Form: 10-Q

Quarterly report [Sections 13 or 15(d)]

Documents

FALSE2023Q2PRUCO LIFE INSURANCE OF NEW 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Table of Contents                                  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to             
Commission File Number 333-18053
 ____________________________________________________________ 
Pruco Life Insurance Company of New Jersey
(Exact Name of Registrant as Specified in its Charter)
New Jersey 22-2426091
(State or Other Jurisdiction of
Incorporation or Organization)		 (I.R.S. Employer Identification Number)
213 Washington Street
Newark, NJ 07102
(973) 802-6000
(Address and Telephone Number of Registrant’s Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Not ApplicableNot ApplicableNot Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer", "accelerated filer", "smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☐Accelerated Filer☐
Non-accelerated Filer☒Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒
As of August 10, 2023, 400,000 shares of the registrant’s Common Stock (par value $5) were outstanding. As of such date, Pruco Life Insurance Company, an Arizona corporation, owned all of the registrant’s Common Stock.
Pruco Life Insurance Company of New Jersey meets the conditions set
forth in General Instruction (H) (1) (a) and (b) on Form 10-Q and
is therefore filing this Form 10-Q in the reduced disclosure format.

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


3        
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Unaudited Interim Statements of Financial Position
June 30, 2023 and December 31, 2022 (in thousands, except share amounts)

June 30, 2023December 31, 2022
ASSETS
Fixed maturities, available for sale, at fair value (allowance for credit losses: 2023-$3; 2022-$363) (amortized cost: 2023-$2,425,413; 2022-$1,990,718)
$2,168,635 $1,719,488 
Fixed maturities, trading, at fair value (amortized cost: 2023-$26,650; 2022-$27,566)
23,021 23,782 
Equity securities, at fair value (cost: 2023-$4,622; 2022-$4,614)
4,487 4,358 
Policy loans1,112,432 212,063 
Short-term investments6,500 7,000 
Commercial mortgage and other loans (net of $675 and $408 allowance for credit losses at June 30, 2023 and December 31, 2022, respectively)
177,190 148,179 
Other invested assets (includes $4,915 and $2,389 of assets measured at fair value at June 30, 2023 and December 31, 2022, respectively)
144,228 129,528 
Total investments3,636,493 2,244,398 
Cash and cash equivalents80,676 255,767 
Deferred policy acquisition costs(1)372,344 351,874 
Accrued investment income36,572 25,222 
Reinsurance recoverables(1)3,276,582 3,098,248 
Receivables from parent and affiliates25,002 19,348 
Income tax assets(1)69,879 67,615 
Market risk benefit assets(1)533,855 558,624 
Other assets(1)46,423 48,391 
Separate account assets13,766,346 13,926,958 
TOTAL ASSETS$21,844,172 $20,596,445 
LIABILITIES AND EQUITY
LIABILITIES
Policyholders’ account balances(1)$3,809,514 $2,774,315 
Future policy benefits(1)2,270,244 2,130,042 
Market risk benefit liabilities(1)533,855 558,624 
Cash collateral for loaned securities2,996 0 
Short-term debt to affiliates3 0 
Payables to parent and affiliates10 7,546 
Other liabilities(1)230,432 172,305 
Separate account liabilities13,766,346 13,926,958 
Total liabilities20,613,400 19,569,790 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
EQUITY
Common stock ($5 par value; 400,000 shares authorized, issued and outstanding)
2,000 2,000 
Additional paid-in capital950,913 775,412 
Retained earnings(1)311,306 285,433 
Accumulated other comprehensive income (loss)(1)(33,447)(36,190)
Total equity1,230,772 1,026,655 
TOTAL LIABILITIES AND EQUITY$21,844,172 $20,596,445 
(1)    Prior period amounts adjusted for the implementation of Accounting Standard Update ("ASU") 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.




See Notes to Unaudited Interim Financial Statements
4        
Table of Contents                                  
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Unaudited Interim Statements of Operations and Comprehensive Income (Loss)
Three and Six Months Ended June 30, 2023 and 2022 (in thousands)

  Three Months Ended
June 30,		 Six Months Ended
June 30,
 2023202220232022
REVENUES
Premiums(1)$9,566 $8,251 $19,743 $17,271 
Policy charges and fee income(1)21,343 16,277 35,481 26,872 
Net investment income39,974 24,864 68,634 49,233 
Asset administration fees2,270 2,110 4,350 4,370 
Other income (loss)277 (2,628)1,423 (4,142)
Realized investment gains (losses), net(1)(4,617)5,665 (12,915)21,385 
Change in value of market risk benefits, net of related hedging gain (loss)(1)22,869 (88,000)7,141 (174,828)
TOTAL REVENUES91,682 (33,461)123,857 (59,839)
BENEFITS AND EXPENSES
Policyholders’ benefits(1)15,721 5,010 34,060 18,845 
Change in estimates of liability for future policy benefits(1)(641)13,358 (2,083)12,181 
Interest credited to policyholders’ account balances13,623 11,941 23,760 23,135 
Amortization of deferred policy acquisition costs(1)4,919 4,733 9,936 9,562 
General, administrative and other expenses(1)16,809 9,850 28,767 20,850 
TOTAL BENEFITS AND EXPENSES50,431 44,892 94,440 84,573 
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES41,251 (78,353)29,417 (144,412)
Income tax expense (benefit)(1)4,984 (23,348)3,544 (43,291)
NET INCOME (LOSS)$36,267 $(55,005)$25,873 $(101,121)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments71 (350)171 (417)
Net unrealized investment gains (losses)(1)(25,206)(150,027)13,561 (310,120)
Interest rate remeasurement of future policy benefits(1)3,841 25,253 (3,118)47,736 
Gain (loss) from changes in non-performance risk on market risk benefits(1)(22,869)88,000 (7,141)174,828 
Total(44,163)(37,124)3,473 (87,973)
Less: Income tax expense (benefit) related to other comprehensive income (loss)(1)(9,274)(7,797)730 (18,475)
Other comprehensive income (loss), net of taxes(34,889)(29,327)2,743 (69,498)
Comprehensive income (loss)$1,378 $(84,332)$28,616 $(170,619)
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.











See Notes to Unaudited Interim Financial Statements
5        
Table of Contents                                  
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Unaudited Interim Statements of Equity
Three and Six Months Ended June 30, 2023 and 2022 (in thousands)
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Equity 
Balance, December 31, 2022(1)$2,000 $775,412 $285,433 $(36,190)$1,026,655 
Contributed capital175,000 175,000 
Comprehensive income (loss):
Net income (loss)(10,394)(10,394)
Other comprehensive income (loss), net of tax37,632 37,632 
Total comprehensive income (loss)27,238 
Balance, March 31, 2023$2,000 $950,412 $275,039 $1,442 $1,228,893 
Contributed capital
Contributed (distributed) capital-parent/child asset transfers501 501 
Comprehensive income (loss):
Net income (loss)36,267 36,267 
Other comprehensive income (loss), net of tax(34,889)(34,889)
Total comprehensive income (loss)1,378 
Balance, June 30, 2023$2,000 $950,913 $311,306 $(33,447)$1,230,772 
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

 Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Equity  
Balance, December 31, 2021(1)$2,000 $450,102 $355,262 $101,987 $909,351 
Contributed capital101,700 101,700 
Comprehensive income (loss):
Net income (loss)(46,116)(46,116)
Other comprehensive income (loss), net of tax(40,171)(40,171)
Total comprehensive income (loss)(86,287)
Balance, March 31, 2022(1)$2,000 $551,802 $309,146 $61,816 $924,764 
Contributed capital0 
Comprehensive income (loss):
Net income (loss)(55,005)(55,005)
Other comprehensive income (loss), net of tax(29,327)(29,327)
Total comprehensive income (loss)(84,332)
Balance, June 30, 2022(1)$2,000 $551,802 $254,141 $32,489 $840,432 
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.









See Notes to Unaudited Interim Financial Statements
6        
Table of Contents                                  
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Unaudited Interim Statements of Cash Flows
Six Months Ended June 30, 2023 and 2022 (in thousands)
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)(1)$25,873 $(101,121)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income(1)(3,444)(3,060)
Interest credited to policyholders’ account balances23,760 23,135 
Realized investment (gains) losses, net(1)12,915 (21,385)
Change in value of market risk benefits, net of related hedging (gains) losses(1)(7,141)174,828 
Change in:
Future policy benefits and other insurance liabilities(1)161,675 312,119 
Reinsurance recoverables(1)(63,007)(283,836)
Accrued investment income(11,350)(1,608)
Net payables to/receivables from parent and affiliates(9,835)9,224 
Deferred policy acquisition costs(1)(20,469)(23,401)
Income taxes(1)(3,127)(20,638)
Derivatives, net4,113 4,529 
Other, net(1)(2)(83,093)(73,016)
Cash flows from (used in) operating activities26,870 (4,230)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale41,160 59,073 
Fixed maturities, trading916 653 
Equity securities208 17 
Policy loans14,639 14,665 
Ceded policy loans(819)(1,003)
Short-term investments8,000 9,997 
Commercial mortgage and other loans5,153 8,118 
Other invested assets 489 2,928 
Payments for the purchase/origination of:
Fixed maturities, available-for-sale(472,270)(198,984)
Equity securities(27)0 
Policy loans(911,103)(11,792)
Ceded policy loans1,017 945 
Short-term investments(7,500)0 
Commercial mortgage and other loans(34,211)(3,231)
Other invested assets (8,027)(7,353)
Notes receivable from parent and affiliates, net629 (18)
Derivatives, net(423)337 
Other, net0 4,053 
Cash flows from (used in) investing activities(1,362,169)(121,595)
7        
Table of Contents                                  
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders’ account deposits1,235,161 263,524 
Ceded policyholders’ account deposits(164,543)(160,200)
Policyholders’ account withdrawals (232,083)(204,490)
Ceded policyholders’ account withdrawals138,107 122,024 
Net change in securities sold under agreement to repurchase and cash collateral for loaned securities2,996 0 
Contributed capital175,000 100,400 
Contributed (distributed) capital - parent/child asset transfers634 0 
Net change in all other financing arrangements (maturities 90 days or less)3 0 
Drafts outstanding(4,006)4,138 
Other, net8,939 2,889 
Cash flows from (used in) financing activities1,160,208 128,285 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(175,091)2,460 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR255,767 136,316 
CASH AND CASH EQUIVALENTS, END OF PERIOD$80,676 $138,776 
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.
(2)    Prior period has been reclassified to conform to the current period presentation.

Significant Non-Cash Transactions

There were no significant non-cash transactions for the six months ended June 30, 2023 and 2022.


























See Notes to Unaudited Interim Financial Statements
8        
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

1.    BUSINESS AND BASIS OF PRESENTATION

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

Basis of Presentation

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

The Unaudited Interim Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Intercompany balances and transactions have been eliminated.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company's Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and the Company's restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

Adoption of ASU 2018-12

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

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

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Unaudited Interim Statements of Financial Position:
December 31, 2022
IMPACTED LINES ONLYAs Previously ReportedEffect of
Change		As Currently Reported
(in thousands)
Deferred policy acquisition costs$364,494 $(12,620)$351,874 
Reinsurance recoverables3,258,526 (160,278)3,098,248 
Income tax assets67,126 489 67,615 
Market risk benefit assets0 558,624 558,624 
Other assets16,207 32,184 48,391 
TOTAL ASSETS$20,178,046 $418,399 $20,596,445 
Policyholders’ account balances$2,763,730 $10,585 $2,774,315 
Future policy benefits2,303,407 (173,365)2,130,042 
Market risk benefit liabilities0 558,624 558,624 
Other liabilities147,908 24,397 172,305 
Total liabilities19,149,549 420,241 19,569,790 
Retained earnings439,236 (153,803)285,433 
Accumulated other comprehensive income (loss)(188,151)151,961 (36,190)
Total equity1,028,497 (1,842)1,026,655 
TOTAL LIABILITIES AND EQUITY$20,178,046 $418,399 $20,596,445 
10        
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Unaudited Interim Statements of Operations and Comprehensive Income (Loss):
Three Months Ended June 30, 2022
 IMPACTED LINES ONLY
As Previously ReportedEffect of
Change		As Currently Reported
(in thousands)
REVENUES
Premiums$8,635 $(384)$8,251 
Policy charges and fee income32,194 (15,917)16,277 
Realized investment gains (losses), net5,610 55 5,665 
Change in value of market risk benefits, net of related hedging gain (loss)0 (88,000)(88,000)
TOTAL REVENUES70,785 (104,246)(33,461)
BENEFITS AND EXPENSES
Policyholders’ benefits12,487 (7,477)5,010 
Change in estimates of liability for future policy benefits0 13,358 13,358 
Amortization of deferred policy acquisition costs13,915 (9,182)4,733 
General, administrative and other expenses10,285 (435)9,850 
TOTAL BENEFITS AND EXPENSES48,628 (3,736)44,892 
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES22,157 (100,510)(78,353)
Income tax expense (benefit)(4,346)(19,002)(23,348)
NET INCOME (LOSS)$26,503 $(81,508)$(55,005)
Other comprehensive income (loss), before tax:
Net unrealized investment gains (losses)(160,103)10,076 (150,027)
Interest rate remeasurement of future policy benefits0 25,253 25,253 
Gain (loss) from changes in non-performance risk on market risk benefits0 88,000 88,000 
Total(160,453)123,329 (37,124)
Less: Income tax expense (benefit) related to other comprehensive income (loss)(33,696)25,899 (7,797)
Other comprehensive income (loss), net of taxes(126,757)97,430 (29,327)
Comprehensive income (loss)$(100,254)$15,922 $(84,332)

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022
 IMPACTED LINES ONLY
As Previously ReportedEffect of
Change		As Currently Reported
(in thousands)
REVENUES 
Premiums$18,830 $(1,559)$17,271 
Policy charges and fee income47,915 (21,043)26,872 
Realized investment gains (losses), net21,638 (253)21,385 
Change in value of market risk benefits, net of related hedging gain (loss)0 (174,828)(174,828)
TOTAL REVENUES137,844 (197,683)(59,839)
BENEFITS AND EXPENSES
Policyholders’ benefits26,061 (7,216)18,845 
Change in estimates of liability for future policy benefits0 12,181 12,181 
Amortization of deferred policy acquisition costs20,107 (10,545)9,562 
General, administrative and other expenses22,666 (1,816)20,850 
TOTAL BENEFITS AND EXPENSES91,969 (7,396)84,573 
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES45,875 (190,287)(144,412)
Income tax expense (benefit)(2,490)(40,801)(43,291)
NET INCOME (LOSS)$48,365 $(149,486)$(101,121)
Other comprehensive income (loss), before tax:
Net unrealized investment gains (losses)(326,464)16,344 (310,120)
Interest rate remeasurement of future policy benefits0 47,736 47,736 
Gain (loss) from changes in non-performance risk on market risk benefits0 174,828 174,828 
Total(326,881)238,908 (87,973)
Less: Income tax expense (benefit) related to other comprehensive income (loss)(68,645)50,170 (18,475)
Other comprehensive income (loss), net of taxes(258,236)188,738 (69,498)
Comprehensive income (loss)$(209,871)$39,252 $(170,619)

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Unaudited Interim Statements of Cash Flows:
Six Months Ended June 30, 2022
IMPACTED LINES ONLYAs Previously ReportedEffect of
Change		As Currently Reported
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$48,365 $(149,486)$(101,121)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income(15,153)12,093 (3,060)
Realized investment (gains) losses, net(21,638)253 (21,385)
Change in value of market risk benefits, net of related hedging (gains) losses0 174,828 174,828 
Change in:
Future policy benefits and other insurance liabilities119,345 192,774 312,119 
Reinsurance recoverables(156,229)(127,607)(283,836)
Deferred policy acquisition costs(12,860)(10,541)(23,401)
Income taxes20,162 (40,800)(20,638)
Other, net(1)(21,502)(51,514)(73,016)
Cash flows from (used in) operating activities$(4,230)$0 $(4,230)
(1)    Prior period has been reclassified to conform to the current period presentation.

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

January 1, 2021
Retained Earnings
(in thousands)
Balance after-tax, prior to transition$328,450 
Reclassification of market risk benefits non-performance risk to accumulated other comprehensive income(1)
(60,792)
Updates to certain universal life contract liabilities(2)(20,108)
Other(3)7,722 
Total pre-tax adjustments(73,178)
Tax impacts15,367 
Balance after-tax, after transition$270,639 
(1)    Reflects the cumulative impact of changes in the fair value of market risk benefits (“MRB”) non-performance risk (“NPR”) from the date of contract issuance to January 1, 2021. These amounts were previously recorded in retained earnings but are now reflected in AOCI under the new guidance.
(2)    Reflects the impact on additional insurance reserves ("AIR") and other related balances primarily related to the no-lapse guarantee features on certain universal life contracts. For additional information, see Note 2.
(3)    Primarily reflects the reassessment of deferred reinsurance losses ("DRL").

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
January 1, 2021
Accumulated Other Comprehensive Income
(in thousands)
Balance after-tax, prior to transition$185,407 
Interest rate remeasurement of future policy benefits
(57,440)
Reclassification of market risk benefits non-performance risk to accumulated other comprehensive income(1)
60,792 
Unwinding amounts related to unrealized investment gains and losses(2)(15,161)
Total pre-tax adjustments(11,809)
Tax impacts2,480 
Balance after-tax, after transition$176,078 
(1)    Reflects the cumulative impact of changes in NPR on the fair value of market risk benefits from the date of contract issuance to January 1, 2021. These amounts were previously recorded in retained earnings but are now reflected in AOCI under the new guidance.
(2)    Primarily reflects amounts related to DAC and other balances as unrealized investment gains or losses no longer impact the amortization pattern of such balances under the new guidance. Also includes the impacts from updates to reserves and other related balances for certain universal life contracts. For additional information, see Note 2.
January 1, 2021
Deferred Policy Acquisition Costs
Term LifeVariable/Universal LifeTotal
(in thousands)
Balance prior to transition$51,526 $172,899 $224,425 
Unwinding amounts related to unrealized investment gains and losses0 21,714 21,714 
Other(1)1 (1,922)(1,921)
Balance after transition$51,527 $192,691 $244,218 
(1)    Represents miscellaneous model refinements.

January 1, 2021
Deferred Reinsurance Losses(1)
Variable Annuities
(in thousands)
Balance prior to transition$15,209 
Unwinding amounts related to unrealized investment gains and losses1,187 
Effect of change in reserve basis to market risk benefits4,236 
Balance after transition$20,632 
(1)    Deferred reinsurance losses are included in "Other assets".

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
January 1, 2021
Benefit Reserves(1)
Term LifeFixed AnnuitiesTotal
(in thousands)
Balance prior to transition$1,049,445 $16,468 $1,065,913 
Changes in cash flow assumptions and other activity30(687)(657)
Balance after transition, at original discount rate1,049,475 15,781 1,065,256 
Cumulative changes in discount rate assumptions401,072 2,188 403,260 
Balance after transition, at current discount rate1,450,547 17,969 1,468,516 
Less: Reinsurance recoverable1,264,199 17,944 1,282,143 
Balance after transition, net of reinsurance recoverable$186,348 $25 $186,373 
(1)     Benefit reserves, excluding amounts for reinsurance recoverable, are included in "Future policy benefits". For additional information on the liability for future policy benefits, see Note 8.

January 1, 2021
Deferred Profit Liability(1)
Fixed Annuities
(in thousands)
Balance prior to transition$102 
Changes in benefit reserves882 
Balance after transition984 
Less: Reinsurance recoverable984 
Balance after transition, net of reinsurance recoverable$0 
(1)    Deferred profit liability ("DPL"), excluding amounts for reinsurance recoverable, is included in "Future policy benefits". For additional information regarding the liability for future policy benefits, see Note 8.

