# PRUDENTIAL FINANCIAL INC (PRU) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from PRUDENTIAL FINANCIAL INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1137774/000113777422000038/pru-20211231.htm
Accession: 0001137774-22-000038
Filing date: 2022-02-17
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/PRU/
All MD&A years: /company/PRU/mda/
Next year: /company/PRU/mda/fy2022/ (FY 2022)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS

[[GREPCENT_TABLE]]
[["","Page"],["Overview","56"],["COVID-19","56"],["Outlook","58"],["Industry Trends","59"],["Impact of a Low Interest Rate Environment","60"],["Results of Operations","63"],["Consolidated Results of Operations","63"],["Segment Results of Operations","63"],["Segment Measures","65"],["Impact of Foreign Currency Exchange Rates","66"],["Accounting Policies & Pronouncements","68"],["Application of Critical Accounting Estimates","68"],["Adoption of New Accounting Pronouncements","80"],["Results of Operations by Segment","80"],["PGIM","80"],["U.S. Businesses","84"],["Retirement","85"],["Group Insurance","86"],["Individual Annuities","88"],["Individual Life","94"],["Assurance IQ","95"],["International Businesses","96"],["Corporate and Other","100"],["Divested and Run-off Businesses","101"],["Closed Block Division","101"],["Income Taxes","102"],["Experience-Rated Contractholder Liabilities, Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments","103"],["Valuation of Assets and Liabilities","105"],["General Account Investments","107"],["Liquidity and Capital Resources","130"],["Ratings","145"],["Risk Management","147"]]
[[/GREPCENT_TABLE]]

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Certain of the statements included in this section constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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. Prudential Financial, Inc.’s actual results may differ, possibly materially, from expectations or estimates reflected in such forward-looking statements. Certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements can be found in the “Risk Factors” and “Forward-Looking Statements” sections included herein.

Pursuant to the FAST Act Modernization and Simplification of Regulation S-K, discussions related to the results of operations for the year ended December 31, 2020 in comparison to the year ended December 31, 2019 have been omitted. For such omitted discussions, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

Our principal operations consist of PGIM (our global investment management business), our U.S. Businesses (consisting of our Retirement, Group Insurance, Individual Annuities, Individual Life and Assurance IQ businesses), our International Businesses, the Closed Block division, and our Corporate and Other operations. The Closed Block division is accounted for as a divested business that is reported separately from the Divested and Run-off Businesses that are included in Corporate and Other. Divested and Run-off Businesses are composed of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind-down status that do not qualify for “discontinued operations” accounting treatment under generally accepted accounting principles in the United States of America (“U.S. GAAP”). Our Corporate and Other operations include corporate items and initiatives that are not allocated to business segments as well as the Divested and Run-off Businesses described above. See “Business—” for a description of our sources of revenue and details on how our profitability is impacted. In addition, our profitability is impacted by our ability to effectively deploy capital, utilize our tax capacity and manage expenses.

In October 2021, as part of the Company’s multi-year business transformation initiative, we announced the creation of Retirement Strategies, a new U.S. business that will serve the retirement needs of both individual and institutional customers. This business will bring the financial solutions and capabilities of our Individual Annuities business together with the institutional investment and pension solutions offered through our Retirement business. During the fourth quarter of 2021, the new leadership team was assembled and began making decisions regarding the business’s operating structure. When this new structure is finalized and operational, the presentation of our segment results may be modified to conform to this new structure.

Management expects that results in 2022 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 become more competitive, we are working to enhance the experience of our customers and the capabilities of our businesses, which we expect will improve margins. In 2019, we launched programs in pursuit of these objectives that have resulted and will continue to result in multi-year investments in technology, systems and employee reskilling, as well as severance and related charges. In 2021, we incurred approximately $250 million of costs in connection with these programs. We expect these programs will generate significant expense efficiencies over several years. For the year ended December 31, 2021, the Company estimates that these programs generated cost savings of approximately $540 million and, as of December 31, 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

Since the first quarter of 2020, the novel coronavirus (“COVID-19”) has caused extreme stress and disruption in the global economy and financial markets, and elevated mortality and morbidity for the global population. The COVID-19

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pandemic continued to impact our results of operations in the current period and is expected to impact our results of operations in future periods.

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

The Company has taken several measures to manage the impacts of this pandemic. The actual and expected impacts of these measures and other items are set forth below:

•Underwriting Results. In 2021, we estimate that COVID-19 had a significant net negative 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 first quarter of 2022, the Company expects underwriting results to be adversely impacted by approximately $160 million in our U.S. Businesses, predominantly in our Group Insurance business, and approximately $20 million in our International Businesses; however, the ultimate impact on our underwriting results will depend on various factors including: an insured’s age; geographic concentration; insured versus uninsured populations among the fatalities; the transmissibility and virulence of the virus, including the potential for further mutation; and the ongoing acceptance and efficacy of the vaccines and other therapeutics.

•Investment Portfolio. The economy continues to recover and remains on a path to re-opening. Credit migration and defaults were low in 2021 and are expected to remain limited in 2022. The sectors most impacted from COVID-19 have started to recover but could be influenced by periods of volatility due to the possibility of additional variants emerging. In certain instances, the Company may agree to modify an investment to provide forbearance, which grants borrowers additional time to make payments. 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. As of December 31, 2021, approximately 1.5% of total invested assets, including those held for sale, were currently subject to a modification to allow for limited forbearance.

•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 in 2020 and 2021.

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

In addition to the considerations disclosed above, other COVID-19 related impacts are discussed in the following sections of this document:

•Business Outlooks. See “—Outlook” for a discussion of specific outlook considerations for each of our businesses, including impacts related to COVID-19.

•Results of Operations by Segment. See “—Results of Operations by Segment” for a discussion of COVID-19 impacts on segment results, where applicable.

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

•Risk Management. See “—Risk Management—COVID-19” for a discussion of our risk management framework and its incorporation of pandemic stress scenarios.

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

•CARES Act and Other Regulatory Developments. See “Business—Regulation—Regulatory Response to the COVID-19 Pandemic” for additional information.

Outlook

We feel confident about our prospects for the future based on the foundation of our integrated and complementary businesses. We plan to continue our transformation by further executing on our cost savings plan and taking additional steps to increase our growth potential and reduce our market sensitivity. Our plan remains to reallocate capital across the businesses with the intention of doubling the earnings contribution from our higher-growth businesses and reducing the earnings contribution from our Individual Annuities business.

Specific outlook considerations for each of our businesses include the following:

•PGIM. Our global investment management business, PGIM, is focused on maintaining strong investment performance while leveraging the scale of its approximately $1.524 trillion of assets under management and diversified global operations. We are broadening our distribution channels and asset management capabilities through acquisitions and organic initiatives to better serve our clients and support growth. In addition to serving third-party clients, we provide our U.S. and International businesses with a competitive advantage through our investment expertise across a broad array of asset classes, including public and private asset class capabilities. Underpinning our growth strategy is our ability to continue to deliver robust investment performance and to attract and retain high-caliber investment talent.

There remain risks to earnings across the asset management industry as adverse changes in market conditions (e.g., market declines, higher rates or credit spread widening) could lead to lower fee-based revenues, incentive fees taking longer to be realized and losses in our seed and co-investments. An economic downturn could also have impacts on real estate prices as well as transaction volumes in certain private asset classes. We believe PGIM’s uniquely diversified global platform is well positioned to be resilient in the face of market and industry headwinds.

•Retirement. Consistent with the Company’s strategy of becoming higher growth and less market sensitive, in the third quarter of 2021 we entered into a definitive agreement to sell our Full Service Retirement business. See Note 1 to the Consolidated Financial Statements for additional information. Our remaining Institutional Investment Products business continues to be focused on providing products that respond to the needs of plan sponsors, retirees, and annuitants to manage risk and control their benefit costs while ensuring we maintain appropriate pricing and return expectations under changing market conditions. In our pension risk transfer business, we expect our differentiated capabilities and demonstrated execution to drive our business momentum in the face of increasing competition while we maintain appropriate pricing and return expectations under changing market conditions; however, we expect that growth will not be linear given the episodic nature of these transactions. As many of the products in our Institutional Investment Products business assume longevity risk, elevated levels of mortality resulting from COVID-19 may continue to contribute to a higher level of underwriting gains.

•Group Insurance. We continue to focus on expanding our Premier and Association market segments and affinity relations, while maintaining a leadership position in the National segment. We anticipate that COVID-19 will continue to contribute in the near-term to elevated levels of mortality resulting in increased life insurance claims. In addition, we are continuing to monitor the potential impact of the pandemic on our disability business, overall sales volumes, and the utilization of workplace benefits.

•Individual Annuities. We remain focused on helping customers meet their investment and retirement needs. Consistent with our strategy of becoming a higher growth and less market sensitive business, in the third quarter of 2021 we entered into an agreement to sell approximately 18% of our in-force traditional variable annuity block of business. See Note 1 to the Consolidated Financial Statements for more information. Additionally, we continue to execute on our strategy to pivot to less interest rate-sensitive products to ensure we realize appropriate returns within the current economic environment. We expect to continue to shift our focus to products that provide protected outcomes for our customers through simpler, technology-enabled channels and which deliver shareholder value across a wide range of economic environments. We also expect account values, fee income, and spread income to continue to be impacted by market conditions.

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•Individual Life. We continue to focus on making life insurance solutions more available for financial professionals to distribute and for consumers to purchase, including the growth of accumulation and simplified protection products. We have taken pricing and product actions to ensure we realize appropriate returns for the current economic environment and to diversify our product mix to further limit our sensitivity to interest rates. We expect COVID-19 to continue to contribute in the near-term to elevated levels of mortality, resulting in increased life insurance claims.

•Assurance IQ. We remain focused on expanding our addressable market and increasing access to more retail customers through our agent and digital channels. We continue to expand carriers and product offerings on our platform in an effort to meet our customers’ evolving needs. We expect that Assurance IQ will contribute to the growth of our U.S. Businesses over time.

•International Businesses. We remain focused on meeting customers’ protection and financial needs as well as maintaining the underlying strength of our distribution channels. Our strategy is to maintain and strengthen our position in Japan while expanding our footprint in select high-growth emerging markets. We continue to invest in our existing businesses and regularly assess acquisition opportunities to build scale, complement our businesses, and support our long-term growth aspirations, recently expanding in Africa by acquiring a 24% interest in ICEA LION in Kenya. We also regularly evaluate strategic options for our businesses as part of ensuring their alignment with our broader business goals and strategic vision, and in 2021 we sold our life insurance operation in Taiwan. For additional information on our strategic acquisitions and dispositions, see “—Results of Operations by Segment—International Insurance Division—International Insurance” below.

We saw an elevated level of claims due to COVID-19 in 2021, with the most material impacts in Brazil and Japan; however, expenses to support our captive agents due to COVID-19 impacts have decreased significantly compared to 2020. In connection with COVID-19, we experienced a moderation in claims at the end of 2021 that we believe resulted from the global increase in vaccination rates; however, COVID-19 might impact future claims, sales and costs depending on the development of the pandemic in the geographic markets in which we operate. We believe our needs-based selling and death protection focus are even more valuable to consumers based on the global experience of COVID-19 and will help support the continued long-term growth of our businesses.

Industry Trends

Our U.S. and International Businesses are impacted by financial markets, economic conditions, regulatory oversight, and a variety of trends that affect the industries in which we compete.

Financial and Economic Environment:

•U.S. Businesses. As discussed further under “—Impact of a Low Interest Rate Environment” below, interest rates in the U.S. have experienced a sustained period of historically low levels, which continue to negatively impact our investment-related activity, including our investment income returns, net investment spread results, and portfolio income and reinvestment yields. In addition, we are subject to financial impacts associated with movements in equity markets and the evolution of the credit cycle as discussed in “—Segment Results of Operations” where applicable and more broadly in “Risk Factors”.

•International Businesses. Our International Businesses’ operations, especially in Japan, have operated in a low interest rate environment for many years, as discussed under “—Impact of a Low Interest Rate Environment” below, and these low interest rates negatively impact our net investment spread results and reinvestment yields. The current reinvestment yields for certain blocks of business are generally lower than the current portfolio yields supporting these blocks of business. In addition, we are subject to financial impacts associated with movements in foreign currency rates, particularly the Japanese yen. Fluctuations in the value of the yen can impact the relative attractiveness to customers of both yen-denominated and non-yen denominated products. In addition, we are subject to financial impacts associated with movements in equity markets and the evolution of the credit cycle as discussed in “—Segment Results of Operations” where applicable and more broadly in “Risk Factors”.

Demographics:

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

•International Businesses. Japan has an aging population as well as a large pool of household assets invested in low-yielding deposit and savings vehicles. The aging of Japan’s population, along with strains on government pension and healthcare programs, have led to a growing demand for products that provide financial solutions for retirement and wealth transfer, as well as for health-related products.

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

Competitive Environment. See “Business—” for a discussion of the competitive environment and the basis on which we compete in each of our segments.

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—Market Risk”.

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. 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. Businesses and our Corporate and Other operations, we estimate annual principal payments and prepayments that we would be required to reinvest to be approximately 6.6% of the fixed maturity security and commercial mortgage loan portfolios through 2023. The portion of the general account attributable to these operations has approximately $238 billion of such assets (based on net carrying value and including assets classified as “held-for-sale”) as of December 31, 2021. The average portfolio yield for fixed maturity securities and commercial mortgage loans is approximately 3.7%, as of December 31, 2021.

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Included in the $238 billion of fixed maturity securities and commercial mortgage loans are approximately $181 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 $181 billion, approximately 51% contain provisions for prepayment premiums. If we reinvest scheduled payments or prepayments (not subject to a prepayment fee) at rates below the current portfolio yield, including in some cases at rates below those guaranteed under our insurance contracts, future operating results will be impacted to the extent we do not, or are unable to, reduce crediting rates on in-force blocks of business, or effectively utilize other asset/liability management strategies described below, in order to maintain current net interest margins.

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

[[GREPCENT_TABLE]]
[["","As of December 31, 2021"],["","(in billions)"],["Long-duration insurance products with fixed and guaranteed terms","$","155"],["Contracts with adjustable crediting rates subject to guaranteed minimums","61"],["Participating contracts where investment income risk ultimately accrues to contractholders","14"],["Total","$","230"]]
[[/GREPCENT_TABLE]]

The $155 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 $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 December 31, 2021, and the respective guaranteed minimums. 

[[GREPCENT_TABLE]]
[["","","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"],["","","($ in billions)"],["Range of Guaranteed Minimum Crediting Rates:"],["Less than 1.00%","","$","1.1","","","$","1.1","","","$","0.1","","","$","0.0","","","$","0.0","","","$","2.3"],["1.00% - 1.99%","","3.3","","","14.2","","","1.9","","","0.2","","","2.9","","","22.5"],["2.00% - 2.99%","","1.3","","","0.0","","","1.6","","","2.3","","","1.7","","","6.9"],["3.00% - 4.00%","","25.8","","","2.0","","","0.3","","","0.4","","","0.1","","","28.6"],["Greater than 4.00%","","0.8","","","0.0","","","0.0","","","0.0","","","0.0","","","0.8"],["Total(1)","","$","32.3","","","$","17.3","","","$","3.9","","","$","2.9","","","$","4.7","","","$","61.1"],["Percentage of total","","53","%","","28","%","","6","%","","5","%","","8","%","","100","%"]]
[[/GREPCENT_TABLE]]

 __________

(1)Includes approximately $0.50 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 1.75% (which is reasonably consistent with recent rates) for the period from January 1, 2022 through December 31, 2022 (and credit spreads remain unchanged from average levels experienced during the fourth 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 $30 million and $60 million for the period from January 1, 2022 through December 31, 2022.

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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 $59 billion of general account assets in the Closed Block division support obligations and liabilities relating to the Closed Block policies only. See Note 15 to the 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:

[[GREPCENT_TABLE]]
[["","As of December 31, 2021"],["","(in billions)"],["Insurance products with fixed and guaranteed terms","$","139"],["Contracts with a market value adjustment if invested amount is not held to maturity","25"],["Contracts with adjustable crediting rates subject to guaranteed minimums","11"],["Total","$","175"]]
[[/GREPCENT_TABLE]]

The $139 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 1.60% (which is reasonably consistent with recent rates) for the period from January 1, 2022 through December 31, 2022 (and credit spreads remain unchanged from average levels experienced during the fourth quarter 2021), we

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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 January 1, 2022 through December 31, 2022.

Results of Operations

Consolidated Results of Operations

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

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["Revenues","","$","70,934","","","$","57,033","","","$","64,807"],["Benefits and expenses","","61,553","","","57,356","","","59,722"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","","9,381","","","(323)","","","5,085"],["Income tax expense (benefit)","","1,674","","","(81)","","","947"],["Income (loss) before equity in earnings of operating joint ventures","","7,707","","","(242)","","","4,138"],["Equity in earnings of operating joint ventures, net of taxes","","87","","","96","","","100"],["Net income (loss)","","7,794","","","(146)","","","4,238"],["Less: Income attributable to noncontrolling interests","","70","","","228","","","52"],["Net income (loss) attributable to Prudential Financial, Inc.","","$","7,724","","","$","(374)","","","$","4,186"]]
[[/GREPCENT_TABLE]]

2021 to 2020 Annual Comparison. The $8,098 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” reflected the following notable items on a pre-tax basis:

•$3,336 million favorable variance from realized investment gains (losses), net, and related charges and adjustments for PFI, excluding the impact of the hedging program associated with certain variable annuities (see “General Account Investments” for additional information);

•$2,591 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;

•$2,351 million favorable variance from higher adjusted operating income from our business segments (see “Segment Results of Operations” for additional information);

•$1,390 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses (see Note 22 to the Consolidated Financial Statements for additional information); and

•$1,330 million favorable variance from a net gain in the current year from our Divested and Run-off Businesses compared to a net loss in the prior year.

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

•$1,755 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings; and

•$1,163 million unfavorable variance due to other adjustments, primarily reflecting a $1,060 million goodwill impairment recognized in the current year related to Assurance IQ (see Note 2 and Note 10 to the Consolidated Financial Statements for additional information).

Segment Results of Operations

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

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 Consolidated Statements of Operations.

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

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(1)Effective third quarter of 2021, the results of the Full Service Retirement business are excluded from the Retirement segment and are included in Divested and Run-off Businesses. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Consolidated Financial Statements for additional information.

(2)Assurance IQ was acquired by the Company in October 2019. See Note 1 to the Consolidated Financial Statements and “—Assurance IQ” for additional information.

(3)Prior period amounts have been updated to conform to current period presentation. See “—General Account Investments” and Note 22 to the Consolidated Financial Statements for additional information.

(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 (“URR”). 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. See Note 22 to the 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” for additional information.

(7)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 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 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.

(8)Includes certain components of consideration for business acquisitions, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of contingent consideration. See Note 22 to the Consolidated Financial Statements for additional information.

(9)In the fourth quarter of 2021, the Company recognized a goodwill impairment charge of $1,060 million related to Assurance IQ. See Note 2 and Note 10 to the Consolidated Financial Statements for additional information.

Segment results for 2021 presented above reflect the following:

PGIM. Results for 2021 increased in comparison to 2020, primarily reflecting a gain from the sale of our 35% ownership stake in Pramerica SGR in the current year, as well as an increase in asset management fees, partially offset by lower other related revenues.

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Retirement. Results for 2021 increased in comparison to 2020, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results increased, primarily reflecting higher net investment spread results.

Group Insurance. Results for 2021 decreased in comparison to 2020, inclusive of an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results decreased, primarily reflecting lower underwriting results.

Individual Annuities. Results for 2021 increased in comparison to 2020, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results increased, primarily driven by higher fee income, net of distribution expenses and other associated costs, and higher net investment spread results.

Individual Life. Results for 2021 increased in comparison to 2020, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results increased, primarily driven by higher net investment spread results and higher underwriting results.

Assurance IQ. Results for 2021 decreased in comparison to 2020, reflecting an increase in operating expenses, including those supporting business growth, partially offset by higher revenues.

International Businesses. Results for 2021 increased in comparison to 2020, 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 increased, primarily reflecting higher net investment spread results, lower expenses and more favorable underwriting results.

Corporate and Other. Results for 2021 reflected decreased losses in comparison to 2020, driven by lower net charges from other corporate activities, favorable pension and employee benefit results, lower interest expense on debt and higher investment income.

Closed Block Division. Results for 2021 increased in comparison to 2020, 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 22 to the Consolidated Financial Statements for additional information on the presentation of segment results and our definition of adjusted operating income.

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

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.

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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 that 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 directly 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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[[/GREPCENT_TABLE]]

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(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 $74.3 billion and $65.8 billion as of December 31, 2021 and 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

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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 year ended December 31, 2021, approximately 4% of the segment’s earnings were yen-based and, as of December 31, 2021, we have hedged 100%, 72% and 28% of expected yen-based earnings for 2022, 2023 and 2024, respectively. To the extent currently unhedged, our International Businesses’ future expected USD-equivalent of yen-based earnings will be impacted by yen exchange rate movements.

As a result of these arrangements, our International Businesses’ results for 2021, 2020 and 2019 reflect the impact of translating yen-denominated earnings at fixed currency exchange rates of 103, 104, and 105 yen per USD, respectively. We expect our 2022 results to reflect the impact of translating yen-denominated earnings at a fixed currency exchange rate of 104 yen per USD. 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.

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[[/GREPCENT_TABLE]]

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(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 December 31, 2021, 2020 and 2019, the total notional amounts of these forward currency contracts within our Corporate and Other operations were $0.6 billion, $1.0 billion and $1.3 billion, respectively, of which $0.0 billion, $0.4 billion and $0.6 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.

As a result, 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 $2.0 billion and $2.3 billion as of December 31, 2021 and 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 13% of the $2.0 billion balance as of December 31, 2021 will be recognized in 2022, approximately 8% will be recognized in 2023, and the remaining balance will be recognized from 2024 through 2051.

Highly inflationary economy in Argentina

Our insurance operations in Argentina, Prudential of Argentina (“POA”), have historically utilized the Argentine peso as the functional currency given it is the currency of the primary economic environment in which the entity operates. During 2018, Argentina experienced a cumulative inflation rate that exceeded 100% over a 3-year period. As a result, Argentina’s economy was deemed to be highly inflationary, resulting in reporting changes effective July 1, 2018. Under U.S. GAAP, the financial statements of a foreign entity in a highly inflationary economy are to be remeasured as if its functional currency (formerly the Argentine peso) is the reporting currency of its parent reporting entity (the USD) on a prospective basis. While this changed how the results of POA are remeasured and/or translated into USD, the impact to our financial statements was not material nor is it expected to be material in future periods given the relative size of our POA operations. It should also be noted that due to the macroeconomic environment in Argentina, the majority 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 Consolidated Financial Statements could change significantly.

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

Insurance Assets

Deferred Policy Acquisition Costs and Deferred Sales Inducements

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We capitalize costs that are directly related to the acquisition or renewal of insurance and annuity contracts. These costs primarily include commissions, as well as costs of policy issuance and underwriting and certain other expenses that are directly related to successfully negotiated contracts. We have also deferred costs associated with sales inducements related to our variable and fixed annuity contracts primarily within our Individual Annuities segment. Sales inducements are amounts that are credited to the policyholders’ account balances mainly as an inducement to purchase the contract. For additional information about sales inducements, see Note 13 to the Consolidated Financial Statements. We generally amortize DAC and deferred sales inducements (“DSI”) over the expected lives of the contracts, based on our estimates of the level and timing of gross premiums, gross profits, or gross margins, depending on the type of contract. As described in more detail below, in calculating DAC and DSI amortization, we are required to make assumptions about investment returns, mortality, persistency, and other items that impact our estimates of the level and timing of gross margins, gross profits, or gross premiums. We also periodically evaluate the recoverability of our DAC and DSI. For certain contracts, this evaluation is performed as part of our premium deficiency testing, as discussed further below in “—Insurance Liabilities—Future Policy Benefits.” As of December 31, 2021, DAC and DSI for PFI excluding the Closed Block division were $18.0 billion and $0.8 billion, respectively, and DAC in our Closed Block division was $0.2 billion. This excludes amounts presented within “Assets held-for-sale” on the Consolidated Statement of Financial Position as of December 31, 2021. See Note 1 and Note 7 to the Consolidated Financial Statements for additional information.

Amortization methodologies

Gross Premiums. DAC, associated with the non-participating term life policies of our Individual Life segment and the whole life, term life, endowment and health policies of our International Businesses segment, is primarily amortized in proportion to gross premiums. Gross premiums are defined as the premiums charged to a policyholder for an insurance contract.

Gross Profits. DAC and DSI, 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. Gross profits are defined as: i) amounts assessed for mortality, contract administration, surrender charges, and other assessments plus amounts earned from investment of policyholder balances, less ii) benefits in excess of policyholder balances, costs incurred for contract administration, the net cost of reinsurance for certain businesses, interest credited to policyholder balances and other credits. If significant negative gross profits are expected in any periods, the amount of insurance in force is generally substituted as the base for computing amortization. U.S. GAAP gross profits and amortization rates also include the impacts of the embedded derivatives associated with certain of the optional living benefit features of our variable annuity contracts, and index-linked crediting features of certain universal life and annuity contracts and related hedging activities. For additional information on the significant inputs to the valuation models for these embedded derivatives including capital market assumptions and actuarially-determined assumptions, see below “—Insurance Liabilities—Future Policy Benefits.” In calculating amortization expense, we estimate the amounts of gross profits that will be included in our U.S. GAAP results and in adjusted operating income, and utilize these estimates to calculate distinct amortization rates and expense amounts. We also regularly evaluate and adjust the related DAC and DSI balances with a corresponding charge or credit to current period earnings for the impact of actual gross profits and changes in our projections of estimated future gross profits on our DAC and DSI amortization rates. Adjustments to the DAC and DSI balances include the impact to our estimate of total gross profits of the annual review of assumptions, our quarterly adjustments for current period experience, and our quarterly adjustments for market performance. Each of these adjustments is further discussed below in “—Annual assumptions review and quarterly adjustments.”

