PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT	palac-2015930xex311.htm
EX-31.2 - EXHIBIT 31.2 - PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT	palac-2015930xex312.htm
EX-32.2 - EXHIBIT 32.2 - PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT	palac-2015930xex322.htm
EX-32.1 - EXHIBIT 32.1 - PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT	palac-2015930xex321.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________

(MARK ONE)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015



¨	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 033-44202

_____________________________________

Prudential Annuities Life Assurance

Corporation

(Exact Name of Registrant as Specified in its Charter)



Arizona		06-1241288
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

One Corporate Drive

Shelton, Connecticut 06484

(203) 926-1888

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

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨

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



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	ý	Smaller reporting company	¨

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

As of November 12, 2015, 25,000 shares of the registrant’s Common Stock (par value $100) consisting of 100 voting shares and 24,900 non-voting shares, were outstanding. As of such date, Prudential Annuities, Inc., an indirect wholly-owned subsidiary of Prudential Financial, Inc., a New Jersey corporation, owned all of the Registrant’s Common Stock.

Prudential Annuities Life Assurance Corporation 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.

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TABLE OF CONTENTS



			Page
PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Unaudited Interim Statements of Financial Position As of September 30, 2015 and December 31, 2014	4
		Unaudited Interim Statements of Operations and Comprehensive Income (Loss) For the Three and Nine Months Ended September 30, 2015 and 2014	5
		Unaudited Interim Statements of Equity For the Nine Months Ended September 30, 2015 and 2014	6
		Unaudited Interim Statements of Cash Flows For the Nine Months Ended September 30, 2015 and 2014	7
		Notes to Unaudited Interim Financial Statements	9
		1. Business and Basis of Presentation	9
		2. Significant Accounting Policies and Pronouncements	9
		3. Investments	10
		4. Fair Value of Assets and Liabilities	20
		5. Derivative Instruments	34
		6. Commitments, Contingent Liabilities and Litigation and Regulatory Matters	40
		7. Related Party Transactions	41
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
	Item 4.	Controls and Procedures	51
PART II	OTHER INFORMATION		52
	Item 1.	Legal Proceedings	52
	Item 1A.	Risk Factors	52
	Item 6.	Exhibits	53
SIGNATURES			54

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FORWARD LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Annuities Life Assurance Corporation. There can be no assurance that future developments affecting Prudential Annuities Life Assurance Corporation 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) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) the availability and cost of additional debt or equity capital or external financing for our operations; (3) interest rate fluctuations or prolonged periods of low interest rates; (4) the degree to which we choose not to hedge risks, or the potential ineffectiveness or insufficiency of hedging or risk management strategies we do implement; (5) any inability to access our credit facilities; (6) reestimates of our reserves for future policy benefits and claims; (7) differences between actual experience regarding mortality, morbidity, persistency, utilization, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (8) changes in our assumptions related to deferred policy acquisition costs or value of business acquired; (9) changes in our financial strength or credit ratings; (10) investment losses, defaults and counterparty non-performance; (11) competition in our product lines and for personnel; (12) changes in tax law; (13) regulatory or legislative changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; (14) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (15) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (16) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (17) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (18) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; and (19) changes in statutory or accounting principles generally accepted in the United States of America (“U.S. GAAP”), practices or policies. Prudential Annuities Life Assurance Corporation does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2014 for a discussion of certain risks relating to our business and investment in our securities.

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PART I - Financial Information

Item 1. Financial Statements

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Financial Position

As of September 30, 2015 and December 31, 2014 (in thousands, except share amounts)



	September 30, 2015		December 31, 2014
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost, 2015: $2,436,767; 2014: $2,609,253)	$	2,566,261	$	2,800,593
Trading account assets, at fair value	5,539		6,131
Equity securities, available-for-sale, at fair value (cost, 2015: $14; 2014: $14)	17		17
Commercial mortgage and other loans	404,084		422,563
Policy loans	12,718		13,355
Short-term investments	319,892		57,185
Other long-term investments	200,691		162,783
Total investments	3,509,202		3,462,627
Cash and cash equivalents	422		594
Deferred policy acquisition costs	807,804		1,114,431
Accrued investment income	26,929		25,008
Reinsurance recoverables	3,272,937		2,996,845
Value of business acquired	36,562		39,738
Deferred sales inducements	485,428		665,207
Receivables from parent and affiliates	64,722		60,490
Other assets	5,980		6,193
Separate account assets	39,132,492		44,101,699
TOTAL ASSETS	$	47,342,478	$	52,472,832
LIABILITIES AND EQUITY
LIABILITIES
Policyholders’ account balances	$	2,540,524	$	2,633,085
Future policy benefits and other policyholder liabilities	3,840,685		3,539,521
Payables to parent and affiliates	50,912		71,675
Cash collateral for loaned securities	9,970		5,285
Income taxes	306,801		299,084
Short-term debt	0		54,354
Other liabilities	85,223		105,972
Separate account liabilities	39,132,492		44,101,699
Total Liabilities	45,966,607		50,810,675
Commitments and Contingent Liabilities (See Note 6)
EQUITY
Common stock, ($100 par value; 25,000 shares authorized, issued and outstanding)	2,500		2,500
Additional paid-in capital	901,422		901,422
Retained earnings	409,399		673,613
Accumulated other comprehensive income	62,550		84,622
Total Equity	1,375,871		1,662,157
TOTAL LIABILITIES AND EQUITY	$	47,342,478	$	52,472,832

See Notes to Unaudited Interim Financial Statements

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Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Operations and Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2015 and 2014 (in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
REVENUES
Premiums	$	7,887		$	7,844		$	25,189		$	26,777
Policy charges and fee income	183,926			204,424			566,718			609,787
Net investment income	33,110			39,393			104,755			125,352
Asset administration fees and other income	38,192			57,268			146,951			172,414
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	0			0			(44		)	0
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income (loss)	0			0			24			0
Other realized investment gains (losses), net	5,687			(923		)	10,026			(5,289		)
Total realized investment gains (losses), net	5,687			(923		)	10,006			(5,289		)
Total revenues	268,802			308,006			853,619			929,041
BENEFITS AND EXPENSES
Policyholders’ benefits	37,953			42,818			61,599			99,734
Interest credited to policyholders’ account balances	110,894			26,546			218,792			128,873
Amortization of deferred policy acquisition costs	169,443			31,157			317,830			132,295
General, administrative and other expenses	70,291			96,683			244,997			295,568
Total benefits and expenses	388,581			197,204			843,218			656,470
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	(119,779		)	110,802			10,401			272,571
Income tax expense (benefit)	(14,953		)	14,765			4,615			41,605
NET INCOME (LOSS)	(104,826		)	96,037			5,786			230,966
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	1			(29		)	(39		)	(33		)
Net unrealized investment gains (losses):
Unrealized investment gains (losses) for the period	(6,027		)	(13,105		)	(29,267		)	23,390
Reclassification adjustment for (gains) losses included in net income	252			(3,899		)	(4,652		)	(4,776		)
Net unrealized investment gains (losses)	(5,775		)	(17,004		)	(33,919		)	18,614
Other comprehensive income (loss), before tax:	(5,774		)	(17,033		)	(33,958		)	18,581
Less: Income tax expense (benefit) related to other comprehensive income (loss)
Foreign currency translation adjustments	0			(10		)	(14		)	(12		)
Net unrealized investment gains (losses)	(2,063		)	(5,951		)	(11,872		)	6,516
Total	(2,063		)	(5,961		)	(11,886		)	6,504
Other comprehensive income (loss), net of taxes	(3,711		)	(11,072		)	(22,072		)	12,077
COMPREHENSIVE INCOME (LOSS)	$	(108,537	)	$	84,965		$	(16,286	)	$	243,043

See Notes to Unaudited Interim Financial Statements

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Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Equity

Nine Months Ended September 30, 2015 and 2014 (in thousands)



	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income			Total equity
Balance, December 31, 2014	$	2,500	$	901,422	$	673,613		$	84,622		$	1,662,157
Distribution to parent					(270,000		)				(270,000		)
Comprehensive income:
Net income					5,786						5,786
Other comprehensive income (loss), net of taxes								(22,072		)	(22,072		)
Total comprehensive income											(16,286		)
Balance, September 30, 2015	$	2,500	$	901,422	$	409,399		$	62,550		$	1,375,871
	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income			Total equity
Balance, December 31, 2013	$	2,500	$	901,422	$	764,846		$	70,867		$	1,739,635
Distribution to parent					(267,000		)				(267,000		)
Comprehensive income:
Net income					230,966						230,966
Other comprehensive income (loss), net of taxes								12,077			12,077
Total comprehensive income											243,043
Balance, September 30, 2014	$	2,500	$	901,422	$	728,812		$	82,944		$	1,715,678

See Notes to Unaudited Interim Financial Statements

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Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Cash Flows

Nine Months Ended September 30, 2015 and 2014 (in thousands)



	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,786		$	230,966
Adjustments to reconcile net income to net cash provided by operating activities:
Policy charges and fee income	994			3,274
Realized investment (gains) losses, net	(10,006		)	5,289
Depreciation and amortization	34,546			2,437
Interest credited to policyholders’ account balances	218,792			128,873
Change in:
Future policy benefits and other policyholder liabilities	193,776			239,825
Accrued investment income	(1,921		)	2,688
Net receivable/payable to parent and affiliates	(24,240		)	(30,430		)
Deferred sales inducements	(872		)	(10,674		)
Deferred policy acquisition costs	316,574			130,073
Income taxes	19,602			(6,077		)
Reinsurance recoverables	(206,356		)	(205,994		)
Bonus reserve	(38,768		)	(84,869		)
Derivatives, net	13,889			5,600
Other, net	(12,604		)	(1,280		)
Cash flows from operating activities	509,192			409,701
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	391,971			853,821
Commercial mortgage and other loans	63,003			16,385
Trading account assets	2,702			4,089
Policy loans	1,131			572
Other long-term investments	3,114			242
Short-term investments	1,594,367			1,903,756
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(242,276		)	(415,511		)
Commercial mortgage and other loans	(45,042		)	(30,047		)
Trading account assets	(2,303		)	(3,261		)
Policy loans	(411		)	(538		)
Other long-term investments	(1,787		)	(14,738		)
Short-term investments	(1,857,074		)	(1,959,984		)
Notes receivable from parent and affiliates, net	327			(15,135		)
Derivatives, net	(2,738		)	(1,981		)
Other, net	531			2,114
Cash flows from (used in) investing activities	(94,485		)	339,784
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash collateral for loaned securities	4,685			(25,623		)
Net decrease in short-term borrowing	(54,354		)	(5,000		)
Drafts outstanding	(8,105		)	1,425
Distribution to parent	(270,000		)	(267,000		)

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Policyholders’ account balances
Deposits	1,022,208			900,623
Withdrawals	(1,109,313		)	(1,354,627		)
Cash flows used in financing activities	(414,879		)	(750,202		)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(172		)	(717		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	594			1,417
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	422		$	700

See Notes to Unaudited Interim Financial Statements

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

Prudential Annuities Life Assurance Corporation (the “Company” or “PALAC”), with its principal offices in Shelton, Connecticut, is an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”), a New Jersey corporation. The Company is a wholly-owned subsidiary of Prudential Annuities, Inc. (“PAI”), which in turn is an indirect wholly-owned subsidiary of Prudential Financial.

The Company developed long-term savings and retirement products, which were distributed through its affiliated broker/dealer company, Prudential Annuities Distributors, Inc. (“PAD”). The Company issued variable and fixed deferred and immediate annuities for individuals and groups in the United States of America, District of Columbia and Puerto Rico. In addition, the Company has a relatively small in force block of variable life insurance policies. The Company no longer actively sells such products.

Beginning in March 2010, the Company ceased offering its variable annuity products (and where offered, the companion market value adjustment option) to new investors upon the launch of a new product line by each of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey (which are affiliates of the Company). These initiatives were implemented to create operational and administrative efficiencies by offering a single product line of annuity products from a more limited group of legal entities. During 2012, the Company suspended additional customer deposits for variable annuities with certain optional living benefit riders. However, subject to applicable contract provisions and administrative rules, the Company continues to accept additional customer deposits on certain in force contracts.