January 1, 2021
Additional Insurance Reserves(1)
Variable/Universal LifeVariable AnnuitiesTotal
(in thousands)
Balance prior to transition$513,812 $24,433 $538,245 
Unwinding amounts related to unrealized investment gains and losses(109,355)(1,698)(111,053)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses404,457 22,735 427,192 
Reclassification of future policy benefits additional insurance reserves to market risk benefits0 (22,735)(22,735)
Updates to certain universal life contract liabilities(2)142,726 0 142,726 
Balance after transition, excluding amounts related to unrealized investment gains and losses547,183 0 547,183 
Amounts related to unrealized investment gains and losses after transition95,331 0 95,331 
Balance after transition642,514 0 642,514 
Less: Reinsurance recoverable613,009 0 613,009 
Balance after transition, net of reinsurance recoverable$29,505 $0 $29,505 
(1)    AIR, excluding amounts for reinsurance recoverable, are included in "Future policy benefits". For additional information regarding the liability for future policy benefits, see Note 8.
(2)    For additional information regarding updates to reserves and other related balances for certain universal life contracts, see Note 2.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
January 1, 2021
Unearned Revenue Reserves(1)
Variable/Universal Life
(in thousands)
Balance prior to transition$94,480 
Unwinding amounts related to unrealized investment gains and losses and other activity92,103 
Balance after transition186,583 
Less: Reinsurance recoverable45,019 
Balance after transition, net of reinsurance recoverable$141,564 
(1)    Unearned revenue reserves ("URR") are included in "Policyholders' account balances". For additional information regarding the liability for policyholders' account balances, see Note 9.


January 1, 2021
Market Risk Benefits(1)
Variable Annuities
(in thousands)
Liability for guaranteed benefits recorded at fair value, prior to transition$1,195,470 
Additional insurance reserves to be reclassed to market risk benefits, prior to transition, excluding amounts related to unrealized investment gains and losses22,735 
Total liability prior to transition1,218,205 
Change in reserve basis to market risk benefits framework(12,634)
Market risk benefits after transition, at current non-performance risk value1,205,571 
Less: Reinsured market risk benefits1,205,571 
Market risk benefits after transition, net of reinsurance0 
Market risk benefits after transition, at contract inception non-performance risk value$1,266,363 
Cumulative change in non-performance risk60,792 
Market risk benefits after transition, at current non-performance risk value$1,205,571 
(1)    For additional information regarding market risk benefits, see Note 10.

January 1, 2021
Cost of Reinsurance(1)
Variable/Universal Life
(in thousands)
Balance prior to transition$85,773 
Unwinding amounts related to unrealized investment gains and losses(34,617)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses51,156 
Impact from updates to certain universal life contract liabilities(2)14,045 
Balance after transition, excluding amounts related to unrealized investment gains and losses65,201 
Amounts related to unrealized investment gains and losses after transition27,620 
Balance after transition$92,821 
(1)    Cost of reinsurance is included in "Other liabilities".
(2)    For additional information regarding updates to reserves and other related balances for certain universal life contracts, see Note 2.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Use of Estimates

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

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

Reclassifications

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


2.    SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Recent Accounting Pronouncements

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

Adoption of ASU 2018-12

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

As of the January 1, 2021 transition date, the adoption of the standard resulted in a decrease to “Total equity” of $67 million, primarily from remeasuring in force contract liabilities using upper-medium grade fixed income instrument yields as of the transition date and from other changes in reserves. As of the January 1, 2023 adoption date, the impact amounted to a decrease to "Total equity" of $2 million. The changes in the impacts from January 1, 2021 to January 1, 2023 primarily reflect the increase in market interest rates during 2021 and 2022.

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

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
(1) Key Accounting Policy Changes

Area of ChangeDescriptionMethod of adoptionEffect on the financial statements or other significant matters
Cash flow assumptions used to measure the liability for future policy benefits for non-participating traditional and limited-payment insurance productsRequires an entity to review, and if necessary, update the cash flow assumptions used to measure the liability for future policy benefits, for both changes in future assumptions and actual experience, at least annually using a retrospective update method with a cumulative catch-up adjustment recorded in a separate line item in the Statements of Operations.Effective January 1, 2023 using the modified retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021 (the “transition date”). Under this method, the amendments to contracts in force were applied as of January 1, 2021 on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI
The impact upon transition reflects the impact on in force contract liabilities in instances where expected net premiums exceeded expected gross premiums at an issue-year cohort level as a result of updating to current best estimate cash flow assumptions as of the transition date. As a result of the modified retrospective transition method, the vast majority of the impact of updating cash flow assumptions to best estimates as of the transition date will be reflected in the pattern of earnings in subsequent periods. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 8 for additional information.
Discount rate assumption used to measure the liability for future policy benefits for non-participating traditional and limited-payment insurance productsRequires discount rate assumptions to be based on an upper-medium grade fixed income instrument yields, which will be updated each quarter with the impact recorded through OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the discount rate assumptions.As noted above, the guidance for the liability for future policy benefits was adopted effective January 1, 2023 using the modified retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021. Under this method, for balance sheet remeasurement purposes, the liability for future policy benefits is remeasured using discount rates as of January 1, 2021 with the impact recorded as a cumulative effect adjustment to AOCI.
Adoption of the ASU resulted in a significant impact to AOCI as a result of remeasuring in force contract liabilities using current upper-medium grade fixed income instrument yields. This adjustment largely reflects the difference between discount rates locked-in at contract inception versus current discount rates. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 8 for additional information.
Amortization of deferred acquisition costs and other balancesRequires DAC and other balances, such as URR and Deferred Sales Inducements ("DSI"), to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.Effective January 1, 2023 using the modified retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021. Under this method, the amendments to contracts in force were applied as of January 1, 2021 on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI.
Adoption of the ASU did not have a significant impact on DAC and other balances upon transition, other than the impact of the removal of any related amounts in AOCI. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 6 for additional information.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Market Risk Benefits Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record MRB assets and liabilities separately on the Statements of Financial Position. Changes in the fair value of market risk benefits are recorded in net income, except for the portion attributable to changes in an entity’s NPR, which is recognized in OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the balance of the market risk benefits upon adoption.Effective January 1, 2023 using the retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021.
Adoption of the ASU resulted in an adjustment to retained earnings for the difference between the fair value and carrying value of benefits not measured at fair value prior to the adoption of the ASU (e.g., guaranteed minimum death benefits on variable annuities) and a reclass of the cumulative effect of changes in NPR from retained earnings to AOCI. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 10 for additional information.

In addition to the significant key accounting changes noted above, ASU 2018-12 also clarified the definition of assessments used to accrue additional insurance reserves and other related balances, primarily for no-lapse guarantee features on certain universal life contracts. Application of the new guidance changed the pattern of reserve recognition for these guarantees and resulted in an increase to the net contract liabilities related to these products at transition. See Note 1 for additional information regarding the effect on the financial statements.

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

(2) Updated Accounting Policies

This section includes the updated accounting policies resulting from the adoption of ASU 2018-12 which are applicable to all of the periods presented in the Unaudited Interim Financial Statements. This section is meant to serve as an update to, and should be read in conjunction with, Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

ASSETS

Deferred policy acquisition costs represents costs directly related to the successful acquisition of new and renewal insurance and annuity business. Such DAC primarily includes commissions, costs of policy issuance and underwriting, and certain other expenses that are directly related to successfully acquired contracts. In each reporting period, previously capitalized DAC is amortized and included in “Amortization of deferred policy acquisition costs”, and the carrying amount of DAC is not subject to recoverability testing upon adoption of ASU 2018-12.

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

•Life insurance contracts – DAC associated with life insurance contracts is generally amortized in proportion to the initial face amount of life insurance in force. This is applicable to traditional and universal life insurance.

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

•Deferred annuity contracts – DAC associated with fixed and variable deferred annuity contracts is amortized in proportion to deposits.

For single premium immediate annuities without life contingencies, acquisition expenses are deferred and amortized over the expected life of the contracts using the interest method.

Current period DAC amortization reflects the impact of changes in actual insurance in force during the period and changes in future assumptions effected as of the end of the quarter, where applicable. The Company typically updates actuarial assumptions annually in the second quarter, (see "Annual Assumptions Review" below), unless a material change is observed in an interim period that is indicative of a long-term trend. Generally, the Company does not expect trends to change significantly in the short-term and, to the extent these trends may change, the Company expects such changes to be gradual over the long-term.

Assumptions used for DAC are consistent with those used in estimating the liability for future policy benefits (or any other related balance) for the corresponding contract. Determining the level of aggregation and actuarial assumptions used in projecting in force terminations requires judgment. Internal criteria are developed to determine the level of aggregation by considering both qualitative and quantitative materiality thresholds. The assumptions used in projecting in force terminations are mortality, mortality improvement, and lapse assumptions. These assumptions are generally based on the Company’s experience, industry experience and/or other factors, as applicable. For variable deferred annuity contracts, lapse rates are adjusted at the contract level based on the in-the-moneyness of the living benefits and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates are also generally assumed to be lower for the period where surrender charges apply.

For some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. If policyholders surrender traditional life insurance policies in exchange for life insurance policies that do not have fixed and guaranteed terms, the Company immediately charges to expense the remaining unamortized DAC on the surrendered policies. For other internal replacement transactions, except those that involve the addition of a non-integrated contract feature that does not change the existing base contract, the unamortized DAC is immediately charged to expense if the terms of the new policies are not substantially similar to those of the former policies. If the new terms are substantially similar to those of the earlier policies, the DAC is retained with respect to the new policies and amortized over the expected life of the new policies. See Note 6 for additional information regarding DAC.

Reinsurance recoverables include corresponding receivables associated with reinsurance arrangements with affiliates and third party reinsurers, and are reported on the Statements of Financial Position net of the CECL allowance. Reinsurance recoverables also include assumed modified coinsurance arrangements which generally reflect the value of the invested assets retained by the cedant and the associated asset returns. Modified coinsurance recoverables contain an embedded derivative (bifurcated and accounted for separately from the host contract) that is presented together with the derivative embedded in the modified coinsurance payables as one compound derivative. For additional information about these arrangements see Note 11.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
The CECL allowance considers the credit quality of the reinsurance counterparty and is generally determined based on the probability of default and loss given default assumptions, after considering any applicable collateral arrangements. The CECL allowance does not apply to reinsurance recoverables with affiliated counterparties under common control. Additions to or releases of the allowance are reported in “Policyholders’ benefits.” Prior to the adoption of this standard, an allowance for credit losses for reinsurance recoverables was established only when it was deemed probable that a reinsurer may fail to make payments to us in a timely manner. Reinsurance premiums, commissions, expense reimbursements, benefits and reserves related to reinsured long-duration contracts under coinsurance arrangements are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to account for the underlying contracts. For reinsurance of in force blocks of non-participating traditional and limited-payment contracts, the current value of the direct liability as of inception of the reinsurance agreement is used to calculate the reinsurance recoverable and cost of reinsurance such that there is no immediate other comprehensive income or loss from recognition of the reinsurance recoverable at inception. Consistent with the direct liability, the reinsurance recoverable for non-participating traditional and limited-payment contracts is remeasured each period using current single A rates with the effect on the liability resulting from such updates recorded in "Interest rate remeasurement of future policy benefits" in OCI.

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

Market risk benefit assets represents MRBs in an asset position and are presented separately from MRBs in a liability position. See “Market risk benefit liabilities” below. MRB assets also reflect ceded MRBs resulting from reinsurance of the Company's traditional variable annuity contracts. See Note 11 for additional information regarding the reinsurance of these contracts to Prudential Insurance.

Other assets consists primarily of premiums due and deferred loss on reinsurance which is amortized over the expected life of the reinsured contracts on a constant-level basis.

Separate account assets represents segregated funds that are invested for certain policyholders, and other customers. The assets consist primarily of equity securities, fixed maturities, real estate-related investments, real estate mortgage loans, short-term investments and derivative instruments and are reported at fair value. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. The investment income and realized investment gains or losses from separate account assets generally accrue to the policyholders and are not included in the Company’s results of operations. Mortality, policy administration and surrender charges assessed against the accounts are included in “Policy charges and fee income”. Asset administration fees charged to the accounts are included in “Asset administration fees”. Seed money that the Company invests in separate accounts is reported in the appropriate general account asset line. Investment income and realized investment gains or losses from seed money invested in separate accounts accrue to the Company and are included in the Company’s results of operations. See Note 7 for additional information regarding separate account arrangements with contractual guarantees. See also “Separate account liabilities” below.

LIABILITIES

Future policy benefits is primarily comprised of the present value of expected future payments to or on behalf of policyholders, where the timing and amount of such payments depend on policyholder mortality or morbidity, less the present value of expected future net premiums (where net premiums are gross premiums multiplied by the Net-To-Gross ("NTG") ratio discussed below). The liability for future policy benefits is accrued over time as premium revenue is recognized. See Note 8 for additional information regarding future policy benefits.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
The reserving methodology used for non-participating traditional and limited-payment contracts include the following:

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

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

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

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

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

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

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

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

For universal life type contracts and participating contracts, the Company performs premium deficiency tests using best estimate assumptions as of the testing date. If the liabilities determined based on these best estimate assumptions are greater than the net reserves (i.e., GAAP reserves including URR, net of reinsurance), the existing net reserves are adjusted by first reducing these assets by the amount of the deficiency or to zero through a charge to current period earnings. If the deficiency is more than these asset balances for insurance contracts, the net reserves are increased by the excess through a charge to current period earnings included in "policyholders' benefits". Since investment yields are used as the discount rate, the premium deficiency test is also performed using a discount rate based on the market yield (i.e., assuming what would be the impact if any unrealized gains (losses) were realized as of the testing date). In the event that by using the market yield a deficiency occurs, an adjustment is established for the deficiency and is included in AOCI.

In certain instances, for universal life type contracts and participating contracts, the policyholder liability for a particular line of business may not be deficient in the aggregate to trigger loss recognition, but the pattern of earnings may be such that profits are expected to be recognized in earlier years followed by losses in later years. In these situations, accounting standards require that an additional liability (Profits Followed by Losses or “PFL” liability) be recognized by an amount necessary to sufficiently offset the losses that would be recognized in later years. To date, the Company has not recorded a PFL liability on any such contracts.

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

Policyholders’ account balances 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. These policyholders’ account balances also include provision for benefits under non-life contingent payout annuities and certain unearned revenues. The unearned revenue liability represents policy charges for services to be provided in future periods. The charges are deferred as incurred and are generally amortized over the expected life of the contract using the same methodology, factors, and assumption used to amortize DAC. See Note 9 for additional information regarding policyholders’ account balances. Policyholders' account balances also include amounts representing the fair value of embedded derivative instruments associated with the index-linked feature of certain universal life and annuity products. For additional information regarding the valuation of these embedded derivatives, see Note 5.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Market risk benefit liabilities represents contracts or contract features that provide protection to the contractholder and exposes the Company to other than nominal capital market risk, primarily related to deferred annuities with guaranteed minimum benefits associated with annuities products including guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum income and withdrawal benefits (“GMIWB”). The benefits are accounted for using a fair value measurement framework. If a contract contains multiple market risk benefits, the benefits are bundled together and accounted for as a single compound market risk benefit. Market risk benefits in an asset position are presented separately from those in a liability position as there is no legal right of offset between contracts. The fair value of market risk benefits is calculated as the present value of expected future benefit payments to contractholders less the present value of expected future rider fees attributable to the market risk benefit. The fair value of market risk benefits is based on assumptions a market participant would use in valuing market risk benefits. For additional information regarding the valuation of market risk benefits, see Note 5. On a quarterly basis, changes in the fair value of market risk benefits are recorded in net income, net of related hedges, in "Change in value of market risk benefits, net of related hedging gains (losses)", except for the portion of the change attributable to changes in the Company’s NPR which is recorded in OCI. See Note 10 for additional information regarding market risk benefits.

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

Other liabilities consists primarily of accrued expenses, reinsurance payables and technical overdrafts.

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

REVENUES AND BENEFITS AND EXPENSES

Insurance Revenue and Expense Recognition

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

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

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


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

Policyholders’ account balances also includes amounts representing the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and annuity products where changes in the value of the embedded derivatives are recorded through "Realized investment gains (losses), net". For additional information regarding the valuation of these embedded derivatives, see Note 5.

Annual Assumptions Review

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

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

The Company also performs a comprehensive review of the economic assumptions, including long-term interest rate assumptions and equity return assumptions that impact reserve calculations. The Company generally utilizes relevant economic outlook information and industry survey as the primary basis for these assumptions. The Company may use those economic assumptions to project future rates of return on investments.

Other ASUs adopted during the six months ended June 30, 2023

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

Fixed Maturity Securities

The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:
June 30, 2023
Amortized
Cost 		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$52,305 $0 $1,067 $0 $51,238 
Obligations of U.S. states and their political subdivisions184,628 385 5,041 0 179,972 
Foreign government bonds94,402 61 15,469 0 78,994 
U.S. public corporate securities1,417,819 3,959 173,833 0 1,247,945 
U.S. private corporate securities198,658 336 12,311 0 186,683 
Foreign public corporate securities179,585 201 24,868 0 154,918 
Foreign private corporate securities145,184 642 20,270 0 125,556 
Asset-backed securities(1)19,726 241 152 0 19,815 
Commercial mortgage-backed securities120,613 0 9,044 0 111,569 
Residential mortgage-backed securities(2)12,493 75 620 3 11,945 
Total fixed maturities, available-for-sale$2,425,413 $5,900 $262,675 $3 $2,168,635 
(1)Includes credit-tranched securities collateralized by education loans and loan obligations.
(2)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.

December 31, 2022
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$62,210 $0 $1,074 $0 $61,136 
Obligations of U.S. states and their political subdivisions165,109 421 6,315 0 159,215 
Foreign government bonds87,853 1 15,891 0 71,963 
U.S. public corporate securities1,062,342 1,943 180,880 0 883,405 
U.S. private corporate securities186,123 141 13,465 358 172,441 
Foreign public corporate securities138,717 28 25,783 0 112,962 
Foreign private corporate securities133,074 523 21,562 0 112,035 
Asset-backed securities(1)18,358 272 256 0 18,374 
Commercial mortgage-backed securities124,486 0 8,595 0 115,891 
Residential mortgage-backed securities(2)12,446 92 467 5 12,066 
Total fixed maturities, available-for-sale$1,990,718 $3,421 $274,288 $363 $1,719,488 
(1)Includes credit-tranched securities collateralized by education loans and loan obligations.
(2)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.


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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
The following tables set forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the dates indicated:
June 30, 2023
Less Than Twelve MonthsTwelve Months or MoreTotal
Fair Value  Gross
Unrealized
Losses		Fair Value  Gross
Unrealized
Losses		Fair Value  Gross
Unrealized
Losses
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$49,245 $819 $1,993 $248 $51,238 $1,067 
Obligations of U.S. states and their political subdivisions98,391 2,220 35,492 2,821 133,883 5,041 
Foreign government bonds18,865 788 58,595 14,681 77,460 15,469 
U.S. public corporate securities399,640 19,056 707,491 154,777 1,107,131 173,833 
U.S. private corporate securities40,737 1,128 125,211 11,183 165,948 12,311 
Foreign public corporate securities37,623 1,633 96,286 23,235 133,909 24,868 
Foreign private corporate securities15,495 285 93,808 19,985 109,303 20,270 
Asset-backed securities1,100 0 7,709 152 8,809 152 
Commercial mortgage-backed securities4,522 335 107,047 8,709 111,569 9,044 
Residential mortgage-backed securities10,249 603 261 17 10,510 620 
Total fixed maturities, available-for-sale$675,867 $26,867 $1,233,893 $235,808 $1,909,760 $262,675 

December 31, 2022
Less Than Twelve MonthsTwelve Months or MoreTotal
Fair Value  Gross
Unrealized
Losses		Fair Value  Gross
Unrealized
Losses		Fair Value  Gross
Unrealized
Losses
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$61,136 $1,074 $0 $0 $61,136 $1,074 
Obligations of U.S. states and their political subdivisions113,693 6,315 0 0 113,693 6,315 
Foreign government bonds46,826 5,741 24,746 10,150 71,572 15,891 
U.S. public corporate securities704,906 111,763 155,138 69,117 860,044 180,880 
U.S. private corporate securities149,670 11,857 9,273 1,608 158,943 13,465 
Foreign public corporate securities69,310 11,016 38,996 14,767 108,306 25,783 
Foreign private corporate securities62,044 12,499 33,858 9,063 95,902 21,562 
Asset-backed securities5,570 160 3,289 96 8,859 256 
Commercial mortgage-backed securities110,820 8,398 5,071 197 115,891 8,595 
Residential mortgage-backed securities10,509 467 0 0 10,509 467 
Total fixed maturities, available-for-sale$1,334,484 $169,290 $270,371 $104,998 $1,604,855 $274,288 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
As of June 30, 2023 and December 31, 2022, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $258.2 million and $269.6 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $4.5 million and $4.7 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of June 30, 2023, the $235.8 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, utility and consumer non-cyclical sectors. As of December 31, 2022, the $105.0 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, consumer non-cyclical and capital goods sectors.

