 $(106)
__________
(1)Effective third quarter of 2020, the results of POT and the impact of its sale are excluded from several businessesthe 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.

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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 the Unaudited Interim Consolidated Statements of Operations.

Three Months Ended
June 30,		Six Months Ended
June 30,
20212020(1)20212020(1)
(in millions)
Adjusted operating income before income taxes by segment:
PGIM$315 $324 $966 $488 
U.S. Businesses:
Retirement491 281 1,114 526 
Group Insurance17 5 (115)49 
Individual Annuities472 249 916 622 
Individual Life146 (64)102 (84)
Assurance IQ(38)(16)(77)(39)
Total U.S. Businesses1,088 455 1,940 1,074 
International Businesses803 691 1,674 1,387 
Corporate and Other(300)(541)(586)(883)
Total segment adjusted operating income before income taxes1,906 929 3,994 2,066 
Reconciling items:
Realized investment gains (losses), net, and related adjustments(2)360 (3,268)1,624 (2,969)
Charges related to realized investment gains (losses), net(3)4 519 (235)(283)
Market experience updates225 56 529 (882)
Divested and Run-off Businesses(4):
Closed Block division31 (22)65 (23)
Other Divested and Run-off Businesses255 (524)285 (593)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(5)5 (54)(49)(63)
Other adjustments(6)(13)32 (26)77 
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$2,773 $(2,332)$6,187 $(2,670)
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)See “—General Account Investments” and Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.
(3)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 (“URR”).
(4)Represents 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, statusbut that dodid not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The results of these See “—Divested and Run-off BusinessesBusinesses” for additional information.
(5)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 Corporate and Other operations, butthe Unaudited Interim Consolidated Statements of Operations. Earnings attributable to noncontrolling interests are excluded from adjusted operating income. A summaryincome 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.
(6)Represents adjustments not included in the above reconciling items. Also includes certain components of the resultsconsideration 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 the Divested and Run-off Businesses reflected in our Corporate and Other operations is as followsassociated contingent consideration (see Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information).

Segment results for the periods indicated:period presented above reflect the following:

PGIM. Results for the second quarter of 2021 decreased in comparison to the prior year period, primarily reflecting lower
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 Three Months Ended
June 30,		 Six Months Ended
June 30,
  
2020 2019 2020 2019
 (in millions)
Long-Term Care$107
 $145
 $188
 $309
Other(1)(709) 23
 (768) 106
Total Divested and Run-off Businesses income (loss) excluded from adjusted operating income$(602) $168
 $(580) $415
__________
(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.

other related revenues and higher expenses, partially offset by an increase in asset management fees. Results for the first six months of 2021 increased in comparison to the prior year period, primarily reflecting a gain from the sale of our 35% ownership stake in Pramerica SGR in the current year period, as well as an increase in asset management fees, partially offset by higher expenses.
Long-Term Care
Retirement.. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods increased, primarily reflecting higher net investment spread results.

Group Insurance. Results for both the second quarter and the first six months of 2021 include an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for the second quarter of 2021 increased in comparison to the prior year period, reflecting higher net spread results and more favorable underwriting results, partially offset by higher expenses. Results for the first six months of 2021 decreased in comparison to the prior year period, primarily reflecting lower underwriting results, partially offset by higher net investment spread results.

Individual Annuities. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods increased, driven by higher fee income, net of distribution expenses and other associated costs.

Individual Life. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods increased, primarily due to higher net investment spread results. The results for the first six months of 2021 were partially offset by lower underwriting results.

Assurance IQ. Results for both the second quarter and the first six months of 2021 decreased in comparison to the prior year periods, reflecting an increase in operating expenses supporting business growth, partially offset by higher revenues.

International Businesses. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of an unfavorable net impact from foreign currency exchange rates and a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding these items, results for both periods increased, primarily driven by higher net investment spread results and more favorable underwriting results from business growth.

Corporate and Other. Results for both the second quarter and the first six months of 2021 reflected decreased losses in comparison to the prior year periods, primarily driven by lower net charges from other corporate activities, favorable pension and employee benefit results and lower interest expense on debt.

Closed Block Division. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, primarily driven by higher net investment activity results, partially offset by an increase in the policyholder dividend obligation.

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 13 to the Unaudited Interim Consolidated Financial Statements for additional information on the presentation of segment results and our definition of adjusted operating income.

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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.

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.

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 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.
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June 30,
2021		December 31,
2020
 (in billions)
Foreign currency hedging instruments:
Hedging USD-equivalent earnings:
Forward currency contracts (notional amount outstanding)$0.3 $0.4 
Hedging USD-equivalent equity:
USD-denominated assets held in yen-based entities(1)9.5 10.1 
Dual currency and synthetic dual currency investments(2)0.5 0.5 
Total USD-equivalent equity foreign currency hedging instruments10.0 10.6 
Total foreign currency hedges$10.3 $11.0 
__________
(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 $68.5 billion and $65.8 billion as of June 30, 2021 and December 31, 2020, 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 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 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 our 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, 2021, approximately 9% of the segment’s earnings were yen-based and, as of June 30, 2021, we have hedged 100%, 92% and 50% of expected yen-based earnings for 2021, 2022 and 2023, 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.
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As a result of these arrangements, our International Businesses’ results for 2021 and 2020 reflect the impact of translating yen-denominated earnings at fixed currency exchange rates of 103 and 104 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,
 2021202020212020
 (in millions)
Segment impacts of intercompany arrangements:
International Businesses$0 $19 $1 $31 
PGIM(1)2 (1)2 
Impact of intercompany arrangements(1)(1)21 0 33 
Corporate and Other:
Impact of intercompany arrangements(1)1 (21)0 (33)
Settlement gains (losses) on forward currency contracts(2)6 20 14 42 
Net benefit (detriment) to Corporate and Other7 (1)14 9 
Net impact on consolidated revenues and adjusted operating income$6 $20 $14 $42 
__________ 
(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, 2021 and 2020, the total notional amounts of these forward currency contracts within our Corporate and Other operations were $0.9 billion and $1.1 billion, respectively, of which $0.3 billion and $0.4 billion, respectively, were related to our Japanese insurance operations.

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. This is most notable in our Japanese operations, which currently offer primarily USD-denominated products, but have also historically offered 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 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 $2.1 billion and $2.3 billion as of June 30, 2021 and December 31, 2020, 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% of the $2.1 billion balance as of June 30, 2021 will be recognized throughout the remainder of 2021, approximately 12% will be recognized in 2022, and the remaining balance will be recognized from 2023 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,
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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.

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 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 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 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
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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. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of June 30, 2021, our domestic variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a 0% 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 0.5% 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 2021 annual reviews and update of assumptions and other refinements, we kept our long-term expectation of the 10-year U.S. Treasury rate and 10-year Japanese Government Bond yield unchanged and continue to grade to rates of 3.25% and 1.00%, respectively, 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.

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, 2020.

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, in November 2020 the FASB issued ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application to defer for an additional one year the 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. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. The Company currently intends to adopt ASU 2018-12 effective January 1, 2023. 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 the pattern of earnings emergence following the transition date. 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

Business Updates

•In March 2021, we sold our 35% ownership stake in Pramerica SGR, an asset management joint venture in Italy, to our partner UBI Banca, (acquired in 2020 by Intesa Sanpaolo Group), resulting in a pre-tax gain of $378 million. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.
•In July 2021, we signed a definitive agreement to acquire Montana Capital Partners, a European-based private equity secondaries asset manager with approximately $3 billion of assets under management, subject to regulatory approvals and customary closing conditions.

Operating Results

The following table sets forth PGIM’s operating results for the periods indicated.
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Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results(1):
Revenues$1,009 $957 $2,323 $1,735 
Expenses694 633 1,357 1,247 
Adjusted operating income315 324 966 488 
Realized investment gains (losses), net, and related adjustments(1)(1)(3)3 
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests25 (6)(3)(42)
Income (loss) before income taxes and equity in earnings of operating joint ventures$339 $317 $960 $449 
__________
(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 decreased $9 million, reflecting lower other related revenues, net of related expenses, primarily driven by the absence of favorable seed and co-investment results from the impact of tightening credit spreads on fixed income investments in the prior year period, and higher compensation expenses associated with certain long-term employee compensation plans and business growth. Also contributing to the decrease were lower service, distribution and other revenues driven by the absence of earnings from our Pramerica SGR joint venture that was sold in the first quarter of 2021. The decreases were partially offset by higher asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows.

Six Month Comparison. Adjusted operating income increased $478 million, primarily reflecting an increase in service, distribution and other revenues driven by a gain from the sale of our Pramerica SGR joint venture in the current year period and higher asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows. The increases were partially offset by higher compensation expenses associated with certain long-term employee compensation plans and business growth.

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.
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Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Revenues by type:
Asset management fees by source:
Institutional customers$349 $325 $697 $653 
Retail customers(1)307 227 609 456 
General account147 138 292 274 
Total asset management fees803 690 1,598 1,383 
Other related revenues by source:
Incentive fees24 17 51 35 
Transaction fees4 4 9 8 
Seed and co-investments33 64 38 37 
Commercial mortgage(2)25 32 70 59 
Total other related revenues86 117 168 139 
Service, distribution and other revenues120 150 557 213 
Total revenues$1,009 $957 $2,323 $1,735 
__________
(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 revenues from our commercial mortgage origination and servicing business.

Three Month Comparison. Revenues increased$52 million.Asset management fees increased primarily reflecting higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows. Other related revenues decreased primarily driven by the absence of favorable seed and co-investment results from the impact of tightening credit spreads in the prior year period. Service, distribution and other revenues decreased primarily reflecting the sale of our Pramerica SGR joint venture in the prior quarter.

Expenses increased $61 million. This increase primarily reflects higher variable expenses associated with an increase in overall segment earnings, and higher compensation expenses driven by certain long-term employee compensation plans tied to performance factors, as well as business growth.

Six Month Comparison. Revenuesincreased $588 million. Service, distribution and other revenues increased primarily reflecting a gain from the sale of our Pramerica SGR joint venture in the current year period. Asset management fees increased primarily reflecting higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows.

Expenses increased $110 million. This increase primarily reflects higher variable expenses associated with an increase in overall segment earnings, and higher compensation expenses driven by certain long-term employee compensation plans tied to performance factors, as well as business growth.

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Assets Under Management

The following table sets forth assets under management by asset class as of the dates indicated.
 June 30, 2021December 31, 2020June 30, 2020(1)
 (in billions)
Assets Under Management(2) (at fair value):
Public equity$212.6 $202.4 $162.6 
Public fixed income987.4 1,004.5 950.7 
Real estate125.6 121.5 117.9 
Private credit and other alternatives104.8 106.5 102.3 
Multi-asset81.0 63.7 61.0 
Total PGIM assets under management$1,511.4 $1,498.6 $1,394.5 
Assets under management within other reporting segments(3)218.6 222.3 210.8 
Total PFI assets under management$1,730.0 $1,720.9 $1,605.3 
__________
(1)Prior period amounts have been updated to conform to current period presentation.
(2)“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 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.
(3)Primarily includes certain product-related assets in our U.S. Businesses and certain general account assets in 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 by our Chief Investment Officer Organization.

PGIM’s assets under management as of June 30, 2021increased $117 billion in comparison to the prior year quarter, primarily reflecting market appreciation including strong investment performance, and increased $13 billion in comparison to the prior year end, primarily reflecting market appreciation.

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

 June 30, 2021December 31, 2020June 30, 2020
 (in billions)
Assets Under Management(1) (at fair value):
Institutional customers$618.6 $614.9 $571.2 
Retail customers401.2 372.0 320.2 
General account491.6 511.7 503.1 
Total PGIM assets under management$1,511.4 $1,498.6 $1,394.5 
Assets under management within other reporting segments(2)218.6 222.3 210.8 
Total PFI assets under management$1,730.0 $1,720.9 $1,605.3 
__________
(1)“Institutional customers” consist of third-party institutional assets and group insurance contracts. “Retail customers” consist 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. “General account” also includes fixed annuities and the fixed-rate accounts of variable annuities and variable life insurance.
(2)Primarily includes certain product-related assets in our U.S. Businesses and certain general account assets in 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 by our Chief Investment Officer Organization.
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The following table sets forth the component changes in PGIM’s assets under management for the periods indicated.
Three Months Ended June 30,Six Months Ended June 30,Twelve
Months
Ended
June 30,
20212020(1)20212020(1)2021
 (in billions)
Beginning assets under management$1,451.3 $1,295.7 $1,498.6 $1,331.0 $1,394.5 
Institutional third-party flows5.6 (5.7)6.7 (1.5)11.2 
Retail third-party flows(0.3)9.4 4.1 8.1 13.2 
Total third-party flows5.3 3.7 10.8 6.6 24.4 
Affiliated flows(2)(6.2)(14.2)(9.6)(3.4)(14.7)
Market appreciation (depreciation)(3)60.2 103.3 16.9 39.6 124.0 
Foreign exchange rate impact(0.3)1.1 (7.7)(0.7)(0.2)
Net money market activity and other increases (decreases)1.1 4.9 2.4 21.4 (16.6)
Ending assets under management$1,511.4 $1,394.5 $1,511.4 $1,394.5 $1,511.4 
__________
(1)Prior period amounts have been updated to conform to current period presentation.
(2)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.
(3)Includes income reinvestment, where applicable.

Private Capital Deployment

Private capital deployment is indicative of the pace and magnitude of capital that is invested and will result in future revenues that may include management fees, transaction fees, incentive fees and servicing revenues, as well as future costs to manage these assets.

Private capital deployment represents the gross value of private capital invested in real estate debt and equity, and private credit and equity asset classes. Assets under management resulting from private capital deployment are included in “Real estate” and “Private credit and other alternatives” in the “—Assets Under Management— by asset class table” above. As of June 30, 2021, these assets increased approximately $3.6 billion compared to December 31, 2020, primarily reflecting private capital deployed, partially offset by capital returned to investors.

Private capital deployment includes PGIM’s real estate agency debt business, which consists of agency commercial loans that are originated and sold to third party investors. PGIM continues to service these commercial loans; however, they are not included in assets under management.

The following table sets forth PGIM’s private capital deployed by asset class for the periods indicated.

 Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
 (in billions)
Private capital deployed:
Real estate debt and equity$6.4 $3.6 $12.2 $7.9 
Private credit and equity4.5 2.4 6.6 4.8 
Total private capital deployed$10.9 $6.0 $18.8 $12.7 

Seed and Co-Investments

As of June 30, 2021 and December 31, 2020, PGIM had approximately $1,186 million and $1,205 million of seed investments and $551 million and $685 million of co-investments at carrying value, respectively, primarily consisting of public fixed income, public equity and real estate investments.

U.S. Businesses

Operating Results
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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,
 2021202020212020
(in millions)
Adjusted operating income before income taxes:
U.S. Businesses:
Retirement$491 $281 $1,114 $526 
Group Insurance17 5 (115)49 
Individual Annuities472 249 916 622 
Individual Life146 (64)102 (84)
Assurance IQ(38)(16)(77)(39)
Total U.S. Businesses1,088 455 1,940 1,074 
Reconciling Items:
Realized investment gains (losses), net, and related adjustments(165)(2,188)1,724 (2,428)
Charges related to realized investment gains (losses), net10 551 (226)(265)
Market experience updates223 96 530 (844)
Other adjustments(1)(13)32 (26)77 
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests2 0 2 1 
Income (loss) before income taxes and equity in earnings of operating joint ventures$1,145 $(1,054)$3,944 $(2,385)
________
(1)Represents adjustments not included in the above reconciling items. Also includes 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 the associated contingent consideration (see Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information).

Three Month Comparison. Adjusted operating income for our U.S. Businesses increased by $633 million primarily due to:

•Higher net investment spread results driven by higher income on non-coupon investments;

•A favorable comparative net impact from our annual reviews and update of assumptions and other refinements; and

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

•Partially offsetting these increases were lower underwriting results primarily driven by lower COVID-19 related mortality gains in our Retirement business.

Six Month Comparison. Adjusted operating income for our U.S. Businesses increased by $866 million primarily due to:

•Higher net investment spread results driven by higher income on non-coupon investments;

•A favorable comparative net impact from our annual reviews and update of assumptions and other refinements; and

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

•Partially offsetting these increases were lower underwriting results primarily driven by COVID-19 related mortality claims in our Group Insurance and Individual Life businesses.
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Retirement

Business Update

•In July 2021, the Company entered into a definitive agreement to sell its Full Service Retirement business (the Company’s retirement plan recordkeeping and administration business) to Great-West Life & Annuity Insurance Company. The transaction involves the sale of legal entities, reinsurance, and the transfer of contracts and brokerage accounts, and is expected to close by the first quarter of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. See Note 15 to the Unaudited Interim Consolidated Financial Statements for additional information.

Operating Results

The following table sets forth Retirement’s operating results for the periods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results:
Revenues$2,683 $2,992 $5,274 $5,429 
Benefits and expenses2,192 2,711 4,160 4,903 
Adjusted operating income491 281 1,114 526 
Realized investment gains (losses), net, and related adjustments365 16 (115)(5)
Charges related to realized investment gains (losses), net(20)12 (7)(11)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests2 0 2 1 
Income (loss) before income taxes and equity in earnings of operating joint ventures$838 $309 $994 $511 

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $210 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 2021 and 2020 included net charges of $18 million and $22 million, respectively, from these updates, primarily driven by an increase in expected benefit payments. Excluding this item, adjusted operating income increased $206 million, driven by higher net investment spread results, primarily reflecting higher income on non-coupon investments. This increase was partially offset by a lower contribution from reserve experience primarily driven by a decline in COVID-19 related mortality gains compared to the prior year period.

Six Month Comparison. Adjusted operating income increased $588 million, 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 $584 million, driven by higher net investment spread results, primarily reflecting higher income on non-coupon investments.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues decreased $309 million, reflecting lower pension risk transfer premiums with corresponding offsets in policyholders’ benefits, as discussed below. This decrease was partially offset by higher net investment income and other income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses decreased $519 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $515 million. Policyholders’ benefits, including the change in policy reserves, decreased primarily related to the decrease in pension risk transfer premiums discussed above, partially offset by less favorable reserve experience primarily driven by a decline in COVID-19 related mortality gains.

Six Month Comparison. Revenues decreased $155 million, reflecting lower pension risk transfer premiums with corresponding offsets in policyholders’ benefits, as discussed below. This decrease was partially offset by higher net investment income and other income, primarily reflecting higher income on non-coupon investments.
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Benefits and expenses decreased $743 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $739 million. Policyholders’ benefits, including the change in policy reserves, decreased primarily related to the decrease in pension risk transfer premiums discussed above, partially offset by less favorable reserve experience primarily driven by a decline in COVID-19 related 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 as 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,
20212020202120202021
(in millions)
Full Service:
Beginning total account value$326,156 $238,435 $315,227 $272,448 $266,433 
Deposits and sales7,420 5,455 18,353 14,407 44,860 
Withdrawals and benefits(8,006)(7,040)(17,366)(15,708)(36,310)
Change in market value, interest credited and interest income and other activity16,404 29,583 25,760 (4,714)66,991 
Ending total account value$341,974 $266,433 $341,974 $266,433 $341,974 
Institutional Investment Products:
Beginning total account value$247,496 $227,346 $243,387 $227,596 $231,142 
Additions(1)661 4,545 10,421 11,438 21,452 
Withdrawals and benefits(5,744)(3,527)(11,386)(9,037)(20,637)
Change in market value, interest credited and interest income1,346 3,000 693 5,435 4,112 
Other(2)84 (222)728 (4,290)7,774 
Ending total account value$243,843 $231,142 $243,843 $231,142 $243,843 
__________
(1)Additions primarily include: group annuities and funded pension reinsurance calculated based on premiums received; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust; and funding agreements issued.
(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, 2021 and 2020, “Other” activity also includes $581 million in receipts offset by $731 million in payments and $2,614 million in receipts offset by $2,740 million in payments, respectively, and for the six months ended June 30, 2021 and 2020, includes $1,302 million in receipts offset by $1,496 million in payments and $5,366 million in receipts offset by $5,276 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, 2021 primarily reflected favorable changes in the market value of customer funds and net withdrawals and benefits, while the increase for the six and twelve months ended June 30, 2021 primarily reflected favorable changes in the market value of customer funds and net additions.

The decrease in Institutional Investment Products account values for the three months ended June 30, 2021 reflected net withdrawals primarily driven by pension risk transfer run-off and investment-only stable value account withdrawals. The increase in account values for the six months ended June 30, 2021 reflected an increase in other activity primarily driven by the positive impact of foreign exchange rate changes, a favorable change in the market value of account assets, partially offset by net withdrawals. The increase in account values for the twelve months ended June 30, 2021 primarily reflected an increase in
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other activity primarily driven by the positive impact of foreign exchange rate changes, and an increase in the market value of account assets.

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,
2021202020212020
($ in millions)
Operating results:
Revenues$1,518 $1,471 $3,074 $2,895 
Benefits and expenses1,501 1,466 3,189 2,846 
Adjusted operating income17 5 (115)49 
Realized investment gains (losses), net, and related adjustments9 (10)(25)71 
Income (loss) before income taxes and equity in earnings of operating joint ventures$26 $(5)$(140)$120 
Benefits ratio(1)(4):
Group life(2)91.1 %93.0 %97.8 %90.7 %
Group disability(2)80.9 %74.0 %80.7 %75.0 %
Total Group Insurance(2)88.7 %89.0 %93.9 %87.3 %
Administrative operating expense ratio(3)(4):
Group life11.0 %11.8 %10.9 %12.1 %
Group disability32.7 %26.1 %32.5 %25.4 %
Total Group Insurance16.1 %14.9 %15.9 %15.0 %
__________ 
(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 91.1%, 80.9% and 88.8% for the three months ended June 30, 2021, respectively, 97.8%, 80.7% and 93.9% for the six months ended June 30, 2021, respectively, 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, and 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively.
(3)Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.
(4)The benefits and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $12 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of 2021 and 2020 included a net benefit from this update of $1 million and $11 million, respectively. Excluding this item, adjusted operating income increased $22 million, primarily reflecting more favorable underwriting results in our group life business driven by a decline in COVID-19 impacts on non-experience-rated contracts, and higher net investment spread results driven by higher income on non-coupon investments. These increases were partially offset by lower underwriting results in our group disability business driven by less favorable claims experience on long-term disability contracts and higher expenses.

Six Month Comparison. Adjusted operating income decreased $164 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income decreased $154 million, primarily reflecting lower underwriting results in our group life business driven by less favorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts, and lower underwriting results in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts. These decreases were partially offset by higher net investment spread results driven by higher income on non-coupon investments.

Revenues, Benefits and Expenses
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Three Month Comparison. Revenues increased $47 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $69 million. The increase primarily reflected higher premiums and policy charges and fee income driven by growth in our group life and group disability businesses, and higher net investment income driven by higher income on non-coupon investments.

Benefits and expenses increased $35 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $47 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts and higher general and administrative expenses.

Six Month Comparison. Revenues increased $179 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $201 million. The increase primarily reflected higher premiums and policy charges and fee income in our group life business due to COVID-19 impacts on experience-rated contracts, with offsets in policyholders’ benefits and changes in reserves, as discussed below, as well as growth in our group life and group disability businesses.

Benefits and expenses increased $343 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $355 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, including increases in our group life business mostly due to COVID-19 impacts on both experience- and non-experience-rated contracts, and increases in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts.

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,
 2021202020212020
 (in millions)
Annualized new business premiums(1):
Group life$16 $8 $191 $181 
Group disability35 18 155 126 
Total$51 $26 $346 $307 
__________ 
(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 and six months ended June 30, 2021 increased $25 million and $39 million, respectively, compared to the prior year periods, primarily driven by higher sales in our group disability and group life businesses.

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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,
2021202020212020
(in millions)
Operating results:
Revenues$1,228 $953 $2,427 $2,101 
Benefits and expenses756 704 1,511 1,479 
Adjusted operating income472 249 916 622 
Realized investment gains (losses), net, and related adjustments(656)(2,178)1,899 (3,043)
Charges related to realized investment gains (losses), net37 474 (370)99 
Market experience updates228 18 404 (628)
Income (loss) before income taxes and equity in earnings of operating joint ventures$81 $(1,437)$2,849 $(2,950)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $223 million, including a favorable comparative impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2021 included a $15 million net charge from these updates primarily reflecting the impact of unfavorable policyholder behavior updates. 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. Excluding this item, adjusted operating income increased $102 million primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows. Also contributing to the increase were lower operating expenses.

Six Month Comparison. Adjusted operating income increased $294 million, 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 $173 million. The increase was primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows. Also contributing to the increase were higher net investment spread results and lower operating expenses.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $275 million. Excluding the impact of our annual review and update of assumptions and other refinements, as discussed above, revenues increased $146 million primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees.

Benefits and expenses increased $52 million. Excluding the impact of our annual review and update of assumptions and other refinements, as discussed above, benefits and expenses increased $44 million primarily driven by higher general and administrative expenses, net of capitalization, driven by higher distribution and asset management expenses reflecting higher average separate account values, partially offset by lower operating expenses.

Six Month Comparison. Revenues increased $326 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $197 million. The increase was primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees.

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Benefits and expenses increased $32 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $24 million primarily driven by higher general and administrative expenses, net of capitalization, driven by higher distribution and asset management expenses reflecting higher average separate account values, partially offset by lower operating expenses. This increase was partially offset by lower interest expense.

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 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,
20212020202120202021
(in millions)
Total Individual Annuities(1):
Beginning total account value$176,442 $143,976 $176,280 $169,681 $159,276 
Sales1,693 1,346 3,548 3,273 7,090 
Full surrenders and death benefits(2,683)(1,410)(5,175)(3,929)(9,091)
Sales, net of full surrenders and death benefits(990)(64)(1,627)(656)(2,001)
Partial withdrawals and other benefit payments(1,328)(1,146)(2,757)(2,545)(5,403)
Net flows(2,318)(1,210)(4,384)(3,201)(7,404)
Change in market value, interest credited and other activity9,208 17,358 12,350 (5,464)34,174 
Policy charges(921)(848)(1,835)(1,740)(3,635)
Ending total account value$182,411 $159,276 $182,411 $159,276 $182,411 
__________
(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 our Retirement business. Variable annuity account values were $176.6 billion and $154.1 billion as of June 30, 2021 and 2020, respectively. Fixed annuity account values were $5.9 billion and $5.2 billion as of June 30, 2021 and 2020, respectively.

Sales, net of full surrenders and death benefits, for the three months and the six months ended June 30, 2021 declined in comparison to the prior year periods driven by an increase in surrender activity from market value appreciation and the general uncertainty about COVID-19 in the prior year periods. Sales for the three months and the six months ended June 30, 2021 reflect our product pivot strategy and consisted largely of indexed variable annuities, as sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020.

The increase in account values for the three months, six months and twelve months ended June 30, 2021 were driven by market value appreciation, partially offset by net outflows and policy charges on contractholder accounts.

Risks and Risk Mitigants

The following is a summary of certain risks associated with Individual Annuities’ products, certain strategies in mitigating those risks including any updates to those strategies since the previous year-end, and the related financial results.

Fixed Annuity Risks and Risk Mitigants. The primary risk exposure of our fixed annuity products relates to investment risks we bear for providing customers a minimum guaranteed interest rate or an index-linked interest rate required to be credited to the customer’s account value, which include interest rate fluctuations and/or sustained periods of low interest rates, and credit risk related to the underlying investments. We manage these risk exposures primarily through our investment strategies and product design features, which include credit rate resetting subject to the minimum guaranteed interest rate as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, a portion of our fixed products has a market value adjustment provision that affords protection of lapse in the case of rising interest rates. We also manage these risk exposures through external reinsurance for certain of our fixed annuity products.
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Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term. We manage this risk primarily through our investment strategies including derivatives and product design features, which include credit rate resetting subject to contractual minimums as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, our indexed variable annuity strategies have an interim value provision that provides protection from lapse in the case of rising interest rates.

Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. We manage our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of i) Product Design Features, ii) our Asset Liability Management Strategy, and iii) our Capital Hedge Program, as discussed below. We also manage these risk exposures through external reinsurance for certain of our variable annuity products. Sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020.

i.Product Design Features:

A portion of the variable annuity contracts that we offered 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 purchase payments, as well as a required minimum allocation to our general account for certain of our products. In addition, there is diversity in our fee arrangements, as certain fees are primarily based on the benefit guarantee amount, the contractholder account value and/or premiums, which helps preserve certain revenue streams when market fluctuations cause account values to decline.

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

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

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 periods indicated:

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June 30,
2021		December 31,
2020
(in millions)
U.S. GAAP liability, including NPR, net of reinsurance recoverables$13,385 $18,537 
NPR adjustment, net of reinsurance recoverables3,104 4,103 
Subtotal16,489 22,640 
Adjustments including risk margins and valuation methodology differences(3,497)(5,080)
Economic liability managed through the ALM strategy$12,992 $17,560 

As of June 30, 2021, the fair value of our fixed income instruments and derivative assets exceed the economic liability within the entities in which the risks reside.

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

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

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

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

iii.Capital Hedge Program:

We employ a capital hedge program 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 have historically been recognized in adjusted operating income over the expected duration of the capital hedge program. Beginning with the second quarter of 2020, changes in value of these derivatives are excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

Results excluded from adjusted operating income

The 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 as described above, and the related amortization of DAC and other costs.
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Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)(1)
Results excluded from adjusted operating income:
Change in value of U.S. GAAP liability, pre-NPR(2)$(1,952)$5,467 $6,440 $(15,071)
Change in the NPR adjustment(116)(3,582)(1,000)3,017 
Change in fair value of hedge assets, excluding capital hedges(3)1,480 (3,349)(3,512)8,605 
Change in fair value of capital hedges(4)(498)(704)(793)248 
Other430 (10)764 158 
Realized investment gains (losses), net, and related adjustments(656)(2,178)1,899 (3,043)
Market experience updates(5)228 18 404 (628)
Charges related to realized investment gains (losses), net37 474 (370)99 
Total results excluded from adjusted operating income(6)$(391)$(1,686)$1,933 $(3,572)
__________
(1)Positive amounts represent income; negative amounts represent a loss.
(2)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.
(3)Represents the change in fair value of the derivatives utilized to hedge potential claims associated with our variable annuity living benefit guarantees.
(4)Represents the changes in fair value of equity derivatives of the capital hedge program intended to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets.
(5)Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability.
(6)Excludes amounts from the change in unrealized gains and losses on fixed income instruments recorded in OCI (versus net income) of $132 million, and $(4) million for the three months ended June 30, 2021 and 2020, respectively, and $(1,738) million and $1,702 million for the six months ended June 30, 2021 and 2020, respectively.

For the three months ended June 30, 2021, the loss of $391 million was driven by an unfavorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to declining interest rates, partially offset by favorable equity market performance, as well as losses associated with our capital hedge program and an unfavorable NPR adjustment. This was partially offset by favorable market experience updates from higher equity markets.
For the three months ended June 30, 2020, the loss of $1,686 million was driven by an unfavorable NPR adjustment driven by tightening credit spreads and losses associated with our capital hedge program driven by favorable equity markets. These losses were partially offset by the favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to tightening credit spreads and favorable equity markets, as well as benefits related to the amortization of DAC and other costs.
For the six months ended June 30, 2021, the gain of $1,933 million was driven by a favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) as well as favorable market experience updates largely due to favorable equity markets and rising interest rates. These impacts were partially offset by an unfavorable NPR adjustment, losses associated with our capital hedge program and charges related to the amortization of DAC and other costs.
For the six months ended June 30, 2020, the loss of $3,572 million was driven by an unfavorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) driven by declining interest rates, widening of credit spreads and unfavorable equity market performance, as well as unfavorable market experience updates due to unfavorable equity markets and declining interest rates. These losses were partially offset by a favorable NPR adjustment, reflecting the impact of widening credit spreads.

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:
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June 30, 2021December 31, 2020June 30, 2020
Account
Value		% of
Total		Account
Value		% of
Total		Account
Value		% of
Total
($ in millions)
Living benefit/GMDB features(1):
Both ALM strategy and automatic rebalancing(2)(3)$114,543 65 %$112,177 66 %$102,137 66 %
ALM strategy only(3)7,491 4 %7,410 4 %6,836 4 %
Automatic rebalancing only608 1 %634 1 %646 1 %
External reinsurance(4)3,299 2 %3,173 2 %2,855 2 %
PDI17,604 10 %18,540 11 %17,646 12 %
Other products2,547 1 %2,492 1 %2,225 1 %
Total living benefit/GMDB features$146,092 $144,426 $132,345 
GMDB features and other(5)30,465 17 %26,120 15 %21,734 14 %
Total variable annuity account value$176,557 $170,546 $154,079 
__________
(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 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 covering certain Highest Daily Lifetime Income (“HDI”) v.3.0 business for the period April 1, 2015 through December 31, 2016. These contracts with living benefits also have an automatic rebalancing feature.
(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 Individual Life’s operating results for the periods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results:
Revenues$1,616 $1,563 $3,251 $3,093 
Benefits and expenses1,470 1,627 3,149 3,177 
Adjusted operating income146 (64)102 (84)
Realized investment gains (losses), net, and related adjustments117 (16)(35)549 
Charges related to realized investment gains (losses), net(7)65 151 (353)
Market experience updates(5)78 126 (216)
Income (loss) before income taxes and equity in earnings of operating joint ventures$251 $63 $344 $(104)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $210 million, primarily reflecting a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 20202021 included a $33$7 million net chargebenefit from these updates, while resultsmainly driven by favorable impacts related to assumptions for the second quarter of 2019 included a $9 million net charge from these updates. Excluding this item, results for the second quarter and the first six months of 2020 decreased comparedinvestment returns, partially offset by updates to the prior year periods. The decreasereinsurance premiums. 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. Excluding this item, adjusted operating income increased $111 million, primarily reflecting higher net investment spread results driven by higher income on non-coupon investments.