The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing long-term savings and retirement products, including insurance products, and individual and group annuities.

On August 31, 2013, the Company redomesticated from Connecticut to Arizona. As a result of the redomestication, the Company is now an Arizona insurance company and its principal insurance regulatory authority is the Arizona Department of Insurance. Additionally, the Company is now domiciled in the same jurisdiction as the primary reinsurer of the Company’s living benefits, Pruco Reinsurance, Ltd. (“Pruco Re”), which is also regulated by the Arizona Department of Insurance. This change enables the Company to claim statutory reserve credit for business ceded to Pruco Re without the need for Pruco Re to collateralize its obligations under the reinsurance agreement.

Basis of Presentation

The Unaudited Interim Financial Statements have been prepared in accordance with accounting principles generally accepted 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”).

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, 2014.

Use of Estimates

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

The most significant estimates include those used in determining deferred policy acquisition costs and related amortization; value of business acquired and its amortization; amortization of deferred sales inducements; valuation of investments including derivatives and the recognition of other-than-temporary impairments (“OTTI”); future policy benefits including guarantees; reinsurance recoverables; provision for income taxes and valuation of deferred tax assets; and reserves for contingent liabilities, including reserves for losses in connection with unresolved legal matters.

Reclassifications

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

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

This section supplements, and should be read in conjunction with, Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Adoption of New Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance for troubled debt restructurings clarifying when an in substance repossession or foreclosure occurs, and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. The new guidance became effective for annual periods and interim periods within those annual periods that began after December 15, 2014 and was applied prospectively. Adoption of the guidance did not have a significant effect on the Company’s financial position, results of operations or financial statement disclosures.

In June 2014, the FASB issued updated guidance that requires repurchase-to-maturity transactions to be accounted for as secured borrowings and eliminates existing guidance for repurchase financings. The guidance also requires new disclosures for certain transactions accounted for as secured borrowings and for transfers accounted for as sales when the transferor also retains substantially all of the exposure to the economic return on the transferred financial assets. Accounting changes and new disclosures for transfers accounted for as sales under the new guidance were effective for the first interim or annual period beginning after December 15, 2014 and did not have a significant effect on the Company's financial position, results of operations or financial statement disclosures. Disclosures for certain transactions accounted for as secured borrowings were effective for interim periods beginning after March 15, 2015 and are included in Note 3.

In August 2014, the FASB issued guidance requiring that mortgage loans be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The new guidance became effective for annual periods and interim periods within those annual periods that began after December 15, 2014 and was applied prospectively. Adoption of the guidance did not have a significant effect on the Company’s financial position, results of operations or financial statement disclosures.

Future Adoption of New Accounting Pronouncements

In May 2014, the FASB issued updated guidance on accounting for revenue recognition. The guidance is based on the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from cost incurred to obtain or fulfill a contract. Revenue recognition for insurance contracts is explicitly scoped out of the guidance. In August 2015, the FASB issued an update to defer the original effective date of this guidance. As a result of the deferral, the new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017, and must be applied using one of two retrospective application methods. Early adoption is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing the impact of the guidance on the Company’s financial position, results of operations and financial statement disclosures.

3. INVESTMENTS

Fixed Maturities and Equity Securities

The following tables provide information relating to fixed maturities and equity securities (excluding investments classified as trading) as of the dates indicated:

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary Impairments in AOCI (3)
	(in thousands)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,307	$	88	$	0	$	6,395	$	0
Obligations of U.S. states and their political subdivisions	20,470		603		582		20,491		0
Foreign government bonds	43,379		6,837		7		50,209		0
Public utilities	195,690		19,670		2,742		212,618		0
All other corporate securities	1,655,728		106,648		19,242		1,743,134		0
Asset-backed securities (1)	145,579		3,377		253		148,703		(36		)
Commercial mortgage-backed securities	234,554		8,870		56		243,368		0
Residential mortgage-backed securities (2)	135,060		6,283		0		141,343		(7		)
Total fixed maturities, available-for-sale	$	2,436,767	$	152,376	$	22,882	$	2,566,261	$	(43	)
Equity securities, available-for-sale
Common Stocks:
Public utilities	$	0	$	0	$	0	$	0
Mutual funds	14		3		0		17
Total equity securities, available-for-sale	$	14	$	3	$	0	$	17


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


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


(3)	Represents the amount of other-than-temporary impairment losses in Accumulated Other Comprehensive Income ("AOCI"), which were not included in earnings. Amount excludes $0.1 million of net unrealized gains on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.



	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary Impairments in AOCI (3)
	(in thousands)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,324	$	22	$	10	$	6,336	$	0
Obligations of U.S. states and their political subdivisions	69,486		1,323		20		70,789		0
Foreign government bonds	29,738		7,621		4		37,355		0
Public utilities	198,277		19,909		1,593		216,593		0
All other corporate securities	1,743,110		146,872		4,891		1,885,091		0
Asset-backed securities (1)	144,324		5,078		391		149,011		(39		)
Commercial mortgage-backed securities	291,868		10,523		206		302,185		(10		)
Residential mortgage-backed securities (2)	126,126		7,113		6		133,233		(36		)
Total fixed maturities, available-for-sale	$	2,609,253	$	198,461	$	7,121	$	2,800,593	$	(85	)
Equity securities, available-for-sale
Common Stocks:
Public utilities	$	0	$	0	$	0	$	0
Mutual funds	14		3		0		17
Total equity securities, available-for-sale	$	14	$	3	$	0	$	17


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


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


(3)	Represents the amount of other-than-temporary impairment losses in AOCI, which were not included in earnings. Amount excludes $0.1 million of net unrealized gains on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The amortized cost and fair value of fixed maturities by contractual maturities at September 30, 2015, are as follows:

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Notes to Unaudited Interim Financial Statements



	Available-for-Sale
	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	221,205	$	219,322
Due after one year through five years	799,625		838,463
Due after five years through ten years	509,359		541,222
Due after ten years	391,385		433,840
Asset-backed securities	145,579		148,703
Commercial mortgage-backed securities	234,554		243,368
Residential mortgage-backed securities	135,060		141,343
Total	$	2,436,767	$	2,566,261

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 are not due at a single maturity date.

The following table depicts the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on impairments of both fixed maturities and equity securities:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(in thousands)
Fixed maturities, available-for-sale
Proceeds from sales	$	4,380		$	55,825		$	21,177		$	228,248
Proceeds from maturities/repayments	96,304			125,561			371,310			619,263
Gross investment gains from sales, prepayments, and maturities	168			4,001			5,124			8,125
Gross investment losses from sales and maturities	(420		)	(102		)	(452		)	(3,349		)
Equity securities, available-for-sale
Proceeds from sales	$	0		$	0		$	0		$	0
Gross investment gains from sales	0			0			0			1
Gross investment losses from sales	0			0			0			0
Fixed maturity and equity security impairments
Net writedowns for other-than-temporary impairment losses on fixed maturities recognized in earnings (1)	$	0		$	0		$	(20	)	$	0
Writedowns for impairments on equity securities	0			0			0			0


(1)	Excludes the portion of other-than-temporary impairments recorded in “Other comprehensive income (loss),” representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of the impairment.

As discussed in Note 2 to the Company’s Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2014, a portion of certain OTTI losses on fixed maturity securities is recognized in “Other comprehensive income (loss)" (“OCI”). For these securities, the net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment.

Any remaining difference between the fair value and amortized cost is recognized in OCI. The following tables set forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

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Notes to Unaudited Interim Financial Statements



	Three Months Ended September 30, 2015			Nine Months Ended September 30, 2015
	(in thousands)
Balance, beginning of period	$	98		$	93
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	(5		)	(13		)
Additional credit loss impairments recognized in the current period on securities previously impaired	0			20
Increases due to the passage of time on previously recorded credit losses	0			0
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(1		)	(8		)
Balance, end of period	$	92		$	92



	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
	(in thousands)
Balance, beginning of period	$	103		$	1,800
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	(2		)	(1,679		)
Increases due to the passage of time on previously recorded credit losses	0			0
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(1		)	(21		)
Balance, end of period	$	100		$	100

Trading Account Assets

The following table sets forth the composition of “Trading account assets” as of the dates indicated:



	September 30, 2015				December 31, 2014
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Total trading account assets—Equity securities	$	5,331	$	5,539	$	5,471	$	6,131

The net change in unrealized gains (losses) from trading account assets still held at period end, recorded within “Asset administration fees and other income”, was $(0.4) million and $(0.2) million during the three months ended September 30, 2015 and 2014, respectively, and $(0.5) million and $(0.7) million during the nine months ended September 30, 2015 and 2014, respectively.

Commercial Mortgage and Other Loans

The Company’s commercial mortgage and other loans are comprised as follows, as of the dates indicated:

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Notes to Unaudited Interim Financial Statements



	September 30, 2015					December 31, 2014
	Amount (in thousands)			% of Total		Amount (in thousands)			% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	140,101		34.9	%	$	143,057		34.0	%
Industrial	50,496			12.6		87,088			20.7
Retail	62,737			15.6		72,226			17.2
Office	78,694			19.6		44,621			10.6
Other	13,693			3.4		14,119			3.4
Hospitality	4,994			1.2		5,081			1.2
Total commercial mortgage loans	350,715			87.3		366,192			87.1
Agricultural property loans	51,100			12.7		54,113			12.9
Total commercial mortgage and agricultural property loans by property type	401,815			100.0	%	420,305			100.0	%
Valuation allowance	(471		)			(482		)
Total net commercial mortgage and agricultural property loans by property type	401,344					419,823
Other Loans
Uncollateralized loans	2,740					2,740
Valuation allowance	0					0
Total net other loans	2,740					2,740
Total commercial mortgage and other loans	$	404,084				$	422,563

The commercial mortgage and agricultural property loans are geographically dispersed throughout the United States with the largest concentrations in California (18%) and Texas (12%) at September 30, 2015.

Activity in the allowance for credit losses for all commercial mortgage and other loans, as of the dates indicated, is as follows:



	September 30, 2015			December 31, 2014
	(in thousands)
Allowance for credit losses, beginning of year	$	482		$	1,256
Addition to (release of) allowance for losses	(11		)	(774		)
Total ending balance (1)	$	471		$	482


(1)	Agricultural loans represent less than $0.1 million of the ending allowance as of both September 30, 2015 and December 31, 2014.

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



	September 30, 2015		December 31, 2014
	(in thousands)
Allowance for Credit Losses:
Individually evaluated for impairment (1)	$	0	$	0
Collectively evaluated for impairment (2)	471		482
Total ending balance	$	471	$	482

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Notes to Unaudited Interim Financial Statements



	September 30, 2015		December 31, 2014
	(in thousands)
Recorded Investment (3):
Gross of reserves: individually evaluated for impairment (1)	$	0	$	0
Gross of reserves: collectively evaluated for impairment (2)	404,555		423,045
Total ending balance, gross of reserves	$	404,555	$	423,045


(1)	There were no loans individually evaluated for impairment as of both September 30, 2015 and December 31, 2014.

(2)

Agricultural loans collectively evaluated for impairment had a recorded investment of $51.1 million and $54.0 million as of September 30, 2015 and December 31, 2014, respectively, and a related allowance of less than $0.1 million for both September 30, 2015 and December 31, 2014. Uncollateralized loans collectively evaluated for impairment had a recorded investment of $2.7 million and $2.7 million as of September 30, 2015 and December 31, 2014, respectively, and no related allowance as of both September 30, 2015 and December 31, 2014.


(3)	Recorded investment reflects the balance sheet carrying value gross of related allowance.

Impaired loans include those loans for which it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. There were no impaired commercial mortgage and other loans identified in management’s specific review of probable loan losses and no related allowance for losses as of both September 30, 2015 and December 31, 2014. Impaired commercial mortgage and other loans with no allowance for losses are loans in which the fair value of the collateral or the net present value of the loans’ expected future cash flows equals or exceeds the recorded investment. See Note 2 to the Company’s Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2014, for information regarding the Company’s accounting policies for non-performing loans.