In accordance with its policy described in Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at June 30, 2023. This conclusion was based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to increases in interest rates, general credit spread widening, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of June 30, 2023, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

The following table sets forth the amortized cost and fair value of fixed maturities by contractual maturities, as of the date indicated:
June 30, 2023
Amortized CostFair Value
(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less$79,689 $76,677 
Due after one year through five years302,313 284,777 
Due after five years through ten years169,567 161,440 
Due after ten years1,721,012 1,502,412 
Asset-backed securities19,726 19,815 
Commercial mortgage-backed securities120,613 111,569 
Residential mortgage-backed securities12,493 11,945 
Total fixed maturities, available-for-sale$2,425,413 $2,168,635 

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

The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on write-downs and the allowance for credit losses of fixed maturities, for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)$947 $8,763 $1,833 $29,004 
Proceeds from maturities/prepayments7,042 11,887 39,163 30,120 
Gross investment gains from sales and maturities(24)68 5 70 
Gross investment losses from sales and maturities(10)(1,011)(425)(2,972)
(Addition to) release of allowance for credit losses0 667 360 667 
(1)Excludes activity from non-cash related proceeds due to the timing of trade settlements of $0.2 million and $(0.1) million for the six months ended June 30, 2023 and 2022, respectively.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
The following tables set forth the activity in the allowance for credit losses for fixed maturity securities, as of the dates indicated:

Three Months Ended June 30, 2023
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period$0 $0 $0 $0 $0 $3 $3 
Reductions for securities sold during the period0 0 0 0 0 0 0 
Additions (reductions) on securities with previous allowance0 0 0 0 0 0 0 
Balance, end of period$0 $0 $0 $0 $0 $3 $3 

Three Months Ended June 30, 2022
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period$0 $0 $1,558 $0 $0 $0 $1,558 
Additions (reductions) on securities with previous allowance0 0 (667)0 0 0 (667)
Balance, end of period$0 $0 $891 $0 $0 $0 $891 

Six Months Ended June 30, 2023
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period$0 $0 $358 $0 $0 $5 $363 
Reductions for securities sold during the period0 0 (358)0 0 (1)(359)
Additions (reductions) on securities with previous allowance0 0 0 0 0 (1)(1)
Balance, end of period$0 $0 $0 $0 $0 $3 $3 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022
U.S. Treasury Securities and Obligations of U.S. StatesForeign Government BondsU.S. and Foreign Corporate SecuritiesAsset-Backed SecuritiesCommercial Mortgage-Backed SecuritiesResidential Mortgage-Backed SecuritiesTotal
(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period$0 $0 $1,558 $0 $0 $0 $1,558 
Additions (reductions) on securities with previous allowance0 0 (667)0 0 0 (667)
Balance, end of period$0 $0 $891 $0 $0 $0 $891 

See Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023 for additional information about the Company’s methodology for developing our allowance and expected losses.

For the three months ended June 30, 2023 there was no activity in the allowance for credit losses on available-for-sale securities.

For the six months ended June 30, 2023, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to a restructuring in the transportation sector within corporate securities.

For both the three and six months ended June 30, 2022, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to a net reduction in the transportation sector within corporate securities.

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

Fixed Maturities, Trading

The net change in unrealized gains (losses) from fixed maturities, trading still held at period end, recorded within “Other income (loss),” was $(0.5) million and $(2.9) million during the three months ended June 30, 2023 and 2022, respectively, and $0.2 million and $(4.7) million during the six months ended June 30, 2023 and 2022, respectively.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss),” was $0.1 million and $(0.4) million during the three months ended June 30, 2023 and 2022, respectively, and $0.1 million and $(1.0) million during the six months ended June 30, 2023 and 2022, respectively.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Commercial Mortgage and Other Loans

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

June 30, 2023December 31, 2022
Amount
(in thousands)		% of TotalAmount
(in thousands)		% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family$60,442 34.0 %$62,434 42.0 %
Hospitality12,700 7.1 12,996 8.7 
Industrial48,067 27.0 17,132 11.5 
Office8,164 4.6 10,568 7.1 
Other11,098 6.2 7,767 5.2 
Retail21,908 12.4 22,123 14.9 
Total commercial mortgage loans162,379 91.3 133,020 89.4 
Agricultural property loans15,486 8.7 15,567 10.6 
Total commercial mortgage and agricultural property loans177,865 100.0 %148,587 100.0 %
Allowance for credit losses(675)(408)
Total net commercial mortgage and other loans$177,190 $148,179 

As of June 30, 2023, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States with the largest concentrations in New Jersey (12%), Florida (10%), New York (8%), and included loans secured by properties in Europe (11%) and Mexico (2%).

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

Three Months Ended June 30,
20232022
Commercial Mortgage LoansAgricultural Property LoansTotalCommercial Mortgage LoansAgricultural Property LoansTotal
(in thousands)
Allowance, beginning of period$443 $56 $499 $230 $1 $231 
Addition to (release of) allowance for expected losses179 (3)176 59 0 59 
Allowance, end of period$622 $53 $675 $289 $1 $290 

Six Months Ended June 30,
20232022
Commercial Mortgage LoansAgricultural Property LoansTotalCommercial Mortgage LoansAgricultural Property LoansTotal
(in thousands)
Allowance, beginning of period$405 $3 $408 $246 $0 $246 
Addition to (release of) allowance for expected losses217 50 267 43 1 44 
Allowance, end of period$622 $53 $675 $289 $1 $290 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
See Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023 for additional information about the Company's methodology for developing our allowance and expected losses.

For the three months ended June 30, 2023, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to loan originations. For the three months ended June 30, 2022, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to an increase in the general allowance due to current market conditions.

For the six months ended June 30, 2023, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to loan originations. For the six months ended June 30, 2022, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to an increase in the general allowance due to current market conditions, partially offset by net positive migration.

The following tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the dates indicated:
June 30, 2023
Amortized Cost by Origination Year
20232022202120202019PriorTotal
(in thousands)
Commercial mortgage loans
Loan-to-Value Ratio:
0%-59.99%$3,311 $19,946 $782 $0 $11,059 $45,498 $80,596 
60%-69.99%0 15,000 1,615 2,198 15,783 4,072 38,668 
70%-79.99%31,024 0 347 0 5,885 4,080 41,336 
80% or greater0 0 0 0 0 1,779 1,779 
Total$34,335 $34,946 $2,744 $2,198 $32,727 $55,429 $162,379 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$31,871 $34,946 $2,744 $2,198 $28,762 $38,867 $139,388 
1.0 - 1.2x2,464 0 0 0 0 7,050 9,514 
Less than 1.0x0 0 0 0 3,965 9,512 13,477 
Total$34,335 $34,946 $2,744 $2,198 $32,727 $55,429 $162,379 
Agricultural property loans
Loan-to-Value Ratio:
0%-59.99%$0 $1,057 $1,069 $0 $0 $1,015 $3,141 
60%-69.99%0 12,345 0 0 0 0 12,345 
70%-79.99%0 0 0 0 0 0 0 
80% or greater0 0 0 0 0 0 0 
Total$0 $13,402 $1,069 $0 $0 $1,015 $15,486 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$0 $13,402 $1,069 $0 $0 $1,015 $15,486 
1.0 - 1.2x0 0 0 0 0 0 0 
Less than 1.0x0 0 0 0 0 0 0 
Total$0 $13,402 $1,069 $0 $0 $1,015 $15,486 
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
December 31, 2022
Amortized Cost by Origination Year
20222021202020192018PriorTotal
(in thousands)
Commercial mortgage loans
Loan-to-Value Ratio:
0%-59.99%$20,000 $792 $0 $9,993 $1,387 $48,812 $80,984 
60%-69.99%15,000 1,615 2,198 18,982 0 1,016 38,811 
70%-79.99%0 347 0 3,855 0 7,213 11,415 
80% or greater0 0 0 0 0 1,810 1,810 
Total$35,000 $2,754 $2,198 $32,830 $1,387 $58,851 $133,020 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$35,000 $2,754 $2,198 $27,697 $1,387 $40,285 $109,321 
1.0 - 1.2x0 0 0 0 0 8,809 8,809 
Less than 1.0x0 0 0 5,133 0 9,757 14,890 
Total$35,000 $2,754 $2,198 $32,830 $1,387 $58,851 $133,020 
Agricultural property loans
Loan-to-Value Ratio:
0%-59.99%$1,078 $1,092 $0 $0 $0 $1,052 $3,222 
60%-69.99%12,345 0 0 0 0 0 12,345 
70%-79.99%0 0 0 0 0 0 0 
80% or greater0 0 0 0 0 0 0 
Total$13,423 $1,092 $0 $0 $0 $1,052 $15,567 
Debt Service Coverage Ratio:
Greater or Equal to 1.2x$13,423 $1,092 $0 $0 $0 $1,052 $15,567 
1.0 - 1.2x0 0 0 0 0 0 0 
Less than 1.0x0 0 0 0 0 0 0 
Total$13,423 $1,092 $0 $0 $0 $1,052 $15,567 

See Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023 for additional information about the Company's commercial mortgage and other loans credit quality monitoring process.

The following tables set forth an aging of past due commercial mortgage and other loans based upon the recorded investment gross of allowance for credit losses, as well as the amount of commercial mortgage and other loans on non-accrual status, as of the dates indicated:
June 30, 2023
Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past Due(1)Total LoansNon-Accrual Status(2)
(in thousands)
Commercial mortgage loans$162,379 $0 $0 $0 $162,379 $0 
Agricultural property loans15,486 0 0 0 15,486 0 
Total$177,865 $0 $0 $0 $177,865 $0 
(1)As of June 30, 2023, there were no loans in this category accruing interest.
(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.
33        
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
December 31, 2022
Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past Due(1)Total LoansNon-Accrual Status(2)
(in thousands)
Commercial mortgage loans$133,020 $0 $0 $0 $133,020 $0 
Agricultural property loans15,567 0 0 0 15,567 0 
Total$148,587 $0 $0 $0 $148,587 $0 
(1)As of December 31, 2022, there were no loans in this category accruing interest.
(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

For both the three and six months ended June 30, 2023, there were no commercial mortgage and other loans acquired, other than those through direct origination, and there were no commercial mortgage and other loans sold. For both the three and six months ended June 30, 2022, there were $3.4 million of commercial mortgage and other loans acquired, other than those through direct origination, and there were $3.8 million of commercial mortgage and other loans sold.
The Company did not have any commercial mortgage and other loans purchased with credit deterioration, as of both June 30, 2023 and December 31, 2022.

Other Invested Assets

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

June 30, 2023December 31, 2022
 (in thousands)
LPs/LLCs:
Equity method:
Private equity$84,605 $74,468 
Hedge funds44,899 42,472 
Real estate-related9,809 10,199 
Subtotal equity method139,313 127,139 
Fair value:
Private equity239 279 
Hedge funds35 55 
Real estate-related1,818 2,055 
Subtotal fair value2,092 2,389 
Total LPs/LLCs141,405 129,528 
Derivative instruments2,823 0 
Total other invested assets$144,228 $129,528 
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Table of Contents                                                  
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Accrued Investment Income

The following table sets forth the composition of “Accrued investment income,” as of the dates indicated:
June 30, 2023December 31, 2022
(in thousands)
Fixed maturities$24,696 $18,653 
Equity securities1 1 
Commercial mortgage and other loans655 352 
Policy loans10,754 5,612 
Short-term investments and cash equivalents466 604 
Total accrued investment income$36,572 $25,222 

There were no significant write-downs on accrued investment income for both the three and six months ended June 30, 2023 and 2022.

Net Investment Income

The following table sets forth “Net investment income” by investment type, for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(in thousands)
Fixed maturities, available-for-sale$25,194 $18,882 $46,311 $36,007 
Fixed maturities, trading158 265 315 539 
Equity securities91 91 182 182 
Commercial mortgage and other loans2,145 1,061 3,824 2,143 
Policy loans7,565 2,799 10,090 5,571 
Other invested assets4,641 2,462 6,119 6,462 
Short-term investments and cash equivalents1,251 292 3,892 352 
Gross investment income41,045 25,852 70,733 51,256 
Less: investment expenses(1,071)(988)(2,099)(2,023)
Net investment income$39,974 $24,864 $68,634 $49,233 

Realized Investment Gains (Losses), Net 

The following table sets forth “Realized investment gains (losses), net” by investment type, for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(in thousands)
Fixed maturities(1)$(34)$(276)$(60)$(2,235)
Commercial mortgage and other loans(176)(50)(267)(35)
Other invested assets(14)0 (14)(51)
Derivatives(2)(4,388)6,008 (12,629)23,735 
Short term investments and cash equivalents(5)(17)55 (29)
Realized investment gains (losses), net(2)$(4,617)$5,665 $(12,915)$21,385 
(1)Includes fixed maturity securities classified as available-for-sale and excludes fixed maturity securities classified as trading.
(2)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Net Unrealized Gains (Losses) on Investments within AOCI

The following table sets forth net unrealized gains (losses) on investments, as of the dates indicated:
June 30, 2023December 31, 2022
 (in thousands)
Fixed maturity securities, available-for-sale without an allowance$(256,775)$(270,867)
Derivatives designated as cash flow hedges(1)11,851 14,102 
Affiliated notes0 59 
Other investments225 122 
Net unrealized gains (losses) on investments$(244,699)$(256,584)
(1)For more information on cash flow hedges, see Note 4.

Repurchase Agreements and Securities Lending

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. As of both June 30, 2023 and December 31, 2022, the Company had no repurchase agreements.

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

June 30, 2023December 31, 2022
Remaining Contractual Maturities of the AgreementsRemaining Contractual Maturities of the Agreements
Overnight & ContinuousUp to 30 DaysTotalOvernight & ContinuousUp to 30 DaysTotal
(in thousands)
U.S. public corporate securities$2,996 $0 $2,996 $0 $0 $0 
Total cash collateral for loaned securities(1)$2,996 $0 $2,996 $0 $0 $0 
(1)The Company did not have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.

4.    DERIVATIVES AND HEDGING

Types of Derivative Instruments and Derivative Strategies

The Company utilizes various derivative instruments and strategies to manage its risk. Commonly used derivative instruments include, but are not necessarily limited to:
•Interest rate contracts: futures, swaps, options, caps and floors
•Equity contracts: futures, options and total return swaps
•Foreign exchange contracts: futures, options, forwards and swaps
•Credit contracts: single and index reference credit default swaps

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

For detailed information on these contracts and the related strategies, see Note 4 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Primary Risks Managed by Derivatives

The table below provides a summary of the gross notional amount and fair value of derivative contracts by the primary underlying risks, excluding embedded derivatives and associated reinsurance recoverables. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account of the netting effects of master netting agreements and cash collateral.
June 30, 2023December 31, 2022
Primary Underlying Risk/Instrument Type Fair Value Fair Value
Gross NotionalAssetsLiabilitiesGross NotionalAssetsLiabilities
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate
Foreign Currency Swaps$135,340 $12,278 $(932)$117,015 $14,281 $(516)
Total Derivatives Designated as Hedge Accounting Instruments:$135,340 $12,278 $(932)$117,015 $14,281 $(516)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps$30,200 $0 $(396)$30,200 $0 $(383)
Credit
Credit Default Swaps0 0 0 0 0 0 
Currency/Interest Rate
Foreign Currency Swaps52,012 2,730 (273)24,035 2,957 0 
Foreign Currency
Foreign Currency Forwards11,263 1,939 (74)7,520 3 (368)
Equity
Equity Options783,920 16,431 (28,880)509,200 555 (20,562)
Total Derivatives Not Qualifying as Hedge Accounting Instruments:$877,395 $21,100 $(29,623)$570,955 $3,515 $(21,313)
Total Derivatives(1)(2)$1,012,735 $33,378 $(30,555)$687,970 $17,796 $(21,829)
(1)Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of $161 million and $108 million as of June 30, 2023 and December 31, 2022, respectively included in “Policyholders’ account balances".
(2)Recorded in "Other invested assets" and "Payables to parent and affiliates" on the Unaudited Interim Statements of Financial Position.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Offsetting Assets and Liabilities

The following table presents recognized derivative instruments (excluding embedded derivatives and associated reinsurance recoverables), and repurchase and reverse repurchase agreements that are offset in the Unaudited Interim Statements of Financial Position, and/or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Unaudited Interim Statements of Financial Position.
June 30, 2023
Gross
Amounts of
Recognized
Financial
Instruments		Gross
Amounts
Offset in the
Statements of
Financial
Position		Net Amounts
Presented in
the Statements
of Financial
Position		Financial
Instruments/
Collateral(1)		Net
Amount
(in thousands)
Offsetting of Financial Assets:
Derivatives$33,378 $(30,555)$2,823 $(1,490)$1,333 
Securities purchased under agreements to resell0 0 0 0 0 
Total Assets$33,378 $(30,555)$2,823 $(1,490)$1,333 
Offsetting of Financial Liabilities:
Derivatives$30,555 $(30,555)$0 $0 $0 
Securities sold under agreements to repurchase0 0 0 0 0 
Total Liabilities$30,555 $(30,555)$0 $0 $0 

December 31, 2022
Gross
Amounts of
Recognized
Financial
Instruments		Gross
Amounts
Offset in the
Statements of
Financial
Position		Net Amounts
Presented in
the Statements
of Financial
Position		Financial
Instruments/
Collateral(1)		Net
Amount
(in thousands)
Offsetting of Financial Assets:
Derivatives$17,796 $(17,796)$0 $0 $0 
Securities purchased under agreements to resell00 0 0 0 
Total Assets$17,796 $(17,796)$0 $0 $0 
Offsetting of Financial Liabilities:
Derivatives$21,829 $(17,796)$4,033 $(4,033)$0 
Securities sold under agreements to repurchase0 0 0 0 0 
Total Liabilities$21,829 $(17,796)$4,033 $(4,033)$0 
(1)Amounts exclude the excess of collateral received/pledged from/to the counterparty.