Six Month Comparison. Adjusted operating income increased $186 million, 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 $87 million, primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, and higher fee income. These increases were partially offset by lower underwriting results, driven by an unfavorable impact from changes inmortality experience, net of reinsurance, primarily attributable to COVID-19 related claims.
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Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $53 million. Excluding the market valueimpact of derivatives used for duration managementour annual reviews and lowerupdate of assumptions and other refinements, as discussed above, revenues increased $160 million. This increase was primarily driven by higher income on non-coupon investments and higher net investment income due to higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by business growth.

Benefits and expenses decreased $157 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $49 million. This increase reflected higher policyholders’ benefits, including changes in reserves, driven by business growth, partially offset by a favorableless unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims in the prior year period.

Six Month Comparison. Revenues increased $158 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $265 million. This increase was primarily driven by higher income on non-coupon investments and higher net investment income due to higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by business growth.

Benefits and expenses decreased $28 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $178 million. This increase reflected higher policyholders’ benefits, including changes in reserves, primarily driven by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims, as well as business growth.

Sales Results

The following table sets forth Individual Life’s annualized new business premiums, as defined under “—Results of Operations—Segment Measures” above, by distribution channel and product, for the market valueperiods indicated.
Three Months Ended June 30, 2021Three Months Ended June 30, 2020
Prudential
Advisors		Third-
Party		TotalPrudential
Advisors		Third-
Party		Total
(in millions)
Term Life$6 $28 $34 $7 $33 $40 
Guaranteed Universal Life(1)0 18 18 1 33 34 
Other Universal Life(1)2 14 16 5 18 23 
Variable Life32 80 112 22 65 87 
Total$40 $140 $180 $35 $149 $184 
Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Prudential
Advisors		Third-
Party		TotalPrudential
Advisors		Third-
Party		Total
(in millions)
Term Life$12 $53 $65 $13 $67 $80 
Guaranteed Universal Life(1)0 30 30 3 60 63 
Other Universal Life(1)4 27 31 12 41 53 
Variable Life60 198 258 42 133 175 
Total$76 $308 $384 $70 $301 $371 
__________
(1)Single pay life premiums and excess (unscheduled) premiums are included in annualized new business premiums based on a 10% credit and represented approximately 1% and 12% of equity securities. The decreaseGuaranteed Universal Life and 7% and 11% of Other Universal Life annualized new business premiums for the three months ended June 30, 2021 and 2020, respectively, and approximately 1% and 9% of Guaranteed Universal Life and 4% and 10% of Other Universal Life annualized new business premiums for the six months ended June 30, 2021 and 2020, respectively.

Total annualized new business premiums for the second quarter of 2021 decreased $4 million compared to the prior year period, primarily driven by lower sales due to pricing and product actions across guaranteed universal life, other universal life and term life products, partially offset by higher sales of variable universal life products. Total annualized new business premiums for the first six months of 2020 included an unfavorable impact from2021 increased $13 million compared to the prior year period, primarily driven by higher sales of variable life products, partially offset by lower sales across all other products.
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Assurance IQ
Operating Results

The following table sets forth Assurance IQ’s operating results for the periods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
(in millions)
Operating results:
Revenues$113 $59 $221 $119 
Expenses151 75 298 158 
Adjusted operating income(38)(16)(77)(39)
Other adjustments(1)(13)32 (26)77 
Income (loss) before income taxes and equity in earnings of operating joint ventures$(51)$16 $(103)$38 
__________
(1)Includes 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 marketfair value of equity securities. This decrease also included lower underwriting resultsthe associated contingent consideration. See Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $22 million, reflecting higher operating and variable expenses supporting business growth, partially offset by increased revenues primarily related to the Medicare and Personal Finance product lines.

Six Month Comparison. Adjusted operating income decreased $38 million, reflecting higher operating and variable expenses supporting business growth, partially offset by increased revenues primarily related to the Medicare, Personal Finance and Life product lines.

Revenues and Expenses

Three Month Comparison. Revenues increased $54 million, primarily due to commissions and case referral revenues from the Medicare product line, driven by unfavorable policy experiencebusiness growth and an increasefrom a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in reservesthe Personal Finance and other product lines. Expenses increased $76 million, driven by higher marketing and distribution costs primarily related to the Medicare and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

Six Month Comparison. Revenues increased $102 million, primarily due to commissions and case referral revenues from the Medicare product line, driven by business growth and from a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in the Personal Finance and Life product lines. Expenses increased $140 million, driven by higher marketing and distribution costs primarily related to the Medicare, Life and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

International Businesses
Business Updates

•In June 2021, the Company completed the sale of The Prudential Life Insurance Company of Taiwan Inc. (“POT”) to Taishin Financial Holding Co, Ltd. for cash consideration of approximately NT 5.5 billion, equal to approximately $200 million at then current exchange rates, and contingent consideration with a resultfair value of an unlockingapproximately $25 million as of assumptionsJune 30, 2021. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information. Effective in the third quarter of 2020, the results of this business and the impact of its sale were reflected in 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. See “—Divested and Run-off Businesses.”

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•In the first quarter of 2020 due2021, the Company acquired a 24% interest (through a private equity limited partnership managed by LeapFrog Investments) in ICEA LION, a Kenya-based insurer and asset manager, for approximately $100 million. This investment is consistent with the Company’s strategic focus internationally on higher-growth emerging markets, and furthers the partnership’s specific objective to identify and make strategic investments in high quality financial services companies in selected African geographies.

Operating Results
The results of our International Businesses’ operations are translated on the declinebasis of weighted average monthly exchange rates, inclusive of the effects of the intercompany arrangement discussed in interest“—Results of Operations—Impact of Foreign Currency Exchange Rates” above. To provide a better understanding of operating performance within the International 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. These decreasesOur results of operations, excluding the effect of foreign currency fluctuations, were partially offsetderived by translating foreign currencies to USD at uniform exchange rates for all periods presented, including for constant dollar information discussed below. For our Japan operations, we used an exchange rate of 103 yen per USD, which 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 USD is generally reported based on the amounts as transacted in USD. Annualized new business premiums presented on a favorable impact from changesconstant exchange rate basis in the market value of derivatives used for duration management.“Sales Results” section below reflect translation based on these same uniform exchange rates.

Other. ResultsThe following table sets forth the International Businesses’ operating results for the periods indicated.
 Three Months Ended
June 30,		Six Months Ended
June 30,
 20212020(1)20212020(1)
 (in millions)
Operating results:
Revenues:
Life Planner$2,483 $2,325 $5,413 $5,043 
Gibraltar Life and Other2,610 2,759 5,611 5,677 
Total revenues5,093 5,084 11,024 10,720 
Benefits and expenses:
Life Planner2,076 2,023 4,542 4,379 
Gibraltar Life and Other2,214 2,370 4,808 4,954 
Total benefits and expenses4,290 4,393 9,350 9,333 
Adjusted operating income:
Life Planner407 302 871 664 
Gibraltar Life and Other396 389 803 723 
Total adjusted operating income803 691 1,674 1,387 
Realized investment gains (losses), net, and related adjustments606 100 (183)675 
Charges related to realized investment gains (losses), net(6)(15)(20)(22)
Market experience updates0 (36)0 (42)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(16)(34)(38)(30)
Income (loss) before income taxes and equity in earnings of operating joint ventures$1,387 $706 $1,433 $1,968 
__________
(1)Effective second quarter and the first six months of 2020, primarily reflect the results of POK and the impact of its anticipated sale.sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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.

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Adjusted Operating Income
Three Month Comparison. Adjusted operating income from our Life Planner operations increased $105 million, including a net unfavorable impact of $4 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 $2 million net benefit in the second quarter of 2021 compared to a $42 million net charge in the second quarter of 2020. The net charge in 2020 was 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 increased $65 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, and more favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations, partially offset by unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil. Also partially offsetting the increase were higher expenses supporting business growth, partially offset by the absence of certain costs associated with COVID-19 incurred in the prior year period.

Adjusted operating income from our Gibraltar Life and Other operations increased $7 million, including a net unfavorable impact of $7 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 $16 million net charge in the second quarter of 2021 compared to a $52 million net charge in the second quarter of 2020. The net charge in 2021 reflected unfavorable impacts primarily related to lapse assumption updates. The net charge in 2020 was primarily driven by updates of reserves reflecting the impact of a decrease in long-term interest rate assumptions, as well as other refinements.

Excluding these items, adjusted operating income from our Gibraltar Life and Other operations decreased $22 million primarily reflecting lower earnings from our joint venture investments, and lower net investment spread results driven by lower reinvestment yields, partially offset by higher prepayment fee income. Also partially offsetting the decrease were lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Six Month Comparison. Adjusted operating income from our Life Planner operations increased $207 million, including a net unfavorable impact of $7 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 Life Planner operations increased $170 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were more favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations, partially offset by unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil.

Adjusted operating income from our Gibraltar Life and Other operations increased $80 million, including a net unfavorable impact of $7 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 increased $51 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues from our Life Planner operations increased $158 million, including a net unfavorable impact of $30 million from currency fluctuations and a net charge of $34 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $222 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $53 million, including a net favorable impact of $26 million from currency fluctuations and a net benefit of $78 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $157 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force as well as unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil. Also contributing to the increase were higher
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expenses supporting business growth, partially offset by the absence of certain costs associated with COVID-19 incurred in the prior year period.

Revenues from our Gibraltar Life and Other operations decreased $149 million, including a net unfavorable impact of $2 million from currency fluctuations and a net benefit of $9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues decreased $156 million, primarily reflecting lower premiums and policy charges and fee income, and lower other income driven by a less favorable impact from our joint venture investments. Also contributing to the decrease was lower net investment income driven by lower reinvestment yields, partially offset by higher prepayment fee income.

Benefits and expenses of our Gibraltar Life and Other operations decreased $156 million, including a net unfavorable impact of $5 million from currency fluctuations and a net benefit of $27 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses decreased $134 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Six Month Comparison. Revenues from our Life Planner operations increased $370 million, including a net unfavorable impact of $25 million from currency fluctuations and a net charge of $34 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $429 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $163 million, including a net favorable impact of $18 million from currency fluctuations and a net benefit of $78 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $259 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force.

Revenues from our Gibraltar Life and Other operations decreased $66 million, including a net favorable impact of $44 million from currency fluctuations and a net benefit of $9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues decreased $119 million, primarily reflecting lower premiums and policy charges and fee income. The decrease was partially offset by higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields.

Benefits and expenses of our Gibraltar Life and Other operations decreased $146 million, including a net unfavorable impact of $51 million from currency fluctuations and a net benefit of $27 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses decreased $170 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

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.
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 Three Months Ended
June 30,		Six Months Ended
June 30,
20212020(1)20212020(1)
 (in millions)
Annualized new business premiums:
On an actual exchange rate basis:
Life Planner$231 $155 $479 $458 
Gibraltar Life and Other261 197 519 504 
Total$492 $352 $998 $962 
On a constant exchange rate basis:
Life Planner$244 $164 $503 $470 
Gibraltar Life and Other263 198 522 507 
Total$507 $362 $1,025 $977 
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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 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, 2021Three Months Ended June 30, 2020(1)
 LifeAccident
&
Health		Retirement(2)AnnuityTotalLifeAccident
&
Health		Retirement(2)AnnuityTotal
 (in millions)
Life Planner$131 $19 $93 $1 $244 $81 $13 $70 $0 $164 
Gibraltar Life and Other:
Life Consultants$61 $7 $8 $62 $138 $58 $7 $6 $17 $88 
Banks(3)48 0 2 11 61 57 0 3 2 62 
Independent Agency17 20 25 2 64 19 2 27 0 48 
Subtotal126 27 35 75 263 134 9 36 19 198 
Total$257 $46 $128 $76 $507 $215 $22 $106 $19 $362 
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)Includes retirement income, endowment and savings variable universal life.
(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 0% and 65%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended June 30, 2021, and 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.

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Three Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations increased $80 million, reflecting higher sales across all products primarily resulting from an easing of COVID-19 restrictions compared to the prior year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations increased $65 million. Life Consultants sales increased $50 million, primarily resulting from an easing of COVID-19 restrictions compared to the prior year period, and higher sales of USD-denominated fixed annuity products driven by rising interest rates. Independent Agency sales increased $16 million primarily driven by higher sales of accident & health products to a single large client in the current period. Bank channel sales remained relatively flat reflecting lower sales of USD-denominated protection products resulting from pricing increases in the third quarter of 2020, offset by higher sales of USD-denominated annuity 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, 2021Six Months Ended June 30, 2020(1)
 LifeAccident
&
Health		Retirement(2)AnnuityTotalLifeAccident
&
Health		Retirement(2)AnnuityTotal
 (in millions)
Life Planner$273 $38 $191 $1 $503 $245 $34 $191 $0 $470 
Gibraltar Life and Other:
Life Consultants$134 $14 $17 $78 $243 $141 $16 $24 $39 $220 
Banks(3)148 0 5 26 179 177 0 13 4 194 
Independent Agency35 21 41 3 100 40 3 48 2 93 
Subtotal317 35 63 107 522 358 19 85 45 507 
Total$590 $73 $254 $108 $1,025 $603 $53 $276 $45 $977 
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)Includes retirement income, endowment and savings variable universal life.
(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 5% and 66%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the six months ended June 30, 2021, and 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.

Six Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations increased $33 million, reflecting higher sales across all products primarily resulting from an easing of COVID-19 restrictions compared to the prior year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations increased $15 million. Life Consultants sales increased $23 million, primarily resulting from an easing of COVID-19 restrictions compared to the prior year period, and higher sales of USD-denominated fixed annuity products driven by rising interest rates. Independent Agency sales increased $7 million primarily driven by higher sales of accident & health products to a single large client in the current period. Bank channel sales decreased $15 million, primarily driven by lower sales of USD-denominated products resulting from pricing increases in the third quarter of 2020, partially offset by higher sales of USD-denominated annuity products driven by rising interest rates.

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Closed Block Division
Substantially all of the $59 billion of general account assets in the Closed Block division support obligations and 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.

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 also regularly examine our product offerings and their profitability. As a result, we may reprice certain products, adjust commissions for certain products and discontinue 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, 2021
(in billions)
Insurance products with fixed and guaranteed terms$138 
Contracts with a market value adjustment if invested amount is not held to maturity25 
Contracts with adjustable crediting rates subject to guaranteed minimums11 
Total$174 

The $138 billion 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 has interest crediting rates that are determined by formula.

Assuming a hypothetical scenario where the average 30-year Japanese Government Bond yield is 0.65% and the 10-year U.S. Treasury rate is 1.45% (which is reasonably consistent with recent rates) for the period from July 1, 2021 through June 30,
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2022 (and credit spreads remain unchanged from average levels experienced during the second quarter 2021), 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 $20 million and $40 million for the period from July 1, 2021 through June 30, 2022.
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,
2021202020212020
(in millions)
Revenues$15,917 $12,115 $32,869 $25,579 
Benefits and expenses13,144 14,447 26,682 28,249 
Income (loss) before income taxes and equity in earnings of operating joint ventures2,773 (2,332)6,187 (2,670)
Income tax expense (benefit)609 115 1,245 57 
Income (loss) before equity in earnings of operating joint ventures2,164 (2,447)4,942 (2,727)
Equity in earnings of operating joint ventures, net of taxes19 42 45 52 
Net income (loss)2,183 (2,405)4,987 (2,675)
Less: Income attributable to noncontrolling interests25 4 1 5 
Net income (loss) attributable to Prudential Financial, Inc.$2,158 $(2,409)$4,986 $(2,680)

Three Month Comparison. The $4,567 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” for the second quarter of 2021 compared to the second quarter of 2020 reflected the following notable items on a pre-tax basis:

•$2,283 million favorable variance from realized investment gains (losses) and related charges for PFI excluding Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities and market experience updates discussed below (see “General Account Investments” for additional information);
•$977 million favorable variance from higher adjusted operating income from our business segments (see “Segment Results of Operations” for additional information);
•$873 million favorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
•$832 million favorable variance from a gain in the current period from our Divested and Run-off Businesses compared to a loss in the prior year period (see “Results of Operations by Segment—Divested and Run-off Businesses” for additional information); and
•$169 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses (see Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information).

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” was a $494 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings.

Six Month Comparison. The$7,666 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” for the first six months of 2021 compared to the first six months of 2020 reflected the following notable items on a pre-tax basis:

•$3,109 million favorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
•$1,928 million favorable variance from higher adjusted operating income from our business segments, including a gain from the sale of the Company’s 35% ownership stake in Pramerica SGR in the current year period;
•$1,411 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses;
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•$1,203 million favorable variance from realized investment gains (losses) and related charges for PFI excluding Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities and market experience updates;
•$966 million favorable variance from a gain in the current period from our Divested and Run-off Businesses compared to a loss in the prior year period; and
•$331 million favorable variance from investment related activities that are primarily within “Other income (loss)” for PFI excluding our Divested and Run-off Businesses.

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” was a $1,188 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings.

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.

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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 and Six Months Ended
June 30,
20212020(1)
(in millions)
Favorable (unfavorable) impact to adjusted operating income before income taxes by segment:
U.S. Businesses:
Retirement$(18)$(22)
Group Insurance1 11 
Individual Annuities(15)(136)
Individual Life7 (92)
Total U.S. Businesses(25)(239)
International Businesses(14)(94)
Corporate and Other5 0 
Total segment favorable (unfavorable) impact to adjusted operating income before income taxes(34)(333)
Reconciling items:
Realized investment gains (losses), net, and related adjustments6 302 
Charges related to realized investment gains (losses), net192 (41)
Divested and Run-off Businesses:
Closed Block division0 0 
Other Divested and Run-off Businesses62 (34)
Favorable (unfavorable) impact to consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$226 $(106)
__________
(1)Effective third quarter of 2020, the results of POT and the impact of its 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.

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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 the Unaudited Interim Consolidated Statements of Operations.

Three Months Ended
June 30,		Six Months Ended
June 30,
20212020(1)20212020(1)
(in millions)
Adjusted operating income before income taxes by segment:
PGIM$315 $324 $966 $488 
U.S. Businesses:
Retirement491 281 1,114 526 
Group Insurance17 5 (115)49 
Individual Annuities472 249 916 622 
Individual Life146 (64)102 (84)
Assurance IQ(38)(16)(77)(39)
Total U.S. Businesses1,088 455 1,940 1,074 
International Businesses803 691 1,674 1,387 
Corporate and Other(300)(541)(586)(883)
Total segment adjusted operating income before income taxes1,906 929 3,994 2,066 
Reconciling items:
Realized investment gains (losses), net, and related adjustments(2)360 (3,268)1,624 (2,969)
Charges related to realized investment gains (losses), net(3)4 519 (235)(283)
Market experience updates225 56 529 (882)
Divested and Run-off Businesses(4):
Closed Block division31 (22)65 (23)
Other Divested and Run-off Businesses255 (524)285 (593)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(5)5 (54)(49)(63)
Other adjustments(6)(13)32 (26)77 
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures$2,773 $(2,332)$6,187 $(2,670)
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)See “—General Account Investments” and Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.
(3)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 (“URR”).
(4)Represents 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” for additional information.
(5)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.
(6)Represents adjustments not included in the above reconciling items. Also includes 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 the associated contingent consideration (see Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information).

Segment results for the period presented above reflect the following:

PGIM. Results for the second quarter of 2021 decreased in comparison to the prior year period, primarily reflecting lower
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other related revenues and higher expenses, partially offset by an increase in asset management fees. Results for the first six months of 2021 increased in comparison to the prior year period, primarily reflecting a gain from the sale of our 35% ownership stake in Pramerica SGR in the current year period, as well as an increase in asset management fees, partially offset by higher expenses.

Retirement. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods increased, primarily reflecting higher net investment spread results.

Group Insurance. Results for both the second quarter and the first six months of 2021 include an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for the second quarter of 2021 increased in comparison to the prior year period, reflecting higher net spread results and more favorable underwriting results, partially offset by higher expenses. Results for the first six months of 2021 decreased in comparison to the prior year period, primarily reflecting lower underwriting results, partially offset by higher net investment spread results.

Individual Annuities. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods increased, driven by higher fee income, net of distribution expenses and other associated costs.

Individual Life. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods increased, primarily due to higher net investment spread results. The results for the first six months of 2021 were partially offset by lower underwriting results.

Assurance IQ. Results for both the second quarter and the first six months of 2021 decreased in comparison to the prior year periods, reflecting an increase in operating expenses supporting business growth, partially offset by higher revenues.

International Businesses. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, inclusive of an unfavorable net impact from foreign currency exchange rates and a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding these items, results for both periods increased, primarily driven by higher net investment spread results and more favorable underwriting results from business growth.

Corporate and Other. Results for both the second quarter and the first six months of 2021 reflected decreased losses in comparison to the prior year periods, primarily driven by lower net charges from other corporate activities, favorable pension and employee benefit results and lower interest expense on debt.

Closed Block Division. Results for both the second quarter and the first six months of 2021 increased in comparison to the prior year periods, primarily driven by higher net investment activity results, partially offset by an increase in the policyholder dividend obligation.

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 13 to the Unaudited Interim Consolidated Financial Statements for additional information on the presentation of segment results and our definition of adjusted operating income.

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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.

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.

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 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.
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June 30,
2021		December 31,
2020
 (in billions)
Foreign currency hedging instruments:
Hedging USD-equivalent earnings:
Forward currency contracts (notional amount outstanding)$0.3 $0.4 
Hedging USD-equivalent equity:
USD-denominated assets held in yen-based entities(1)9.5 10.1 
Dual currency and synthetic dual currency investments(2)0.5 0.5 
Total USD-equivalent equity foreign currency hedging instruments10.0 10.6 
Total foreign currency hedges$10.3 $11.0 
__________
(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 $68.5 billion and $65.8 billion as of June 30, 2021 and December 31, 2020, 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 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 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 our 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, 2021, approximately 9% of the segment’s earnings were yen-based and, as of June 30, 2021, we have hedged 100%, 92% and 50% of expected yen-based earnings for 2021, 2022 and 2023, 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.
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As a result of these arrangements, our International Businesses’ results for 2021 and 2020 reflect the impact of translating yen-denominated earnings at fixed currency exchange rates of 103 and 104 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,
 2021202020212020
 (in millions)
Segment impacts of intercompany arrangements:
International Businesses$0 $19 $1 $31 
PGIM(1)2 (1)2 
Impact of intercompany arrangements(1)(1)21 0 33 
Corporate and Other:
Impact of intercompany arrangements(1)1 (21)0 (33)
Settlement gains (losses) on forward currency contracts(2)6 20 14 42 
Net benefit (detriment) to Corporate and Other7 (1)14 9 
Net impact on consolidated revenues and adjusted operating income$6 $20 $14 $42 
__________ 
(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, 2021 and 2020, the total notional amounts of these forward currency contracts within our Corporate and Other operations were $0.9 billion and $1.1 billion, respectively, of which $0.3 billion and $0.4 billion, respectively, were related to our Japanese insurance operations.

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. This is most notable in our Japanese operations, which currently offer primarily USD-denominated products, but have also historically offered 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 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 $2.1 billion and $2.3 billion as of June 30, 2021 and December 31, 2020, 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% of the $2.1 billion balance as of June 30, 2021 will be recognized throughout the remainder of 2021, approximately 12% will be recognized in 2022, and the remaining balance will be recognized from 2023 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,
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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.

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 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 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 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
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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. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of June 30, 2021, our domestic variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a 0% 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 0.5% 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 2021 annual reviews and update of assumptions and other refinements, we kept our long-term expectation of the 10-year U.S. Treasury rate and 10-year Japanese Government Bond yield unchanged and continue to grade to rates of 3.25% and 1.00%, respectively, 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.

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, 2020.

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, in November 2020 the FASB issued ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application to defer for an additional one year the 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. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. The Company currently intends to adopt ASU 2018-12 effective January 1, 2023. 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 the pattern of earnings emergence following the transition date. 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

Business Updates

•In March 2021, we sold our 35% ownership stake in Pramerica SGR, an asset management joint venture in Italy, to our partner UBI Banca, (acquired in 2020 by Intesa Sanpaolo Group), resulting in a pre-tax gain of $378 million. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.
•In July 2021, we signed a definitive agreement to acquire Montana Capital Partners, a European-based private equity secondaries asset manager with approximately $3 billion of assets under management, subject to regulatory approvals and customary closing conditions.

Operating Results

The following table sets forth PGIM’s operating results for the periods indicated.
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Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results(1):
Revenues$1,009 $957 $2,323 $1,735 
Expenses694 633 1,357 1,247 
Adjusted operating income315 324 966 488 
Realized investment gains (losses), net, and related adjustments(1)(1)(3)3 
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests25 (6)(3)(42)
Income (loss) before income taxes and equity in earnings of operating joint ventures$339 $317 $960 $449 
__________
(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 decreased $9 million, reflecting lower other related revenues, net of related expenses, primarily driven by the absence of favorable seed and co-investment results from the impact of tightening credit spreads on fixed income investments in the prior year period, and higher compensation expenses associated with certain long-term employee compensation plans and business growth. Also contributing to the decrease were lower service, distribution and other revenues driven by the absence of earnings from our Pramerica SGR joint venture that was sold in the first quarter of 2021. The decreases were partially offset by higher asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows.

Six Month Comparison. Adjusted operating income increased $478 million, primarily reflecting an increase in service, distribution and other revenues driven by a gain from the sale of our Pramerica SGR joint venture in the current year period and higher asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows. The increases were partially offset by higher compensation expenses associated with certain long-term employee compensation plans and business growth.

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.
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Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Revenues by type:
Asset management fees by source:
Institutional customers$349 $325 $697 $653 
Retail customers(1)307 227 609 456 
General account147 138 292 274 
Total asset management fees803 690 1,598 1,383 
Other related revenues by source:
Incentive fees24 17 51 35 
Transaction fees4 4 9 8 
Seed and co-investments33 64 38 37 
Commercial mortgage(2)25 32 70 59 
Total other related revenues86 117 168 139 
Service, distribution and other revenues120 150 557 213 
Total revenues$1,009 $957 $2,323 $1,735 
__________
(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 revenues from our commercial mortgage origination and servicing business.

Three Month Comparison. Revenues increased$52 million.Asset management fees increased primarily reflecting higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows. Other related revenues decreased primarily driven by the absence of favorable seed and co-investment results from the impact of tightening credit spreads in the prior year period. Service, distribution and other revenues decreased primarily reflecting the sale of our Pramerica SGR joint venture in the prior quarter.

Expenses increased $61 million. This increase primarily reflects higher variable expenses associated with an increase in overall segment earnings, and higher compensation expenses driven by certain long-term employee compensation plans tied to performance factors, as well as business growth.

Six Month Comparison. Revenuesincreased $588 million. Service, distribution and other revenues increased primarily reflecting a gain from the sale of our Pramerica SGR joint venture in the current year period. Asset management fees increased primarily reflecting higher average assets under management as a result of market appreciation including strong investment performance, and fixed income flows.

Expenses increased $110 million. This increase primarily reflects higher variable expenses associated with an increase in overall segment earnings, and higher compensation expenses driven by certain long-term employee compensation plans tied to performance factors, as well as business growth.

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Assets Under Management

The following table sets forth assets under management by asset class as of the dates indicated.
 June 30, 2021December 31, 2020June 30, 2020(1)
 (in billions)
Assets Under Management(2) (at fair value):
Public equity$212.6 $202.4 $162.6 
Public fixed income987.4 1,004.5 950.7 
Real estate125.6 121.5 117.9 
Private credit and other alternatives104.8 106.5 102.3 
Multi-asset81.0 63.7 61.0 
Total PGIM assets under management$1,511.4 $1,498.6 $1,394.5 
Assets under management within other reporting segments(3)218.6 222.3 210.8 
Total PFI assets under management$1,730.0 $1,720.9 $1,605.3 
__________
(1)Prior period amounts have been updated to conform to current period presentation.
(2)“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 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.
(3)Primarily includes certain product-related assets in our U.S. Businesses and certain general account assets in 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 by our Chief Investment Officer Organization.

PGIM’s assets under management as of June 30, 2021increased $117 billion in comparison to the prior year quarter, primarily reflecting market appreciation including strong investment performance, and increased $13 billion in comparison to the prior year end, primarily reflecting market appreciation.

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

 June 30, 2021December 31, 2020June 30, 2020
 (in billions)
Assets Under Management(1) (at fair value):
Institutional customers$618.6 $614.9 $571.2 
Retail customers401.2 372.0 320.2 
General account491.6 511.7 503.1 
Total PGIM assets under management$1,511.4 $1,498.6 $1,394.5 
Assets under management within other reporting segments(2)218.6 222.3 210.8 
Total PFI assets under management$1,730.0 $1,720.9 $1,605.3 
__________
(1)“Institutional customers” consist of third-party institutional assets and group insurance contracts. “Retail customers” consist 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. “General account” also includes fixed annuities and the fixed-rate accounts of variable annuities and variable life insurance.
(2)Primarily includes certain product-related assets in our U.S. Businesses and certain general account assets in 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 by our Chief Investment Officer Organization.
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The following table sets forth the component changes in PGIM’s assets under management for the periods indicated.
Three Months Ended June 30,Six Months Ended June 30,Twelve
Months
Ended
June 30,
20212020(1)20212020(1)2021
 (in billions)
Beginning assets under management$1,451.3 $1,295.7 $1,498.6 $1,331.0 $1,394.5 
Institutional third-party flows5.6 (5.7)6.7 (1.5)11.2 
Retail third-party flows(0.3)9.4 4.1 8.1 13.2 
Total third-party flows5.3 3.7 10.8 6.6 24.4 
Affiliated flows(2)(6.2)(14.2)(9.6)(3.4)(14.7)
Market appreciation (depreciation)(3)60.2 103.3 16.9 39.6 124.0 
Foreign exchange rate impact(0.3)1.1 (7.7)(0.7)(0.2)
Net money market activity and other increases (decreases)1.1 4.9 2.4 21.4 (16.6)
Ending assets under management$1,511.4 $1,394.5 $1,511.4 $1,394.5 $1,511.4 
__________
(1)Prior period amounts have been updated to conform to current period presentation.
(2)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.
(3)Includes income reinvestment, where applicable.

Private Capital Deployment

Private capital deployment is indicative of the pace and magnitude of capital that is invested and will result in future revenues that may include management fees, transaction fees, incentive fees and servicing revenues, as well as future costs to manage these assets.

Private capital deployment represents the gross value of private capital invested in real estate debt and equity, and private credit and equity asset classes. Assets under management resulting from private capital deployment are included in “Real estate” and “Private credit and other alternatives” in the “—Assets Under Management— by asset class table” above. As of June 30, 2021, these assets increased approximately $3.6 billion compared to December 31, 2020, primarily reflecting private capital deployed, partially offset by capital returned to investors.

Private capital deployment includes PGIM’s real estate agency debt business, which consists of agency commercial loans that are originated and sold to third party investors. PGIM continues to service these commercial loans; however, they are not included in assets under management.

The following table sets forth PGIM’s private capital deployed by asset class for the periods indicated.

 Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
 (in billions)
Private capital deployed:
Real estate debt and equity$6.4 $3.6 $12.2 $7.9 
Private credit and equity4.5 2.4 6.6 4.8 
Total private capital deployed$10.9 $6.0 $18.8 $12.7 

Seed and Co-Investments

As of June 30, 2021 and December 31, 2020, PGIM had approximately $1,186 million and $1,205 million of seed investments and $551 million and $685 million of co-investments at carrying value, respectively, primarily consisting of public fixed income, public equity and real estate investments.

U.S. Businesses

Operating Results
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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,
 2021202020212020
(in millions)
Adjusted operating income before income taxes:
U.S. Businesses:
Retirement$491 $281 $1,114 $526 
Group Insurance17 5 (115)49 
Individual Annuities472 249 916 622 
Individual Life146 (64)102 (84)
Assurance IQ(38)(16)(77)(39)
Total U.S. Businesses1,088 455 1,940 1,074 
Reconciling Items:
Realized investment gains (losses), net, and related adjustments(165)(2,188)1,724 (2,428)
Charges related to realized investment gains (losses), net10 551 (226)(265)
Market experience updates223 96 530 (844)
Other adjustments(1)(13)32 (26)77 
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests2 0 2 1 
Income (loss) before income taxes and equity in earnings of operating joint ventures$1,145 $(1,054)$3,944 $(2,385)
________
(1)Represents adjustments not included in the above reconciling items. Also includes 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 the associated contingent consideration (see Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information).

Three Month Comparison. Adjusted operating income for our U.S. Businesses increased by $633 million primarily due to:

•Higher net investment spread results driven by higher income on non-coupon investments;

•A favorable comparative net impact from our annual reviews and update of assumptions and other refinements; and

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

•Partially offsetting these increases were lower underwriting results primarily driven by lower COVID-19 related mortality gains in our Retirement business.

Six Month Comparison. Adjusted operating income for our U.S. Businesses increased by $866 million primarily due to:

•Higher net investment spread results driven by higher income on non-coupon investments;

•A favorable comparative net impact from our annual reviews and update of assumptions and other refinements; and

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

•Partially offsetting these increases were lower underwriting results primarily driven by COVID-19 related mortality claims in our Group Insurance and Individual Life businesses.
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Retirement

Business Update

•In July 2021, the Company entered into a definitive agreement to sell its Full Service Retirement business (the Company’s retirement plan recordkeeping and administration business) to Great-West Life & Annuity Insurance Company. The transaction involves the sale of legal entities, reinsurance, and the transfer of contracts and brokerage accounts, and is expected to close by the first quarter of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. See Note 15 to the Unaudited Interim Consolidated Financial Statements for additional information.