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

Total commercial mortgage and agricultural property loans



	Debt Service Coverage Ratio - September 30, 2015
	Greater than 1.2X		1.0X to <1.2X		Less than 1.0X		Total
	(in thousands)
Loan-to-Value Ratio
0%-59.99%	$	284,897	$	4,042	$	1,076	$	290,015
60%-69.99%	100,842		460		0		101,302
70%-79.99%	8,663		1,835		0		10,498
Greater than 80%	0		0		0		0
Total commercial mortgage and agricultural property loans	$	394,402	$	6,337	$	1,076	$	401,815



	Debt Service Coverage Ratio - December 31, 2014
	Greater than 1.2X		1.0X to <1.2X		Less than 1.0X		Total
	(in thousands)
Loan-to-Value Ratio
0%-59.99%	$	262,853	$	4,295	$	10,489	$	277,637
60%-69.99%	115,708		468		0		116,176
70%-79.99%	25,034		1,458		0		26,492
Greater than 80%	0		0		0		0
Total commercial mortgage and agricultural property loans	$	403,595	$	6,221	$	10,489	$	420,305

As of both September 30, 2015 and December 31, 2014, all commercial mortgage and other loans were in current status. The Company defines current in its aging of past due commercial mortgage and other loans as less than 30 days past due.

There were no commercial mortgage and other loans in nonaccrual status as of both September 30, 2015 and December 31, 2014. Nonaccrual loans are those on which the accrual of interest has been suspended after the loans become 90 days delinquent as to principal or interest payments, or earlier when the Company has doubts about collectability and loans for which a loan-specific

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Notes to Unaudited Interim Financial Statements

reserve has been established. See Note 2 to the Company’s Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2014, for further discussion regarding nonaccrual status loans.

For the three and nine months ended September 30, 2015 and 2014, there were no commercial mortgage and other loans acquired, other than those through direct origination, nor were there any commercial mortgage and other loans sold.

The Company’s commercial mortgage and other loans may occasionally be involved in a troubled debt restructuring. As of both September 30, 2015 and December 31, 2014, the Company had no significant commitments to fund to borrowers that have been involved in a troubled debt restructuring. During the three and nine months ended September 30, 2015 and 2014, there were no new troubled debt restructurings related to commercial mortgage and other loans, and no payment defaults on commercial mortgage and other loans that were modified as a troubled debt restructuring within the 12 months preceding each respective period. For additional information relating to the accounting for troubled debt restructurings, see Note 2 to the Company’s Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2014.

As of both September 30, 2015 and December 31, 2014, the Company did not have any foreclosed residential real estate property.

Net Investment Income

Net investment income for the three and nine months ended September 30, 2015 and 2014, was from the following sources:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(in thousands)
Fixed maturities, available-for-sale	$	28,233		$	33,864		$	87,876		$	108,045
Trading account assets	3			1			34			31
Commercial mortgage and other loans	6,120			5,199			16,364			16,601
Policy loans	175			155			563			505
Short-term investments	126			64			227			194
Other long-term investments	(257		)	1,538			3,773			4,329
Gross investment income	34,400			40,821			108,837			129,705
Less: investment expenses	(1,290		)	(1,428		)	(4,082		)	(4,353		)
Net investment income	$	33,110		$	39,393		$	104,755		$	125,352

Realized Investment Gains (Losses), Net

Realized investment gains (losses), net, for the three and nine months ended September 30, 2015 and 2014, were from the following sources:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015		2014
	(in thousands)
Fixed maturities	$	(252	)	$	3,899		$	4,652	$	4,776
Equity securities	0			0			0		1
Commercial mortgage and other loans	(75		)	725			12		725
Derivatives	6,014			(5,547		)	5,342		(10,791		)
Realized investment gains (losses), net	$	5,687		$	(923	)	$	10,006	$	(5,289	)

Accumulated Other Comprehensive Income (Loss)

The balance of and changes in each component of “Accumulated other comprehensive income (loss)” for the nine months ended September 30, 2015 and 2014 are as follows:

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Notes to Unaudited Interim Financial Statements



	Accumulated Other Comprehensive Income (Loss)
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses) (1)			Total Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance, December 31, 2014	$	(30	)	$	84,652		$	84,622
Change in other comprehensive income before reclassifications	(39		)	(29,267		)	(29,306		)
Amounts reclassified from AOCI	0			(4,652		)	(4,652		)
Income tax benefit (expense)	14			11,872			11,886
Balance, September 30, 2015	$	(55	)	$	62,605		$	62,550



	Accumulated Other Comprehensive Income (Loss)
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses) (1)			Total Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance, December 31, 2013	$	10		$	70,857		$	70,867
Change in other comprehensive income before reclassifications	(33		)	23,390			23,357
Amounts reclassified from AOCI	0			(4,776		)	(4,776		)
Income tax benefit (expense)	12			(6,516		)	(6,504		)
Balance, September 30, 2014	$	(11	)	$	82,955		$	82,944


(1)	Includes cash flow hedges of $13.4 million and $5.0 million as of September 30, 2015 and December 31, 2014, respectively, and $(1.0) million and $(4.0) million as of September 30, 2014 and December 31, 2013, respectively.

Reclassifications out of Accumulated Other Comprehensive Income (Loss)



	Three Months Ended September 30, 2015			Nine Months Ended September 30, 2015
	(in thousands)
Amounts reclassified from AOCI (1)(2):
Net unrealized investment gains (losses):
Cash flow hedges—Currency/Interest rate (3)	$	606		$	1,540
Net unrealized investment gains (losses) on available-for-sale securities	(858		)	3,112
Total net unrealized investment gains (losses) (4)	(252		)	4,652
Total reclassifications for the period	$	(252	)	$	4,652


(1)	All amounts are shown before tax.


(2)	Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.


(3)	See Note 5 for additional information on cash flow hedges.


(4)	See table below for additional information on unrealized investment gains (losses), including the impact on deferred policy acquisition and other costs and future policy benefits.

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains and losses on securities classified as available-for-sale and certain other long-term investments 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 “Other comprehensive income (loss)” those items that are included as part of “Net income” for a period that had been part of “Other comprehensive income (loss)” in earlier periods. The amounts for the periods indicated below, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other net unrealized investment gains and losses, are as follows:

Net Unrealized Investment Gains and Losses on Fixed Maturity Securities on which an OTTI loss has been recognized

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Notes to Unaudited Interim Financial Statements



	Net Unrealized Gains (Losses) on Investments			Deferred Policy Acquisition Costs and Other Costs			Future Policy Benefits			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2014	$	1		$	0		$	0		$	16		$	17
Net investment gains (losses) on investments arising during the period	(6		)	0			0			2			(4		)
Reclassification adjustment for (gains) losses included in net income	20			0			0			(7		)	13
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and other costs	0			(5		)	0			2			(3		)
Impact of net unrealized investment (gains) losses on future policy benefits	0			0			(1		)	0			(1		)
Balance, September 30, 2015	$	15		$	(5	)	$	(1	)	$	13		$	22

All Other Net Unrealized Investment Gains and Losses in AOCI



	Net Unrealized Gains (Losses) on Investments (1)			Deferred Policy Acquisition Costs and Other Costs			Future Policy Benefits			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2014	$	198,922		$	(59,045	)	$	(8,372	)	$	(46,870	)	$	84,635
Net investment gains (losses) on investments arising during the period	(49,369		)	0			0			17,280			(32,089		)
Reclassification adjustment for (gains) losses included in net income	(4,672		)	0			0			1,635			(3,037		)
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and other costs	0			17,922			0			(6,273		)	11,649
Impact of net unrealized investment (gains) losses on future policy benefits	0			0			2,192			(767		)	1,425
Balance, September 30, 2015	$	144,881		$	(41,123	)	$	(6,180	)	$	(34,995	)	$	62,583


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

Net Unrealized Gains (Losses) on Investments by Asset Class

The table below presents net unrealized gains (losses) on investments by asset class as of the dates indicated:



	September 30, 2015		December 31, 2014
	(in thousands)
Fixed maturity securities on which an OTTI loss has been recognized	$	15	$	1
Fixed maturity securities, available-for-sale—all other	129,479		191,339
Equity securities, available-for-sale	3		3
Affiliated notes	1,877		2,351
Derivatives designated as cash flow hedges (1)	13,357		4,839
Other investments	165		390
Net unrealized gains (losses) on investments	$	144,896	$	198,923


(1)	See Note 5 for more information on cash flow hedges.

Duration of Gross Unrealized Loss Positions for Fixed Maturities and Equity Securities

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Notes to Unaudited Interim Financial Statements

The following table shows the fair value and gross unrealized losses aggregated by investment category and length of time that individual fixed maturity securities and equity securities have been in a continuous unrealized loss position, as of the dates indicated:



	September 30, 2015
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	0	$	0	$	0	$	0	$	0
Obligations of U.S. states and their political subdivisions	6,697		582		0		0		6,697		582
Foreign government bonds	2,632		7		0		0		2,632		7
Public utilities	33,113		699		11,631		2,043		44,744		2,742
All other corporate securities	347,527		12,946		52,280		6,296		399,807		19,242
Asset-backed securities	25,690		94		23,558		159		49,248		253
Commercial mortgage-backed securities	12,226		56		14		0		12,240		56
Residential mortgage-backed securities	546		0		0		0		546		0
Total	$	428,431	$	14,384	$	87,483	$	8,498	$	515,914	$	22,882
Equity securities, available-for-sale	$	0	$	0	$	0	$	0	$	0	$	0



	December 31, 2014
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	2,676	$	10	$	0	$	0	$	2,676	$	10
Obligations of U.S. states and their political subdivisions	0		0		7,305		20		7,305		20
Foreign government bonds	4,632		4		0		0		4,632		4
Public utilities	18,222		1,321		2,174		272		20,396		1,593
All other corporate securities	260,414		4,462		9,403		429		269,817		4,891
Asset-backed securities	31,756		58		32,732		333		64,488		391
Commercial mortgage-backed securities	4,309		108		7,377		98		11,686		206
Residential mortgage-backed securities	342		6		0		0		342		6
Total	$	322,351	$	5,969	$	58,991	$	1,152	$	381,342	$	7,121
Equity securities, available-for-sale	$	0	$	0	$	0	$	0	$	0	$	0

The gross unrealized losses on fixed maturity securities as of September 30, 2015 and December 31, 2014, are composed of $14.7 million and $4.0 million related to high or highest quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $8.2 million and $3.1 million related to other than high or highest quality securities based on NAIC or equivalent rating, respectively. As of September 30, 2015, the $8.5 million of gross unrealized losses of twelve months or more were concentrated in the utility, finance, consumer non-cyclical and capital goods sectors of the Company’s corporate securities. As of December 31, 2014, the $1.2 million of gross unrealized losses of twelve months or more were concentrated in asset-backed securities and the energy and utility sectors of the Company’s corporate securities.

In accordance with its policy described in Note 2 to the Company’s Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2014, the Company concluded that an adjustment to earnings for other-than-temporary impairments for these securities was not warranted at September 30, 2015 or December 31, 2014. These conclusions are based on a detailed analysis of the underlying credit and cash flows on each security. The gross unrealized losses are primarily attributable to general credit spread widening and foreign currency exchange rate movements. As of September 30, 2015, the Company does

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Notes to Unaudited Interim Financial Statements

not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before the anticipated recovery of its remaining amortized cost basis.

Securities Lending and Repurchase Agreements

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. As of September 30, 2015, the Company had $10.0 million of securities lending transactions recorded as "Cash collateral loaned for securities," all of which were corporate securities. The remaining contractual maturity of all securities lending transactions is overnight and continuous. As of September 30, 2015, the Company had no repurchase transactions.

4. 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. The Company’s Level 1 assets and liabilities primarily include short-term investments and equity securities that trade on an active exchange market.