Gross Margins. DAC associated with the traditional participating products of our Closed Block is amortized over the expected lives of these contracts in proportion to total gross margins. Total gross margins are defined as: i) amounts received from premiums, earned from investment of policyholder balances and other assessments, less ii) benefits paid, costs for contract administration, changes in the net level premium reserve for death and endowment benefits, annual policyholder dividends and other credits. We evaluate our estimates of future gross margins and adjust the related DAC balance with a corresponding charge or credit to current period earnings for the effects of actual gross margins and changes in our expected future gross margins. DAC adjustments for these participating products generally have not created significant volatility in our results of operations since many of the factors that affect gross margins are also included in the determination of our dividends to these policyholders and, during most years, the Closed Block has recognized a cumulative policyholder dividend obligation expense in “Policyholders’ dividends,” for the excess of actual cumulative earnings over expected cumulative earnings as determined at the time of demutualization. However, if actual cumulative earnings fall below expected cumulative earnings in future periods, thereby eliminating the cumulative policyholder dividend obligation expense, changes in gross margins and DAC amortization would result in a net impact to the Closed Block results of operations. As of December 31, 2021, the excess of actual cumulative earnings over the expected cumulative earnings was $4,387 million.

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The amortization methodologies for products not discussed above primarily relate to less significant DAC and DSI balances associated with products in our Group Insurance and Retirement segments, which comprised approximately 1% of the Company’s total DAC and DSI balances as of December 31, 2021.

Value of Business Acquired

In addition to DAC and DSI, we also recognize an asset for VOBA, which is an intangible asset that represents an adjustment to the stated value of acquired in-force insurance contract liabilities to present them at fair value, determined as of the acquisition date. VOBA is amortized over the expected life of the acquired contracts using the same methodology and assumptions used to amortize DAC and DSI, as discussed above. VOBA is also subject to recoverability testing. As of December 31, 2021, VOBA was $771 million, and included $740 million related to the acquisition from American International Group (“AIG”) of AIG Star Life Insurance Co., Ltd, AIG Edison Life Insurance Company, AIG Financial Assurance Japan K.K. and AIG Edison Service Co., Ltd. (collectively, the “Star and Edison Businesses”) in 2011. The remaining balance primarily relates to previously-acquired traditional life and defined benefit businesses. The VOBA balance excludes amounts presented within “Assets held-for-sale” on the Consolidated Statement of Financial Position as of December 31, 2021. See Note 1 and Note 8 to the Consolidated Financial Statements for additional information. The VOBA associated with the in-force contracts of the Star and Edison Businesses is less sensitive to assumption changes, as the majority is amortized in proportion to gross premiums which are more predictably stable compared to gross profits.

Annual assumptions review and quarterly adjustments

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

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

The quarterly adjustments for market performance referred to above reflect the impact of changes to our estimate of total gross profits to reflect actual fund performance and market conditions. A significant portion of gross profits for our variable annuity contracts 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.

The weighted average rate of return assumptions used in developing estimated market returns consider many factors specific to each product type, including asset durations, asset allocations and other factors. With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, DSI and VOBA and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and domestic and international variable life insurance products is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice. Under this approach, we consider historical equity returns and adjust projected equity returns over an initial future period of five years (the “near-term”) so that equity returns converge to the long-term expected rate of return. If the near-term projected future rate of return is greater than our near-term maximum future rate of return of 15.0%, we use our maximum future rate of return. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of December 31, 2021, our domestic variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a 0.0% 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 0.7% near-term mean reversion equity expected rate of return.

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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.

Insurance Liabilities

Future Policy Benefits

Future Policy Benefit Reserves, including Unpaid Claims and Claim Adjustment Expenses

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

•For most long-duration contracts, we utilize a net premium valuation methodology in measuring the liability for future policy benefits. Under this methodology, a liability for future policy benefits is accrued when premium revenue is recognized. The liability, which represents the present value of future benefits to be paid to or on behalf of policyholders and related expenses less the present value of future net premiums (portion of the gross premium required to provide for all benefits and expenses), is estimated using methods that include assumptions applicable at the time the insurance contracts are made with provisions for the risk of adverse deviation, as appropriate. Original assumptions continue to be used in subsequent accounting periods to determine changes in the liability for future policy benefits (often referred to as the “lock-in concept”), unless a premium deficiency exists. The result of the net premium valuation methodology is that the liability at any point in time represents an accumulation of the portion of premiums received to date expected to be needed to fund future benefits (i.e., net premiums received to date), less any benefits and expenses already paid. The liability does not necessarily reflect the full policyholder obligation the Company expects to pay at the conclusion of the contract since a portion of that obligation would be funded by net premiums received in the future and would be recognized in the liability at that time. We perform premium deficiency tests using best estimate assumptions as of the testing date without provisions for adverse deviation. If the liabilities determined based on these best estimate assumptions are greater than the net reserves (i.e., GAAP reserves net of any DAC, DSI or VOBA asset), the existing net reserves are adjusted by first reducing these assets by the amount of the deficiency or to zero through a charge to current period earnings. If the deficiency is more than these asset balances for insurance contracts, we then increase the net reserves by the excess, again through a charge to current period earnings. If a premium deficiency is recognized, the assumptions as of the premium deficiency test date are locked-in and used in subsequent valuations and the net reserves continue to be subject to premium deficiency testing. In addition, for limited-payment contracts, future policy benefit reserves also include a deferred profit liability representing gross premiums received in excess of net premiums. The deferred profits are generally recognized in revenue in a constant relationship with insurance in force or with the amount of expected future benefit payments.

•For certain contract features, such as those related to guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”) and no-lapse guarantees, a liability is established when associated assessments (which include policy charges for administration, mortality, expense, surrender, and other, regardless of how characterized) are recognized. This liability is established using current best estimate assumptions and is based on the ratio of the present value of total expected excess payments (e.g., payments in excess of account value) over the life of the contract divided by the present value of total expected assessments (i.e., benefit ratio). The liability equals the current benefit ratio multiplied by cumulative assessments recognized to date, plus interest, less cumulative excess payments to date. The result of the benefit ratio method is that the liability at any point in time represents an accumulation of the portion of assessments received to date expected to be needed to fund future excess payments, less any excess payments already paid. The liability does not necessarily reflect the full policyholder obligation the Company expects to pay at the conclusion of the contract since a portion of that excess payment would be funded by assessments received in the future and would be recognized in the liability at that time. Similar to as described above for DAC, the reserves are subject to adjustments based on annual reviews of assumptions and quarterly adjustments for experience, including market performance. These adjustments reflect the impact on the benefit ratio of using actual historical experience from the issuance date to the balance sheet date plus updated estimates of future experience. The updated benefit ratio is then applied to all prior periods’ assessments to derive an adjustment to the reserve recognized through a benefit or charge to current period earnings.

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•For certain product guarantees, primarily certain optional living benefit features of the variable annuity products in our Individual Annuities segment including guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum income and withdrawal benefits (“GMIWB”), the benefits are accounted for as embedded derivatives using a fair value accounting framework. The fair value of these contracts is calculated as the present value of expected future benefit payments to contractholders less the present value of assessed rider fees attributable to the embedded derivative feature. Under U.S. GAAP, the fair values of these benefit features are based on assumptions a market participant would use in valuing these embedded derivatives. Changes in the fair value of the embedded derivatives are recorded quarterly through a benefit or charge to current period earnings. For additional information regarding the valuation of these embedded derivatives, see Note 6 to the Consolidated Financial Statements.

•In certain instances, the policyholder liability for a particular line of business may not be deficient in the aggregate to trigger loss recognition, but the pattern of earnings may be such that profits are expected to be recognized in earlier years followed by losses in later years. In these situations, accounting standards require that an additional liability (Profits Followed by Losses or “PFL” liability) be recognized by an amount necessary to sufficiently offset the losses that would be recognized in later years. The PFL liability is based on our current estimate of the present value of the amount necessary to offset losses anticipated in future periods. Because the liability is measured on a discounted basis, there will also be accretion into future earnings through an interest charge, and the liability will ultimately be released into earnings as an offset to future losses. Historically, the Company’s PFL liabilities have been predominantly associated with certain universal life contracts that measure net GAAP reserves using current best estimate assumptions and accordingly, have been updated each quarter using current in-force and market data and as part of the annual assumption update. At the target accrual date (i.e., date of peak deficiency), the PFL liability transitions to a premium deficiency reserve and, for universal life products, will continue to be updated each quarter using current in-force and market data and as part of the annual assumption update.

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

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

International Businesses. The reserves for future policy benefits of our International Businesses, which as of December 31, 2021, represented 44% of our total future policy benefit reserves, primarily relate to non-participating whole life and term life products and endowment contracts, and are generally calculated using the net premium valuation methodology, as described above. The primary assumptions used in determining expected future benefits and expenses include mortality, lapse, morbidity, investment yield and maintenance expense assumptions. Reserves also include claims reported but not yet paid, and claims incurred but not yet reported. In addition, future policy benefit reserves for certain contracts also include amounts related to our deferred profit liability, as described above.

Retirement. The reserves for future policy benefits of our Retirement segment, which as of December 31, 2021, represented 24% of our total future policy benefit reserves, primarily relate to our non-participating life contingent group annuity and structured settlement products and are generally calculated using the net premium valuation methodology, as described above. The primary assumptions used in establishing these reserves include mortality, retirement, maintenance expense and investment yield assumptions. In addition, future policy benefit reserves for certain contracts also include amounts related to our deferred profit liability, as described above.

Individual Annuities. The reserves for future policy benefits of our Individual Annuities segment, which as of December 31, 2021, represented 4% of our total future policy benefit reserves, primarily relate to reserves for the GMDB and GMIB features of our variable annuities, and for the optional living benefit features that are accounted for as embedded derivatives. As discussed above, in establishing reserves for GMDBs and GMIBs, we utilize current best estimate assumptions. The primary assumptions used in establishing these reserves generally include annuitization, lapse, withdrawal and mortality assumptions, as well as interest rate and equity market return assumptions. Lapse rates are adjusted at the contract level based on the in-the-moneyness of the benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates are also generally assumed to be lower for the period where surrender charges apply. For life contingent payout annuity contracts, we establish reserves using best estimate assumptions with provisions for adverse deviations as of inception or best estimate assumptions as of the most recent loss recognition date.

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The reserves for certain optional living benefit features, including GMAB, GMWB and GMIWB are accounted for as embedded derivatives at fair value, as described above. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. Since there is no observable active market for the transfer of these obligations, the valuations are calculated using internally-developed models with option pricing techniques. The models are based on a risk neutral valuation framework and incorporate premiums for risks inherent in valuation techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. The significant inputs to the valuation models for these embedded derivatives include capital market assumptions, such as interest rate levels and volatility assumptions, the Company’s market-perceived risk of its own non-performance risk (“NPR”), as well as actuarially-determined assumptions, including mortality rates and contractholder behavior, such as lapse rates, benefit utilization rates and withdrawal rates. Capital market inputs and actual contractholders’ account values are updated each quarter based on capital market conditions as of the end of the quarter, including interest rates, equity markets and volatility. In the risk neutral valuation, the initial swap curve drives the total returns used to grow the contractholders’ account values. The Company’s discount rate assumption is based on the London Inter-Bank Offered Rate (“LIBOR”) swap curve adjusted for an additional spread, which includes an estimate of NPR. Actuarial assumptions, including contractholder behavior and mortality, are reviewed at least annually, and updated based upon emerging experience, future expectations and other data, including any observable market data, such as available industry studies or market transactions such as acquisitions and reinsurance transactions. For additional information regarding the valuation of these optional living benefit features, see Note 6 to the Consolidated Financial Statements.

Individual Life. The reserves for future policy benefits of our Individual Life segment, which as of December 31, 2021, represented 7% of our total future policy benefit reserves, primarily relate to term life, universal life and variable life products. For term life contracts, the future policy benefit reserves are generally calculated using the net premium valuation methodology, as described above. The primary assumptions used in determining expected future benefits and expenses include mortality, lapse, investment yield and maintenance expense assumptions. For variable and universal life products, which include universal life contracts that contain no-lapse guarantees, reserves for future policy benefits are primarily established using the reserving methodology for GMDB and GMIB contracts, which utilizes current best estimate assumptions, as discussed above. The primary assumptions used in establishing these reserves generally include mortality, lapse, and premium pattern, as well as interest rate and equity market return assumptions. Reserves also include claims reported but not yet paid, and claims incurred but not yet reported.

Group Insurance. The reserves for future policy benefits of our Group Insurance segment, which as of December 31, 2021, represented 2% of our total future policy benefit reserves, primarily relate to reserves for group life and disability benefits. For short-duration contracts, a liability is established when the claim is incurred. The reserves for group life and disability benefits also include a liability for unpaid claims and claim adjustment expenses, which relates primarily to the group long-term disability product. This liability represents our estimate of the present value of future disability claim payments and expenses as well as estimates of claims that have been incurred, but have not yet been reported, as of the balance sheet date. The primary assumptions used in determining expected future claim payments are claim termination factors, an assumed interest rate and expected Social Security offsets. The remaining reserves for future policy benefits for group life and disability benefits relate primarily to our group life business, and include reserves for waiver of premium, claims reported but not yet paid, and claims incurred but not yet reported. The waiver of premium reserve is calculated as the present value of future benefits and utilizes assumptions such as expected mortality and recovery rates. The reserve for claims reported but not yet paid is based on the inventory of claims that have been reported but not yet paid. The reserve for claims incurred but not yet reported is estimated using expected patterns of claims reporting.

Corporate and Other. The reserves for future policy benefits of our Corporate & Other operations, which as of December 31, 2021, represented 3% of our total future policy benefit reserves, primarily relate to our long-term care products and are generally calculated using the net premium valuation methodology, as described above. Due to the recognition of a premium deficiency in the first quarter of 2020 as a result of the decline in interest rates, the active life reserves associated with our long-term care contracts are valued with the best estimate assumptions at that time. The primary assumptions used in establishing these reserves include interest rate, morbidity, mortality, lapse, premium rate increase and maintenance expense assumptions. In addition, certain reserves for our long-term care products, including our disabled life reserves, are established each reporting period using current best estimate assumptions.

Closed Block Division. The future policy benefit reserves for the traditional participating life insurance products of the Closed Block division, which as of December 31, 2021, represented 16% of our total future policy benefit reserves are determined using the net premium valuation methodology, as described above. Under this method, the future policy benefit reserves are accrued as a level proportion of the premium paid by the policyholder. In applying this method, we use mortality assumptions to determine our expected future benefits and expected future premiums, and apply an interest rate to determine the present value of both of these amounts. The mortality assumptions are based on standard industry mortality tables that were

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used to determine the cash surrender value of the policies, and the interest rates used are the interest rates used to calculate the cash surrender value of the policies.

Policyholders’ Account Balances

Policyholders’ account balances liability represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability is primarily associated with the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balance, as applicable. Our unearned revenue reserve also reported as a component of “Policyholders’ account balances” primarily relates to the variable and universal life products within our Individual Life and International Businesses segments and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenue and are generally amortized over the expected life of the contract in proportion to the product’s estimated gross profits, similar to DAC, DSI and VOBA as discussed above. Policyholders’ account balances also include amounts representing the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and annuity products. For additional information regarding the valuation of these embedded derivatives, see Note 6 to the Consolidated Financial Statements.

Sensitivities for Insurance Assets and Liabilities

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

The impacts presented within this table exclude the following:

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

•The impacts of our Long-Term Care business, a component of our Divested and Run-off Businesses within our Corporate and Other operations. Long-Term Care Business sensitivities are presented separately from the immediately following table (see “—Sensitivities for the Long-Term Care business within Corporate and Other”). While the accounting for long-term care products primarily follows the locked-in assumptions model described above, as a result of the decline in interest rates in the first quarter of 2020, this business recognized a premium deficiency and unlocked and updated the previously locked-in assumptions used in the valuation model. Sensitivities are presented separately in order to provide stand-alone and supplementary information.

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[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Increase (Decrease) in"],["Hypothetical change in current assumptions:","","Deferred Policy Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired(1)","","Future Policy Benefits and Policyholders\u2019 Account Balances(2)","","Net Impact"],["","","(in millions)"],["Long-term interest rate:"],["Increase by 25 basis points","","$","55","","","$","(55)","","","$","110"],["Decrease by 25 basis points","","$","(50)","","","$","50","","","$","(100)"],["Long-term equity expected rate of return:"],["Increase by 50 basis points","","$","110","","","$","(85)","","","$","195"],["Decrease by 50 basis points","","$","(45)","","","$","65","","","$","(110)"],["NPR credit spread:"],["Increase by 50 basis points","","$","(415)","","","$","(1,920)","","","$","1,505"],["Decrease by 50 basis points","","$","455","","","$","2,090","","","$","(1,635)"],["Mortality:"],["Increase by 1%","","$","(35)","","","$","(125)","","","$","90"],["Decrease by 1%","","$","35","","","$","125","","","$","(90)"],["Lapse:"],["Increase by 10%","","$","(125)","","","$","(715)","","","$","590"],["Decrease by 10%","","$","130","","","$","740","","","$","(610)"]]
[[/GREPCENT_TABLE]]

________

(1)Includes the impact on deferred policy acquisition costs, deferred sales inducements and value of business acquired presented within “Assets held-for-sale” on the Consolidated Statements of Financial Position as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

(2)Includes the impact on future policy benefits and policyholders’ account balances presented within “Liabilities held-for-sale” on the Consolidated Statements of Financial Position as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

Sensitivities for the Long-Term Care Business within Corporate and Other

The following table summarizes certain significant assumptions made in establishing best estimate reserves for long-term care products to perform premium deficiency testing, and the net impact that could result to the best estimate reserves from changes in these assumptions should they occur. Under U.S. GAAP, reserves for long-term care products are primarily calculated using the locked-in assumptions concept described above. As such, the adverse hypothetical impacts illustrated in the table below are those that would increase our best estimate reserves and, when compared to our GAAP reserves, may cause a premium deficiency that would require us to unlock and update our assumptions and record a charge to net income. The favorable hypothetical impacts in the table below would decrease our best estimate reserves but would not result in an immediate decrease to our GAAP reserves (given that we would be required to leave the current assumptions locked-in); rather, the positive impacts would be recognized into net income over the life of the policies in force.

The information below is for illustrative purposes and includes the impacts of changes in a single assumption and not changes in any combination of assumptions. As a result of emerging experience, changes in current assumptions may result in impacts to the best estimate reserve in future periods that are in excess of or lower than the amounts illustrated.

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[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["Assumption","","Current Best Estimate Assumption","","Best Estimate Assumption Change","","Increase (Decrease) in Best Estimate Reserve (in millions)"],["Mortality Improvement","","Based on \u201cG2\u201d industry mortality improvement scale, grossed up to apply to only healthy lives","","Remove all mortality improvement","","$(350)"],["Claim Incidence","","Based on Company and industry experience. No reflection of future claim management efficiencies","","Increase / decrease in claim incidence: +5% to -5%","","$300 - $(300)"],["Average Ultimate Lapse Rate","","Individual: 0.7% Group: 0.7%","","-10 basis points to +10 basis points","","$100 - $(100)"],["Investment Rate(1)","","Weighted average of 4.81%","","-25 basis points to +25 basis points","","$400 - $(400)"],["Expected Future Premium Rate Increase Approvals","","Approximately $0.5 billion for the rate increase program(2)","","Decrease / increase unapproved rate increases by: -10% to +10%","","$50 - $(50)"]]
[[/GREPCENT_TABLE]]

__________

(1)Investment rate reflects the expected investment yield over the life of the block of business, and is derived from the portfolio yield, current reinvestment rates and our intermediate and long-term assumptions for investment yields.

(2)Includes expected future premium rate increases and benefit reductions in lieu of rate increases, not yet approved.

Other Accounting Policies

Goodwill

As of December 31, 2021, our goodwill balance of $1,804 million is primarily reflected in the following reporting units: $1,080 million for Assurance IQ, $558 million for PGIM, and $130 million for Gibraltar Life and Other.

The Full Service Retirement business has been classified as held-for-sale and as a divested business within Corporate & Other and its assets, including goodwill of $455 million, are presented within “Assets held-for-sale” on the Consolidated Statement of Financial Position as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for further information on the pending disposition of the Full Service Retirement business.

We test goodwill for impairment on an annual basis, as of December 31 and more frequently if events or circumstances indicate the potential for impairment is more likely than not. The goodwill impairment analysis is performed at the reporting unit level, which is the same as, or one level below, our operating segments. Although the accounting guidance provides for an optional qualitative assessment for testing goodwill impairment, all of our reporting units elected to perform the quantitative test, which compares each reporting unit’s estimated fair value to its carrying value. The carrying value represents the capital that the business would require if operating as a standalone entity.

The annual quantitative goodwill impairment analysis for Assurance IQ utilized both market valuation techniques based on both sales and Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) forward multiples and discounted cash flow valuation techniques. The estimated fair value of Assurance IQ as of December 31, 2021 was based on weighting the results of each approach and included assumptions that a market participant would use to value the business. Based on the goodwill impairment test performed as of December 31, 2021, the Company recognized a non-cash goodwill impairment pre-tax charge of $1,060 million, ($837 million after-tax) for Assurance IQ driven by a decline in peer valuations combined with a reduction in the forecasted cash flows, as described further below.

The market approaches derived the value of Assurance IQ based on comparable publicly traded companies. Each comparable company was assigned a relative weight based on various factors, primarily focused on the comparability of lines of business and business mix, with additional considerations given to comparability of business lifecycle, growth, and profitability. Forward market multiples were developed for the comparable companies using independent analysts’ consensus estimates for each company’s forecasted sales and EBITDA. The market multiples were then applied to Assurance IQ’s forecasted results, and an implied control premium, reflective of expected synergies a market participant would realize, was added to determine a total estimated fair value for the reporting unit. The value of the comparable publicly traded companies declined in 2021, particularly during the last three months of the year, which significantly impacted the valuation of Assurance

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IQ as of December 31, 2021, as the market multiples are utilized in both the market approaches and in estimating the terminal value under the discounted cash flow approaches. The deterioration in the peer valuations was mainly driven by sector-wide concerns attributed to margin compression and increased customer attrition, among other factors.

The discounted cash flow approaches estimated the fair value of Assurance IQ by applying a discount rate, derived from a capital asset pricing model and reflecting a market expected rate of return for the reporting unit, to its projected future cash flows. The projected future cash flows involved significant judgement and were based on our internal forecasts including expected synergies, and a range of terminal values, which incorporated an expected long-term growth rate and market-based multiples. Revisions to the long-term forecasts, following the annual Medicare enrollment period in the fourth quarter of 2021, reflected lower growth rates in Medicare sales driven by slower agent growth, and increased operating expenses, along with other changes in business plans, including shifts in the product mix. The long-term forecasts also incorporated changes in the current and expected industry and market conditions and trends, in addition to the business specific factors. These revisions led to declines in the cash flow projections, consistent with how a market participant would assess the outlook of the business.

The $1,060 million pre-tax impairment charge resulted in a $1,080 million goodwill asset assigned to the Assurance IQ reporting unit as of December 31, 2021. See “Risk Factors—Strategic Risk” for additional information on risks that may impact the performance and fair value of Assurance IQ and may result in additional impairment charges in future periods.

Gibraltar Life and Other and PGIM completed a quantitative impairment analysis using an earnings multiple approach, which resulted in their fair value exceeding their carrying value by a weighted average of 545% as of December 31, 2021.

Estimating the fair value of reporting units is a subjective process that involves the use of significant estimates by management. For example, as of December 31, 2021, a 1% change in the discount rate applied as part of the discounted cash flow approaches would result in an approximately $100 million change in the overall estimated fair value of Assurance IQ, while a 1% change in the growth rate in Medicare sales would change the estimated fair value of Assurance IQ by approximately $65 million. While changes in individual factors or events impact the valuation of our reporting units, it is the magnitude of the change of all valuation inputs, considered in totality, that will ultimately determine the impact to the fair value of our businesses holding goodwill. For all reporting units tested, unanticipated changes in business performance or the regulatory environment, market declines or other events impacting the fair value of these businesses, including changes in market multiples, discount rates, interest rates and growth rate assumptions or increases in the level of equity required to support these businesses, could cause additional goodwill impairment charges in future periods. For additional information on goodwill and our reporting segments, see Note 2 and Note 10 to the Consolidated Financial Statements.

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

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

•Valuation of investments, including derivatives;

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

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

We present at fair value in the statements of financial position our debt security investments classified as available-for-sale, investments classified as trading such as our assets supporting experience-rated contractholder liabilities and certain fixed maturities, equity securities, and certain investments within “Other invested assets,” such as derivatives. For additional information regarding the key estimates and assumptions surrounding the determination of fair value of fixed maturity and equity securities, as well as derivative instruments, embedded derivatives and other investments, see Note 6 to the Consolidated Financial Statements and “—Valuation of Assets and Liabilities—Fair Value of Assets and Liabilities.”

For our investments classified as available-for-sale, the impact of changes in fair value is recorded as an unrealized gain or loss in AOCI, a separate component of equity. For our investments classified as trading and equity securities, the impact of

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changes in fair value is recorded within “Other income (loss).” Our investments classified as held-to-maturity are carried at the acquisition price, net of any unamortized premiums or discounts. Our commercial mortgage and other loans are carried primarily at unpaid principal balances, net of unamortized deferred loan origination fees and expenses and unamortized premiums or discounts and a valuation allowance for losses.

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

For equity method investments, the carrying value of these investments is written down or impaired to fair value when a decline in value is considered to be other-than-temporary.

Pension and Other Postretirement Benefits

We sponsor pension and other postretirement benefit plans covering employees who meet specific eligibility requirements. Our net periodic costs for these plans consider an assumed discount (interest) rate, an expected rate of return on plan assets, expected increases in compensation levels, mortality and trends in health care costs. Of these assumptions, our expected rate of return assumptions and our discount rate assumptions have historically had the most significant effect on our net period costs associated with these plans.