Operating Results

The following table sets forth Retirement’s operating results for the periods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results:
Revenues$2,683 $2,992 $5,274 $5,429 
Benefits and expenses2,192 2,711 4,160 4,903 
Adjusted operating income491 281 1,114 526 
Realized investment gains (losses), net, and related adjustments365 16 (115)(5)
Charges related to realized investment gains (losses), net(20)12 (7)(11)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests2 0 2 1 
Income (loss) before income taxes and equity in earnings of operating joint ventures$838 $309 $994 $511 

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $210 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 2021 and 2020 included net charges of $18 million and $22 million, respectively, from these updates, primarily driven by an increase in expected benefit payments. Excluding this item, adjusted operating income increased $206 million, driven by higher net investment spread results, primarily reflecting higher income on non-coupon investments. This increase was partially offset by a lower contribution from reserve experience primarily driven by a decline in COVID-19 related mortality gains compared to the prior year period.

Six Month Comparison. Adjusted operating income increased $588 million, 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 $584 million, driven by higher net investment spread results, primarily reflecting higher income on non-coupon investments.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues decreased $309 million, reflecting lower pension risk transfer premiums with corresponding offsets in policyholders’ benefits, as discussed below. This decrease was partially offset by higher net investment income and other income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses decreased $519 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $515 million. Policyholders’ benefits, including the change in policy reserves, decreased primarily related to the decrease in pension risk transfer premiums discussed above, partially offset by less favorable reserve experience primarily driven by a decline in COVID-19 related mortality gains.

Six Month Comparison. Revenues decreased $155 million, reflecting lower pension risk transfer premiums with corresponding offsets in policyholders’ benefits, as discussed below. This decrease was partially offset by higher net investment income and other income, primarily reflecting higher income on non-coupon investments.
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Benefits and expenses decreased $743 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $739 million. Policyholders’ benefits, including the change in policy reserves, decreased primarily related to the decrease in pension risk transfer premiums discussed above, partially offset by less favorable reserve experience primarily driven by a decline in COVID-19 related 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 as 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,
20212020202120202021
(in millions)
Full Service:
Beginning total account value$326,156 $238,435 $315,227 $272,448 $266,433 
Deposits and sales7,420 5,455 18,353 14,407 44,860 
Withdrawals and benefits(8,006)(7,040)(17,366)(15,708)(36,310)
Change in market value, interest credited and interest income and other activity16,404 29,583 25,760 (4,714)66,991 
Ending total account value$341,974 $266,433 $341,974 $266,433 $341,974 
Institutional Investment Products:
Beginning total account value$247,496 $227,346 $243,387 $227,596 $231,142 
Additions(1)661 4,545 10,421 11,438 21,452 
Withdrawals and benefits(5,744)(3,527)(11,386)(9,037)(20,637)
Change in market value, interest credited and interest income1,346 3,000 693 5,435 4,112 
Other(2)84 (222)728 (4,290)7,774 
Ending total account value$243,843 $231,142 $243,843 $231,142 $243,843 
__________
(1)Additions primarily include: group annuities and funded pension reinsurance calculated based on premiums received; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust; and funding agreements issued.
(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, 2021 and 2020, “Other” activity also includes $581 million in receipts offset by $731 million in payments and $2,614 million in receipts offset by $2,740 million in payments, respectively, and for the six months ended June 30, 2021 and 2020, includes $1,302 million in receipts offset by $1,496 million in payments and $5,366 million in receipts offset by $5,276 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, 2021 primarily reflected favorable changes in the market value of customer funds and net withdrawals and benefits, while the increase for the six and twelve months ended June 30, 2021 primarily reflected favorable changes in the market value of customer funds and net additions.

The decrease in Institutional Investment Products account values for the three months ended June 30, 2021 reflected net withdrawals primarily driven by pension risk transfer run-off and investment-only stable value account withdrawals. The increase in account values for the six months ended June 30, 2021 reflected an increase in other activity primarily driven by the positive impact of foreign exchange rate changes, a favorable change in the market value of account assets, partially offset by net withdrawals. The increase in account values for the twelve months ended June 30, 2021 primarily reflected an increase in
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other activity primarily driven by the positive impact of foreign exchange rate changes, and an increase in the market value of account assets.

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,
2021202020212020
($ in millions)
Operating results:
Revenues$1,518 $1,471 $3,074 $2,895 
Benefits and expenses1,501 1,466 3,189 2,846 
Adjusted operating income17 5 (115)49 
Realized investment gains (losses), net, and related adjustments9 (10)(25)71 
Income (loss) before income taxes and equity in earnings of operating joint ventures$26 $(5)$(140)$120 
Benefits ratio(1)(4):
Group life(2)91.1 %93.0 %97.8 %90.7 %
Group disability(2)80.9 %74.0 %80.7 %75.0 %
Total Group Insurance(2)88.7 %89.0 %93.9 %87.3 %
Administrative operating expense ratio(3)(4):
Group life11.0 %11.8 %10.9 %12.1 %
Group disability32.7 %26.1 %32.5 %25.4 %
Total Group Insurance16.1 %14.9 %15.9 %15.0 %
__________ 
(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 91.1%, 80.9% and 88.8% for the three months ended June 30, 2021, respectively, 97.8%, 80.7% and 93.9% for the six months ended June 30, 2021, respectively, 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, and 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively.
(3)Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.
(4)The benefits and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $12 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of 2021 and 2020 included a net benefit from this update of $1 million and $11 million, respectively. Excluding this item, adjusted operating income increased $22 million, primarily reflecting more favorable underwriting results in our group life business driven by a decline in COVID-19 impacts on non-experience-rated contracts, and higher net investment spread results driven by higher income on non-coupon investments. These increases were partially offset by lower underwriting results in our group disability business driven by less favorable claims experience on long-term disability contracts and higher expenses.

Six Month Comparison. Adjusted operating income decreased $164 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income decreased $154 million, primarily reflecting lower underwriting results in our group life business driven by less favorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts, and lower underwriting results in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts. These decreases were partially offset by higher net investment spread results driven by higher income on non-coupon investments.

Revenues, Benefits and Expenses
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Three Month Comparison. Revenues increased $47 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $69 million. The increase primarily reflected higher premiums and policy charges and fee income driven by growth in our group life and group disability businesses, and higher net investment income driven by higher income on non-coupon investments.

Benefits and expenses increased $35 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $47 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts and higher general and administrative expenses.

Six Month Comparison. Revenues increased $179 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $201 million. The increase primarily reflected higher premiums and policy charges and fee income in our group life business due to COVID-19 impacts on experience-rated contracts, with offsets in policyholders’ benefits and changes in reserves, as discussed below, as well as growth in our group life and group disability businesses.

Benefits and expenses increased $343 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $355 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, including increases in our group life business mostly due to COVID-19 impacts on both experience- and non-experience-rated contracts, and increases in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts.

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,
 2021202020212020
 (in millions)
Annualized new business premiums(1):
Group life$16 $8 $191 $181 
Group disability35 18 155 126 
Total$51 $26 $346 $307 
__________ 
(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 and six months ended June 30, 2021 increased $25 million and $39 million, respectively, compared to the prior year periods, primarily driven by higher sales in our group disability and group life businesses.

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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,
2021202020212020
(in millions)
Operating results:
Revenues$1,228 $953 $2,427 $2,101 
Benefits and expenses756 704 1,511 1,479 
Adjusted operating income472 249 916 622 
Realized investment gains (losses), net, and related adjustments(656)(2,178)1,899 (3,043)
Charges related to realized investment gains (losses), net37 474 (370)99 
Market experience updates228 18 404 (628)
Income (loss) before income taxes and equity in earnings of operating joint ventures$81 $(1,437)$2,849 $(2,950)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $223 million, including a favorable comparative impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2021 included a $15 million net charge from these updates primarily reflecting the impact of unfavorable policyholder behavior updates. 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. Excluding this item, adjusted operating income increased $102 million primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows. Also contributing to the increase were lower operating expenses.

Six Month Comparison. Adjusted operating income increased $294 million, 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 $173 million. The increase was primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows. Also contributing to the increase were higher net investment spread results and lower operating expenses.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $275 million. Excluding the impact of our annual review and update of assumptions and other refinements, as discussed above, revenues increased $146 million primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees.

Benefits and expenses increased $52 million. Excluding the impact of our annual review and update of assumptions and other refinements, as discussed above, benefits and expenses increased $44 million primarily driven by higher general and administrative expenses, net of capitalization, driven by higher distribution and asset management expenses reflecting higher average separate account values, partially offset by lower operating expenses.

Six Month Comparison. Revenues increased $326 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $197 million. The increase was primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees.

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Benefits and expenses increased $32 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $24 million primarily driven by higher general and administrative expenses, net of capitalization, driven by higher distribution and asset management expenses reflecting higher average separate account values, partially offset by lower operating expenses. This increase was partially offset by lower interest expense.

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 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,
20212020202120202021
(in millions)
Total Individual Annuities(1):
Beginning total account value$176,442 $143,976 $176,280 $169,681 $159,276 
Sales1,693 1,346 3,548 3,273 7,090 
Full surrenders and death benefits(2,683)(1,410)(5,175)(3,929)(9,091)
Sales, net of full surrenders and death benefits(990)(64)(1,627)(656)(2,001)
Partial withdrawals and other benefit payments(1,328)(1,146)(2,757)(2,545)(5,403)
Net flows(2,318)(1,210)(4,384)(3,201)(7,404)
Change in market value, interest credited and other activity9,208 17,358 12,350 (5,464)34,174 
Policy charges(921)(848)(1,835)(1,740)(3,635)
Ending total account value$182,411 $159,276 $182,411 $159,276 $182,411 
__________
(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 our Retirement business. Variable annuity account values were $176.6 billion and $154.1 billion as of June 30, 2021 and 2020, respectively. Fixed annuity account values were $5.9 billion and $5.2 billion as of June 30, 2021 and 2020, respectively.

Sales, net of full surrenders and death benefits, for the three months and the six months ended June 30, 2021 declined in comparison to the prior year periods driven by an increase in surrender activity from market value appreciation and the general uncertainty about COVID-19 in the prior year periods. Sales for the three months and the six months ended June 30, 2021 reflect our product pivot strategy and consisted largely of indexed variable annuities, as sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020.

The increase in account values for the three months, six months and twelve months ended June 30, 2021 were driven by market value appreciation, partially offset by net outflows and policy charges on contractholder accounts.

Risks and Risk Mitigants

The following is a summary of certain risks associated with Individual Annuities’ products, certain strategies in mitigating those risks including any updates to those strategies since the previous year-end, and the related financial results.

Fixed Annuity Risks and Risk Mitigants. The primary risk exposure of our fixed annuity products relates to investment risks we bear for providing customers a minimum guaranteed interest rate or an index-linked interest rate required to be credited to the customer’s account value, which include interest rate fluctuations and/or sustained periods of low interest rates, and credit risk related to the underlying investments. We manage these risk exposures primarily through our investment strategies and product design features, which include credit rate resetting subject to the minimum guaranteed interest rate as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, a portion of our fixed products has a market value adjustment provision that affords protection of lapse in the case of rising interest rates. We also manage these risk exposures through external reinsurance for certain of our fixed annuity products.
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Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term. We manage this risk primarily through our investment strategies including derivatives and product design features, which include credit rate resetting subject to contractual minimums as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, our indexed variable annuity strategies have an interim value provision that provides protection from lapse in the case of rising interest rates.

Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. We manage our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of i) Product Design Features, ii) our Asset Liability Management Strategy, and iii) our Capital Hedge Program, as discussed below. We also manage these risk exposures through external reinsurance for certain of our variable annuity products. Sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020.

i.Product Design Features:

A portion of the variable annuity contracts that we offered 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 purchase payments, as well as a required minimum allocation to our general account for certain of our products. In addition, there is diversity in our fee arrangements, as certain fees are primarily based on the benefit guarantee amount, the contractholder account value and/or premiums, which helps preserve certain revenue streams when market fluctuations cause account values to decline.

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

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

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 periods indicated:

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June 30,
2021		December 31,
2020
(in millions)
U.S. GAAP liability, including NPR, net of reinsurance recoverables$13,385 $18,537 
NPR adjustment, net of reinsurance recoverables3,104 4,103 
Subtotal16,489 22,640 
Adjustments including risk margins and valuation methodology differences(3,497)(5,080)
Economic liability managed through the ALM strategy$12,992 $17,560 

As of June 30, 2021, the fair value of our fixed income instruments and derivative assets exceed the economic liability within the entities in which the risks reside.

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

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

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

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

iii.Capital Hedge Program:

We employ a capital hedge program 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 have historically been recognized in adjusted operating income over the expected duration of the capital hedge program. Beginning with the second quarter of 2020, changes in value of these derivatives are excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

Results excluded from adjusted operating income

The 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 as described above, and the related amortization of DAC and other costs.
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Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)(1)
Results excluded from adjusted operating income:
Change in value of U.S. GAAP liability, pre-NPR(2)$(1,952)$5,467 $6,440 $(15,071)
Change in the NPR adjustment(116)(3,582)(1,000)3,017 
Change in fair value of hedge assets, excluding capital hedges(3)1,480 (3,349)(3,512)8,605 
Change in fair value of capital hedges(4)(498)(704)(793)248 
Other430 (10)764 158 
Realized investment gains (losses), net, and related adjustments(656)(2,178)1,899 (3,043)
Market experience updates(5)228 18 404 (628)
Charges related to realized investment gains (losses), net37 474 (370)99 
Total results excluded from adjusted operating income(6)$(391)$(1,686)$1,933 $(3,572)
__________
(1)Positive amounts represent income; negative amounts represent a loss.
(2)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.
(3)Represents the change in fair value of the derivatives utilized to hedge potential claims associated with our variable annuity living benefit guarantees.
(4)Represents the changes in fair value of equity derivatives of the capital hedge program intended to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets.
(5)Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability.
(6)Excludes amounts from the change in unrealized gains and losses on fixed income instruments recorded in OCI (versus net income) of $132 million, and $(4) million for the three months ended June 30, 2021 and 2020, respectively, and $(1,738) million and $1,702 million for the six months ended June 30, 2021 and 2020, respectively.

For the three months ended June 30, 2021, the loss of $391 million was driven by an unfavorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to declining interest rates, partially offset by favorable equity market performance, as well as losses associated with our capital hedge program and an unfavorable NPR adjustment. This was partially offset by favorable market experience updates from higher equity markets.
For the three months ended June 30, 2020, the loss of $1,686 million was driven by an unfavorable NPR adjustment driven by tightening credit spreads and losses associated with our capital hedge program driven by favorable equity markets. These losses were partially offset by the favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to tightening credit spreads and favorable equity markets, as well as benefits related to the amortization of DAC and other costs.
For the six months ended June 30, 2021, the gain of $1,933 million was driven by a favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) as well as favorable market experience updates largely due to favorable equity markets and rising interest rates. These impacts were partially offset by an unfavorable NPR adjustment, losses associated with our capital hedge program and charges related to the amortization of DAC and other costs.
For the six months ended June 30, 2020, the loss of $3,572 million was driven by an unfavorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) driven by declining interest rates, widening of credit spreads and unfavorable equity market performance, as well as unfavorable market experience updates due to unfavorable equity markets and declining interest rates. These losses were partially offset by a favorable NPR adjustment, reflecting the impact of widening credit spreads.

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:
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June 30, 2021December 31, 2020June 30, 2020
Account
Value		% of
Total		Account
Value		% of
Total		Account
Value		% of
Total
($ in millions)
Living benefit/GMDB features(1):
Both ALM strategy and automatic rebalancing(2)(3)$114,543 65 %$112,177 66 %$102,137 66 %
ALM strategy only(3)7,491 4 %7,410 4 %6,836 4 %
Automatic rebalancing only608 1 %634 1 %646 1 %
External reinsurance(4)3,299 2 %3,173 2 %2,855 2 %
PDI17,604 10 %18,540 11 %17,646 12 %
Other products2,547 1 %2,492 1 %2,225 1 %
Total living benefit/GMDB features$146,092 $144,426 $132,345 
GMDB features and other(5)30,465 17 %26,120 15 %21,734 14 %
Total variable annuity account value$176,557 $170,546 $154,079 
__________
(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 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 covering certain Highest Daily Lifetime Income (“HDI”) v.3.0 business for the period April 1, 2015 through December 31, 2016. These contracts with living benefits also have an automatic rebalancing feature.
(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 Individual Life’s operating results for the periods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
(in millions)
Operating results:
Revenues$1,616 $1,563 $3,251 $3,093 
Benefits and expenses1,470 1,627 3,149 3,177 
Adjusted operating income146 (64)102 (84)
Realized investment gains (losses), net, and related adjustments117 (16)(35)549 
Charges related to realized investment gains (losses), net(7)65 151 (353)
Market experience updates(5)78 126 (216)
Income (loss) before income taxes and equity in earnings of operating joint ventures$251 $63 $344 $(104)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $210 million, primarily reflecting a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2021 included a $7 million net benefit from these updates, mainly driven by favorable impacts related to assumptions for investment returns, partially offset by updates to reinsurance premiums. 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. Excluding this item, adjusted operating income increased $111 million, primarily reflecting higher net investment spread results driven by higher income on non-coupon investments.

Six Month Comparison. Adjusted operating income increased $186 million, 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 $87 million, primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, and higher fee income. These increases were partially offset by lower underwriting results, driven by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims.
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Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $53 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $160 million. This increase was primarily driven by higher income on non-coupon investments and higher net investment income due to higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by business growth.

Benefits and expenses decreased $157 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $49 million. This increase reflected higher policyholders’ benefits, including changes in reserves, driven by business growth, partially offset by a less unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims in the prior year period.

Six Month Comparison. Revenues increased $158 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $265 million. This increase was primarily driven by higher income on non-coupon investments and higher net investment income due to higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by business growth.

Benefits and expenses decreased $28 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $178 million. This increase reflected higher policyholders’ benefits, including changes in reserves, primarily driven by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims, as well as business growth.

Sales Results

The following table sets forth 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, 2021Three Months Ended June 30, 2020
Prudential
Advisors		Third-
Party		TotalPrudential
Advisors		Third-
Party		Total
(in millions)
Term Life$6 $28 $34 $7 $33 $40 
Guaranteed Universal Life(1)0 18 18 1 33 34 
Other Universal Life(1)2 14 16 5 18 23 
Variable Life32 80 112 22 65 87 
Total$40 $140 $180 $35 $149 $184 
Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Prudential
Advisors		Third-
Party		TotalPrudential
Advisors		Third-
Party		Total
(in millions)
Term Life$12 $53 $65 $13 $67 $80 
Guaranteed Universal Life(1)0 30 30 3 60 63 
Other Universal Life(1)4 27 31 12 41 53 
Variable Life60 198 258 42 133 175 
Total$76 $308 $384 $70 $301 $371 
__________
(1)Single pay life premiums and excess (unscheduled) premiums are included in annualized new business premiums based on a 10% credit and represented approximately 1% and 12% of Guaranteed Universal Life and 7% and 11% of Other Universal Life annualized new business premiums for the three months ended June 30, 2021 and 2020, respectively, and approximately 1% and 9% of Guaranteed Universal Life and 4% and 10% of Other Universal Life annualized new business premiums for the six months ended June 30, 2021 and 2020, respectively.

Total annualized new business premiums for the second quarter of 2021 decreased $4 million compared to the prior year period, primarily driven by lower sales due to pricing and product actions across guaranteed universal life, other universal life and term life products, partially offset by higher sales of variable universal life products. Total annualized new business premiums for the first six months of 2021 increased $13 million compared to the prior year period, primarily driven by higher sales of variable life products, partially offset by lower sales across all other products.
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Assurance IQ
Operating Results

The following table sets forth Assurance IQ’s operating results for the periods indicated.
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
(in millions)
Operating results:
Revenues$113 $59 $221 $119 
Expenses151 75 298 158 
Adjusted operating income(38)(16)(77)(39)
Other adjustments(1)(13)32 (26)77 
Income (loss) before income taxes and equity in earnings of operating joint ventures$(51)$16 $(103)$38 
__________
(1)Includes 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 the associated contingent consideration. See Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $22 million, reflecting higher operating and variable expenses supporting business growth, partially offset by increased revenues primarily related to the Medicare and Personal Finance product lines.

Six Month Comparison. Adjusted operating income decreased $38 million, reflecting higher operating and variable expenses supporting business growth, partially offset by increased revenues primarily related to the Medicare, Personal Finance and Life product lines.

Revenues and Expenses

Three Month Comparison. Revenues increased $54 million, primarily due to commissions and case referral revenues from the Medicare product line, driven by business growth and from a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in the Personal Finance and other product lines. Expenses increased $76 million, driven by higher marketing and distribution costs primarily related to the Medicare and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

Six Month Comparison. Revenues increased $102 million, primarily due to commissions and case referral revenues from the Medicare product line, driven by business growth and from a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in the Personal Finance and Life product lines. Expenses increased $140 million, driven by higher marketing and distribution costs primarily related to the Medicare, Life and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

International Businesses
Business Updates

•In June 2021, the Company completed the sale of The Prudential Life Insurance Company of Taiwan Inc. (“POT”) to Taishin Financial Holding Co, Ltd. for cash consideration of approximately NT 5.5 billion, equal to approximately $200 million at then current exchange rates, and contingent consideration with a fair value of approximately $25 million as of June 30, 2021. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information. Effective in the third quarter of 2020, the results of this business and the impact of its sale were reflected in 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. See “—Divested and Run-off Businesses.”

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•In the first quarter of 2021, the Company acquired a 24% interest (through a private equity limited partnership managed by LeapFrog Investments) in ICEA LION, a Kenya-based insurer and asset manager, for approximately $100 million. This investment is consistent with the Company’s strategic focus internationally on higher-growth emerging markets, and furthers the partnership’s specific objective to identify and make strategic investments in high quality financial services companies in selected African geographies.

Operating Results
The results of our International 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 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 USD at uniform exchange rates for all periods presented, including for constant dollar information discussed below. For our Japan operations, we used an exchange rate of 103 yen per USD, which 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 USD is generally reported based on the amounts as transacted in 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 Businesses’ operating results for the periods indicated.
 Three Months Ended
June 30,		Six Months Ended
June 30,
 20212020(1)20212020(1)
 (in millions)
Operating results:
Revenues:
Life Planner$2,483 $2,325 $5,413 $5,043 
Gibraltar Life and Other2,610 2,759 5,611 5,677 
Total revenues5,093 5,084 11,024 10,720 
Benefits and expenses:
Life Planner2,076 2,023 4,542 4,379 
Gibraltar Life and Other2,214 2,370 4,808 4,954 
Total benefits and expenses4,290 4,393 9,350 9,333 
Adjusted operating income:
Life Planner407 302 871 664 
Gibraltar Life and Other396 389 803 723 
Total adjusted operating income803 691 1,674 1,387 
Realized investment gains (losses), net, and related adjustments606 100 (183)675 
Charges related to realized investment gains (losses), net(6)(15)(20)(22)
Market experience updates0 (36)0 (42)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(16)(34)(38)(30)
Income (loss) before income taxes and equity in earnings of operating joint ventures$1,387 $706 $1,433 $1,968 
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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.

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Adjusted Operating Income
Three Month Comparison. Adjusted operating income from our Life Planner operations increased $105 million, including a net unfavorable impact of $4 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 $2 million net benefit in the second quarter of 2021 compared to a $42 million net charge in the second quarter of 2020. The net charge in 2020 was 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 increased $65 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, and more favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations, partially offset by unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil. Also partially offsetting the increase were higher expenses supporting business growth, partially offset by the absence of certain costs associated with COVID-19 incurred in the prior year period.

Adjusted operating income from our Gibraltar Life and Other operations increased $7 million, including a net unfavorable impact of $7 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 $16 million net charge in the second quarter of 2021 compared to a $52 million net charge in the second quarter of 2020. The net charge in 2021 reflected unfavorable impacts primarily related to lapse assumption updates. The net charge in 2020 was primarily driven by updates of reserves reflecting the impact of a decrease in long-term interest rate assumptions, as well as other refinements.

Excluding these items, adjusted operating income from our Gibraltar Life and Other operations decreased $22 million primarily reflecting lower earnings from our joint venture investments, and lower net investment spread results driven by lower reinvestment yields, partially offset by higher prepayment fee income. Also partially offsetting the decrease were lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Six Month Comparison. Adjusted operating income from our Life Planner operations increased $207 million, including a net unfavorable impact of $7 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 Life Planner operations increased $170 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were more favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations, partially offset by unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil.

Adjusted operating income from our Gibraltar Life and Other operations increased $80 million, including a net unfavorable impact of $7 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 increased $51 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues from our Life Planner operations increased $158 million, including a net unfavorable impact of $30 million from currency fluctuations and a net charge of $34 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $222 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $53 million, including a net favorable impact of $26 million from currency fluctuations and a net benefit of $78 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $157 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force as well as unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil. Also contributing to the increase were higher
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expenses supporting business growth, partially offset by the absence of certain costs associated with COVID-19 incurred in the prior year period.

Revenues from our Gibraltar Life and Other operations decreased $149 million, including a net unfavorable impact of $2 million from currency fluctuations and a net benefit of $9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues decreased $156 million, primarily reflecting lower premiums and policy charges and fee income, and lower other income driven by a less favorable impact from our joint venture investments. Also contributing to the decrease was lower net investment income driven by lower reinvestment yields, partially offset by higher prepayment fee income.

Benefits and expenses of our Gibraltar Life and Other operations decreased $156 million, including a net unfavorable impact of $5 million from currency fluctuations and a net benefit of $27 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses decreased $134 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Six Month Comparison. Revenues from our Life Planner operations increased $370 million, including a net unfavorable impact of $25 million from currency fluctuations and a net charge of $34 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $429 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $163 million, including a net favorable impact of $18 million from currency fluctuations and a net benefit of $78 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $259 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force.

Revenues from our Gibraltar Life and Other operations decreased $66 million, including a net favorable impact of $44 million from currency fluctuations and a net benefit of $9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues decreased $119 million, primarily reflecting lower premiums and policy charges and fee income. The decrease was partially offset by higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields.

Benefits and expenses of our Gibraltar Life and Other operations decreased $146 million, including a net unfavorable impact of $51 million from currency fluctuations and a net benefit of $27 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses decreased $170 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

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.
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 Three Months Ended
June 30,		Six Months Ended
June 30,
20212020(1)20212020(1)
 (in millions)
Annualized new business premiums:
On an actual exchange rate basis:
Life Planner$231 $155 $479 $458 
Gibraltar Life and Other261 197 519 504 
Total$492 $352 $998 $962 
On a constant exchange rate basis:
Life Planner$244 $164 $503 $470 
Gibraltar Life and Other263 198 522 507 
Total$507 $362 $1,025 $977 
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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 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, 2021Three Months Ended June 30, 2020(1)
 LifeAccident
&
Health		Retirement(2)AnnuityTotalLifeAccident
&
Health		Retirement(2)AnnuityTotal
 (in millions)
Life Planner$131 $19 $93 $1 $244 $81 $13 $70 $0 $164 
Gibraltar Life and Other:
Life Consultants$61 $7 $8 $62 $138 $58 $7 $6 $17 $88 
Banks(3)48 0 2 11 61 57 0 3 2 62 
Independent Agency17 20 25 2 64 19 2 27 0 48 
Subtotal126 27 35 75 263 134 9 36 19 198 
Total$257 $46 $128 $76 $507 $215 $22 $106 $19 $362 
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)Includes retirement income, endowment and savings variable universal life.
(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 0% and 65%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended June 30, 2021, and 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.

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Three Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations increased $80 million, reflecting higher sales across all products primarily resulting from an easing of COVID-19 restrictions compared to the prior year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations increased $65 million. Life Consultants sales increased $50 million, primarily resulting from an easing of COVID-19 restrictions compared to the prior year period, and higher sales of USD-denominated fixed annuity products driven by rising interest rates. Independent Agency sales increased $16 million primarily driven by higher sales of accident & health products to a single large client in the current period. Bank channel sales remained relatively flat reflecting lower sales of USD-denominated protection products resulting from pricing increases in the third quarter of 2020, offset by higher sales of USD-denominated annuity 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, 2021Six Months Ended June 30, 2020(1)
 LifeAccident
&
Health		Retirement(2)AnnuityTotalLifeAccident
&
Health		Retirement(2)AnnuityTotal
 (in millions)
Life Planner$273 $38 $191 $1 $503 $245 $34 $191 $0 $470 
Gibraltar Life and Other:
Life Consultants$134 $14 $17 $78 $243 $141 $16 $24 $39 $220 
Banks(3)148 0 5 26 179 177 0 13 4 194 
Independent Agency35 21 41 3 100 40 3 48 2 93 
Subtotal317 35 63 107 522 358 19 85 45 507 
Total$590 $73 $254 $108 $1,025 $603 $53 $276 $45 $977 
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)Includes retirement income, endowment and savings variable universal life.
(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 5% and 66%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the six months ended June 30, 2021, and 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.

Six Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations increased $33 million, reflecting higher sales across all products primarily resulting from an easing of COVID-19 restrictions compared to the prior year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations increased $15 million. Life Consultants sales increased $23 million, primarily resulting from an easing of COVID-19 restrictions compared to the prior year period, and higher sales of USD-denominated fixed annuity products driven by rising interest rates. Independent Agency sales increased $7 million primarily driven by higher sales of accident & health products to a single large client in the current period. Bank channel sales decreased $15 million, primarily driven by lower sales of USD-denominated products resulting from pricing increases in the third quarter of 2020, partially offset by higher sales of USD-denominated annuity products driven by rising interest rates.

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Corporate and Other
Corporate and Other includes corporate operations, after allocations to our business segments, and Divested and Run-off Businesses other than those that qualify for “discontinued operations” accounting treatment under U.S. GAAP.
 Three Months Ended
June 30,		Six Months Ended
June 30,
 20212020(1)20212020(1)
 (in millions)
Operating results:
Interest expense on debt$(211)$(227)$(419)$(445)
Investment income36 26 72 74 
Pension and employee benefits80 58 142 108 
Other corporate activities(2)(205)(398)(381)(620)
Adjusted operating income(300)(541)(586)(883)
Realized investment gains (losses), net, and related adjustments(80)(1,179)86 (1,219)
Charges related to realized investment gains (losses), net0 (17)11 4 
Market experience updates2 (4)(1)4 
Divested and Run-off Businesses255 (524)285 (593)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(6)(14)(10)8 
Income (loss) before income taxes and equity in earnings of operating joint ventures$(129)$(2,279)$(215)$(2,679)
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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)Includes consolidating adjustments.

Three Month Comparison. The loss from Corporate and Other operations, on an adjusted operating income basis, decreased $241 million. Net charges from other corporate activities decreased $193 million primarily reflecting the absence of a significant charge to legal reserves incurred in the prior year period. Pension and employee benefits results were favorable by $22 million driven by lower interest costs on our qualified pension plan obligations. Additionally, interest expense on debt decreased $16 million, primarily reflecting lower average debt balances and interest rates.

Six Month Comparison. The loss from Corporate and Other operations, on an adjusted operating income basis, decreased $297 million. Net charges from other corporate activities decreased $239 million primarily reflecting the absence of a significant charge to legal reserves incurred in the prior year period, as well as lower expenses. Also contributing to the decrease were favorable results of $34 million from pension and employee benefits, primarily driven by lower interest costs on our qualified pension plan obligations, as well as a $26 million decrease from interest expense on debt, primarily reflecting lower average debt balances and interest rates.

Divested and Run-off Businesses

Divested and Run-off Businesses Included in Corporate and Other
Income from our Divested and Run-off Businesses includes 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:
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 Three Months Ended
June 30,		Six Months Ended
June 30,

2021202020212020
 (in millions)
Long-Term Care$243 $107 $246 $188 
Other(1)12 (631)39 (781)
Total Divested and Run-off Businesses income (loss) excluded from adjusted operating income$255 $(524)$285 $(593)
__________
(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its 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.

Long-Term Care

Three Month Comparison. Results increased $136 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2021 included a $62 million net benefit from these updates, while results for the second quarter of 2020 included a $33 million net charge from these updates. Excluding this item, results increased $41 million compared to the prior year period primarily driven by a favorable impact from changes in the market value of derivatives used for duration management and higher investment income including higher income on non-coupon investments, partially offset by less favorable impacts from changes in the market value of equity securities.

Six Month Comparison. Results increased $58 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements, as discussed above. Excluding this item, results decreased $37 million primarily driven by an unfavorable impact from changes in the market value of derivatives used for duration management, partially offset by a favorable impact from changes in the market value of equity securities, higher underwriting results driven by favorable policy and claim experience, and higher investment income including higher income on non-coupon investments.

Other Divested and Run-off Businesses

Results for both the second quarter and first six months of 2021 primarily reflect the results of POT and the impact of its sale, while results for the prior year periods also include the results of POK and the impact of its sale. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

Closed Block Division
 
The Closed Block division includes certain in-force traditional domestic participating life insurance and annuity products and assets that are used for the payment of benefits and policyholder dividends on these policies (collectively the “Closed Block”), as well as certain related assets and liabilities. We no longer offer these traditional domestic participating policies. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information.
 
Each year, the Board of Directors of The Prudential Insurance Company of America (“PICA”) determines the dividends payable on participating policies for the following year based on the experience of the Closed Block, including investment income, net realized and unrealized investment gains (losses), mortality experience and other factors. Although the Closed Block experience for dividend action decisions is based upon statutory results, at the time the Closed Block was established, we developed, as required by U.S. GAAP, an actuarial calculation of the timing of the maximum future earnings from the policies included in the Closed Block. If actual cumulative earnings in any given period are greater than the cumulative earnings we expected, we record this excess as a policyholder dividend obligation. We will subsequently pay this excess to Closed Block policyholders as an additional dividend unless it is otherwise offset by future Closed Block performance that is less favorable than we originally expected. The policyholder dividends we charge to expense within the Closed Block division will include any change in our policyholder dividend obligation that we recognize for the excess of actual cumulative earnings in any given period over the cumulative earnings we expected in addition to the actual policyholder dividends declared by the Board of Directors of PICA.
 

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As of June 30, 2020,2021, the excess of actual cumulative earnings over the expected cumulative earnings was $2,450$3,649 million, which was recorded as a policyholder dividend obligation. Actual cumulative earnings, as required by U.S. GAAP, reflect the recognition of realized investment gains and losses in the current period, as well as changes in assets and related liabilities that support the Closed Block policies. Additionally, the accumulation of net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block has been reflected as a policyholder dividend obligation of $5,305$4,160 million at June 30, 2020,2021, to be paid to Closed Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.
 