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. The Company’s Level 2 assets and liabilities include: fixed maturities (corporate public and private bonds, most government securities, certain asset-backed and mortgage-backed securities, etc.), certain equity securities (mutual funds, which do not actively trade and are priced based on a net asset value (“NAV”)), short-term investments and certain over-the-counter (“OTC”) derivatives.

Level 3 - Fair value is based on at least one or more significant unobservable inputs for the asset or liability. The assets and liabilities in this category may require significant judgment or estimation in determining the fair value. The Company’s Level 3 assets and liabilities primarily include: certain private fixed maturities and certain manually priced public fixed maturities, short-term investments, certain highly structured OTC derivative contracts, and embedded derivatives resulting from certain products with guaranteed benefits.

Assets and Liabilities by Hierarchy Level – The tables below present the balances of assets and liabilities reported at fair value on a recurring basis, as of the dates indicated.

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Notes to Unaudited Interim Financial Statements



	As of September 30, 2015
	Level 1		Level 2		Level 3		Netting (1)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	6,395	$	0	$	0		$	6,395
Obligations of U.S. states and their political subdivisions	0		20,491		0		0			20,491
Foreign government bonds	0		50,209		0		0			50,209
Corporate securities	0		1,838,231		117,521		0			1,955,752
Asset-backed securities	0		98,813		49,890		0			148,703
Commercial mortgage-backed securities	0		241,803		1,565		0			243,368
Residential mortgage-backed securities	0		141,343		0		0			141,343
Sub total	0		2,397,285		168,976		0			2,566,261
Trading account assets:
Equity securities	5,539		0		0		0			5,539
Sub total	5,539		0		0		0			5,539
Equity securities, available-for-sale	0		17		0		0			17
Short-term investments	318,916		526		450		0			319,892
Cash equivalents	0		0		225		0			225
Other long-term investments	0		153,491		599		(18,608		)	135,482
Reinsurance recoverables	0		0		3,271,227		0			3,271,227
Receivables from parent and affiliates	0		34,620		5,755		0			40,375
Sub total excluding separate account assets	324,455		2,585,939		3,447,232		(18,608		)	6,339,018
Separate account assets (2)	0		39,132,492		0		0			39,132,492
Total assets	$	324,455	$	41,718,431	$	3,447,232	$	(18,608	)	$	45,471,510
Future policy benefits (3)	$	0	$	0	$	3,400,599	$	0		$	3,400,599
Payables to parent and affiliates	0		24,482		0		(24,482		)	0
Total liabilities	$	0	$	24,482	$	3,400,599	$	(24,482	)	$	3,400,599

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	As of December 31, 2014
	Level 1		Level 2		Level 3		Netting (1)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	6,336	$	0	$	0		$	6,336
Obligations of U.S. states and their political subdivisions	0		70,789		0		0			70,789
Foreign government securities	0		37,355		0		0			37,355
Corporate securities	0		1,985,614		116,070		0			2,101,684
Asset-backed securities	0		108,487		40,524		0			149,011
Commercial mortgage-backed securities	0		302,185		0		0			302,185
Residential mortgage-backed securities	0		133,233		0		0			133,233
Sub total	0		2,643,999		156,594		0			2,800,593
Trading account assets:
Equity securities	6,131		0		0		0			6,131
Sub total	6,131		0		0		0			6,131
Equity securities, available-for-sale	0		17		0		0			17
Short-term investments	57,185		0		0		0			57,185
Cash equivalents	0		0		225		0			225
Other long-term investments	0		118,846		633		(24,288		)	95,191
Reinsurance recoverables	0		0		2,996,154		0			2,996,154
Receivables from parent and affiliates	0		18,748		22,320		0			41,068
Sub total excluding separate account assets	63,316		2,781,610		3,175,926		(24,288		)	5,996,564
Separate account assets (2)	0		44,101,699		0		0			44,101,699
Total assets	$	63,316	$	46,883,309	$	3,175,926	$	(24,288	)	$	50,098,263
Future policy benefits (3)	$	0	$	0	$	3,112,411	$	0		$	3,112,411
Payables to parent and affiliates	0		21,249		0		(21,249		)	0
Total liabilities	$	0	$	21,249	$	3,112,411	$	(21,249	)	$	3,112,411


(1)	“Netting” amounts represent cash collateral of $(5.9) million and $3.0 million as of September 30, 2015 and December 31, 2014, respectively, and the impact of offsetting asset and liability positions held with the same counterparty, subject to master netting arrangements.

(2)

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.

(3)

As of September 30, 2015, the net embedded derivative liability position of $3,401 million includes $26 million of embedded derivatives in an asset position and $3,427 million of embedded derivatives in a liability position. As of December 31, 2014, the net embedded derivative liability position of $3,112 million includes $55 million of embedded derivatives in an asset position and $3,167 million of embedded derivatives in a liability position.

The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below.

Fixed Maturity Securities – The fair values of the Company’s public fixed maturity securities are generally based on prices obtained from independent pricing services. Prices for each security are generally sourced from multiple pricing vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. The pricing hierarchy is updated for new financial products and recent pricing experience with various vendors. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. Typical inputs used by these pricing services include but are not limited to reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flow, prepayment speeds and default rates. If the pricing information received from third party pricing services is deemed not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service or classify the securities as Level 3. If the pricing service updates the price to be more consistent with the presented market observations, the security remains within Level 2.

Internally-developed valuations or indicative broker quotes are also used to determine fair value in circumstances where vendor pricing is not available, or where the Company ultimately concludes that pricing information received from the independent pricing services is not reflective of market activity. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may override the information with an internally developed valuation. As of September 30, 2015

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

and December 31, 2014 overrides on a net basis were not material. Pricing service overrides, internally-developed valuations and indicative broker quotes are generally included in Level 3 in the fair value hierarchy.

The Company conducts several specific price monitoring activities. Daily analyses identify price changes over predetermined thresholds defined at the financial instrument level. Various pricing integrity reports are reviewed on a daily and monthly basis to determine if pricing is reflective of market activity or if it would warrant any adjustments. Other procedures performed include, but are not limited to, reviews of third-party pricing services methodologies, reviews of pricing trends, and back-testing.

The fair value of private fixed maturities, which are comprised of investments in private placement securities, originated by internal private asset managers, are primarily determined using discounted cash flow models. These models primarily use observable inputs that include Treasury or similar base rates plus estimated credit spreads to value each security. The credit spreads are obtained through a survey of private market intermediaries who are active in both primary and secondary transactions, and consider, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Since most private placements are valued using standard market observable inputs and inputs derived from, or corroborated by, market observable data including observed prices and spreads for similar publicly traded or privately traded issues, they have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model may incorporate significant unobservable inputs, which reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the price of a security, a Level 3 classification is made.

Trading Account Assets – Trading account assets consist primarily of equity securities whose fair values are determined consistent with similar instruments described below under “Equity Securities”.

Equity Securities – Equity securities consist principally of investments in common stock of publicly traded companies as well as mutual fund shares. The fair values of most publicly traded equity securities are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the fair value hierarchy. The fair values of mutual fund shares that transact regularly (but do not trade in active markets because they are not publicly available) are based on transaction prices of identical fund shares and are classified within Level 2 in the fair value hierarchy.

Derivative Instruments – Derivatives are recorded at fair value either as assets, within “Other long-term investments” or as liabilities, within “Payables to parent and affiliates” except for embedded derivatives which are recorded with the associated host contract. The fair values of derivative contracts can be affected by changes in interest rates, foreign exchange rates, credit spreads, market volatility, expected returns, non-performance risk (“NPR”), liquidity and other factors.

The majority of the Company’s derivative positions are traded in the over-the-counter (“OTC”) derivative market and are classified within Level 2 in the fair value hierarchy. OTC derivatives classified within Level 2 are valued using models that utilize actively quoted or observable market input values from external market data providers, third-party pricing vendors and/or recent trading activity. The Company’s policy is to use mid-market pricing in determining its best estimate of fair value. The fair values of most OTC derivatives, including interest rate and cross currency swaps and single name credit default swaps are determined using discounted cash flow models. The fair values of European style option contracts are determined using Black-Scholes option pricing models. These models’ key inputs include the contractual terms of the respective contract, along with significant observable inputs, including interest rates, currency rates, credit spreads, equity prices, index dividend yields, NPR, volatility and other factors.

The Company’s cleared interest rate swaps and credit derivatives linked to an index are valued using models that utilize actively quoted or observable market inputs, including Overnight Indexed Swap discount rates, obtained from external market data providers, third-party pricing vendors, and/or recent trading activity. These derivatives are classified as Level 2 in the fair value hierarchy.

To reflect the market’s perception of its own and the counterparty’s NPR, the Company incorporates additional spreads over London Interbank Offered Rate (“LIBOR”) into the discount rate used in determining the fair value of OTC derivative assets and liabilities that are not otherwise collateralized.

Derivatives classified as Level 3 include structured products. These derivatives are valued based upon models, such as Monte Carlo simulation models and other techniques, that utilize significant unobservable inputs. Level 3 methodologies are validated through periodic comparison of the Company’s fair values to external broker-dealer values. As of September 30, 2015 and December 31, 2014, there were no internally valued derivatives with the fair value classified within Level 3, and all derivatives were classified within Level 2. See Note 5 for more details on the fair value of derivative instruments by primary underlying.

Cash Equivalents and Short-Term Investments – Cash equivalents and short-term investments include money market instruments and other highly liquid debt instruments. Certain money market instruments are valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The remaining instruments in this category are classified within Level 2 and Level 3. Level 2 instruments are generally fair valued based on market observable inputs. Level 3 instruments are internally valued based on internal asset manager valuations.

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

Separate Account Assets – Separate account assets include fixed maturity securities, treasuries, equity securities, and mutual funds for which values are determined consistent with similar instruments described above under “Fixed Maturity Securities” and “Equity Securities”.

Receivables from Parent and Affiliates – Receivables from parent and affiliates carried at fair value include affiliated bonds within the Company’s legal entity whose fair values are determined consistent with similar securities described above under “Fixed Maturity Securities” managed by affiliated asset managers.

Reinsurance Recoverables – Reinsurance recoverables carried at fair value include the reinsurance of the Company’s living benefit guarantees on certain of its variable annuity contracts. These guarantees are accounted for as embedded derivatives and are described below in “Future Policy Benefits”. The reinsurance agreements covering these guarantees are derivatives with fair value determined in the same manner as the living benefit guarantees.

Future Policy Benefits – The liability for future policy benefits is related to guarantees primarily associated with the living benefit features of certain variable-annuity contracts offered by the Company, including guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefits (“GMWB”), and guaranteed minimum income and withdrawal benefits (“GMIWB”), accounted for as embedded derivatives. The fair values of these liabilities are calculated as the present value of future expected benefit payments to contractholders less the present value of assessed rider fees attributable to the optional living benefit feature. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. Since there is no observable active market for the transfer of these obligations, the valuations are calculated using internally developed models with option pricing techniques. The models are based on a risk neutral valuation framework and incorporate premiums for risks inherent in valuation techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. The determination of these risk premiums requires the use of management's judgment.

The significant inputs to the valuation models for these embedded derivatives include capital market assumptions, such as interest rate levels and volatility assumptions, the Company’s market-perceived 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 liability valuation, the liability included in future policy benefits has 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 value. The Company’s discount rate assumption is based on the LIBOR swap curve, adjusted for an additional spread relative to LIBOR to reflect NPR.

Actuarial assumptions, including contractholder behavior and mortality, are reviewed at least annually, and updated based upon emerging experience, future expectations, and other data, including any observable market data. 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.

Transfers between Levels 1 and 2 – Overall, transfers between levels are made to reflect changes in observability of inputs and market activity. Transfers into or out of any level are generally reported as the value as of the beginning of the quarter in which the transfers occur for any such assets still held at the end of the quarter. Periodically there are transfers between Level 1 and Level 2 for assets held in the Company’s Separate Account. During both the three and nine months ended September 30, 2015, there were no transfers between Level 1 and Level 2. During the three months ended September 30, 2014, there were no transfers between Level 1 and Level 2. During the nine months ended September 30, 2014, $7 million was transferred from Level 1 to Level 2.