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above see “Credit Risk” below and Note 14. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Cash Flow Hedges

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

The following tables provide the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships, excluding the offset of the hedged item in an effective hedge relationship.
Three Months Ended June 30, 2023
Realized
Investment
Gains (Losses)		Change in Value of Market Risk Benefits, Net of Related Hedging Gain (Loss)Net
Investment
Income		Other IncomeChange in AOCI
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate$38 $0 $470 $(152)$(662)
Total cash flow hedges38 0 470 (152)(662)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate(425)0 0 0 0 
Currency(33)0 0 0 0 
Currency/Interest Rate(30)0 0 (3)0 
Credit0 0 0 0 0 
Equity9,855 0 0 0 0 
Embedded Derivatives(13,793)0 0 0 0 
Total Derivatives Not Qualifying as Hedge Accounting Instruments(4,426)0 0 (3)0 
Total$(4,388)$0 $470 $(155)$(662)
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Table of Contents                                                  
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2023
Realized
Investment
Gains (Losses)		Change in Value of Market Risk Benefits, Net of Related Hedging Gain (Loss)Net
Investment
Income		Other IncomeChange in AOCI
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate$57 $0 $951 $(264)$(2,251)
Total cash flow hedges57 0 951 (264)(2,251)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate(258)0 0 0 0 
Currency(115)0 0 0 0 
Currency/Interest Rate(258)0 0 (11)0 
Credit0 0 0 0 0 
Equity11,613 0 0 0 0 
Embedded Derivatives(23,668)0 0 0 0 
Total Derivatives Not Qualifying as Hedge Accounting Instruments(12,686)0 0 (11)0 
Total$(12,629)$0 $951 $(275)$(2,251)
Three Months Ended June 30, 2022
Realized
Investment
Gains (Losses)(1)		Change in Value of Market Risk Benefits, Net of Related Hedging Gain (Loss)(1)Net
Investment
Income		Other IncomeChange in AOCI
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate$92 $0 $467 $856 $8,564 
Total cash flow hedges92 0 467 856 8,564 
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate(561)0 0 0 0 
Currency373 0 0 0 0 
Currency/Interest Rate2,846 0 0 40 0 
Credit0 0 0 0 0 
Equity(10,040)0 0 0 0 
Embedded Derivatives13,298 0 0 0 0 
Total Derivatives Not Qualifying as Hedge Accounting Instruments5,916 0 0 40 0 
Total$6,008 $0 $467 $896 $8,564 
40        
Table of Contents                                                  
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022
Realized
Investment
Gains (Losses)(1)		Change in Value of Market Risk Benefits, Net of Related Hedging Gain (Loss)(1)Net
Investment
Income		Other IncomeChange in AOCI
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate$123 $0 $918 $1,044 $9,786 
Total cash flow hedges123 0 918 1,044 9,786 
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate(1,762)0 0 0 0 
Currency488 0 0 0 0 
Currency/Interest Rate3,136 0 0 48 0 
Credit0 0 0 0 0 
Equity(11,566)0 0 0 0 
Embedded Derivatives33,316 0 0 0 0 
Total Derivatives Not Qualifying as Hedge Accounting Instruments23,612 0 0 48 0 
Total$23,735 $0 $918 $1,092 $9,786 
(1)Amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

Presented below is a rollforward of current period cash flow hedges in AOCI before taxes:
 (in thousands)
Balance, December 31, 2022$14,102 
Amount recorded in AOCI
Currency/Interest Rate(1,507)
Total amount recorded in AOCI(1,507)
Amount reclassified from AOCI to income
Currency/Interest Rate(744)
Total amount reclassified from AOCI to income(744)
Balance, June 30, 2023$11,851 

The changes in fair value of cash flow hedges are deferred in AOCI and are included in "Net unrealized investment gains (losses)" in the Unaudited Interim Statements of Operations and Comprehensive Income (Loss); these amounts are then reclassified to earnings when the hedged item affects earnings. Using June 30, 2023 values, it is estimated that a pre-tax gain of $1.7 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending June 30, 2024.

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

There were no material amounts reclassified from AOCI into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Credit Derivatives

The Company has no exposure from credit derivative positions where it has written or purchased credit protection as of June 30, 2023 and December 31, 2022.

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

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

5.    FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

For a discussion of the Company's valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 5 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

As a result of the adoption of ASU 2018-12 in the first quarter of 2023, the Company is required to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value. Market risk benefit liabilities (or assets) represent contracts or contract features that provide protection to the contractholder and exposes the Company to other than nominal capital market risk, primarily related to deferred annuities with guaranteed minimum benefits in the annuities products including GMDB, GMIB, GMAB, GMWB and GMIWB. The benefits are bundled together and accounted for as single compound market risk benefits using a fair value measurement framework.


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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
The fair value of these market risk benefits is calculated as the present value of expected future benefit payments to contractholders less the present value of expected future rider fees attributable to the market risk benefit. The fair value of these benefit features is based on assumptions a market participant would use in valuing market risk benefits. This methodology could result in either a liability or asset 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 determination of these risk premiums requires the use of management’s judgment.

The significant inputs to the valuation models for these market risk benefits include capital market assumptions, such as interest rate levels and volatility assumptions, the Company’s market-perceived NPR, as well as actuarially determined assumptions, including contractholder behavior, such as lapse rates, benefit utilization rates, withdrawal rates, and mortality rates. Since many of these assumptions are unobservable and are considered to be significant inputs to the valuations, the assets and liabilities included in market risk benefits have been reflected within Level 3 in the fair value hierarchy.

Capital market inputs and actual policyholders’ 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 return used to grow the policyholders’ account values. The Company’s discount rate assumption is based on the SOFR swap curve adjusted for an additional spread relative to SOFR to reflect the Company’s market-perceived NPR, which is the risk that the obligation will not be fulfilled by the Company. NPR is primarily estimated by utilizing the credit spreads associated with the Company issued funding agreements, adjusted for any illiquidity risk premium. In order to reflect the financial strength ratings of the Company, credit spreads associated with funding agreements, as opposed to credit spread associated with debt, are utilized in developing this estimate because funding agreements, living benefit guarantees, and index-linked interest crediting guarantees are insurance liabilities and are therefore senior to debt.

Actuarial assumptions, including contractholder behavior and mortality, are reviewed at least annually, and updated based upon company emerging experience and industry studies, future expectations and other data, including any observable market data. These assumptions are generally updated annually unless a material change that the Company feels is indicative of a long-term trend is observed in an interim period. See "Annual Assumptions Review" in Note 2 for additional information.




43        
Table of Contents                                                  
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Assets and Liabilities by Hierarchy Level – The tables below present the balances of assets and liabilities reported at fair value on a recurring basis, as of the dates indicated.
June 30, 2023
Level 1Level 2Level 3Netting(1)Total
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$0 $51,238 $0 $$51,238 
Obligations of U.S. states and their political subdivisions0 179,972 0 179,972 
Foreign government bonds0 78,994 0 78,994 
U.S. corporate public securities0 1,247,945 0 1,247,945 
U.S. corporate private securities0 177,333 9,350 186,683 
Foreign corporate public securities0 154,918 0 154,918 
Foreign corporate private securities0 122,327 3,229 125,556 
Asset-backed securities(2)0 19,815 0 19,815 
Commercial mortgage-backed securities0 91,731 19,838 111,569 
Residential mortgage-backed securities0 11,945 0 11,945 
Subtotal0 2,136,218 32,417 2,168,635 
Market risk benefit assets0 0 533,855 533,855 
Fixed maturities, trading0 23,021 0 23,021 
Equity securities0 71 4,416 4,487 
Short-term investments0 2,000 0 2,000 
Cash equivalents0 79,753 0 79,753 
Other invested assets(3)0 33,378 0 (30,555)2,823 
Reinsurance recoverable0 0 1,465 1,465 
Receivables from parent and affiliates0 0 0 0 
Subtotal excluding separate account assets0 2,274,441 572,153 (30,555)2,816,039 
Separate account assets(4)(5)0 12,688,251 0 12,688,251 
Total assets$0 $14,962,692 $572,153 $(30,555)$15,504,290 
Market risk benefit liabilities$0 $0 $533,855 $$533,855 
Policyholders' account balances0 0 160,503 160,503 
Payables to parent and affiliates0 30,555 0 (30,555)0 
Total liabilities$0 $30,555 $694,358 $(30,555)$694,358 
44        
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
December 31, 2022
Level 1Level 2Level 3Netting(1)Total
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$0 $61,136 $0 $$61,136 
Obligations of U.S. states and their political subdivisions0 159,215 0 159,215 
Foreign government bonds0 71,963 0 71,963 
U.S. corporate public securities0 883,405 0 883,405 
U.S. corporate private securities0 168,638 3,803 172,441 
Foreign corporate public securities0 112,962 0 112,962 
Foreign corporate private securities0 112,035 0 112,035 
Asset-backed securities(2)0 18,374 0 18,374 
Commercial mortgage-backed securities0 95,190 20,701 115,891 
Residential mortgage-backed securities0 12,066 0 12,066 
Subtotal0 1,694,984 24,504 1,719,488 
Market risk benefit assets(6)0 0 558,624 558,624 
Fixed maturities, trading0 23,782 0 23,782 
Equity securities0 67 4,291 4,358 
Short-term investments0 3,000 0 3,000 
Cash equivalents0 245,302 0 245,302 
Other invested assets(3)0 17,796 0 (17,796)0 
Reinsurance recoverable0 0 0 0 
Receivables from parent and affiliates0 688 0 688 
Subtotal excluding separate account assets0 1,985,619 587,419 (17,796)2,555,242 
Separate account assets(4)(5)0 12,014,623 0 12,014,623 
Total assets$0 $14,000,242 $587,419 $(17,796)$14,569,865 
Market risk benefit liabilities(6)$0 $0 $558,624 $$558,624 
Policyholders' account balances0 0 108,144 108,144 
Payables to parent and affiliates0 21,829 0 (17,796)4,033 
Total liabilities$0 $21,829 $666,768 $(17,796)$670,801 
(1)“Netting” amounts represent cash collateral of $0 million as of both June 30, 2023 and December 31, 2022.
(2)Includes credit-tranched securities collateralized by syndicated bank loans, sub-prime mortgages, auto loans, credit cards, education loans and other asset types.
(3)Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value ("NAV") per share (or its equivalent) as a practical expedient. As of June 30, 2023 and December 31, 2022, the fair values of such investments were $2.1 million and $2.4 million, respectively.
(4)Separate account assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate, hedge funds and a corporate owned life insurance fund, for which fair value is measured at NAV per share (or its equivalent). At June 30, 2023 and December 31, 2022, the fair value of such investments were $1,078 million and $1,912 million, respectively.
(5)Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the Company's Unaudited Interim Statements of Financial Position.
(6)Amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.


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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Quantitative Information Regarding Internally Priced Level 3 Assets and Liabilities – The tables below present quantitative information regarding significant internally-priced Level 3 assets and liabilities.
June 30, 2023
Fair Value Valuation 
Techniques		Unobservable 
Inputs		MinimumMaximumWeighted
Average		Impact of Increase in Input on Fair
Value(1)
(in thousands)
Assets:
Corporate securities(2)$11,249 Discounted cash flowDiscount rate9.67 %13.29 %11.65 %Decrease
Commercial mortgage-backed securities$19,838 Discounted cash flowLiquidity premium0.60 %0.75 %0.69 %Decrease
Market risk benefit assets(3)$533,855 Discounted cash flowLapse rate(4)1 %20 %Increase
Spread over SOFR(5)0.57 %2.26 %Increase
Utilization rate(6)38 %95 %Decrease
Withdrawal rateSee table footnote (7) below.
Mortality rate(8)0 %15 %Increase
Equity volatility curve15 %25 %Decrease
Liabilities:
Market risk benefit liabilities(3)$533,855 Discounted cash flowLapse rate(4)1 %20 %Decrease
Spread over SOFR(5)0.57 %2.26 %Decrease
Utilization rate(6)38 %95 %Increase
Withdrawal rateSee table footnote (7) below.
Mortality rate(8)0 %15 %Decrease
Equity volatility curve15 %25 %Increase
Policyholders' account balances(9)$160,503 Discounted cash flowLapse rate(4)1 %80 %Decrease
Spread over SOFR(5)0.57 %2.32 %Decrease
Mortality rate(8)0 %23 %Decrease
Equity volatility curve10 %27 %Increase
Option budget(10)(1)%6 %Increase

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
December 31, 2022
Fair Value Valuation 
Techniques		Unobservable InputsMinimumMaximumWeighted
Average		Impact of Increase
in Input on Fair
Value(1)
(in thousands)
Assets:
Corporate securities(2)$3,803 Discounted cash flowDiscount rate10.18 %10.18 %10.18 %Decrease
Commercial mortgage-backed securities$20,701 Discounted cash flowLiquidity premium60 %75 %69.05 %Decrease
Market risk benefit assets(3)(11)$558,624 Discounted cash flowLapse rate(4)1 %20 %Increase
Spread over SOFR(5)0.50 %2.20 %Increase
Utilization rate(6)38 %95 %Decrease
Withdrawal rateSee table footnote (7) below.
Mortality rate(8)0 %15 %Increase
Equity volatility curve18 %26 %Decrease
Liabilities:
Market risk benefit liabilities(3)(11)$558,624 Discounted cash flowLapse rate(4)1 %20 %Decrease
Spread over SOFR(5)0.50 %2.20 %Decrease
Utilization rate(6)38 %95 %Increase
Withdrawal rateSee table footnote (7) below.
Mortality rate(8)0 %15 %Decrease
Equity volatility curve18 %26 % Increase
Policyholders' account balances(9)$108,144 Discounted cash flowLapse rate(4)1 %6 %Decrease
Spread over SOFR(5)0.53 %2.26 %Decrease
Mortality rate(8)0 %23 %Decrease
Equity volatility curve18 %28 %Increase
(1)Conversely, the impact of a decrease in input would have the opposite impact on fair value as that presented in the table.
(2)Includes assets classified as fixed maturities available-for-sale.
(3)Market risk benefits primarily represent fair value for all living benefit guarantees including accommodation, withdrawal and income benefits. Since the valuation methodology for these assets and liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.
(4)Lapse rates for contracts with living benefit guarantees are adjusted at the contract level based on the in-the-moneyness of the living benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates for contracts with index-linked crediting guarantees may be adjusted at the contract level based on the applicability of any surrender charges, product type, and market related factors such as interest rates. Lapse rates are also generally assumed to be lower for the period where surrender charges apply. For any given contract, lapse rates vary throughout the period over which cash flows are projected for the purposes of valuing these embedded derivatives.
(5)The spread over the Secured Overnight Financing Rate (“SOFR”) swap curve and the London Inter-Bank Offered Rate (“LIBOR”) swap curve represents the premium added to the proxy for the risk-free rate (SOFR or LIBOR, as applicable) to reflect the Company’s estimates of rates that a market participant would use to value the living benefits in both the accumulation and payout phases and index-linked interest crediting guarantees as of June 30, 2023 and December 31, 2022, respectively. This spread includes an estimate of NPR, which is the risk that the obligation will not be fulfilled by the Company. NPR is primarily estimated by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium. In order to reflect the financial strength ratings of the Company, credit spreads associated with funding agreements, as opposed to credit spread associated with debt, are utilized in developing this estimate because funding agreements, living benefit guarantees, and index-linked interest crediting guarantees are insurance liabilities and are therefore senior to debt.
(6)The utilization rate assumption estimates the percentage of contracts that will utilize the benefit during the contract duration and begin lifetime withdrawals at various time intervals from contract inception. The remaining contractholders are assumed to either begin lifetime withdrawals immediately or never utilize the benefit. Utilization assumptions may vary by product type, tax status and age. The impact of changes in these assumptions is highly dependent on the product type, the age of the contractholder at the time of the sale, and the timing of the first lifetime income withdrawal. Range reflects the utilization rate for the vast majority of business with living benefits.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
(7)The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of June 30, 2023 and December 31, 2022, the minimum withdrawal rate assumption is 81% and 77%, respectively. As of June 30, 2023 and December 31, 2022, the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.
(8)The range reflects the mortality rates for the vast majority of business with living benefits and other contracts, with policyholders ranging from 50 to 90 years old. While the majority of living benefits have a minimum age requirement, certain other contracts do not have an age restriction. This results in contractholders with mortality rates approaching 0% for certain benefits. Mortality rates may vary by product, age, and duration. A mortality improvement assumption is also incorporated into the overall mortality table.
(9)Policyholders’ account balances primarily represent general account liabilities for the index-linked interest credited on certain of the Company’s life and annuity products that are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.
(10)Option budget estimates the expected long-term cost of options used to hedge exposures associated with equity price and interest rate changes. The level of option budgets determines future costs of the options, which impacts the growth in account value and the valuation of embedded derivatives.
(11)Amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

Interrelationships Between Unobservable Inputs – In addition to the sensitivities of fair value measurements to changes in each unobservable input in isolation, as reflected in the table above, interrelationships between these inputs may also exist, such that a change in one unobservable input may give rise to a change in another or multiple inputs. Examples of such interrelationships for significant internally-priced Level 3 assets and liabilities are as follows:
Corporate Securities – The rate used to discount future cash flows reflects current risk-free rates plus credit and liquidity spread requirements that market participants would use to value an asset. The discount rate may be influenced by many factors, including market cycles, expectations of default, collateral, term, and asset complexity. Each of these factors can influence discount rates, either in isolation, or in response to other factors. During weaker economic cycles, as the expectations of default increases, credit spreads widen, which results in a decrease in fair value.
Commercial Mortgage-backed Securities – Interrelationships may exist between the prepayment rate, the default rate and/ or loss severity, depending on specific market conditions. In stronger economic cycles, prepayment rates are generally driven by underlying property appreciation and subsequent cash-out refinances, while default rates and loss severity may be lower. During weaker economic cycles, prepayment rates may decline, while default rates and loss severity increase. Generally, a change in the assumption used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates. The impact of these factors on average life and economics varies with the deal structure and tranche subordination.
Market Risk Benefits – The Company expects efficient benefit utilization and withdrawal rates to generally be correlated with lapse rates. However, behavior is generally highly dependent on the facts and circumstances surrounding the individual contractholder, such as their liquidity needs or tax situation, which could drive lapse behavior independent of other contractholder behavior assumptions. To the extent more efficient contractholder behavior results in greater in-the-moneyness at the contract level, lapse rates may decline for those contracts. Similarly, to the extent that increases in equity volatility are correlated with overall declines in the capital markets, lapse rates may decline as contracts become more in-the-money.