We determine our expected rate of return on plan assets based upon a building block approach that considers plan asset mix, risk free rates, inflation, real return, term premium, credit spreads, equity risk premium and capital appreciation as well as expenses, the effect of active management and the effect of rebalancing for the equity, debt and real estate asset mix applied on a weighted average basis to our pension asset portfolio. See Note 18 to the Consolidated Financial Statements for our actual asset allocations by asset category and the asset allocation ranges prescribed by our investment policy guidelines for both our pension and other postretirement benefit plans. Our assumed long-term rate of return for 2021 was 6.00% for our domestic pension plans and 6.75% for our other postretirement benefit plans. Given the amount of plan assets as of December 31, 2020, the beginning of the measurement year, if we had assumed an expected rate of return for both our domestic pension and other domestic postretirement benefit plans that was 100 bps higher or 100 bps lower than the rates we assumed, the change in our net periodic costs would have been as shown in the table below. The information provided in the table below considers only changes in our assumed long-term rate of return given the level and mix of invested assets at the beginning of the measurement year, without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed long-term rate of return.

[[GREPCENT_TABLE]]
[["","","For the year ended December 31, 2021"],["","","Increase/(Decrease) in Net Periodic Pension Cost","","Increase/(Decrease) in Net Periodic Other Postretirement Cost"],["","","(in millions)"],["Increase in expected rate of return by 100 bps","","$","(141)","","","$","(15)"],["Decrease in expected rate of return by 100 bps","","$","141","","","$","15"]]
[[/GREPCENT_TABLE]]

Foreign pension plans represent 4% of plan assets at the beginning of 2021. An increase in expected rate of return by 100 bps would result in a decrease in net periodic pension costs of $6 million; conversely, a decrease in expected rate of return by 100 bps would result in an increase in net periodic pension costs of $4 million.

We determine our discount rate, used to value the pension and postretirement benefit obligations, based upon rates commensurate with current yields on high quality corporate bonds. See Note 18 to the Consolidated Financial Statements for information regarding the December 31, 2020 methodology we employed to determine our discount rate for 2021. Our assumed discount rate for 2021 was 2.55% for our domestic pension plans and 2.40% for our other domestic postretirement benefit plans. Given the amount of pension and postretirement obligations as of December 31, 2020, the beginning of the measurement year, if we had assumed a discount rate for both our domestic pension and other postretirement benefit plans that was 100 bps higher or 100 bps lower than the rates we assumed, the change in our net periodic costs would have been as shown in the table below. The information provided in the table below considers only changes in our assumed discount rate without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed discount rate. 

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[[GREPCENT_TABLE]]
[["","","For the year ended December 31, 2021"],["","","Increase/(Decrease) in Net Periodic Pension Cost","","Increase/(Decrease) in Net Periodic Other Postretirement Cost"],["","","(in millions)"],["Increase in discount rate by 100 bps","","$","(142)","","","$","(4)"],["Decrease in discount rate by 100 bps","","$","169","","","$","4"]]
[[/GREPCENT_TABLE]]

Foreign pension plans represent 13% of plan obligations at the beginning of 2021. An increase in discount rate by 100 bps would result in a decrease in net periodic pension costs of $6 million; conversely, a decrease in discount rate by 100 bps would result in an increase in net periodic pension costs of $10 million.

Given the application of the authoritative guidance for accounting for pensions, and the deferral and amortization of actuarial gains and losses arising from changes in our assumed discount rate, the change in net periodic pension cost arising from an increase in the assumed discount rate by 100 bps would not always be expected to equal the change in net periodic pension cost arising from a decrease in the assumed discount rate by 100 bps.

For a discussion of our expected rate of return on plan assets and discount rate for our qualified pension plan in 2021, see “—Results of Operations by Segment—Corporate and Other.”

For purposes of calculating pension income from our own qualified pension plan for the year ended December 31, 2022, we increased the discount rate to 2.85% from 2.55% in 2021. The expected rate of return on plan assets will increase to 6.00% in 2022 from 5.75% in 2021, and the assumed rate of increase in compensation will remain unchanged at 4.5%.

In addition to the effect of changes in our assumptions, the net periodic cost or benefit from our pension and other postretirement benefit plans may change due to factors such as actual experience being different from our assumptions, special benefits to terminated employees, or changes in benefits provided under the plans.

At December 31, 2021, the sensitivity of our domestic and foreign pension and postretirement obligations to a 100 basis point change in discount rate was as follows. 

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Increase/(Decrease) in Pension Benefits Obligation","","Increase/(Decrease) in Accumulated Postretirement Benefits Obligation"],["","","(in millions)"],["Increase in discount rate by 100 bps","","$","(1,559)","","","$","(140)"],["Decrease in discount rate by 100 bps","","$","1,866","","","$","165"]]
[[/GREPCENT_TABLE]]

Taxes on Income

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

An increase or decrease in our effective tax rate by one percentage point would have resulted in a decrease or increase in our 2021 “Total income tax expense (benefit)” of $94 million.

The CARES Act. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law. One provision of the CARES Act amends the Tax Act of 2017 and allows companies with net operating losses (“NOLs”) originating in 2018, 2019, or 2020 to carry back those losses up to five years. For 2020, the Company recorded an income tax benefit of $51 million and $149 million from carrying the 2018 and 2020 NOLs back to tax years that have a 35% tax rate.

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Contingencies

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

Commission Revenue

For digital insurance brokerage placement services, the Company earns both initial and renewal commissions as compensation for the placement of insurance policies with insurance carriers. At the effective date of the policy, the Company records within “Other income” the expected lifetime revenue for the initial and renewal commissions considering estimates of the timing of future policy cancellations. These estimates are reassessed each reporting period and any changes in estimates are reflected in the current period.

Adoption of New Accounting Pronouncements

ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, 2018, and was amended by ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date, issued in October 2019, and ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application, issued in November 2020. The Company will adopt ASU 2018-12 effective January 1, 2023 using the modified retrospective transition method where permitted, and apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements.

The Company has an established governance framework to manage the implementation of the standard. The Company’s implementation efforts continue to progress including, but not limited to, implementing refinements to key accounting policy decisions, modifications to actuarial valuation models, updates to data sourcing capabilities, automation of key financial reporting and analytical processes and updates to internal controls over financial reporting.

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. While the magnitude of impacts is still being assessed, the Company expects the standard to result in a significant decrease to “Total equity” upon adoption, primarily from remeasuring in-force contract liabilities using current upper-medium grade fixed income instrument yields through “Accumulated other comprehensive income (loss)”. The standard also requires significantly enhanced disclosures. In addition to the significant impacts to the balance sheet upon adoption, the Company also expects an impact to the pattern of earnings emergence following the transition date. See Note 2 to the 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 Consolidated Financial Statements for additional information.

•In August 2021, we completed the acquisition of Montana Capital Partners, a European-based private equity secondaries asset manager with approximately $3 billion of assets under management.

•In December 2021, we completed the acquisition of Green Harvest Asset Management LLC, a separately managed account platform providing customized solutions for the high net worth market with approximately $2 billion of assets under management.

Operating Results

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

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[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["Operating results(1):"],["Revenues","","$","4,493","","","$","4,153","","","$","3,589"],["Expenses","","2,850","","","2,891","","","2,591"],["Adjusted operating income","","1,643","","","1,262","","","998"],["Realized investment gains (losses), net, and related adjustments","","(3)","","","0","","","(1)"],["Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests","","69","","","159","","","8"],["Other adjustments(2)","","(13)","","","0","","","0"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","","$","1,696","","","$","1,421","","","$","1,005"]]
[[/GREPCENT_TABLE]]

 __________

(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.

(2)Includes certain components of consideration for business acquisitions, which are recognized as compensation expense over the requisite service periods.

Adjusted Operating Income

2021 to 2020 Annual Comparison. Adjusted operating income increased $381 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, 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 third-party inflows. The increases were partially offset by lower other related revenues, net of related expenses, primarily driven by more favorable seed and co-investment results in the prior year from the impact of tightening credit spreads on fixed income investments, and lower performance-based incentive fees reflecting more favorable fees earned in the prior year, as well as higher compensation expenses associated with business growth and certain long-term employee compensation plans.

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: 

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["Revenues by type:"],["Asset management fees by source:"],["Institutional customers","$","1,439","","","$","1,350","","","$","1,283"],["Retail customers(1)","1,275","","","1,003","","","878"],["General account","588","","","557","","","521"],["Total asset management fees","3,302","","","2,910","","","2,682"],["Other related revenues by source:"],["Incentive fees","154","","","206","","","169"],["Transaction fees","27","","","26","","","22"],["Co- and seed investments","49","","","122","","","79"],["Commercial mortgage(2)","173","","","198","","","110"],["Total other related revenues","403","","","552","","","380"],["Service, distribution and other revenues(3)","788","","","691","","","527"],["Total revenues","$","4,493","","","$","4,153","","","$","3,589"]]
[[/GREPCENT_TABLE]]

__________

(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.

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(3)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 $60 million for the year ended December 31, 2019.

2021 to 2020 Annual Comparison. Revenues increased $340 million. Asset management fees increased primarily reflecting higher average assets under management as a result of market appreciation, including strong investment performance, and third-party inflows. Service, distribution and other revenues increased primarily reflecting a gain from the sale of our Pramerica SGR joint venture in the current year, partially offset by more favorable revenues from certain consolidated funds in the prior year (which were fully offset by higher expenses related to noncontrolling interests in these funds). Other related revenues decreased primarily driven by more favorable seed and co-investment results in the prior year from the impact of tightening credit spreads, and lower performance-based incentive fees reflecting more favorable fees earned in the prior year.

Expenses decreased $41 million, primarily reflecting higher variable expenses in the prior year associated with higher revenues of certain consolidated funds, as discussed above. This decrease was partially offset by an increase in other variable expenses, primarily reflecting higher asset management fees, as well as higher compensation expenses primarily driven by business growth and certain long-term employee compensation plans tied to performance factors.

Assets Under Management

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

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020","","2019"],["","(in billions)"],["Assets Under Management(1) (at fair value):"],["Public equity","$","216.2","","","$","202.4","","","$","165.7"],["Public fixed income","980.7","","","1,004.5","","","885.9"],["Real estate","132.6","","","121.5","","","117.1"],["Private credit and other alternatives","108.7","","","106.5","","","97.5"],["Multi-asset","85.6","","","63.7","","","64.8"],["Total PGIM assets under management","$","1,523.8","","","$","1,498.6","","","$","1,331.0"],["Assets under management within other reporting segments(2)","218.5","","","222.3","","","219.9"],["Total PFI assets under management","$","1,742.3","","","$","1,720.9","","","$","1,550.9"]]
[[/GREPCENT_TABLE]]

__________

(1)“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.

(2)Primarily includes assets related to certain annuity, variable life, retirement and group life products in our U.S. Businesses and Corporate & Other operations, 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.

2021 to 2020 Annual Comparison. PGIM’s assets under management increased $25 billion in 2021, primarily reflecting market appreciation, including strong investment performance, and third-party inflows.

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

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[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020","","2019"],["","(in billions)"],["Assets Under Management(1) (at fair value):"],["Institutional customers","$","629.4","","","$","614.9","","","$","552.8"],["Retail customers","401.4","","","372.0","","","305.6"],["General account","493.0","","","511.7","","","472.6"],["Total PGIM assets under management","$","1,523.8","","","$","1,498.6","","","$","1,331.0"],["Assets under management within other reporting segments(2)","218.5","","","222.3","","","219.9"],["Total PFI assets under management","$","1,742.3","","","$","1,720.9","","","$","1,550.9"]]
[[/GREPCENT_TABLE]]

__________

(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 assets related to certain annuity, variable life, retirement and group life products in our U.S. Businesses and Corporate & Other operations, 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.

The following table sets forth the component changes in PGIM’s assets under management for the periods indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020","","2019"],["","(in billions)"],["Beginning assets under management","$","1,498.6","","","$","1,331.0","","","$","1,181.5"],["Institutional third-party flows","10.9","","","3.0","","","(6.5)"],["Retail third-party flows","0.1","","","17.2","","","5.7"],["Total third-party flows","11.0","","","20.2","","","(0.8)"],["Affiliated flows(1)","(12.2)","","","(8.5)","","","(3.9)"],["Market appreciation (depreciation)(2)","35.4","","","146.7","","","148.6"],["Foreign exchange rate impact","(12.4)","","","6.8","","","0.5"],["Net money market activity and other increases (decreases)","3.4","","","2.4","","","5.1"],["Ending assets under management","$","1,523.8","","","$","1,498.6","","","$","1,331.0"]]
[[/GREPCENT_TABLE]]

__________

(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.

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 December 31, 2021, these assets increased approximately $11 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:

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[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020","","2019"],["","(in billions)"],["Private capital deployed:"],["Real estate debt and equity","$","34.7","","","$","24.4","","","$","26.1"],["Private credit and equity","14.5","","","12.6","","","13.2"],["Total private capital deployed","$","49.2","","","$","37.0","","","$","39.3"]]
[[/GREPCENT_TABLE]]

Seed and Co-Investments

As of December 31, 2021 and December 31, 2020, PGIM had approximately $1,175 million and $1,205 million of seed investments and $517 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

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

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020(1)","","2019(1)"],["","","(in millions)"],["Adjusted operating income before income taxes:"],["U.S. Businesses:"],["Retirement","","$","2,178","","$","1,385","","$","1,238"],["Group Insurance","","(455)","","(16)","","285"],["Individual Annuities","","1,901","","1,470","","1,843"],["Individual Life","","393","","(48)","","87"],["Assurance IQ(2)","","(142)","","(88)","","(9)"],["Total U.S. Businesses","","3,875","","2,703","","3,444"],["Reconciling Items:"],["Realized investment gains (losses), net, and related adjustments","","1,839","","(2,510)","","(1,922)"],["Charges related to realized investment gains (losses), net","","(296)","","(121)","","(58)"],["Market experience updates(3)","","747","","(591)","","(408)"],["Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests","","7","","4","","2"],["Other adjustments(4)(5)","","(1,099)","","51","","(47)"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","","$","5,073","","$","(464)","","$","1,011"]]
[[/GREPCENT_TABLE]]

________

(1)Effective third quarter of 2021, the results of the Full Service Retirement business 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 Consolidated Financial Statements for additional information about this disposition.

(2)Assurance IQ was acquired by the Company in October 2019. See Note 1 to the 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 22 to the Consolidated Financial Statements for additional information.

(4)Includes certain components of consideration for business acquisitions, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of contingent consideration. See Note 22 to the Consolidated Financial Statements for additional information.

(5)In the fourth quarter of 2021, the Company recognized a goodwill impairment of $1,060 million related to Assurance IQ. See Note 2 and Note 10 to the Consolidated Financial Statements for additional information.

2021 to 2020 Annual Comparison. Adjusted operating income for our U.S. Businesses increased by $1,172 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

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•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 higher COVID-19 related mortality claims in our Group Insurance business, and lower COVID-19 related mortality gains in our Retirement business.

Retirement

Business Update

•In July 2021, the Company entered into a definitive agreement to sell its Full Service Retirement business to Great-West Life & Annuity Insurance Company (“Great-West”). The transaction involves the sale of legal entities, reinsurance, and the transfer of contracts and brokerage accounts, and is expected to close in the first half of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. See Note 1 to the Consolidated Financial Statements for additional information.

Beginning in the third quarter of 2021, the Company reported the assets and liabilities of the Full Service Retirement business as “held-for-sale” and transferred the results of this business to Divested and Run-off Businesses within Corporate and Other operations. All prior period amounts have been restated to conform to current period presentation. As such, the following results are now solely reflective of Retirement’s Institutional Investment Products business. See “Business—Retirement” for additional information about the Institutional Investment Products business.

Operating Results

The following table sets forth Retirement’s operating results for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["Operating results:"],["Revenues","$","15,298","","","$","10,051","","","$","13,003"],["Benefits and expenses","13,120","","","8,666","","","11,765"],["Adjusted operating income","2,178","","","1,385","","","1,238"],["Realized investment gains (losses), net, and related adjustments","206","","","(7)","","","291"],["Charges related to realized investment gains (losses), net","(17)","","","(1)","","","4"],["Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests","6","","","3","","","2"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","$","2,373","","","$","1,380","","","$","1,535"]]
[[/GREPCENT_TABLE]]

Adjusted Operating Income

2021 to 2020 Annual Comparison. Adjusted operating income increased $793 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 and 2020 included net charges of $14 million and $20 million, respectively, from these updates, primarily driven by an increase in expected benefit payments. Excluding this item, adjusted operating income increased $787 million, primarily driven by higher net investment spread results, reflecting higher income on non-coupon investments.

Revenues, Benefits and Expenses

2021 to 2020 Annual Comparison. Revenues increased $5,247 million. This increase primarily reflected higher pension risk transfer premiums due to new sales in the current year, with corresponding offsets in policyholders’ benefits, as discussed below, and higher net investment income and other income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses increased $4,454 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $4,460 million driven primarily by an increase in policyholders’ benefits, including changes in reserves related to the higher pension risk transfer premiums discussed above.

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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 investment income and interest we credit to policyholders on our spread-based products varies with the level of general account values. 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 following table shows the changes in the account values of Retirement’s products for the periods indicated. 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.”

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["Beginning total account value","","$","243,387","","","$","227,596","","","$","200,759"],["Additions(1)","","21,967","","","22,469","","","31,101"],["Withdrawals and benefits","","(20,825)","","","(18,288)","","","(16,743)"],["Change in market value, interest credited and interest income","","1,881","","","8,854","","","9,089"],["Other(2)","","(690)","","","2,756","","","3,390"],["Ending total account value","","$","245,720","","","$","243,387","","","$","227,596"]]
[[/GREPCENT_TABLE]]

__________

(1)Additions primarily include: group annuities and funded pension reinsurance calculated based on premiums received; international 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 calculated based on premiums received.

(2)“Other” activity includes the effect of foreign exchange rate changes associated with our British pounds sterling denominated international longevity reinsurance business and changes in asset balances for externally-managed accounts. For the years ended December 31, 2021 and 2020, “Other” activity also includes $3,079 million in receipts offset by $3,224 million in payments and $6,989 million in receipts offset by $6,695 million in payments, respectively, related to funding agreements backed by commercial paper which typically have maturities of less than 90 days.

2021 to 2020 Annual Comparison. The increase in account values primarily reflected a favorable change in the market value of account assets, and net additions primarily driven by international longevity reinsurance activity, partially offset by investment-only stable value account withdrawals. These increases were partially offset by a decrease in other activity primarily driven by the negative impact of foreign exchange rate changes.

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:

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[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["Operating results:"],["Revenues","$","6,217","","","$","5,786","","","$","5,750"],["Benefits and expenses","6,672","","","5,802","","","5,465"],["Adjusted operating income","(455)","","","(16)","","","285"],["Realized investment gains (losses), net, and related adjustments","(16)","","","48","","","(20)"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","$","(471)","","","$","32","","","$","265"],["Benefits ratio(1)(4):"],["Group life(2)","102.7","%","","93.4","%","","87.4","%"],["Group disability(2)","83.8","%","","78.4","%","","75.4","%"],["Total Group Insurance(2)","98.3","%","","90.2","%","","84.7","%"],["Administrative operating expense ratio(3)(4):"],["Group life","11.3","%","","12.4","%","","12.7","%"],["Group disability","32.1","%","","26.1","%","","24.1","%"],["Total Group Insurance","16.3","%","","15.4","%","","15.2","%"]]
[[/GREPCENT_TABLE]]

__________

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

(2)Benefits ratios reflect the impacts of our annual reviews and update of assumptions and other refinements. Excluding these impacts, the group life, group disability and total Group Insurance benefits ratios were 102.7%, 83.8% and 98.3% for 2021, respectively, 93.6%, 78.8% and 90.4% for 2020, respectively, and 87.0%, 77.7% and 84.9% for 2019, 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

2021 to 2020 Annual Comparison. Adjusted operating income decreased $439 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 and 2020 included net benefits from this update of $1 million and $11 million, respectively. Excluding this item, adjusted operating income decreased $429 million, primarily reflecting lower underwriting results in our group life business driven by unfavorable claim experience primarily due to COVID-19 impacts on non-experience-rated contracts, and lower underwriting results in our group disability business driven by less favorable 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

2021 to 2020 Annual Comparison. Revenues increased $431 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $453 million. The increase primarily reflected higher premiums and policy charges and fee income in our group life business primarily 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 disability business and higher net investment income from higher income on non-coupon investments.

Benefits and expenses increased $870 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $882 million. The increase primarily reflected higher policyholders’ benefits, including changes in reserves, in our group life business mostly due to COVID-19 impacts on both non-experience- and experience-rated contracts, and increases in our group disability business driven by growth, as discussed above, and 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:

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[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["Annualized new business premiums(1):"],["Group life","$","265","","","$","243","","","$","254"],["Group disability","221","","","163","","","159"],["Total","$","486","","","$","406","","","$","413"]]
[[/GREPCENT_TABLE]]

__________

(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.

2021 to 2020 Annual Comparison. Total annualized new business premiums increased $80 million, primarily driven by higher sales in both our group disability and group life businesses from both new and existing clients.

 Individual Annuities

Our Individual Annuities business includes both fixed and variable annuities which may include optional guaranteed living benefit riders (e.g., GMIB, GMAB, GMWB and GMIWB), and/or optional death benefit riders (e.g., GMDB). We also offer fixed annuities that provide a guarantee of principal and interest credited at rates we determine (subject to certain contractual minimums) or at rates based upon the performance of an index (subject to caps or participation rates), as well as indexed variable annuities that provide several index crediting strategies and varying levels of downside protection at predetermined levels and durations. The drivers of our business results are generally included in adjusted operating income, with exceptions related to certain guarantees, as discussed below.

The U.S. GAAP accounting and our adjusted operating income treatment for our guarantees differ depending upon the specific contractual features. Under U.S. GAAP, the reserves for GMIB and GMDB are accounted for in accordance with an insurance fulfillment accounting framework and the results are included in adjusted operating income in a manner generally consistent with U.S. GAAP.

In contrast, certain of our guaranteed living benefit riders (e.g., GMAB, GMWB and GMIWB) are accounted for under U.S. GAAP as embedded derivatives and reported using a fair value accounting framework. For purposes of measuring segment performance, adjusted operating income excludes the changes in fair value and instead reflects the performance of these riders using an insurance fulfillment accounting framework. Under this framework, adjusted operating income recognized each period reflects the rider fees earned during the period, less the portion of such fees estimated to be required to cover future benefit payments and hedging costs. Sales of traditional variable annuities with guaranteed living benefit riders have been discontinued as of December 31, 2020. See “Business—Individual Annuities” for more information about these products.

Business Update

•In September 2021, the Company entered into a definitive agreement to sell its equity interest in Prudential Annuities Life Assurance Corporation (“PALAC”), which represents a portion of its in-force traditional variable annuity block of business, to Fortitude Group Holdings, LLC. The transaction is expected to close in the first half of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.

Beginning in the third quarter of 2021, the Company reported the assets and liabilities of this block of business as “held-for-sale”; however, its results will continue to be reported within Individual Annuities’ operating results until the sale is completed. See Note 1 to the Consolidated Financial Statements for additional information.

Operating Results

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

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[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["Operating results:"],["Revenues","$","4,914","","","$","4,440","","","$","4,995"],["Benefits and expenses","3,013","","","2,970","","","3,152"],["Adjusted operating income","1,901","","","1,470","","","1,843"],["Realized investment gains (losses), net, and related adjustments","1,732","","","(2,911)","","","(2,551)"],["Charges related to realized investment gains (losses), net","(465)","","","4","","","59"],["Market experience updates(1)","657","","","(324)","","","(100)"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","$","3,825","","","$","(1,761)","","","$","(749)"]]
[[/GREPCENT_TABLE]]

________

(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 22 to the Consolidated Financial Statements for additional information.

Adjusted Operating Income

2021 to 2020 Annual Comparison. Adjusted operating income increased $431 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 included a $15 million net charge from these updates primarily reflecting the impact of unfavorable policyholder behavior updates. Results for 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 $310 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, and favorable impacts from our living benefit guarantees. Also contributing to the increase were higher net investment spread results, driven by higher income on non-coupon investments, and lower operating expenses.

Revenues, Benefits and Expenses

2021 to 2020 Annual Comparison. Revenues increased $474 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $344 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. Also contributing to the increase was higher net investment income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses increased $43 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $34 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, as discussed above, 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:

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[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["Total Individual Annuities(1):"],["Beginning total account value","$","176,280","","","$","169,681","","","$","151,080"],["Sales","6,599","","","6,815","","","9,720"],["Full surrenders and death benefits","(10,401)","","","(7,845)","","","(9,374)"],["Sales, net of full surrenders and death benefits","(3,802)","","","(1,030)","","","346"],["Partial withdrawals and other benefit payments","(5,712)","","","(5,191)","","","(5,163)"],["Net flows","(9,514)","","","(6,221)","","","(4,817)"],["Change in market value, interest credited and other activity","19,188","","","16,360","","","27,072"],["Policy charges","(3,649)","","","(3,540)","","","(3,654)"],["Ending total account value(2)","$","182,305","","","$","176,280","","","$","169,681"]]
[[/GREPCENT_TABLE]]

__________

(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 $176.4 billion, $170.5 billion and $164.9 billion as of December 31, 2021, 2020 and 2019, respectively. Fixed annuity account values were $5.9 billion, $5.7 billion and $4.8 billion as of December 31, 2021, 2020 and 2019, respectively.

(2)Includes approximately $30 billion of account values that are classified as “held-for-sale” as of December 31, 2021 in relation to the planned PALAC sale, as discussed above.

2021 to 2020 Annual Comparison. The increase in account values during 2021 was primarily driven by favorable changes in the market value of contractholder funds, partially offset by net outflows and policy charges.

Sales for 2021 reflected 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 decrease in sales, net of full surrenders and death benefits, largely reflects lower full surrenders in the prior year driven by general uncertainty around COVID-19.

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. For information on our external reinsurance agreements, see “Business—Individual Annuities” and Note 14 to the Consolidated Financial Statements.

Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term. We manage this risk primarily through our investment strategies including derivatives and product design features, which include credit rate resetting subject to contractual minimums as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, our indexed variable annuity strategies have an interim value provision that provides a certain level of 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

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Program, as discussed below. We also manage these risk exposures through external reinsurance for certain of our variable annuity products. For information on our external reinsurance agreements, see “Business—Individual Annuities” and Note 14 to the Consolidated Financial Statements. Sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020, and, in the third quarter of 2021, we announced that we had entered into an agreement to sell a portion of our in-force traditional variable annuity block, as described above. See “Business—Individual Annuities” for more information about these products and Note 1 to the Consolidated Financial Statements for additional information regarding the disposition.