Level 3 Assets and Liabilities by Price Source – The tables below present the balances of Level 3 assets and liabilities measured at fair value with their corresponding pricing sources.

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Notes to Unaudited Interim Financial Statements



	As of September 30, 2015
	Internal (1)		External (2)		Total
	(in thousands)
Corporate securities	$	102,521	$	15,000	$	117,521
Asset-backed securities	0		49,890		49,890
Short-term investments	450		0		450
Commercial mortgage-backed securities	0		1,565		1,565
Cash equivalents	225		0		225
Other long-term investments	0		599		599
Reinsurance recoverables	3,271,227		0		3,271,227
Receivables from parent and affiliates	0		5,755		5,755
Total assets	$	3,374,423	$	72,809	$	3,447,232
Future policy benefits	$	3,400,599	$	0	$	3,400,599
Total liabilities	$	3,400,599	$	0	$	3,400,599



	As of December 31, 2014
	Internal (1)		External (2)		Total
	(in thousands)
Corporate securities	$	99,209	$	16,861	$	116,070
Asset-backed securities	0		40,524		40,524
Cash equivalents	225		0		225
Other long-term investments	0		633		633
Reinsurance recoverables	2,996,154		0		2,996,154
Receivables from parent and affiliates	0		22,320		22,320
Total assets	$	3,095,588	$	80,338	$	3,175,926
Future policy benefits	$	3,112,411	$	0	$	3,112,411
Total liabilities	$	3,112,411	$	0	$	3,112,411


(1)	Represents valuations reflecting both internally-derived and market inputs as well as third-party pricing information or quotes. See below for additional information related to internally-developed valuation for significant items in the above table.


(2)	Represents unadjusted prices from independent pricing services and independent indicative broker quotes where pricing inputs are not readily available.

Quantitative Information Regarding Internally Priced Level 3 Assets and Liabilities – The tables below present quantitative information on significant internally-priced Level 3 assets and liabilities.



	As of September 30, 2015
	Fair Value		Primary Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value (1)
	(in thousands)
Assets:
Corporate securities	$	102,521	Discounted cash flow	Discount rate	3.45	%	14.99	%	3.81	%	Decrease
Reinsurance recoverables	$	3,271,227	Fair values are determined in the same manner as future policy benefits
Liabilities:
Future policy benefits (2)	$	3,400,599	Discounted cash flow	Lapse rate (3)	0	%	14	%			Decrease
				NPR spread (4)	0.03	%	1.85	%			Decrease
				Utilization rate (5)	63	%	95	%			Increase
				Withdrawal rate (6)	74	%	100	%			Increase
				Mortality rate (7)	0	%	14	%			Decrease
				Equity volatility curve	20	%	29	%			Increase

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	As of December 31, 2014
	Fair Value		Primary Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value (1)
	(in thousands)
Assets:
Corporate securities	$	99,209	Discounted cash flow	Discount rate	3.55	%	11.75	%	3.96	%	Decrease
Reinsurance recoverables	$	2,996,154	Fair values are determined in the same manner as future policy benefits
Liabilities:
Future policy benefits (2)	$	3,112,411	Discounted cash flow	Lapse rate (3)	0	%	14	%			Decrease
				NPR spread (4)	0	%	1.30	%			Decrease
				Utilization rate (5)	63	%	95	%			Increase
				Withdrawal rate (6)	74	%	100	%			Increase
				Mortality rate (7)	0	%	14	%			Decrease
				Equity volatility curve	17	%	28	%			Increase


(1)	Conversely, the impact of a decrease in input would have the opposite impact for the fair value as that presented in the table.

(2)

Future policy benefits primarily represent general account liabilities for the living benefit features of the Company’s variable annuity contracts which are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.


(3)	Lapse rates 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 are also generally assumed to be lower for the period where surrender charges apply.

(4)

To reflect NPR, the Company incorporates an additional spread over LIBOR into the discount rate used in the valuation of individual living benefit contracts in a liability position and generally not to those in a contra-liability position. The NPR spread reflects the financial strength ratings of the Company and its affiliates, as these are insurance liabilities and senior to debt. The additional spread over LIBOR is determined by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium.

(5)

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.


(6)	The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions may vary based on the product type, contractholder age, tax status and withdrawal timing. The fair value of the liability will generally increase the closer the withdrawal rate is to 100%.

(7)

Range reflects the mortality rate for the vast majority of business with living benefits, with policyholders ranging from 35 to 90 years old. While the majority of living benefits have a minimum age requirement, certain benefits do not have an age restriction. This results in contractholders for certain benefits with mortality rates approaching 0%. Based on historical experience, the Company applies a set of age and duration specific mortality rate adjustments compared to standard industry tables. A mortality improvement assumption is also incorporated into the overall mortality table.

Interrelationships Between Unobservable Inputs – In addition to the sensitivities of fair value measurements to changes in each unobservable input in isolation, as reflected in the table above, interrelationships between these inputs may also exist, such that a change in one unobservable input may give rise to a change in another, or multiple, inputs. Examples of such interrelationships for significant internally-priced Level 3 assets and liabilities are as follows:

Corporate Securities – The rate used to discount future cash flows reflects current risk-free rates plus credit and liquidity spread requirements that market participants would use to value an asset. The discount rate may be influenced by many factors, including market cycles, expectations of default, collateral, term and asset complexity. Each of these factors can influence discount rates, either in isolation, or in response to other factors.

Future Policy 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.

Valuation Process for Fair Value Measurements Categorized within Level 3 – The Company has established an internal control infrastructure over the valuation of financial instruments that requires ongoing oversight by its various business groups. These management control functions are segregated from the trading and investing functions. For invested assets, the Company has established oversight teams, often in the form of pricing committees within each asset management group. The teams, which typically include representation from investment, accounting, operations, legal and other disciplines are responsible for overseeing

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

and monitoring the pricing of the Company’s investments and performing periodic due diligence reviews of independent pricing services. An actuarial valuation team oversees the valuation of living benefit features of the Company’s variable annuity contracts.

The Company has also established policies and guidelines that require the establishment of valuation methodologies and consistent application of such methodologies. These policies and guidelines govern the use of inputs and price source hierarchies and provide controls around the valuation processes. These controls include appropriate review and analysis of investment prices against market activity or indicators of reasonableness, analysis of portfolio returns to corresponding benchmark returns, back-testing, review of bid/ask spreads to assess activity, approval of price source changes, price overrides, methodology changes and classification of fair value hierarchy levels. For living benefit features of the Company’s variable annuity products, the actuarial valuation unit periodically tests contract input data and actuarial assumptions are reviewed at least annually, and updated based upon emerging experience, future expectations and other data, including any observable market data. The valuation policies and guidelines are reviewed and updated as appropriate.

Within the trading and investing functions, the Company has established policies and procedures that relate to the approval of all new transaction types, transaction pricing sources and fair value hierarchy coding within the financial reporting system. For variable annuity product changes or new launches of living benefit features, the actuarial valuation unit validates input logic and new product features and agrees new input data directly to source documents.

Changes in Level 3 assets and liabilities – The following tables provide summaries of the 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.



	Three Months Ended September 30, 2015
	Fixed Maturities Available-For-Sale
	Corporate Securities			Asset- Backed Securities			Commercial Mortgage- Backed Securities		Short-Term Investments		Cash Equivalents		Other Long- term Investments			Reinsurance Recoverables
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	117,483		$	43,441		$	0	$	300	$	225	$	638		$	2,213,966
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	(17		)	4			0		0		0		0			1,000,406
Asset management fees and other income	0			0			0		0		0		(27		)	0
Included in other comprehensive income (loss)	(1,178		)	(154		)	0		0		0		0			0
Net investment income	1,325			16			0		0		0		11			0
Purchases	16,179			1,099			1,565		150		0		19			56,855
Sales	(14,935		)	(1,750		)	0		0		0		0			0
Issuances	0			0			0		0		0		0			0
Settlements	(1,336		)	(2,074		)	0		0		0		(42		)	0
Transfers into Level 3 (1)	0			15,253			0		0		0		0			0
Transfers out of Level 3 (1)	0			(5,945		)	0		0		0		0			0
Fair Value, end of period assets/(liabilities)	$	117,521		$	49,890		$	1,565	$	450	$	225	$	599		$	3,271,227
Unrealized gains (losses) for assets still held (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	0	$	0	$	0	$	0		$	1,017,556
Asset management fees and other income	$	0		$	0		$	0	$	0	$	0	$	(27	)	$	0

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	Three Months Ended September 30, 2015
	Receivables from Parent and Affiliates			Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	4,777		$	(2,300,419	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0			(1,041,737		)
Asset management fees and other income	0			0
Included in other comprehensive income (loss)	9			0
Net investment income	0			0
Purchases	0			0
Sales	0			0
Issuances	0			(58,443		)
Settlements	0			0
Transfers into Level 3 (1)	2,962			0
Transfers out of Level 3 (1)	(1,993		)	0
Fair Value, end of period assets/(liabilities)	$	5,755		$	(3,400,599	)
Unrealized gains (losses) for assets/liabilities still held (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	(1,059,644	)
Asset management fees and other income	$	0		$	0

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	Nine Months Ended September 30, 2015
	Fixed Maturities Available-For-Sale
	Corporate Securities			Asset- Backed Securities			Commercial Mortgage- Backed Securities		Short-Term Investments		Cash Equivalents		Other Long-term Investments			Reinsurance Recoverables
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	116,070		$	40,524		$	0	$	0	$	225	$	633		$	2,996,154
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	45			3			0		0		0		0			103,031
Asset management fees and other income	0			0			0		0		0		(22		)	0
Included in other comprehensive income (loss)	(1,741		)	57			0		0		0		0			0
Net investment income	3,911			27			0		0		0		18			0
Purchases	48,786			8,970			1,565		450		0		19			172,042
Sales	(45,364		)	(9,634		)	0		0		0		0			0
Issuances	0			0			0		0		0		0			0
Settlements	(2,459		)	(3,212		)	0		0		0		(49		)	0
Transfers into Level 3 (1)	0			26,021			0		0		0		0			0
Transfers out of Level 3 (1)	(1,727		)	(12,866		)	0		0		0		0			0
Fair Value, end of period assets/(liabilities)	$	117,521		$	49,890		$	1,565	$	450	$	225	$	599		$	3,271,227
Unrealized gains (losses) for assets still held (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	0	$	0	$	0	$	0		$	177,725
Asset management fees and other income	$	0		$	0		$	0	$	0	$	0	$	(22	)	$	0



	Nine Months Ended September 30, 2015
	Receivables from Parent and Affiliates			Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	22,320		$	(3,112,411	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0			(108,798		)
Asset management fees and other income	0			0
Included in other comprehensive income (loss)	(179		)	0
Net investment income	0			0
Purchases	0			0
Sales	0			0
Issuances	0			(179,390		)
Settlements	0			0
Transfers into Level 3 (1)	4,948			0
Transfers out of Level 3 (1)	(21,334		)	0
Fair Value, end of period assets/(liabilities)	$	5,755		$	(3,400,599	)
Unrealized gains (losses) for assets/liabilities still held (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	(186,067	)
Asset management fees and other income	$	0		$	0

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	Three Months Ended September 30, 2014
	Fixed Maturities Available-For-Sale
	Corporate Securities			Asset Backed Securities			Commercial Mortgage- Backed Securities		Cash Equivalents		Other Long- Term Investments
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	102,008		$	74,301		$	0	$	400	$	536
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	149			0			0		0		0
Asset management fees and other income	0			0			0		0		(17		)
Included in other comprehensive income (loss)	(996		)	94			0		0		0
Net investment income	1,265			28			0		0		0
Purchases	2,122			0			7,070		0		109
Sales	(202		)	0			0		0		0
Issuances	0			0			0		0		0
Settlements	(400		)	(10,260		)	0		0		0
Transfers into Level 3 (1)	0			0			0		0		0
Transfers out of Level 3 (1)	0			(1,263		)	0		0		0
Fair Value, end of period assets/(liabilities)	$	103,946		$	62,900		$	7,070	$	400	$	628
Unrealized gains (losses) for assets still held (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	0	$	0	$	0
Asset management fees and other income	$	0		$	0		$	0	$	0	$	(17	)