Operating Results
 
The following table sets forth the Closed Block division’s 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,
2020 2019 2020 2019 2021202020212020
(in millions) (in millions)
U.S. GAAP results:       U.S. GAAP results:
Revenues$1,340
 $1,301
 $2,017
 $2,675
Revenues$1,613 $1,340 $2,978 $2,017 
Benefits and expenses1,362
 1,322
 2,040
 2,715
Benefits and expenses1,582 1,362 2,913 2,040 
Income (loss) before income taxes and equity in earnings of operating joint ventures$(22) $(21) $(23) $(40)Income (loss) before income taxes and equity in earnings of operating joint ventures$31 $(22)$65 $(23)
 
Income (loss) Before Income Taxes and Equity in Earnings of Operating Joint Ventures

Three Month Comparison. LossIncome (loss) before income taxes and equity in earnings of operating joint ventures increased $1$53 million. Net investment activity results increased primarily reflecting an increase in other incomehigher realized investment gains driven by favorable changes in the value of equity securities, partially offset by a decrease in realized investment gains (losses) driven by a decrease in thefair value of derivatives used in risk management activities, and a decreasean increase in net investment income driven by lowerhigher income on non-coupon investments, and lower investment yields.partially offset by a decrease in other income due to less favorable changes in the value of equity securities. Net insurance activity results reflected a favorable comparative change driven by a decrease in the 20202021 dividend scale and run-off of the business in force. As a result of the above and other variances, a $130$483 million increase in the policyholder dividend obligation was recorded in the second quarter of 2020,2021, compared to a $17$130 million reductionincrease in the second quarter of 2019.2020. If actual cumulative earnings fall below expected cumulative earnings in future periods, earnings volatility in the Closed Block division, which is primarily due to changes in investment results, may not be offset by changes in the cumulative earnings policyholder dividend obligation. For a discussion of the Closed Block division’s realized investment gains (losses), net, see “—General Account Investments.”

Six Month Comparison. LossIncome (loss) before income taxes and equity in earnings of operating joint ventures decreased $17increased $88 million. Net investment activity results decreasedincreased primarily reflecting a decrease inhigher other income driven by unfavorablefavorable changes in the value of equity securities, and a decrease in net investment income driven by lower income on non-coupon investments and lower investment yields, partially offset by an increase in realized investment gains driven by higher gains from sales of fixed maturities. Net insurance activity results reflected a favorablean unfavorable comparative change driven by unfavorable mortality, partially offset by a decrease in the 20202021 dividend scale and run-off of the business in force.scale. As a result of the above and other variances, a $353$729 million reductionincrease in the policyholder dividend obligation was recorded in the first six months of 2020,2021, compared to a $106$353 million increasereduction in the first six months of 2019.2020. If actual cumulative earnings fall below expected cumulative earnings in future periods, earnings volatility in the Closed Block division, which is primarily due to changes in investment results, may not be offset by changes in the cumulative earnings policyholder dividend obligation. For a discussion of the Closed Block division’s realized investment gains (losses), net, see “—General Account Investments.”

Revenues, Benefits and Expenses
 
Three Month Comparison. Revenues increased $39$273 million primarily driven by an increase in othernet realized investment gains and net investment income, partially offset by a decrease in realized investment gains (losses) and net investmentother income and lower premiums due to runoff of policies in force, as discussed above.

Benefits and expenses increased $40$220 million primarily driven by an increase in dividends to policyholders, reflecting an increase in the policyholder dividend obligation expense due to changes in cumulative earnings, as discussed above.

Six Month Comparison. Revenues decreased $658increased $961 million primarily driven by a decreasean increase in other income and net investment income, partially offset by lower premiums due to runoff of policies in force, partially offset by an increase in net realized investment gains, as discussed above.

Benefits and expenses decreased $675increased $873 million primarily driven by a decreasean increase in dividends to policyholders, reflecting a decreasean increase in the policyholder dividend obligation expense due to changes in cumulative earnings, as discussed above.

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Income Taxes
 
For information regarding income taxes, see Note 8 to the Unaudited Interim Consolidated Financial Statements.

Experience-Rated Contractholder Liabilities,
Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments
 
Certain products included in the Retirement and International Businesses segments are experience-rated in that investment results associated with these products are expected to ultimately accrue to contractholders. The majority of investments supporting these experience-rated products are carried at fair value. These investments are reflected on the Unaudited Interim Consolidated Statements of Financial Position as “Assets supporting experience-rated contractholder liabilities, at fair value.” Realized and unrealized gains (losses) for these investments are reported in “Other income (loss).” Interest and dividend income for these investments is reported in “Net investment income.” To a lesser extent, these experience-rated products are also supported by derivatives and commercial mortgage and other loans. The derivatives that support these experience-rated products are reflected on the Unaudited Interim Consolidated Statements of Financial Position as “Other invested assets” and are carried at fair value, and the realized and unrealized gains (losses) are reported in “Realized investment gains (losses), net.” The commercial mortgage and other loans that support these experience-rated products are carried at unpaid principal, net of unamortized discounts and an allowance for losses, and are reflected on the Unaudited Interim Consolidated Statements of Financial Position as “Commercial mortgage and other loans.” Gains (losses) on sales and changes in the valuation allowance for commercial mortgage and other loans are reported in “Realized investment gains (losses), net.”
 
Our Retirement segment has two types of experience-rated products that are supported by assets supporting experience-rated contractholder liabilities and other related investments. Fully participating products are those for which the entire return on underlying investments is passed back to the policyholders through a corresponding adjustment to the related liability, primarily classified in the Unaudited Interim Consolidated Statements of Financial Position as “Policyholders’ account balances.” The adjustment to the liability is based on changes in the fair value of all of the related assets, including commercial mortgage and other loans, which are carried at amortized cost, less any valuation allowance. Partially participating products are those for which only a portion of the return on underlying investments is passed back to the policyholders over time through changes to the contractual crediting rates. The crediting rates are typically reset semiannually, often subject to a minimum crediting rate, and returns are required to be passed back within ten years.
 
In our International Businesses, the experience-rated products are fully participating. As a result, the entire return on the underlying investments is passed back to policyholders through a corresponding adjustment to the related liability.
 
Adjusted operating income excludes net investment gains (losses) on assets supporting experience-rated contractholder liabilities, related derivatives and commercial mortgage and other loans. This is consistent with the exclusion of realized investment gains (losses) with respect to other investments supporting insurance liabilities managed on a consistent basis. In addition, to be consistent with the historical treatment of charges related to realized investment gains (losses) on investments, adjusted operating income also excludes the change in contractholder liabilities due to asset value changes in the pool of investments (including changes in the fair value of commercial mortgage and other loans) supporting these experience-rated contracts, which are reflected in “Interest credited to policyholders’ account balances.” The result of this approach is that adjusted operating income for these products includes net fee revenue and interest spread we earn on these experience-rated contracts, and excludes changes in fair value of the pool of investments, both realized and unrealized, that we expect will ultimately accrue to the contractholders.


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The following table sets forth the impact on results for the periods indicated of these items that are excluded from adjusted operating income:
 
Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
June 30,		Six Months Ended
June 30,
2020 2019 2020 2019 2021202020212020
(in millions) (in millions)
Retirement:       Retirement:
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net(1)$768
 $318
 $479
 $644
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, netInvestment gains (losses) on assets supporting experience-rated contractholder liabilities, net$109 $768 $(327)$479 
Change in experience-rated contractholder liabilities due to asset value changes(787) (331) (460) (610)Change in experience-rated contractholder liabilities due to asset value changes(132)(787)306 (460)
Gains (losses), net, on experienced rated contracts(2)(3)$(19) $(13) $19
 $34
Gains (losses), net, on experienced rated contracts(1)(2)Gains (losses), net, on experienced rated contracts(1)(2)$(23)$(19)$(21)$19 
International Businesses:       International Businesses:
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net$163
 $(18) $(173) $106
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net$66 $163 $246 $(173)
Change in experience-rated contractholder liabilities due to asset value changes(163) 18
 173
 (106)Change in experience-rated contractholder liabilities due to asset value changes(66)(163)(246)173 
Gains (losses), net, on experienced rated contracts$0
 $0
 $0
 $0
Gains (losses), net, on experienced rated contracts$0 $0 $0 $0 
Total:       Total:
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net(1)$931
 $300
 $306
 $750
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, netInvestment gains (losses) on assets supporting experience-rated contractholder liabilities, net$175 $931 $(81)$306 
Change in experience-rated contractholder liabilities due to asset value changes(950) (313) (287) (716)Change in experience-rated contractholder liabilities due to asset value changes(198)(950)60 (287)
Gains (losses), net, on experienced rated contracts(2)(3)$(19) $(13) $19
 $34
Gains (losses), net, on experienced rated contracts(1)(2)Gains (losses), net, on experienced rated contracts(1)(2)$(23)$(19)$(21)$19 
__________ 
(1)Prior period amounts have been reclassified to conform to current period presentation.
(2)Decreases to contractholder liabilities due to asset value changes are limited by certain floors and therefore do not reflect cumulative declines in recorded asset values of $3 million and $9 million as of June 30, 2020 and 2019, respectively. We have recovered and expect to recover in future periods these declines in recorded asset values through subsequent increases in recorded asset values or reductions in crediting rates on contractholder liabilities.
(3)Included in the amounts above related to the change in the liability to contractholders as a result of commercial mortgage and other loans are increases of $31 million and $26 million for the three months ended June 30, 2020 and 2019, respectively, and a decrease of $6 million and an increase of $55 million for the six months ended June 30, 2020 and 2019, respectively. As prescribed by U.S. GAAP, changes in the fair value of commercial mortgage and other loans held for investment in our general account, other than when associated with impairments, are not recognized in income in the current period, while the impact of these changes in fair value are reflected as a change in the liability to fully participating contractholders in the current period.
(1)Decreases to contractholder liabilities due to asset value changes are limited by certain floors and therefore do not reflect cumulative declines in recorded asset values of $3 million as of both June 30, 2021 and 2020, respectively. We have recovered and expect to recover in future periods these declines in recorded asset values through subsequent increases in recorded asset values or reductions in crediting rates on contractholder liabilities.
(2)Included in the amounts above related to the change in the liability to contractholders as a result of commercial mortgage and other loans are increases of $16 million and $31 million for the three months ended June 30, 2021 and 2020, respectively, and an increase of $27 million and a decrease of $6 million for the six months ended June 30, 2021 and 2020, respectively. As prescribed by U.S. GAAP, changes in the fair value of commercial mortgage and other loans held for investment in our general account, other than when associated with impairments, are not recognized in income in the current period, while the impact of these changes in fair value are reflected as a change in the liability to fully participating contractholders in the current period.
 
The net impacts, for the Retirement segment, of changes in experience-rated contractholder liabilities and investment gains (losses) on assets supporting experience-rated contractholder liabilities and other related investments reflect timing differences between the recognition of the mark-to-market adjustments and the recognition of the recovery of these adjustments in future periods through subsequent increases in asset values or reductions in crediting rates on contractholder liabilities for partially participating products. These impacts also reflect the difference between the fair value of the underlying commercial mortgages and other loans and the amortized cost, less any valuation allowance, of these loans, as described above.
 
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Valuation of Assets and Liabilities
 
Fair Value of Assets and Liabilities
 
The authoritative guidance related to fair value measurement establishes a framework that includes a three-level hierarchy used to classify the inputs used in measuring fair value. The level in the hierarchy within which the fair value falls is determined based on the lowest level input that is significant to the measurement. The fair values of assets and liabilities classified as Level 3 include at least one significant unobservable input in the measurement. See Note 6 to the Unaudited Interim Consolidated Financial Statements for an additional description of the valuation hierarchy levels as well as for the balances of assets and liabilities measured at fair value on a recurring basis by hierarchy level presented on a consolidated basis.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of the periods indicated, and the portion of such assets and liabilities that are classified in Level 3 of the valuation hierarchy. The table also provides details about these assets and liabilities excluding those held in the Closed Block division. We believe the amounts excluding the Closed Block division are most relevant to an understanding of our operations that are pertinent to investors in Prudential Financial because substantially all Closed Block division assets support obligations and 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.

As of June 30, 2020 As of December 31, 2019 As of June 30, 2021As of December 31, 2020
PFI excluding Closed Block Division 
Closed Block
Division
 PFI excluding Closed Block Division 
Closed Block
Division
 PFI excluding Closed Block DivisionClosed Block
Division		PFI excluding Closed Block DivisionClosed Block
Division
Total at
Fair Value
 
Total
Level 3(1)
 
Total at
Fair Value
 
Total
Level 3(1)
 
Total at
Fair Value
 
Total
Level 3(1)
 
Total at
Fair Value
 
Total
Level 3(1)
 Total at
Fair Value		Total
Level 3(1)		Total at
Fair Value		Total
Level 3(1)		Total at
Fair Value		Total
Level 3(1)		Total at
Fair Value		Total
Level 3(1)
(in millions) (in millions)
Fixed maturities, available-for-
sale
$365,612
 $4,753
 $42,332
 $1,099
 $349,720
 $3,570
 $41,376
 $745
Fixed maturities, available-for-
sale
$343,082 $5,370 $39,899 $1,201 $370,681 $5,005 $42,224 $1,038 
Assets supporting experience-rated contractholder liabilities:               Assets supporting experience-rated contractholder liabilities:
Fixed maturities20,328
 747
 0
 0
 19,530
 730
 0
 0
Fixed maturities21,614 680 0 0 21,414 615 0 0 
Equity securities1,683
 0
 0
 0
 1,790
 0
 0
 0
Equity securities2,464 0 0 0 2,043 0 0 0 
All other(2)915
 7
 0
 0
 261
 0
 0
 0
All other(2)452 0 0 0 619 20 0 0 
Subtotal22,926
 754
 0
 0
 21,581
 730
 0
 0
Subtotal24,530 680 0 0 24,076 635 0 0 
Fixed maturities, trading3,694
 225
 239
 11
 3,628
 275
 256
 12
Fixed maturities, trading6,291 255 276 14 3,636 230 278 13 
Equity securities4,826
 523
 2,047
 71
 5,140
 557
 2,245
 76
Equity securities5,364 600 2,494 115 5,653 576 2,345 84 
Commercial mortgage and other
loans
682
 0
 0
 0
 228
 0
 0
 0
Commercial mortgage and other
loans
304 0 0 0 1,092 0 0 0 
Other invested assets(3)2,301
 658
 0
 0
 1,433
 567
 0
 0
Other invested assets(3)3,208 390 10 3 2,268 366 3 0 
Short-term investments8,892
 34
 84
 10
 3,789
 119
 147
 36
Short-term investments4,973 360 182 85 6,222 146 88 31 
Cash equivalents9,867
 1
 226
 0
 8,855
 99
 151
 32
Cash equivalents6,309 1 746 0 5,241 1 241 0 
Other assets377
 377
 0
 0
 113
 113
 0
 0
Other assets190 190 0 0 268 268 0 0 
Separate account assets277,885
 1,684
 0
 0
 288,724
 1,717
 0
 0
Separate account assets316,383 1,476 0 0 304,270 1,821 0 0 
Total assets$697,062
 $9,009
 $44,928
 $1,191
 $683,211
 $7,747
 $44,175
 $901
Total assets$710,634 $9,322 $43,607 $1,418 $723,407 $9,048 $45,179 $1,166 
Future policy benefits$26,439
 $26,439
 $0
 $0
 $12,831
 $12,831
 $0
 $0
Future policy benefits$13,579 $13,579 $0 $0 $18,879 $18,879 $0 $0 
Policyholders’ account balances1,441
 1,441
 0
 0
 1,316
 1,316
 0
 0
Policyholders’ account balances2,690 2,690 0 0 1,914 1,914 0 0 
Other liabilities(3)287
 0
 5
 0
 928
 105
 8
 0
Other liabilities(3)1,145 0 0 0 385 0 0 0 
Notes issued by consolidated
variable interest entities
(“VIEs”)
741
 741
 0
 0
 800
 800
 0
 0
Total liabilities$28,908
 $28,621
 $5
 $0
 $15,875
 $15,052
 $8
 $0
Total liabilities$17,414 $16,269 $0 $0 $21,178 $20,793 $0 $0 
__________
(1)Level 3 assets expressed as a percentage of total assets measured at fair value on a recurring basis for PFI excluding the Closed Block division and for the Closed Block division totaled 1.3% and 2.7%, respectively, as of June 30, 2020, and 1.1% and 2.0%, respectively, as of December 31, 2019.
(2)“All other” represents cash equivalents and short-term investments.
(3)“Other invested assets” and “Other liabilities” primarily include derivatives. The amounts include the impact of netting subject to master netting agreements.
(1)Level 3 assets expressed as a percentage of total assets measured at fair value on a recurring basis for PFI excluding the Closed Block division and for the Closed Block division totaled 1.3% and 3.3%, respectively, as of June 30, 2021, and 1.3% and 2.6%, respectively, as of December 31, 2020.
(2)“All other” represents cash equivalents and short-term investments.
(3)“Other invested assets” and “Other liabilities” primarily include derivatives. The amounts include the impact of netting subject to master netting agreements.

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The determination of fair value, which for certain assets and liabilities is dependent on the application of estimates and assumptions, can have a significant impact on our results of operations and may require the application of a greater degree of judgment depending on market conditions, as the ability to value assets and liabilities can be significantly impacted by a decrease in market activity or a lack of transactions executed in an orderly manner. The continued impact of the COVID-19 pandemic on the global economy may have adverse effects on the valuation of assets and liabilities. Due to the highly uncertain nature of these conditions, it is not possible to estimate the overall impacts at this time.

Fixed maturity securities included in Level 3 in our fair value hierarchy are generally priced based on internally-developed valuations or indicative broker quotes. For certain private fixed maturity and equity securities, the internal valuation models use significant unobservable inputs and, accordingly, such securities are included in Level 3 in our fair value hierarchy. Level 3 fixed maturity securities for PFI excluding the Closed Block division included approximately $1.7$1.5 billion of public fixed maturities as of June 30, 2020,2021, with values primarily based on indicative broker quotes, and approximately $4$4.8 billion of private fixed maturities, with values primarily based on internally-developed models. Significant unobservable inputs used in their valuation included: issue specific spread adjustments, material non-public financial information, management judgment, estimation of future earnings and cash flows, default rate assumptions, liquidity assumptions and indicative quotes from market makers. Separate account assets included in Level 3 in our fair value hierarchy primarily include corporate securities and commercial mortgage loans.


Embedded derivatives reported in “Future policy benefits” and “Policyholders’ account balances” that are included in levelLevel 3 of our fair value hierarchy represent general account liabilities pertaining to living benefit features of the Company’s variable annuity contracts and the index-linked interest credited features on certain life and annuity products. These are carried at fair value with changes in fair value included in “Realized investment gains (losses), net.” These embedded derivatives are valued using internally-developed models that require significant estimates and assumptions developed by management. Changes in these estimates and assumptions can have a significant impact on the results of our operations.
 
For additional information about the valuation techniques and the key estimates and assumptions used in our determination of fair value, 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, 2019.2020.
 
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General Account Investments
 
Portfolio Composition
 
Our investment portfolio consists of public and private fixed maturity securities, commercial mortgage and other loans, policy loans and non-coupon investments, which include equity securities and other invested assets such as limited partnerships and limited liability companies (“LPs/LLCs”), real estate held through direct ownership, derivative instruments and seed money investments in separate accounts. The composition of our general account reflects, within the discipline provided by our risk management approach, our need for competitive results and the selection of diverse investment alternatives available primarily through our PGIM segment. The size of our portfolio enables us to invest in asset classes that may be unavailable to the typical investor.
 
The following tables set forth the composition of our general account investment portfolio apportioned between PFI excluding the Closed Block division and the Closed Block division, as of the dates indicated:
 
 June 30, 2021
 PFI Excluding
Closed Block Division		Closed Block
Division		Total
 ($ in millions)
Fixed maturities:
Public, available-for-sale, at fair value$282,167 61.3 %$27,953 $310,120 
Public, held-to-maturity, at amortized cost, net of allowance1,475 0.3 0 1,475 
Private, available-for-sale, at fair value60,415 13.1 11,946 72,361 
Private, held-to-maturity, at amortized cost, net of allowance187 0.1 0 187 
Fixed maturities, trading, at fair value6,078 1.3 274 6,352 
Assets supporting experience-rated contractholder liabilities, at fair value24,596 5.4 0 24,596 
Equity securities, at fair value4,803 1.0 2,494 7,297 
Commercial mortgage and other loans, at book value, net of allowance55,860 12.1 8,176 64,036 
Policy loans, at outstanding balance6,725 1.5 3,927 10,652 
Other invested assets, net of allowance(1)11,689 2.5 3,904 15,593 
Short-term investments, net of allowance5,988 1.4 300 6,288 
Total general account investments459,983 100.0 %58,974 518,957 
Invested assets of other entities and operations(2)6,587 0 6,587 
Total investments$466,570 $58,974 $525,544 
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  June 30, 2020
  
PFI Excluding
Closed Block Division
 
Closed Block
Division
 Total
  ($ in millions)
Fixed maturities:        
Public, available-for-sale, at fair value $310,203
 64.6% $30,264
 $340,467
Public, held-to-maturity, at amortized cost, net of allowance 1,662
 0.3
 0
 1,662
Private, available-for-sale, at fair value 54,793
 11.4
 12,069
 66,862
Private, held-to-maturity, at amortized cost, net of allowance 213
 0.1
 0
 213
Fixed maturities, trading, at fair value 2,610
 0.6
 239
 2,849
Assets supporting experience-rated contractholder liabilities, at fair value 23,245
 4.8
 0
 23,245
Equity securities, at fair value 4,314
 0.9
 2,047
 6,361
Commercial mortgage and other loans, at book value, net of allowance 54,377
 11.3
 8,389
 62,766
Policy loans, at outstanding balance 8,125
 1.7
 4,158
 12,283
Other invested assets, net of allowance(1) 9,578
 2.0
 3,259
 12,837
Short-term investments, net of allowance 11,286
 2.3
 94
 11,380
Total general account investments 480,406
 100.0% 60,519
 540,925
Invested assets of other entities and operations(2) 7,007
 

 0
 7,007
Total investments $487,413
 

 $60,519
 $547,932


 December 31, 2019 December 31, 2020
 
PFI Excluding
Closed Block Division
 
Closed Block
Division
 Total PFI Excluding
Closed Block Division		Closed Block
Division		Total
 ($ in millions) ($ in millions)
Fixed maturities:        Fixed maturities:
Public, available-for-sale, at fair value $296,382
 64.9% $29,011
 $325,393
Public, available-for-sale, at fair value$309,813 63.7 %$29,475 $339,288 
Public, held-to-maturity, at amortized cost 1,705
 0.4
 0
 1,705
Public, held-to-maturity, at amortized cost, net of allowancePublic, held-to-maturity, at amortized cost, net of allowance1,719 0.4 0 1,719 
Private, available-for-sale, at fair value 52,750
 11.6
 12,365
 65,115
Private, available-for-sale, at fair value60,224 12.4 12,749 72,973 
Private, held-to-maturity, at amortized cost 228
 0.1
 0
 228
Private, held-to-maturity, at amortized cost, net of allowancePrivate, held-to-maturity, at amortized cost, net of allowance211 0.1 0 211 
Fixed maturities, trading, at fair value 2,467
 0.5
 256
 2,723
Fixed maturities, trading, at fair value3,425 0.7 277 3,702 
Assets supporting experience-rated contractholder liabilities, at fair value 21,597
 4.7
 0
 21,597
Assets supporting experience-rated contractholder liabilities, at fair value24,115 5.0 0 24,115 
Equity securities, at fair value 4,586
 1.0
 2,245
 6,831
Equity securities, at fair value5,108 1.1 2,345 7,453 
Commercial mortgage and other loans, at book value, net of allowance 54,671
 12.0
 8,629
 63,300
Commercial mortgage and other loans, at book value, net of allowance55,892 11.5 8,421 64,313 
Policy loans, at outstanding balance 7,832
 1.7
 4,264
 12,096
Policy loans, at outstanding balance7,207 1.5 4,064 11,271 
Other invested assets(1) 9,210
 2.0
 3,334
 12,544
Short-term investments 5,223
 1.1
 227
 5,450
Other invested assets, net of allowance(1)Other invested assets, net of allowance(1)10,716 2.1 3,610 14,326 
Short-term investments, net of allowanceShort-term investments, net of allowance7,640 1.5 124 7,764 
Total general account investments 456,651
 100.0% 60,331
 516,982
Total general account investments486,070 100.0 %61,065 547,135 
Invested assets of other entities and operations(2) 5,778
 
 0
 5,778
Invested assets of other entities and operations(2)6,485 0 6,485 
Total investments $462,429
 
 $60,331
 $522,760
Total investments$492,555 $61,065 $553,620 
__________
(1)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments and other miscellaneous investments. For additional information regarding these investments, see “—Other Invested Assets” below.
(2)Includes invested assets of our investment management and derivative operations. Excludes assets of our investment management operations that are managed for third-parties and those assets classified as “Separate account assets” on our balance sheet. For additional information regarding these investments, see “—Invested Assets of Other Entities and Operations” below.
(1)    Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments and other miscellaneous investments. For additional information regarding these investments, see “—Other Invested Assets” below.
(2)Includes invested assets of our investment management and derivative operations. Excludes assets of our investment management operations that are managed for third-parties and those assets classified as “Separate account assets” on our balance sheet. For additional information regarding these investments, see “—Invested Assets of Other Entities and Operations” below.

The increasedecrease in general account investments attributable to PFI excluding the Closed Block division in the first six months of 20202021 was primarily due to a decreasean increase in interest rates in excessand the translation impact of spread widening, net business inflows andthe U.S. dollar strengthening against the yen, partially offset by the reinvestment of net investment income. For information regarding the methodology used in determining the fair value of our fixed maturities, see Note 6 to the Unaudited Interim Consolidated Financial Statements.
 
As of June 30, 20202021 and December 31, 2019, 41%2020, 44% and 42%43%, respectively, of our general account investments attributable to PFI excluding the Closed Block division related to our Japanese insurance operations. The following table sets forth the composition of the investments of our Japanese insurance operations’ general account, as of the dates indicated:

 June 30, 2020 December 31, 2019June 30, 2021December 31, 2020
 (in millions)(in millions)
Fixed maturities:    Fixed maturities:
Public, available-for-sale, at fair value $146,391
 $142,220
Public, available-for-sale, at fair value$145,848 $154,261 
Public, held-to-maturity, at amortized cost, net of allowance 1,662
 1,705
Public, held-to-maturity, at amortized cost, net of allowance1,4751,719 
Private, available-for-sale, at fair value 19,953
 19,189
Private, available-for-sale, at fair value21,71421,748 
Private, held-to-maturity, at amortized cost, net of allowance 213
 228
Private, held-to-maturity, at amortized cost, net of allowance187211 
Fixed maturities, trading, at fair value 472
 492
Fixed maturities, trading, at fair value535550
Assets supporting experience-rated contractholder liabilities, at fair value 2,603
 2,777
Assets supporting experience-rated contractholder liabilities, at fair value3,3313,149 
Equity securities, at fair value 1,927
 2,185
Equity securities, at fair value2,1972,134 
Commercial mortgage and other loans, at book value, net of allowance 19,214
 19,138
Commercial mortgage and other loans, at book value, net of allowance20,16819,915 
Policy loans, at outstanding balance 3,257
 2,859
Policy loans, at outstanding balance2,8783,078 
Other invested assets(1) 2,687
 2,187
Other invested assets(1)3,4443,045 
Short-term investments 658
 165
Short-term investments, net of allowanceShort-term investments, net of allowance655438 
Total Japanese general account investments $199,037
 $193,145
Total Japanese general account investments$202,432 $210,248 
__________ 
(1)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments and other miscellaneous investments.

(1)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments and other miscellaneous investments.
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The increasedecrease in general account investments related to our Japanese insurance operations in the first six months of 20202021 was primarily attributabledue to an increase in U.S. interest rates and the translation impact of the U.S. dollar strengthening against the yen, partially offset by portfolio growth as a result of net business inflows and the reinvestment of net investment income, net business inflows and a decrease in interest rates in excess of spread widening.income.

As of June 30, 2020,2021, our Japanese insurance operations had $84.7$88.5 billion, at carrying value, of investments denominated in U.S. dollars, including $1.8$1.9 billion that were hedged to yen through third-party derivative contracts and $70.4$75.6 billion that support liabilities denominated in U.S. dollars, with the remainder as part of the hedging of foreign currency exchange rate exposure to U.S. dollar-equivalent equity. As of December 31, 2019,2020, our Japanese insurance operations had $77.1$89.2 billion, at carrying value, of investments denominated in U.S. dollars, including $2.1$1.8 billion that were hedged to yen through third-party derivative contracts and $62.4$74.8 billion that support liabilities denominated in U.S. dollars, with the remainder as part of the hedging of foreign currency exchange rate exposure of U.S. dollar-equivalent equity. The $7.6$0.7 billion increasedecrease in the carrying value of U.S. dollar-denominated investments from December 31, 20192020 was primarily attributable to a decreasean increase in U.S. treasury bond rates, partially offset by reinvestment of net investment income and portfolio growth as a result of net business inflows and reinvestment of net investment income.inflows.

Our Japanese insurance operations had $9.5$9.2 billion and $9.9$10.2 billion, at carrying value, of investments denominated in Australian dollars that support liabilities denominated in Australian dollars as of June 30, 20202021 and December 31, 2019,2020, respectively. The $0.4$1.0 billion decrease in the carrying value of Australian dollar-denominated investments from December 31, 20192020 was primarily attributable to the translation impact of theincrease in Australian dollar weakening against the U.S. dollar and run off of the portfolio.government bond rates. For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations and a discussion of our yen hedging strategy, see “—Results of Operations by Segment—Impact of Foreign Currency Exchange Rates” above.

Investment Results
 
The following tables set forth the investment results of our general account apportioned between PFI excluding the Closed Block division, and the Closed Block division, for the periods indicated. The yields are based on net investment income as reported under U.S. GAAP and as such do not include certain interest-related items, such as settlements of duration management swaps which are included in “Realized investment gains (losses), net.”

20202021 to 20192020 Three Month Comparison

Three Months Ended June 30, 2021
PFI Excluding Closed Block Division and Japanese OperationsJapanese Insurance OperationsPFI Excluding Closed Block DivisionClosed Block DivisionTotal(5)
Yield(1)AmountYield(1)AmountYield(1)AmountAmountAmount
($ in millions)
Fixed maturities(2)4.58 %$1,753 2.72 %$976 3.68 %$2,729 $391 $3,120 
Assets supporting experience-rated contractholder liabilities3.01 157 0.82 7 2.71 164 0 164 
Equity securities1.48 10 6.66 36 3.73 46 12 58 
Commercial mortgage and other loans4.01 357 3.80 189 3.93 546 96 642 
Policy loans5.22 52 3.49 25 4.49 77 50 127 
Short-term investments and cash equivalents0.66 18 0.52 1 0.65 19 1 20 
Gross investment income4.13 2,347 2.86 1,234 3.58 3,581 550 4,131 
Investment expenses(0.15)(77)(0.14)(62)(0.15)(139)(30)(169)
Investment income after investment expenses3.98 %2,270 2.72 %1,172 3.43 %3,442 520 3,962 
Other invested assets(3)287 122 409 109 518 
Investment results of other entities and operations(4)72 0 72 0 72 
Total investment income$2,629 $1,294 $3,923 $629 $4,552 

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 Three Months Ended June 30, 2020
 PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5)
 Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount
 ($ in millions)
Fixed maturities(2)4.42 % $1,852
 2.77 % $952
 3.68 % $2,804
 $395
 $3,199
Assets supporting experience-rated contractholder liabilities3.12
 155
 1.11
 7
 2.89
 162
 0
 162
Equity securities1.72
 10
 7.21
 33
 4.23
 43
 11
 54
Commercial mortgage and other loans3.94
 345
 3.79
 180
 3.88
 525
 89
 614
Policy loans5.19
 63
 3.20
 25
 4.42
 88
 63
 151
Short-term investments and cash equivalents0.87
 60
 0.89
 3
 0.87
 63
 2
 65
Gross investment income3.88
 2,485
 2.90
 1,200
 3.49
 3,685
 560
 4,245
Investment expenses(0.11) (62) (0.14) (56) (0.12) (118) (32) (150)
Investment income after investment expenses3.77 % 2,423
 2.76 % 1,144
 3.37 % 3,567
 528
 4,095
Other invested assets(3)  (62)   79
   17
 (17) 0
Investment results of other entities and operations(4)  91
   0
   91
 0
 91
Total investment income  $2,452
   $1,223
   $3,675
 $511
 $4,186


Three Months Ended June 30, 2019Three Months Ended June 30, 2020
PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5)PFI Excluding Closed Block Division and Japanese OperationsJapanese Insurance OperationsPFI Excluding Closed Block DivisionClosed Block DivisionTotal(5)
Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount AmountYield(1)AmountYield(1)AmountYield(1)AmountAmountAmount
($ in millions)($ in millions)
Fixed maturities(2)4.63 % $1,887
 2.83 % $955
 3.82 % $2,842
 $426
 $3,268
Fixed maturities(2)4.42 %$1,852 2.77 %$952 3.68 %$2,804 $395 $3,199 
Assets supporting experience-rated contractholder liabilities3.66
 175
 1.17
 7
 3.36
 182
 0
 182
Assets supporting experience-rated contractholder liabilities3.12 155 1.11 7 2.89 162 0 162 
Equity securities1.82
 10
 5.48
 27
 3.60
 37
 14
 51
Equity securities1.72 10 7.21 33 4.23 43 11 54 
Commercial mortgage and other loans4.15
 350
 3.87
 174
 4.05
 524
 98
 622
Commercial mortgage and other loans3.94 345 3.79 180 3.88 525 89 614 
Policy loans5.25
 64
 3.81
 26
 4.73
 90
 62
 152
Policy loans5.19 63 3.20 25 4.42 88 63 151 
Short-term investments and cash equivalents2.85
 94
 2.91
 6
 2.85
 100
 10
 110
Short-term investments and cash equivalents0.87 60 0.89 3 0.87 63 2 65 
Gross investment income4.38
 2,580
 2.97
 1,195
 3.81
 3,775
 610
 4,385
Gross investment income3.88 2,485 2.90 1,200 3.49 3,685 560 4,245 
Investment expenses(0.12) (103) (0.13) (71) (0.13) (174) (55) (229)Investment expenses(0.11)(62)(0.14)(56)(0.12)(118)(32)(150)
Investment income after investment expenses4.26 % 2,477
 2.84 % 1,124
 3.68 % 3,601
 555
 4,156
Investment income after investment expenses3.77 %2,423 2.76 %1,144 3.37 %3,567 528 4,095 
Other invested assets(3)  132
   52
   184
 19
 203
Other invested assets(3)(62)79 17 (17)0 
Investment results of other entities and operations(4)  31
   0
   31
 0
 31
Investment results of other entities and operations(4)91 0 91 0 91 
Total investment income  $2,640
   $1,176
   $3,816
 $574
 $4,390
Total investment income$2,452 $1,223 $3,675 $511 $4,186 
__________ 
(1)For interim periods, yields are annualized. The denominator in the yield percentage is based on quarterly average carrying values for all asset types except for fixed maturities which are based on amortized cost, net of allowance. Amounts for fixed maturities, short-term investments and cash equivalents are also netted for securities lending activity (i.e., income netted for rebate expenses and asset values netted for securities lending liabilities). A yield is not presented for other invested assets as it is not considered a meaningful measure of investment performance. Yields exclude investment income and assets related to other invested assets.
(2)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading, which are included in other invested assets.
(3)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments, fixed maturities classified as trading and other miscellaneous investments.
(4)Includes net investment income of our investment management operations.
(5)The total yield was 3.46% and 3.76% for the three months ended June 30, 2020 and 2019, respectively.
(1)For interim periods, yields are annualized. The denominator in the yield percentage is based on quarterly average carrying values for all asset types except for fixed maturities which are based on amortized cost, net of allowance. Amounts for fixed maturities, short-term investments and cash equivalents are also netted for securities lending activity (i.e., income netted for rebate expenses and asset values netted for securities lending liabilities). A yield is not presented for other invested assets as it is not considered a meaningful measure of investment performance. Yields exclude investment income and assets related to other invested assets.
(2)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading, which are included in other invested assets.
(3)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments, fixed maturities classified as trading and other miscellaneous investments.
(4)Includes net investment income of our investment management operations.
(5)The total yield was 3.53% and 3.46% for the three months ended June 30, 2021 and 2020, respectively.