Changes in Level 3 Assets and Liabilities – The following tables describe changes in fair values of Level 3 assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods (excluding MRBs disclosed in Note 10). When a determination is made to classify assets and liabilities within Level 3, the determination is based on significance of the unobservable inputs in the overall fair value measurement. All transfers are based on changes in the observability of the valuation inputs, including the availability of pricing service information that the Company can validate. Transfers into Level 3 are generally the result of unobservable inputs utilized within valuation methodologies and the use of indicative broker quotes for assets that were previously valued using observable inputs. Transfers out of Level 3 are generally due to the use of observable inputs in valuation methodologies as well as the availability of pricing service information for certain assets that the Company can validate.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Three Months Ended June 30, 2023(5)(6)
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOtherTransfers into Level 3Transfers out of Level 3Fair Value, end of periodUnrealized gains (losses) for assets still held(1)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(2)$3,576 $22 $8,995 $0 $0 $(14)$0 $0 $0 $12,579 $(21)
Structured securities(3)19,881 82 0 0 0 (125)0 0 0 19,838 93 
Other assets:
Equity securities4,294 122 0 0 0 0 0 0 0 4,416 122 
Reinsurance recoverables1,357 108 0 0 0 0 0 0 0 1,465 108 
Liabilities:
Policyholders' account balances(4)(127,032)(13,916)0 0 (19,555)0 0 0 0 (160,503)(9,227)
Three Months Ended June 30, 2023(5)
Total realized and unrealized gains (losses)Unrealized gains (losses) for assets still held(1)
Realized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)
(in thousands)
Fixed maturities, available-for-sale$0 $0 $108 $(4)$0 $0 $72 
Other assets:
Equity securities0 122 0 0 0 122 0 
Reinsurance recoverables108 0 0 0 108 0 0 
Liabilities:
Policyholders' account balances(13,916)0 0 0 (9,227)0 0 
Six Months Ended June 30, 2023(5)(6)
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOtherTransfers into Level 3Transfers out of Level 3Fair Value, end of periodUnrealized gains (losses) for assets still held(1)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(2)$3,803 $(14)$12,639 $0 $0 $(3,849)$0 $0 $0 $12,579 $(58)
Structured securities(3)20,701 (651)0 0 0 (212)0 0 0 19,838 (627)
Other assets:
Equity securities4,291 125 0 0 0 0 0 0 0 4,416 125 
Reinsurance recoverables0 1,465 0 0 0 0 0 0 0 1,465 1,465 
Liabilities:
Policyholders' account balances(4)(108,144)(24,748)0 0 (27,611)0 0 0 0 (160,503)(22,086)
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2023(5)
Total realized and unrealized gains (losses)Unrealized gains (losses) for assets still held(1)
Realized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)
(in thousands)
Fixed maturities, available-for-sale$(2)$0 $(648)$(15)$0 $0 $(685)
Other assets:
Equity securities0 125 0 0 0 125 0 
Reinsurance recoverables1,465 0 0 0 1,465 0 0 
Liabilities:
Policyholders' account balances(24,748)0 0 0 (22,086)0 0 
Three Months Ended June 30, 2022(5)(6)
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOtherTransfers into Level 3Transfers out of Level 3Fair Value, end of periodUnrealized gains (losses) for assets still held(1)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(2)$20,823 $667 $0 $0 $0 $0 $0 $0 $(18,219)$3,271 $667 
Structured securities(3)24,397 (2,429)320 0 0 (118)0 0 0 22,170 (2,419)
Other assets:
Equity securities5,298 (445)0 0 0 0 0 0 0 4,853 (445)
Reinsurance recoverables0 0 0 0 0 0 0 0 0 0 0 
Liabilities:
Policyholders' account balances(4)(130,930)12,604 0 0 0 5,654 0 0 0 (112,672)11,430 

Three Months Ended June 30, 2022(5)
Total realized and unrealized gains (losses)Unrealized gains (losses) for assets still held(1)
Realized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)
(in thousands)
Fixed maturities, available-for-sale$667 $0 $(2,418)$(11)$667 $0 $(2,419)
Other assets:
Equity securities0 (445)0 0 0 (445)0 
Reinsurance recoverables0 0 0 0 0 0 0 
Liabilities:
Policyholders' account balances12,604 0 0 0 11,430 0 0 



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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022(5)(6)
Fair Value, beginning of periodTotal realized and unrealized gains (losses)PurchasesSalesIssuancesSettlementsOtherTransfers into Level 3Transfers out of Level 3Fair Value, end of periodUnrealized gains (losses) for assets still held(1)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(2)$24,319 $(2,197)$0 $0 $0 $(632)$0 $0 $(18,219)$3,271 $(2,154)
Structured securities(3)27,274 (5,224)320 0 0 (200)0 0 0 22,170 (5,215)
Other assets:
Equity securities5,812 (959)0 0 0 0 0 0 0 4,853 (959)
Reinsurance recoverables0 0 0 0 0 0 0 0 0 0 0 
Liabilities:
Policyholders' account balances(4)(153,127)32,157 0 0 0 8,298 0 0 0 (112,672)33,037 

Six Months Ended June 30, 2022(5)
Total realized and unrealized gains (losses)Unrealized gains (losses) for assets still held(1)
Realized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)Net investment incomeRealized investment gains (losses), netOther income (loss)Included in other comprehensive income (loss)
(in thousands)
Fixed maturities, available-for-sale$667 $0 $(8,079)$(9)$667 $0 $(8,036)
Other assets:
Equity securities0 (959)0 0 0 (959)0 
Reinsurance recoverables0 0 0 0 0 0 0 
Liabilities:
Policyholders' account balances32,157 0 0 0 33,037 0 0 
(1)Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.
(2)Includes U.S. corporate private securities and foreign corporate private securities.
(3)Includes commercial mortgage-backed securities.
(4)Issuances and settlements for Policyholders' account balances are presented net in the rollforward.
(5)Effective January 1, 2021, Future policy benefits previously included in “changes in level 3 assets and liabilities” are reported in Note 10 Market Risk Benefits.
(6)Excludes MRB assets of $534 million and $645 million and MRB liabilities of $534 million and $645 million for period ending June 30, 2023 and 2022, respectively. See Note 10 for additional information.


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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Fair Value of Financial Instruments

The tables below present the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Unaudited Interim Statements of Financial Position. In some cases, as described below, the carrying amount equals or approximates fair value.
June 30, 2023
Fair ValueCarrying
Amount(1)
Level 1Level 2Level 3TotalTotal
(in thousands)
Assets:
Commercial mortgage and other loans$0 $0 $170,397 $170,397 $177,190 
Policy loans0 0 1,112,432 1,112,432 1,112,432 
Short-term investments4,500 0 0 4,500 4,500 
Cash and cash equivalents923 0 0 923 923 
Accrued investment income0 36,572 0 36,572 36,572 
Reinsurance recoverables0 0 23,550 23,550 25,682 
Receivables from parent and affiliates0 25,002 0 25,002 25,002 
Other assets0 2,655 0 2,655 2,655 
Total assets$5,423 $64,229 $1,306,379 $1,376,031 $1,384,956 
Liabilities:
Policyholders’ account balances - investment contracts$0 $158,204 $33,519 $191,723 $193,806 
Cash collateral for loaned securities0 2,996 0 2,996 2,996 
Short-term debt to affiliates0 3 0 3 3 
Payables to parent and affiliates0 10 0 10 10 
Other liabilities0 45,119 0 45,119 45,119 
Total liabilities$0 $206,332 $33,519 $239,851 $241,934 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
December 31, 2022
Fair ValueCarrying
Amount(1)
Level 1Level 2Level 3TotalTotal
(in thousands)
Assets:
Commercial mortgage and other loans$0 $0 $141,513 $141,513 $148,179 
Policy loans0 0 212,063 212,063 212,063 
Short-term investments4,000 0 0 4,000 4,000 
Cash and cash equivalents10,465 0 0 10,465 10,465 
Accrued investment income0 25,222 0 25,222 25,222 
Reinsurance recoverables0 0 25,127 25,127 27,183 
Receivables from parent and affiliates0 18,660 0 18,660 18,660 
Other assets0 3,852 0 3,852 3,852 
Total assets$14,465 $47,734 $378,703 $440,902 $449,624 
Liabilities:
Policyholders’ account balances - investment contracts$0 $180,576 $36,746 $217,322 $219,378 
Cash collateral for loaned securities0 0 0 0 0 
Short-term debt to affiliates0 0 0 0 0 
Payables to parent and affiliates0 3,513 0 3,513 3,513 
Other liabilities0 51,312 0 51,312 51,312 
Total liabilities$0 $235,401 $36,746 $272,147 $274,203 
(1)Carrying values presented herein differ from those in the Company’s Unaudited Interim Statements of Financial Position because certain items within the respective financial statement captions are not considered financial instruments or out of scope under authoritative guidance relating to disclosures of the fair value of financial instruments.

6.    DEFERRED POLICY ACQUISITION COSTS AND DEFERRED REINSURANCE

Deferred Policy Acquisition Costs
The following tables show a rollforward for the lines of business that contain DAC balances, along with a reconciliation to the Company's total DAC balance:
Six Months Ended June 30, 2023
Term LifeVariable / Universal LifeTotal
(in thousands)
Balance, beginning of period$70,213 $281,661 $351,874 
   Capitalization8,675 21,730 30,405 
   Amortization expense(3,318)(6,618)(9,936)
   Other0 1 1 
Balance, end of period$75,570 $296,774 $372,344 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022
Term LifeVariable / Universal LifeTotal
(in thousands)
Balance, beginning of period$62,091 $246,653 $308,744 
   Capitalization7,944 25,023 32,967 
   Amortization expense(3,349)(6,213)(9,562)
   Other 0 (4)(4)
Balance, end of period$66,686 $265,459 $332,145 


Deferred Reinsurance Losses

The following tables show a rollforward of DRL balances for variable annuity products, which is the only line of business that contains a DRL balance, along with a reconciliation to the Company's total DRL balance:
Six Months Ended June 30, 2023
Variable Annuities
(in thousands)
Balance, beginning of period$17,425 
Amortization expense(740)
Balance, end of period$16,685 

Six Months Ended June 30, 2022
Variable Annuities
(in thousands)
Balance, beginning of period$18,977 
Amortization expense(787)
Balance, end of period$18,190 

7.    SEPARATE ACCOUNTS

The Company issues variable annuity and variable life insurance contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. Most variable annuity and variable life insurance contracts are offered with both separate and general account options. See Note 9 for additional information.

The assets supporting the variable portion of variable annuity and variable life insurance contracts are carried at fair value and reported as “Separate account assets” with an equivalent amount reported as “Separate account liabilities”. The liabilities related to the net amount at risk are reflected within future policy benefits or market risk benefits. Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in “Policy charges and fee income” and changes in liabilities for minimum guarantees are generally included in “Policyholders’ benefits” or “Realized investment gains (losses), net”.


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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Separate Account Assets

The aggregate fair value of assets, by major investment asset category, supporting separate accounts is as follows:

June 30, 2023December 31, 2022
(in thousands)
Asset Type:
Mutual funds:
Equity$8,027,161 $7,430,452 
Fixed Income3,969,001 3,973,001 
Other692,089 611,170 
Other invested assets1,078,095 1,912,335 
Total$13,766,346 $13,926,958 

For the six months ended June 30, 2023 and year ended December 31, 2022, there were no transfers of assets, other than cash, from the general account to a separate account; therefore, no gains or losses were recorded.

Separate Account Liabilities

The balances of and changes in separate account liabilities as of and for the periods indicated are as follows:

Six Months Ended June 30, 2023
Variable AnnuitiesVariable LifeTotal
(in thousands)
Balance, beginning of period$8,928,568 $4,998,390 $13,926,958 
     Deposits18,998 97,170 116,168 
     Investment performance686,380 525,792 1,212,172 
     Policy charges(111,432)(51,014)(162,446)
     Surrenders and withdrawals(401,647)(24,808)(426,455)
     Benefit payments(4,399)(22,407)(26,806)
Net transfers (to) from general account(1)(812)(878,000)(878,812)
     Other500 5,067 5,567 
Balance, end of period$9,116,156 $4,650,190 $13,766,346 
Cash surrender value(2)$8,960,507 $4,545,287 $13,505,794 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Six Months Ended June 30, 2022
Variable AnnuitiesVariable LifeTotal
(in thousands)
Balance, beginning of period$11,982,322 $5,940,046 $17,922,368 
Deposits41,61199,025140,636
Investment performance(2,053,249)(1,018,134)(3,071,383)
Policy charges(124,562)(50,813)(175,375)
Surrenders and withdrawals(409,258)(20,149)(429,407)
Benefit payments(2,097)(30,723)(32,820)
Net transfers (to) from general account(1,199)(19,926)(21,125)
Other5184,2934,811
Balance, end of period$9,434,086 $4,903,619 $14,337,705 
Cash surrender value(2)$9,231,550 $4,810,365 $14,041,915 
(1)Variable life includes $900 million of funding for a policy loan to an affiliated irrevocable trust. See Note 14 for additional information.
(2)Represents the amount of the contractholder's account balances distributable at the balance sheet date less certain surrender charges.


8.    LIABILITY FOR FUTURE POLICY BENEFITS

Liability for Future Policy Benefits primarily consists of the following sub-components, which are discussed in greater detail below.

•Benefit Reserves;
•Deferred Profit Liability; and
•Additional Insurance Reserves

In 2023, the Company recognized an immaterial impact to net income attributable to the actuarial assumption update for direct and assumed benefit reserves. Additionally, the Company recognized an unfavorable impact to net income attributable to the actuarial assumption update and other refinements for direct and assumed additional insurance reserves, primarily due to unfavorable model refinements, partially offset by favorable updates to economic assumptions, including expected future rates of returns on investments on universal life policies with secondary guarantees.

In 2022, the Company recognized an unfavorable impact to net income attributable to the actuarial assumption update for direct and assumed benefit reserves, primarily due to updates to mortality assumptions on individual term life insurance. Additionally, the Company recognized an unfavorable impact to net income attributable to the actuarial assumption update and other refinements for direct and assumed additional insurance reserves, primarily due to updates to policyholder behavior assumptions on universal life policies with secondary guarantees.

Benefit Reserves

The balances of and changes in Benefit Reserves as of and for the periods indicated consist of the three tables presented below: Present Value of Expected Net Premiums rollforward, Present Value of Expected Future Policy Benefits rollforward, and Net Liability for Future Policy Benefits.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Six Months Ended June 30, 2023
Present Value of Expected Net Premiums
Term LifeFixed AnnuitiesTotal
(in thousands)
Balance, beginning of period$1,416,807 $0 $1,416,807 
Effect of cumulative changes in discount rate assumptions, beginning of period73,563 0 73,563 
Balance at original discount rate, beginning of period1,490,370 0 1,490,370 
Effect of assumption update(152)0 (152)
Effect of actual variances from expected experience and other activity(22,641)(554)(23,195)
Adjusted balance, beginning of period1,467,577 (554)1,467,023 
Issuances39,930 1,953 41,883 
Net premiums / considerations collected(84,676)(1,399)(86,075)
Interest accrual34,182 0 34,182 
Balance at original discount rate, end of period1,457,013 0 1,457,013 
Effect of cumulative changes in discount rate assumptions, end of period(62,821)0 (62,821)
Balance, end of period$1,394,192 $0 $1,394,192 
Six Months Ended June 30, 2023
Present Value of Expected Future Policy Benefits
Term LifeFixed AnnuitiesTotal
(in thousands)
Balance, beginning of period$2,551,191 $16,460 $2,567,651 
Effect of cumulative changes in discount rate assumptions, beginning of period137,962 1,899 139,861 
Balance at original discount rate, beginning of period2,689,153 18,359 2,707,512 
Effect of assumption update(202)0 (202)
Effect of actual variances from expected experience and other activity(28,981)301 (28,680)
Adjusted balance, beginning of period2,659,970 18,660 2,678,630 
Issuances39,930 1,952 41,882 
Interest accrual64,902 336 65,238 
Benefit payments(90,205)(1,119)(91,324)
Other adjustments(1,090)0 (1,090)
Balance at original discount rate, end of period2,673,507 19,829 2,693,336 
Effect of cumulative changes in discount rate assumptions, end of period(111,116)(1,994)(113,110)
Balance, end of period$2,562,391 $17,835 $2,580,226 
Six Months Ended June 30, 2023
Net Liability for Future Policy Benefits (Benefit Reserves)
Term LifeFixed AnnuitiesTotal
(in thousands)
Balance, end of period, post-flooring$1,168,199 $17,835 $1,186,034 
Less: Reinsurance recoverable1,014,262 17,835 1,032,097 
Balance after reinsurance recoverable, end of period, post-flooring$153,937 $0 $153,937 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022
Present Value of Expected Net Premiums
Term LifeFixed AnnuitiesTotal
(in thousands)
Balance, beginning of period$1,641,933 $0 $1,641,933 
Effect of cumulative changes in discount rate assumptions, beginning of period(253,752)0 (253,752)
Balance at original discount rate, beginning of period1,388,181 0 1,388,181 
Effect of assumption update174,263 0 174,263 
Effect of actual variances from expected experience and other activity(32,555)(79)(32,634)
Adjusted balance, beginning of period1,529,889 (79)1,529,810 
Issuances27,412 614 28,026 
Net premiums / considerations collected(84,791)(535)(85,326)
Interest accrual34,077 0 34,077 
Balance at original discount rate, end of period1,506,587 0 1,506,587 
Effect of cumulative changes in discount rate assumptions, end of period6,153 0 6,153 
Balance, end of period$1,512,740 $0 $1,512,740 
Six Months Ended June 30, 2022
Present Value of Expected Future Policy Benefits
Term LifeFixed AnnuitiesTotal
(in thousands)
Balance, beginning of period$3,041,562 $19,314 $3,060,876 
Effect of cumulative changes in discount rate assumptions, beginning of period(561,455)(1,459)(562,914)
Balance at original discount rate, beginning of period2,480,107 17,855 2,497,962 
Effect of assumption update255,336 0 255,336 
Effect of actual variances from expected experience and other activity(59,036)295 (58,741)
Adjusted balance, beginning of period2,676,407 18,150 2,694,557 
Issuances27,412 614 28,026 
Interest accrual63,599 300 63,899 
Benefit payments(77,240)(1,233)(78,473)
Other adjustments(104)(74)(178)
Balance at original discount rate, end of period2,690,074 17,757 2,707,831 
Effect of cumulative changes in discount rate assumptions, end of period30,830 (1,268)29,562 
Balance, end of period$2,720,904 $16,489 $2,737,393 
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Six Months Ended June 30, 2022
Net Liability for Future Policy Benefits (Benefit Reserves)
Term LifeFixed AnnuitiesTotal
(in thousands)
Balance, end of period, post-flooring$1,208,164 $16,489 $1,224,653 
Less: Reinsurance recoverable1,060,616 16,489 1,077,105 
Balance after reinsurance recoverable, end of period, post-flooring$147,548 $0 $147,548 
The following tables provide supplemental information related to the balances of and changes in Benefit Reserves included in the disaggregated tables above, on a gross (direct and assumed) basis, as of and for the periods indicated:
Six Months Ended June 30, 2023
Term LifeFixed Annuities
($ in thousands)
Undiscounted expected future gross premiums$3,033,319 $0 
Discounted expected future gross premiums (at original discount rate)$2,038,752 $0 
Discounted expected future gross premiums (at current discount rate)$1,956,995 $0 
Undiscounted expected future benefits and expenses$4,318,149 $25,658 
Interest accrual$30,719 $336 
Gross premiums$120,619 $1,640 
Weighted-average duration of the liability in years (at original discount rate)117
Weighted-average duration of the liability in years (at current discount rate)106
Weighted-average interest rate (at original discount rate)5.29 %3.51 %
Weighted-average interest rate (at current discount rate)5.29 %5.25 %
Six Months Ended June 30, 2022
Term LifeFixed Annuities
($ in thousands)
Undiscounted expected future gross premiums$3,079,741 $0 
Discounted expected future gross premiums (at original discount rate)$2,074,464 $0 
Discounted expected future gross premiums (at current discount rate)$2,086,295 $0 
Undiscounted expected future benefits and expenses$4,372,316 $23,325 
Interest accrual$29,523 $300 
Gross premiums$124,503 $848 
Weighted-average duration of the liability in years (at original discount rate)117
Weighted-average duration of the liability in years (at current discount rate)116
Weighted-average interest rate (at original discount rate)5.37 %3.42 %
Weighted-average interest rate (at current discount rate)4.64 %4.52 %
For additional information regarding observable market information and the techniques used to determine the interest rate assumptions seen above, see Note 2.

For non-participating traditional and limited-payment products, if a cohort is in a loss position where the liability for future policy benefits plus the present value of expected future gross premiums are determined to be insufficient to provide for the present value of expected future policy benefits and non-level claim settlement expenses, then the liability for future policy benefits is adjusted at that time, and thereafter such that all changes, both favorable and unfavorable, in expected benefits resulting from both actual experience deviations and changes in future assumptions are recognized immediately as a gain or loss.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

In the first six months of 2023, there was a $4 million gain in net income for non-participating traditional and limited-payment products, where net premiums exceeded gross premiums for certain issue-year cohorts, which was offset by a $4 million charge, reflecting the impact of ceded reinsurance on the affected cohorts.

In the first six months of 2022, there was a $15 million charge to net income for non-participating traditional and limited-payment products, where net premiums exceeded gross premiums for certain issue-year cohorts, partially offset by a $14 million gain, reflecting the impact of ceded reinsurance on the affected cohorts. The unfavorable impact in the first six months of 2022 is primarily due to unfavorable assumption updates related to individual term life products.

Deferred Profit Liability

The balances of and changes in Deferred Profit Liability as of and for the periods indicated are as follows:

Six Months Ended June 30,
20232022
Fixed Annuities
(in thousands)
Balance, beginning of period$1,684 $1,726 
Effect of actual variances from expected experience and other activity(290)(216)
Adjusted balance, beginning of period1,394 1,510 
Profits deferred231 309 
Interest accrual26 31 
Amortization(93)(122)
Other adjustments0 (5)
Balance, end of period1,558 1,723 
Less: Reinsurance recoverable1,558 1,723 
Balance after reinsurance recoverable$0 $0 
The following table provides supplemental information related to the balances of and changes in Deferred Profit Liability, included in the disaggregated table above, on a gross (direct and assumed) basis, as of and for the period indicated:
Six Months Ended June 30,
20232022
Fixed Annuities
(in thousands)
Revenue(1)$126 $4 
Interest accrual26 31 
(1)Represents the gross premiums collected in changes in deferred profit liability.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Additional Insurance Reserves

AIR represents the additional liability for annuitization, death, or other insurance benefits, including GMDB and GMIB contract features, that are above and beyond the contractholder's account balance.

