PRUDENTIAL FINANCIAL INC

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:

(1)Excludes notes with amortized cost of $12,370 million (fair value, $12,370 million) which have been offset with the associated debt under a netting agreement.

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

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

(4)In the third quarter of 2023, the Company changed its intent to hold a portion of its held-to-maturity portfolio, which was redeemed as part of a recently announced reinsurance transaction. As a result, the entire held-to-maturity portfolio was reclassified to available-for-sale and recorded at fair value.

(1)Excludes notes with amortized cost of $8,040 million (fair value, $8,040 million) which have been offset with the associated debt under a netting agreement.

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

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

(4)Excludes notes with amortized cost of $4,250 million (fair value, $4,250 million) which have been offset with the associated debt under a netting agreement.

In the third quarter of 2023, the Company changed its intent to hold a portion of its held-to-maturity portfolio, which will be redeemed as part of a recently announced reinsurance transaction. As a result, the entire held-to-maturity portfolio (amortized cost, net of allowance of $1,125 million) was reclassified to fixed maturities, available-for-sale and recorded at fair value, while the $126 million net unrealized gain on the portfolio was recorded in “Accumulated other comprehensive income” as of September 30, 2023.

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:

As of December 31, 2023 and 2022, the gross unrealized losses on fixed maturity, available-for-sale securities without an allowance were composed of $26,879 million and $33,778 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 $991 million and $2,166 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2023, the $26,855 million of gross unrealized losses of twelve months or more were concentrated in the finance, consumer non-cyclical and utility sectors within corporate securities and foreign government securities. As of December 31, 2022, the $15,668 million of gross unrealized losses of twelve months or more were concentrated in the consumer non-cyclical, finance and utility sectors within corporate securities and foreign government securities.

In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at December 31, 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 and foreign currency exchange rate movements. As of December 31, 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:

(1)Excludes notes with amortized cost of $12,370 million (fair value, $12,370 million) which have been offset with the associated debt under a netting agreement.

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

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

(1)Excludes activity from non-cash related proceeds due to the timing of trade settlements of $(74) million, $(144) million and $450 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(2)Amounts represent securities actively marketed for sale and write-downs on credit adverse securities.

(3)Excludes activity from non-cash related proceeds due to the timing of trade settlements of $1 million, less than $1 million and less than $(1) million for the years ended December 31, 2023, 2022 and 2021, respectively.

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

(1)In the third quarter of 2023, the Company changed its intent to hold a portion of its held-to-maturity portfolio, which was redeemed as part of a recently announced reinsurance transaction. As a result, the entire held-to-maturity portfolio was reclassified to available-for-sale and recorded at fair value.

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

For the year ended December 31, 2023, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to net additions in the communication sector within corporate securities, as well as foreign government securities due to adverse projected cash flows, partially offset by a net release on restructured securities within the utility and capital goods sectors. For the year ended December 31, 2022, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to net additions in the capital goods, utility and consumer non-cyclical sectors within corporate securities due to adverse projected cash flows, partially offset by a net release on restructured securities within the communications and transportation sectors.

The Company didnot have any fixed maturity securities purchased with credit deterioration as of both December 31, 2023 and 2022.

Assets Supporting Experience-Rated Contractholder Liabilities

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

(1)As a percentage of amortized cost,99% and 98% of the portfolio was considered high or highest quality based on NAIC or equivalent ratings, as of December 31, 2023 and 2022, respectively.

(2)The portfolio consisted of all public securities as of both December 31, 2023 and 2022.

The net change in unrealized gains (losses) from assets supporting experience-rated contractholder liabilities still held at period end, recorded within “Other income (loss)” was $440 million, $(737) million and $(708) million during the years ended December 31, 2023, 2022 and 2021, respectively.

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 $518 million, $(1,427) million and $(169) million during the years ended December 31, 2023, 2022 and 2021, respectively.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss)” was $612 million, $(914) million and $591 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Concentrations of Financial Instruments

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

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

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

(1)Includes loans which are carried at fair value under the fair value option and are collateralized primarily by apartment complexes. As of December 31, 2023 and 2022, the net carrying value of these loans was $519 million and $137 million, respectively.

As of December 31, 2023, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States with the largest concentrations in California (30%), Texas (8%) and New York (6%) and included loans secured by properties in Europe (6%), Asia (1%), Mexico (1%) and Australia (1%).

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

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

For the year ended December 31, 2023, the net addition to the allowance for credit losses on commercial mortgage and other loans was primarily related to increases to the portfolio reserve to reflect declining market conditions and an increase in loan-specific reserves within the office sector. For the year ended December 31, 2022, the net addition to the allowance for credit losses on commercial mortgage and other loans was primarily due to declining market conditions.

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

See Note 2 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:

(1)As of December 31, 2023, there wereno loans in this category accruing interest.

(2)Primarily includes loans for which no credit losses are expected due to U.S. agency guarantees.

(3)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2.

(1)As of December 31, 2022, there wereno loans in this category accruing interest.

(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2.

Loans on non-accrual status recognized interest income of $3 million and $1 million for the years ended December 31, 2023 and 2022, respectively. Loans on non-accrual status that did not have a related allowance for credit losses were $126 million and $27 million as of December 31, 2023 and 2022, respectively.

The Company didnot have any significant losses on commercial mortgage and other loans purchased with credit deterioration as of both December 31, 2023 and 2022.