	Three Months Ended September 30, 2014
	Reinsurance Recoverables		Receivables from Parent and Affiliates			Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	1,594,311	$	27,762		$	(1,662,957	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	578,588		(1		)	(592,334		)
Asset management fees and other income	0		0			0
Included in other comprehensive income (loss)	0		(292		)
Net investment income	0		0			0
Purchases	58,581		0			0
Sales	0		0			0
Issuances	0		0			(61,450		)
Settlements	0		0			0
Transfers into Level 3 (1)	0		0			0
Transfers out of Level 3 (1)	0		(4,943		)
Fair Value, end of period assets/(liabilities)	$	2,231,480	$	22,526		$	(2,316,741	)
Unrealized gains (losses) for assets/liabilities still held (2):
Included in earnings:
Realized investment gains (losses), net	$	592,438	$	0		$	(606,724	)
Asset management fees and other income	$	0	$	0		$	0

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	Nine Months Ended September 30, 2014
	Fixed Maturities Available-For-Sale
	Corporate Securities			Asset Backed Securities			Commercial Mortgage- Backed Securities			Trading Account Assets - Equity Securities			Equity Securities Available-for-Sale
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	96,796		$	63,789		$	0		$	313		$	192
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	149			0			0			0			0
Asset management fees and other income	0			0			0			15			0
Included in other comprehensive income (loss)	(513		)	394			(83		)	0			0
Net investment income	3,738			110			0			0			0
Purchases	5,362			14,933			52,518			0			0
Sales	(202		)	0			0			0			(192		)
Issuances	0			0			0			0			0
Settlements	(1,384		)	(39,600		)	0			(328		)	0
Transfers into Level 3 (1)	0			28,152			0			0			0
Transfers out of Level 3 (1)	0			(4,878		)	(45,365		)	0			0
Fair Value, end of period assets/(liabilities)	$	103,946		$	62,900		$	7,070		$	0		$	0
Unrealized gains (losses) for assets still held (2):
Included in earnings:
Realized investment gains (losses), net	$	0		$	0		$	0		$	0		$	0
Asset management fees and other income	$	0		$	0		$	0		$	15		$	0



	Nine Months Ended September 30, 2014
	Cash Equivalents		Other Long- Term Investments			Reinsurance Recoverables		Receivables from Parent and Affiliates			Future Policy Benefits
	(in thousands)
Fair Value, beginning of period assets/(liabilities)	$	0	$	486		$	748,005	$	6,347		$	(778,226	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net	0		0			1,307,462		0			(1,353,916		)
Asset management fees and other income	0		(19		)	0		0			0
Included in other comprehensive income (loss)	0		0			0		(213		)	0
Net investment income	0		0			0		0			0
Purchases	400		166			176,013		19,350			0
Sales	0		0			0		0			0
Issuances	0		0			0		0			(184,599		)
Settlements	0		(5		)	0		0			0
Transfers into Level 3 (1)	0		0			0		1,985			0
Transfers out of Level 3 (1)	0		0			0		(4,943		)	0
Fair Value, end of period assets/(liabilities)	$	400	$	628		$	2,231,480	$	22,526		$	(2,316,741	)
Unrealized gains (losses) for assets/liabilities still held (2):
Included in earnings:
Realized investment gains (losses), net	$	0	$	0		$	1,327,516	$	0		$	(1,374,751	)
Asset management fees and other income	$	0	$	(19	)	$	0	$	0		$	0

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements


(1)	Transfers into or out of any level are generally reported as the value as of the beginning of the quarter in which the transfer occurs for any such assets still held at the end of the quarter.


(2)	Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.

Transfers – 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 is able to validate.

Fair Value of Financial Instruments

The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Unaudited Interim Statements of Financial Position; however, in some cases, as described below, the carrying amount equals or approximates fair value.



	September 30, 2015
	Fair Value								Carrying Amount (1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	2,829	$	419,925	$	422,754	$	404,084
Policy loans	0		0		12,718		12,718		12,718
Other long-term investments	0		0		3,046		3,046		2,740
Cash and cash equivalents	197		0		0		197		197
Accrued investment income			26,929				26,929		26,929
Receivables from parent and affiliates			24,347				24,347		24,348
Other assets			1,529		0		1,529		1,529
Total assets	$	197	$	55,634	$	435,689	$	491,520	$	472,545
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	0	$	104,973	$	104,973	$	104,582
Cash collateral for loaned securities			9,970				9,970		9,970
Payables to parent and affiliates			27,155				27,155		27,155
Other liabilities			81,827				81,827		81,827
Separate account liabilities - investment contracts	0		325		0		325		325
Total liabilities	$	0	$	119,277	$	104,973	$	224,250	$	223,859

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	December 31, 2014
	Fair Value								Carrying Amount (1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	2,779	$	447,157	$	449,936	$	422,563
Policy loans	0		0		13,355		13,355		13,355
Other long-term investments	0		0		2,639		2,639		2,238
Cash and cash equivalents	369		0		0		369		369
Accrued investment income	0		25,008		0		25,008		25,008
Receivables from parent and affiliates	0		10,367		0		10,367		10,367
Other assets	0		1,009		0		1,009		1,009
Total assets	$	369	$	39,163	$	463,151	$	502,683	$	474,909
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	0	$	91,217	$	91,217	$	92,663
Cash collateral for loaned securities	0		5,285		0		5,285		5,285
Short-term debt	0		54,354		0		54,354		54,354
Payables to parent and affiliates	0		37,415		0		37,415		37,415
Other liabilities	0		89,956		0		89,956		89,956
Separate account liabilities - investment contracts	0		487		0		487		487
Total liabilities	$	0	$	187,497	$	91,217	$	278,714	$	280,160

(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. Financial statement captions excluded from the above table are not considered financial instruments.

The fair values presented above have been determined by using available market information and by applying market valuation methodologies, as described in more detail below.

Commercial Mortgage and Other Loans

The fair value of most commercial mortgage loans is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate plus an appropriate credit spread for similar quality loans. The quality ratings for these loans, a primary determinant of the credit spreads and a significant component of the pricing process, are based on an internally-developed methodology.

Policy Loans

Policy loans carrying value approximates fair value.

Other Long-Term Investments

Other long-term investments include investments in joint ventures and limited partnerships. The estimated fair values of these cost method investments are generally based on the Company’s share of the NAV as provided in the financial statements of the investees. In certain circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence to support applying such adjustments. No such adjustments were made as of September 30, 2015 and December 31, 2014.

Cash and Cash Equivalents, Accrued Investment Income, Receivables from Parent and Affiliates, and Other Assets

The Company believes that due to the short-term nature of certain assets, the carrying value approximates fair value. These assets include: cash and cash equivalents, accrued investment income, and other assets that meet the definition of financial instruments, including receivables such as unsettled trades and accounts receivable.

Policyholders’ Account Balances - Investment Contracts

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

Only the portion of policyholders’ account balances related to products that are investment contracts (those without significant mortality or morbidity risk) are reflected in the table above. For payout annuities and other similar contracts without life contingencies, fair values are generally derived using discounted projected cash flows based on interest rates that are representative of the Company’s financial strength ratings, and hence reflect the Company’s own NPR. For those balances that can be withdrawn by the customer at any time without prior notice or penalty, the fair value is the amount estimated to be payable to the customer as of the reporting date, which is generally the carrying value.

Cash Collateral for Loaned Securities

Cash collateral for loaned securities represents the collateral received or paid in connection with loaning or borrowing securities. For these transactions, the carrying value of the related asset/liability approximates fair value as they equal the amount of cash collateral received or paid.

Debt

The fair value of short-term debt is generally determined by either prices obtained from independent pricing services, which are validated by the Company, or discounted cash flow models. These fair values consider the Company’s own NPR. Discounted cash flow models predominately use market observable inputs such as the borrowing rates currently available to the Company for debt and financial instruments with similar terms and remaining maturities. For debt with a maturity of less than 90 days, the carrying value approximates fair value.

Other Liabilities and Payables to Parent and Affiliates

Other liabilities and payables to parent and affiliates are primarily payables, such as unsettled trades, drafts, escrow deposits and accrued expense payables. Due to the short-term until settlement of most of these liabilities, the Company believes that carrying value approximates fair value.

Separate Account Liabilities - Investment Contracts

Only the portion of separate account liabilities related to products that are investment contracts are reflected in the table above. Separate account liabilities are recorded at the amount credited to the contractholder, which reflects the change in fair value of the corresponding separate account assets including contractholder deposits less withdrawals and fees; therefore, carrying value approximates fair value.

5. DERIVATIVE INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

Interest Rate Contracts

Interest rate swaps are used by the Company to reduce risks from changes in interest rates, manage interest rate exposures arising from mismatches between assets and liabilities (including duration mismatches) and to hedge against changes in the value of assets it owns or anticipates acquiring or selling. Swaps may be attributed to specific assets or liabilities or may be used on a portfolio basis. Under interest rate swaps, the Company agrees with counterparties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed upon notional principal amount.

Equity Contracts

Equity index options are contracts which will settle in cash based on differentials in the underlying indices at the time of exercise and the strike price. The Company uses combinations of purchases and sales of equity index options to hedge the effects of adverse changes in equity indices within a predetermined range.

Total return swaps are contracts whereby the Company agrees with counterparties to exchange, at specified intervals, the difference between the return on an asset (or market index) and LIBOR plus an associated funding spread based on a notional amount. The Company generally uses total return swaps to hedge the effect of adverse changes in equity indices.

Foreign Exchange Contracts

Currency derivatives, including currency swaps, are used by the Company to reduce risks from changes in currency exchange rates with respect to investments denominated in foreign currencies that the Company either holds or intends to acquire or sell.

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

Under currency forwards, the Company agrees with counterparties to deliver a specified amount of an identified currency at a specified future date. Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. The Company executes forward sales of the hedged currency in exchange for U.S. dollars at a specified exchange rate. The maturities of these forwards correspond with the future periods in which the non-U.S. dollar-denominated earnings are expected to be generated. These earnings hedges do not qualify for hedge accounting.

Under currency swaps, the Company agrees with counterparties to exchange, at specified intervals, the difference between one currency and another at an exchange rate and calculated by reference to an agreed principal amount. Generally, the principal amount of each currency is exchanged at the beginning and termination of the currency swap by each party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty for payments made in the same currency at each due date.

Credit Contracts

Credit derivatives are used by the Company to enhance the return on the Company’s investment portfolio by creating credit exposure similar to an investment in public fixed maturity cash instruments. With credit derivatives the Company sells credit protection on a single name reference, or certain index reference, and in return receives a quarterly premium. With credit default derivatives, this premium or credit spread generally corresponds to the difference between the yield on the referenced name’s public fixed maturity cash instruments and swap rates, at the time the agreement is executed. If there is an event of default by the referenced name, as defined by the agreement, then the Company is obligated to pay the counterparty the referenced amount of the contract and receive in return the referenced defaulted security or similar security or pay the referenced amount less the auction recovery rate. See the credit derivatives section for a discussion of guarantees related to credit derivatives written. In addition to selling credit protection, the Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio.

Embedded Derivatives

The Company sells variable annuity products, which may include guaranteed benefit features that are accounted for as embedded derivatives. The Company has reinsurance agreements to transfer the risk related to certain of these benefit features to affiliates, Pruco Re and The Prudential Insurance Company of America (“Prudential Insurance”). The embedded derivatives related to the living benefit features and the related reinsurance agreements are carried at fair value. These embedded derivatives are marked to market through “Realized investment gains (losses), net” based on the change in value of the underlying contractual guarantees, which are determined using valuation models, as described in Note 4 to the Unaudited Interim Financial Statements.