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 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 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, which includes the portion of the traditional variable annuities block of business that is classified as “held-for-sale”, as discussed above, 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:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["","(in millions)"],["U.S. GAAP liability, including NPR, net of reinsurance recoverables","$","13,028","","","$","18,537"],["NPR adjustment, net of reinsurance recoverables","2,832","","","4,103"],["Subtotal","15,860","","","22,640"],["Adjustments including risk margins and valuation methodology differences","(3,444)","","","(5,080)"],["Economic liability managed through the ALM strategy","$","12,416","","","$","17,560"]]
[[/GREPCENT_TABLE]]

As of December 31, 2021, the fair value of our fixed income instruments and derivative assets exceed the economic liability within the entities in which the risks reside.

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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 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.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["Results excluded from adjusted operating income","(in millions)(1)"],["Change in value of U.S. GAAP liability, pre-NPR(2)","$","7,417","","","$","(4,979)","","","$","(1,510)"],["Change in the NPR adjustment","(1,272)","","","581","","","(1,103)"],["Change in fair value of hedge assets, excluding capital hedges(3)","(4,270)","","","2,251","","","695"],["Change in fair value of capital hedges(4)","(1,268)","","","(900)","","","(1,024)"],["Other","1,125","","","136","","","391"],["Realized investment gains (losses), net, and related adjustments","1,732","","","(2,911)","","","(2,551)"],["Market experience updates(5)","657","","","(324)","","","(100)"],["Charges related to realized investment gains (losses), net","(465)","","","4","","","59"],["Total results excluded from adjusted operating income(6)","$","1,924","","","$","(3,231)","","","$","(2,592)"]]
[[/GREPCENT_TABLE]]

__________

(1)Positive amounts represent income; negative amounts represent a loss.

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(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, which are excluded from adjusted operating income beginning with the second quarter of 2019.

(6)Excludes amounts from the changes in fair value of fixed income instruments recorded in OCI (versus net income) of ($1,727) million, $1,384 million and $845 million as of December 31, 2021, 2020 and 2019, respectively.

For 2021, the gain of $1,924 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.

Product Specific Risks and Risk Mitigants

For certain living benefit guarantees, claims will primarily represent the funding of contractholder lifetime withdrawals after the cumulative withdrawals have first exhausted the contractholder account value. Due to the age of the in-force block, limited claim payments have occurred to date, and they are not expected to increase significantly within the next five years, based upon current assumptions. The timing and amount of future claims will depend on actual returns on contractholder account value and actual contractholder behavior relative to our assumptions. The majority of our current living benefit guarantees provide for guaranteed lifetime contractholder withdrawal payments inclusive of a “highest daily” contract value guarantee. Our Prudential Defined Income variable annuity complements our variable annuity products with the highest daily benefit and provides for guaranteed lifetime contractholder withdrawal payments, but restricts contractholder asset allocation to a single bond fund sub-account within the separate accounts.

The majority of our traditional variable annuity contracts with living benefit guarantees, and contracts sold with our highest daily living benefit features, include risk mitigants in the form of an automatic rebalancing feature and/or inclusion in our ALM strategy. We may also utilize external reinsurance as a form of additional risk mitigation. The risks associated with the guaranteed benefits of certain legacy products that were sold prior to our development of the automatic rebalancing feature are also managed through our ALM strategy. Certain legacy products with GMAB rider options include the automatic rebalancing feature but are not included in the ALM strategy. As discussed above, sales of traditional variable annuities with living benefit guarantees and automatic rebalancing features have been discontinued as of December 31, 2020, and in the third quarter of 2021, we announced that we had entered into an agreement to sell a portion of our in-force traditional variable annuity block. See “Business—Individual Annuities” for more information about these products and Note 1 to the Consolidated Financial Statements for additional information regarding the disposition.

For our GMDBs, we provide a benefit payable in the event of death. Our base GMDB is generally equal to a return of cumulative deposits adjusted for any partial withdrawals. Certain products include an optional enhanced GMDB based on the greater of a minimum return on the contract value or an enhanced value. We have retained the risk that the total amount of death benefit payable may be greater than the contractholder account value; however, a substantial portion of the account values associated with GMDBs are subject to an automatic rebalancing feature because the contractholder also selected a living benefit guarantee which includes an automatic rebalancing feature. All of the variable annuity account values with living benefit guarantees also contain GMDBs. The living and death benefit features for these contracts cover the same insured life and, consequently, we have insured both the longevity and mortality risk on these contracts.

The following table sets forth the risk management profile of our living benefit guarantees and GMDB features as of the periods indicated:

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[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2021","","2020","","2019"],["","","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)","","$","112,543","","","64","%","","$","112,177","","","66","%","","$","111,535","","","68","%"],["ALM strategy only(3)","","7,278","","","4","%","","7,410","","","4","%","","7,703","","","5","%"],["Automatic rebalancing only","","567","","","0","%","","634","","","1","%","","732","","","1","%"],["External reinsurance(4)","","3,303","","","2","%","","3,173","","","2","%","","3,150","","","2","%"],["PDI","","16,909","","","10","%","","18,540","","","11","%","","16,296","","","9","%"],["Other products","","2,444","","","1","%","","2,492","","","1","%","","2,457","","","1","%"],["Total living benefit/GMDB features","","$","143,044","","","","","$","144,426","","","","","$","141,873"],["GMDB features and other(5)","","33,395","","","19","%","","26,120","","","15","%","","23,055","","","14","%"],["Total variable annuity account value(6)","","$","176,439","","","","","$","170,546","","","","","$","164,928"]]
[[/GREPCENT_TABLE]]

_________

(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. See Note 14 to the Consolidated Financial Statements for additional information.

(5)Includes contracts that have a GMDB feature and do not have an automatic rebalancing feature.

(6)Includes approximately $30 billion of account values that are classified as “held-for-sale” as of December 31, 2021 in relation to the planned PALAC sale, as discussed above.

Individual Life

Operating Results

The following table sets forth Individual Life’s operating results for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["Operating results:"],["Revenues","","$","6,897","","","$","6,398","","","$","6,115"],["Benefits and expenses","","6,504","","","6,446","","","6,028"],["Adjusted operating income","","393","","","(48)","","","87"],["Realized investment gains (losses), net, and related adjustments","","(83)","","","359","","","358"],["Charges related to realized investment gains (losses), net","","186","","","(124)","","","(121)"],["Market experience updates(1)","","90","","","(267)","","","(308)"],["Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests","","1","","","1","","","0"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","","$","587","","","$","(79)","","","$","16"]]
[[/GREPCENT_TABLE]]

________

(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 22 to the Consolidated Financial Statements for additional information.

Adjusted Operating Income

2021 to 2020 Annual Comparison. Adjusted operating income increased $441 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 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 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 $342 million, primarily reflecting higher net investment spread results driven by higher income on

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non-coupon investments, and higher underwriting results. The increase in underwriting results was driven by the absence of an unfavorable impact from a change in business practice related to the level of premiums collected on certain policies that resulted in reserve refinements in the prior year, and business growth, partially offset by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims.

Revenues, Benefits and Expenses

2021 to 2020 Annual Comparison. Revenues increased $499 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $606 million. This increase was primarily driven by higher net investment income from higher income on non-coupon investments and higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by lower ceded reinsurance, which were mostly offset by reserve changes in policyholders’ benefits, as discussed below, and business growth.

Benefits and expenses increased $58 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $264 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 reserve changes from lower ceded reinsurance, partially offset by the absence of an unfavorable impact from a change in business practice related to the level of premiums collected on certain policies that resulted in reserve refinements in the prior year.

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:

[[GREPCENT_TABLE]]
[["","","2021","","2020","","2019"],["","","Prudential Advisors","","Third Party","","Total","","Prudential Advisors","","Third Party","","Total","","Prudential Advisors","","Third Party","","Total"],["","","(in millions)"],["Term Life","","$","20","","","$","95","","","$","115","","","$","26","","","$","122","","","$","148","","","$","27","","","$","173","","","$","200"],["Guaranteed Universal Life(1)","","0","","","45","","","45","","","3","","","91","","","94","","","8","","","87","","","95"],["Other Universal Life(1)","","8","","","49","","","57","","","17","","","74","","","91","","","38","","","117","","","155"],["Variable Life","","121","","","417","","","538","","","100","","","349","","","449","","","78","","","200","","","278"],["Total","","$","149","","","$","606","","","$","755","","","$","146","","","$","636","","","$","782","","","$","151","","","$","577","","","$","728"]]
[[/GREPCENT_TABLE]]

__________

(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%, 7% and 9% of Guaranteed Universal Life and 2%, 7% and 14% of Other Universal Life annualized new business premiums for the years ended December 31, 2021, 2020 and 2019, respectively.

2021 to 2020 Annual Comparison. Total annualized new business premiums decreased $27 million, primarily driven by lower sales of guaranteed universal life, other universal life and term life products due to pricing and product actions, partially offset by higher sales of variable universal life products.

Assurance IQ

Operating Results

The following table sets forth Assurance IQ’s operating results for the periods indicated. Results for 2019 only reflect activity from October 10, 2019 (“acquisition date”) through December 31, 2019.

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[[GREPCENT_TABLE]]
[["","2021","","2020","","2019(1)"],["","(in millions)"],["Operating results:"],["Revenues","$","558","","","$","391","","","$","101"],["Expenses","700","","","479","","","110"],["Adjusted operating income","(142)","","","(88)","","","(9)"],["Realized investment gains (losses), net, and related adjustments","0","","","1","","","0"],["Other adjustments(2)(3)","(1,099)","","","51","","","(47)"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","$","(1,241)","","","$","(36)","","","$","(56)"]]
[[/GREPCENT_TABLE]]

  __________

(1)Represents activity from the acquisition date through December 31, 2019. See Note 1 to the Consolidated Financial Statements for additional information.

(2)All periods 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 associated contingent consideration. See Note 1 to the Consolidated Financial Statements for additional information.

(3)In the fourth quarter of 2021, the Company recognized a goodwill impairment of $1,060 million. See Note 2 and Note 10 to the Consolidated Financial Statements for additional information.

Adjusted Operating Income

2021 to 2020 Annual Comparison. Adjusted operating income decreased $54 million, reflecting higher operating and variable expenses, including those supporting business growth, partially offset by increased revenues primarily related to growth in the Medicare and Personal Finance lines.

Revenues and Expenses

2021 to 2020 Annual Comparison. Revenues increased $167 million, primarily due to commissions and case referral revenues from the Medicare 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 of Personal Finance products. Expenses increased $221 million, driven by higher marketing and distribution costs primarily related to the Medicare and Personal Finance lines, and higher general and administrative operating expenses supporting business growth.

International Businesses

Business Updates

•In the second quarter of 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 $80 million as of December 31, 2021. See Note 1 to the 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.”

•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

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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:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["Operating results:"],["Revenues:"],["Life Planner","","$","10,643","","","$","10,122","","","$","9,605"],["Gibraltar Life and Other","","11,272","","","11,454","","","11,331"],["Total revenues","","21,915","","","21,576","","","20,936"],["Benefits and expenses:"],["Life Planner","","8,869","","","8,618","","","8,172"],["Gibraltar Life and Other","","9,656","","","10,006","","","9,652"],["Total benefits and expenses","","18,525","","","18,624","","","17,824"],["Adjusted operating income:"],["Life Planner","","1,774","","","1,504","","","1,433"],["Gibraltar Life and Other","","1,616","","","1,448","","","1,679"],["Total adjusted operating income","","3,390","","","2,952","","","3,112"],["Realized investment gains (losses), net, and related adjustments","","17","","","727","","","1,240"],["Charges related to realized investment gains (losses), net","","(32)","","","(42)","","","(12)"],["Market experience updates(1)","","0","","(39)","","","(31)"],["Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests","","(79)","","","(48)","","","(107)"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","","$","3,296","","","$","3,550","","","$","4,202"]]
[[/GREPCENT_TABLE]]

   __________

(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 22 to the Consolidated Financial Statements for additional information.

Adjusted Operating Income

2021 to 2020 Annual Comparison. Adjusted operating income from our Life Planner operations increased $270 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 $2 million net benefit in 2021 compared to a $42 million net charge in 2020. The net charge in 2020 was primarily driven by unfavorable impacts related to a decrease in long-term interest rate assumptions.

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 $233 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 and Japan.

Adjusted operating income from our Gibraltar Life and Other operations increased $168 million including a net unfavorable impact of $21 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 2021 compared to a $52 million net charge in 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 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

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$153 million, primarily reflecting lower expenses, including the absence of certain costs associated with COVID-19 incurred in the prior year, and higher earnings from our joint venture investments. Also contributing to the increase were higher net investment spread results driven by higher income on non-coupon investments, partially offset by lower reinvestment yields.

Revenues, Benefits and Expenses

2021 to 2020 Annual Comparison. Revenues from our Life Planner operations increased $521 million including a net unfavorable impact of $150 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 $705 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 from our Life Planner operations increased $251 million including a net favorable impact of $143 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 $472 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 $182 million, including a net unfavorable impact of $80 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 $111 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 from our Gibraltar Life and Other operations decreased $350 million including a net favorable impact of $59 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 $264 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses, including the absence of certain costs associated with COVID-19 incurred in the prior year.

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:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["Annualized new business premiums:"],["On an actual exchange rate basis:"],["Life Planner","","$","940","","","$","1,041","","","$","1,097"],["Gibraltar Life and Other","","1,000","","","1,149","","","1,213"],["Total","","$","1,940","","","$","2,190","","","$","2,310"],["On a constant exchange rate basis:"],["Life Planner","","996","","","1,075","","","1,096"],["Gibraltar Life and Other","","1,006","","","1,153","","","1,220"],["Total","","$","2,002","","","$","2,228","","","$","2,316"]]
[[/GREPCENT_TABLE]]

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

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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.

2021 to 2020 Annual Comparison. The table below presents annualized new business premiums on a constant exchange rate basis, by product category and distribution channel, for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["","","Life","","Accident & Health","","Retirement (1)","","Annuity","","Total","","Life","","Accident & Health","","Retirement (1)","","Annuity","","Total"],["","","(in millions)"],["Life Planner","","$","552","","","$","72","","","$","368","","","$","4","","","$","996","","","$","567","","","$","69","","","$","439","","","$ 0","","$","1,075"],["Gibraltar Life and Other:"],["Life Consultants","","261","","","27","","","39","","","161","","","488","","","341","","","33","","","59","","","62","","","495"],["Banks(2)","","252","","","0","","12","","","54","","","318","","","418","","","0","","23","","","18","","","459"],["Independent Agency","","73","","","22","","","97","","","8","","","200","","","100","","","5","","","89","","","5","","","199"],["Subtotal","","586","","","49","","","148","","","223","","","1,006","","","859","","","38","","","171","","","85","","","1,153"],["Total","","$","1,138","","","$","121","","","$","516","","","$","227","","","$","2,002","","","$","1,426","","","$","107","","","$","610","","","$","85","","","$","2,228"]]
[[/GREPCENT_TABLE]]

__________

(1)Includes retirement income, endowment and savings variable universal life.

(2)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 66%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the year ended December 31, 2021, and 3% and 71%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the year ended December 31, 2020.

Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations decreased $79 million, reflecting the absence of higher sales of USD-denominated products ahead of pricing increases in the third quarter of 2020, as well as lower sales in the current year as a result of those pricing increases, partially offset by higher sales resulting from an easing of COVID-19 restrictions in the current year.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations decreased $147 million. Bank channel and Life Consultants sales decreased $141 million and $7 million, respectively, reflecting the absence of higher sales of USD-denominated products ahead of pricing increases in the third quarter of 2020, as well as lower sales in the current year as a result of those pricing increases. The decrease in Life Consultants sales was partially offset by an easing of COVID-19 restrictions in the current year, and higher sales of USD-denominated fixed annuity products driven by higher crediting rates reflecting rising interest rates. Independent Agency sales increased $1 million reflecting higher sales of accident and health products to a single large client in the current year, which were largely offset by the impacts of price increases on USD-denominated products described above.

Sales Force

The following table sets forth the number of Life Planners and Life Consultants for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","2020","","2019"],["Life Planners:"],["Japan","","4,566","","","4,555","","","4,356"],["All other countries","","1,458","","","1,511","","","1,833"],["Gibraltar Life Consultants","","7,100","","","7,254","","","7,403"],["Total","","13,124","","","13,320","","","13,592"]]
[[/GREPCENT_TABLE]]

2021 to 2020 Comparison. The number of Life Planners decreased by 42, driven by a decrease of 53 in other operations, primarily attributable to Argentina, and to a lesser degree Brazil. Life Planners in Japan increased by 11 as a result of recruiting efforts and fewer terminations. The number of Gibraltar Life Consultants decreased by 154, primarily reflecting recruiting challenges due to COVID-19.

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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.

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020(1)","","2019(1)"],["","","(in millions)"],["Operating results:"],["Interest expense on debt","","$","(827)","","","$","(894)","","","$","(866)"],["Investment income","","174","","","134","","","250"],["Pension and employee benefits","","284","","","191","","","149"],["Other corporate activities","","(1,238)","","","(1,398)","","","(1,432)"],["Adjusted operating income","","(1,607)","","","(1,967)","","","(1,899)"],["Realized investment gains (losses), net, and related adjustments","","94","","","(2,357)","","","(193)"],["Charges related to realized investment gains (losses), net","","8","","","3","","","(53)"],["Market experience updates(2)","","3","","","(10)","","","(10)"],["Divested and Run-off Businesses","","716","","","(450)","","","992"],["Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests","","(38)","","","(25)","","","(6)"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","","$","(824)","","","$","(4,806)","","","$","(1,169)"]]
[[/GREPCENT_TABLE]]

__________

(1)Effective third quarter of 2021, the results of the Full Service Retirement business are excluded from the Retirement segment and are included in Divested and Run-off Businesses. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Consolidated Financial Statements for additional information about these divestitures.

(2)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 22 to the Consolidated Financial Statements for additional information.

2021 to 2020 Annual Comparison. The loss from Corporate and Other operations, on an adjusted operating income basis, decreased $360 million. Net charges from other corporate activities decreased $160 million, primarily reflecting the absence of a significant charge to legal reserves incurred in the prior year, partially offset by increased costs related to the early extinguishment of debt in the current year. Also contributing to the decrease were favorable results of $93 million from pension and employee benefits, primarily driven by lower interest costs on our qualified pension plan obligation, $67 million of lower interest expense on debt, reflecting lower average debt balances and interest rates, and $40 million of higher investment income, primarily driven by favorable results on non-coupon investments.

For purposes of calculating pension income from our qualified pension plan for the year ended December 31, 2022, we increased the discount rate from 2.55% to 2.80% as of December 31, 2021. The expected rate of return on plan assets will increase from 5.75% in 2021 to 6.00% in 2022. The assumed rate of increase in compensation will remain unchanged at 4.50%. Giving effect to the foregoing changes and other factors, we expect income from our qualified pension plan in 2022 to be approximately $40 million to $50 million higher than 2021 levels. This increase is primarily driven by higher earnings from an increase in the expected rate of return and lower loss amortization, partially offset by higher interest costs on the plan obligation due to a higher discount rate.

For purposes of calculating postretirement benefit expenses for the year ended December 31, 2022, we increased the discount rate from 2.40% to 2.75% as of December 31, 2021. The expected rate of return on plan assets will increase from 6.75% in 2021 to 7.00% in 2022. In addition, the Company has amended certain provisions of its Retiree Medical Savings Account plan. Giving effect to the foregoing changes and other factors, we expect postretirement income in 2022 to be approximately $25 million to $35 million higher than 2021 levels. This increase is primarily driven by the changes to the Company’s Retiree Medical Savings Account plan and lower loss amortization.

In 2022, pension and other postretirement benefit service costs related to active employees will continue to be allocated to our business segments. For further information regarding our pension and postretirement plans, including the changes to the Company’s Retiree Medical Savings Account plan, see Note 18 to the Consolidated Financial Statements.

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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:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["Long-Term Care","","$","458","","","$","351","","","$","469"],["Other(1)","","258","","","(801)","","","523"],["Total Divested and Run-off Businesses income (loss) excluded from adjusted operating income","","$","716","","","$","(450)","","","$","992"]]
[[/GREPCENT_TABLE]]

 __________

(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 herein. Effective third quarter of 2020, the results of POT and the impact of its sale are excluded from the International Businesses and are included herein. Effective third quarter of 2021, the results of the Full Service Retirement business are excluded from the Retirement segment and are included herein. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Consolidated Financial Statements for additional information about these divestitures.

Long-Term Care. Results for the year ended December 31, 2021 increased $107 million compared to 2020, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 included a $62 million net benefit from these updates, while results for 2020 included a $33 million net charge. Excluding this impact, results increased $12 million primarily reflecting a favorable impact from changes in the market value of equity securities, higher underwriting results driven by favorable comparative policy and claim experience, and higher investment results, including higher income on non-coupon investments. These increases were partially offset by an unfavorable impact from changes in the market value of derivatives used for duration management.

Other Divested and Run-off Businesses. Results for the year ended December 31, 2021 increased $1,059 million compared to 2020, primarily driven by the absence of losses incurred in 2020 related to the sales of POK and POT. See Note 1 to the 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 15 to the 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.

As of December 31, 2021, the excess of actual cumulative earnings over the expected cumulative earnings was $4,387 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 year, 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

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arisen subsequent to the establishment of the Closed Block has been reflected as a policyholder dividend obligation of $3,640 million at December 31, 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:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in millions)"],["U.S. GAAP results:"],["Revenues","$","5,947","","","$","4,766","","","$","5,642"],["Benefits and expenses","5,807","","","4,790","","","5,606"],["Income (loss) before income taxes and equity in earnings of operating joint ventures","$","140","","","$","(24)","","","$","36"]]
[[/GREPCENT_TABLE]]

Income (loss) Before Income Taxes and Equity in Earnings of Operating Joint Ventures

2021 to 2020 Annual Comparison. Income (loss) before income taxes and equity in earnings of operating joint ventures increased $164 million. Net investment activity results increased primarily reflecting higher realized investment gains driven by favorable changes in the value of derivatives used in risk management activities, an increase in other income driven by favorable changes in the value of equity securities, and an increase in net investment income driven by higher income on non-coupon investments. Net insurance activity results reflected a favorable comparative change driven by a decrease in the 2021 dividend scale and run off of the business in force. As a result of the above and other variances, a $1,469 million increase in the policyholder dividend obligation was recorded in 2021, compared to a $117 million increase in 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

2021 to 2020 Annual Comparison. Revenues increased $1,181 million primarily driven by an increase in net realized investment gains, other income and net investment income, partially offset by lower premiums due to runoff of policies in force, as discussed above.

Benefits and expenses increased $1,017 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.

Income Taxes

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

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[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","2020(1)","","2019"],["","","(in millions)"],["Expected federal income tax expense (benefit) at federal statutory rate","","$","1,970","","","$","(68)","","","$","1,068"],["Non-taxable investment income","","(292)","","","(228)","","","(270)"],["Foreign taxes at other than U.S. rate","","149","","","250","","","234"],["Low-income housing and other tax credits","","(126)","","","(112)","","","(118)"],["Changes in tax law","","10","","","(192)","","","(2)"],["Sale of subsidiary","","(26)","","","277","","","4"],["Non-controlling interest","","(14)","","","(48)","","","(11)"],["Non-deductible expenses","","11","","","14","","","23"],["Change in valuation allowance","","13","","","17","","","(1)"],["State taxes","","18","","","10","","","1"],["Other","","(39)","","","(1)","","","19"],["Reported income tax expense (benefit)","","$","1,674","","","$","(81)","","","$","947"],["Effective tax rate","","17.8","%","","25.1","%","","18.6","%"]]
[[/GREPCENT_TABLE]]

  __________

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

Effective Tax Rate

The effective tax rate is the ratio of “Total income tax expense (benefit)” divided by “Income before income taxes and equity in earnings of operating joint ventures.” Our effective tax rate for fiscal years 2021, 2020 and 2019 was 17.8%, 25.1%, and 18.6%, respectively. For a detailed description of the nature of each significant reconciling item, see Note 16 to the Consolidated Financial Statements. The change in the effective tax rate from 25.1% in 2020 to 17.8% in 2021 was primarily driven by an increase in pre-tax net income, the sale of POK and the impact of the CARES Act in 2020. The increase in the effective tax rate from 18.6% in 2019 to 25.1% in 2020 was primarily driven by a decrease in pre-tax net income, the sale of POK and the impact of the CARES Act in 2020.

Unrecognized Tax Benefits

The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the Internal Revenue Service or other taxing authorities. The completion of review or the expiration of the Federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. The total unrecognized benefit as of December 31, 2021, 2020 and 2019 was $12 million, $17 million and $18 million, respectively. We do not anticipate any significant changes within the next twelve months to our total unrecognized tax benefits related to tax years for which the statute of limitations has not expired.

Income Tax Expense vs. Income Tax Paid in Cash

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

For additional information on income tax related items, see “Business—Regulation” and Note 16 to the Consolidated Financial Statements.

Experience-Rated Contractholder Liabilities,

Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments

Certain products included in the International Businesses and the divested Full Service Retirement business 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.

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International Businesses. In our International Businesses, these investments are reflected on the 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)” while interest and dividend income are reported in “Net investment income.” As these experience-rated products are fully participating, the entire return on the underlying investments is passed back to policyholders through a corresponding adjustment to the related liability, primarily classified in the Consolidated Statements of Financial Position as “Policyholders’ account balances.”

Adjusted operating income excludes net investment gains (losses) on assets supporting experience-rated contractholder liabilities. 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 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.

Full Service Retirement Business. Our divested Full Service Retirement business 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. 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.

Beginning in the third quarter of 2021, the Company reported the assets and liabilities of the Full Service Retirement business as “held-for-sale,” and transferred the results of this business from the Retirement segment to the Divested and Run-off Businesses within Corporate & Other operations, which are excluded from adjusted operating income. See Note 1 to the Consolidated Financial Statements for additional information.