The decreaseincrease in investment income after investment expenses yield attributable to our general account investments, excluding both the Closed Block division and the Japanese insurance operations’ portfolio, for the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019,2020, was primarily the result of the absence of lower yielding fixed income reinvestment rates.securities previously held within businesses divested over the last twelve months.

The decrease in investment income after investment expenses yield attributable to the Japanese insurance operations’ portfolio, for the three months ended June 30, 2020,2021, compared to the three months ended June 30, 2019,2020, was primarily the result of lower fixed income reinvestment rates.

Both the U.S. dollar-denominated and Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts provide a yield that is substantially higher than the yield on comparable yen-denominated fixed maturities. The average amortized cost of U.S. dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $53.2$57.9 billion and $47.9$53.2 billion for the three months ended June 30, 20202021 and 2019,2020, respectively. The majority of U.S. dollar-denominated fixed maturities support liabilities that are denominated in U.S. dollars. The average amortized cost of Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $7.7$8.0 billion and $9.0$7.7 billion for the three months ended June 30, 20202021 and 2019,2020, respectively. The majority of Australian dollar-denominated fixed maturities support liabilities that are denominated in Australian dollars. For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations, see “—Results of Operations by Segment—Impact of Foreign Currency Exchange Rates” above.

20202021 to 20192020 Six Month Comparison

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Six Months Ended June 30, 2021
PFI Excluding Closed Block Division and Japanese OperationsJapanese Insurance OperationsPFI Excluding Closed Block DivisionClosed Block DivisionTotal(5)
Yield(1)AmountYield(1)AmountYield(1)AmountAmountAmount
($ in millions)
Fixed maturities(2)4.57 %$3,540 2.69 %$1,945 3.66 %$5,485 $755 $6,240 
Assets supporting experience-rated contractholder liabilities2.93 305 0.98 16 2.67 321 0 321 
Equity securities1.18 17 3.76 40 2.29 57 24 81 
Commercial mortgage and other loans3.94 699 3.78 375 3.88 1,074 181 1,255 
Policy loans5.14 103 4.14 60 4.72 163 108 271 
Short-term investments and cash equivalents0.47 26 0.45 2 0.47 28 1 29 
Gross investment income4.09 4,690 2.81 2,438 3.54 7,128 1,069 8,197 
Investment expenses(0.15)(147)(0.14)(118)(0.14)(265)(61)(326)
Investment income after investment expenses3.94 %4,543 2.67 %2,320 3.40 %6,863 1,008 7,871 
Other invested assets(3)543 215 758 207 965 
Investment results of other entities and operations(4)98 0 98 0 98 
Total investment income$5,184 $2,535 $7,719 $1,215 $8,934 

Six Months Ended June 30, 2020
PFI Excluding Closed Block Division and Japanese OperationsJapanese Insurance OperationsPFI Excluding Closed Block DivisionClosed Block DivisionTotal(5)
Yield(1)AmountYield(1)AmountYield(1)AmountAmountAmount
($ in millions)
Fixed maturities(2)4.49 %$3,747 2.77 %$1,898 3.72 %$5,645 $794 $6,439 
Assets supporting experience-rated contractholder liabilities3.25 315 2.14 28 3.12 343 0 343 
Equity securities1.82 21 3.99 39 2.83 60 23 83 
Commercial mortgage and other loans3.99 700 3.90 369 3.96 1,069 182 1,251 
Policy loans5.19 126 3.58 54 4.58 180 124 304 
Short-term investments and cash equivalents1.13 131 1.28 10 1.14 141 5 146 
Gross investment income4.01 5,040 2.91 2,398 3.58 7,438 1,128 8,566 
Investment expenses(0.12)(147)(0.14)(124)(0.13)(271)(75)(346)
Investment income after investment expenses3.89 %4,893 2.77 %2,274 3.45 %7,167 1,053 8,220 
Other invested assets(3)19 52 71 3 74 
Investment results of other entities and operations(4)94 0 94 0 94 
Total investment income$5,006 $2,326 $7,332 $1,056 $8,388 
__________ 
(1)For interim periods, yields are annualized. The denominator in the yield percentage is based on quarterly average carrying values for all asset types except for fixed maturities which are based on amortized cost, net of allowance. Amounts for fixed maturities, short-term investments and cash equivalents are also netted for securities lending activity (i.e., income netted for rebate expenses and asset values netted for securities lending liabilities). A yield is not presented for other invested assets as it is not considered a meaningful measure of investment performance. Yields exclude investment income and assets related to other invested assets.
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 Six Months Ended June 30, 2020
 PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5)
 Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount
 ($ in millions)
Fixed maturities(2)4.49 % $3,747
 2.77 % $1,898
 3.72 % $5,645
 $794
 $6,439
Assets supporting experience-rated contractholder liabilities3.25
 315
 2.14
 28
 3.12
 343
 0
 343
Equity securities1.82
 21
 3.99
 39
 2.83
 60
 23
 83
Commercial mortgage and other loans3.99
 700
 3.90
 369
 3.96
 1,069
 182
 1,251
Policy loans5.19
 126
 3.58
 54
 4.58
 180
 124
 304
Short-term investments and cash equivalents1.13
 131
 1.28
 10
 1.14
 141
 5
 146
Gross investment income4.01
 5,040
 2.91
 2,398
 3.58
 7,438
 1,128
 8,566
Investment expenses(0.12) (147) (0.14) (124) (0.13) (271) (75) (346)
Investment income after investment expenses3.89 % 4,893
 2.77 % 2,274
 3.45 % 7,167
 1,053
 8,220
Other invested assets(3)  19
   52
   71
 3
 74
Investment results of other entities and operations(4)  94
   0
   94
 0
 94
Total investment income  $5,006
   $2,326
   $7,332
 $1,056
 $8,388
(2)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading, which are included in other invested assets.

(3)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments, fixed maturities classified as trading and other miscellaneous investments.
(4)Includes net investment income of our investment management operations.
 Six Months Ended June 30, 2019
 PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5)
 Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount
 ($ in millions)
Fixed maturities(2)4.64 % $3,735
 2.83 % $1,892
 3.82 % $5,627
 $845
 $6,472
Assets supporting experience-rated contractholder liabilities3.60
 340
 2.15
 27
 3.43
 367
 0
 367
Equity securities2.12
 22
 3.48
 34
 2.79
 56
 25
 81
Commercial mortgage and other loans4.10
 682
 3.85
 339
 4.02
 1,021
 193
 1,214
Policy loans5.21
 126
 3.84
 52
 4.72
 178
 125
 303
Short-term investments and cash equivalents2.80
 189
 3.43
 14
 2.82
 203
 19
 222
Gross investment income4.37
 5,094
 2.96
 2,358
 3.80
 7,452
 1,207
 8,659
Investment expenses(0.13) (209) (0.13) (139) (0.13) (348) (109) (457)
Investment income after investment expenses4.24 % 4,885
 2.83 % 2,219
 3.67 % 7,104
 1,098
 8,202
Other invested assets(3)  170
   103
   273
 39
 312
Investment results of other entities and operations(4)  92
   0
   92
 0
 92
Total investment income  $5,147
   $2,322
   $7,469
 $1,137
 $8,606
(5)The total yield was 3.48% and 3.53% for the six months ended June 30, 2021 and 2020, respectively.
__________ 
(1)For interim periods, yields are annualized. The denominator in the yield percentage is based on quarterly average carrying values for all asset types except for fixed maturities which are based on amortized cost, net of allowance. Amounts for fixed maturities, short-term investments and cash equivalents are also netted for securities lending activity (i.e., income netted for rebate expenses and asset values netted for securities lending liabilities). A yield is not presented for other invested assets as it is not considered a meaningful measure of investment performance. Yields exclude investment income and assets related to other invested assets.

(2)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading, which are included in other invested assets.
(3)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments, fixed maturities classified as trading and other miscellaneous investments.
(4)Includes net investment income of our investment management operations.
(5)The total yield was 3.53% and 3.75% for the six months ended June 30, 2020 and 2019, respectively.

The decreaseincrease in investment income after investment expenses yield attributable to our general account investments, excluding both the Closed Block division and the Japanese insurance operations’ portfolio, for the six months ended June 30, 2020,2021, compared to the six months ended June 30, 2019,2020, was primarily the result of the absence of lower yielding fixed income reinvestment rates.securities previously held within businesses divested over the last twelve months.

The decrease in investment income after investment expenses yield attributable to the Japanese insurance operations’ portfolio, for the six months ended June 30, 2020,2021, compared to the six months ended June 30, 2019,2020, was primarily the result of lower fixed income reinvestment rates.

Both the U.S. dollar-denominated and Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts provide a yield that is substantially higher than the yield on comparable yen-denominated fixed maturities. The average amortized cost of U.S. dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $52.4$58.0 billion and $47.2$52.4 billion for the six months ended June 30, 20202021 and 2019,2020, respectively. The majority of U.S. dollar-denominated fixed maturities support liabilities that are denominated in U.S. dollars. The average amortized cost of Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $8.0$8.3 billion and $9.0$8.0 billion for the six months ended June 30, 20202021 and 2019,2020, respectively. The majority of Australian dollar-denominated fixed maturities support liabilities that are denominated in Australian dollars. For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations, see “—Results of Operations by Segment—Impact of Foreign Currency Exchange Rates” above.

Realized Investment Gains and Losses

The following table sets forth “Realized investment gains (losses), net” of our general account apportioned between PFI excluding Closed Block division, and the Closed Block division, by investment type as well as “Charges related to realized investment gains (losses), net” and adjustments, for the periods indicated:

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 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2020 2019 2020 2019
 (in millions)
PFI excluding Closed Block Division:       
Realized investment gains (losses), net:       
Due to foreign exchange movements on securities approaching maturity(2)$(16) $(16) $(19) $(16)
Due to securities actively marketed for sale(2)(12) 0
 (81) (1)
Due to credit or adverse conditions of the respective issuer(1)(3)N/A
 (12) N/A
 (42)
Allowance for credit losses on fixed maturities(1)(3)(68) N/A
 (218) N/A
Net gains (losses) on sales and maturities144
 103
 455
 372
Fixed maturity securities(4)48
 75
 137
 313
Commercial mortgage and other loans0
 (8) 6
 (11)
Derivatives(3,710) (463) (2,601) (1,469)
OTTI losses on other invested assets recognized in earnings(3)(9) 0
 (9) 0
Allowance for credit losses on other invested assets(3)4
 N/A
 0
 N/A
Other net gains (losses)24
 5
 21
 6
Other19
 5
 12
 6
Subtotal(3,643) (391) (2,446) (1,161)
Investment results of other entities and operations(5)(101) 6
 113
 (46)
Total — PFI excluding Closed Block Division(3,744) (385) (2,333) (1,207)
Related adjustments(6)553
 (187) (649) 13
Realized investment gains (losses), net, and related adjustments(6)(3,191) (572) (2,982) (1,194)
Charges related to realized investment gains (losses), net519
 (82) (283) (57)
Realized investment gains (losses), net, and charges related to realized investment gains (losses), net and adjustments(6)$(2,672) $(654) $(3,265) $(1,251)
Closed Block Division:       
Realized investment gains (losses), net:       
Due to foreign exchange movements on securities approaching maturity(2)$(38) $(34) $(47) $(34)
Due to securities actively marketed for sale(2)1
 0
 (9) 0
Due to credit or adverse conditions of the respective issuer(1)(3)N/A
 (2) N/A
 (6)
Allowance for credit losses on fixed maturities(1)(3)(12) N/A
 (20) N/A
Net gains (losses) on sales and maturities112
 30
 208
 56
Fixed maturity securities(4)63
 (6) 132
 16
Commercial mortgage and other loans(4) 0
 0
 0
Derivatives(64) 54
 120
 93
OTTI losses on other invested assets recognized in earnings(3)N/A
 0
 N/A
 0
Allowance for credit losses on other invested assets(3)0
 N/A
 0
 N/A
Other net gains (losses)(3) 1
 (4) (4)
Other(3) 1
 (4) (4)
Subtotal — Closed Block Division(8) 49
 248
 105
Consolidated PFI realized investment gains (losses), net$(3,752) $(336) $(2,085) $(1,102)
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
 (in millions)
PFI excluding Closed Block Division:
Realized investment gains (losses), net:
(Addition to) release of allowance for credit losses on fixed maturities$28 $(68)$39 $(218)
Write-downs on fixed maturities(1)0 (28)0 (100)
Net gains (losses) on sales and maturities149 144 1,199 455 
Fixed maturity securities(2)177 48 1,238 137 
(Addition to) release of allowance for credit losses on loans45 (2)54 (3)
Net gains (losses) on sales and maturities0 2 1 9 
Commercial mortgage and other loans45 0 55 6 
Derivatives165 (3,710)1,007 (2,601)
OTTI losses on other invested assets recognized in earnings(6)(9)(15)(9)
(Addition to) release of allowance for credit losses on other invested assets1 4 0 0 
Other net gains (losses)28 24 93 21 
Other23 19 78 12 
Subtotal410 (3,643)2,378 (2,446)
Investment results of other entities and operations(3)(40)(101)(1)113 
Total — PFI excluding Closed Block Division370 (3,744)2,377 (2,333)
Related adjustments(4)(10)476 (753)(636)
Realized investment gains (losses), net, and related adjustments360 (3,268)1,624 (2,969)
Charges related to realized investment gains (losses), net(4)4 519 (235)(283)
Realized investment gains (losses), net, and charges related to realized investment gains (losses), net and adjustments$364 $(2,749)$1,389 $(3,252)
Closed Block Division:
Realized investment gains (losses), net:
(Addition to) release of allowance for credit losses on fixed maturities$24 $(12)$17 $(20)
Write-downs on fixed maturities(1)0 (37)0 (56)
Net gains (losses) on sales and maturities111 112 272 208 
Fixed maturity securities(2)135 63 289 132 
(Addition to) release of allowance for credit losses on loans6 (3)7 (3)
Net gains (losses) on sales and maturities0 (1)0 3 
Commercial mortgage and other loans6 (4)7 0 
Derivatives121 (64)39 120 
Other net gains (losses)3 (3)2 (4)
Other3 (3)2 (4)
Subtotal — Closed Block Division265 (8)337 248 
Consolidated PFI realized investment gains (losses), net$635 $(3,752)$2,714 $(2,085)
__________
(1)Represents circumstances where we believe credit events or other adverse conditions of the respective issuers have caused or will lead to a deficiency in the contractual cash flows related to the investment. The amount of the impairment or allowance recorded in earnings is the difference between the amortized cost of the debt security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment (2019) or allowance (2020).
(2)Represents the difference between the fair value of the debt security and the amortized cost at the time of the write-down.
(3)Effective January 1, 2020, due to the implementation of ASU 2016-13, OTTI is no longer recorded.

(1)Amounts represent write-downs of credit adverse securities, write-downs on securities approaching maturities related to foreign exchange movements and securities actively marketed for sale.
(4)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading.
(5)Includes “realized investment gains (losses), net” of our investment management operations.
(6)Prior period amounts have been updated to conform to current period presentation.
(2)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading.
(3)Includes “realized investment gains (losses), net” of our investment management operations.
(4)Prior period amounts have been updated to conform to current period presentation.

Three Month Comparison. Net gains on sales and maturities of fixed maturity securities were $144 million and $103$149 million for the second quarter of 20202021 primarily driven by the impact of foreign currency exchange rate movements on U.S. and 2019, respectively,Australian dollar-denominated securities that matured or were sold within our International Businesses segment and other sales of fixed maturity securities within our domestic segments. Net gains on sales and maturities of fixed maturity securities were $144 million for the
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second quarter of 2020 primarily driven by the impact of foreign currency exchange rate movements on U.S. and Australian dollar-denominated securities that matured or were sold within our International Businesses segment and other sales of fixed maturity securities within our domestic segments from interest rate declines during the investment holding period.


The addition toFor the second quarter of 2021, the $28 million net release of allowance for credit losses relatedfor fixed maturities was due to fixed maturity securities was $68 million inthe improved credit environment primarily within the energy, consumer cyclical and communications sectors. In the second quarter of 2020, andthe $68 million net addition to allowance for credit losses for fixed maturities was concentrated in the consumer cyclical, energy and communicationcommunications sectors within corporate securities. This credit loss allowance was primarily related to securities with liquidity concerns, downgrades in credit, bankruptcy or other adverse financial conditions of the respective issuers. Fixed maturity credit impairments were $12

Net realized gains on derivative instruments of $165 million, infor the second quarter of 2019 and were concentrated2021 primarily included:

•$1,103 million of gains on interest rate derivatives due to decreases in the energyswap and communications sectors within corporate securities. These credit impairments were primarilyU.S. Treasury rates;
•$87 million of gains on foreign currency hedges due to USD interest rates declining more than foreign interest rates; and
•$36 million of gains for fees earned on fee-based synthetic guaranteed investment contracts.

Partially offsetting these gains were:

•$625 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and
•$464 million of losses on capital hedges due to securities with liquidity concerns, downgradesincreases in credit, bankruptcy or other adverse financial conditions of the respective issuers.equity indices.

Net realized losses on derivative instruments of $3,710 million for the second quarter of 2020 primarily included:

•$2,202 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts;
•$1,345 million of losses on capital hedges due to increases in equity indices;
•$147 million of losses on interest rate derivatives due to increases in the 30-year swap and U.S. Treasury rates; and
•$104 million of losses on foreign currency hedges due to U.S. dollar depreciation versus the euro and Australian dollar.

Net realized losses on derivative instruments of $463 million for the second quarter of 2019 primarily included:

$1,219 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and
$177 million of losses on capital hedges due to increases in equity indices;

Partially offsetting these losses were:

$676 million of gains on interest rate derivatives due to decreases in swap and U.S. Treasury rates;
$145 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the British pound;
$36 million of gains on credit default swaps primarily due to spreads tightening; and
$36 million of gains for fees earned on fee-based synthetic GICs.

For a discussion of living benefit guarantees and related hedge positions in our Individual Annuities segment, see “—Results of Operations by Segment—U.S. Businesses—U.S. Individual Solutions Division—Individual Annuities” above.

Related adjustments include the portions of “Realized investment gains (losses), net” that are included in adjusted operating income and the portions of “Other income (loss)” and “Net investment income” that are excluded from adjusted operating income. These adjustments are made to arrive at “Realized investment gains (losses), net, and related adjustments” which are excluded from adjusted operating income. See Note 13 for additional detail on adjusted operating income. Results for the second quarter of 2021 and 2020 reflected net related adjustments of net positive $553$(10) million primarily due toand $476 million, respectively. Both periods’ adjustments included changes in the fair value of equity securities as well as fixed income securities designated as trading. Resultstrading and equity securities. Additionally, the adjustments for the second quarter of 2019 reflected related adjustments2021 included settlements and changes in value of net negative $187 million primarily driven by settlements on interest rate and currency derivatives.

Charges that relate to “Realized investment gains (losses), net” are also excluded from adjusted operating income and may be reflected as net charges or net benefits. Results for the second quarter of 2021 and 2020 reflected a net related benefitbenefits of $4 million and $519 million, compared to a net related charge of $82 million for the second quarter of 2019.respectively. Both periods’ results were primarily driven by the impact of derivative activity on the amortization of DAC and other costs, and certain policyholder reserves.

Six Month Comparison. Net gains on sales and maturities of fixed maturity securities were $455 million and $372$1,199 million for the first six months of 20202021 primarily driven by sales of U.S. treasuries acquired in a higher interest-rate environment within our domestic segments and 2019, respectively,the impact of foreign currency exchange rate movements on U.S. and Australian dollar-denominated securities that matured or were sold within our International Businesses segment. Net gains on sales and maturities of fixed maturity securities were $455 million for the first six months of 2020 primarily driven by the impact of foreign currency exchange rate movements on U.S. and Australian dollar-denominated securities that matured or were sold within our International Businesses segment and

other sales of fixed maturity securities within our domestic segments from interest rate declines during the investment holding period.

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The net release of the allowance for credit losses related to fixed maturity securities was $39 million in the first six months of 2021 due to the improved credit environment within the energy and consumers cyclical sectors within corporate securities. The net addition to the allowance for credit losses related to fixed maturity securities was $218 million in the first six months of 2020 and was concentrated in the energy and communications sectors within corporate securities and foreign government securities. This credit loss allowance was primarily related to securities with liquidity concerns, downgrades in credit, bankruptcy or other adverse financial conditions of the respective issuers. Fixed maturity credit impairments were $42

Net realized gains on derivative instruments of $1,007 million infor the first six months of 20192021 primarily included:

•$2,248 million of gains on product-related embedded derivatives and were concentratedrelated hedge positions associated with certain variable annuity contracts; and
•$107 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the Euro and due to USD interest rates declining more than foreign interest rates.

Partially offsetting these gains were:

•$795 million of losses on capital hedges due to increases in equity indices; and
•$625 million of losses on interest rate derivatives due to increases in the utilityswap and energy sectors within corporate securities. These credit impairments were primarily related to securities with liquidity concerns, downgrades in credit, bankruptcy or other adverse financial conditions of the respective issuers.U.S. Treasury rates.

Net realized losses on derivative instruments of $2,601 million for the first six months of 2020 primarily included:

•$5,592 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and
•$232 million of losses on capital hedges due to increases in equity indices;

Partially offsetting these losses were:

•$2,207 million of gains on interest rate derivatives due to decreases in swap and U.S. Treasury rates; and
•$897 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the British pound and due to USD interest rates declining more than foreign interest rates.

Net realized losses on derivative instruments of $1,469 million for the first six months of 2019 primarily included:

$2,419 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and
$663 million of losses on capital hedges due to increases in equity indices;

Partially offsetting these losses were:

$1,104 million of gains on interest rate derivatives due to decreases in swap and U.S. Treasury rates;
$245 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the euro and British pound and Japanese yen appreciation;
$104 million of gains on credit default swaps primarily due to spreads tightening; and
$72 million of gains for fees earned on fee-based synthetic GICs.

For a discussion of living benefit guarantees and related hedge positions in our Individual Annuities segment, see “—Results of Operations by Segment—U.S. Businesses—U.S. Individual Solutions Division—Individual Annuities” above.

Results for the first six months of 2021 and 2020 and 2019 included areflected net negative related adjustmentadjustments of $649$(753) million and a net positive related adjustment of $13$(636) million, respectively. Both periods’ results reflectedadjustments included changes in the fair value of equity securities as well as fixed income securities designated as trading and equity securities, and settlements on interest rate and currencychanges in value of derivatives.

Results for the first six months of 20202021 and 20192020 reflected net related charges of $283$235 million and $57$283 million, respectively. Both periods’ results were driven by the impact of derivative activity on the amortization of DAC, other costs and certain policyholder reserves.

Credit Losses

The level of credit losses generally reflects current and expected economic conditions and is expected to increase when economic conditions worsen and to decrease when economic conditions improve. Historically, the causes of credit losses have been specific to each individual issuer and have not directly resulted in credit losses to other securities within the same industry or geographic region. We may also realize additional credit and interest rate-related losses through sales of investments pursuant to our credit risk and portfolio management objectives.

We maintain separate monitoring processes for public and private fixed maturities and create watch lists to highlight securities that require special scrutiny and management. For private placements, our credit and portfolio management processes help ensure prudent controls over valuation and management. We have separate pricing and authorization processes to establish “checks and

balances” for new investments. We apply consistent standards of credit analysis and due diligence for all transactions, whether they originate through our own in-house origination staff or through agents. Our regional offices closely monitor the portfolios in their regions. We set all valuation standards centrally, and we assess the fair value of all investments quarterly. Our public and private fixed maturity investment managers formally review all public and private fixed maturity holdings on a quarterly basis and more frequently when necessary to identify potential credit deterioration whether due to ratings downgrades, unexpected price variances and/or company or industry-specific concerns.
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For LPs/LLCs accounted for using the equity method and for wholly-owned investment real estate, the carrying value of these investments is written down or impaired to fair value when a decline in value is considered to be other-than-temporary. For additional information regarding our OTTI policies, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.

COVID-19

A continued impact of COVID-19 on the global economy and corporate credit may result in losses and credit migration 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. We believe our investment portfolio has been diligently constructed with a strong focus on ALM discipline, risk management, and capital preservation; and although certain industries will likely be more impacted bypreservation. Throughout the COVID-19 driven market conditions,pandemic we expect to benefithave benefited from our experience in managing highly specialized asset classes through multiplethroughout credit cycles. While the economy continues to re-open and recover, there could be periods of volatility. The following represents some of themarket expectations for credit migration and related losses continue to decrease significantly. The sectors in our investment portfolio most impacted by COVID-19.
Energy Related Investments
As of June 30, 2020, PFI excludingfrom COVID-19 have started to recover but may lag the Closed Block division had energy related exposure with a market value of approximately $13 billion including a net unrealized gain of approximately $1 billion, which was reflected in AOCI. This $13 billion represented investments in public and private corporate fixed maturity securities (excluding trading securities) and was comprised of the midstream (40%), independent energy (25%), integrated energy (22%), oil field services (6%) and refining (7%) sub-sectors. As of June 30, 2020, the credit quality of energy sector fixed maturity securities was 80% investment grade and 20% below investment grade. Energy investment realized losses were approximately $2 million from write-downs and $28 million from credit loss allowances for the three months ended June 30, 2020 and $54 million from write-downs and $107 million from credit loss allowances for the six months ended June 30, 2020, respectively. Our investments in the energy sector could experience future valuation declines or losses if energy prices maintain their recent levels orgeneral economic improvement. We continue to declinemonitor our portfolio for an extended periodpotential credit issues and opportunities as part of time. Our assessment that securities are other-than temporarily impaired may change due to new developments, including those developments related to COVID-19.
Consumer Cyclical Related Investments
As of June 30, 2020, PFI excluding the Closed Block division had consumer cyclical related exposure with a market value of approximately $12 billionour overall portfolio and a net unrealized gain of $1 billion, which was reflected in AOCI. This $12 billion represented investments in public and private corporate fixed maturity securities (excluding trading securities) and included exposures in retail (37%), automotive (18%), restaurants (9%), leisure (8%), gaming (4%) and lodging (2%). As of June 30, 2020, the credit quality of consumer cyclical sector fixed maturity securities was 77% investment grade and 23% below investment grade. The remaining exposure of less than $1 billion was comprised of private equity investments and real estate-related LPs/LLCs. For additional information regarding “—Retail Related Investments,” see below.
Retail Related Investments

As of June 30, 2020, PFI excluding the Closed Block division had retail-related investments of approximately $13 billion consisting primarily of $6 billion of corporate fixed maturities of which 89% were investment grade (also included in “—Consumer Cyclical Related Investments”); $6 billion of commercial mortgage loans with a weighted-average loan-to-value ratio of approximately 51% and weighted-average debt service coverage ratio of 2.46 times; and $1 billion of real estate held through direct ownership and real estate-related LPs/LLCs. In addition, we held approximately $11 billion of commercial mortgage-backed securities, of which approximately 79% and 21% were rated AAA (super senior) and AA, respectively, and comprised of diversified collateral pools. Approximately 30% of the collateral pools were comprised of retail-related investments, with no pools solely collateralized by retail-related investments. For additional information regarding commercial mortgage-backed securities, see “—Fixed Maturity Securities—Fixed Maturity Securities Credit Quality” below.
Airline Related Investments


As of June 30, 2020, PFI excluding the Closed Block division had $0.1 billion of airline related corporate fixed maturities within the transportation sector of which 97% were investment grade.risk management process.
General Account Investments of PFI excluding Closed Block Division

In the following sections, we provide details about our investment portfolio, excluding investments held in the Closed Block division. We believe the details of the composition of our investment portfolio excluding the Closed Block division are most relevant to an understanding of our operations that are pertinent to investors in Prudential Financial, Inc. because substantially all Closed Block division assets support obligations and 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.

Fixed Maturity Securities
 
In the following sections, we provide details about our fixed maturity securities portfolio, which excludes fixed maturity securities classified as assets supporting experience-rated contractholder liabilities and classified as trading.
    
Fixed Maturity Securities and Unrealized Gains and Losses by Industry
 
The following table sets forth the composition of the portion of our fixed maturity, available-for-sale portfolio by industry category attributable to PFI excluding the Closed Block division and the associated gross unrealized gains and losses, as well as the allowance for credit losses (“ACL”), as of the dates indicated:
 

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 June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
Industry(1) 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Allowance for Credit Losses (5) 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Industry(1)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		ACLFair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		ACLFair
Value
 (in millions) (in millions)
Corporate securities:                  Corporate securities:
Finance $36,123
 $3,973
 $189
 $0
 $39,907
 $34,710
 $2,796
 $85
 $37,421
Finance$38,405 $4,009 $107 $0 $42,307 $37,577 $5,240 $70 $0 $42,747 
Consumer non-cyclical 26,249
 4,300
 134
 1
 30,414
 24,941
 2,846
 112
 27,675
Consumer non-cyclical29,186 4,008 119 2 33,073 28,891 5,085 52 0 33,924 
Utility 23,326
 3,782
 83
 0
 27,025
 22,341
 2,498
 81
 24,758
Utility24,234 3,545 86 20 27,673 24,235 4,504 60 11 28,668 
Capital goods 12,896
 1,426
 196
 5
 14,121
 12,287
 1,150
 83
 13,354
Capital goods13,948 1,610 47 0 15,511 13,711 1,947 49 2 15,607 
Consumer cyclical 11,455
 1,207
 236
 30
 12,396
 10,871
 994
 45
 11,820
Consumer cyclical10,566 1,207 27 1 11,745 11,196 1,536 52 13 12,667 
Foreign agencies 5,275
 919
 47
 0
 6,147
 5,649
 928
 10
 6,567
Foreign agencies5,368 745 20 0 6,093 5,323 903 11 0 6,215 
Energy 12,283
 1,005
 405
 107
 12,776
 12,922
 1,126
 186
 13,862
Energy11,801 1,478 60 15 13,204 12,257 1,583 118 58 13,664 
Communications 5,978
 1,178
 60
 36
 7,060
 5,916
 939
 34
 6,821
Communications6,122 1,141 27 33 7,203 6,013 1,343 35 22 7,299 
Basic industry 5,985
 648
 48
 0
 6,585
 5,866
 497
 38
 6,325
Basic industry6,249 771 19 0 7,001 5,895 914 17 0 6,792 
Transportation 9,896
 1,076
 120
 0
 10,852
 9,443
 833
 34
 10,242
Transportation9,828 1,189 49 0 10,968 10,067 1,568 40 0 11,595 
Technology 3,579
 341
 23
 0
 3,897
 3,395
 278
 13
 3,660
Technology4,626 351 23 0 4,954 3,717 381 14 0 4,084 
Industrial other 4,317
 559
 42
 0
 4,834
 3,894
 351
 33
 4,212
Industrial other4,573 594 31 0 5,136 4,485 778 21 0 5,242 
Total corporate securities 157,362
 20,414
 1,583
 179
 176,014
 152,235
 15,236
 754
 166,717
Total corporate securities164,906 20,648 615 71 184,868 163,367 25,782 539 106 188,504 
Foreign government(2) 97,841
 18,540
 201
 39
 116,141
 97,880
 20,658
 63
 118,475
Foreign government(2)85,224 12,922 403 0 97,743 93,521 16,229 236 0 109,514 
Residential mortgage-backed(3) 2,980
 233
 0
 0
 3,213
 2,955
 154
 1
 3,108
Residential mortgage-backed(3)2,727 154 8 0 2,873 2,572 198 0 0 2,770 
Asset-backed 10,869
 124
 164
 0
 10,829
 9,832
 123
 34
 9,921
Asset-backed10,691 132 8 0 10,815 11,584 137 67 0 11,654 
Commercial mortgage-backed 10,314
 821
 4
 0
 11,131
 10,211
 441
 9
 10,643
Commercial mortgage-backed9,582 649 11 0 10,220 10,296 883 8 0 11,171 
U.S. Government 26,317
 9,593
 21
 0
 35,889
 24,938
 4,511
 94
 29,355
U.S. Government19,459 4,861 34 0 24,286 25,959 8,348 15 0 34,292 
State & Municipal 9,919
 1,861
 1
 0
 11,779
 9,593
 1,327
 7
 10,913
State & Municipal9,992 1,791 6 0 11,777 10,142 1,991 1 0 12,132 
Total fixed maturities, available-for-sale(4)(5) $315,602
 $51,586
 $1,974
 $218
 $364,996
 $307,644
 $42,450
 $962
 $349,132
Total fixed maturities, available-for-sale(4)Total fixed maturities, available-for-sale(4)$302,581 $41,157 $1,085 $71 $342,582 $317,441 $53,568 $866 $106 $370,037 
__________ 
(1)Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for all other holdings.
(1)Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for all other holdings.
(2)As of June 30, 20202021 and December 31, 2019,2020, based on amortized cost, 77%89% and 76%86%, respectively, represent Japanese government bonds held by our Japanese insurance operations with no other individual country representing more than 11%4% of the balance.
(3)As of both June 30, 20202021 and December 31, 2019,2020, based on amortized cost, 96% and more than 99%97% were rated A or higher, respectively.higher.
(4)Excluded from the table above are securities held outside the general account in other entities and operations. For additional information regarding investments held outside the general account, see “—Invested Assets of Other Entities and Operations” below.
(5) Effective January 1, 2020, due to the implementation of ASU 2016-13, an allowance for credit losses is now presented for available-for-sale securities. Prior period amounts have been updated to exclude held-to-maturity securities to conform to current period presentation.