The table below provides a summary of the gross notional amount and fair value of derivatives contracts by the primary underlying, excluding embedded derivatives which are recorded with the associated host. Many derivative instruments contain multiple underlyings. The fair value amounts below represent the gross fair value of derivative contracts prior to taking into account the netting effects of master netting agreements, cash collateral held with the same counterparty, and non-performance risk.

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	September 30, 2015							December 31, 2014
			Gross Fair Value							Gross Fair Value
Primary Underlying	Notional		Assets		Liabilities			Notional		Assets		Liabilities
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate
Foreign Currency Swaps	$	97,184	$	13,886	$	0		$	83,412	$	5,555	$	(654	)
Total Qualifying Hedges	$	97,184	$	13,886	$	0		$	83,412	$	5,555	$	(654	)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	2,002,750	$	109,080	$	(16,592	)	$	1,902,750	$	92,507	$	(18,480	)
Interest Rate Options	0		0		0			100,000		10,736		0
Foreign Currency
Foreign Currency Forwards	2,811		17		0			0		0		0
Currency/Interest Rate
Foreign Currency Swaps	53,732		10,037		0			57,011		4,363		(5		)
Credit
Credit Default Swaps	0		0		0			1,200		0		(43		)
Equity
Total Return Swaps	216,027		8,479		0			220,986		1,937		0
Equity Options	11,784,960		11,992		(7,890		)	6,842,242		3,748		(2,067		)
Total Non-Qualifying Hedges	$	14,060,280	$	139,605	$	(24,482	)	$	9,124,189	$	113,291	$	(20,595	)
Total Derivatives (1)	$	14,157,464	$	153,491	$	(24,482	)	$	9,207,601	$	118,846	$	(21,249	)

(1)

Excludes embedded derivatives which contain multiple underlyings. The fair value of these embedded derivatives was a net liability of $3,401 million and $3,112 million as of September 30, 2015 and December 31, 2014, respectively, included in “Future policy benefits.” The fair value of the embedded derivatives related to the reinsurance of certain of these benefits to Pruco Re and Prudential Insurance included in “Reinsurance recoverables” was an asset of $3,271 million and $2,996 million as of September 30, 2015 and December 31, 2014, respectively. See Note 7 for additional information on these reinsurance agreements.

Offsetting Assets and Liabilities

The following table presents recognized derivative instruments (excluding embedded derivatives and associated reinsurance recoverables) 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.



	September 30, 2015
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statement of Financial Position			Net Amounts Presented in the Statement of Financial Position		Financial Instruments/ Collateral(1)			Net Amount
	(in thousands)
Offsetting of Financial Assets:
Derivatives	$	153,491	$	(18,608	)	$	134,883	$	(131,034	)	$	3,849
Offsetting of Financial Liabilities:
Derivatives	$	24,482	$	(24,482	)	$	0	$	0		$	0

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	December 31, 2014
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statement of Financial Position			Net Amounts Presented in the Statement of Financial Position		Financial Instruments/ Collateral(1)			Net Amount
	(in thousands)
Offsetting of Financial Assets:
Derivatives	$	118,846	$	(24,288	)	$	94,558	$	(82,602	)	$	11,956
Offsetting of Financial Liabilities:
Derivatives	$	21,249	$	(21,249	)	$	0	$	0		$	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.

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, equity or embedded 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 September 30, 2015
	Realized Investment Gains (Losses)			Net Investment Income		Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	0		$	168	$	438	$	3,282
Total cash flow hedges	0			168		438		3,282
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	38,809			0		0		0
Currency	13			0		0		0
Currency/Interest Rate	1,997			0		41		0
Credit	(1		)	0		0		0
Equity	15,977			0		0		0
Embedded Derivatives	(50,781		)	0		0		0
Total non-qualifying hedges	6,014			0		41		0
Total	$	6,014		$	168	$	479	$	3,282

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	Nine Months Ended September 30, 2015
	Realized Investment Gains (Losses)			Net Investment Income		Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	0		$	415	$	563	$	8,518
Total cash flow hedges	0			415		563		8,518
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	24,613			0		0		0
Currency	31			0		0		0
Currency/Interest Rate	7,212			0		143		0
Credit	(3		)	0		0		0
Equity	11,104			0		0		0
Embedded Derivatives	(37,615		)	0		0		0
Total non-qualifying hedges	5,342			0		143		0
Total	$	5,342		$	415	$	706	$	8,518



	Three Months Ended September 30, 2014
	Realized Investment Gains (Losses)			Net Investment Income			Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	0		$	(3	)	$	80	$	5,080
Total cash flow hedges	0			(3		)	80		5,080
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	14,059			0			0		0
Currency	0			0			0		0
Currency/Interest Rate	3,546			0			47		0
Credit	0			0			0		0
Equity	414			0			0		0
Embedded Derivatives	(23,566		)	0			0		0
Total non-qualifying hedges	(5,547		)	0			47		0
Total	$	(5,547	)	$	(3	)	$	127	$	5,080

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements



	Nine Months Ended September 30, 2014
	Realized Investment Gains (Losses)			Net Investment Income			Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	0		$	(20	)	$	63	$	4,657
Total cash flow hedges	0			(20		)	63		4,657
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	77,657			0			0		0
Currency	0			0			0		0
Currency/Interest Rate	3,332			0			55		0
Credit	(11		)	0			0		0
Equity	(15,568		)	0			0		0
Embedded Derivatives	(76,201		)	0			0		0
Total non-qualifying hedges	(10,791		)	0			55		0
Total	$	(10,791	)	$	(20	)	$	118	$	4,657


(1)	Amounts deferred in AOCI.

For the three and nine months ended September 30, 2015 and 2014, the ineffective portion of derivatives accounted for using hedge accounting was not material to the Company’s results of operations. Also, there were no material amounts reclassified 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.

Presented below is a rollforward of current period cash flow hedges in “Accumulated other comprehensive income (loss)” before taxes:



	(in thousands)
Balance, December 31, 2014	$	4,839
Net deferred gains (losses) on cash flow hedges from January 1 to September 30, 2015	10,058
Amounts reclassified into current period earnings	(1,540		)
Balance, September 30, 2015	$	13,357

As of September 30, 2015 and 2014, the Company did not have any qualifying cash flow hedges of forecasted transactions other than those related to the variability of the payment or receipt of interest or foreign currency amounts on existing financial instruments. The maximum length of time for which these variable cash flows are hedged is 18 years. Income amounts deferred in AOCI as a result of cash flow hedges are included in "Net unrealized investment gains (losses)" within OCI in the Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Credit Derivatives

The Company has no exposure from credit derivatives where it has written credit protection as of September 30, 2015 and December 31, 2014.As of September 30, 2015, the Company has no open positions where it has purchased credit protection using credit derivatives in order to hedge specific credit exposure in the Company's investment portfolio. As of December 31, 2014, the Company had $1 million of outstanding notional amounts, reported at fair value as a liability of less than $1 million.

Credit Risk

The Company is exposed to credit-related losses in the event of non-performance by its counterparty to financial derivative transactions.

The Company has credit risk exposure to an affiliate, Prudential Global Funding, LLC (“PGF”), related to its OTC derivative transactions. PGF manages credit risk with external counterparties by entering into derivative transactions with highly rated major

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

international financial institutions and other creditworthy counterparties, and by obtaining collateral, such as cash and securities, when appropriate. Additionally, limits are set on single party credit exposures which are subject to periodic management review.

Under fair value measurements, the Company incorporates the market’s perception of its own and the counterparty’s non-performance risk in determining the fair value of the portion of its OTC derivative assets and liabilities that are uncollateralized. Credit spreads are applied to the derivative fair values on a net basis by counterparty. To reflect the Company’s own credit spread, a proxy based on relevant debt spreads is applied to OTC derivative net liability positions. Similarly, the Company’s counterparty’s credit spread is applied to OTC derivative net asset positions.

6. COMMITMENTS, CONTINGENT LIABILITIES AND LITIGATION AND REGULATORY MATTERS

Commitments

The Company had made commitments to fund $54 million of commercial loans as of September 30, 2015. The Company also made commitments to purchase or fund investments, mostly private fixed maturities, of $19 million as of September 30, 2015.

Contingent Liabilities

On an ongoing basis, the Company’s internal supervisory and control functions review the quality of sales, marketing and other customer interface procedures and practices and may recommend modifications or enhancements. From time to time, this review process results in the discovery of product administration, servicing or other errors, including errors relating to the timing or amount of payments or contract values due to customers. In certain cases, if appropriate, the Company may offer customers remediation and may incur charges, including the cost of such remediation, administrative costs and regulatory fines.

The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements. For additional discussion of these matters, see “Litigation and Regulatory Matters” below.

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

Litigation and Regulatory Matters

The Company is subject to legal and regulatory actions in the ordinary course of its 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, including matters discussed below. The Company estimates that as of September 30, 2015, 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 $3 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.

A discussion of litigation and regulatory matters is provided in Note 12 to the Company’s Financial Statements on Form 10-K for the year ended December 31, 2014. There have been no significant changes in such matters through the date of this filing.

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

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

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 position. Management believes, however, that, based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, is not likely to have a material adverse effect on the Company’s financial position.

7. 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

Many of the Company’s expenses are allocations or charges from Prudential Insurance or other affiliates.

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 also include allocations of stock compensation expenses related to a stock option program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock option program and deferred compensation program was less than $1 million for the three months ended September 30, 2015 and 2014, and less than $1 million for the nine months ended September 30, 2015 and 2014.

The Company is charged for its share of employee benefits expenses. These expenses include costs for funded and non-funded contributory and non-contributory defined benefit pension plans. Some of these benefits are based on earnings and length of service. Other benefits are based on an account balance, which takes into consideration age, service and earnings during career. The Company’s share of net expense for the pension plans was less than $1 million for the three months ended September 30, 2015 and 2014, and $1 million for the nine months ended September 30, 2015 and 2014.

Prudential Insurance sponsors voluntary savings plans for its employees' 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 expense charged to the Company for the matching contribution to the 401(k) plans was less than $1 million for the three months ended September 30, 2015 and 2014, and less than $1 million for the nine months ended September 30, 2015 and 2014.

Affiliated Asset Administration Fee Income

In accordance with a revenue sharing agreement with AST Investment Services, Inc. (“ASTISI”), and Prudential Investments LLC (“Prudential Investments”), the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust and The Prudential Series Fund. Income received from ASTISI and Prudential Investments related to this agreement was $37 million and $56 million for the three months ended September 30, 2015 and 2014, respectively, and $143 million and $167 million for the nine months ended September 30, 2015 and 2014, respectively. These revenues are recorded as “Asset administration fees and other income” in the Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Affiliated Investment Management Expenses

In accordance with an agreement with Prudential Investment Management, Inc. (“PIMI”), the Company pays investment management expenses to PIMI who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PIMI related to this agreement were $1 million for the three months ended September 30, 2015 and 2014, and $4 million for the nine months ended September 30, 2015 and 2014. These expenses are recorded as “Net investment income” in the Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Cost Allocation Agreements with Affiliates

Certain operating costs (including rental of office space, furniture, and equipment) have been charged to the Company at cost by Prudential Annuities Information Services and Technology Corporation (“PAIST”), an affiliated company. PALAC signed a written

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements

service agreement with PAIST for these services executed and approved by the Connecticut Insurance Department in 1995. This agreement automatically continues in effect from year to year and may be terminated by either party upon 30 days written notice.

Allocated lease expense was $2 million and $1 million for the three months ended September 30, 2015 and 2014, respectively, and $2 million and $3 million for the nine months ended September 30, 2015 and 2014, respectively. Allocated sub-lease rental income, recorded as a reduction to lease expense was less than $1 million for both the three months ended September 30, 2015 and 2014, and less than $1 million for both the nine months ended September 30, 2015 and 2014.