As a result of this recent “held-for-sale” classification, the assets and liabilities associated with these products for the current reporting period are included in the Consolidated Statements of Financial Position as “Assets held-for-sale” and “Liabilities held-for-sale,” respectively; however, for prior periods, the assets and liabilities associated with these products are presented similar to how they are described in “International Businesses” above.

The following table sets forth the impact on results for the periods indicated of these items that are excluded from adjusted operating income:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["International Businesses:"],["Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net","","$","369","","","$","68","","","$","267"],["Change in experience-rated contractholder liabilities due to asset value changes","","(369)","","","(68)","","","(267)"],["Gains (losses), net, on experienced rated contracts","","$","0","","","$","0","","","$","0"],["Divested and Run-off Businesses:"],["Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net","","$","(616)","","","$","602","","","$","699"],["Change in experience-rated contractholder liabilities due to asset value changes","","657","","","(625)","","","(682)"],["Gains (losses), net, on experienced rated contracts(1)(2)","","$","41","","","$","(23)","","","$","17"],["Total:"],["Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net(1)","","$","(247)","","","$","670","","","$","966"],["Change in experience-rated contractholder liabilities due to asset value changes","","288","","","(693)","","","(949)"],["Gains (losses), net, on experienced rated contracts(1)(2)","","$","41","","","$","(23)","","","$","17"]]
[[/GREPCENT_TABLE]]

__________

(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, $3 million and $7 million as of December 31, 2021, 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.

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(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 $12 million, $6 million and $57 million for the years ended December 31, 2021, 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.

For our divested Retirement Full Service business, the net impact of changes in experience-rated contractholder liabilities and investment gains (losses) on assets supporting experience-rated contractholder liabilities and other related investments reflects 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. This includes certain assets that are designated as available-for-sale where mark-to-market adjustments are recorded as unrealized gains (losses) in “Other comprehensive income”, These impacts also reflect the difference between the fair value of underlying commercial mortgages and other loans and the amortized cost, less any valuation allowance, of these loans.

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 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 15 to the Consolidated Financial Statements for further information on the Closed Block.

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[[GREPCENT_TABLE]]
[["","As of December 31, 2021(1)","","As of December 31, 2020"],["","PFI excluding Closed Block Division","","Closed Block Division","","PFI excluding Closed Block Division","","Closed Block Division"],["","Total at Fair Value","","Total Level 3(2)","","Total at Fair Value","","Total Level 3(2)","","Total at Fair Value","","Total Level 3(2)","","Total at Fair Value","","Total Level 3(2)"],["","(in millions)"],["Fixed maturities, available-for-sale","$","334,006","","","$","5,810","","","$","38,404","","","$","1,510","","","$","370,681","","","$","5,005","","","$","42,224","","","$","1,038"],["Assets supporting experience-rated contractholder liabilities:"],["Fixed maturities","1,057","","","0","","","0","","","0","","","21,414","","","615","","","0","","","0"],["Equity securities","2,271","","","0","","","0","","","0","","","2,043","","","0","","","0","","","0"],["All other(3)","20","","","0","","","0","","","0","","","619","","","20","","","0","","","0"],["Subtotal","3,348","","","0","","","0","","","0","","","24,076","","","635","","","0","","","0"],["Fixed maturities, trading","7,686","","","403","","","1,137","","","18","","","3,636","","","230","","","278","","","13"],["Equity securities","6,089","","","699","","","2,288","","","100","","","5,653","","","576","","","2,345","","","84"],["Commercial mortgage and other loans","1,263","","","0","","","0","","","0","","","1,092","","","0","","","0","","","0"],["Other invested assets(4)","3,749","","","489","","","7","","","4","","","2,268","","","366","","","3","","","0"],["Short-term investments","5,186","","","268","","","457","","","62","","","6,222","","","146","","","88","","","31"],["Cash equivalents","4,857","","","48","","","402","","","22","","","5,241","","","1","","","241","","","0"],["Other assets","164","","","164","","","0","","","0","","","268","","","268","","","0","","","0"],["Separate account assets","219,971","","","1,283","","","0","","","0","","","304,270","","","1,821","","","0","","","0"],["Total assets","$","586,319","","","$","9,164","","","$","42,695","","","$","1,716","","","$","723,407","","","$","9,048","","","$","45,179","","","$","1,166"],["Future policy benefits","$","9,068","","","$","9,068","","","$","0","","","$","0","","","$","18,879","","","$","18,879","","","$","0","","","$","0"],["Policyholders\u2019 account balances","1,436","","","1,436","","","0","","","0","","","1,914","","","1,914","","","0","","","0"],["Other liabilities(4)","1,860","","","0","","","0","","","0","","","385","","","0","","","0","","","0"],["Total liabilities","$","12,364","","","$","10,504","","","$","0","","","$","0","","","$","21,178","","","$","20,793","","","$","0","","","$","0"]]
[[/GREPCENT_TABLE]]

__________

(1)Excludes amounts for financial instruments reclassified to “Assets held-for-sale” of $129,579 million and “Liabilities held-for-sale” of $6,214 million. Assets held-for-sale and liabilities held-for-sale are valued on a basis consistent with similar instruments described herein. See Note 1 for additional information on the pending dispositions.

(2)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 1.6% and 4.0%, respectively, as of December 31, 2021 and 1.3% and 2.6%, respectively, as of December 31, 2020.

(3)“All other” represents cash equivalents and short-term investments.

(4)“Other invested assets” and “Other liabilities” primarily include derivatives. The amounts include the impact of netting subject to master netting agreements.

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.

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 $2.2 billion of public fixed maturities as of December 31, 2021 with values primarily based on indicative broker quotes, and approximately $4.7 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 level 3 of our fair value hierarchy represent general account liabilities pertaining to living benefit features of the Company’s

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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.

General Account Investments

We maintain diversified investment portfolios in our general account to support our liabilities to customers as well as our other general liabilities. Investments and other assets that do not support general account liabilities, and are therefore excluded from our general account, are as follows:

•assets of our derivative operations;

•assets of our investment management operations, including investments managed for third-parties; and

•those assets classified as “Separate account assets” on our balance sheet.

The general account portfolios are managed pursuant to the distinct objectives and investment policy statements of PFI excluding the Closed Block division and of the Closed Block division. The primary investment objectives of PFI excluding the Closed Block division include:

•hedging and otherwise managing the market risk characteristics of the major product liabilities and other obligations of the Company;

•optimizing investment income yield within risk constraints over time; and

•for certain portfolios, optimizing total return, including both investment income yield and capital appreciation, within risk constraints over time, while managing the market risk exposures associated with the corresponding product liabilities.

We pursue our objective to optimize investment income yield for PFI excluding the Closed Block division over time through:

•the investment of net operating cash flows, including new product premium inflows, and proceeds from investment sales, repayments and prepayments into investments with attractive risk-adjusted yields; and

•the sale of investments, where appropriate, either to meet various cash flow needs or to manage the portfolio's risk exposure profile with respect to duration, credit, currency and other risk factors, while considering the impact on taxes and capital.

The primary investment objectives of the Closed Block division include:

•providing for the reasonable dividend expectations of the participating policyholders within the Closed Block division; and

•optimizing total return, including both investment income yield and capital appreciation, within risk constraints, while managing the market risk exposures associated with the major products in the Closed Block division.

Our portfolio management approach, while emphasizing our investment income yield and asset/liability risk management objectives, also takes into account the capital and tax implications of portfolio activity and our assertions regarding our ability and intent to hold debt securities to recovery. For a further discussion of our allowance for credit losses, including our assertions regarding any intention or requirement to sell debt securities before anticipated recovery, see “—Realized Investment Gains and Losses—Credit Losses” below.

Management of Investments

The Investment Committee of our Board of Directors (“Board”) oversees our proprietary investments, including our general account portfolios, and regularly reviews performance and risk positions. Our Chief Investment Officer Organization (“CIO Organization”) develops investment policies subject to risk limits proposed by our Enterprise Risk Management (“ERM”) group for the general account portfolios of our domestic and international insurance subsidiaries and directs and oversees management of the general account portfolios within risk limits and exposure ranges approved annually by the Investment Committee.

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The CIO Organization, including related functions within our insurance subsidiaries, works closely with product actuaries and ERM to understand the characteristics of our products and their associated market risk exposures. This information is incorporated into the development of target asset portfolios that manage market risk exposures associated with the liability characteristics and establish investment risk exposures, within tolerances prescribed by Prudential’s investment risk limits, on which we expect to earn an attractive risk-adjusted return. We develop asset strategies for specific classes of product liabilities and attributed or accumulated surplus, each with distinct risk characteristics. Market risk exposures associated with the liabilities include interest rate risk, which is addressed through the duration characteristics of the target asset mix, and currency risk, which is addressed by the currency profile of the target asset mix. In certain of our smaller markets outside of the U.S. and Japan, capital markets limitations hinder our ability to hedge interest rate exposure to the same extent we do for our U.S. and Japan businesses and lead us to accept a higher degree of interest rate risk in these smaller portfolios. General account portfolios typically include allocations to credit and other investment risks as a means to enhance investment yields and returns over time.

Most of our products can be categorized into the following three classes:

•interest-crediting products for which the rates credited to customers are periodically adjusted to reflect market and competitive forces and actual investment experience, such as fixed annuities and universal life insurance;

•participating individual and experience-rated group products in which customers participate in actual investment and business results through annual dividends, interest or return of premium; and

•products with fixed or guaranteed terms, such as traditional whole life and endowment products, guaranteed investment contracts (“GICs”), funding agreements and payout annuities.

Our total investment portfolio is composed of a number of operating portfolios. Each operating portfolio backs a specific set of liabilities, and the portfolios have a target asset mix that supports the liability characteristics, including duration, cash flow, liquidity needs and other criteria. As of December 31, 2021, the average duration of our domestic general account investment portfolios attributable to PFI excluding the Closed Block division, including the impact of derivatives, was between 8 and 9 years. As of December 31, 2021, the average duration of our international general account portfolios attributable to our Japanese insurance operations, including the impact of derivatives, was between 12 and 13 years and represented a blend of yen-denominated and U.S. dollar and Australian dollar-denominated investments, which have distinct average durations supporting the insurance liabilities we have issued in those currencies. Our asset/liability management process has enabled us to manage our portfolios through several market cycles.

We implement our portfolio strategies primarily through investment in a broad range of fixed income assets, including government and agency securities, public and private corporate bonds and structured securities and commercial mortgage loans. In addition, we hold allocations of non-coupon investments, which include equity securities and other invested assets such as LPs/LLCs, real estate held through direct ownership, derivative instruments, and seed money investments in separate accounts.

We manage our public fixed maturity portfolio to a risk profile directed or overseen by the CIO Organization and ERM groups and to a profile that also reflects the market environments impacting both our domestic and international insurance portfolios. The return that we earn on the portfolio will be reflected in investment income and in realized gains or losses on investments.

We use privately-placed corporate debt securities and commercial mortgage loans, which consist of mortgages on diversified properties in terms of geography, property type and borrowers, to enhance the yield on our portfolio and to improve the overall diversification of the portfolios. Private placements typically offer enhanced yields due to an illiquidity premium and generally offer enhanced credit protection in the form of covenants. Our origination capability offers the opportunity to lead transactions and gives us the opportunity for better terms, including covenants and call protection, and to take advantage of innovative deal structures.

Derivative strategies are employed in the context of our risk management framework to enhance our ability to manage interest rate and currency risk exposures of the asset portfolio relative to the liabilities and to manage credit and equity positions in the investment portfolios. For a discussion of our risk management process, see “Quantitative and Qualitative Disclosures About Market Risk” below.

Our portfolio asset allocation reflects our emphasis on diversification across asset classes, sectors and issuers. The CIO Organization, directly and through related functions within the insurance subsidiaries, implements portfolio strategies primarily through various investment management units within Prudential’s PGIM segment. Activities of the PGIM segment on behalf of the general account portfolios are directed and overseen by the CIO Organization and monitored by ERM for compliance with investment risk limits.

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In executing the activities on behalf of the general account portfolio, Prudential investment management units are incorporating environmental, social and governance factors into their respective investment processes as appropriate. These factors include investing in opportunities to support diversity and inclusion and to help mitigate climate change by pursuing relevant investments across asset classes.

Portfolio Composition

Our investment portfolio consists of public and private fixed maturity securities, commercial mortgage and other loans, policy loans and non-coupon investments as defined above. 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:

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[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","PFI Excluding Closed Block Division(1)","","Closed Block Division","","Total"],["","","($ in millions)"],["Fixed maturities:"],["Public, available-for-sale, at fair value","","$","276,868","","","65.0","%","","$","28,167","","","$","305,035"],["Public, held-to-maturity, at amortized cost, net of allowance","","1,413","","","0.3","","","0","","","1,413"],["Private, available-for-sale, at fair value","","56,660","","","13.3","","","10,237","","","66,897"],["Private, held-to-maturity, at amortized cost, net of allowance","","101","","","0.1","","","0","","","101"],["Fixed maturities, trading, at fair value","","7,473","","","1.8","","","1,137","","","8,610"],["Assets supporting experience-rated contractholder liabilities, at fair value","","3,358","","","0.8","","","0","","","3,358"],["Equity securities, at fair value","","5,587","","","1.3","","","2,288","","","7,875"],["Commercial mortgage and other loans, at book value, net of allowance","","49,146","","","11.6","","","8,241","","","57,387"],["Policy loans, at outstanding balance","","6,571","","","1.5","","","3,815","","","10,386"],["Other invested assets, net of allowance(2)","","12,485","","","2.9","","","4,358","","","16,843"],["Short-term investments, net of allowance","","6,043","","","1.4","","","557","","","6,600"],["Total general account investments","","425,705","","","100.0","%","","58,800","","","484,505"],["Invested assets of other entities and operations(3)","","7,694","","","","","0","","","7,694"],["Total investments","","$","433,399","","","","","$","58,800","","","$","492,199"],["","","December 31, 2020"],["","","PFI Excluding Closed Block Division","","Closed Block Division","","Total"],["","","($ in millions)"],["Fixed maturities:"],["Public, available-for-sale, at fair value","","$","309,813","","","63.7","%","","$","29,475","","","$","339,288"],["Public, held-to-maturity, at amortized cost, net of allowance","","1,719","","","0.4","","","0","","","1,719"],["Private, available-for-sale, at fair value","","60,224","","","12.4","","","12,749","","","72,973"],["Private, held-to-maturity, at amortized cost, net of allowance","","211","","","0.1","","","0","","","211"],["Fixed maturities, trading, at fair value","","3,425","","","0.7","","","277","","","3,702"],["Assets supporting experience-rated contractholder liabilities, at fair value","","24,115","","","5.0","","","0","","","24,115"],["Equity securities, at fair value","","5,108","","","1.1","","","2,345","","","7,453"],["Commercial mortgage and other loans, at book value, net of allowance","","55,892","","","11.5","","","8,421","","","64,313"],["Policy loans, at outstanding balance","","7,207","","","1.5","","","4,064","","","11,271"],["Other invested assets, net of allowance (2)","","10,716","","","2.1","","","3,610","","","14,326"],["Short-term investments, net of allowance","","7,640","","","1.5","","","124","","","7,764"],["Total general account investments","","486,070","","","100.0","%","","61,065","","","547,135"],["Invested assets of other entities and operations(3)","","6,485","","","","","0","","","6,485"],["Total investments","","$","492,555","","","","","$","61,065","","","$","553,620"]]
[[/GREPCENT_TABLE]]

__________

(1)Excludes “Assets held-for-sale” of $40,669 million as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

(2)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.

(3)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 decrease in general account investments attributable to PFI excluding the Closed Block division in 2021 was primarily due to an increase in U.S. interest rates and the translation impact of the U.S. dollar strengthening against the yen,

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partially offset by the reinvestment of net investment income and net business inflows. Also contributing to the decrease are balances that were reclassified to “Assets held-for-sale”. For information regarding the methodology used in determining the fair value of our fixed maturities, see Note 6 to the Consolidated Financial Statements.

As of December 31, 2021 and 2020, 48% and 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:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2021","","2020"],["","","(in millions)"],["Fixed maturities:"],["Public, available-for-sale, at fair value","","$","146,600","","","$","154,261"],["Public, held-to-maturity, at amortized cost, net of allowance","","1,413","","1,719"],["Private, available-for-sale, at fair value","","21,079","","21,748"],["Private, held-to-maturity, at amortized cost, net of allowance","","101","","211"],["Fixed maturities, trading, at fair value","","839","","550"],["Assets supporting experience-rated contractholder liabilities, at fair value","","3,328","","3,149"],["Equity securities, at fair value","","2,187","","2,134"],["Commercial mortgage and other loans, at book value, net of allowance","","19,969","","19,915"],["Policy loans, at outstanding balance","","2,726","","3,078"],["Other invested assets(1)","","4,203","","3,045"],["Short-term investments, net of allowance","","692","","438"],["Total Japanese general account investments","","$","203,137","","","$","210,248"]]
[[/GREPCENT_TABLE]]

__________

(1)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments and other miscellaneous investments.

The decrease in general account investments related to our Japanese insurance operations in 2021 was primarily attributable 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.

As of December 31, 2021, our Japanese insurance operations had $92.5 billion, at carrying value, of investments denominated in U.S. dollars, including $2.1 billion that were hedged to yen through third-party derivative contracts and $80.2 billion that support liabilities denominated in U.S. dollars, with the remainder constituting part of the hedging of foreign currency exchange rate exposure to U.S. dollar-equivalent equity. As of December 31, 2020, our Japanese insurance operations had $89.2 billion, at carrying value, of investments denominated in U.S. dollars, including $1.8 billion that were hedged to yen through third-party derivative contracts and $74.8 billion that support liabilities denominated in U.S. dollars, with the remainder constituting part of the hedging of foreign currency exchange rate exposure of U.S. dollar-equivalent equity. The $3.3 billion increase in the carrying value of U.S. dollar-denominated investments from December 31, 2020 was primarily attributable to the reinvestment of net investment income and portfolio growth as a result of net business inflows, partially offset by an increase in U.S. interest rates.

Our Japanese insurance operations had $8.0 billion and $10.2 billion, at carrying value, of investments denominated in Australian dollars that support liabilities denominated in Australian dollars as of December 31, 2021 and 2020, respectively. The $2.2 billion decrease in the carrying value of Australian dollar-denominated investments from December 31, 2020 was primarily attributable to run-off of the portfolio and an increase in Australian 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

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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.”

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2021"],["","PFI Excluding Closed Block Division and Japanese Operations(6)","","Japanese Insurance Operations","","PFI Excluding Closed Block Division(6)","","Closed Block Division","","Total(5)"],["","Yield(1)","","Amount","","Yield(1)","","Amount","","Yield(1)","","Amount","","Amount","","Amount"],["","($ in millions)"],["Fixed maturities(2)","4.68","%","","$","7,084","","","2.72","%","","$","3,921","","","3.72","%","","$","11,005","","","$","1,461","","","$","12,466"],["Assets supporting experience-rated contractholder liabilities","3.48","","","561","","","0.93","","","30","","","3.05","","","591","","","0","","","591"],["Equity securities","1.44","","","42","","","3.52","","","76","","","2.32","","","118","","","44","","","162"],["Commercial mortgage and other loans","4.16","","","1,401","","","3.92","","","768","","","4.07","","","2,169","","","367","","","2,536"],["Policy loans","5.09","","","196","","","4.05","","","114","","","4.65","","","310","","","222","","","532"],["Short-term investments and cash equivalents","0.48","","","55","","","0.48","","","4","","","0.48","","","59","","","3","","","62"],["Gross investment income","4.26","","","9,339","","","2.85","","","4,913","","","3.63","","","14,252","","","2,097","","","16,349"],["Investment expenses","(0.14)","","","(254)","","","(0.14)","","","(241)","","","(0.14)","","","(495)","","","(124)","","","(619)"],["Investment income after investment expenses","4.12","%","","9,085","","","2.71","%","","4,672","","","3.49","%","","13,757","","","1,973","","","15,730"],["Other invested assets(3)","","","1,413","","","","","457","","","","","1,870","","","527","","","2,397"],["Investment results of other entities and operations(4)","","","160","","","","","0","","","","","160","","","0","","","160"],["Total investment income","","","$","10,658","","","","","$","5,129","","","","","$","15,787","","","$","2,500","","","$","18,287"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Year Ended December 31, 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)","4.59","%","","$","7,416","","","2.78","%","","$","3,875","","","3.75","%","","$","11,291","","","$","1,566","","","$","12,857"],["Assets supporting experience-rated contractholder liabilities","3.22","","","637","","","1.88","","","52","","","3.06","","","689","","","0","","","689"],["Equity securities","2.01","","","48","","","3.62","","","72","","","2.74","","","120","","","42","","","162"],["Commercial mortgage and other loans","3.95","","","1,377","","","2.89","","","731","","","3.91","","","2,108","","","358","","","2,466"],["Policy loans","5.31","","","238","","","3.23","","","98","","","4.47","","","336","","","247","","","583"],["Short-term investments and cash equivalents","0.83","","","171","","","0.86","","","14","","","0.83","","","185","","","6","","","191"],["Gross investment income","4.06","","","9,887","","","2.89","","","4,842","","","3.58","","","14,729","","","2,219","","","16,948"],["Investment expenses","(0.12)","","","(272)","","","(0.14)","","","(245)","","","(0.13)","","","(517)","","","(136)","","","(653)"],["Investment income after investment expenses","3.94","%","","9,615","","","2.75","%","","4,597","","","3.45","%","","14,212","","","2,083","","","16,295"],["Other invested assets(3)","","","413","","","","","245","","","","","658","","","157","","","815"],["Investment results of other entities and operations(4)","","","300","","","","","0","","","","","300","","","0","","","300"],["Total investment income","","","$","10,328","","","","","$","4,842","","","","","$","15,170","","","$","2,240","","","$","17,410"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 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)","4.71","%","","$","7,567","","","2.87","%","","$","3,842","","","3.87","%","","$","11,409","","","$","1,713","","","$","13,122"],["Assets supporting experience-rated contractholder liabilities","3.61","","","678","","","1.99","","","52","","","3.42","","","730","","","0","","","730"],["Equity securities","2.30","","","49","","","3.27","","","66","","","2.77","","","115","","","45","","","160"],["Commercial mortgage and other loans","4.21","","","1,406","","","4.29","","","767","","","4.24","","","2,173","","","388","","","2,561"],["Policy loans","5.36","","","256","","","3.92","","","107","","","4.84","","","363","","","255","","","618"],["Short-term investments and cash equivalents","2.58","","","373","","","3.40","","","27","","","2.62","","","400","","","32","","","432"],["Gross investment income","4.41","","","10,329","","","3.04","","","4,861","","","3.86","","","15,190","","","2,433","","","17,623"],["Investment expenses","(0.13)","","","(400)","","","(0.14)","","","(280)","","","(0.13)","","","(680)","","","(209)","","","(889)"],["Investment income after investment expenses","4.28","%","","9,929","","","2.90","%","","4,581","","","3.73","%","","14,510","","","2,224","","","16,734"],["Other invested assets(3)","","","378","","","","","184","","","","","562","","","99","","","661"],["Investment results of other entities and operations(4)","","","190","","","","","0","","","","","190","","","0","","","190"],["Total investment income","","","$","10,497","","","","","$","4,765","","","","","$","15,262","","","$","2,323","","","$","17,585"]]
[[/GREPCENT_TABLE]]

__________

(1)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 (2019) and amortized cost, net of allowance (2020 and 2021). 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.

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(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 3.57%, 3.54% and 3.81% for the years ended December 31, 2021, 2020 and 2019, respectively.

(6)The denominator in the yield percentage includes “Assets held-for-sale”. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

The increase 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 2021 compared to 2020 was primarily the result of the absence of lower yielding fixed income 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 2021 compared to 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 $60.5 billion and $54.2 billion, for the years ended December 31, 2021 and 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 $7.9 billion and $8.2 billion, for the years ended December 31, 2021 and 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 “Related adjustments” and “Charges related to realized investment gains (losses), net” for the periods indicated:

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[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2021","","2020","","2019"],["","","(in millions)"],["PFI excluding Closed Block Division:"],["Realized investment gains (losses), net:"],["(Addition to) release of allowance for credit losses on fixed maturities(5)","","$","16","","","$","(105)","","","$ N/A"],["Write-downs on fixed maturities(1)","","(1)","","","(220)","","","(232)"],["Net gains (losses) on sales and maturities","","1,445","","","777","","","867"],["Fixed maturity securities(2)","","1,460","","","452","","","635"],["(Addition to) release of allowance for credit losses on loans","","87","","","0","","","4"],["Net gains (losses) on sales and maturities","","1","","","10","","","(10)"],["Commercial mortgage and other loans","","88","","","10","","","(6)"],["Derivatives","","1,463","","","(4,571)","","","(1,623)"],["OTTI losses on other invested assets recognized in earnings","","(52)","","","(33)","","","(18)"],["(Addition to) release of allowance for credit losses on other invested assets(5)","","0","","","(1)","","","N/A"],["Other net gains (losses)","","162","","","17","","","70"],["Other","","110","","","(17)","","","52"],["Subtotal","","3,121","","","(4,126)","","","(942)"],["Investment results of other entities and operations(3)","","96","","","57","","","(38)"],["Total \u2014 PFI excluding Closed Block Division","","3,217","","","(4,069)","","","(980)"],["Related adjustments(4)","","(1,270)","","","(71)","","","104"],["Realized investment gains (losses), net, and related adjustments","","1,947","","","(4,140)","","","(876)"],["Charges related to realized investment gains (losses), net(4)","","(320)","","","(160)","","","(123)"],["Realized investment gains (losses), net, and charges related to realized investment gains (losses), net and adjustments","","$","1,627","","","$","(4,300)","","","$","(999)"],["Closed Block Division:"],["Realized investment gains (losses), net:"],["(Addition to) release of allowance for credit losses on fixed maturities(5)","","$","8","","","$","(27)","","","$ N/A"],["Write-downs on fixed maturities(1)","","0","","","(84)","","","(83)"],["Net gains (losses) on sales and maturities","","466","","","388","","","417"],["Fixed maturity securities(2)","","474","","","277","","","334"],["(Addition to) release of allowance for credit losses on loans","","11","","","3","","","3"],["Net gains (losses) on sales and maturities","","0","","","(3)","","","0"],["Commercial mortgage and other loans","","11","","","0","","","3"],["Derivatives","","318","","","(87)","","","193"],["OTTI losses on other invested assets recognized in earnings","","0","","","0","","","0"],["(Addition to) release of allowance for credit losses on other invested assets(5)","","0","","","0","","","N/A"],["Other net gains (losses)","","4","","","(8)","","","(9)"],["Other","","4","","","(8)","","","(9)"],["Subtotal \u2014 Closed Block Division","","807","","","182","","","521"],["Consolidated PFI realized investment gains (losses), net","","$","4,024","","","$","(3,887)","","","$","(459)"]]
[[/GREPCENT_TABLE]]

__________

(1)Amounts represent write-downs of credit adverse securities and securities actively marketed for sale. In addition, for the years ended December 31, 2020 and 2019, amounts also include write-downs on securities approaching maturities related to foreign exchange movements.