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

(1)As of December 31, 2023 and 2022, real estate held through direct ownership had mortgage debt of $158 million and $208 million, respectively.

(2)Primarily includes strategic investments made by investment management operations, equity investments accounted for under the measurement alternative, member activity stock held in the Federal Home Loan Bank of New York and leveraged leases. For additional information regarding the Company’s holdings in the Federal Home Loan Bank of New York, see Note 18.

In certain investment structures, the Company’s investment management business invests with other co-investors in an investment fund referred to as a feeder fund. In these structures, the invested capital of several feeder funds is pooled together and used to purchase ownership interests in another fund, referred to as a master fund. The master fund utilizes this invested capital and, in certain cases, other debt financing, to purchase various classes of assets on behalf of its investors. Specialized industry accounting for investment companies calls for the feeder fund to reflect its investment in the master fund as a single net asset equal to its proportionate share of the net assets of the master fund, regardless of its level of interest in the master fund. In cases where the Company consolidates the feeder fund, it retains the feeder fund’s net asset presentation and reports the consolidated feeder fund’s proportionate share of the net assets of the master fund in “Other invested assets,” with any unaffiliated investors’ noncontrolling interest in the feeder fund reported in “Redeemable noncontrolling interests” or “Noncontrolling interests.” The consolidated feeder funds’ investments in these master funds, reflected on this net asset basis, totaled $712 million and $639 million as of December 31, 2023 and 2022, respectively. There were $404 million and $371 million of unaffiliated interest in the consolidated feeder funds as of December 31, 2023 and 2022, respectively, and the master funds had gross assets of $37,046 million and $58,087 million, respectively, and gross liabilities of $35,344 million and $56,225 million, respectively, which are not included on the Company’s Consolidated Statements of Financial Position.

Equity Method Investments

The following tables set forth summarized combined financial information for significant LP/LLC interests accounted for under the equity method, including the Company’s investments in operating joint ventures that are described in more detail in Note 9. Changes between periods in the tables below reflect changes in the activities within the operating joint ventures and LPs/LLCs, as well as changes in the Company’s level of investment in such entities:

(1)Amount represents gross assets of each fund where the Company has a significant investment. These assets consist primarily of investments in real estate, investments in securities and other miscellaneous assets.

(2)Amount represents gross liabilities of each fund where the Company has a significant investment. These liabilities consist primarily of third party borrowed funds, securities repurchase agreements and other miscellaneous liabilities.

(1)Amount represents gross revenue of each fund where the Company has a significant investment. This revenue consists of income from investments in real estate, investments in securities and other income.

(2)Amount represents gross expenses of each fund where the Company has a significant investment. These expenses consist primarily of interest expense, investment management fees, salary expenses and other expenses.

Accrued Investment Income

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

Write-downs on accrued investment income were less than $1 million for both the years ended December 31, 2023 and 2022.

Net Investment Income

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

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

The carrying value of non-income producing assets included $114 million in fixed maturities available-for-sale, $25 million in fixed maturities trading, $12 million in commercial mortgage and other loans and less than $1 million in other invested assets as of December 31, 2023. Non-income producing assets represent investments that had not produced income for the twelve months preceding December 31, 2023.

Realized Investment Gains (Losses), Net

The following table sets forth “Realized investment gains (losses), net” by investment type, for the periods indicated:

(1)Excludes fixed maturity securities classified as trading.

Net Unrealized Gains (Losses) on Investments within AOCI

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

(1)Includes $126 million of net unrealized gains related to the September 30, 2023 transfer of held-to-maturity securities to available-for-sale securities.

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

(3)Includes net unrealized gains (losses) on certain joint ventures that are strategic in nature and are included in “Other assets.”

Repurchase Agreements and Securities Lending

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

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:

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

Securities Pledged

The Company pledges as collateral investment securities it owns to unaffiliated parties through certain transactions, including securities lending, securities sold under agreements to repurchase, collateralized borrowings and postings of collateral with derivative counterparties. The following table sets forth the carrying value of investments pledged to third parties, as of the dates indicated:

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

(2)These assets are reported on the Company's Consolidated Statement of Financial Position.

The following table sets forth the carrying amount of the associated liabilities supported by the pledged collateral, as of the dates indicated:

In the normal course of its business activities, the Company accepts collateral that can be sold or repledged. The primary sources of this collateral are securities in customer accounts, securities purchased under agreements to resell and postings of collateral from OTC derivative counterparties. The fair value of this collateral was $717 million as of December 31, 2023 (the largest components of which included $388 million of securities and $329 million of cash from OTC derivative counterparties) and $1,295 million as of December 31, 2022 (the largest components of which included $385 million of securities and $910 million of cash from OTC derivative counterparties). A portion of the aforementioned securities, for both periods, had either been sold or repledged.

Assets on Deposit, Held in Trust, and Restricted as to Sale

The following table provides assets on deposit, assets held in trust, and securities restricted as to sale, as of the dates indicated:

(1)Represents assets held in voluntary trusts established primarily to fund guaranteed dividends to certain policyholders and to fund certain employee benefits.

(2)Represents assets held in trust related to reinsurance agreements excluding reinsurance agreements between wholly-owned subsidiaries. Assets valued at $25.7 billion and $26.0 billion were held in trust related to reinsurance agreements between wholly-owned subsidiaries as of December 31, 2023 and 2022, respectively.

(3)Includes member and activity stock associated with memberships in the Federal Home Loan Bank of New York.