The following table shows a rollforward of AIR balances for variable and universal life products for the periods indicated:
Six Months Ended June 30,
20232022
(in thousands)
Balance including amounts in AOCI, beginning of period, post-flooring$827,478 $703,968 
Flooring impact and amounts in AOCI91,115 (71,467)
Balance, excluding amounts in AOCI, beginning of period, pre-flooring918,593 632,501 
Effect of assumption update9,713 180,404 
Effect of actual variances from expected experience and other activity(1,422)(31,138)
Adjusted balance, beginning of period926,884 781,767 
Assessments collected(1)39,374 79,478 
Interest accrual15,913 12,426 
Benefits paid(4,958)(8,258)
Balance, excluding amounts in AOCI, end of period, pre-flooring977,213 865,413 
Flooring impact and amounts in AOCI(74,643)(61,173)
Balance, including amounts in AOCI, end of period, post-flooring902,570 804,240 
Less: Reinsurance recoverable865,078 769,647 
Balance after reinsurance recoverable, including amounts in AOCI, end of period$37,492 $34,593 
(1)Represents the portion of gross assessments required to fund the future policy benefits.

Six Months Ended June 30,
20232022
($ in thousands)
Interest accrual$15,913 $12,426 
Gross assessments$109,288 $173,966 
Weighted-average duration of the liability in years (at original discount rate)2728
Weighted-average interest rate (at original discount rate)3.42 %3.78 %
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Future Policy Benefits Reconciliation

The following table presents the reconciliation of the ending balances from the above rollforwards, Benefit Reserves, Additional Insurance Reserves, and Deferred Profit Liability including other liabilities, gross of related reinsurance recoverables, to the total liability for Future Policy Benefits as reported on the Company's Unaudited Interim Statements of Financial Position as of the periods indicated:
Six Months Ended June 30,
20232022
(in thousands)
Benefit reserves, end of period, post-flooring$1,186,034 $1,224,653 
Deferred profit liability, end of period, post-flooring1,558 1,723 
Additional insurance reserves, including amounts in AOCI, end of period, post-flooring902,570 804,240 
Subtotal of amounts disclosed above2,090,162 2,030,616 
Other Future policy benefits reserves(1)180,082 164,594 
Total Future policy benefits$2,270,244 $2,195,210 
(1)Represents balances for which disaggregated rollforward disclosures are not required, including unpaid claims and claims expenses, and incurred but not reported and in course of settlement claim liabilities.


Revenue and Interest Expense

The following tables present revenue and interest expense related to Benefit Reserves, Additional Insurance Reserves, and Deferred Profit Liability, as well as related revenue and interest expense not presented in the above supplemental tables, in the Company's Statement of Operations for the periods indicated:

Six Months Ended June 30, 2023
Revenues(1)
Fixed AnnuitiesTerm LifeVariable and Universal LifeTotal
(in thousands)
Benefit reserves$1,640 $120,619 $0 $122,259 
Deferred profit liability126 0 0 126 
Additional insurance reserves0 0 109,288 109,288 
Total$1,766 $120,619 $109,288 $231,673 

Six Months Ended June 30, 2022
Revenues(1)
Fixed AnnuitiesTerm LifeVariable and Universal LifeTotal
(in thousands)
Benefit reserves$848 $124,503 $0 $125,351 
Deferred profit liability4 0 0 4 
Additional insurance reserves0 0 173,966 173,966 
Total$852 $124,503 $173,966 $299,321 
(1)Represents "Gross premiums" for benefit reserves; "Revenue" for deferred profit liability and "Gross assessments" for additional insurance reserves.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2023
Interest Expense
Fixed AnnuitiesTerm LifeVariable and Universal LifeTotal
(in thousands)
Benefit reserves$336 $30,719 $0 $31,055 
Deferred profit liability26 0 0 26 
Additional insurance reserves0 0 15,913 15,913 
Total$362 $30,719 $15,913 $46,994 

Six Months Ended June 30, 2022
Interest Expense
Fixed AnnuitiesTerm LifeVariable and Universal LifeTotal
(in thousands)
Benefit reserves$300 $29,523 $0 $29,823 
Deferred profit liability31 0 0 31 
Additional insurance reserves0 0 12,426 12,426 
Total$331 $29,523 $12,426 $42,280 


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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
9.    POLICYHOLDERS' ACCOUNT BALANCES

Policyholders' Account Balances

The balance of and changes in policyholders' account balances as of and for the periods ended are as follows:
Six Months Ended June 30, 2023
Variable AnnuitiesVariable Life / Universal LifeTotal
($ in thousands)
Balance, beginning of period$327,124 $2,084,680 $2,411,804 
Deposits109,262 109,864 219,126 
Interest credited3,122 29,248 32,370 
Policy charges(72)(72,638)(72,710)
Surrenders and withdrawals(19,356)(52,878)(72,234)
Benefit payments(1,312)(2,044)(3,356)
Net transfers (to) from separate account(1)812 878,000 878,812 
Change in market value and other adjustments(2)6,776 18,228 25,004 
Balance, end of period426,356 2,992,460 3,418,816 
Less: Reinsurance and other recoverables(3)418,986 770,582 1,189,568 
Policyholders' account balance net of reinsurance and other recoverables$7,370 $2,221,878 $2,229,248 
Unearned revenue reserve343,618 
Other(4)47,080 
Total Policyholders' account balance$3,809,514 
Weighted-average crediting rate1.66 %2.30 %2.22 %
Net amount at risk(5)$0 $34,019,813 $34,019,813 
Cash surrender value(6)$415,466 $2,653,822 $3,069,288 
(1) Variable life includes $900 million of funding for a policy loan to an affiliated irrevocable trust. See Note 14 for additional information.
(2) Primarily relates to changes in the value of embedded derivative instruments associated with the indexed options of certain products.
(3) The amount of recoverables related to reinsurance agreements that reduce the risk of the policyholders’ account balances gross liability.
(4) Includes $38 million of fixed annuities account balances.
(5) The net amount at risk calculation includes both general and separate account balances.
(6) Represents the amount of the contractholder's account balances distributable at the balance sheet date less certain surrender charges.


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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022
Variable AnnuitiesVariable Life / Universal LifeTotal
($ in thousands)
Balance, beginning of period$344,945 $2,052,065 $2,397,010 
Deposits933 122,497 123,430 
Interest credited3,104 31,684 34,788 
Policy charges(93)(72,282)(72,375)
Surrenders and withdrawals(9,716)(68,251)(77,967)
Benefit payments(2,198)1,420 (778)
Net transfers (to) from separate account1,199 19,926 21,125 
Change in market value and other adjustments(1)0 (32,157)(32,157)
Balance, end of period338,174 2,054,902 2,393,076 
Less: Reinsurance and other recoverables(2)334,311 745,131 1,079,442 
Policyholders' account balance net of reinsurance and other recoverables$3,863 $1,309,771 $1,313,634 
Unearned revenue reserve282,229 
Other(3)50,116 
Total Policyholders' account balance$2,725,421 
Weighted-average crediting rate1.82 %3.09 %2.91 %
Net amount at risk(4)$0 $33,000,921 $33,000,921 
Cash surrender value(5)$333,810 $1,718,120 $2,051,930 
(1) Primarily relates to changes in the value of embedded derivative instruments associated with the indexed options of certain products.
(2) The amount of recoverables related to reinsurance agreements that reduce the risk of the policyholders’ account balances gross liability.
(3) Includes $41 million of fixed annuities account balances.
(4) The net amount at risk calculation includes both general and separate account balances.
(5) Represents the amount of the contractholder's account balances distributable at the balance sheet date less certain surrender charges.

The Company issues variable life and universal life insurance contracts which may also include a “no-lapse guarantee” where the Company contractually guarantees to the contractholder a death benefit even when the account value drops to zero, as long as the “no-lapse guarantee” premium is paid.

The net amount at risk is generally defined as the current death benefit in excess of the current account balance at the balance sheet date. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including contractholder mortality, contract lapses, and premium pattern, as well as interest rate and equity market returns.

The Company also issues annuity contracts that provide certain death benefit and/or living benefit guarantees and are accounted for as MRBs. See Note 10 for additional information, including the net amount at risk associated with these guarantees.

The balance of account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums are as follows:
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
June 30, 2023
Range of Guaranteed Minimum Crediting Rate(1)At guaranteed minimum
1 -50 bps above guaranteed minimum
51 - 150 bps above guaranteed minimum
Greater than 150 bps above guaranteed minimum
Total
(in thousands)
Variable Annuities
Less than 1.00%
$776 $0 $0 $0 $776 
1.00% - 1.99%
186,148 1,588 0 0 187,736 
2.00% - 2.99%
1,749 0 0 0 1,749 
3.00% - 4.00%
122,047 95 0 0 122,142 
Greater than 4.00%
128 0 0 0 128 
Total$310,848 $1,683 $0 $0 $312,531 
Variable Life / Universal Life
Less than 1.00%
$0 $0 $0 $602 $602 
1.00% - 1.99%
18,813 0 426,351 22,516 467,680 
2.00% - 2.99%
3,837 155,149 181,068 27,727 367,781 
3.00% - 4.00%
145,807 384,899 920,853 0 1,451,559 
Greater than 4.00%
375,429 0 0 0 375,429 
Total$543,886 $540,048 $1,528,272 $50,845 $2,663,051 
(1) Excludes contracts without minimum guaranteed crediting rates, such as funds with indexed-linked crediting options.
June 30, 2022
Range of Guaranteed Minimum Crediting Rate(1)At guaranteed minimum
1 - 50 bps above guaranteed minimum
51 - 150 bps above guaranteed minimum
Greater than 150 bps above guaranteed minimum
Total
(in thousands)
Variable Annuities
Less than 1.00%
$0 $0 $0 $0 $0 
1.00% - 1.99%
197,549 1,599 0 0 199,148 
2.00% - 2.99%
1,885 0 0 0 1,885 
3.00% - 4.00%
140,189 0 0 0 140,189 
Greater than 4.00%
123 0 0 0 123 
Total$339,746 $1,599 $0 $0 $341,345 
Variable Life / Universal Life
Less than 1.00%
$1,033 $0 $0 $0 $1,033 
1.00% - 1.99%
45,199 0 95,357 295,379 435,935 
2.00% - 2.99%
653 0 186,693 161,827 349,173 
3.00% - 4.00%
135,558 3,909 453,363 0 592,830 
Greater than 4.00%
359,386 0 0 0 359,386 
Total$541,829 $3,909 $735,413 $457,206 $1,738,357 
(1) Excludes contracts without minimum guaranteed crediting rates, such as funds with indexed-linked crediting options.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Unearned Revenue Reserve

The balances of and changes in URR as of and for the periods ended are as follows:

Six Months Ended June 30,
20232022
Variable Life / Universal Life
(in thousands)
Balance, beginning of period$313,711 $251,573 
Unearned revenue37,643 37,222 
Amortization expense(7,736)(6,622)
Other adjustments0 56 
Balance, end of period343,618 282,229 
Less: Reinsurance recoverables88,604 72,767 
Unearned revenue reserve net of reinsurance recoverables$255,014 $209,462 

10.    MARKET RISK BENEFITS

The following tables show a rollforward of MRB balances for variable annuity products, along with a reconciliation to the Company’s total net MRB positions as of the following dates:

Six Months Ended June 30, 2023
Variable AnnuitiesLess: Reinsured Market Risk BenefitsTotal, Net of Reinsurance
(in thousands)
Balance, beginning of period$398,254 $(398,254)$0 
Effect of cumulative changes in non-performance risk163,169 0 163,169 
Balance, beginning of period, before effect of changes in non-performance risk561,423 (398,254)163,169 
Attributed fees collected54,681 (54,681)0 
Claims paid(2,665)2,665 0 
Interest accrual14,242 (14,242)0 
Actual in force different from expected4,045 (4,045)0 
Effect of changes in interest rates(72,247)72,247 0 
Effect of changes in equity markets(112,568)112,568 0 
Effect of assumption update30,269 (30,269)0 
Issuances(10,916)10,916 0 
Effect of changes in current period counterparty non-performance risk0 (7,141)(7,141)
Balance, end of period, before effect of changes in non-performance risk466,264 (310,236)156,028 
Effect of cumulative changes in non-performance risk(156,028)0 (156,028)
Balance, end of period$310,236 $(310,236)$0 

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Six Months Ended June 30, 2022
Variable AnnuitiesLess: Reinsured Market Risk BenefitsTotal, Net of Reinsurance
(in thousands)
Balance, beginning of period$796,913 $(796,913)$0 
Effect of cumulative changes in non-performance risk21,123 0 21,123 
Balance, beginning of period, before effect of changes in non-performance risk818,036 (796,913)21,123 
Attributed fees collected62,299 (62,299)0 
Claims paid(318)318 0 
Interest accrual2,401 (2,401)0 
Actual in force different from expected4,852 (4,852)0 
Effect of changes in interest rates(437,192)437,192 0 
Effect of changes in equity markets277,899 (277,899)0 
Effect of assumption update(17,430)17,430 0 
Effect of changes in current period counterparty non-performance risk0 174,828 174,828 
Balance, end of period, before effect of changes in non-performance risk710,547 (514,596)195,951 
Effect of cumulative changes in non-performance risk(195,951)0 (195,951)
Balance, end of period$514,596 $(514,596)$0 

In 2023, the Company recognized an unfavorable impact to net income attributable to the actuarial assumption update for direct market risk benefits, primarily due to updates to policyholder behavior assumptions on certain variable annuities.

In 2022, the Company recognized a favorable impact to net income attributable to the actuarial assumption update for direct market risk benefits, primarily due to updates to mortality and policyholder behavior assumptions on certain variable annuities.

The Company issues certain variable annuity insurance contracts where the Company contractually guarantees to the contractholder a return of no less than (1) total deposits made to the contract adjusted for any partial withdrawals plus a minimum return, and/or (2) the highest anniversary contract value on a specified date adjusted for any withdrawals. These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable during specified periods.

The Company also issues indexed variable annuity contracts for which the return is tied to the return of specific indices where the Company contractually guarantees to the contractholder a return of no less than total deposits made to the contract adjusted for any partial withdrawals upon death. In certain of these indexed variable annuity contracts, the Company also contractually guarantees to the contractholder withdrawal benefits payable during specific periods.

For guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, contract lapses and contractholder mortality.

For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, timing of annuitization, contract lapses and contractholder mortality.

For guarantees of benefits that are payable at withdrawal, the net amount at risk is generally defined as the present value of the minimum guaranteed withdrawal payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance.
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Notes to Unaudited Interim Financial Statements—(Continued)

For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, interest rates, market volatility and contractholder behavior.

The following table presents accompanying information to the rollforward table above.
June 30, 2023June 30, 2022
Variable Annuities
($ in thousands)
Net amount at risk(1)$851,082 $854,471 
Weighted-average attained age of contractholders6967
(1)For contracts with multiple benefit features, the highest net amount at risk for each contract is included.

The table below reconciles MRB asset and liability positions as of the following dates:
June 30, 2023June 30, 2022
Variable Annuities
(in thousands)
Market risk benefit assets$533,855 $644,900 
Market risk benefit liabilities533,855 644,900 
Net liability$0 $0 


11.    REINSURANCE

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

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

Change in value of market risk benefits, net of related hedging gain (loss) include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. The Company has entered into a reinsurance agreement to transfer the risk related to living benefit guarantees on variable annuities to Prudential Insurance. These reinsurance agreements are market risk benefits and have been accounted for in the same manner. See Note 4 for additional information related to the accounting for market risk benefits.

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Notes to Unaudited Interim Financial Statements—(Continued)
Reinsurance amounts included in the Company’s Unaudited Interim Statements of Financial Position as of June 30, 2023 and December 31, 2022 were as follows:
June 30, 2023December 31, 2022
 (in thousands)
Reinsurance recoverables(1)$3,276,582 $3,098,248 
Policy loans(23,509)(22,999)
Deferred policy acquisition costs(1)(629,916)(646,737)
Deferred sales inducements(1)(36,745)(38,146)
Market risk benefit assets(1)422,045 478,439 
Other assets(1)41,885 42,265 
Market risk benefit liabilities(1)111,810 80,185 
Other liabilities(1)72,925 115,351 
(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

Reinsurance recoverables by counterparty are broken out below:
 June 30, 2023December 31, 2022
 (in thousands)
Prudential Insurance(1)$538,913 $456,633 
PAR U(1)1,639,772 1,575,260 
PARCC(1)437,276 464,142 
PAR Term(1)275,431 258,169 
Term Re(1)256,758 232,796 
DART(1)92,635 73,702 
Pruco Life(1)33,482 34,720 
Unaffiliated2,315 2,826 
Total reinsurance recoverables$3,276,582 $3,098,248 
(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.
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Notes to Unaudited Interim Financial Statements—(Continued)
Reinsurance amounts, included in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(in thousands)
Premiums:
Direct(1)$61,114 $62,036 $123,697 $125,366 
Ceded(1)(51,548)(53,785)(103,954)(108,095)
Net premiums(1)9,566 8,251 19,743 17,271 
Policy charges and fee income:
Direct(1)88,140 94,292 174,653 190,218 
Ceded(1)(2)(66,797)(78,015)(139,172)(163,346)
Net policy charges and fee income(1)21,343 16,277 35,481 26,872 
Net investment income:
Direct40,171 25,068 69,057 49,631 
Ceded(197)(204)(423)(398)
Net investment income39,974 24,864 68,634 49,233 
Asset administration fees:
Direct8,990 9,581 17,766 20,083 
Ceded(6,720)(7,471)(13,416)(15,713)
Net asset administration fees2,270 2,110 4,350 4,370 
Realized investment gains (losses), net:
Direct(1)(4,796)5,002 (14,253)20,229 
Ceded(1)179 663 1,338 1,156 
Realized investment gains (losses), net(1)(4,617)5,665 (12,915)21,385 
Change in value of market risk benefits, net of related hedging gain (loss):
Direct(1)163,290 37,560 149,489 166,371 
Ceded(1)(140,421)(125,560)(142,348)(341,199)
Net change in value of market risk benefits, net of related hedging gain (loss)(1)22,869 (88,000)7,141 (174,828)
Policyholders’ benefits (including change in reserves):
Direct(1)114,251 105,463 221,588 234,173 
Ceded(1)(3)(98,530)(100,453)(187,528)(215,328)
Net policyholders’ benefits (including change in reserves)(1)15,721 5,010 34,060 18,845 
Change in estimates of liability for future policy benefits:
Direct(1)6,116 236,846 2,199 223,028 
Ceded(1)(6,757)(223,488)(4,282)(210,847)
Net change in estimates of liability for future policy benefits(1)(641)13,358 (2,083)12,181 
Interest credited to policyholders’ account balances:
Direct(1)21,897 20,669 39,919 40,466 
Ceded(1)(8,274)(8,728)(16,159)(17,331)
Net interest credited to policyholders’ account balances13,623 11,941 23,760 23,135 
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization(1)(34,415)(36,188)(67,365)(73,465)
(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.
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Notes to Unaudited Interim Financial Statements—(Continued)
(2)Includes $(1.3) million and $(1.2) million of unaffiliated activity for the three months ended June 30, 2023 and 2022, respectively, and $(2.5) million and $(2.5) million for the six months ended June 30, 2023 and 2022, respectively.
(3)Includes $(1.9) million and $0.0 million of unaffiliated activity for the three months ended June 30, 2023 and 2022, respectively, and $(1.9) million and $(0.1) million for the six months ended June 30, 2023 and 2022, respectively.