The increasedecrease in net unrealized gains from December 31, 20192020 to June 30, 20202021 was primarily due to a decreasean increase in U.S. interest rates.

The following table sets forth the composition of the portion of our fixed maturity, held-to-maturity portfolio by industry category attributable to PFI excluding the Closed Block division and the associated gross unrealized gains and losses, as well as the allowance for credit losses, as of the dates indicated:


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 June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
Industry(1) 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value Allowance for Credit Losses 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Industry(1)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		ACLAmortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		ACL
 (in millions) (in millions)
Corporate securities:                  Corporate securities:
Finance $625
 $61
 $0
 $686
 $9
 $628
 $64
 $0
 $692
Finance$502 $58 $0 $560 $7 $651 $67 $0 $718 $9 
Foreign agencies 0
 0
 0
 0
 0
 21
 0
 0
 21
Basic industry 83
 2
 0
 85
 0
 83
 2
 0
 85
Basic industry81 2 0 83 0 87 2 0 89 0 
Total corporate securities 708
 63
 0
 771
 9
 732
 66
 0
 798
Total corporate securities583 60 0 643 7 738 69 0 807 9 
Foreign government(2) 896
 261
 0
 1,157
 0
 891
 282
 0
 1,173
Foreign government(2)865 240 0 1,105 0 935 270 0 1,205 0 
Residential mortgage-backed(3) 280
 23
 0
 303
 0
 310
 21
 0
 331
Residential mortgage-backed(3)221 18 0 239 0 266 20 0 286 0 
Total fixed maturities, held-to-maturity(4) $1,884
 $347
 $0
 $2,231
 $9
 $1,933
 $369
 $0
 $2,302
Total fixed maturities, held-to-maturity(4)$1,669 $318 $0 $1,987 $7 $1,939 $359 $0 $2,298 $9 
__________ 
(1)Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for all other holdings.
(2)As of both June 30, 2020 and December 31, 2019, based on amortized cost, 98% represent Japanese government bonds held by our Japanese insurance operations.
(3)As of June 30, 2020 and December 31, 2019, based on amortized cost, all were rated A or higher.
(4)Excluded from the table above are securities held outside the general account in other entities and operations. For additional information regarding investments held outside the general account, see “—Invested Assets of Other Entities and Operations” below.
(1)Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for all other holdings.
(2)As of June 30, 2021 and December 31, 2020, based on amortized cost, 97% and 98%, respectively, represent Japanese government bonds held by our Japanese insurance operations.
(3)As of both June 30, 2021 and December 31, 2020, based on amortized cost, all were rated A or higher.
(4)Excluded from the table above are securities held outside the general account in other entities and operations. For additional information regarding investments held outside the general account, see “—Invested Assets of Other Entities and Operations” below.

Fixed Maturity Securities Credit Quality
 
The Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”) evaluates the investments of insurers for statutory reporting purposes and assigns fixed maturity securities to one of six categories called “NAIC Designations.” In general, NAIC Designations of “1” highest quality, or “2” high quality, include fixed maturities considered investment grade, which include securities rated Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”) or BBB- or higher by Standard & Poor’s Rating Services (“S&P”). NAIC Designations of “3” through “6” generally include fixed maturities referred to as below investment grade, which include securities rated Ba1 or lower by Moody’s and BB+ or lower by S&P. The NAIC Designations for commercial mortgage-backed securities and non-agency residential mortgage-backed securities, including our asset-backed securities collateralized by sub-prime mortgages, are based on security level expected losses as modeled by an independent third-party (engaged by the NAIC) and the statutory carrying value of the security, including any purchase discounts or impairment charges previously recognized.
As a result of time lags between the funding of investments, the finalization of legal documents, and the completion of the SVO filing process, the fixed maturity portfolio includes certain securities that have not yet been designated by the SVO as of each balance sheet date. Pending receipt of SVO designations, the categorization of these securities by NAIC Designation is based on the expected ratings indicated by internal analysis.
Investments of our international insurance companies are not subject to NAIC guidelines. Investments of our Japanese insurance operations are regulated locally by the Financial Services Agency (“FSA”), an agency of the Japanese government. The FSA has its own investment quality criteria and risk control standards. Our Japanese insurance companies comply with the FSA’s credit quality review and risk monitoring guidelines. The credit quality ratings of the investments of our Japanese insurance companies are based on ratings assigned by nationally recognized credit rating agencies, including Moody’s and S&P, or rating equivalents based on ratings assigned by Japanese credit ratings agencies.
The following table sets forth our fixed maturity, available-for-sale portfolio by NAIC Designation or equivalent rating attributable to PFI excluding the Closed Block division, as of the dates indicated:

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June 30, 2021December 31, 2020
June 30, 2020 December 31, 2019
NAIC Designation(1)(2)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses(3)
 Allowance for Credit Losses(7) Fair Value 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses(3)
 Fair Value
NAIC Designation(1) (2)NAIC Designation(1) (2)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses(3)		ACLFair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses(3)		ACLFair
Value
(in millions) (in millions)
1$232,891
 $43,319
 $511
 $0
 $275,699
 $232,039
 $35,923
 $287
 $267,675
1$211,959 $31,058 $643 $0 $242,374 $229,951 $41,311 $381 $0 $270,881 
264,892
 7,365
 615
 0
 71,642
 59,114
 5,198
 384
 63,928
271,479 8,704 218 0 79,965 68,458 10,683 180 0 78,961 
Subtotal High or Highest Quality Securities(4)297,783
 50,684
 1,126
 0
 347,341
 291,153
 41,121
 671
 331,603
Subtotal High or Highest Quality Securities(4)283,438 39,762 861 0 322,339 298,409 51,994 561 0 349,842 
310,583
 557
 390
 11
 10,739
 10,033
 854
 93
 10,794
312,185 1,017 61 0 13,141 11,913 1,192 95 0 13,010 
45,318
 132
 270
 58
 5,122
 4,914
 248
 98
 5,064
45,010 223 105 15 5,113 5,119 211 119 23 5,188 
51,583
 77
 143
 50
 1,467
 1,280
 196
 83
 1,393
51,562 115 51 13 1,613 1,629 123 67 16 1,669 
6335
 136
 45
 99
 327
 264
 31
 17
 278
6386 40 7 43 376 371 48 24 67 328 
Subtotal Other Securities(5)(6)17,819
 902
 848
 218
 17,655
 16,491
 1,329
 291
 17,529
Total fixed maturities, available-for-sale(7)$315,602
 $51,586
 $1,974
 $218
 $364,996
 $307,644
 $42,450
 $962
 $349,132
Subtotal Other Securities(5) (6)Subtotal Other Securities(5) (6)19,143 1,395 224 71 20,243 19,032 1,574 305 106 20,195 
Total fixed maturities, available-for-saleTotal fixed maturities, available-for-sale$302,581 $41,157 $1,085 $71 $342,582 $317,441 $53,568 $866 $106 $370,037 
__________ 
(1)Reflects equivalent ratings for investments of the international insurance operations.
(2)Includes, as of June 30, 2020 and December 31, 2019, 868 securities with amortized cost of $4,168 million (fair value, $4,307 million) and 796 securities with amortized cost of $3,073 million (fair value, $3,130 million), respectively, that have been categorized based on expected NAIC Designations pending receipt of SVO ratings.
(3)As of June 30, 2020, includes gross unrealized losses of $552 million on public fixed maturities and $296 million on private fixed maturities considered to be other than high or highest quality and, as of December 31, 2019, includes gross unrealized losses of $188 million on public fixed maturities and $103 million on private fixed maturities considered to be other than high or highest quality.
(4)On an amortized cost basis, as of June 30, 2020, includes $254,054 million of public fixed maturities and $43,729 million of private fixed maturities and, as of December 31, 2019, includes $248,179 million of public fixed maturities and $42,974 million of private fixed maturities.
(5)On an amortized cost basis, as of June 30, 2020, includes $9,452 million of public fixed maturities and $8,367 million of private fixed maturities and, as of December 31, 2019, includes $9,049 million of public fixed maturities and $7,442 million of private fixed maturities.
(6)On an amortized cost basis, as of June 30, 2020, securities considered below investment grade based on lowest of external rating agency ratings total $17,997 million, or 6% of the total fixed maturities, and include securities considered high or highest quality by the NAIC based on the rules described above.
(7)Effective January 1, 2020, due to the implementation of ASU 2016-13, an allowance for credit losses is now presented for available-for-sale securities. Prior period amounts have been updated to exclude held-to-maturity securities to conform to current period presentation.
(1)Reflects equivalent ratings for investments of the international insurance operations.
(2)Includes, as of June 30, 2021 and December 31, 2020, 611 securities with amortized cost of $4,759 million (fair value, $4,808 million) and 102 securities with amortized cost of $356 million (fair value, $382 million), respectively, that have been categorized based on expected NAIC Designations pending receipt of SVO ratings.
(3)As of June 30, 2021, includes gross unrealized losses of $109 million on public fixed maturities and $115 million on private fixed maturities considered to be other than high or highest quality and, as of December 31, 2020, includes gross unrealized losses of $184 million on public fixed maturities and $121 million on private fixed maturities considered to be other than high or highest quality.
(4)On an amortized cost basis, as of June 30, 2021, includes $236,953 million of public fixed maturities and $46,485 million of private fixed maturities and, as of December 31, 2020, includes $253,387 million of public fixed maturities and $45,022 million of private fixed maturities.
(5)On an amortized cost basis, as of June 30, 2021, includes $9,576 million of public fixed maturities and $9,567 million of private fixed maturities and, as of December 31, 2020, includes $9,592 million of public fixed maturities and $9,440 million of private fixed maturities.
(6)On an amortized cost basis, as of June 30, 2021, securities considered below investment grade based on low issue composite ratings total $16,137 million, or 5% of the total fixed maturities, and include securities considered high or highest quality by the NAIC based on the rules described above.

The following table sets forth our fixed maturity, held-to-maturity portfolio by NAIC Designation or equivalent rating attributable to PFI excluding the Closed Block division, as of the dates indicated:



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June 30, 2020 December 31, 2019June 30, 2021December 31, 2020
NAIC Designation(1)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses(2)
 Fair Value Allowance for Credit Losses 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses(2)
 Fair ValueNAIC Designation(1)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses(2)		Fair
Value		ACLAmortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses(2)		Fair
Value		ACL
(in millions) (in millions)
1$1,692
 $328
 $0
 $2,020
 $4
 $1,743
 $351
 $0
 $2,094
1$1,575 $309 $0 $1,884 $5 $1,839 $349 $0 $2,188 $7 
2192
 19
 0
 211
 5
 190
 18
 0
 208
294 9 0 103 2 100 10 0 110 2 
Subtotal High or Highest Quality Securities(3)1,884
 347
 0
 2,231
 9
 1,933
 369
 0
 2,302
Subtotal High or Highest Quality Securities(3)1,669 318 0 1,987 7 1,939 359 0 2,298 9 
30
 0
 0
 0
 0
 0
 0
 0
 0
30 0 0 0 0 0 0 0 0 0 
40
 0
 0
 0
 0
 0
 0
 0
 0
40 0 0 0 0 0 0 0 0 0 
50
 0
 0
 0
 0
 0
 0
 0
 0
50 0 0 0 0 0 0 0 0 0 
60
 0
 0
 0
 0
 0
 0
 0
 0
60 0 0 0 0 0 0 0 0 0 
Subtotal Other Securities0
 0
 0
 0
 0
 0
 0
 0
 0
Subtotal Other Securities0 0 0 0 0 0 0 0 0 0 
Total fixed maturities, held-to-maturity$1,884
 $347
 $0
 $2,231
 $9
 $1,933
 $369
 $0
 $2,302
Total fixed maturities, held-to-maturity$1,669 $318 $0 $1,987 $7 $1,939 $359 $0 $2,298 $9 
__________ 
(1)Reflects equivalent ratings for investments of the international insurance operations.
(2)As of both June 30, 2020 and December 31, 2019, there were no gross unrealized losses on public fixed maturities and private fixed maturities considered to be other than high or highest quality.
(3)On an amortized cost basis, as of June 30, 2020, includes $1,670 million of public fixed maturities and $214 million of private fixed maturities and, as of December 31, 2019, includes $1,705 million of public fixed maturities and $228 million of private fixed maturities.
(1)Reflects equivalent ratings for investments of the international insurance operations.
(2)As of both June 30, 2021 and December 31, 2020, there were no gross unrealized losses on public fixed maturities and private fixed maturities considered to be other than high or highest quality.
(3)On an amortized cost basis, as of June 30, 2021, includes $1,482 million of public fixed maturities and $187 million of private fixed maturities and, as of December 31, 2020, includes $1,728 million of public fixed maturities and $211 million of private fixed maturities.

Asset-Backed and Commercial Mortgage-Backed Securities

The following table sets forth the amortized cost and fair value of asset-backed and commercial mortgage-backed securities within our fixed maturity available-for-sale portfolio attributable to PFI excluding the Closed Block division by credit quality, as of the dates indicated:
June 30, 2021December 31, 2020
June 30, 2020 December 31, 2019Asset-Backed
Securities(2)		Commercial Mortgage-Backed Securities(3)Asset-Backed
Securities(2)		Commercial Mortgage-Backed Securities(3)
Asset-Backed
Securities(2)
 Commercial Mortgage-Backed Securities(3) 
Asset-Backed
Securities(2)
 Commercial Mortgage-Backed Securities(3)
Lowest Rating Agency Rating(1)Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Low Issue Composite Rating(1)Low Issue Composite Rating(1)Amortized CostFair
Value		Amortized CostFair
Value		Amortized CostFair
Value		Amortized CostFair
Value
(in millions)(in millions)
AAA$10,306
 $10,195
 $8,262
 $8,836
 $9,381
 $9,377
 $8,128
 $8,454
AAA$9,640 $9,691 $9,571 $10,209 $11,327 $11,323 $10,284 $11,159 
AA358
 363
 2,039
 2,282
 288 304 2,068
 2,173
AA941 944 0 0 1391441 2
A83
 84
 4
 5
 5 6 6 7A10 10 2 2 161722
BBB3
 3
 9
 8
 12 12 9 9BBB15 17 9 9 121398
BB and below119
 184
 0
 0
 146 222 0 0BB and below85 153 0 0 901570 0 
Total(4)$10,869
 $10,829
 $10,314
 $11,131
 $9,832
 $9,921
 $10,211
 $10,643
Total(4)$10,691 $10,815 $9,582 $10,220 $11,584 $11,654 $10,296 $11,171 
__________ 
(1)The table above provides ratings as assigned by nationally recognized rating agencies as of June 30, 2020, including S&P, Moody’s, Fitch Ratings, Inc. (“Fitch”) and Morningstar, Inc. (“Morningstar”).
(2)Includes collateralized loan obligations (“CLOs”), credit-tranched securities collateralized by auto loans, education loans, credit card loans, and other asset types.
(3)As of both June 30, 2020 and December 31, 2019, based on amortized cost, 97% were securities with vintages of 2013 or later.
(4)Excludes fixed maturity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Fixed maturities, trading,” as well as securities held outside the general account in other entities and operations.
(1)The table above provides ratings as assigned by nationally recognized rating agencies as of June 30, 2021, including S&P, Moody’s, Fitch Ratings, Inc. (“Fitch”) and Morningstar, Inc. (“Morningstar”). Low issue composite rating uses ratings from the major credit rating agencies or if these are not available an equivalent internal rating. For securities where the ratings assigned are not equivalent, the second lowest rating is utilized.
(2)Includes collateralized loan obligations (“CLOs”), credit-tranched securities collateralized by auto loans, education loans, credit card and other asset types.
(3)As of June 30, 2021 and December 31, 2020, based on amortized cost, 99% and 98%, respectively, were securities with vintages of 2013 or later.
(4)Excludes fixed maturity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Fixed maturities, trading,” as well as securities held outside the general account in other entities and operations.

Included in “Asset-backed securities” above are investments in CLOs. The following table sets forth information pertaining to these investments in CLOs within our fixed maturity available-for-sale portfolio attributable to PFI excluding the Closed Block division, as of the dates indicated:

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June 30, 2021December 31, 2020
June 30, 2020 December 31, 2019Collateralized Loan Obligations
Collateralized Loan Obligations
Lowest Rating Agency Rating(1)Amortized Cost Fair Value Amortized Cost Fair Value
Low Issue Composite Rating(1)Low Issue Composite Rating(1)Amortized CostFair
Value		Amortized CostFair
Value
(in millions)(in millions)
AAA$8,481
 $8,335
 $7,294
 $7,271
AAA$8,339 $8,359 $9,554 $9,506 
AA0
 0
 0
 0
AA817 815 2 2 
A0
 0
 0
 0
A7 7 1 1 
BBB0
 0
 0
 0
BBB7 7 1 1 
BB and below0
 0
 0
 0
BB and below6 6 1 1 
Total(2)(3)$8,481
 $8,335
 $7,294
 $7,271
Total(2)(3)$9,176 $9,194 $9,559 $9,511 
__________ 
(1)The table above provides ratings as assigned by nationally recognized rating agencies as of June 30, 2020, including S&P, Moody’s, Fitch Ratings, Inc. (“Fitch”) and Morningstar, Inc. (“Morningstar”).
(2)There was no allowance for credit losses as of June 30, 2020.
(3)Excludes fixed maturity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Fixed maturities, trading,” as well as securities held outside the general account in other entities and operations.
(1)The table above provides ratings as assigned by nationally recognized rating agencies as of June 30, 2021, including S&P, Moody’s, Fitch and Morningstar. Low issue composite rating uses ratings from the major credit rating agencies or if these are not available an equivalent internal rating. For securities where the ratings assigned are not equivalent, the second lowest rating is utilized.
(2)There was no allowance for credit losses as of both June 30, 2021 and December 31, 2020.
(3)Excludes fixed maturity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Fixed maturities, trading,” as well as securities held outside the general account in other entities and operations.

Assets Supporting Experience-Rated Contractholder Liabilities
 
For information regarding the composition of “Assets supporting experience-rated contractholder liabilities,” see Note 3 to the Unaudited Interim Consolidated Financial Statements.

Commercial Mortgage and Other Loans
 
Investment Mix

The following table sets forth the composition of our commercial mortgage and other loans portfolio attributable to PFI excluding the Closed Block division, as of the dates indicated:
 June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
 (in millions) (in millions)
Commercial mortgage and agricultural property loans $53,596
 $53,928
Commercial mortgage and agricultural property loans$55,280 $55,223 
Uncollateralized loans 680
 656
Uncollateralized loans579 655 
Residential property loans 109
 124
Residential property loans81 101 
Other collateralized loans 202
 65
Other collateralized loans71 120 
Total recorded investment gross of allowance(1) 54,587
 54,773
Total recorded investment gross of allowance(1)56,011 56,099 
Allowance for credit losses (210) (102)Allowance for credit losses(151)(207)
Total net commercial mortgage and other loans(2) $54,377
 $54,671
Total net commercial mortgage and other loans(2)$55,860 $55,892 
__________
(1)As a percentage of recorded investment gross of allowance, more than 99% of these assets were current as of both June 30, 2020 and December 31, 2019.
(2)Excluded from the table above are commercial mortgage and other loans held outside the general account in other entities and operations. For additional information regarding commercial mortgage and other loans held outside the general account, see “—Invested Assets of Other Entities and Operations” below.
(1)As a percentage of recorded investment gross of allowance, more than 99% of these assets were current as of both June 30, 2021 and December 31, 2020.
(2)Excluded from the table above are commercial mortgage and other loans held outside the general account in other entities and operations. For additional information regarding commercial mortgage and other loans held outside the general account, see “—Invested Assets of Other Entities and Operations” below.

We originate commercial mortgage and agricultural property loans using a dedicated sales and underwriting staff through our various regional offices in the U.S. and international offices primarily in London and Tokyo. All loans are underwritten consistently to our standards using a proprietary quality rating system that has been developed from our industry experience in real estate and mortgage lending.

Uncollateralized loans primarily represent corporate loans which do not meetheld by the definition of a security under authoritative accounting guidance.Company’s international insurance operations.
 
Residential property loans primarily include Japanese recourse loans. Upon default of these recourse loans, we can make a claim against the personal assets of the property owner, in addition to the mortgaged property. These loans are also backed by third-party guarantors.


Other collateralized loans include consumer loans.

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Composition of Commercial Mortgage and Agricultural Property Loans
 
Our commercial mortgage and agricultural property loan portfolio strategy emphasizes diversification by property type and geographic location. The following tables set forth the breakdown of the gross carrying values of commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division by geographic region and property type, as of the dates indicated:
 June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
 
Gross
Carrying
Value
 
% of
Total
 
Gross
Carrying
Value
 
% of
Total
 Gross
Carrying
Value		% of
Total		Gross
Carrying
Value		% of
Total
 ($ in millions) ($ in millions)
Commercial mortgage and agricultural property loans by region:        Commercial mortgage and agricultural property loans by region:
U.S. Regions(1):        U.S. Regions(1):
Pacific $18,460
 34.4% $18,061
 33.5%Pacific$19,534 35.3 %$19,186 34.7 %
South Atlantic 8,593
 16.0
 8,943
 16.6
South Atlantic8,788 15.9 8,710 15.8 
Middle Atlantic 6,377
 11.9
 6,664
 12.4
Middle Atlantic6,513 11.8 6,500 11.8 
East North Central 3,265
 6.1
 3,413
 6.3
East North Central2,936 5.3 3,018 5.5 
West South Central 5,571
 10.4
 5,439
 10.1
West South Central5,471 9.9 5,426 9.8 
Mountain 2,291
 4.3
 2,442
 4.5
Mountain2,264 4.1 2,239 4.1 
New England 1,730
 3.2
 1,902
 3.5
New England1,559 2.8 1,664 3.0 
West North Central 485
 0.9
 454
 0.8
West North Central478 0.9 531 0.9 
East South Central 599
 1.1
 622
 1.2
East South Central888 1.6 836 1.5 
Subtotal-U.S. 47,371
 88.3
 47,940
 88.9
Subtotal-U.S.48,431 87.6 48,110 87.1 
Europe 3,895
 7.3
 3,781
 7.0
Europe4,601 8.3 4,605 8.3 
Asia 948
 1.8
 886
 1.6
Asia903 1.6 979 1.8 
Other 1,382
 2.6
 1,321
 2.5
Other1,345 2.5 1,529 2.8 
Total commercial mortgage and agricultural property loans $53,596
 100.0% $53,928
 100.0%Total commercial mortgage and agricultural property loans$55,280 100.0 %$55,223 100.0 %
__________
(1)Regions as defined by the United States Census Bureau.

(1)Regions as defined by the United States Census Bureau.
 June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
 
Gross
Carrying
Value
 
% of
Total
 
Gross
Carrying
Value
 
% of
Total
 Gross
Carrying
Value		% of
Total		Gross
Carrying
Value		% of
Total
 ($ in millions) ($ in millions)
Commercial mortgage and agricultural property loans by property type:        Commercial mortgage and agricultural property loans by property type:
Industrial $12,270
 22.9% $12,224
 22.7%Industrial$14,258 25.8 %$13,819 25.0 %
Retail 6,029
 11.2
 6,524
 12.1
Retail5,606 10.1 5,718 10.4 
Office 10,594
 19.8
 11,203
 20.8
Office10,395 18.8 10,719 19.4 
Apartments/Multi-Family 15,395
 28.7
 15,176
 28.1
Apartments/Multi-Family15,256 27.6 15,316 27.7 
Agricultural properties 3,316
 6.2
 2,856
 5.3
Agricultural properties3,403 6.2 3,273 5.9 
Hospitality 2,035
 3.8
 2,066
 3.8
Hospitality2,074 3.7 2,056 3.7 
Other 3,957
 7.4
 3,879
 7.2
Other4,288 7.8 4,322 7.9 
Total commercial mortgage and agricultural property loans $53,596
 100.0% $53,928
 100.0%Total commercial mortgage and agricultural property loans$55,280 100.0 %$55,223 100.0 %
 
Loan-to-value and debt service coverage ratios are measures commonly used to assess the quality of commercial mortgage and agricultural property loans. The loan-to-value ratio compares the amount of the loan to the fair value of the underlying property collateralizing the loan and is commonly expressed as a percentage. A loan-to-value ratio less than 100% indicates an excess of

collateral value over the loan amount. Loan-to-value ratios greater than 100% indicate that the loan amount exceeds the collateral value. The debt service coverage ratio compares a property’s net operating income to its debt service payments. Debt service coverage ratios less than 1.0 times indicate that property operations do not generate enough income to cover the
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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.

As of June 30, 2020,2021, our commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division had a weighted-average debt service coverage ratio of 2.452.49 times and a weighted-average loan-to-value ratio of 56%58%. As of June 30, 2020, 95%2021, 94% of commercial mortgage and agricultural property loans were fixed rate loans. For those commercial mortgage and agricultural property loans that were originated in 2020,2021, the weighted-average debt service coverage ratio was 2.543.17 times, and the weighted-average loan-to-value ratio was 63%61%.

The values utilized in calculating these loan-to-value ratios are developed as part of our periodic review of the commercial mortgage and agricultural property loan portfolio, which includes an internal evaluation of the underlying collateral value. Our periodic review also includes a credit quality re-rating process, whereby we update the internal quality rating originally assigned at underwriting based on the proprietary quality rating system mentioned above. As discussed below, the internal credit quality rating is a key input in determining our allowance for credit losses.

For loans with collateral under construction, renovation or lease-up, a stabilized value and projected net operating income are used in the calculation of the loan-to-value and debt service coverage ratios. Our commercial mortgage and agricultural property loan portfolio included $1.8$2.7 billion and $2.4 billion of such loans as of both June 30, 20202021 and December 31, 2019,2020, respectively. All else being equal, these loans are inherently riskier than those collateralized by properties that have already stabilized. As of June 30, 20202021 and December 31, 2019,2020, there were $1.3less than $1 million and $0$1 million, respectively, of allowance related to these loans. In addition, these unstabilized loans are included in the calculation of our portfolio reserve, as discussed below.

The following table sets forth the gross carrying value of our commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division by loan-to-value and debt service coverage ratios, as of the date indicated: 
 June 30, 2020 June 30, 2021
 Debt Service Coverage Ratio   Debt Service Coverage Ratio
 
> 1.2x
 
1.0x
to
< 1.2x
 < 1.0x 
Total
Commercial Mortgage
and Agricultural
Property
Loans
> 1.2x
1.0x
to
< 1.2x		< 1.0xTotal
Commercial Mortgage
and Agricultural
Property
Loans
Loan-to-Value Ratio (in millions)Loan-to-Value Ratio(in millions)
0%-59.99% $28,065
 $738
 $99
 $28,902
0%-59.99%$25,368 $660 $424 $26,452 
60%-69.99% 15,323
 720
 140
 16,183
60%-69.99%17,083 1,390 268 18,741 
70%-79.99% 7,623
 596
 73
 8,292
70%-79.99%8,683 776 211 9,670 
80% or greater 125
 92
 2
 219
80% or greater152 253 12 417 
Total commercial mortgage and agricultural property loans $51,136
 $2,146
 $314
 $53,596
Total commercial mortgage and agricultural property loans$51,286 $3,079 $915 $55,280 
 

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The following table sets forth the breakdown of our commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division by year of origination, as of the date indicated:
June 30, 2021
Gross
Carrying
Value		% of
Total
Year of Origination($ in millions)
2021$3,141 5.7 %
20205,311 9.6 
20199,795 17.7 
20188,316 15.0 
20176,675 12.1 
20166,192 11.2 
20155,543 10.0 
2014 & Prior10,307 18.7 
Total commercial mortgage and agricultural property loans$55,280 100.0 %
  June 30, 2020
  
Gross
Carrying
Value
 
% of
Total
Year of Origination ($ in millions)
2020 $2,319
 4.3%
2019 9,720
 18.1
2018 8,512
 15.9
2017 7,171
 13.4
2016 6,291
 11.7
2015 5,611
 10.5
2014 4,675
 8.7
2013 & Prior 9,297
 17.4
Total commercial mortgage and agricultural property loans $53,596
 100.0%

Commercial Mortgage and Other Loans Quality
 
The commercial mortgage and other loans portfolio is monitored on an ongoing basis. If certain criteria are met, loans are assigned to either of the following “watch list” categories:

(1) “Closely Monitored,” which includes a variety of considerations, such as when loan metrics fall below acceptable levels, the borrower is not cooperative or has requested a material modification, or the portfolio manager has directed a change in category; or
(2) “Not in Good Standing,” which includes loans in default or with a high probability of loss of principal, such as when the loan is in the process of foreclosure or the borrower is in bankruptcy.
Our workout and special servicing professionals manage the loans on the watch list.

The current expected credit loss (“CECL”) allowance represents the Company’s best estimate of expected credit losses over the remaining life of the assets. The determination of the allowance considers historical credit loss experience, current conditions, and reasonable and supportable forecasts. The allowance is calculated separately for commercial mortgage loans, agricultural mortgage loans, uncollateralized loans, other collateralized loans and residential property loans.

For commercial mortgage and agricultural mortgage loans, 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 the loans adjusted for prepayment considerations, current and historical interest rate assumptions and other factors influencing the Company’s view of the current stage of the economic cycle and future economic conditions. Subjective considerations include a review of whether historical loss experience is representative of current market conditions and the Company’s view of the credit cycle. Model assumptions and factors are reviewed and updated as appropriate.

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 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.

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

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 June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
 (in millions) (in millions)
Allowance, beginning of year $102
 $106
Allowance, beginning of year$207 $102 
Cumulative effect of adoption of ASU 2016-13 101
 0
Cumulative effect of adoption of ASU 2016-130 101 
Addition to (release of) allowance for credit losses 4
 (4)Addition to (release of) allowance for credit losses(54)1 
Write-downs charged against the allowance 0
 0
Recoveries of amounts previously written-down 0
 N/A
Change in foreign exchange 0
 0
Other 3
 0
Other(2)3 
Allowance, end of period $210
 $102
Allowance, end of period$151 $207 
 
The allowance for credit losses as of June 30, 2020 increased2021 decreased compared to December 31, 2019,2020, primarily due toreflecting the cumulative effect of adopting ASU 2016-13.improving credit environment.

Equity Securities
 
The equity securities attributable to PFI excluding the Closed Block division consist principally of investments in Common and Preferred Stock of publicly-traded companies, as well as mutual fund shares. The following table sets forth the composition of our equity securities portfolio and the associated gross unrealized gains and losses, as of the dates indicated:
  June 30, 2020 December 31, 2019
  Cost 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 Cost 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
  (in millions)
Mutual funds $926
 $218
 $13
 $1,131
 $817
 $258
 $1
 $1,074
Other Common Stocks 2,428
 834
 135
 3,127
 2,429
 1,091
 57
 3,463
Non-redeemable Preferred Stocks 57
 5
 6
 56
 51
 3
 5
 49
Total equity securities, at fair value(1) $3,411
 $1,057
 $154
 $4,314
 $3,297
 $1,352
 $63
 $4,586
 June 30, 2021December 31, 2020
 CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
 (in millions)
Mutual funds(1)$902 $558 $0 $1,460 $956 $404 $5 $1,355 
Other Common Stocks(1)2,186 1,058 26 3,218 2,726 1,019 62 3,683 
Non-redeemable Preferred Stocks100 31 6 125 54 22 6 70 
Total equity securities, at fair value(2)$3,188 $1,647 $32 $4,803 $3,736 $1,445 $73 $5,108 
__________
(1)Amounts presented exclude investments in private equity and hedge funds and other investments which are reported in “Other invested assets.”
(1)Prior period amounts have been updated to conform to current period presentation.
(2)Amounts presented exclude investments in private equity and hedge funds and other investments which are reported in “Other invested assets.”
 