(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.

(5)Prior to January 1, 2020, write-offs of credit adverse securities were reported as OTTI.

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2021 to 2020 Annual Comparison

Net gains on sales and maturities of fixed maturity securities were $1,445 million for the year ended December 31, 2021 primarily driven by sales of U.S. treasuries acquired in a higher interest-rate environment within our domestic segments and 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 $777 million for the year ended December 31, 2020 primarily driven by the impact of foreign currency exchange rate movements of 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 driven by interest rate declines during the investment holding period.

Net realized gains on derivative instruments of $1,463 million, for the year ended December 31, 2021, primarily included:

•$2,471 million of gains on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and

•$371 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the Euro.

Partially offsetting these gains were:

•$1,248 million of losses on capital hedges due to increases in equity indices; and

•$318 million of losses on interest rate derivatives due to increases in swap and U.S. Treasury rates.

Net realized losses on derivative instruments of $4,571 million, for the year ended December 31, 2020, primarily included:

•$3,957 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and

•$2,362 million of losses on capital hedges due to increases in equity indices.

Partially offsetting these losses were:

•$1,483 million of gains on interest rate derivatives due to decreases in swap and U.S. Treasury rates;

•$139 million of gains for fees earned on fee-based synthetic GICs; and

•$61 million of gains on foreign currency hedges due to Japanese yen strengthening against the U.S. dollar.

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—Individual Annuities” above.

Included in the table above are “Related adjustments,” which include the portions of “Realized investment gains (losses), net” that are either (1) included in adjusted operating income or (2) included in other reconciling line items to adjusted operating income, such as “Market experience updates” and “Divested and Run-off Businesses.” “Related adjustments” also includes 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 is excluded from adjusted operating income. See Note 22 for additional details on adjusted operating income and its reconciliation to “Income (loss) before income taxes and equity in earnings of operating joint ventures.” Results for the years ended December 31, 2021 and 2020 reflect net related adjustments of $(1,270) million and $(71) million, respectively. Both periods include changes in the fair value of equity securities and fixed income securities that are designated as trading, as well as settlements and changes in the value of derivatives. Additionally, the results for 2020 included the impact of foreign currency exchange rate movements on certain non-local currency denominated assets and liabilities, for which the majority of the foreign currency exposure is hedged and offset in “Realized investment gains (losses), net.”

Also included in the table above are “Charges related to realized investment gains (losses), net,” which are excluded from adjusted operating income and which may be reflected as either a net charge or net benefit. Results for the years ended December 31, 2021 and 2020 reflect net charges of $320 million and $160 million, respectively, and were primarily driven by the impact of derivative activity on the amortization of DAC and other costs, and certain policyholder reserves.

Credit Losses

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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 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.

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.

COVID-19

We believe our investment portfolio has been diligently constructed with a strong focus on ALM discipline, risk management, and capital preservation. Throughout the COVID-19 pandemic, our portfolio has remained resilient, bolstered by our portfolio construction, investment strategy and our experience in managing highly specialized asset classes throughout credit cycles. The economy continues to recover and remains on a path to re-opening. Credit migration and defaults were low in 2021 and are expected to remain limited in 2022. The sectors most impacted from COVID-19 have started to recover but could be influenced by periods of volatility due to variants emerging. We continue to monitor our portfolio for potential credit issues and opportunities as part of our overall portfolio and 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 because substantially all Closed Block division assets support obligations and liabilities relating to the Closed Block policies only. See Note 15 to the Consolidated Financial Statements for further 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 experienced-rated contractholder liabilities and classified as trading.

Fixed Maturity Securities by Contractual Maturity Date

The following table sets forth the breakdown of the amortized cost of our fixed maturity securities portfolio by contractual maturity, as of the date indicated:

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[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Amortized Cost","","% of Total"],["","","($ in millions)"],["Corporate & government securities:"],["Maturing in 2022","","$","7,232","","","2.4","%"],["Maturing in 2023","","9,578","","","3.2"],["Maturing in 2024","","11,175","","","3.7"],["Maturing in 2025","","10,981","","","3.7"],["Maturing in 2026","","12,508","","","4.2"],["Maturing in 2027","","13,782","","","4.6"],["Maturing in 2028","","11,923","","","4.0"],["Maturing in 2029","","12,873","","","4.3"],["Maturing in 2030","","10,695","","","3.6"],["Maturing in 2031","","12,923","","","4.3"],["Maturing in 2032","","7,505","","","2.5"],["Maturing in 2033 and beyond","","158,530","","","52.9"],["Total corporate & government securities","","279,705","","","93.4"],["Asset-backed securities","","8,678","","","2.9"],["Commercial mortgage-backed securities","","8,434","","","2.8"],["Residential mortgage-backed securities","","2,642","","","0.9"],["Total fixed maturities(1)","","$","299,459","","","100.0","%"]]
[[/GREPCENT_TABLE]]

__________

(1) Excludes “Assets held-for-sale” with amortized cost of $13,145 million. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

Fixed Maturity Securities 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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[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["Industry(1)","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses","","ACL","","Fair Value","","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses","","ACL","","Fair Value"],["","(in millions)"],["Corporate securities:"],["Finance","$","37,669","","","$","3,362","","","$","175","","","$","1","","","$","40,855","","","$","37,577","","","$","5,240","","","$","70","","","$","0","","","$","42,747"],["Consumer non-cyclical","30,345","","","3,675","","","182","","","0","","","33,838","","","28,891","","","5,085","","","52","","","0","","","33,924"],["Utility","23,617","","","3,076","","","114","","","21","","","26,558","","","24,235","","","4,504","","","60","","","11","","","28,668"],["Capital goods","14,556","","","1,352","","","85","","","9","","","15,814","","","13,711","","","1,947","","","49","","","2","","","15,607"],["Consumer cyclical","10,504","","","1,049","","","52","","","0","","","11,501","","","11,196","","","1,536","","","52","","","13","","","12,667"],["Foreign agencies","5,204","","","603","","","21","","","0","","","5,786","","","5,323","","","903","","","11","","","0","","","6,215"],["Energy","11,487","","","1,336","","","60","","","0","","","12,763","","","12,257","","","1,583","","","118","","","58","","","13,664"],["Communications","6,524","","","1,041","","","53","","","39","","","7,473","","","6,013","","","1,343","","","35","","","22","","","7,299"],["Basic industry","6,385","","","662","","","41","","","1","","","7,005","","","5,895","","","914","","","17","","","0","","","6,792"],["Transportation","9,532","","","997","","","69","","","19","","","10,441","","","10,067","","","1,568","","","40","","","0","","","11,595"],["Technology","4,723","","","274","","","41","","","3","","","4,953","","","3,717","","","381","","","14","","","0","","","4,084"],["Industrial other","4,340","","","540","","","35","","","0","","","4,845","","","4,485","","","778","","","21","","","0","","","5,242"],["Total corporate securities","164,886","","","17,967","","","928","","","93","","","181,832","","","163,367","","","25,782","","","539","","","106","","","188,504"],["Foreign government(2)","82,752","","","11,741","","","521","","","1","","","93,971","","","93,521","","","16,229","","","236","","","0","","","109,514"],["Residential mortgage-backed(3)","2,451","","","117","","","13","","","0","","","2,555","","","2,572","","","198","","","0","","","0","","","2,770"],["Asset-backed","8,678","","","114","","","10","","","0","","","8,782","","","11,584","","","137","","","67","","","0","","","11,654"],["Commercial mortgage-backed","8,434","","","459","","","15","","","0","","","8,878","","","10,296","","","883","","","8","","","0","","","11,171"],["U.S. Government","20,747","","","5,133","","","21","","","0","","","25,859","","","25,959","","","8,348","","","15","","","0","","","34,292"],["State & Municipal","9,992","","","1,667","","","8","","","0","","","11,651","","","10,142","","","1,991","","","1","","","0","","","12,132"],["Total fixed maturities, available-for-sale(4)","$","297,940","","","$","37,198","","","$","1,516","","","$","94","","","$","333,528","","","$","317,441","","","$","53,568","","","$","866","","","$","106","","","$","370,037"]]
[[/GREPCENT_TABLE]]

__________

(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 December 31, 2021 and 2020, based on amortized cost, 89% and 86%, respectively, represent Japanese government bonds held by our Japanese insurance operations with no other individual country representing more than 4% of the balance, respectively.

(3)As of both December 31, 2021 and 2020, based on amortized cost, 97% 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. Also excludes “Assets held-for-sale” of $13,569 million (amortized cost of $13,145 million) as of December 31, 2021. Unrealized gains of $572 million, unrealized losses of $147 million and the allowance for credit losses of $1 million related to these held for sale assets are also excluded from the presentation. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

The decrease in net unrealized gains from December 31, 2020 to December 31, 2021 was primarily due to an 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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[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["Industry(1)","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses","","Fair Value","","ACL","","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses","","Fair Value","","ACL"],["","(in millions)"],["Corporate securities:"],["Finance","$","486","","","$","49","","","$","0","","","$","535","","","$","5","","","$","651","","","$","67","","","$","0","","","$","718","","","$","9"],["Basic industry","9","","","0","","","0","","","9","","","0","","","87","","","2","","","0","","","89","","","0"],["Total corporate securities","495","","","49","","","0","","","544","","","5","","","738","","","69","","","0","","","807","","","9"],["Foreign government(2)","833","","","221","","","0","","","1,054","","","0","","","935","","","270","","","0","","","1,205","","","0"],["Residential mortgage-backed(3)","191","","","14","","","0","","","205","","","0","","","266","","","20","","","0","","","286","","","0"],["Total fixed maturities, held-to-maturity","$","1,519","","","$","284","","","$","0","","","$","1,803","","","$","5","","","$","1,939","","","$","359","","","$","0","","","$","2,298","","","$","9"]]
[[/GREPCENT_TABLE]]

__________

(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 December 31, 2021 and 2020, based on amortized cost, 97% and 98%, respectively, represent Japanese government bonds held by our Japanese insurance operations.

(3)As of both December 31, 2021 and 2020, based on amortized cost, all were rated A or higher.

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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[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["NAIC Designation(1)(2)","","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses(3)","","ACL","","Fair Value","","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses(3)","","ACL","","Fair Value"],["","","(in millions)"],["1","","$","207,926","","","$","28,904","","","$","666","","","$","0","","","$","236,164","","","$","229,951","","","$","41,311","","","$","381","","","$","0","","","$","270,881"],["2","","70,437","","","7,283","","","408","","","0","","","77,312","","","68,458","","","10,683","","","180","","","0","","","78,961"],["Subtotal High or Highest Quality Securities(4)","","278,363","","","36,187","","","1,074","","","0","","","313,476","","","298,409","","","51,994","","","561","","","0","","","349,842"],["3","","12,279","","","716","","","235","","","0","","","12,760","","","11,913","","","1,192","","","95","","","0","","","13,010"],["4","","5,475","","","194","","","140","","","9","","","5,520","","","5,119","","","211","","","119","","","23","","","5,188"],["5","","1,389","","","68","","","47","","","27","","","1,383","","","1,629","","","123","","","67","","","16","","","1,669"],["6","","434","","","33","","","20","","","58","","","389","","","371","","","48","","","24","","","67","","","328"],["Subtotal Other Securities(5)(6)","","19,577","","","1,011","","","442","","","94","","","20,052","","","19,032","","","1,574","","","305","","","106","","","20,195"],["Total fixed maturities, available-for-sale(7)","","$","297,940","","","$","37,198","","","$","1,516","","","$","94","","","$","333,528","","","$","317,441","","","$","53,568","","","$","866","","","$","106","","","$","370,037"]]
[[/GREPCENT_TABLE]]

__________

(1)Reflects equivalent ratings for investments of the international insurance operations.

(2)Includes, as of December 31, 2021 and 2020, 617 securities with amortized cost of $4,547 million (fair value, $4,596 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 December 31, 2021, includes gross unrealized losses of $295 million on public fixed maturities and $147 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 December 31, 2021, includes $234,323 million of public fixed maturities and $44,040 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 December 31, 2021, includes $9,824 million of public fixed maturities and $9,753 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 December 31, 2021, securities considered below investment grade based on low issue composite ratings total $15,843 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.

(7)Excludes “Assets held-for-sale” of $13,569 million at fair value as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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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[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["NAIC Designation(1)","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses(2)","","Fair Value","","ACL","","Amortized Cost","","Gross Unrealized Gains","","Gross Unrealized Losses(2)","","Fair Value","","ACL"],["","(in millions)"],["1","$","1,428","","","$","276","","","$","0","","","$","1,704","","","$","3","","","$","1,839","","","$","349","","","$","0","","","$","2,188","","","$","7"],["2","91","","","8","","","0","","","99","","","2","","","100","","","10","","","0","","","110","","","2"],["Subtotal High or Highest Quality Securities(3)","1,519","","","284","","","0","","","1,803","","","5","","","1,939","","","359","","","0","","","2,298","","","9"],["3","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0"],["4","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0"],["5","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0"],["6","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0"],["Subtotal Other Securities","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0","","","0"],["Total fixed maturities, held-to-maturity","$","1,519","","","$","284","","","$","0","","","$","1,803","","","$","5","","","$","1,939","","","$","359","","","$","0","","","$","2,298","","","$","9"]]
[[/GREPCENT_TABLE]]

__________ 

(1)Reflects equivalent ratings for investments of the international insurance operations.

(2)As of both December 31, 2021 and 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 December 31, 2021, includes $1,418 million of public fixed maturities and $101 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:

[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["","Asset-Backed Securities(2)","","Commercial Mortgage-Backed Securities(3)","","Asset-Backed Securities(2)","","Commercial Mortgage-Backed Securities(3)"],["Low Issue Composite Rating(1)","Amortized Cost","","Fair Value","","Amortized Cost","","Fair Value","","Amortized Cost","","Fair Value","","Amortized Cost","","Fair Value"],["","(in millions)"],["AAA","$","7,180","","","$","7,225","","","$","8,423","","","$","8,867","","","$","11,327","","","$","11,323","","","$","10,284","","","$","11,159"],["AA","1,395","","","1,395","","","0","","","0","","","139","","","144","","","1","","","2"],["A","12","","","12","","","2","","","2","","","16","","","17","","","2","","","2"],["BBB","18","","","20","","","9","","","9","","","12","","","13","","","9","","","8"],["BB and below","73","","","130","","","0","","","0","","","90","","","157","","","0","","","0"],["Total(4)","$","8,678","","","$","8,782","","","$","8,434","","","$","8,878","","","$","11,584","","","$","11,654","","","$","10,296","","","$","11,171"]]
[[/GREPCENT_TABLE]]

__________ 

(1)The table above provides ratings as assigned by nationally recognized rating agencies as of December 31, 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 home equity and other asset types.

(3)As of December 31, 2021 and 2020, based on amortized cost, more than 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. Also excludes “Assets held-for-sale” of $1,391 million and $1,024 million at fair value of asset-backed securities and commercial mortgage-backed securities, respectively, as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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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:

[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["","Collateralized Loan Obligations"],["Low Issue Composite Rating(1)","Amortized Cost","","Fair Value","","Amortized Cost","","Fair Value"],["","(in millions)"],["AAA","$","6,361","","","$","6,388","","","$","9,554","","","$","9,506"],["AA","1,295","","","1,292","","","2","","","2"],["A","10","","","10","","","1","","","1"],["BBB","10","","","10","","","1","","","1"],["BB and below","8","","","8","","","1","","","1"],["Total(2)(3)","$","7,684","","","$","7,708","","","$","9,559","","","$","9,511"]]
[[/GREPCENT_TABLE]]

__________ 

(1)The table above provides ratings as assigned by nationally recognized rating agencies as of December 31, 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 December 31, 2021 and 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. Also excludes “Assets held-for-sale” of $1,277 million at fair value as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

Assets Supporting Experience-Rated Contractholder Liabilities

For information regarding the composition of “Assets supporting experience-rated contractholder liabilities,” see Note 3 to the 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:

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["","","(in millions)"],["Commercial mortgage and agricultural property loans","","$","48,550","","","$","55,223"],["Uncollateralized loans","","561","","","655"],["Residential property loans","","67","","","101"],["Other collateralized loans","","70","","","120"],["Total recorded investment gross of allowance(1)","","49,248","","","56,099"],["Allowance for credit losses","","(102)","","","(207)"],["Total net commercial mortgage and other loans(2)","","$","49,146","","","$","55,892"]]
[[/GREPCENT_TABLE]]

__________

(1)As a percentage of recorded investment gross of allowance, more than 99% of these assets were current as of December 31, 2021 and 2020, respectively.

(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. Also excluded are “Assets held-for-sale” of $6,565 million net of allowance for credit losses of $15 million as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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 held by the company’s international insurance operations.

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Residential property loans primarily include Japanese recourse loans. To the extent there is a default on 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.

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:

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["","","Gross Carrying Value","","% of Total","","Gross Carrying Value","","% of Total"],["","","($ in millions)"],["Commercial mortgage and agricultural property loans by region:"],["U.S. Regions(1):"],["Pacific","","$","17,744","","","36.5","%","","$","19,186","","","34.7","%"],["South Atlantic","","7,570","","","15.6","","","8,710","","","15.8"],["Middle Atlantic","","5,179","","","10.7","","","6,500","","","11.8"],["East North Central","","2,490","","","5.1","","","3,018","","","5.5"],["West South Central","","4,965","","","10.2","","","5,426","","","9.8"],["Mountain","","2,203","","","4.5","","","2,239","","","4.1"],["New England","","1,409","","","2.9","","","1,664","","","3.0"],["West North Central","","468","","","1.0","","","531","","","0.9"],["East South Central","","1,099","","","2.3","","","836","","","1.5"],["Subtotal-U.S.","","43,127","","","88.8","","","48,110","","","87.1"],["Europe","","3,308","","","6.8","","","4,605","","","8.3"],["Asia","","919","","","1.9","","","979","","","1.8"],["Other","","1,196","","","2.5","","","1,529","","","2.8"],["Total commercial mortgage and agricultural property loans(2)","","$","48,550","","","100.0","%","","$","55,223","","","100.0","%"]]
[[/GREPCENT_TABLE]]

__________

(1)Regions as defined by the United States Census Bureau.

(2)Excludes “Assets held-for-sale” of $6,580 million as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["","","Gross Carrying Value","","% of Total","","Gross Carrying Value","","% of Total"],["","","($ in millions)"],["Commercial mortgage and agricultural property loans by property type:"],["Industrial","","$","11,773","","","24.3","%","","$","13,819","","","25.0","%"],["Retail","","5,294","","","10.9","","","5,718","","","10.4"],["Office","","8,454","","","17.4","","","10,719","","","19.4"],["Apartments/Multi-Family","","13,734","","","28.3","","","15,316","","","27.7"],["Agricultural properties","","4,375","","","9.0","","","3,273","","","5.9"],["Hospitality","","1,601","","","3.3","","","2,056","","","3.7"],["Other","","3,319","","","6.8","","","4,322","","","7.9"],["Total commercial mortgage and agricultural property loans(1)","","$","48,550","","","100.0","%","","$","55,223","","","100.0","%"]]
[[/GREPCENT_TABLE]]

________

(1)Excludes “Assets held-for-sale” of $6,580 million as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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 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 December 31, 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 2.43 times and a weighted-average loan-to-value ratio of 57%. As of December 31, 2021, 96% of commercial mortgage and agricultural property loans were fixed rate loans. For those commercial mortgage and agricultural property loans that were originated in 2021, the weighted-average debt service coverage ratio was 3.27 times, and the weighted-average loan-to-value ratio was 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 $2.3 billion and $2.4 billion of such loans as of December 31, 2021 and 2020, respectively. All else being equal, these loans are inherently riskier than those collateralized by properties that have already stabilized. As of December 31, 2021 and 2020, there were less than $1 million and $1 million, respectively, of allowances 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:

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[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Debt Service Coverage Ratio"],["",""," 1.2x","","1.0x to 1.2x",""," 1.0x","","Total Commercial Mortgage and Agricultural Property Loans"],["Loan-to-Value Ratio","","(in millions)"],["0%-59.99%","","$","22,444","","","$","911","","","$","1,264","","","$","24,619"],["60%-69.99%","","14,035","","","1,589","","","595","","","16,219"],["70%-79.99%","","6,023","","","538","","","522","","","7,083"],["80% or greater","","171","","","313","","","145","","","629"],["Total commercial mortgage and agricultural property loans(1)","","$","42,673","","","$","3,351","","","$","2,526","","","$","48,550"]]
[[/GREPCENT_TABLE]]

__________

(1)Excludes “Assets held-for-sale” of $6,580 million. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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:

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Gross Carrying Value","","% of Total"],["Year of Origination","","($ in millions)"],["2021","","$","6,872","","","14.2","%"],["2020","","3,987","","","8.2"],["2019","","7,779","","","16.0"],["2018","","7,434","","","15.3"],["2017","","5,016","","","10.3"],["2016","","4,713","","","9.7"],["2015","","4,180","","","8.6"],["2014 & Prior","","8,533","","","17.6"],["Revolving Loans","","36","","","0.1"],["Total commercial mortgage and agricultural property loans(1)","","$","48,550","","","100.0","%"]]
[[/GREPCENT_TABLE]]

__________

(1)Excludes “Assets held-for-sale” of $6,580 million. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

Commercial Mortgage and Other Loans by Contractual Maturity Date

The following table sets forth the breakdown of our commercial mortgage and other loans portfolio by contractual maturity, as of the date indicated:

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[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Gross Carrying Value","","% of Total"],["Vintage","","($ in millions)"],["Maturing in 2022","","$","1,676","","","3.4","%"],["Maturing in 2023","","2,512","","","5.1"],["Maturing in 2024","","3,927","","","8.0"],["Maturing in 2025","","6,047","","","12.2"],["Maturing in 2026","","5,644","","","11.5"],["Maturing in 2027","","4,700","","","9.5"],["Maturing in 2028","","5,664","","","11.5"],["Maturing in 2029","","4,693","","","9.5"],["Maturing in 2030","","3,650","","","7.4"],["Maturing in 2031","","2,638","","","5.4"],["Maturing in 2032","","1,368","","","2.8"],["Maturing in 2033 and beyond","","6,729","","","13.7"],["Total commercial mortgage and other loans(1)","","$","49,248","","","100.0","%"]]
[[/GREPCENT_TABLE]]

__________

(1)Excludes “Assets held-for-sale” of $6,580 million. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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.

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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:

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["","","(in millions)"],["Allowance, beginning of year","","$","207","","","$","102"],["Cumulative effect of adoption of ASU 2016-13","","0","","","101"],["Addition to (release of) allowance for credit losses","","(87)","","","1"],["Reclassified as \u201cAssets held-for-sale\u201d(1)","","(15)","","","0"],["Other","","(3)","","","3"],["Allowance, end of period","","$","102","","","$","207"]]
[[/GREPCENT_TABLE]]

__________

(1) See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

The allowance for credit losses as of December 31, 2021 decreased compared to December 31, 2020, primarily reflecting the 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:

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["","","Cost","","Gross Unrealized Gains","","Gross Unrealized Losses","","Fair Value","","Cost","","Gross Unrealized Gains","","Gross Unrealized Losses","","Fair Value"],["","","(in millions)"],["Mutual funds(1)","","$","1,158","","","$","699","","","$","0","","","$","1,857","","","$","956","","","$","404","","","$","5","","","$","1,355"],["Other Common Stocks(1)","","2,553","","","1,073","","","34","","","3,592","","","2,726","","","1,019","","","62","","","3,683"],["Non-redeemable Preferred Stocks","","97","","","49","","","8","","","138","","","54","","","22","","","6","","","70"],["Total equity securities, at fair value(2)","","$","3,808","","","$","1,821","","","$","42","","","$","5,587","","","$","3,736","","","$","1,445","","","$","73","","","$","5,108"]]
[[/GREPCENT_TABLE]]

__________

(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.” Excludes “Assets held-for-sale” of $322 million at fair value as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

The net change in unrealized gains (losses) from equity securities attributable to PFI excluding Closed Block division, including “Assets held-for Sale” still held at period end, recorded within “Other income (loss),” was $406 million and $83 million during the year ended December 31, 2021 and 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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[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["","","(in millions)"],["LPs/LLCs:"],["Equity method:"],["Private equity(1)","","$","5,163","","","$","3,411"],["Hedge funds","","2,044","","","1,770"],["Real estate-related(1)","","1,487","","","1,214"],["Subtotal equity method","","8,694","","","6,395"],["Fair value:"],["Private equity","","1,124","","","1,063"],["Hedge funds","","1,078","","","1,111"],["Real estate-related","","34","","","41"],["Subtotal fair value","","2,236","","","2,215"],["Total LPs/LLCs","","10,930","","","8,610"],["Real estate held through direct ownership(2)","","889","","","1,176"],["Derivative instruments","","337","","","199"],["Other(3)","","329","","","731"],["Total other invested assets(4)","","$","12,485","","","$","10,716"]]
[[/GREPCENT_TABLE]]

__________

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

(2)As of December 31, 2021 and 2020, real estate held through direct ownership had mortgage debt of $274 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.

(4)Excludes “Assets held-for-sale” of $104 million as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

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.