The gross and net amounts of life insurance face amount in force as of June 30, 2023 and 2022 were as follows:
20232022
 (in thousands)
Direct gross life insurance face amount in force$154,260,673 $154,946,946 
Reinsurance ceded(139,790,450)(141,076,514)
Net life insurance face amount in force$14,470,223 $13,870,432 

Significant Affiliated Reinsurance Agreements

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. Effective July 1, 2017, this agreement was terminated for certain new business, primarily Universal Life business, and such business was reinsured to Pruco Life under a yearly renewable term reinsurance agreement. As of January 1, 2020, the remaining portions of new business (specifically Term policies) ceased being reinsured by the Company to Prudential Insurance, and a separate yearly renewable term reinsurance agreement was established with Pruco Life for Term policies.

Effective April 1, 2016, the Company entered into a reinsurance agreement with Prudential Insurance to reinsure its variable annuity base contracts, along with the living benefit guarantees. As of December 31, 2020, the Company discontinued the sales of traditional variable annuities with guaranteed living benefit riders. This discontinuation has no impact on the reinsurance agreement between Prudential Insurance and the Company. Effective February 1, 2023, PLNJ began selling indexed variable annuities products, which is reinsured to Prudential Insurance through the existing reinsurance agreement. The reinsurance of the indexed variable annuities transfers all significant risks, including mortality risk, embedded in the reinsured contracts to Prudential Insurance. As a result of the agreement, reinsurance payables includes the ceded modified coinsurance arrangement, which reflects the value of the invested assets retained by the Company and the associated asset returns.

PAR U

Effective July 1, 2012, the Company reinsures an amount equal to 95% of all risks associated with Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, with effective dates through December 31, 2019, excluding those policies that are subject to principle-based reserving.

PARCC

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

PAR Term

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

Term Re

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

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Notes to Unaudited Interim Financial Statements—(Continued)
Pruco Life

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

DART

Effective January 1, 2018, the Company entered into an automatic coinsurance agreement with DART to reinsure an amount equal to 95% of the risks associated with its term life insurance policies, with effective dates on or after January 1, 2018 through December 31, 2019, excluding those policies that are subject to principle-based reserving.

12.    INCOME TAXES

The Company uses a full year projected effective tax rate approach to calculate year-to-date taxes. In determining the full year projected tax rate, the Company considers the realizability of deferred tax assets, including those associated with unrealized investment losses, and has determined based upon the weight of available evidence that no valuation allowance is necessary related to unrealized investment losses. In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. The projected effective tax rate is the ratio of projected “Income tax expense (benefit)” divided by projected “Income (loss) from operations before income taxes". The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year.  

The Company's income tax provision amounted to an income tax expense of $3.5 million, or 12.05% of income (loss) from operations before income taxes in the first six months of 2023, compared to an income tax benefit of $(43.3) million, or 29.98%, in the first six months of 2022. The Company’s current and prior effective tax rates differed from the U.S. statutory tax rate of 21% primarily due to non-taxable investment income and tax credits.

Inflation Reduction Act. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”). One of the most significant provisions of the Inflation Reduction Act is a 15% alternative minimum tax based on the Company’s GAAP income, with certain adjustments. This provision which is applicable only to companies with average applicable financial statement income over $1 billion for any three-year period ending in 2022 or later, is effective in taxable years beginning after December 31, 2022. The impact of the book-income alternative minimum tax, if any, will vary from year to year based on the relationship of the Company’s GAAP income to the Company’s taxable income. Any tax paid pursuant to this provision is available as a tax credit in future years when the Company’s tax rate exceeds the 15% minimum tax threshold.

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Notes to Unaudited Interim Financial Statements—(Continued)
13.    EQUITY

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Unaudited Interim Statements of Operations and Comprehensive Income (Loss). The balance of and changes in each component of AOCI as of and for the six months ended June 30, 2023 and 2022, are as follows:
Accumulated Other Comprehensive Income (Loss)
Foreign Currency Translation AdjustmentNet Unrealized
Investment Gains
(Losses)(1)		Interest Rate Remeasurement of Future Policy BenefitsGain (loss) from Changes in Non-Performance Risk on Market Risk BenefitsTotal Accumulated Other Comprehensive Income (Loss)
(in thousands)
Balance, December 31, 2022$(1,214)$(176,386)$12,504 $128,906 $(36,190)
Change in OCI before reclassifications171 14,245 (3,118)(7,141)4,157 
Amounts reclassified from AOCI0 (684)0 0 (684)
Income tax benefit (expense)(78)(2,806)654 1,500 (730)
Balance, June 30, 2023$(1,121)$(165,631)$10,040 $123,265 $(33,447)

Accumulated Other Comprehensive Income (Loss)
Foreign Currency Translation AdjustmentNet Unrealized
Investment Gains
(Losses)(1)		Interest Rate Remeasurement of Future Policy BenefitsGain (loss) from Changes in Non-Performance Risk on Market Risk BenefitsTotal Accumulated Other Comprehensive Income (Loss)
(in thousands)
Balance, December 31, 2021$(988)$121,075 $(34,788)$16,688 $101,987 
Change in OCI before reclassifications(417)(310,270)47,735 174,829 (88,123)
Amounts reclassified from AOCI0 150 0 0 150 
Income tax benefit (expense)97 65,116 (10,025)(36,713)18,475 
Balance, June 30, 2022$(1,308)$(123,929)$2,922 $154,804 $32,489 
(1)Includes cash flow hedges of $12 million and $14 million as of June 30, 2023 and December 31, 2022, respectively, and $15 million and $5 million as of June 30, 2022 and December 31, 2021, respectively.

Reclassifications out of Accumulated Other Comprehensive Income (Loss)
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
 (in thousands)
Amounts reclassified from AOCI(1)(2):
Net unrealized investment gains (losses):
Cash flow hedges - Currency/Interest rate(3)$357 $1,415 $744 $2,085 
Net unrealized investment gains (losses) on available-for-sale securities(34)(275)(60)(2,235)
Total net unrealized investment gains (losses)(4)323 1,140 684 (150)
Total reclassifications for the period$323 $1,140 $684 $(150)
(1)All amounts are shown before tax.
(2)Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.
(3)See Note 4 for additional information on cash flow hedges.
(4)See table below for additional information on unrealized investment gains (losses), including the impact on DAC and other costs, future policy benefits, policyholders’ account balances and other liabilities.


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Notes to Unaudited Interim Financial Statements—(Continued)
Net Unrealized Investment Gains (Losses)

Net unrealized investment gains (losses) on available-for-sale fixed maturity securities and certain other invested assets and other assets are included in the Company’s Unaudited Interim Statements of Financial Position as a component of AOCI. Changes in these amounts include reclassification adjustments to exclude from OCI those items that are included as part of “Net income (loss)” for a period that had been part of OCI in earlier periods. There are no amounts related to net unrealized investment gains (losses) on available-for-sale fixed maturity securities on which an allowance for credit losses has been recognized as of June 30, 2023. The amounts for the periods indicated below represent all other net unrealized investment gains (losses), are as follows:

Net Unrealized Gains (Losses) on All Other 
Investments(1)		Other Costs(2)Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(3)
Income Tax
Benefit (Expense)		Accumulated Other Comprehensive
Income (Loss) Related To Net Unrealized Investment Gains (Losses)
 (in thousands)
Balance, December 31, 2022$(256,584)$(83,712)$117,070 $46,840 $(176,386)
Net investment gains (losses) on investments arising during the period12,569 0 0 (2,595)9,974 
Reclassification adjustment for (gains) losses included in net income(684)0 0 141 (543)
Impact of net unrealized investment (gains) losses
0 14,702 (13,026)(352)1,324 
Balance, June 30, 2023$(244,699)$(69,010)$104,044 $44,034 $(165,631)
(1)Includes cash flow hedges. See Note 4 for information on cash flow hedges.
(2)"Other costs" primarily includes reinsurance recoverables.
(3)"Other liabilities" primarily includes reinsurance payables.

14.    RELATED PARTY TRANSACTIONS

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

Expense Charges and Allocations

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

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business production processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses include allocations of stock compensation expenses related to a stock-based awards program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock-based awards program was $0.0 million for both the three months ended June 30, 2023 and 2022, and $0.0 million for both the six months ended June 30, 2023 and 2022. The expense charged to the Company for the deferred compensation program was $0.0 million for both the three months ended June 30, 2023 and 2022, and $0.3 million for both the six months ended June 30, 2023 and 2022.


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Notes to Unaudited Interim Financial Statements—(Continued)
The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was $0.2 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $0.5 million and $0.7 million for the six months ended June 30, 2023 and 2022, respectively.

The Company is also charged for its share of the costs associated with welfare plans issued by Prudential Insurance. These expenses include costs related to medical, dental, life insurance and disability. The Company's share of net expense for the welfare plans was $0.3 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $0.7 million for both the six months ended June 30, 2023 and 2022.

Prudential Insurance sponsors voluntary savings plans for its employee 401(k) plans. The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company’s expense for its share of the voluntary savings plan was $0.1 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively, and $0.3 million for both the six months ended June 30, 2023 and 2022.

The Company is charged distribution expenses from Prudential's proprietary nationwide sales organization, "Prudential Advisors" through a transfer pricing agreement, which is intended to reflect a market-based pricing arrangement. Prudential Advisors distributes Prudential life insurance, annuities, and investment products with proprietary and non-proprietary product options.

The Company pays commissions and certain other fees to Prudential Annuities Distributors, Inc. (“PAD”) in consideration for PAD’s marketing and underwriting of the Company’s annuity products. Commissions and fees are paid by PAD to broker-dealers who sell the Company’s annuity products. Commissions and fees paid by the Company to PAD were $12 million and $6 million for the three months ended June 30, 2023 and 2022, respectively, and $20 million and $17 million for the six months ended June 30, 2023 and 2022, respectively.

The Company is charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Company’s share of corporate expenses was $4 million and $2 million for the three months ended June 30, 2023 and 2022, respectively, and $8 million and $4 million for the six months ended June 30, 2023 and 2022, respectively.

Corporate-Owned Life Insurance

The Company has sold three Corporate-Owned Life Insurance ("COLI") policies to Prudential Insurance and one to Prudential Financial. The cash surrender value included in separate accounts for these COLI policies was $2,281 million at June 30, 2023 and $2,946 million at December 31, 2022. Fees related to these COLI policies were $6 million and $7 million for the three months ended June 30, 2023 and 2022, respectively, and $12 million and $14 million for the six months ended June 30, 2023 and 2022, respectively. The Company retains 10% of the mortality risk associated with these COLI policies up to $0.1 million per individual policy.

In May 2023, the Company funded a policy loan from the Prudential Financial COLI policy noted above in an amount of $900 million to an affiliated irrevocable trust, commonly referred to as a “rabbi trust”, which Prudential Financial created to support certain non-qualified retirement plans. The outstanding balance of the policy loan with the rabbi trust was $898 million as of June 30, 2023. Interest income related to the policy loan was $5 million for both the three and six months ended June 30, 2023.

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Notes to Unaudited Interim Financial Statements—(Continued)
Affiliated Investment Management Expenses

In accordance with an agreement with PGIM, Inc. (“PGIM”), the Company pays investment management expenses to PGIM who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PGIM related to this agreement were $0.6 million for both the three months ended June 30, 2023 and 2022, and $1.2 million and $1.3 million for the six months ended June 30, 2023 and 2022, respectively. These expenses are recorded as “Net investment income” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Derivative Trades

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

Joint Ventures

The Company has made investments in joint ventures with certain subsidiaries of Prudential Financial. "Other invested assets" includes $54 million and $51 million of investments in joint ventures as of June 30, 2023 and December 31, 2022, respectively. "Net investment income" related to these ventures includes gains(losses) of $(0.4) million and $0.7 million for the three months ended June 30, 2023 and 2022, respectively, and $(0.4) million and $1.2 million for the six months ended June 30, 2023 and 2022, respectively.

Affiliated Asset Administration Fee Income

The Company has a revenue sharing agreement with AST Investment Services, Inc. ("ASTISI") and PGIM Investments LLC ("PGIM Investments") whereby the Company receives fee income based on policyholders' separate account balances invested in the Advanced Series Trust. Income received from ASTISI and PGIM Investments related to this agreement was $7 million and $8 million for the three months ended June 30, 2023 and 2022, respectively, and $14 million and $16 million for the six months ended June 30, 2023 and 2022, respectively. These revenues are recorded as “Asset administration fees” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

The Company has a revenue sharing agreement with PGIM Investments, whereby the Company receives fee income based on policyholders' separate account balances invested in The Prudential Series Fund. Income received from PGIM Investments related to this agreement was $2 million for both the three months ended June 30, 2023 and 2022, and $4 million for both the six months ended June 30, 2023 and 2022. These revenues are recorded as “Asset administration fees” in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Affiliated Notes Receivable

Affiliated notes receivable included in “Receivables from parent and affiliates” at June 30, 2023 and December 31, 2022 were as follows:
Maturity DateInterest RatesJune 30, 2023December 31, 2022
(in thousands)
U.S. dollar fixed rate notes 20270.00%-14.85 %$0 $688 
Total long-term notes receivable - affiliated(1)$0 $688 
(1)All long-term notes receivable may be called for prepayment prior to the respective maturity dates under specified circumstances. In 2023, the notes receivable as of December 31, 2022 were called prior to the maturity date within 2027.

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

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Accrued interest receivable related to these loans was $0.0 million for both June 30, 2023 and December 31, 2022. Revenues related to these loans were $0.0 million for both the three months ended June 30, 2023 and 2022, and $0.0 million for both the six months ended June 30, 2023 and 2022, and are included in “Other income (loss)”.

Affiliated Asset Transfers

The Company participates in affiliated asset trades with parent and sister companies. Book and market value differences for trades with a parent and sister are recognized within "Additional paid-in capital" (“APIC”) and "Realized investment gains (losses), net", respectively. The table below shows affiliated asset trades for the six months ended June 30, 2023 and for the year ended December 31, 2022.
AffiliateDateTransactionSecurity Type  Fair Value  Book Value  APIC, Net of Tax Increase/(Decrease)Realized
Investment
Gain (Loss)
 (in thousands)
Prudential InsuranceAugust 2022PurchaseFixed Maturities$21,389 $19,630 $(1,390)$0 
Prudential InsuranceJune 2023PurchaseFixed Maturities$14,452 $15,086 $501 $0 

Debt Agreements

The Company is authorized to borrow funds up to $200 million from affiliates to meet its capital and other funding needs. There was $0.0 million and no debt outstanding as of June 30, 2023 and December 31, 2022, respectively.

The total interest expense to the Company related to loans payable to affiliates was $0.1 million and $0.0 million for the three months ended June 30, 2023 and 2022, respectively and $0.1 million and $0.0 million for the six months ended June 30, 2023 and 2022, respectively.

Contributed Capital and Dividends

In February 2023, the Company received a capital contribution in the amount of $175 million from Pruco Life. In February, March, September and December 2022, the Company received capital contributions in the amount of $100 million, $2 million, $100 million and $125 million from Pruco Life, respectively.

Through June 2023 and December 2022, the Company did not pay any dividends to Pruco Life.

Reinsurance with Affiliates

As discussed in Note 11, the Company participates in reinsurance transactions with certain affiliates.


15.    COMMITMENTS AND CONTINGENT LIABILITIES

Commitments

The Company has made commitments to fund commercial mortgage loans. As of June 30, 2023 and December 31, 2022, the outstanding balances on these commitments were $2 million and $15 million, respectively. These amounts do not include unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was no allowance for credit losses as of either June 30, 2023 or December 31, 2022. For the three and six months ended June 30, 2023 and 2022, there was no change in allowance for credit losses. The Company also made commitments to purchase or fund investments, mostly private fixed maturities. As of June 30, 2023 and December 31, 2022, $82 million and $62 million, respectively, of these commitments were outstanding. These amounts include unfunded commitments that are not unconditionally cancellable. There were no related charges for credit losses for either the three or six months ended June 30, 2023 or 2022.



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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Contingent Liabilities

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

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

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

Litigation and Regulatory Matters

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

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but the matter, if material, is disclosed. The Company estimates that as of June 30, 2023, the aggregate range of reasonably possible losses in excess of accruals established for those litigation and regulatory matters for which such an estimate currently can be made is less than $10 million. This estimate is not an indication of expected loss, if any, or the Company's maximum possible loss exposure on such matters. The Company reviews relevant information with respect to its litigation and regulatory matters on a quarterly and annual basis and updates its accruals, disclosures and estimates of reasonably possible loss based on such reviews.

The following discussion of litigation and regulatory matters provides an update of those matters discussed in Note 16 to the Company's Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023, and should be read in conjunction with the complete descriptions provided therein.

There are no material developments in previously reported matters disclosed as of December 31, 2022.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)
Summary

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of Pruco Life Insurance Company of New Jersey, or the “Company,” as of June 30, 2023, compared with December 31, 2022, and its results of operations for the three and six months ended June 30, 2023 and 2022. You should read the following analysis of our financial condition and results of operations in conjunction with the MD&A, the "Risk Factors" section, and the audited Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and the MD&A and the restated audited Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023, as well as the statements under “Forward-Looking Statements” and the Unaudited Interim Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

The Company is licensed to sell variable annuities, universal life insurance, variable life insurance and term life insurance in New Jersey and New York. The Company only sells such products in New York primarily through affiliated and unaffiliated distributors. As of December 31, 2020, the Company discontinued the sales of traditional variable annuities with guaranteed living benefit riders.

In July 2023, the Company entered into an agreement with Somerset Reinsurance Ltd. (“Somerset Re”) to coinsure a closed block of guaranteed universal life policies to the Prudential Universal Reinsurance Entity Company (“PURE”), a newly formed wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential Insurance”), with retrocession by PURE of such liabilities, on a modified coinsurance basis, to Somerset Re. The deal is expected to close by the end of 2023, subject to receipt of regulatory approvals and the satisfaction of customary closing conditions. We will continue to manage financing related to Guideline AXXX reserves for the business reinsured to Somerset Re; as a result, we anticipate changes to our current captive financing arrangements upon closing of the reinsurance transaction, including an increase in the amount of financing related to Guideline AXXX reserves. See “—Liquidity and Capital Resources—Liquidity—Term and Universal Life Reserve Financing” below for discussion of our current captive financing arrangements.

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

•investment-related activity, including: investment income returns, net interest margins, net investment spread results, new money rates, mortgage loan prepayments and bond redemptions;
•the valuation of fixed income investments and derivative instruments;
•collateral posting requirements, hedging costs and other risk mitigation activities;
•customer account values, including their impact on fee income;
•insurance reserve levels, including market risk benefits ("MRB"), and market experience true-ups;
•policyholder behavior, including surrender or withdrawal activity; and
•product offerings, design features, crediting rates and sales mix.

For additional information regarding interest rate risks, see “Risk Factors—Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Revenues and Expenses

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

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Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

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 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 some long-duration contracts, we utilize a net premium valuation methodology in measuring the liability for future policy benefits. Under this methodology, the Company accrues a liability for future policy benefits when premium revenue is recognized. The liability represents the present value of expected future benefits to be paid to or on behalf of policyholders and related non-level claim settlement expenses less the present value of expected future net premiums (portion of the gross premium required to provide for all benefits and related non-level claim settlement expenses using current best estimate assumptions). A net-to-gross (“NTG”) ratio is calculated as the ratio of the present value of expected policy benefits and non-level claim settlement expenses divided by the present value of expected gross premiums. The NTG ratio is applied to gross premiums, as premium revenue is recognized, to determine net premiums that are subtracted from the present value of expected benefits and non-level claim settlement expenses to determine the liability for future policy benefits, which cannot be less than zero. The NTG ratio at the cohort measurement unit level cannot exceed 100%, and if it exceeds 100%, the excess benefit expenses are recorded as a charge to current period earnings. 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 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. The insurance cash flow projections are updated quarterly to reflect actual experience and are generally updated annually to reflect changes in best estimate future insurance assumptions using a retrospective unlocking method with the impact recorded through current period earnings. At the time of an experience or best estimate assumption unlocking, a revised NTG ratio is calculated using actual historical cash flow experience and updated, if any, best estimate future cash flow projections, discounted using the locked-in discount rate. The revised NTG ratio is then applied to prior period cash flows to derive a cumulative catch-up adjustment as of the beginning of the quarter. The revised NTG ratio is then used going forward to accrue the reserve, until the next unlocking. The liability is also remeasured each quarter using a current discount rate, based on an upper medium grade fixed-income instrument yield, with the impact recorded through accumulated other comprehensive income. Expense assumptions included in the liability only include claim related expenses and exclude acquisition costs and non-claim related costs such as costs relating to investments, general administration, policy maintenance, product development, market research, and general overhead. For limited-payment contracts, a deferred profit liability (“DPL”) is established for the amount of gross premiums received in excess of expected net premiums and is amortized into premium income in relation to the discounted amount of insurance in force for life insurance or expected benefit payments for annuity contracts. The DPL is subject to a retrospective unlocking adjustment consistent with the liability for future policy benefits.