The net change in unrealized gains (losses) from equity securities attributable to PFI excluding Closed Block division still held at period end, recorded within “Other income (loss),” was $372$13 million and $81$372 million during the three months ended June 30, 20202021 and 2019,2020, respectively, and $(386)$243 million and $330$(386) million during the six months ended June 30, 20202021 and 2019,2020, respectively.

Other Invested Assets
 
The following table sets forth the composition of “Other invested assets” attributable to PFI excluding the Closed Block division, as of the dates indicated:

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 June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
 (in millions)(in millions)
LPs/LLCs:    LPs/LLCs:
Equity method:    Equity method:
Private equity $2,938
 $2,740
Private equity(1)Private equity(1)$4,142 $3,411 
Hedge funds 1,552
 1,362
Hedge funds2,105 1,770 
Real estate-related 795
 792
Real estate-related(1)Real estate-related(1)1,332 1,214 
Subtotal equity method 5,285
 4,894
Subtotal equity method7,579 6,395 
Fair value:    Fair value:
Private equity 912
 990
Private equity1,123 1,063 
Hedge funds 1,110
 1,233
Hedge funds1,043 1,111 
Real estate-related 45
 50
Real estate-related41 41 
Subtotal fair value 2,067
 2,273
Subtotal fair value2,207 2,215 
Total LPs/LLCs 7,352
 7,167
Total LPs/LLCs9,786 8,610 
Real estate held through direct ownership(1) 1,330
 1,350
Real estate held through direct ownership(2)Real estate held through direct ownership(2)1,055 1,176 
Derivative instruments 164
 73
Derivative instruments357 199 
Other(2) 732
 620
Other(3)Other(3)491 731 
Total other invested assets $9,578
 $9,210
Total other invested assets$11,689 $10,716 
__________ 
(1)As of June 30, 2020 and December 31, 2019, real estate held through direct ownership had mortgage debt of $459 million and $537 million, respectively.
(2)Primarily includes leveraged leases and member and activity stock held in the Federal Home Loan Banks of New York and Boston. For additional information regarding our holdings in the Federal Home Loan Banks of New York and Boston, 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.
(1)Prior period amounts have been updated to conform to current period presentation.
(2)As of June 30, 2021 and December 31, 2020, real estate held through direct ownership had mortgage debt of $361 million and $409 million, respectively.
(3)Primarily includes leveraged leases and member and activity stock held in the Federal Home Loan Banks of New York and Boston. For additional information regarding our holdings in the Federal Home Loan Banks of New York and Boston, 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, 2020.
Invested Assets of Other Entities and Operations

“Invested Assets of Other Entities and Operations” presented below includes investments held outside the general account and primarily represents investments associated with our investment management operations and derivative operations. Our derivative operations act on behalf of affiliates primarily to manage interest rate, foreign currency, credit and equity exposures. Assets within our investment management operations that are managed for third-parties and those assets classified as “Separate account assets” on our balance sheet are not included.
 June 30, 2020 December 31, 2019June 30, 2021December 31, 2020
 (in millions) (in millions)
Fixed maturities:    Fixed maturities:
Public, available-for-sale, at fair value(1) $614
 $587
Public, available-for-sale, at fair value(1)$500 $644 
Private, available-for-sale, at fair value 1
 1
Fixed maturities, trading, at fair value(1) 1,084
 1,161
Fixed maturities, trading, at fair value(1)215 212 
Equity securities, at fair value 649
 691
Equity securities, at fair value721 682 
Commercial mortgage and other loans, at book value(2) 703
 259
Commercial mortgage and other loans, at book value(2)323 1,112 
Other invested assets(1) 3,920
 3,062
Other invested assetsOther invested assets4,791 3,799 
Short-term investments 36
 17
Short-term investments37 36 
Total investments $7,007
 $5,778
Total investments$6,587 $6,485 
__________ 
(1)As of June 30, 2020 and December 31, 2019, balances include investments in CLOs with fair value of $448 million and $438 million, respectively.
(2)Book value is generally based on unpaid principal balance, net of any allowance for credit losses, or at fair value, when the fair value option has been elected.
(1)As of June 30, 2021 and December 31, 2020, balances include investments in CLOs with fair value of $364 million and $496 million, respectively.
(2)Book value is generally based on unpaid principal balance, net of any allowance for credit losses, or at fair value, when the fair value option has been elected.

Fixed Maturities, Trading

“Fixed maturities, trading, at fair value” are primarily related to assets associated with consolidated VIEs for which the Company is the investment manager. The assets of the consolidated VIEs are generally offset by liabilities for which the fair value option has been elected. For additionalfurther information on these consolidated VIEs, see Note 4 to the Unaudited Interim Consolidated Financial Statements.


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Commercial Mortgage and Other Loans
 
Our investment management operations include our commercial mortgage operations, which provide mortgage origination, investment management and servicing for our general account, institutional clients, the Federal Housing Administration and government-sponsored entities such as Fannie Mae and Freddie Mac.

The mortgage loans of our commercial mortgage operations are included in “Commercial mortgage and other loans.” Derivatives and other hedging instruments related to our commercial mortgage operations are primarily included in “Other invested assets.”

Other Invested Assets
 
“Other invested assets” primarily include assets of our derivative operations used to manage interest rate, foreign currency, credit, and equity exposures.

Furthermore, other invested assets include strategic investments made as part of our investment management operations. We make these strategic investments in real estate, as well as fixed income, public equity and real estate securities, including controlling interests. Certain of these investments are made primarily for purposes of co-investment in our managed funds and structured products. Other strategic investments are made with the intention to sell or syndicate to investors, including our general account, or for placement in funds and structured products that we offer and manage (seed investments). As part of our investment management operations, we also make loans to our managed funds that are secured by equity commitments from investors or assets of the funds. Other“Other invested assetsassets” also include certain assets in consolidated investment funds where the Company is deemed to exercise control over the funds.

Liquidity and Capital Resources
 
Overview
 
Liquidity refers to the ability to generate sufficient cash resources to meet the payment obligations of the Company. Capital refers to the long-term financial resources available to support the operations of our businesses, fund business growth, and provide a cushion to withstand adverse circumstances. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our businesses, general economic conditions and our access to the capital markets and the alternate sources of liquidity and capital described herein. The principles of our liquidity and capital management framework are described in an enterprise wide policy that is reviewed and approved by our Board.
Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital, leverage, liquidity, stress-testing, overall risk management, credit exposure reporting and credit concentration. For information on these regulatory initiatives and their potential impact on us, see “Business—Regulation” and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019.
COVID-19 and Related Market Disruptions

Beginning in the first quarter of 2020, broad market concerns over the impact of COVID-19 have led to significant volatility and disruptions in the global economy and financial markets. Given this macro environment and the global pandemic, as examined through our stress testing, in the first half of the year we took the following significant management actions to enhance our liquidity and capital position:

We augmented our alternative sources of liquidity by entering into a facility agreement with a Delaware trust, pursuant to which Prudential Financial may issue and sell to the trust at any time over a ten-year period up to $1.5 billion of 2.850% senior notes due May 15, 2030 and receive in exchange a corresponding amount of U.S. Treasury securities. The facility agreement is similar to our existing put option agreement that allows us to issue up to $1.5 billion of senior notes to a trust, which we established in 2013 and expires in 2023;
We temporarily suspended Common Stock repurchases under our existing repurchase authorization beginning April 1, 2020, 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, as informed by the market environment and any alternative opportunities for capital deployment;

In March 2020, we issued $1.5 billion of senior notes, with maturities ranging from 2026 to 2040 for general corporate purposes, including pre-funding part of our senior notes maturing through 2021. Of these senior notes, $500 million were issued in the form of “green bonds,” where proceeds are allocated to existing or future investments in assets, businesses or projects that provide environmental benefits;
We executed additional capital hedges that protect the capital position of our U.S. insurance subsidiaries against additional declines in the equity markets;
Prudential Legacy Insurance Company of New Jersey issued $800 million of surplus notes under its $4 billion reserve financing facility to enhance the statutory surplus of the Closed Block. This facility, established in 2015, is intended to alleviate any temporary impact to the Closed Block’s surplus due to the timing difference between the mark to market on assets and the decision on the level of the policyholder dividend; and
We accelerated our product diversification strategy and repriced certain products, which are expected to support the capital position of our insurance subsidiaries over time.

Liquidity. The Company continues to operate with significant liquid resources and maintains access to substantial alternative sources of liquidity, such as committed credit facilities, membership in the Federal Home Loan Banks, commercial paper programs, and agreements that allow us to issue senior debt to trust entities. As of June 30, 2020, Prudential Financial had highly liquid assets of $4.5 billion, excluding the net borrowings from an intercompany liquidity account. Nevertheless, adverse developments related to COVID-19 and associated market dislocations could strain our existing liquidity. For example, capital or liquidity needs at our subsidiaries resulting from market conditions or business operations could require us to use our highly liquid assets or tap alternative sources of liquidity, and our access to traditional funding sources, such as commercial paper borrowings, could become limited due to market conditions. Any need to increase the use of our alternative sources of liquidity may result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings or ratings outlooks.

Capital. 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. For example, adverse market conditions may lead to increased defaults and/or further deterioration in the credit quality or fair values of our investment portfolio, which would negatively impact the statutory capital of our insurance subsidiaries. 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.

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


Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital and liquidity management. For information on these regulatory initiatives and their potential impact on us, see “Business—Regulation” and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

From the beginning of 2021 through the date of this report, we took the following significant actions that have impacted, or are expected to impact, our liquidity and capital positions:

•In February 2021, Prudential Financial’s Board of Directors (the “Board”) authorized the Company to repurchase at management’s discretion up to $1.5 billion of its outstanding Common Stock during the period from January 1, 2021 through December 31, 2021. In May 2021, the Board increased this current share repurchase authorization by $500 million, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.0 billion. In July 2021, the Board further increased this authorization by an additional $500 million, bringing the aggregate share repurchase authorization for the calendar year 2021 to $2.5 billion.
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•In July 2021, we entered into an agreement with Great-West Life & Annuity Insurance Company to sell our Full Service Retirement business. The transaction is expected to close by the first quarter of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. Total proceeds expected from the sale are approximately $2.8 billion, less approximately $400 million of transaction related costs and taxes. See Note 15 to the Unaudited Interim Consolidated Financial Statements for additional information.
•In July 2021, the Company issued notices to redeem, at a make-whole redemption price, $910 million of medium-term notes, on a redemption date on or about August 30, 2021. See Note 15 to the Unaudited Interim Consolidated Financial Statements for additional information.
•In July 2021, the Company amended and restated its $4.0 billion five-year credit facility, extending the term of the facility to July 2026. The extension also includes certain sustainability-linked pricing adjustments, by which the applicable interest rate margins and commitment fee may be adjusted based on the Company’s ability to meet certain targets. See Note 15 to the Unaudited Interim Consolidated Financial Statements for additional information.

Capital
 
The primary components of the Company’s capitalization consist of equity and outstanding capital debt, including junior subordinated debt. As shown in the table below, as of June 30, 2020,2021, the Company had $49.0$53.3 billion in capital, all of which was available to support the aggregate capital requirements of its businesses and its Corporate and Other operations. Based on our assessment of these businesses and operations, we believe this level of capital is consistent with our ratings targets.
 
June 30, 2020 December 31, 2019June 30, 2021December 31, 2020
(in millions) (in millions)
Equity(1)$35,060
 $39,076
Equity(1)$39,771 $36,687 
Junior subordinated debt (including hybrid securities)7,580
 7,575
Junior subordinated debt (including hybrid securities)7,615 7,615 
Other capital debt6,354
 7,001
Other capital debt5,881 5,856 
Total capital$48,994
 $53,652
Total capital$53,267 $50,158 
__________
(1)Amounts attributable to Prudential Financial, excluding AOCI.

(1)Amounts attributable to Prudential Financial, excluding AOCI.


We manage PICA, The Prudential Life Insurance Company, Ltd. (“Prudential of Japan”), Gibraltar Life, and other significant insurance subsidiaries to regulatory capital levels consistent with our “AA” ratings targets. We utilize the risk-based capital (“RBC”) ratio as a primary measure of the capital adequacy of our domestic insurance subsidiaries and the solvency margin ratio as a primary measure of the capital adequacy of our Japanese insurance subsidiaries.
 
The table below presents the RBC ratios of our most significant domestic insurance subsidiaries as of December 31, 2019,2020, the most recent statutory fiscal year-end and RBC reporting date for these subsidiaries.
Ratio(1)
PICA(2)411394 %
Prudential Annuities Life Assurance Corporation (“PALAC”)484465 %
Composite Major U.S. Insurance Subsidiaries(3)426411 %
__________ 
(1)The RBC ratio calculations are intended to assist insurance regulators in measuring an insurer’s solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public.
(2)Includes Prudential Retirement Insurance and Annuity Company (“PRIAC”), Pruco Life Insurance Company (“Pruco Life”), Pruco Life Insurance Company of New Jersey (“PLNJ”), which is a subsidiary of Pruco Life, and Prudential Legacy Insurance Company of New Jersey (“PLIC”).
(3)Includes PICA and its subsidiaries, as noted above, and PALAC. Composite RBC is not reported to regulators and is based on the summation of total adjusted capital and risk charges for the included companies as determined under statutory accounting and RBC guidance to calculate a composite numerator and denominator, respectively, for purposes of calculating the composite ratio.
(1)The RBC ratio calculations are intended to assist insurance regulators in measuring an insurer’s solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public.
(2)Includes Prudential Retirement Insurance and Annuity Company (“PRIAC”), Pruco Life Insurance Company (“Pruco Life”), Pruco Life Insurance Company of New Jersey (“PLNJ”), which is a subsidiary of Pruco Life, and Prudential Legacy Insurance Company of New Jersey (“PLIC”).
(3)Includes PICA and its subsidiaries, as noted above, and PALAC. Composite RBC is not reported to regulators and is based on the summation of total adjusted capital and risk charges for the included companies as determined under statutory accounting and RBC guidance to calculate a composite numerator and denominator, respectively, for purposes of calculating the composite ratio.

Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in which we operate generally establish some form of minimum solvency margin requirements for insurance companies based on local statutory accounting practices. These solvency margins are a primary measure of the capital adequacy of our international insurance operations. Maintenance of our solvency margins at certain levels is also important to our competitive positioning, as in certain jurisdictions, such as Japan, these solvency margins are required to be disclosed to the public and therefore impact the public perception of an insurer’s financial strength.

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The table below presents the solvency margin ratios of our most significant international insurance subsidiaries as of March 31, 2020,2021, the most recent date for which this information is available.
Ratio
Prudential of Japan consolidated(1)818834 %
Gibraltar Life consolidated(2)835876 %
__________ 
(1)Includes Prudential Trust Co., Ltd., a subsidiary of Prudential of Japan.
(2)Includes Prudential Gibraltar Financial Life Insurance Co., Ltd. (“PGFL”), a subsidiary of Gibraltar Life.
(1)Includes Prudential Trust Co., Ltd., a subsidiary of Prudential of Japan.
(2)Includes Prudential Gibraltar Financial Life Insurance Co., Ltd. (“PGFL”), a subsidiary of Gibraltar Life.

All of our domestic and significant international insurance subsidiaries have capital levels that substantially exceed the minimum level required by applicable insurance regulations. However,regulations; however, market conditions could negatively impact the statutory capital of our insurance companies and constrain our overall capital flexibility. 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. Our regulatory capital levels also may be affected in the future by changes to the applicable regulations, proposals for which are currently under consideration by both domestic and international insurance regulators. For additional information on the calculation of RBC and solvency margin ratios, as well as regulatory minimums, see Note 19 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.

Captive Reinsurance Companies
 
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital—Captive Reinsurance Companies” included in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, for a discussion of our use of captive reinsurance companies. 
    
Shareholder Distributions
 
Share Repurchase Program and Shareholder Dividends

In December 2019, theFebruary 2021, Prudential Financial’s Board of Directors authorized the Company to repurchase, at management’s discretion, up to $2.0$1.5 billion of its outstanding Common Stock during the period from January 1, 20202021 through December 31, 2020. We temporarily suspended Common Stock repurchases under our existing2021. This authorization was increased by $500 million in each of May 2021 and July 2021, bringing the aggregate share repurchase authorization beginning April 1, 2020; however, we continuefor calendar year 2021 to evaluate$2.5 billion.

In general, the resumption of share repurchases under this Board authorization.


The timing and amount of share repurchases are determined by management based on market conditions and other considerations, including any increased capital needs of our businesses due to, among other things, credit migration and losses in our investment portfolio, changes in regulatory capital requirements and opportunities for growth and acquisitions. Repurchases may be executed in the open market, through derivative, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934.

The following table sets forth information about declarations of Common Stock dividends, as well as repurchases of shares of Prudential Financial’s Common Stock, for the six months ended June 30, 2020.2021.
 Dividend Amount Shares Repurchased
Three months ended:Per Share Aggregate Shares Total Cost
 (in millions, except per share data)
March 31, 2020$1.10
 $445
 6.7
 $500
June 30, 2020$1.10
 $441
 0.0
 $0
 Dividend AmountShares Repurchased
Three months ended:Per ShareAggregateSharesTotal Cost
 (in millions, except per share data)
March 31, 2021$1.15 $467 4.3 $375 
June 30, 2021$1.15 $460 8.4 $875 
 
Liquidity
 
Liquidity management and stress testing are performed on a legal entity basis as the ability to transfer funds between subsidiaries is limited due in part to regulatory restrictions. Liquidity needs are determined through daily and quarterly cash flow forecasting at the holding company and within our operating subsidiaries. We seek to maintain a minimum balance of highly liquid assets to ensure that adequate liquidity is available at Prudential Financial to cover fixed expenses in the event that we experience reduced cash flows from our operating subsidiaries at a time when access to capital markets is also not available.
 
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We seek to mitigate the risk of having limited or no access to financing due to stressed market conditions by generally pre-funding debt in advance of maturity. In the first quarter of 2020, we issued $1.5 billion of Prudential Financial senior notes, of which $1 billion were issued for general corporate purposes, including pre-funding in part our senior notes maturing through 2021. We mitigate the refinancing risk associated with our debt that is used to fund operating needs by matching the term of debt with the assets financed. To ensure adequate liquidity in stress scenarios, stress testing is performed for our major operating subsidiaries. We seek to further mitigate liquidity risk by maintaining our access to alternative sources of liquidity, as discussed below.
Liquidity of Prudential Financial
 
The principal sources of funds available to Prudential Financial, the parent holding company, are dividends, returns of capital and loans from subsidiaries, and proceeds from debt issuances and certain stock-based compensation activity. These sources of funds may be supplemented by Prudential Financial’s access to the capital markets as well as the “—Alternative Sources of Liquidity” described below.
 
The primary uses of funds at Prudential Financial include servicing debt, making capital contributions and loans to subsidiaries, making acquisitions, paying declared shareholder dividends and repurchasing outstanding shares of Common Stock executed under authority from the Board.
 
As of June 30, 2020,2021, Prudential Financial had highly liquid assets with a carrying value totaling $5,105$6,166 million, an increasea decrease of $1$313 million from December 31, 2019.2020. Highly liquid assets predominantly include cash, short-term investments, U.S. Treasury securities, obligations of other U.S. government authorities and agencies, and/or foreign government bonds. We maintain an intercompany liquidity account that is designed to optimize the use of cash by facilitating the lending and borrowing of funds between Prudential Financial and its subsidiaries on a daily basis. Excluding the net borrowings from this intercompany liquidity account, Prudential Financial had highly liquid assets of $4,517$4,933 million as of June 30, 2020, an increase2021, a decrease of $456$627 million from December 31, 2019.2020.
 

The following table sets forth Prudential Financial’s principal sources and uses of highly liquid assets, excluding net borrowings from our intercompany liquidity account, for the periods indicated.
 
Six Months Ended June 30,
 20212020(1)
(in millions)
Highly Liquid Assets, beginning of period$5,560 $4,061 
Dividends and/or returns of capital from subsidiaries(2)865 1,016 
Affiliated (borrowings)/loans - (capital activities)(3)786 0 
Capital contributions to subsidiaries(4)(75)0 
Total Business Capital Activity1,576 1,016 
Share repurchases(5)(1,238)(500)
Common stock dividends(6)(926)(886)
Business dispositions450 0 
Total Share Repurchases, Dividends and Business Disposition Activity(1,714)(1,386)
Proceeds from the issuance of debt0 1,486 
Repayments of debt(1)(651)
Total Debt Activity(1)835 
Proceeds from stock-based compensation and exercise of stock options204 156 
Net income tax receipts & payments(93)176 
Interest income on intercompany agreements30 21 
Interest paid on external debt(486)(493)
Affiliated (borrowings)/loans - (operating activities)(7)(37)288 
Swap terminations(43)(105)
Other, net(63)(52)
Total Other Activity(488)(9)
Net increase/(decrease) in highly liquid assets(627)456 
Highly Liquid Assets, end of period$4,933 $4,517 
Sources and Uses of Holding Company Highly Liquid Assets(1): Six Months Ended June 30,
  2020 2019
  (in millions)
Highly Liquid Assets, beginning of period $4,061
 $5,548
Dividends and/or returns of capital from subsidiaries(2) 1,016
 929
Capital contributions to subsidiaries(3) 0
 (268)
Total Business Capital Activity 1,016
 661
Share repurchases(4) (500) (983)
Common stock dividends(5) (886) (827)
Total Share Repurchases and Dividends (1,386) (1,810)
Proceeds from the issuance of debt 1,486
 989
Repayments of debt (651) (761)
Total Debt Activity(6) 835
 228
Proceeds from stock-based compensation and exercise of stock options 156
 154
Net income tax receipts & payments 176
 (491)
Affiliated (borrowings)/loans - (operating activities)(7) 288
 1,065
Interest paid on external debt (493) (480)
Other, net(6) (136) (8)
Total Other Activity (9) 240
Net increase/(decrease) in highly liquid assets 456
 (681)
Highly Liquid Assets, end of period $4,517
 $4,867
__________ 
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(1)Prior period amounts have been updated to conform to current period presentation.
(2)2020 includes $444 million from international insurance subsidiaries, $380 million from PALAC, $108 million from PGIM subsidiaries, $80 million from Prudential Annuities Holding Company, and $4 million from other subsidiaries. 2019 includes $492 million from PALAC, $223 million from PGIM subsidiaries, $126 million from international insurance subsidiaries, $79 million from Prudential Annuities Holding Company, and $9 million from other subsidiaries.
(3)2019 includes capital contributions of $200 million to PICA and $68 million to PGIM subsidiaries.
(4)Excludes cash payments made on trades that settled in the subsequent period.
(5)Includes cash payments made on dividends declared in prior periods.
(6)“Total Debt Activity” excludes changes in PFI commercial paper. These changes are captured in “Other, net” in the “Total Other Activity” section.
(1)Prior period amounts have been updated to conform to current period presentation.
(2)2021 includes $420 million from Prudential Annuities Holding Company, $280 million from PGIM subsidiaries, and $165 million from international insurance and investment subsidiaries. 2020 includes $460 million from Prudential Annuities Holding Company, $444 million from international insurance subsidiaries, $108 million from PGIM subsidiaries, and $4 million from other subsidiaries.
(3)Includes net receipts of $786 million from the issuance of notes to international insurance subsidiaries.
(4)2021 includes capital contributions of $66 million to international insurance subsidiaries and $9 million to PGIM subsidiaries.
(5)Excludes cash payments made on trades that settled in the subsequent period.
(6)Includes cash payments made on dividends declared in prior periods.
(7)Represent loans to and from subsidiaries to support business operating needs.

Dividends and Returns of Capital from Subsidiaries
 
Domestic insurance subsidiaries. During the first six months of 2020,2021, Prudential Financial received returns of capital of $380 million from PALAC and dividends of $80$420 million from Prudential Annuities Holding Company.Company, of which $380 million was from PALAC.

International insurance subsidiaries. During the first six months of 2020,2021, Prudential Financial received dividends of $444$165 million from its international insurance subsidiaries. In addition to paying Common Stock dividends, our international insurance operations may return capital to Prudential Financial through or facilitated by other means, such as the repayment of preferred stock obligations held by Prudential Financial or other affiliates, affiliated lending, affiliated derivatives and reinsurance with U.S.- and Bermuda-based affiliates.

Other subsidiaries. During the first six months of 2020,2021, Prudential Financial received dividends and returns of capital of $108$280 million from PGIM subsidiaries and dividends of $4 million from other subsidiaries.
Restriction on dividends and returns of capital from subsidiaries. Our insurance companies are subject to limitations on the payment of dividends and other transfers of funds to Prudential Financial and other affiliates under applicable insurance law and regulation. Further, as discussed above, recent market conditions could negatively impact capital positions of our insurance companies, which could further restrict their ability to pay dividends. More generally, the payment of dividends by any of our subsidiaries is subject to declaration by their Board of Directors and can be affected by market conditions and other factors.

 
With respect to our domestic insurance subsidiaries, PICA is permitted to pay ordinary dividends based on calculations specified under New Jersey insurance law, subject to prior notification to the New Jersey Department of Banking and Insurance (“NJDOBI”). Any distributions above this amount in any twelve-month period are considered to be “extraordinary” dividends, and the approval of the NJDOBI is required prior to payment. The laws regulating dividends of the states where our other domestic insurance companies are domiciled are similar, but not identical, to New Jersey’s.

Capital redeployment from our international insurance subsidiaries is subject to local regulatory requirements in the international jurisdictions in which they operate. Our most significant international insurance subsidiaries, Prudential of Japan and Gibraltar Life, are permitted to pay common stock dividends based on calculations specified by Japanese insurance law, subject to prior notification to the FSA. Dividends in excess of these amounts and other forms of capital distribution require the prior approval of the FSA. The regulatory fiscal year end for both Prudential of Japan and Gibraltar Life is March 31, after which time the common stock dividend amount permitted to be paid without prior approval from the FSA can be determined.

The ability of our PGIM subsidiaries and the majority of our other operating subsidiaries to pay dividends is largely unrestricted from a regulatory standpoint.

See Note 19 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, for information on specific dividend restrictions.
    
Liquidity of Insurance Subsidiaries
 
We manage the liquidity of our insurance operations to ensure stable, reliable and cost-effective sources of cash flows to meet all of our obligations. Liquidity within each of our insurance subsidiaries is provided by a variety of sources, including portfolios of liquid assets. The investment portfolios of our subsidiaries are integral to the overall liquidity of our insurance operations. We segment our investment portfolios and employ an asset/liability management approach specific to the requirements of each of our product lines. This enhances the discipline applied in managing the liquidity, as well as the interest rate and credit risk profiles, of each portfolio in a manner consistent with the unique characteristics of the product liabilities.

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Liquidity is measured against internally-developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. We consider attributes of the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our insurance operations’ liquidity under various stress scenarios, including company-specific and market-wide events. We continue to believe that cash generated by ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios for each of our insurance subsidiaries.
 
The principal sources of liquidity for our insurance subsidiaries are premiums, investment and fee income, investment maturities, sales of investments, and sales associated with our insurance and annuity operations, as well as internal and external borrowings. The principal uses of that liquidity include benefits, claims and dividends paid to policyholders, and payments to policyholders and contractholders in connection with surrenders, withdrawals and net policy loan activity. Other uses of liquidity may include commissions, general and administrative expenses, purchases of investments, the payment of dividends to the parent holding company, hedging and reinsurance activity and payments in connection with financing activities.
 
The following table sets forth the fair value of certain of our domestic insurance operations’ portfolio of liquid assets, as of the dates indicated.
 
June 30, 2020   June 30, 2021 
Prudential
Insurance
 PLIC PRIAC PALAC Pruco Life Total December 31, 2019 Prudential
Insurance(1)		PLICPRIACPALACPruco LifeTotalDecember 31, 2020
(in billions) (in billions)
Cash and short-term investments$9.9
 $0.5
 $1.3
 $10.2
 $0.8
 $22.7
 $11.9
Cash and short-term investments$6.1 $1.2 $0.6 $2.2 $0.2 $10.3 $9.4 
Fixed maturity investments(1):             
Fixed maturity investments(2):Fixed maturity investments(2):
High or highest quality133.9
 37.9
 20.1
 16.8
 5.8
 214.5
 201.3
High or highest quality130.2 35.1 21.1 15.9 7.0 209.3 222.4 
Other than high or highest quality8.0
 3.0
 1.3
 0.7
 0.4
 13.4
 12.2
Other than high or highest quality9.1 3.8 1.6 1.2 0.4 16.1 15.4 
Subtotal141.9
 40.9
 21.4
 17.5
 6.2
 227.9
 213.5
Subtotal139.3 38.9 22.7 17.1 7.4 225.4 237.8 
Public equity securities, at fair value0.2
 2.0
 0.1
 0.1
 0.0
 2.4
 2.5
Public equity securities, at fair value0.5 2.5 0.3 0.2 0.0 3.5 3.2 
Total$152.0
 $43.4
 $22.8
 $27.8
 $7.0
 $253.0
 $227.9
Total$145.9 $42.6 $23.6 $19.5 $7.6 $239.2 $250.4 
__________ 
(1)Excludes fixed maturities designated as held-to-maturity. Credit quality is based on NAIC or equivalent rating.
(1)Represents legal entity view and as such includes both domestic and international activity.
(2)Excludes fixed maturities designated as held-to-maturity. Credit quality is based on NAIC or equivalent rating.

The following table sets forth the fair value of our international insurance operations’ portfolio of liquid assets, as of the dates indicated. 
June 30, 2020   June 30, 2021 
Prudential
of Japan
 
Gibraltar
Life(1)
 
All
Other(2)
 Total December 31, 2019 Prudential
of Japan		Gibraltar
Life(1)		All
Other(2)		TotalDecember 31, 2020
(in billions) (in billions)
Cash and short-term investments$1.6
 $3.2
 $1.3
 $6.1
 $5.0
Cash and short-term investments$0.9 $3.2 $1.4 $5.5 $6.0 
Fixed maturity investments(3):         Fixed maturity investments(3):
High or highest quality(4)41.6
 93.8
 11.2
 146.6
 157.2
High or highest quality(4)42.2 89.1 9.0 140.3 147.7 
Other than high or highest quality0.6
 2.4
 1.4
 4.4
 5.4
Other than high or highest quality0.7 2.2 2.2 5.1 4.8 
Subtotal42.2
 96.2
 12.6
 151.0
 162.6
Subtotal42.9 91.3 11.2 145.4 152.5 
Public equity securities1.8
 1.6
 0.4
 3.8
 4.7
Public equity securities2.3 2.0 0.1 4.4 3.6 
Total$45.6
 $101.0
 $14.3
 $160.9
 $172.3
Total$46.1 $96.5 $12.7 $155.3 $162.1 
__________ 
(1)Includes PGFL.
(2)Represents our international insurance operations, excluding Japan.
(3)Excludes fixed maturities designated as held-to-maturity. Credit quality is based on NAIC or equivalent rating.
(4)As of June 30, 2020, $110.4 billion, or 75%, were invested in government or government agency bonds.
(1)Includes PGFL.
(2)Represents our international insurance operations, excluding Japan.
(3)Excludes fixed maturities designated as held-to-maturity. Credit quality is based on NAIC or equivalent rating.
(4)As of June 30, 2021, $105.3 billion, or 75%, were invested in government or government agency bonds.
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Liquidity associated with other activities
 
Hedging activities associated with Individual Annuities
 
For the portion of our Individual Annuities’ ALM strategy executed through hedging, as well as the capital hedge program, we enter into a range of exchange-traded, cleared and other OTC equity and interest rate derivatives in order to hedge certain capital market risks related to more severe market conditions. For a full discussion of our Individual Annuities’ risk management strategy, see “—Results of Operations by Segment—U.S. Businesses—U.S. Individual Solutions Division—Individual Annuities.” This portion of our Individual Annuities’ ALM strategy and capital hedge program requires access to liquidity to meet payment obligations relating to these derivatives, such as payments for periodic settlements, purchases, maturities and terminations. These liquidity needs can vary materially due to, among other items, changes in interest rates, equity markets, mortality and policyholder behavior.
 
The hedging portion of our Individual Annuities’ ALM strategy and capital hedge program may also result in derivative related collateral postings to (when we are in a net paypost position) or from (when we are in a net receive position) counterparties. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Depending on market conditions, the collateral posting requirements can result in material liquidity needs when we are in a net paypost position. As of June 30, 2020,2021, the derivatives comprising the hedging portion of our Individual Annuities’ ALM strategy and capital hedge program were in a net receivepost position of $11.9$5.2 billion compared to a net receive position of $4.7$3.4 billion as of December 31, 2019.2020. The change in collateral position was primarily driven by a positivethe impact from decliningof increasing interest rates and equity markets.

Foreign exchange hedging activities
 
We employ various hedging strategies to manage potential exposure to foreign currency exchange rate movements, particularly those associated with the yen. Our overall yen hedging strategy 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. The hedging strategy includes two primary components:

Income Hedges—We hedge a portion of our prospective yen-based earnings streams by entering into external forward currency derivative contracts that effectively fix the currency exchange rates for that portion of earnings, thereby reducing volatility from foreign currency exchange rate movements. As of June 30, 2020,2021, we have hedged 100%, 92% and 50%, of expected yen-based earnings for 2020, 2021, 2022 and 2022,2023, respectively.
Equity Hedges—We hold both internal and external hedges primarily to hedge our USD-equivalent equity. These hedges also mitigate volatility in the solvency margins of yen-based subsidiaries resulting from changes in the market value of their USD-denominated investments hedging our USD-equivalent equity attributable to changes in the yen-USD exchange rate.


For additional information on our hedging strategy, see “—Results of Operations—Impact of Foreign Currency Exchange Rates.”

Cash settlements from these hedging activities result in cash flows between subsidiaries of Prudential Financial and either international-based subsidiaries or external parties. The cash flows are dependent on changes in foreign currency exchange rates and the notional amount of the exposures hedged. For example, a significant yen depreciation over an extended period of time could result in net cash inflows, while a significant yen appreciation could result in net cash outflows. The following tables set forth information about net cash settlements and the net asset or liability resulting from these hedging activities related to the yen and other currencies for the periods indicated.