[[GREPCENT_TABLE]]
[["","","December 31, 2021","","December 31, 2020"],["","","(in millions)"],["Fixed maturities:"],["Public, available-for-sale, at fair value(1)","","$","478","","","$","644"],["Fixed maturities, trading, at fair value(1)","","213","","","212"],["Equity securities, at fair value","","699","","","682"],["Commercial mortgage and other loans, at book value(2)","","1,279","","","1,112"],["Other invested assets","","4,990","","","3,799"],["Short-term investments","","35","","","36"],["Total investments","","$","7,694","","","$","6,485"]]
[[/GREPCENT_TABLE]]

__________

(1)As of December 31, 2021 and 2020, balances include investments in CLOs with fair value of $329 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.

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Fixed Maturities, Trading

“Fixed maturities, trading, at fair value” are primarily related to assets associated with consolidated variable interest entities (“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 further information on these consolidated VIEs, see Note 4 to the Consolidated Financial Statements.

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 invested assets” also includes 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.

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.”

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:

•Through actions in February 2021, May 2021, and July 2021, Prudential Financial’s Board of Directors (the “Board”) authorized the Company to repurchase at management’s discretion up to an aggregate of $2.5 billion of its outstanding

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Common Stock during the period from January 1, 2021 through December 31, 2021. We utilized the entirety of this $2.5 billion share repurchase authorization in 2021. In November 2021, 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, 2022 through December 31, 2022.

•During 2021, we entered into agreements for a number of business dispositions, including for the sale of our Full Service Retirement business and a portion of our in-force traditional variable annuity block of business. For more information about these transactions, see Note 1 to our Consolidated Financial Statements contained herein.

•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.

•In August 2021, we redeemed our $700 million 3.500% medium-term notes due 2021 and $210 million of our $600 million 3.878% medium-term notes due 2028.

Capital

Our capital management framework is primarily based on statutory Risk-Based Capital (“RBC”) and solvency margin measures. Due to our diverse mix of businesses and applicable regulatory requirements, we apply certain refinements to the framework that are designed to more appropriately reflect risks associated with our businesses on a consistent basis across the Company.

We believe Prudential Financial’s capitalization and financial profile are consistent with its ratings targets. Our long-term senior debt rating targets for Prudential Financial are “A” for S&P, Moody’s, and Fitch, and “a” for A.M. Best Company (“A.M. Best”). Our financial strength rating targets for our life insurance companies are “AA/Aa/AA” for S&P, Moody’s and Fitch, respectively, and “A+” for A.M. Best. Some entities may currently be rated below these targets, and not all of our insurance company subsidiaries are rated by each of these rating agencies. See “—Ratings” below for a description of the potential impacts of ratings downgrades.

Capital Governance

Our capital management framework is ultimately reviewed and approved by our Board. The Board has authorized our Chairman and Chief Executive Officer and Vice Chair to approve certain capital actions on behalf of the Company and to further delegate authority with respect to capital actions to appropriate officers, up to specified limits. Any capital commitment that exceeds the authority granted to senior management must be separately authorized by the Board.

In addition, our Capital and Finance Committee (“CFC”) reviews the use and allocation of capital above certain threshold amounts to promote the efficient use of capital, consistent with our strategic objectives, ratings aspirations and other goals and targets. This management committee provides a multi-disciplinary due diligence review of specific initiatives or transactions requiring the use of capital, including mergers and acquisitions. The CFC also reviews our annual capital plan (and updates to this plan), as well as our capital, liquidity and financial position, borrowing plans, and related matters prior to the discussion of these items with the Board.

Capitalization

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 December 31, 2021, the Company had $53.2 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.

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["","(in millions)"],["Equity(1)","$","40,552","","","$","36,687"],["Junior subordinated debt (including hybrid securities)","7,619","","7,615"],["Other capital debt","5,073","","5,856"],["Total capital","$","53,244","","","$","50,158"]]
[[/GREPCENT_TABLE]]

__________ 

(1)Amounts attributable to Prudential Financial, excluding AOCI. 

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Insurance Regulatory Capital

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 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.

RBC is calculated based on statutory financial statements and risk formulas consistent with the practices of the NAIC. RBC considers, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. RBC ratio calculations are intended to assist insurance regulators in measuring an insurer’s solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public.

The table below presents the RBC ratios of our most significant domestic insurance subsidiaries as of December 31, 2020, the most recent statutory fiscal year-end for these subsidiaries for which RBC information has been filed.

[[GREPCENT_TABLE]]
[["","Ratio"],["PICA(1)","394","%"],["Prudential Annuities Life Assurance Corporation (\u201cPALAC\u201d)","465","%"],["Composite Major U.S. Insurance Subsidiaries(2)","411","%"]]
[[/GREPCENT_TABLE]]

__________ 

(1)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”).

(2)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.

Although not yet filed, we expect these RBC ratios as of December 31, 2021 to be above our “AA” financial strength target levels.

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.

The table below presents the solvency margin ratios of our most significant international insurance subsidiaries as of September 30, 2021, the most recent date for which this information is available.

[[GREPCENT_TABLE]]
[["","Ratio"],["Prudential of Japan consolidated(1)","826","%"],["Gibraltar Life consolidated(2)","937","%"]]
[[/GREPCENT_TABLE]]

__________ 

(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.

Although not yet filed, we expect the solvency margin ratio for each of these subsidiaries to be greater than 700% (3.5 times the regulatory required minimums) as of December 31, 2021.

All of our domestic and significant international insurance subsidiaries have capital levels that substantially exceed the minimum level required by applicable insurance regulations; however, market conditions could negatively impact the statutory capital of our insurance companies and constrain our overall capital flexibility. 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.

Captive Reinsurance Companies

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We use captive reinsurance companies to more effectively manage our reserves and capital on an economic basis and to enable the aggregation and transfer of risks. Our captive reinsurance companies assume business from affiliates only. To support the risks they assume, our captives are capitalized to a level we believe is consistent with the “AA” financial strength rating targets of our insurance subsidiaries. All of our captives are subject to internal policies governing their activities. In the normal course of business, we contribute capital to the captives to support business growth and other needs. Prudential Financial has also entered into support agreements with several of the captives in connection with financing arrangements. For a description of captive reinsurance company financing activities, see below under “—Financing Activities—Subsidiary Borrowings—Term and Universal Life Reserve Financing.”

Shareholder Distributions

Share Repurchase Program and Shareholder Dividends

Through actions in February 2021, May 2021, and July 2021, Prudential Financial’s Board of Directors authorized the Company to repurchase at management’s discretion up to an aggregate of $2.5 billion of its outstanding Common Stock during the period from January 1, 2021 through December 31, 2021. We utilized the entirety of this $2.5 billion share repurchase authorization in 2021. In November 2021, 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, 2022 through December 31, 2022.

In general, 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 each of the quarterly periods in 2021 and for the prior four years:

[[GREPCENT_TABLE]]
[["","Dividend Amount","","Shares Repurchased"],["Quarterly period ended:","Per Share","","Aggregate","","Shares","","Total Cost"],["","(in millions, except per share data)"],["December 31, 2021","$","1.15","","","$","443","","","3.4","","","$","375"],["September 30, 2021","$","1.15","","","$","451","","","8.4","","","$","875"],["June 30, 2021","$","1.15","","","$","460","","","8.4","","","$","875"],["March 31, 2021","$","1.15","","","$","467","","","4.3","","","$","375"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Dividend Amount","","Shares Repurchased"],["Year ended:","Per Share","","Aggregate","","Shares","","Total Cost"],["","(in millions, except per share data)"],["December 31, 2021","$","4.60","","","$","1,821","","","24.5","","","$","2,500"],["December 31, 2020","$","4.40","","","$","1,769","","","6.7","","","$","500"],["December 31, 2019","$","4.00","","","$","1,644","","","27.2","","","$","2,500"],["December 31, 2018","$","3.60","","","$","1,525","","","14.9","","","$","1,500"],["December 31, 2017","$","3.00","","","$","1,300","","","11.5","","","$","1,250"]]
[[/GREPCENT_TABLE]]

In addition, on February 3, 2022, Prudential Financial’s Board of Directors declared a cash dividend of $1.20 per share of Common Stock, payable on March 11, 2022 to shareholders of record as of February 15, 2022.

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. 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 December 31, 2021, Prudential Financial had highly liquid assets with a carrying value totaling $4,226 million, a decrease of $2,253 million from December 31, 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 $3,553 million as of December 31, 2021, a decrease of $2,007 million from December 31, 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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020"],["","(in millions)"],["Highly Liquid Assets, beginning of period","$","5,560","","","$","4,061"],["Dividends and/or returns of capital from subsidiaries(1)","3,339","","","3,698"],["Affiliated loans/(borrowings) - (capital activities)(2)","406","","","(1,017)"],["Capital contributions to subsidiaries(3)","(197)","","","(386)"],["Total Business Capital Activity","3,548","","","2,295"],["Share repurchases","(2,500)","","","(500)"],["Common stock dividends(4)","(1,814)","","","(1,766)"],["Acquisition/Disposition Activity(5)","648","","","1,627"],["Total Share Repurchases, Dividends and Acquisition/Disposition Activity","(3,666)","","","(639)"],["Proceeds from the issuance of debt","0","","","2,768"],["Repayments of debt","(1,308)","","","(2,467)"],["Total Debt Activity","(1,308)","","","301"],["Proceeds from stock-based compensation and exercise of stock options","343","","","293"],["Interest income from subsidiaries on intercompany agreements, net of interest paid","238","","","223"],["Swap terminations","(94)","","","(190)"],["Net income tax receipts & payments","330","","","482"],["Interest paid on external debt","(963)","","","(988)"],["Affiliated (borrowings)/loans - (operating activities)(6)","(331)","","","(283)"],["Other, net","(104)","","","5"],["Total Other Activity","(581)","","","(458)"],["Net increase (decrease) in highly liquid assets","(2,007)","","","1,499"],["Highly Liquid Assets, end of period","$","3,553","","","$","5,560"]]
[[/GREPCENT_TABLE]]

__________

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(1)2021 includes $1,184 million from international insurance subsidiaries (including $994 million in the form of in-kind dividends). 2020 includes $1,905 million from international insurance subsidiaries (including $470 million in the form of in-kind dividends). See “Item 15—Schedule II—Notes to Condensed Financial Information of Registrant—Dividends and Returns of Capital” for dividends and returns of capital by subsidiary.

(2)Represents the investment and deployment of capital to and from our businesses in the form of loans. 2021 includes net lending of $406 million from international insurance subsidiaries including $994 million received by PFI in the form of the extinguishment of debt held by international subsidiaries (offset by the in-kind dividends referred to in footnote 1 above). 2020 includes net receipts of $1,017 million from international subsidiaries including $470 million received by PFI in the form of the extinguishment of debt held by international subsidiaries (offset by the in-kind dividends referred to in footnote 1 above).

(3)2021 primarily includes capital contributions of $181 million to international insurance subsidiaries, $9 million to PGIM, and $7 million to other corporate subsidiaries. 2020 includes capital contributions of $217 million to PGIM, and $170 million to international insurance subsidiaries.

(4)Includes cash payments made on dividends declared in prior periods.

(5)2021 represents the net proceeds from the sales of POT and PGIM’s joint venture in Italy that were distributed to PFI. 2020 represents the net proceeds from the sale of POK that were distributed to PFI.

(6)Represents loans to and from affiliated subsidiaries to support business operating needs.

Dividends and Returns of Capital from Subsidiaries

Domestic insurance subsidiaries. During 2021, Prudential Financial received dividends of $1,100 million from PICA and $453 million from Prudential Annuities Holding Company, of which $380 million was from PALAC.

International insurance subsidiaries. During 2021, Prudential Financial received dividends of $1,184 million from its international insurance subsidiaries, which includes $994 million of in-kind dividends in the form of the extinguishment of debt held by 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 2021, Prudential Financial received dividends and returns of capital of $540 million from PGIM subsidiaries and dividends of $62 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, 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. Dividends from PRIAC are currently prohibited prior to the closing of its sale to Great-West under the terms of the sale agreement.

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, 2022, 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 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 profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios for each of our insurance subsidiaries.

Cash Flow

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 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.

In each of our major insurance subsidiaries, we believe that the cash flows from operations are adequate to satisfy current liquidity requirements. The continued adequacy of this liquidity will depend upon factors such as future securities market conditions, changes in interest rate levels, policyholder perceptions of our financial strength, policyholder behavior, catastrophic events and the relative safety and attractiveness of competing products, each of which could lead to reduced cash inflows or increased cash outflows. Our insurance operations’ cash flows from investment activities result from repayments of principal, proceeds from maturities and sales of invested assets and investment income, net of amounts reinvested. The primary liquidity risks with respect to these cash flows are the risk of default by debtors or bond insurers, our counterparties’ willingness to extend repurchase and/or securities lending arrangements, commitments to invest and market volatility. We closely manage these risks through our credit risk management process and regular monitoring of our liquidity position.

Domestic insurance operations. In managing the liquidity of our domestic insurance operations, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions when selecting assets to support these contractual obligations. We use surrender charges and other contract provisions to mitigate the extent, timing and profitability impact of withdrawals of funds by customers. The following table sets forth the liabilities for future policy benefits and policyholders’ account balances of certain of our domestic insurance subsidiaries as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["","(in billions)"],["PICA","$","227.1","","","$","227.2"],["PLIC","49.6","","","50.9"],["Pruco Life","56.1","","","56.7"],["PRIAC","0.6","","","29.0"],["PALAC","0.0","","","27.7"],["Other(1)","(90.0)","","","(102.9)"],["Total future policy benefits and policyholders\u2019 account balances(2)(3)","$","243.4","","","$","288.6"]]
[[/GREPCENT_TABLE]]

__________

(1)Includes the impact of intercompany eliminations.

(2)Amounts are reflected gross of affiliated reinsurance recoverables.

(3)Excludes “Liabilities held-for-sale” of $28.3 billion and $16.3 billion for PRIAC and PALAC, respectively, as of December 31, 2021. See Note 1 to the Consolidated Financial Statements for additional information on the pending dispositions.

The liabilities presented above are primarily supported by invested assets in our general account. As noted above, when selecting assets to support these contractual obligations, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions. As a result, assets will include both liquid assets, as discussed below, and other assets that we believe adequately support our liabilities.

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For PICA and other subsidiaries, the liabilities presented above primarily include annuity reserves and deposit liabilities and individual life insurance policy reserves. Individual life insurance policies may impose surrender charges and policyholders may be subject to a new underwriting process in order to obtain a new insurance policy. PICA’s reserves for group annuity contracts primarily relate to pension risk transfer contracts, which are generally not subject to early withdrawal. For our individual annuity contracts, to encourage persistency, most of our variable and fixed annuities have surrender or withdrawal charges for a specified number of years. In addition, certain fixed annuities impose a market value adjustment if the invested amount is not held to maturity. The living benefit features of our variable annuities also encourage persistency because the potential value of the living benefit is fully realized only if the contract persists.

Gross account withdrawals for our domestic insurance operations’ products in 2021 were generally consistent with our assumptions in asset/liability management, and the associated cash outflows did not have a material adverse impact on our overall liquidity.

International insurance operations. As with our domestic operations, in managing the liquidity of our international insurance operations, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions in selecting assets to support these contractual obligations. The following table sets forth the liabilities for future policy benefits and policyholders’ account balances of certain of our international insurance subsidiaries as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020(1)"],["","(in billions)"],["Prudential of Japan(2)","$","63.7","","","$","63.3"],["Gibraltar Life(3)","110.5","","","114.6"],["Other international insurance subsidiaries, excluding Japan","2.8","","","6.4"],["Other(4)","(7.9)","","","(4.9)"],["Total future policy benefits and policyholders\u2019 account balances(5)","$","169.1","","","$","179.4"]]
[[/GREPCENT_TABLE]]

__________

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

(2)As of December 31, 2021 and 2020, $21.0 billion and $18.3 billion, respectively, of the insurance-related liabilities for Prudential of Japan are associated with U.S. dollar-denominated products that are coinsured to our domestic insurance operations and supported by U.S. dollar-denominated assets. As of December 31, 2021 and 2020, $1.9 billion and $1.4 billion, respectively, of the insurance-related liabilities for Prudential of Japan are primarily associated with yen- and U.S. dollar-denominated products that are coinsured to Gibraltar Re, our Bermuda-based reinsurance affiliate, and primarily supported by yen- and U.S. dollar-denominated assets.

(3)Includes PGFL. As of December 31, 2021 and 2020, $8.1 billion and $7.1 billion, respectively, of the insurance-related liabilities for PGFL are associated with U.S. dollar-denominated products that are coinsured to our domestic insurance operations and supported by U.S. dollar-denominated assets. As of December 31, 2021 and 2020, $7.6 billion and $4.5 billion, respectively, of the insurance-related liabilities for Gibraltar Life are primarily associated with yen- and U.S. dollar-denominated products that are coinsured to Gibraltar Re and primarily supported by yen- and U.S. dollar-denominated assets.

(4)Reflects the impact of intercompany eliminations.

(5)Amounts are reflected gross of affiliated reinsurance recoverables.

The liabilities presented above are primarily supported by invested assets in our general account. When selecting assets to support these contractual obligations, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions. As a result, assets will include both liquid assets, as discussed below, and other assets that we believe adequately support our liabilities.

We believe most of the longer-term recurring pay individual life insurance policies sold by our Japanese operations do not have significant withdrawal risk because policyholders may incur surrender charges and must undergo a new underwriting process to obtain a new insurance policy.

Gibraltar Life sells fixed annuities, denominated in U.S. and Australian dollars, that may be subject to increased surrenders should the yen depreciate in relation to these currencies or if interest rates in Australia and the U.S. decline relative to Japan. A significant portion of the liabilities associated with these contracts include a market value adjustment feature, which mitigates the profitability impact from surrenders. As of December 31, 2021, products with a market value adjustment feature represented $25.3 billion of our Japan operations’ insurance-related liabilities, which included $22.3 billion attributable to non-yen denominated fixed annuities.

Liquid Assets

Liquid assets include cash and cash equivalents, short-term investments, U.S. Treasury securities, fixed maturities that are not designated as held-to-maturity and public equity securities. In addition to access to substantial investment portfolios, our insurance companies’ liquidity is managed through access to a variety of instruments available for funding and/or managing

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cash flow mismatches, including from time to time those arising from claim levels in excess of projections. Our ability to utilize assets and liquidity between our subsidiaries is limited by regulatory and other constraints. We believe that ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios for each of our insurance subsidiaries.

The following table sets forth the fair value of certain of our domestic insurance operations’ portfolio of liquid assets, as of the dates indicated.

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["","","Prudential Insurance(1)","","PLIC","","PRIAC(2)","","PALAC(2)","","Pruco Life","","Total","","December 31, 2020"],["","","(in billions)"],["Cash and short-term investments","","$","7.9","","","$","1.0","","","$","0.9","","","$","3.1","","","$","1.1","","","$","14.0","","","$","9.4"],["Fixed maturity investments(3):"],["High or highest quality","","134.6","","","34.6","","","22.4","","","8.1","","","15.2","","","214.9","","","222.4"],["Other than high or highest quality","","9.8","","","3.5","","","0.8","","","0.7","","","1.4","","","16.2","","","15.4"],["Subtotal","","144.4","","","38.1","","","23.2","","","8.8","","","16.6","","","231.1","","","237.8"],["Public equity securities, at fair value","","1.3","","","2.2","","","0.3","","","0.3","","","0.1","","","4.2","","","3.2"],["Total","","$","153.6","","","$","41.3","","","$","24.4","","","$","12.2","","","$","17.8","","","$","249.3","","","$","250.4"]]
[[/GREPCENT_TABLE]]

__________

(1)Represents a legal entity view and as such includes both domestic and international sleeves.

(2)During 2021, the Company entered into definitive sale agreements to sell its equity interests in both PRIAC and PALAC. See Note 1 to the Consolidated Financial Statements for more information about these pending dispositions.

(3)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.

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["","Prudential of Japan","","Gibraltar Life(1)","","All Other(2)","","Total","","December 31, 2020"],["","(in billions)"],["Cash and short-term investments","$","1.0","","","$","2.3","","","$","1.6","","","$","4.9","","","$","6.0"],["Fixed maturity investments(3):"],["High or highest quality(4)","41.0","","","87.0","","","10.0","","","138.0","","","147.7"],["Other than high or highest quality","0.8","","","2.2","","","2.0","","","5.0","","","4.8"],["Subtotal","41.8","","","89.2","","","12.0","","","143.0","","","152.5"],["Public equity securities","2.4","","","2.0","","","0.1","","","4.5","","","3.6"],["Total","$","45.2","","","$","93.5","","","$","13.7","","","$","152.4","","","$","162.1"]]
[[/GREPCENT_TABLE]]

__________

(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 December 31, 2021, $103.6 billion, or 75%, were invested in government or government agency bonds.

Given the size and liquidity profile of our investment portfolios, we believe that claim experience, including policyholder withdrawals and surrenders, varying from our projections does not constitute a significant liquidity risk. Our asset/liability management process takes into account the expected maturity of investments and expected claim payments as well as the specific nature and risk profile of the liabilities. To the extent we need to pay claims in excess of projections, we may borrow temporarily or sell investments sooner than anticipated to pay these claims, which may result in increased borrowing costs or realized investment gains or losses, including from changes in interest rates or credit spreads. The payment of claims and sale of investments earlier than anticipated would have an impact on the reported level of cash flow from operating, investing, and financing activities, in our financial statements. Historically, there has been no significant variation between the expected maturities of our investments and the payment of claims. 

Liquidity associated with other activities

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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—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 post 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 post position. As of December 31, 2021, the derivatives comprising the hedging portion of our Individual Annuities’ ALM strategy and capital hedge program were in a net post position of $5.5 billion compared to a net receive position of $3.4 billion as of December 31, 2020. The change in collateral position was primarily driven by the impact of 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 December 31, 2021, we have hedged 100%, 72%, and 28%, of expected yen-based earnings for 2022, 2023 and 2024, 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.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["Cash Settlements: Received (Paid)","2021","","2020"],["","(in millions)"],["Income Hedges (External)(1)","$","33","","","$","74"],["Equity Hedges:"],["Internal(2)","488","","","188"],["External(3)","(137)","","","230"],["Total Equity Hedges","351","","","418"],["Total Cash Settlements","$","384","","","$","492"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","As of December 31,"],["Assets (Liabilities):","2021","","2020"],["","(in millions)"],["Income Hedges (External)(4)","$","47","","","$","3"],["Equity Hedges:"],["Internal(2)","955","","","291"],["External(5)","(20)","","","(56)"],["Total Equity Hedges(6)","935","","","235"],["Total Assets (Liabilities)","$","982","","","$","238"]]
[[/GREPCENT_TABLE]]

__________

(1)Includes non-yen related cash settlements of $19 million, primarily denominated in Brazilian real, Australian dollar and Chilean peso and $60 million, primarily denominated in Australian dollar, Korean won and Brazilian real for the year ended December 31, 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 $4 million and $23 million, denominated in Korean won for the year ended December 31, 2021 and December 31, 2020.

(4)Includes non-yen related assets of $28 million, primarily denominated in Brazilian real, Chilean peso and Australian dollar and assets of $2 million, primarily denominated in Korean won, Australian dollar and Chilean peso, as of December 31, 2021 and 2020, respectively.

(5)Includes non-yen related assets of $1 million, denominated in Korean won, as of December 31, 2020.

(6)As of December 31, 2021, approximately $214 million, $453 million and $268 million of the net market values are scheduled to settle in 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, commercial mortgage origination and servicing 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 seed and co-investments held in our PGIM businesses are cash flows from 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 uses of liquidity for our seed 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.

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 and facility agreement. 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 on these sources of liquidity, see Note 17 to the Consolidated Financial Statements.

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.

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The following table sets forth our liabilities under asset-based or secured financing programs as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["","PFI Excluding Closed Block Division","","Closed Block Division","","Consolidated","","PFI Excluding Closed Block Division","","Closed Block Division","","Consolidated"],["","($ in millions)"],["Securities sold under agreements to repurchase","$","7,393","","","$","2,792","","","$","10,185","","","$","8,092","","","$","2,802","","","$","10,894"],["Cash collateral for loaned securities(1)","4,168","","","82","","","4,250","","","3,379","","","120","","","3,499"],["Securities sold but not yet purchased","3","","","0","","","3","","","2","","","0","","","2"],["Total(2)(3)","$","11,564","","","$","2,874","","","$","14,438","","","$","11,473","","","$","2,922","","","$","14,395"],["Portion of above securities that may be returned to the Company overnight requiring immediate return of the cash collateral","$","10,637","","","$","2,874","","","$","13,511","","","$","10,463","","","$","2,922","","","$","13,385"],["Weighted average maturity, in days(4)","31","","","N/A","","","","28","","","N/A"]]
[[/GREPCENT_TABLE]]

__________

(1)Excludes “Liabilities held-for-sale” of $5,680 as of December 31, 2021.

(2)The daily weighted average outstanding balance for the year ended December 31, 2021 and 2020 was $11,484 million and $11,464 million, respectively, for PFI excluding the Closed Block division, and $3,290 million and $3,034 million, respectively, for the Closed Block division.

(3)Includes utilization of external funding facilities for PGIM’s commercial mortgage origination business.

(4)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 December 31, 2021, our domestic insurance entities had assets eligible for the asset-based or secured financing programs of $130.9 billion, of which $14.0 billion were on loan. Taking into account market conditions and outstanding loan balances as of December 31, 2021, we believe approximately $15.3 billion of the remaining eligible assets are readily lendable, including approximately $10.3 billion relating to PFI excluding the Closed Block division, of which $2.5 billion relates to certain separate accounts and may only be used for financing activities related to those accounts, and the remaining $5.0 billion relating to the Closed Block division.