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•For certain contract features, such as no-lapse guarantees, a liability is established when associated assessments (which include investment margin on policyholders' account balances in the general account and policy charges for administration, mortality, expense, surrender, and other charges) 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 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. The reserves are subject to adjustments based on annual reviews of assumptions and quarterly adjustments for experience as described below, 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.

•For universal life type contracts and participating contracts, the Company performs premium deficiency tests using best estimate assumptions, at a minimum, on an annual basis, and on a quarterly basis for business whose profitability is closely tied to equity market performance. If the current net reserves are less than the best estimate liability, the existing net reserves are adjusted by first reducing the associated deferred sales inducements (“DSI”) by the amount of the deficiency or to zero through a charge to current period earnings. If the deficiency is more than the DSI for insurance contracts, the net reserves are increased by the excess through a charge to current period earnings. Since investment yields are used as the discount rate, the premium deficiency test is also performed using a discount rate based on the market yield (i.e., assuming what would be the impact if any unrealized gains (losses) were realized as of the testing date). In the event that by using the market yield a deficiency occurs, an adjustment is established for the deficiency and is included in "Accumulated other comprehensive income (loss)" ("AOCI").

Annual assumptions review and quarterly adjustments

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 in our own experience or in industry experience made available to us 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.

We perform an annual comprehensive review of the assumptions used for estimating future premiums, benefits, and other cash flows, including reviews related to mortality, morbidity, lapse, surrender, other contractholder behavior assumptions, economic assumptions, and expected future rates of returns on investments. The Company generally looks to relevant Company experience as the primary basis for these assumptions. If relevant Company experience is not available or does not have sufficient credibility, the Company may look to experience of similar blocks of business, either elsewhere within the Company or within the industry. As part of this review, we may update these assumptions and make refinements to our models based upon emerging experience, future expectations and other data, including any observable market data we feel is indicative of a long-term trend. 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 market performance referred to above reflect the impact of changes to our estimate of future rates of returns on investments to reflect actual fund performance and market conditions. A portion of returns on investments for 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 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 life contracts and decrease expected claims to be paid on variable life contracts. The opposite occurs when returns are lower than our expectations.

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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 liabilities for future policy benefits for certain of our products, primarily our domestic variable life insurance products, is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice. Under this approach, we consider historical equity returns and adjust projected equity returns over an initial future period of five years (the “near-term”) so that equity returns converge to the long-term expected rate of return. If the near-term projected future rate of return is greater than our near-term maximum future rate of return of 15.0%, we use our maximum future rate of return. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of June 30, 2023, our variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a 4.6% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating liabilities for future policy benefits for certain of our products, we generally update the long-term and near-term future rates used to project fixed income returns annually and quarterly, respectively. As a result of our 2023 annual reviews and update of assumptions and other refinements, we kept our long-term expectation of the U.S. Treasury rate unchanged and continue to grade to a rate of 3.25% over ten years. As part of our quarterly market experience updates, we update our near-term projections of interest rates to reflect changes in current rates. For additional information regarding discount rates used to establish the liability for future policy benefits, see Note 2 to the Unaudited Interim Financial Statements.

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. The liability also includes provisions for benefits under non-life contingent payout annuities. 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. The changes in the fair value of the embedded derivatives, including changes in non-performance risk (“NPR”) are recorded in net income. For additional information regarding the valuation of these embedded derivatives, see Note 5 to the Financial Statements included in the Company’s restated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

Market Risk Benefits

Market risk benefit liabilities (or assets) represent contracts or contract features that provide protection to the contractholder and exposes the Company to other than nominal capital market risk. MRBs are primarily related to deferred annuities with guaranteed minimum benefits including guaranteed minimum death benefits (“GMDB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefit (“GMWB”) and guaranteed minimum income and withdrawal benefits ("GMIWB”). The liability (or asset) for MRBs is estimated using a fair value measurement methodology. The fair value of these MRBs is based on assumptions a market participant would use in valuing market risk benefits. On a quarterly basis, the fair value of these MRBs is calculated as the present value of expected future benefit payments to contractholders less the present value of expected future rider fees attributable to the market risk benefits. The changes in the fair value of market risk benefits are recorded in net income, net of related hedges, in "Change in value of market risk benefits, net of related hedging gains (losses)", except for the portion of the change attributable to changes in the Company’s own NPR which is recorded in other comprehensive income ("OCI") for the direct and assumed businesses. However, the change in NPR for the ceded MRB will go through net income. The Company estimates that a hypothetical change to its own credit risk of plus 50 and minus 50 basis points would result in a decrease and an increase to net income of $95 million and $105 million, respectively. For additional information regarding the valuation of these MRB features, see Note 10 to the Unaudited Interim Financial Statements.


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Sensitivities for Insurance Assets and Liabilities

The following table summarizes the impact that could result on each of the listed financial statement balances from changes in certain key assumptions. The information below is for illustrative purposes and includes only the hypothetical direct impact on December 31, 2022, 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; however, these may be non-parallel in practice. 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. Changes to the insurance cash flow assumptions are reflected in net income through the retrospective unlocking method for traditional long duration, limited-payment and universal life type products.

The impacts presented within this table exclude 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 “Item 3. Quantitative and Qualitative Disclosures about Market Risk” for hypothetical impacts on related balances as a result of changes in certain significant assumptions.


June 30, 2023
Increase (Decrease) in Net Income due to changes in Future Policy Benefits, Market Risk Benefits(1), and Policyholders' Account Balances, Net of Reinsurance
(in millions)
Hypothetical change in current assumptions:
Long-term interest rate:
          Increase by 25 basis points$0 
          Decrease by 25 basis points$0 
Long-term equity expected rate of return:
          Increase by 50 basis points$0 
          Decrease by 50 basis points$0 
Mortality:
          Increase by 1%$5 
          Decrease by 1%$(5)
Lapse(2)(3):
          Increase by 10%$15 
          Decrease by 10%$(15)
(1)MRB impact reflects the net impact of MRB assets and liabilities prior to hedging.
(2)The lapse sensitivity shocks applied for the post-level premium period for term products are capped at the level where the rates would equal 100% under an increase lapse scenario. The same capped shock levels are also applied for the decrease lapse scenario.
(3)Assumes the same shock across all products; however, we would not expect lapse rates of different products to move uniformly.


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Other Accounting Policies

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

•Valuation of investments including derivatives, measurement of allowance for credit losses, and recognition of other-than-temporary impairments (“OTTI”);
•Reinsurance recoverables;
•Taxes on income; and
•Reserves for contingencies, including reserves for losses in connection with unresolved legal matters

For further discussion of impacts that could result from changes in these key estimates and assumptions, see our restated “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies and Pronouncements—Application of Critical Accounting Estimates” for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

Adoption of New Accounting Pronouncements

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

As of the January 1, 2021 transition date, the adoption of the standard resulted in a decrease to “Total equity” of $67 million, primarily from remeasuring in force contract liabilities using upper-medium grade fixed income instrument yields as of the transition date and from other changes in reserves. As of the January 1, 2023 adoption date, the impact amounted to a decrease to "Total equity" of $2 million. The changes in the impacts from January 1, 2021 to January 1, 2023 primarily reflect the increase in market interest rates during 2021 and 2022. See Note 2 to the Unaudited Interim 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.

Changes in Financial Position

Total assets increased $1.2 billion from $20.6 billion at December 31, 2022 to $21.8 billion at June 30, 2023. Significant components were:
•Total investments increased $1.4 billion primarily driven by an increase in policy loans from variable life contracts and an increase in fixed maturity investment from the reinvestment of cash and cash equivalents; and
•Separate account assets decreased $0.1 billion primarily driven by separate account transfers to fund variable life contract policy loans, mostly offset by favorable equity market performance.
Total liabilities increased $1.0 billion from $19.6 billion at December 31, 2022 to $20.6 billion at June 30, 2023
•Policyholders' account balances increased $1 billion primarily driven by separate account transfers to fund variable life contract policy loans; and
•Separate account liabilities decreased $0.1 billion corresponding to the decrease in separate account assets, as mentioned above.
Total equity increased $0.2 billion from $1.0 billion at December 31, 2022 to $1.2 billion at June 30, 2023 primarily driven by a $175 million capital contribution to fund statutory reserve requirements.

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Results of Operations

Income (loss) from Operations before Income Taxes

Three Months Comparison

Income (loss) from operations before income taxes increased $119 million from a loss of $78 million for the three months ended June 30, 2022 to income of $41 million for the three months ended June 30, 2023. The impact from our annual reviews and update of assumptions and other refinements was a net gain of $11 million. Excluding the comparative impact of our annual reviews and update of assumptions and other refinements, income (loss) from operations increased $108 million primarily driven by:
•Higher Change in value of market risk benefits, net of related hedging gain (loss) from ceded NPR.
Six Months Comparison

Income (loss) from operations before income taxes increased $173 million from a loss of $144 million for the six months ended June 30, 2022 to income of $29 million for the six months ended June 30, 2023. Excluding the comparative impact of our annual reviews and update of assumptions and other refinements, as mentioned above, income (loss) from operations increased $162 million primarily driven by:
•Higher Change in value of market risk benefits, net of related hedging gain (loss) from ceded NPR.
Revenues, Benefits and Expenses

Three Months Comparison
Revenues increased $125 million from a loss of $33 million for the three months ended June 30, 2022 to a gain of $92 million for the three months ended June 30, 2023. This includes an unfavorable comparative increase of $4 million from our annual reviews and update of assumptions and other refinements. Excluding the comparative impact of our annual reviews and update of assumptions and other refinements, revenues increased $129 million primarily driven by:
•Higher Change in value of market risk benefits, net of related hedging gains (loss) from ceded NPR.
Benefits and expenses increased $5 million from $45 million for the three months ended June 30, 2022 to $50 million for the three months ended June 30, 2023. This includes a favorable comparative increase of $15 million from our annual reviews and update of assumptions and other refinements. Excluding the comparative impact of our annual reviews and update of assumptions and other refinements, benefits and expenses increased $20 million primarily driven by:
•Higher Policyholders' benefits due to business growth in traditional life product reserves, net of reinsurance; and
•Higher General and administrative expenses driven by recent product launches.

Six Months Comparison
Revenues increased $184 million from a loss of $60 million for the six months ended June 30, 2022 to a gain of $124 million for the six months ended June 30, 2023. Excluding the comparative impact of our annual reviews and update of assumptions and other refinements, as mentioned above, revenues increased $188 million primarily driven by:
•Higher Change in value of market risk benefits, net of related hedging gains (loss) from ceded NPR.
Benefits and expenses increased $9 million from $85 million for the six months ended June 30, 2022 to $94 million for the six months ended June 30, 2023. Excluding the comparative impact of our annual reviews and update of assumptions and other refinements, as mentioned above, benefits and expenses increased $24 million primarily driven by:
•Higher Policyholders' benefits due to business growth in traditional life product reserves, net of reinsurance; and
•Higher General and administrative expenses driven by recent product launches.
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Risks and Risk Mitigants:
Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of these indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term. We manage this risk primarily through our investment strategies including derivatives and product design features, which include credit rate resetting subject to contractual minimums as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, our indexed variable annuity strategies have an interim value provision that provides protection from lapse in the case of rising interest rates.
Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. Prudential Financial manages our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of i) Product Design Features, and ii) our Asset Liability Management Strategy ("ALM"), as discussed below. Sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020.
Product Design Features:
A portion of the variable annuity contracts that we offer include an asset transfer feature. This feature is implemented at the contract level, and transfers assets between certain variable investment sub-accounts selected by the annuity contractholder and, depending on the benefit feature, a fixed-rate account in the general account or a bond fund sub-account within the separate account. The objective of the asset transfer feature is to reduce our exposure to equity market risk and market volatility. The asset transfer feature associated with highest daily living benefit products uses a designated bond fund sub-account within the separate account. The transfers are based on a static mathematical formula used with the particular benefit which considers a number of factors, including, but not limited to, the impact of investment performance on the contractholder’s total account value. Other product design features we utilize include, among others, asset allocation restrictions, minimum issuance age requirements and certain limitations on the amount of 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.
Asset Liability Management 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 annuity guarantees. The MRB liability that we hedge consists of expected living and death benefit claims under various market conditions, which are managed using fixed income instruments, derivatives, or a combination thereof. For our Prudential Defined Income (“PDI”) variable annuity, we utilize fixed income instruments to meet expected liabilities. For the portion of our ALM strategy executed with derivatives, we enter into a range of exchange-traded and over-the-counter (“OTC”) equity, interest rate and credit derivatives, including, but not limited to: equity and treasury futures; total return, credit default and interest rate swaps; and options including equity options, swaptions, and floors and caps. The intent of this strategy is to more efficiently manage the capital and liquidity associated with these products while continuing to mitigate fluctuations in net income due to movements in capital markets. To achieve this, we periodically review and recalibrate the ALM strategy by optimizing the mix of derivatives and fixed income instruments to achieve expected outcomes.
Income Taxes

For information regarding income taxes, see Note 12 to the Unaudited Interim Financial Statements.

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 business, fund business growth, and provide a cushion to withstand adverse circumstances. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our business, general economic conditions, our ability to borrow from affiliates and our access to the capital markets through affiliates as described herein.
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Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon. We use a Risk Appetite Framework ("RAF") to ensure that all risks taken by the Company 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 the Company.
Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital and liquidity management. For information on these regulatory initiatives and their potential impact on us, see “Business—Regulation" and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Capital
We manage the Company to regulatory capital levels consistent with our "AA" ratings targets. We utilize the risk-based capital (“RBC”) ratio as a primary measure of capital adequacy. RBC is calculated based on statutory financial statements and risk formulas consistent with the practices of the National Association of Insurance Commissioners ("NAIC"). RBC considers, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. RBC ratio 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 Company’s capital levels substantially exceed the minimum level required by applicable insurance regulations. Our regulatory capital levels may be affected in the future by changes to the applicable regulations, proposals for which are currently under consideration by both domestic and international insurance regulators.
The regulatory capital level of the Company can be materially impacted by interest rate and equity market fluctuations, changes in the values of derivatives, the level of impairments recorded, and credit quality migration of the investment portfolio, among other items. In addition, the reinsurance of business or the recapture of business subject to reinsurance arrangements due to defaults by, or credit quality migration affecting, the reinsurers or for other reasons could negatively impact regulatory capital levels. The Company’s regulatory capital level is also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator.
Captive Reinsurance Companies:
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Capital-Affiliated Captive Reinsurance Companies” included in our Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of our use of captive reinsurance companies.
Liquidity
Our liquidity is managed to ensure stable, reliable and cost-effective sources of cash flows to meet all of our obligations. Liquidity is provided by a variety of sources, as described more fully below, including portfolios of liquid assets. Our investment portfolios are integral to the overall liquidity of the Company. We use a projection process for cash flows from operations to ensure sufficient liquidity to meet projected cash outflows, including claims. The impact of Prudential Funding, LLC’s, a wholly-owned subsidiary of Prudential Insurance, financing capacity on liquidity is considered in the internal liquidity measures of the Company.
Liquidity is measured against internally-developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. We consider attributes of the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our liquidity under various stress scenarios, including company-specific and market-wide events. We continue to believe that cash generated by ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios.
The principal sources of the Company’s liquidity are premiums and certain annuity considerations, investment and fee income, investment maturities, sales of investments and internal borrowings. The principal uses of that liquidity include benefits, claims, and payments to policyholders and contractholders in connection with surrenders, withdrawals and net policy loan activity. Other uses of liquidity include commissions, general and administrative expenses, purchases of investments, the payment of dividends and returns of capital to the parent company, hedging and reinsurance activity and payments in connection with financing activities.
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In managing liquidity, 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.
Liquid Assets
Liquid assets include cash and cash equivalents, short-term investments, U.S. Treasury fixed maturities, and fixed maturities that are not designated as held-to-maturity and public equity securities. As of June 30, 2023 and December 31, 2022, the Company had liquid assets of $2,283 million and $2,010 million, respectively. The portion of liquid assets comprised of cash and cash equivalents and short-term investments was $87 million and $263 million as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, $2,067 million, or 95%, of the fixed maturity investments in the Company's general account portfolios, were rated high or highest quality based on NAIC or equivalent rating.
Prudential Funding, LLC
Prudential Financial and Prudential Funding borrow funds in the capital markets primarily through the direct issuance of commercial paper. The borrowings serve as an additional source of financing to meet our working capital needs. Prudential Funding operates under a support agreement with Prudential Insurance whereby Prudential Insurance has agreed to maintain Prudential Funding’s positive tangible net worth at all times.
Term and Universal Life Reserve Financing
The Company uses captive reinsurance subsidiaries to finance the portion of the statutory reserves required to be held under Regulation XXX and Guideline AXXX that is considered to be non-economic. The financing arrangements involve the reinsurance of term and universal life business to our affiliated captive reinsurers and the issuance of surplus notes by those affiliated captives that are treated as capital for statutory purposes. These surplus notes are subordinated to policyholder obligations, and the payment of principal and interest on the surplus notes can only be made with prior insurance regulatory approval.

As of both June 30, 2023, and December 31, 2022, the affiliated captive reinsurance companies have entered into agreements with external counterparties providing for the issuance of up to an aggregate of $16,050 million of surplus notes by our affiliated captive reinsurers in return for the receipt of credit-linked notes (“Credit-Linked Note Structures”), of which $14,070 million of surplus notes was outstanding. Under the agreements, the affiliated captive receives in exchange for the surplus notes one or more credit-linked notes issued by a special-purpose affiliate of the Company with an aggregate principal amount equal to the surplus notes outstanding. The affiliated captive holds the credit-linked notes as assets supporting Regulation XXX or Guideline AXXX non-economic reserves, as applicable.

As of June 30, 2023, our affiliated captive reinsurance companies had outstanding an aggregate of $2,800 million of debt issued for the purpose of financing Regulation XXX and Guideline AXXX non-economic reserves, of which approximately $700 million relates to Regulation XXX reserves and approximately $2,100 million relates to Guideline AXXX reserves. In addition, as of June 30, 2023, for purposes of financing Guideline AXXX reserves, one of our affiliated captives had approximately $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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, our products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and our strategies for managing this risk, vary by product. As of June 30, 2023, there have been no material changes in our exposure to market risk from December 31, 2022, a description of which may be found in our restated Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” for the year ended December 31, 2022, included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023. See Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.
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Item 4. Controls and Procedures
In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Securities Exchange Act of 1934, as amended (“Exchange Act”) Rule 15d-15(e), as of June 30, 2023. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2023, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rule 15d-15(f), occurred during the quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Note 15 to the Unaudited Interim Financial Statements under “—Litigation and Regulatory Matters” for a description of certain pending litigation and regulatory matters affecting us, and certain risks to our business presented by such matters, which is incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. These risks could materially affect our business, results of operations or financial condition or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q.

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Item 6. Exhibits
EXHIBIT INDEX
101.INS - XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH - XBRL Taxonomy Extension Schema Document.
101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB - XBRL Taxonomy Extension Label Linkbase Document
101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF - XBRL Taxonomy Extension Definition Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pruco Life Insurance Company of New Jersey
By:/s/ Robert E. Boyle
Name:Robert E. Boyle
Vice President and Chief Financial Officer
(Authorized Signatory and Principal Financial Officer)
Date: August 10, 2023

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