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Six Months Ended
June 30,		Six Months Ended
June 30,
Cash Settlements: Received (Paid)2020 2019Cash Settlements: Received (Paid)20212020
(in millions)(in millions)
Income Hedges (External)(1)$55
 $32
Income Hedges (External)(1)$14 $55 
Equity Hedges:   Equity Hedges:
Internal(2)120
 233
Internal(2)185 120 
External(3)102
 4
External(3)(18)102 
Total Equity Hedges222
 237
Total Equity Hedges167 222 
Total Cash Settlements$277
 $269
Total Cash Settlements$181 $277 
   
June 30, December 31,
Assets (Liabilities):2020 2019Assets (Liabilities):June 30, 2021December 31, 2020
(in millions)(in millions)
Income Hedges (External)(4)$132
 $60
Income Hedges (External)(4)$22 $3 
Equity Hedges:   Equity Hedges:
Internal(2)814
 506
Internal(2)882 291 
External(5)45
 43
Total Equity Hedges(6)859
 549
ExternalExternal(114)(56)
Total Equity Hedges(5)Total Equity Hedges(5)768 235 
Total Assets (Liabilities)$991
 $609
Total Assets (Liabilities)$790 $238 
__________
(1)Includes non-yen related cash settlements of $46 million, primarily denominated in Brazilian real, Korean won and Australian dollar and $17 million, primarily denominated in Australian dollar, Chilean peso, Korean won and Brazilian real for the six months ended June 30, 2020 and 2019, respectively.
(2)Represents internal transactions between international-based and U.S.-based entities. Amounts noted are from the U.S.-based entities’ perspectives.
(3)Includes non-yen related cash settlements of $33 million and $5 million, denominated in Korean won for the six months ended June 30, 2020 and 2019, respectively.
(4)Includes non-yen related assets of $111 million, primarily denominated in Brazilian real, Korean won and Australian dollar, and assets of $37 million, primarily denominated in Korean won, Australian dollar and Chilean peso, as of June 30, 2020 and December 31, 2019, respectively.
(5)Includes non-yen related assets of $8 million, denominated in Korean won, and assets of $1 million, denominated in Korean won, as of June 30, 2020 and December 31, 2019, respectively.
(6)As of June 30, 2020, approximately $131 million, $391 million, $214 million and $123 million of the net market values are scheduled to settle in 2020, 2021, 2022 and thereafter, respectively. The net market value of the assets (liabilities) will vary with changing market conditions to the extent there are no corresponding offsetting positions.
(1)Includes non-yen related cash settlements of $7 million, primarily denominated in Brazilian real, Chilean peso and Australian dollar and $46 million, primarily denominated in Brazilian real, Korean won and Australian dollar for the six months ended June 30, 2021 and 2020, respectively.
(2)Represents internal transactions between international-based and U.S.-based entities. Amounts noted are from the U.S.-based entities’ perspectives.
(3)Includes non-yen related cash settlements of $33 million, denominated in Korean won for the six months ended June 30, 2020.
(4)Includes non-yen related assets of $3 million, primarily denominated in Brazilian real, Australian dollar and Chilean peso and assets of $2 million, primarily denominated in Brazilian real, Chilean peso and Australian dollar, as of June 30, 2021 and December 31, 2020, respectively.
(5)As of June 30, 2021, approximately $164 million, $195 million, $296 million and $112 million of the net market values are scheduled to settle in 2021, 2022, 2023 and thereafter, respectively. The net market value of the assets (liabilities) will vary with changing market conditions to the extent there are no corresponding offsetting positions.

PGIM operations
 
The principal sources of liquidity for our fee-based PGIM businesses include asset management fees, and commercial mortgage origination and servicing fees.fees, and internal and external funding facilities. The principal uses of liquidity include general and administrative expenses, facilitating our commercial mortgage loan business, and distributions of dividends and returns of capital to Prudential Financial. The primary liquidity risks for our fee-based PGIM businesses relate to their profitability, which is impacted by market conditions, our investment management performance and client redemptions. We believe the cash flows from our fee-based PGIM businesses are adequate to satisfy the current liquidity requirements of these operations, as well as requirements that could arise under reasonably foreseeable stress scenarios, which are monitored through the use of internal measures.
 

The principal sources of liquidity for our strategic investmentsseed and co-investments held in our PGIM businesses are cash flows from investments, the ability to liquidate investments, borrowing lines from internal sources, including Prudential Financial and Prudential Funding, LLC (“Prudential Funding”), a wholly-owned subsidiary of PICA, and external sources, including PGIM’s limited-recourse credit facility. The principal useuses of liquidity for our strategic investments includesseed and co-investments include making investments to support business growth and paying interest expense from the internal and external borrowings used to fund those investments. The primary liquidity risks include the inability to sell assets in a timely manner, declines in the value of assets and credit defaults. There have been no material changes to the liquidity position of our PGIM operations since December 31, 2019.2020.
 
Alternative Sources of Liquidity
 
In addition to asset-based financing as discussed below, Prudential Financial and certain subsidiaries have access to other sources of liquidity, including syndicated, unsecured committed credit facilities, membership in the Federal Home Loan Banks, commercial paper programs, and contingent financing facilities in the form of a put option agreement. In May 2020, we entered into aagreement and facility agreement with a Delaware trust, pursuant to which Prudential Financial may issue and sell to the trust at any time over a ten-year period up to $1.5 billion of senior notes due May 15, 2030 and receive in exchange a corresponding amount of U.S. Treasury securities, thereby augmenting our alternative sources of liquidity.agreement. For more information on these sources of liquidity, see Note 9 to the Unaudited Interim Consolidated Financial Statements contained herein and Note 17 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.2020. In July 2021, we amended and restated our $4 billion five-year credit facility that has Prudential Financial and Prudential Funding as borrowers, extending the term of the facility to July 2026. For more information, see Note 15 to the Unaudited Interim Consolidated Financial Statements contained herein.
 
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Asset-based Financing
 
We conduct asset-based or secured financing within our insurance and other subsidiaries, including transactions such as securities lending, repurchase agreements and mortgage dollar rolls, to earn spread income, to borrow funds, or to facilitate trading activity. These programs are primarily driven by portfolio holdings of securities that are lendable based on counterparty demand for these securities in the marketplace. The collateral received in connection with these programs is primarily used to purchase securities in the short-term spread portfolios of our insurance entities. Investments held in the short-term spread portfolios include cash and cash equivalents, short-term investments (primarily corporate bonds), mortgage loans and fixed maturities (primarily collateralized loan obligations and other structured securities), with a weighted average life at time of purchase by the short-term portfolios of four years or less. Floating rate assets comprise the majority of our short-term spread portfolio. These short-term portfolios are subject to specific investment policy statements, which among other things, do not allow for significant asset/liability interest rate duration mismatch.
 
The following table sets forth our liabilities under asset-based or secured financing programs as of the dates indicated.
 
June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
PFI
Excluding
Closed Block
Division
 
Closed
Block
Division
 Consolidated 
PFI
Excluding
Closed Block
Division
 
Closed
Block
Division
 Consolidated PFI
Excluding
Closed Block
Division		Closed
Block
Division		ConsolidatedPFI
Excluding
Closed Block
Division		Closed
Block
Division		Consolidated
($ in millions) ($ in millions)
Securities sold under agreements to repurchase$7,805
 $2,683
 $10,488
 $6,834
 $2,847
 $9,681
Securities sold under agreements to repurchase$6,757 $2,800 $9,557 $8,092 $2,802 $10,894 
Cash collateral for loaned securities3,056
 391
 3,447
 3,228
 986
 4,214
Cash collateral for loaned securities4,325 106 4,431 3,379 120 3,499 
Securities sold but not yet purchased1
 0
 1
 0
 0
 0
Securities sold but not yet purchased1 0 1 2 0 2 
Total(1)$10,862
 $3,074
 $13,936
 $10,062
 $3,833
 $13,895
Portion of above securities that may be returned to the Company overnight requiring immediate return of the cash collateral(2)$10,303
 $3,074
 $13,377
 $10,062
 $3,833
 $13,895
Weighted average maturity, in days(2)27
 N/A
   N/A
 N/A
  
Total(1)(2)Total(1)(2)$11,083 $2,906 $13,989 $11,473 $2,922 $14,395 
Portion of above securities that may be returned to the Company overnight requiring immediate return of the cash collateralPortion of above securities that may be returned to the Company overnight requiring immediate return of the cash collateral$10,571 $2,906 $13,477 $10,463 $2,922 $13,385 
Weighted average maturity, in days(3)Weighted average maturity, in days(3)28N/A28N/A
__________ 
(1)The daily weighted average outstanding balance for the three and six months ended June 30, 2020 was $11,475 million and $11,139 million, respectively, for PFI excluding the Closed Block division, and $3,823 million and $3,500 million, respectively, for the Closed Block division.
(2)Excludes securities that may be returned to the Company overnight. “N/A” reflects that all outstanding balances may be returned to the Company overnight.
(1)The daily weighted average outstanding balance for the three and six months ended June 30, 2021 was $11,358 million and $11,453 million, respectively, for PFI excluding the Closed Block division, and $3,060 million and $2,998 million, respectively, for the Closed Block division.
(2)Includes utilization of external funding facilities for PGIM’s commercial mortgage origination business.
(3)Excludes securities that may be returned to the Company overnight. “N/A” reflects that all outstanding balances may be returned to the Company overnight.

As of June 30, 2020,2021, our domestic insurance entities had assets eligible for the asset-based or secured financing programs of $128.0$130.2 billion, of which $14.0$14.1 billion were on loan. Taking into account market conditions and outstanding loan balances as of June 30, 2020,2021, we believe approximately $20.0$14.8 billion of the remaining eligible assets are readily lendable, including approximately $13.8$10.1 billion relating to PFI excluding the Closed Block division, of which $3.8$2.6 billion relates to certain separate accounts and may only be used for financing activities related to those accounts, and the remaining $6.2$4.7 billion relating to the Closed Block division.

Financing Activities
 
As of June 30, 2020,2021, total short-term and long-term debt of the Company on a consolidated basis was $21.3$20.6 billion, an increasea decrease of $0.7less than $0.1 billion from December 31, 2019.2020. The following table sets forth total consolidated borrowings of the Company as of the dates indicated. We may, from time to time, seek to redeem or repurchase our outstanding debt securities through open market purchases, individually negotiated transactions or otherwise. Any such actions will depend on prevailing market conditions, our liquidity position, and other factors.
 
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June 30, 2020 December 31, 2019 June 30, 2021December 31, 2020
Borrowings:
Prudential
Financial
 Subsidiaries Consolidated 
Prudential
Financial
 Subsidiaries ConsolidatedBorrowings:Prudential
Financial		SubsidiariesConsolidatedPrudential
Financial		SubsidiariesConsolidated
(in millions) (in millions)
General obligation short-term debt:           General obligation short-term debt:
Commercial paper$25
 $475
 $500
 $25
 $524
 $549
Commercial paper$25 $341 $366 $25 $355 $380 
Current portion of long-term debt528
 0
 528
 1,179
 0
 1,179
Current portion of long-term debt400 0 400 399 0 399 
Subtotal553
 475
 1,028
 1,204
 524
 1,728
Subtotal425 341 766 424 355 779 
General obligation long-term debt:           General obligation long-term debt:
Senior debt11,402
 173
 11,575
 9,912
 172
 10,084
Senior debt11,011 173 11,184 11,007 173 11,179 
Junior subordinated debt7,522
 58
 7,580
 7,518
 57
 7,575
Junior subordinated debt7,559 56 7,615 7,554 60 7,615 
Surplus notes(1)0
 343
 343
 0
 342
 342
Surplus notes(1)0 343 343 0 343 343 
Subtotal18,924
 574
 19,498
 17,430
 571
 18,001
Subtotal18,570 572 19,142 18,561 576 19,137 
Total general obligations19,477
 1,049
 20,526
 18,634
 1,095
 19,729
Total general obligations18,995 913 19,908 18,985 931 19,916 
Limited and non-recourse borrowings(2):           Limited and non-recourse borrowings(2):
Short-term debt0
 7
 7
 0
 13
 13
Short-term debt0 9 9 0 18 18 
Current portion of long-term debt0
 95
 95
 0
 192
 192
Current portion of long-term debt0 134 134 0 128 128 
Long-term debt0
 664
 664
 0
 645
 645
Long-term debt0 528 528 0 581 581 
Total limited and non-recourse borrowings0
 766
 766
 0
 850
 850
Total limited and non-recourse borrowings0 671 671 0 727 727 
Total borrowings$19,477
 $1,815
 $21,292
 $18,634
 $1,945
 $20,579
Total borrowings$18,995 $1,584 $20,579 $18,985 $1,658 $20,643 
__________ 
(1)Amounts are net of assets under set-off arrangements of $11,464 million and $9,749 million as of June 30, 2020 and December 31, 2019, respectively.
(2)Limited and non-recourse borrowing primarily represents mortgage debt of our subsidiaries that has recourse only to real estate investment property of $459 million and $537 million as of June 30, 2020 and December 31, 2019, respectively, and a $300 million draw on a credit facility that has recourse only to collateral pledged by the Company as of both June 30, 2020 and December 31, 2019.
(1)Amounts are net of assets under set-off arrangements of $10,364 million and $10,964 million as of June 30, 2021 and December 31, 2020, respectively.
(2)Limited and non-recourse borrowing primarily represents mortgage debt of our subsidiaries that has recourse only to real estate investment property of $361 million and $409 million as of June 30, 2021 and December 31, 2020, respectively, and a $300 million draw on a credit facility that has recourse only to collateral pledged by the Company as of both June 30, 2021 and December 31, 2020.

As of June 30, 2020,2021, and December 31, 2019,2020, we were in compliance with all debt covenants related to the borrowings in the table above. For additional information on our short- and long-term debt obligations, see Note 9 to the Unaudited Interim Consolidated Financial Statements contained herein and Note 17 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.2020.

Prudential Financial’s consolidated borrowings increased $0.8 billion from December 31, 2019, driven by the issuance, net of related costs, of $1.5 billion of senior debt, offset by $651 million in debt maturities. Borrowings of our subsidiaries decreased $130$64 million from December 31, 2019,2020, primarily driven by $97a $74 million decrease in subsidiary borrowings. This decrease is primarily due to $57 million in debt maturities and a $49$14 million decrease in commercial paper, and a $6 million decrease in short-term borrowings, offset by a $19 million increase in long-term limited recourse borrowings.paper.

Term and Universal Life Reserve Financing

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

We have entered into agreements with external counterparties providing for the issuance of surplus notes by our captive reinsurers in return for the receipt of credit-linked notes (“Credit-Linked Note Structures”). As of June 30, 2020,2021, we had Credit-Linked Note Structures with an aggregate issuance capacity of $14,825$14,700 million, of which $12,849$12,494 million was outstanding, as compared to an aggregate issuance capacity of $13,700$14,825 million, of which $12,009$12,919 million was outstanding, as of December 31, 2019. These amounts reflect a $1,200 million Credit Link Note Structure entered into in June 2020 for Guideline AXXX reserves, of which $700 million was outstanding as of June 30, 2020, as reflected in the table below.2020. Under the agreements, the captive receives in exchange for the surplus notes one or more credit-linked notes issued by a special-purpose affiliate of the Company with an aggregate principal amount equal to the surplus notes outstanding. The captive holds the credit-linked notes as assets supporting Regulation XXX or Guideline AXXX non-economic reserves, as applicable. For more information on our Credit-Linked Note Structures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities” in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
 
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The following table summarizes our Credit-Linked Note Structures, which are reported on a net basis, as of June 30, 2020.2021.

Surplus Notes 
Outstanding
as of
June 30, 2020
  Surplus NotesOutstanding
as of
June 30, 2021
Credit-Linked Note Structures:
Original
Issue Dates
 
Maturity
Dates
 
Facility
Size
Credit-Linked Note Structures:Original
Issue Dates		Maturity
Dates		Facility
Size
($ in millions)($ in millions)
XXX2011-2014 2021-2024 $1,750
(1) $1,750
XXX2011-20212021-2036$1,600 (1)$1,750 
AXXX2013 2033 3,248
 3,500
AXXX201320333,248 3,500 
XXX2014-2018 2021-2034 2,285
(2) 2,375
XXX2014-20182021-20342,230 (2)2,250 
XXX2014-2017 2024-2037 2,330
 2,400
XXX2014-20172024-20372,330 2,400 
AXXX2017 2037 1,466
 2,000
AXXX201720371,466 2,000 
XXX2018 2038 1,070
 1,600
XXX20182038920 1,600 
AXXX2020 2032 700
 1,200
AXXX20202032700 1,200 
Total Credit-Linked Note Structures $12,849
 $14,825
Total Credit-Linked Note Structures$12,494 $14,700 
__________
(1)Prudential Financial has agreed to reimburse amounts paid under the credit-linked notes issued in this structure up to $0.5 billion. During the fourth quarter of 2019, this financing facility was restructured to allow for an extension through 2036.
(2)The $2.3 billion of surplus notes represents an intercompany transaction that eliminates upon consolidation. Prudential Financial has agreed to reimburse amounts paid under credit-linked notes issued in this structure up to $1.0 billion.
(1)Prudential Financial has agreed to reimburse amounts paid under the credit-linked notes issued in this structure up to $500 million.
(2)The $2,230 million of surplus notes represents an intercompany transaction that eliminates upon consolidation. Prudential Financial has agreed to reimburse amounts paid under credit-linked notes issued in this structure up to $1,000 million.
As of June 30, 2020,2021, we also had outstanding an aggregate of $2.3 billion$2,775 million of debt issued for the purpose of financing Regulation XXX and Guideline AXXX non-economic reserves, of which approximately $0.7 billion$1,175 million relates to Regulation XXX reserves and approximately $1.6 billion$1,600 million relates to Guideline AXXX reserves. In addition, as of June 30, 2020,2021, for purposes of financing Guideline AXXX reserves, one of our captives had approximately $4.0 billion$3,982 million of surplus notes outstanding that were issued to affiliates.
The Company has introduced updated versions of its individual life products in conjunction with the requirement to adopt principle-based reserving by January 1, 2020. These updated products are currently priced to support the principle-based statutory reserve level without the need for reserve financing. Certain elements of the implementation of principle-based reserving are yet to be finalized by the NAIC and may have a material impact on statutory reserves. The Company continues to assess the impact of the implementation of principle-based reserving on projected statutory reserve levels, product pricing and the use of financing.

Ratings

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Ratings” in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, for a discussion of our financial strength and credit ratings and their impact on our business.

ThereOn July 21, 2021, Prudential announced an agreement to sell Retirement’s Full Service business to Great-West Life & Annuity Insurance Company, which would include the sale of all of the outstanding capital stock of PRIAC. As a result of this announcement, Fitch and AM Best changed the ratings outlook of PRIAC to Credit Watch Positive from Stable, and S&P changed the ratings outlook of PRIAC to Credit Watch Negative from Stable.

With the exception of PRIAC, there have been no significant changes or actions in ratings or ratings outlooks for our Company that have occurred since the filing of our Form 10-K for the year ended December 31, 2019 through the date of this filing. In 2020, Moody’s, Fitch, and AM Best revised their Outlook on the U.S. life insurance industry from Stable to Negative.2020.
    

Off-Balance Sheet Arrangements
 
Guarantees, Other Contingencies and Other Contingent Commitments
 
In the course of our business, we provide certain guarantees and indemnities to third-parties pursuant to which we may be contingently required to make payments in the future. We also have other commitments, some of which are contingent upon events or circumstances not under our control, including those at the discretion of our counterparties. See “—Commitments and Guarantees” within Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information. For further discussion of certain of these commitments, that relate to our separate accounts, also see “—Liquidity—Liquidity associated with other activities—PGIM operations.”
 
Other Off-Balance Sheet Arrangements
 
In May 2020, Prudential Financialwe entered into a ten-year facility agreement with a Delaware trust that gives Prudential Financial the right, at any time over a ten-year period, to issue up to $1.5 billion of senior notes to the trust in return for principal and interest strips of U.S. Treasury securities that are held by the trust.
 
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In November 2013, we entered into a put option agreement with a Delaware trust that gives Prudential Financial the right, at any time over a ten-year period, to issue up to $1.5 billion of senior notes to the trust in return for principal and interest strips of U.S. Treasury securities that are held by the trust.

In 2014, Prudential Financial entered into financing transactions, pursuant to which it issued $500 million of limited-recourse notes and, in return, obtained $500 million of asset-backed notes from a Delaware master trust and ultimately contributed the asset-backed notes to its subsidiary, PRIAC. As of June 30, 2020,2021, no principal payments have been received or are currently due on the asset-backed notes and, as a result, there was no payment obligation under the limited-recourse notes. Accordingly, none of the notes are reflected in the Company’s Unaudited Interim Consolidated Financial Statements as of that date.
 
Other than as described above, we do not have retained or contingent interests in assets transferred to unconsolidated entities, or variable interests in unconsolidated entities or other similar transactions, arrangements or relationships that serve as credit, liquidity or market risk support, that we believe are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or our access to or requirements for capital resources. In addition, other than the agreements referred to above, we do not have relationships with any unconsolidated entities that are contractually limited to narrow activities that facilitate our transfer of or access to associated assets.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, our products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and our strategies for managing this risk, vary by product. As of June 30, 2020,2021, there have been no material changes in our economic exposure to market risk from December 31, 2019,2020, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, 2019,2020, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission. See “Risk Factors” in this Quarterly Report on Form 10-Q and Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2019,2020, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.

ITEM 4. CONTROLS AND PROCEDURES

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of June 30, 2020.2021. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2020,2021, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), occurred during the quarter ended June 30, 2020,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 14 to the Unaudited Interim Consolidated Financial Statements under “—Litigation and Regulatory Matters” for a description of certain pending litigation and regulatory matters affecting us, and certain risks to our businesses presented by such matters, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. These risks could materially affect our business, results of operations or financial condition, cause the trading price of our Common Stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q. The following should be read in conjunction with and supplements and amends the section titled “Risk Factors” in our Annual Report on Form 10-K.

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

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

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

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

Investment Risk. The COVID-19 pandemic and its impact on the global economy has increased the risk of loss on our investments due to default or deterioration in credit quality or value as described further under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—General Account Investments—COVID-19.”

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

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

As a result of COVID-19 we also expect to experience elevated short-term disability claims in our Group Insurance business and may experience elevated claims in our Long-Term Care business.

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


Market Risk. Continued market disruptions and volatility may further negatively impact the profitability of many of our insurance and annuity products, which depends in part on the value of the separate accounts supporting these products which can fluctuate substantially depending on market conditions. Market volatility and reduced liquidity may reduce our ability to implement asset-liability management and hedging strategies. In addition, market conditions may further reduce the value of assets that we manage in our investment management business, which depends on fees related primarily to the value of assets under management. The decline in interest rates, in particular, may result in lower investment income, higher reserve levels and other consequences as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of a Low Interest Rate Environment.” Finally, low interest rates and poor equity market returns will likely result in increased pension and other postretirement benefit plan expenses and reduce our profitability.

Liquidity Risk. During the first half of 2020, the Company took significant actions to support liquidity as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Nevertheless, the impact of the COVID-19 crisis and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings. Furthermore, certain sources of liquidity might not be available during times of stress, or may only be available on unfavorable terms, which can result in a decrease in our profitability and a significant reduction in our financial flexibility.

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

Operational Risk. One of the main impacts of the COVID-19 crisis has been executing our business continuity protocols to ensure our employees are safe and able to serve our customers. This included transitioning the vast majority of our employees to remote work arrangements. We have also made a number of operational changes to accommodate our customers as further described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—COVID-19.”

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

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

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.

Finally, we expect that account values in our Full Service business will be impacted 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 retirement accounts up to $100,000 penalty-free, with the withdrawal taxed over a three-year period (unless otherwise elected by the individual). We cannot predict what other actions governments will take in response to the COVID-19 pandemic, and how any new laws, regulations, or state-sponsored programs may impact our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) The following table provides information about purchases by the Company during the three months ended June 30, 2020,2021, of its Common Stock:

Period 
Total Number
of Shares
Purchased(1)
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of
Publicly Announced
Program(2)
 Approximate Dollar Value of Shares that May Yet Be Purchased under the Program(2)
April 1, 2020 through April 30, 2020 10,713
 $55.93
 0
  
May 1, 2020 through May 31, 2020 8,092
 $52.93
 0
  
June 1, 2020 through June 30, 2020 3,734
 $64.54
 0
  
Total 22,539
 $56.28
 0
 $1,500,000,000
PeriodTotal Number
of Shares
Purchased(1)		Average
Price Paid
per Share		Total Number of
Shares Purchased
as Part of
Publicly Announced
Program(2)		Approximate Dollar Value of Shares that May Yet Be Purchased under the Program(2)
April 1, 2021 through April 30, 20211,302,862 $96.60 1,294,133 
May 1, 2021 through May 31, 20215,904,284 $105.74 5,900,417 
June 1, 2021 through June 30, 20211,218,028 $104.02 1,211,345 
Total8,425,174 $104.08 8,405,895 $1,250,000,000 
__________
(1)Includes shares of Common Stock withheld from participants for income tax withholding purposes whose shares of restricted stock units vested during the period. Such restricted stock units were originally issued to participants pursuant to the Prudential Financial Inc. Omnibus Incentive Plan.
(2)In December 2019, Prudential Financial’s Board of Directors 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, 2020 through December 31, 2020. The Company temporarily suspended Common Stock repurchases under its existing repurchase authorization beginning April 1, 2020; however, the Company continues to evaluate the resumption of share repurchases under the existing Board authorization.

(1)Includes shares of Common Stock withheld from participants for income tax withholding purposes whose shares of restricted stock units vested during the period. Such restricted stock units were originally issued to participants pursuant to the Prudential Financial, Inc. Omnibus Incentive Plan.
(2)In February 2021, Prudential Financial’s Board of Directors authorized the Company to repurchase, at management’s discretion, up to $1.5 billion of its outstanding Common Stock during the period from January 1, 2021 through December 31, 2021. In May 2021, the Board authorized a $500 million increase to this authorization, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.0 billion. In July 2021, the Board further increased this authorization by an additional $500 million, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.5 billion.
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ITEM 6. EXHIBITS

EXHIBIT INDEX
Amendment No. 2 to the10.2

101.INS - XBRLInstance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH - XBRLTaxonomy Extension Schema Document.
101.CAL - XBRLTaxonomy Extension Calculation Linkbase Document.
101.LAB - XBRLTaxonomy Extension Label Linkbase Document.
101.PRE - XBRLTaxonomy Extension Presentation Linkbase Document.
101.DEF - XBRLTaxonomy Extension Definition Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
__________
* Certain confidential information contained in thisThis exhibit marked by [***], has been omitted because it (i) is not material and (ii) would likely cause competitive harm to the Company if it were to be publicly disclosed.a management contract or compensatory plan or arrangement.

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Prudential Financial, Inc. will furnish upon request a copy
Table of any exhibit listed above upon the payment of a reasonable fee covering the expense of furnishing the copy. Requests should be directed to:Contents

Shareholder Services
Prudential Financial, Inc.
751 Broad Street, 21st Floor
Newark, New Jersey 07102

GLOSSARY

Throughout this Quarterly Report on Form 10-Q, the Company may use certain abbreviations, acronyms and terms which are defined below.
Prudential Entities
Prudential Entities
Assurance IQAssurance IQ, LLCPOKPOTPrudential Life Insurance Company of Taiwan Inc.
CompanyPrudential Financial, Inc. and its subsidiariesPRIACPrudential Retirement Insurance and Annuity Company
PALACPrudential Annuities Life Assurance CorporationPruco LifePruco Life Insurance Company
PFIPrudential Financial, Inc. and its subsidiariesPrudentialPrudential Financial, Inc. and its subsidiaries
PGFLPrudential Gibraltar Financial Life Insurance Co., Ltd.Prudential FinancialPrudential Financial, Inc.
PIIHPrudential International Insurance Holdings, Ltd.Prudential FundingPrudential Funding, LLC
PLICPrudential Legacy Insurance Company of New JerseyPrudential Insurance/PICAThe Prudential Insurance Company of America
PLNJPruco Life Insurance Company of New JerseyPrudential of JapanThe Prudential Life Insurance Company, Ltd.
POAPrudential of ArgentinaRegistrantPrudential Financial, Inc.
POKThe Prudential Life Insurance Company of Korea, Ltd.
CompanyPrudential Financial, Inc. and its subsidiariesPRIACPrudential Retirement Insurance and Annuity Company
PALACPrudential Annuities Life Assurance CorporationPruco LifePruco Life Insurance Company
PFIPrudential Financial, Inc. and its subsidiariesPrudentialPrudential Financial, Inc. and its subsidiaries
PGFLPrudential Gibraltar Financial Life Insurance Co., Ltd.Prudential FinancialPrudential Financial, Inc.
PIIHPrudential International Insurance Holdings, Ltd.Prudential FundingPrudential Funding, LLC
PLICPrudential Legacy Insurance Company of New JerseyPrudential Insurance/PICAThe Prudential Insurance Company of America
PLNJPruco Life Insurance Company of New JerseyPrudential of JapanThe Prudential Life Insurance Company, Ltd.
POAPrudential of ArgentinaRegistrantPrudential Financial, Inc.



Defined Terms
Defined Terms
Board
BoardPrudential Financial's Board of DirectorsOther Postretirement BenefitsCertain health care and life insurance benefits provided by the Company for its retired employees, their beneficiaries and covered dependents
Closed BlockCertain in-force participating insurance policies and annuity products, along with corresponding assets used for the payment of benefits and policyholders' dividends on these productsPension BenefitsFunded and non-funded non-contributory defined benefit pension plans which cover substantially all of the Company’s employees
Exchange ActThe Securities Exchange Act of 1934PGIMThe global investment management businesses of Prudential Financial, Inc.
FitchFitch Ratings Inc.Regulation XXXValuation of Life Insurance Policies Model Regulation
Guideline AXXXThe Application of the Valuation of Life Insurance Policies Model RegulationS&PStandard & Poor's Rating Services
Moody'sMoody's Investors Service, Inc.U.S. GAAPGenerally accepted accounting principles in the United States of America
MorningstarMorningstar, Inc.Variable ProfitsAssurance IQ’s achievement of certain targets for gross revenues net of associated selling expenses


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Acronyms
AcronymsACLAllowance for Credit LossesMRBMarket Risk Benefits
ALM
ALMAsset Liability ManagementNAICNational Association of Insurance Commissioners
AOCIAccumulated Other Comprehensive Income (Loss)NAVNet Asset Value
ASCAccounting Standards CodificationNJDOBINew Jersey Department of Banking and Insurance
ASUAccounting Standards UpdateNOLsNet Operating Losses
AUDAustralian DollarNPRNon-Performance Risk
bpsBasis PointsOCIOther Comprehensive Income (Loss)
CARES ActCoronavirus Aid, Relief, and Economic Security ActODLOverall Domestic Losses
CECLCurrent Expected Credit LossOTCOver-The-Counter
CLOCollateralized Loan ObligationsOTTIOther-Than-Temporary Impairments
COVID-192019 Novel CoronavirusPDIPrudential Defined Income
DACDeferred Policy Acquisition CostsRAFRisk Appetite Framework
DSIDeferred Sales InducementsRBCRisk-Based Capital
EBITDAEarnings Before Interest, Taxes, Depreciation and AmortizationSECSecurities and Exchange Commission
FASBFinancial Accounting Standards BoardSVOSecurities Valuation Office
FHLBNYFederal Home Loan Bank of New YorkTBATo Be Announced
FSAFinancial Services Agency (an agency of the Japanese government)TCJATax Cuts and Jobs Act
GICsGuaranteed Investment ContractsTDRTroubled Debt Restructuring
GILTIGlobal Intangible Low-Taxed IncomeURRUnearned Revenue Reserve
GMDBGuaranteed Minimum Death BenefitsU.S.The United States of America
HDIHighest Daily Lifetime IncomeUSDU.S. Dollar
LIBORLondon Inter-Bank Offered RateVIEsVariable Interest Entities
LPs/LLCsLimited Partnerships and Limited Liability CompaniesVOBAValue of Business Acquired
AOCIMD&AAccumulated Other Comprehensive Income (Loss)MD&AManagement's Discussion and Analysis of Financial Condition and Results of Operations
ASUAccounting Standards UpdateNAICNational Association of Insurance Commissioners
AUDAustralian DollarNAVNet Asset Value
bpsBasis PointsNJDOBINew Jersey Department of Banking and Insurance
CARES ActCoronavirus Aid, Relief, and Economic Security ActNOLsNet Operating Losses
CECLCurrent Expected Credit LossNPRNon-Performance Risk
CLOCollateralized Loan ObligationsOCIOther Comprehensive Income (Loss)
COVID-192019 Novel CoronavirusODLOverall Domestic Losses
DACDeferred Policy Acquisition CostsOTCOver-The-Counter
DSIDeferred Sales InducementsOTTIOther-Than-Temporary Impairments
EBITDAEarnings Before Interest, Taxes, Depreciation and AmortizationPDIPrudential Defined Income
FASBFinancial Accounting Standards BoardRAFRisk Appetite Framework
FHLBNYFederal Home Loan Bank of New YorkRBCRisk-Based Capital
FSAFinancial Services Agency (an agency of the Japanese government)SECSecurities and Exchange Commission
GICsGuaranteed Investment ContractsSVOSecurities Valuation Office
GILTIGlobal Intangible Low-Taxed IncomeTBATo Be Announced
GMDBGuaranteed Minimum Death BenefitsTCJATax Cuts and Jobs Act
GSEGovernment Sponsored EntitiesU.S.The United States of America
HDIHighest Daily Lifetime IncomeUSDU.S. Dollar
LIBORLondon Inter-Bank Offered RateVIEsVariable Interest Entities
IRAIndividual Retirement AccountVOBAValue of Business Acquired



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SIGNATURES

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

Prudential Financial, Inc.
By:
/S/    KENNETH Y. TANJI        
Kenneth Y. Tanji

Executive Vice President and Chief Financial Officer

(Authorized signatory and principal financial officer)

Date: August 6, 2020

5, 2021
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