Financing Activities

As of December 31, 2021, total short-term and long-term debt of the Company on a consolidated basis was $19.3 billion, a decrease of $1.3 billion from December 31, 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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[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["","Prudential Financial","","Subsidiaries","","Consolidated","","Prudential Financial","","Subsidiaries","","Consolidated"],["","(in millions)"],["General obligation short-term debt:"],["Commercial paper","$","25","","","$","395","","","$","420","","","$","25","","","$","355","","","$","380"],["Current portion of long-term debt","0","","","0","","","0","","","399","","","0","","","399"],["Other short-term debt","0","","","$","98","","","98","","","0","","","0","","","0"],["Subtotal","25","","","493","","","518","","","424","","","355","","","779"],["General obligation long-term debt:"],["Senior debt","10,109","","","173","","","10,282","","","11,007","","","173","","","11,179"],["Junior subordinated debt","7,564","","","54","","","7,618","","","7,554","","","60","","","7,615"],["Surplus notes(1)","0","","","344","","","344","","","0","","","343","","","343"],["Subtotal","17,673","","","571","","","18,244","","","18,561","","","576","","","19,137"],["Total general obligations","17,698","","","1,064","","","18,762","","","18,985","","","931","","","19,916"],["Limited and non-recourse borrowings(2)"],["Short-term debt","0","","","7","","","7","","","0","","","18","","","18"],["Current portion of long-term debt","0","","","197","","","197","","","0","","","128","","","128"],["Long-term debt","0","","","378","","","378","","","0","","","581","","","581"],["Subtotal","0","","","582","","","582","","","0","","","727","","","727"],["Total borrowings","$","17,698","","","$","1,646","","","$","19,344","","","$","18,985","","","$","1,658","","","$","20,643"]]
[[/GREPCENT_TABLE]]

__________

(1)Amounts are net of assets under set-off arrangements of $10,691 million and $10,964 million as of December 31, 2021 and 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 $274 million and $409 million as of December 31, 2021 and 2020, respectively, and a draw on a credit facility with recourse only to collateral pledged by the Company of $300 million as of both December 31, 2021 and 2020.

As of December 31, 2021 and 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 17 to the Consolidated Financial Statements.

Based on the use of proceeds, we classify our borrowings as capital debt and operating debt. Capital debt, which is debt utilized to meet the capital requirements of our businesses, was $12.7 billion and $13.5 billion as of December 31, 2021 and 2020, respectively. Operating debt of $6.1 billion and $6.4 billion as of December 31, 2021 and 2020, respectively, is utilized for business funding to meet specific purposes, which may include activities associated with our PGIM and Assurance IQ businesses. Operating debt also consists of debt issued to finance specific portfolios of investment assets, the proceeds from which will service the debt. Specifically, this includes assets supporting reserve requirements under Regulation XXX and Guideline AXXX as described below, as well as funding for institutional and insurance company portfolio cash flow timing differences.

Prudential Financial Borrowings

Long-term borrowings are conducted primarily by Prudential Financial. It borrows these funds to meet its capital and other funding needs, as well as the capital and funding needs of its subsidiaries. Prudential Financial maintains a shelf registration statement with the SEC that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, Prudential Financial’s shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity.

Prudential Financial’s borrowings decreased $1.3 billion from December 31, 2020, primarily driven by $910 million in debt redemptions and $400 million in debt maturities. On August 30, 2021, the Company redeemed, at a make-whole redemption price, $700 million principal amount of its 3.500% medium-term notes due in 2024 and $210 million of the previously outstanding $600 million principal amount of its 3.878% medium-term notes due in 2028. For more information on long-term debt, see Note 17 to the Consolidated Financial Statements.

Subsidiary Borrowings

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Subsidiary borrowings principally consist of commercial paper borrowings by Prudential Funding, asset-based financing and real estate investment financing. Borrowings of our subsidiaries decreased $12 million from December 31, 2020, due primarily to a $145 million decrease in limited and non-recourse borrowings, offset by increases of $98 million in other short-term debt and $40 million in commercial paper outstanding.

Term and Universal Life Reserve Financing

For business written prior to the implementation of principle-based reserving, Regulation XXX and Guideline AXXX require domestic life insurers to establish statutory reserves for term and universal life insurance policies with long-term premium guarantees that are consistent with the statutory reserves required for other individual life policies with similar guarantees. Many market participants believe that these levels of reserves are excessive relative to the levels reasonably required to maintain solvency for moderately adverse experience. The difference between the statutory reserve and the amount necessary to maintain solvency for moderately adverse experience is considered to be the non-economic portion of the statutory reserve.

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 December 31, 2021, we had Credit-Linked Note Structures with an aggregate issuance capacity of $14,600 million, of which $12,721 million was outstanding, as compared to an aggregate issuance capacity of $14,825 million, of which $12,919 million was outstanding, as of December 31, 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. The captive can redeem the principal amount of the outstanding credit-linked notes for cash upon the occurrence of, and in an amount necessary to remedy, a specified liquidity stress event affecting the captive. Under the agreements, the external counterparties have agreed to fund any such payments under the credit-linked notes in return for the receipt of fees. Under certain of the transactions, Prudential Financial has agreed to make capital contributions to the captive to reimburse it for investment losses in excess of specified amounts and/or has agreed to reimburse the external counterparties for any payments made under the credit-linked notes. To date, no such payments under the credit-linked notes have been required. Under these transactions, because valid rights of set-off exist, interest and principal payments on the surplus notes and on the credit-linked notes are settled on a net basis, and the surplus notes are reflected in the Company’s total consolidated borrowings on a net basis.

The following table summarizes our Credit-Linked Note Structures, which are reported on a net basis, as of December 31, 2021:

[[GREPCENT_TABLE]]
[["","Surplus Notes","","Outstanding as of December 31, 2021"],["Credit-Linked Note Structures:","Original Issue Dates","","Maturity Dates","","","","Facility Size"],["","($ in millions)"],["XXX","2012-2021","","2022-2036","","$","1,600","","(1)","","","$","1,750"],["AXXX","2013","","2033","","3,500","","","","","3,500"],["XXX","2014-2018","","2022-2034","","2,130","","(2)","","","2,150"],["XXX","2014-2017","","2024-2037","","2,330","","","","","2,400"],["AXXX","2017","","2037","","1,466","","","","","2,000"],["XXX","2018","","2038","","920","","","","","1,600"],["AXXX","2020","","2032","","775","","","","","1,200"],["Total Credit-Linked Note Structures","","","","","$","12,721","","","","","$","14,600"]]
[[/GREPCENT_TABLE]]

 __________

(1)Prudential Financial has agreed to reimburse amounts paid under the credit-linked notes issued in this structure up to $500 million.

(2)The $2,130 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.

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As of December 31, 2021, we also had outstanding an aggregate of $2,975 million of debt issued for the purpose of financing Regulation XXX and Guideline AXXX non-economic reserves, of which approximately $1,125 million relates to Regulation XXX reserves and $1,850 million relates to Guideline AXXX reserves. In addition, as of December 31, 2021, for purposes of financing Guideline AXXX reserves, one of our captives had $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.

Contractual Obligations

The table below summarizes the future estimated cash payments related to certain contractual obligations as of December 31, 2021. The estimated payments reflected in this table are based on management’s estimates and assumptions about these obligations. Because these estimates and assumptions are necessarily subjective, the actual cash outflows in future periods will vary, possibly materially, from those reflected in the table. In addition, we do not believe that our cash flow requirements can be adequately assessed based solely upon an analysis of these obligations, as the table below does not contemplate all aspects of our cash inflows, such as the level of cash flow generated by certain of our investments, nor all aspects of our cash outflows.

[[GREPCENT_TABLE]]
[["","Estimated Payments Due by Period"],["","2022","","2023-2024","","2025-2026","","2027 and thereafter","","Total"],["","(in millions)"],["Short-term and long-term debt obligations(1)","$","1,625","","","$","2,315","","","$","2,572","","","$","32,657","","","$","39,168"],["Operating lease obligations(2)","129","","","184","","","87","","","69","","","469"],["Purchase obligations:"],["Commitments to purchase or fund investments(3)","5,465","","","3,239","","","911","","","968","","","10,583"],["Commercial mortgage loan commitments(4)","2,211","","","89","","","0","","","0","","","2,300"],["Other liabilities:"],["Insurance liabilities(5)","49,100","","","72,814","","","69,656","","","1,017,841","","","1,209,411"],["Other(6)","14,496","","","112","","","65","","","114","","","14,787"],["Total","$","73,026","","","$","78,753","","","$","73,291","","","$","1,051,649","","","$","1,276,718"]]
[[/GREPCENT_TABLE]]

__________

(1)The estimated payments due by period for long-term debt reflects the contractual maturities of principal, as disclosed in Note 17 to the Consolidated Financial Statements, as well as estimated future interest payments. The payment of principal and estimated future interest for short-term debt are reflected in estimated payments due in 2022. The estimate for future interest payments includes the effect of derivatives that qualify for hedge accounting treatment. See Note 17 to the Consolidated Financial Statements for additional information concerning our short-term and long-term debt.

(2)The estimated payments due by period for operating leases reflect the future minimum lease payments under non-cancelable operating leases, as disclosed in Note 11 to the Consolidated Financial Statements.

(3)As discussed in Note 23 to the Consolidated Financial Statements, we have commitments to purchase or fund investments, some of which are contingent upon events or circumstances not under our control, including those at the discretion of our counterparties. The timing of the fulfillment of certain of these commitments cannot be estimated, therefore the settlements of these obligations are reflected in estimated payments due in less than one year. Commitments to purchase or fund investments include $236 million that we anticipate will ultimately be funded from our separate accounts.

(4)As discussed in Note 23 to the Consolidated Financial Statements, loan commitments of our commercial mortgage operations, which are legally binding commitments to extend credit to a counterparty, have been reflected in the contractual obligations table above principally based on the expiration date of the commitment; however, it is possible these loan commitments could be funded prior to their expiration date. In certain circumstances the counterparty may also extend the date of the expiration in exchange for a fee.

(5)The estimated cash flows due by period for insurance liabilities reflect future estimated cash payments to be made to policyholders and others for future policy benefits, policyholders’ account balances, policyholder’s dividends, reinsurance payables and separate account liabilities, net of premium receipts and reinsurance recoverables. Contractual obligations are contingent upon the receipt of premiums. These future estimated cash flows for current policies in force generally reflect our best estimate economic and actuarial assumptions. These cash flows are undiscounted with respect to interest. Therefore, the sum of the cash flows shown for all years in the table of $1,209 billion exceeds the corresponding liability amounts of approximately $673 billion included in the Consolidated Financial Statements as of December 31, 2021. Separate account liabilities are legally insulated from general account obligations, and it is generally expected these liabilities will be fully funded by separate account assets and their related cash flows. We have made significant assumptions to determine the future estimated cash flows related to the underlying policies and contracts. Due to the significance of the assumptions used and the contingent nature of contractual terms, actual cash flows and their timing will differ, possibly materially, from these estimates. Timing of cash flows in the “2027 and thereafter” category include long term liabilities that may extend beyond 100 years.

(6)The estimated payments due by period for other liabilities includes securities sold under agreements to repurchase, cash collateral for loaned securities, liabilities for unrecognized tax benefits, bank customer liabilities, and other miscellaneous liabilities. Amounts presented in the table also exclude $274 million of notes issued by consolidated VIE’s which recourse for these obligations is limited to the assets of the respective VIE and do not have recourse to the general credit of the company.

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We also enter into agreements to purchase goods and services in the normal course of business; however, these purchase obligations are not material to our consolidated results of operations or financial position as of December 31, 2021.

Off-Balance Sheet Arrangements

See additional information on off-balance sheet arrangements in Note 17 and other commitments in Note 23 to the Consolidated Financial Statements.

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, 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.

Ratings

Financial strength ratings (which are sometimes referred to as “claims-paying” ratings) and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. Our credit ratings are also important for our ability to raise capital through the issuance of debt and for the cost of such financing. Nationally Recognized Statistical Ratings Organizations continually review the financial performance and financial condition of the entities they rate, including Prudential Financial and its rated subsidiaries.

A downgrade in the credit or financial strength ratings of Prudential Financial or its rated subsidiaries could potentially, among other things, limit our ability to market products, reduce our competitiveness, increase the number or value of policy surrenders and withdrawals, increase our borrowing costs and potentially make it more difficult to borrow funds, adversely affect the availability of financial guarantees, such as letters of credit, cause additional collateral requirements or other required payments under certain agreements, allow counterparties to terminate derivative agreements and/or hurt our relationships with creditors, distributors, or trading counterparties thereby potentially negatively affecting our profitability, liquidity, and/or capital. In addition, we consider our own risk of non-performance in determining the fair value of our liabilities. Therefore, changes in our credit or financial strength ratings may affect the fair value of our liabilities.

Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under an insurance policy. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. The following table summarizes the ratings for Prudential Financial and certain of its subsidiaries as of the date of this filing:

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[[GREPCENT_TABLE]]
[["","","A.M. Best(1)","","S&P(2)","","Moody\u2019s(3)","","Fitch(4)(5)"],["Last review date","","12/2/2021","","11/29/2021","","11/22/2021","","5/10/2021"],["Current outlook(6)","","Stable","","Stable","","Stable","","Stable"],["Financial Strength Ratings:"],["The Prudential Insurance Company of America","","A+","","AA-","","Aa3","","AA-"],["Pruco Life Insurance Company","","A+","","AA-","","Aa3","","AA-"],["Pruco Life Insurance Company of New Jersey","","A+","","AA-","","NR*","","AA-"],["Prudential Annuities Life Assurance Corporation","","A+","","AA-","","NR","","A"],["Prudential Retirement Insurance and Annuity Company","","A+","","AA-","","Aa3","","AA-"],["The Prudential Life Insurance Company Ltd. (Prudential of Japan)","","NR","","A+","","NR","","NR"],["Gibraltar Life Insurance Company, Ltd.","","NR","","A+","","NR","","NR"],["The Prudential Gibraltar Financial Life Insurance Co. Ltd","","NR","","A+","","NR","","NR"],["Credit Ratings:"],["Prudential Financial, Inc.:"],["Short-term borrowings","","AMB-1","","A-1","","P-2","","F1"],["Long-term senior debt","","a-","","A","","A3","","A-"],["Junior subordinated long-term debt","","bbb","","BBB+","","Baa1","","BBB"],["The Prudential Insurance Company of America:"],["Capital and surplus notes","","a","","A","","A2","","A"],["Prudential Funding, LLC:"],["Short-term debt","","AMB-1","","A-1+","","P-1","","F1+"],["Long-term senior debt","","a+","","AA-","","A1","","A+"],["PRICOA Global Funding I:"],["Long-term senior debt","","aa-","","AA-","","Aa3","","AA-"]]
[[/GREPCENT_TABLE]]

__________

* “NR” indicates not rated.

(1)A.M. Best Company, which we refer to as A.M. Best, financial strength ratings for insurance companies range from “A++ (superior)” to “D (Poor)”. A rating of A+ is the second highest of thirteen rating categories. A.M. Best long-term credit ratings range from “aaa (exceptional)” to “c (Poor)”. A.M. Best short-term credit ratings range from “AMB-1+”, which represents the strongest ability to repay short-term debt obligations, to “AMB-4 (Questionable)”.

(2)Standard & Poor’s Rating Services, which we refer to as S&P, financial strength ratings for insurance companies range from “AAA (extremely strong)” to “D (default)”. A rating of AA- is the fourth highest of twenty-two rating categories. S&P’s long-term issue credit ratings range from “AAA (extremely strong)” to “D (default)”. S&P short-term ratings range from “A-1 (extremely strong)” to “D (default)”.

(3)Moody’s Investors Service, Inc., which we refer to as Moody’s, insurance financial strength ratings range from “Aaa (highest quality)” to “C (lowest)”. A rating of Aa3 is the fourth highest of twenty-one rating categories. Numeric modifiers are used to refer to the ranking within the group—with 1 being the highest and 3 being the lowest. These modifiers are used to indicate relative strength within a category. Moody’s long-term credit ratings range from “Aaa (highest)” to “C (default)”. Moody’s short-term ratings range from “Prime-1 (P-1)”, which represents a superior ability for repayment of short-term debt obligations, to “Prime-3 (P-3)”, which represents an acceptable ability for repayment of such obligations. Issuers rated “Not Prime” do not fall within any of the Prime rating categories.

(4)Fitch Ratings Inc., which we refer to as Fitch, financial strength ratings range from “AAA (exceptionally strong)” to “C (distressed)”. A rating of AA- is the fourth highest of twenty-one rating categories. Fitch long-term credit ratings range from “AAA (highest credit quality)”, which denotes exceptionally strong capacity for timely payment of financial commitments, to “D (default)”. Short-term ratings range from “F1+ (highest credit quality)” to “D (default)”.

(5)In response to the announced agreements to sell all equity interests in PRIAC as part of Retirement’s Full Service business sale to Great-West Life & Annuity Insurance Company and sell all equity interests in PALAC as part of the in-force variable annuities block sale to Fortitude Group Holdings, LLC, Fitch took PRIAC and PALAC to ratings committee in July 2021 and October 2021 respectively.

(6)A.M Best , Fitch, and S&P have all of Prudential’s ratings on Stable outlook with the exception of PRIAC and PALAC. As a result of the announced Full Service sale, 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. As a result of the announced variable annuity block sale, S&P, Fitch and AM Best changed the ratings outlook of PALAC to Credit Watch Negative from Stable.

The ratings set forth above reflect current opinions of each rating agency. Each rating should be evaluated independently of any other rating. These ratings are not directed toward shareholders and do not in any way reflect evaluations of the safety and security of the Common Stock. These ratings are reviewed periodically and may be changed at any time by the rating agencies. As a result, we cannot assure stakeholders that we will maintain our current ratings in the future.

Rating agencies use an “outlook” statement for both industry sectors and individual companies. For an industry sector, a stable outlook generally implies that over the next 12 to 18 months the rating agency expects ratings to remain unchanged among companies in the sector. In 2021, Fitch, Moody’s and AM Best revised the Rating Outlook on the U.S. life insurance industry from Negative to Stable. S&P maintained their outlook for the U.S. life insurance sector at Stable.

For a particular company, an outlook generally indicates a medium- or long-term trend (generally six months to two years) in credit fundamentals, which if continued, may lead to a rating change. These indicators are not necessarily a precursor

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of a rating change nor do they preclude a rating agency from changing a rating at any time without notice. A.M. Best, Fitch, S&P and Moody’s have the Company’s ratings on Stable outlook with the exception of PRIAC and PALAC.

The following is a summary of the significant changes or actions in ratings and rating outlooks for our Company that have occurred from January 1, 2021, through the date of this filing:

On 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 equity interests in 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.

On September 15, 2021, Prudential announced an agreement to sell a portion of the Company’s in-force variable annuities business through the sale of all equity interests in PALAC to Fortitude Group Holdings, LLC. As a result of this announcement, S&P and AM Best changed the ratings outlook of PALAC to Credit Watch Negative from Stable and Fitch downgraded PALAC’s financial strength rating to A with an outlook of Rating Watch Negative from AA- with an outlook of Stable.

Requirements to post collateral or make other payments because of ratings downgrades under certain agreements, including derivative agreements, can be satisfied in cash or by posting permissible securities held by the subsidiaries subject to the agreements. In addition, a ratings downgrade by A.M. Best to “A-” for our domestic life insurance companies would require PICA to either post collateral or a letter of credit in the amount of approximately $1.2 billion, based on the level of statutory reserves related to the variable annuity business acquired from Allstate. We believe that the posting of such collateral would not be a material liquidity event for PICA.

Risk Management

Overview

We employ a risk governance structure, overseen by senior management and our Board and managed by Enterprise Risk Management (“ERM”), to provide a common framework for: evaluating the risks embedded in and across our businesses and corporate centers; developing risk appetites; managing these risks; and identifying current and future risk challenges and opportunities. For a discussion of the risks of our businesses, see “Risk Factors”.

Risk Governance Framework

Each of our businesses has a risk governance structure that is supported by a framework at the corporate level. Generally, our businesses are authorized to make day-to-day risk decisions that are consistent with enterprise risk policies and limits, and subject to enterprise oversight.

Board of Directors Oversight

Our Board oversees our risk profile and management’s processes for assessing and managing risk, through both the whole Board and its committees. The Board also reviews strategic risks and opportunities facing the Company and its businesses. Other important categories of risk are assigned to designated Board committees that report back to the full Board. In general, the committees oversee the following risks:

•Audit Committee: insurance risk and operational risk, including model risk, as well as risks related to financial controls, legal, regulatory, cyber security and compliance risk;

•Compensation Committee: the design and operation of the Company’s compensation programs so that they do not encourage unnecessary or excessive risk-taking;

•Corporate Governance and Business Ethics Committee: the Company’s overall ethical culture, political contributions, lobbying expenses and overall political strategy, as well as the Company’s environmental risk (which includes climate risk), sustainability and corporate social responsibility to minimize reputational risk and focus on future sustainability;

•Finance Committee: liquidity risk and risk involving our capital and liquidity management, the incurrence and repayment of borrowings, the capital structure of the Company, funding of benefit plans and statutory insurance reserves. The Finance Committee oversees our capital plan and receives regular updates on the sources and uses of capital relative to plan, as well as on our Risk Appetite Framework;

•Investment Committee: investment risk, market risk, and review of investment performance and risk positions. The Investment Committee approves investment and market risk limits based on asset class, issuer, credit quality and geography; and

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•Risk Committee: the governance of significant risk throughout the Company, the establishment and ongoing monitoring of our risk profile, risk capacity and risk appetite, and coordination of the risk oversight functions of the other Board committees.

Management Oversight

Our primary risk management committee is the Enterprise Risk Committee (“ERC”). The ERC is chaired by our Chief Risk Officer and otherwise consists of the Vice Chairman, Head of U.S. Businesses, Head of International Businesses, General Counsel, Chief Financial Officer, Chief Investment Officer, Chief Information Officer and Chief Actuary. Our Chief Auditor also attends meetings of the ERC. The ERC oversees the Company’s risk management framework, including the identification, assessment, monitoring and management of risks and how those risks align with the Company’s loss absorption resources. The primary focus of the ERC is the critical analysis of significant quantitative and qualitative risks and the appropriateness and alignment to the defined risk appetite of the Company.

The ERC is supported by five Risk Oversight Committees aligned with our tactical risks, each of which consists of subject matter experts and are dedicated to one of the following risk types: investment, market (including liquidity), insurance, operational, and model. Significant matters or matters where there are unresolved points of view are reviewed by the ERC. The Risk Oversight Committees provide an opportunity to evaluate complex issues by subject matter experts within the various risk areas. They evaluate the effectiveness of risk mitigation options, identify stakeholders of risks and issues, review material assumptions for reasonability and consistency across the Company, and develop recommendations for risk limits, among other responsibilities.

In addition, each of our businesses and certain corporate centers maintains their own risk committee as a forum for leaders to identify, assess, and monitor risk and exposure issues and to review new business activities and initiatives.

Enterprise Risk Management Oversight

ERM manages the risk management framework. It operates independently and is responsible for recommending policies, limits and standards for all risks. ERM oversees these risks under the guidance of the ERC and Risk Oversight Committees. Additionally, ERM and our business unit Chief Risk Officers work with our businesses and corporate areas to identify, monitor and manage risks that we may face. The ERM infrastructure is generally aligned by risk type, with certain groups within ERM working across risk types.

Risk Identification

We rely on a combination of activities to ensure that all material risks have been identified and managed as appropriate. There are three levels of activities that seek to ensure that changes in risk levels or new risks to the Company are identified and escalated as appropriate: (1) business activities, (2) corporate center activities, and (3) processes involving senior management and the Board.

•Business Activities: Each business area has a risk committee that allows senior leaders to discuss and evaluate current, new, and emerging risks in their own operations. Businesses are required to develop and maintain documented risk inventories that facilitate the identification of current risk exposures.

•Corporate Center Activities: The corporate centers review the results of the business activities and examine risks from an enterprise view across businesses under normal and stressed conditions. As a result, the corporate centers, particularly ERM, use several processes and activities to identify and assess the risks of the Company. Most corporate centers have their own risk committees.

•Senior Management and the Board: Senior management plays a critical role in reviewing the risk profile of the Company, including identifying impacts to the business strategy and risks in any new strategies under consideration. These risks are discussed with the ERC as appropriate, and with the Board if significant. As discussed above, the Board oversees the Company’s risk profile and management’s processes for assessing and managing risk, both as a full Board and through its committees.

Risk Measurement and Monitoring

Our Risk Appetite Framework is a comprehensive process designed to reasonably ensure that risks taken across the Company align with the Company’s capacity and willingness to take those risks. Using the Risk Appetite Framework, the Company measures, evaluates, and manages its financial risks. The comprehensive models, metrics, and stress scenarios used enable the Company to understand its current risk profile as well as how the risk profile may change over time through varying

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degrees of stress. The Risk Appetite Framework anchors the risk and capital management processes and supports management and the Board in making well-informed business decisions..

The Risk Appetite Framework is centered around a comprehensive and cohesive stress testing regime which includes a variety of stress scenarios designed to explore outcomes across the investment portfolios and businesses. This robust stress testing examines the sensitivity of assets and liabilities and how they interact with each other through time to identify places where the Company’s capacity may be challenged by the risks taken. These analytics provide insight into the impact of stress scenarios on capital and liquidity.

Additionally, the Qualitative Risk Appetite Framework helps the Company understand and manage risks that are not easily quantifiable. By continuously scanning the internal environment and reporting findings to leadership and the Board on a regular basis, the Company can monitor and mitigate operational risks in qualitative areas, such as: culture; reputation; compliance with laws, regulations, and policies; and decision-making incentives.

COVID-19

Our risk management framework incorporates severe to very severe stresses across equities, interest rates, credit migration and defaults, currencies and mortality. This framework includes a specific “pandemic and sell-off” scenario with a mortality calamity (1.5 extra deaths per 1,000 lives in the first year) based on a modern-day interpretation of the 1918 Spanish Flu experience that is aligned with most regulatory frameworks. The stress scenario assumes an even distribution of increased mortality across the population, which is more adversely impactful to the Company than our current understanding of COVID-19 mortality, which is skewed toward older ages. As the COVID-19 pandemic continues to unfold, we continue to update our analysis and take management actions in response to this specific event.

As of December 31, 2021, the COVID-19 pandemic has not reached the most severe levels of financial impacts included in the Company’s stress testing. In addition, the net mortality impact of COVID-19 has been moderated by the balance between our mortality exposure (such as in our Individual Life and Group Insurance businesses) and our offsetting longevity exposure (such as in our Retirement business). As the U.S. COVID-19 mortality skewed younger in the second half of 2021, the net mortality impact to the Company increased due to higher mortality exposure with less longevity offset. The future evolution of the virus, among other factors, could cause the actual course of the pandemic to differ from our current expectations.