The Company pays commissions and certain other fees to PAD in consideration for PAD’s marketing and underwriting of the Company’s products. Commissions and fees are paid by PAD to broker-dealers who sold and service the Company’s products. Commissions and fees paid by the Company to PAD were $29 million and $45 million for the three months ended September 30, 2015 and 2014, respectively, and $114 million and $134 million for the nine months ended September 30, 2015 and 2014, respectively.

Debt Agreements

Short-term and Long-term Debt

The Company is authorized to borrow funds up to $2 billion from Prudential Financial and its affiliates to meet its capital and other funding needs. The Company had debt of $0 million and $54 million outstanding with Prudential Funding, LLC as of September 30, 2015 and December 31, 2014, respectively. Total interest expense on debt with Prudential Funding, LLC and Prudential Financial was less than $1 million for the three months ended September 30, 2015 and 2014, and less than $1 million for the nine months ended September 30, 2015 and 2014.

In December 2014 the Company paid off the remaining $200 million short-term portion of the long-term debt. Total interest expense on debt with Prudential Financial was $0 million and $2 million for the three months ended September 30, 2015 and 2014, respectively, and $0 million and $7 million for the nine months ended September 30, 2015 and 2014, respectively.

Reinsurance Agreements

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its optional living benefit features. Fees ceded under these agreements are included in “Realized investment gains (losses), net” on the Unaudited Interim Statements of Operations and Comprehensive Income (Loss). The Company ceded fees of $66 million and $68 million to Pruco Re for the three months ended September 30, 2015 and 2014, respectively, and $204 million and $206 million for the nine months ended September 30, 2015 and 2014, respectively. The Company ceded fees of less than $1 million to Prudential Insurance for the three months ended September 30, 2015 and 2014, and less than $1 million for the nine months ended September 30, 2015 and 2014. The Company’s reinsurance payables related to affiliated reinsurance were $24 million and $25 million as of September 30, 2015 and December 31, 2014, respectively.

The Company’s reinsurance recoverables related to affiliated reinsurance were $3,272 million and $2,997 million as of September 30, 2015 and December 31, 2014, respectively. The assets are reflected in “Reinsurance recoverables” in the Company’s Unaudited Interim Statements of Financial Position. Realized gains (losses) were $991 million and $569 million for the three months ended September 30, 2015 and 2014, respectively, and $71 million and $1,278 million for the nine months ended September 30, 2015 and 2014, respectively. Changes in realized gains (losses) for the 2015 and 2014 periods were primarily due to changes in market conditions in each respective period.

See Note 6 to the Company’s Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2014, for information regarding the Company’s reinsurance agreements.

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.

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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 Prudential Annuities Life Assurance Corporation (“PALAC” or the “Company”) as of September 30, 2015, compared with December 31, 2014, and its results of operations for the three and nine months ended September 30, 2015 and 2014. 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, 2014, 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 was established in 1969 and has been a provider of variable annuity contracts for the individual market in the United States. The Company’s products have been sold primarily to individuals to provide for long-term savings and retirement needs and to address the economic impact of premature death, estate planning concerns and supplemental retirement income.

The Company has sold a wide array of annuities, including deferred and immediate variable annuities with (1) fixed interest rate allocation options, subject to a market value adjustment, that are registered with the United States Securities and Exchange Commission (the “SEC”), and (2) fixed-rate allocation options not subject to a market value adjustment and not registered with the SEC. In addition, the Company has a relatively small in force block of variable life insurance policies. The Company no longer actively sells such products.

Beginning in March 2010, the Company ceased offering its variable and fixed annuity products (and where offered, the companion market value adjustment option) to new investors upon the launch of a new product line by each of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey (which are affiliates of the Company). These initiatives were implemented to create operational and administrative efficiencies by offering a single product line of annuity products from a more limited group of legal entities. During 2012, the Company suspended additional customer deposits for variable annuities with certain optional living benefit riders. However, subject to applicable contract provisions and administrative rules, the Company continues to accept additional customer deposits on certain in force contracts.

Regulatory Developments

In April 2015, the U.S. Department of Labor (“DOL”) released a proposed regulation accompanied by new class exemptions and proposed amendments to long-standing exemptions from the prohibited transaction provisions under the Employee Retirement Income Security Act of 1974 (“ERISA”). The initial comment period for the proposed rules ended on July 21, 2015. After hearings in August 2015, the DOL re-opened the comment period until September 24, 2015. It is expected that the DOL will seek to promulgate final rules in 2016. If enacted, the rules will redefine who would be considered a “fiduciary” for purposes of transactions with qualified plans, plan participants and Individual Retirement Accounts (“IRAs”). We cannot predict the exact nature and scope of any new final rules or their impact on our business; however, the new rules may effectively impose limits on interactions with existing and prospective customers in our individual annuities business, and increase compliance costs.

Prudential Financial, Inc. (“Prudential Financial”) is required as a non-bank financial company (a “Designated Financial Company”) designated for supervision under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), to submit to the Board of Governors of the Federal Reserve System (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”) an annual plan for rapid and orderly resolution in the event of severe financial distress. Prudential Financial submitted its initial resolution plan in June 2014, and was advised by the FRB and the FDIC in September 2014 that the plan was “not incomplete”, the standard for an initial plan. In July 2015, the FRB and the FDIC provided feedback to Prudential Financial, as well as to the other two Designated Financial Companies which filed initial plans in 2014, on their respective resolution plans. The FRB and FDIC also provided guidance on common areas that should be addressed in preparing the resolution plans to be submitted by December 31, 2015.

The Financial Stability Board (“FSB”), consisting of representatives of financial authorities from over 20 nations and global institutions, has identified Prudential Financial as a global systemically important insurer (“G-SII”) that is to be subject to enhanced regulation. The International Association of Insurance Supervisors (“IAIS”), acting at the direction of the FSB, has released two group-wide capital standards applicable to G-SIIs. The basic capital requirement (“BCR”), which was released in October 2014, is a globally consistent and comparable baseline capital metric. The higher loss absorbency (“HLA”) standard, which was released in October 2015, establishes a capital buffer to be held in addition to the BCR. As a standard setting body, the IAIS does not have

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direct authority to require G-SIIs to comply with the BCR and HLA standards; however, if they are adopted by group supervisory authorities in the U.S., Prudential Financial could become subject to these standards. Voluntary confidential reporting of BCR and HLA results to supervisors through IAIS Field Testing will begin in 2016 and will serve as a component of the IAIS process to refine the standards. Prudential Financial’s capital level is expected to be above the initial calibration for both standards. The IAIS anticipates their process to develop global group wide capital standards will lead to changes to the HLA design and calibration prior to the proposed implementation in 2019. We will continue to evaluate the potential impact the standards and any revisions could have on the Company.

The New Jersey Department of Banking and Insurance (“NJDOBI”) has notified Prudential Financial that New Jersey’s recently enacted legislation authorizing group-wide supervision of internationally active insurance groups (the “GWS Law”) authorizes NJDOBI to act as the group-wide supervisor (“GWS”) of Prudential Financial under the GWS Law. The GWS Law, among other provisions, authorizes NJDOBI to examine Prudential Financial and its subsidiaries, in addition to its New Jersey domiciled insurance subsidiaries, for the purpose of ascertaining the financial condition of the insurance companies and compliance with New Jersey insurance laws. We cannot predict what additional requirements or costs may result from NJDOBI’s assertion of GWS status with respect to Prudential Financial.

For additional information on the potential impacts of regulation on the Company, including the topics described above, see “Business—Regulation” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.

Revenues and Expenses

The Company earns revenues from policy charges, fee income, asset administration from insurance and investment products and from net investment income on the investment of general account and other funds. The Company’s operating expenses principally consist of insurance benefits provided and reserves established for anticipated future insurance benefits, general business expenses, commissions and other costs of selling and servicing the various products it sold.

Effective February 25, 2013, the Advanced Series Trust (“AST”) adopted a Rule 12b-1 Plan under the Investment Company Act of 1940 with respect to most of the AST portfolios that are offered through the Company’s variable annuity and variable life insurance products. Under the Rule 12b-1 Plan, AST pays an affiliate of the Company for distribution and administrative services. In June 2015, AST received shareholder approval to amend the Rule 12b-1 Plan. Effective July 1, 2015, there was an increase in the amount AST pays the Company's affiliate for distribution and administrative services. However, there was also a reduction in management fees. In addition, due to the revised Rule 12b-1 Plan, the asset administration fees received by the Company from AST Investment Services, Inc., and related distribution expenses of the Company, have decreased.

Results for the nine months ended September 30, 2015, and for the three and nine months ended September 30, 2014, reflect the impacts of our annual reviews and updates of assumptions, which we performed in the second quarter of 2015 and the third quarter of 2014, respectively. Results for the three months ended September 30, 2015 do not reflect an impact from an annual review.

Profitability

The Company’s profitability depends principally on its ability to manage risk on insurance and annuity products. Profitability also depends on, among other items, our actuarial and policyholder behavior experience on insurance and annuity products, our ability to retain customer assets, generate and maintain favorable investment results, and to manage expenses.

See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for a discussion of risks that have materially affected and may affect in the future the Company’s business, results of operations or financial condition, or cause the Company’s actual results to differ materially from those expected or those expressed in any forward-looking statements made by or on behalf of the Company.

Products

The Company’s in force variable and fixed annuities may include guaranteed living or death benefits. Certain optional living benefit guarantees include, among other features, the ability to make withdrawals based on the highest daily contract value plus a specific return, credited for a period of time. This guaranteed contract value is a notional amount that forms the basis for determining periodic withdrawals for the life of the contractholder, and cannot be accessed as a lump-sum surrender value. Most contracts also guarantee the contractholder's beneficiary a return of total purchase payments made to the contract, adjusted for any partial withdrawals, upon death. Our variable annuities generally provide our contractholders with the opportunity to allocate purchase payments to sub-accounts that invest in underlying proprietary and non-proprietary mutual funds, frequently under asset allocation programs, and fixed-rate accounts. The fixed-rate accounts, which are within the general account, are credited with interest at rates we determine, subject to certain minimums. Certain allocations made in the fixed-rate accounts of our variable annuities impose a market value adjustment if the contract is not held to maturity.

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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 equity market returns, interest rates, market volatility, contractholder longevity/mortality, timing and amount of annuitization and withdrawals, withdrawal efficiency and contract lapses. The return we realize from our variable annuity contracts will vary based on the extent of the differences between our actual experience and the assumptions used in the original pricing of these products. Our returns can also vary due to the impact and effectiveness of our hedging programs for any capital markets movements that we may hedge, the impact of affiliated reinsurance, the impact of that portion of our variable annuity contracts with an asset transfer feature, the impact of risks we have retained and the impact of risks that are not able to be hedged.

Our risk management strategy helps to limit our exposure to certain of these risks primarily through a combination of product design elements, our living benefits hedging program and affiliated reinsurance arrangements. The product design elements we utilize for certain products include, among others, asset allocation restrictions, minimum issuance age requirements, certain limitations on the amount of subsequent contractholder deposits and an asset transfer feature. The objective of the asset transfer feature is to help mitigate our exposure to equity market risk and market volatility by transferring assets between certain variable investment sub-accounts selected by the annuity contractholder, and investments that are expected to be more stable (e.g., a bond fund sub-account within the separate account or a fixed-rate account within the general account). The transfers are based on the static mathematical formula used with the particular optional benefit which considers a number of factors, including, but not limited to, the impact of investment performance on the contractholder’s total account value. This occurs at the contractholder level, rather than at the fund level, which we believe enhances our risk mitigation. As of September 30, 2015, approximately $34.5 billion or 84% of total variable annuity account values contain a living benefit feature, compared to approximately $38.5 billion or 83% as of December 31, 2014. As of September 30, 2015, approximately $27.5 billion or 80% of variable annuity account values with living benefit features included an asset transfer feature in the product design, compared to approximately $30.4 billion or 79% as of December 31, 2014.

As mentioned above, in addition to our asset transfer feature, we also manage certain risks associated with our variable annuity products through our living benefits hedging programs and affiliated reinsurance agreements. We reinsure the majority of our variable annuity living benefit guarantees to an affiliated reinsurance company, Pruco Reinsurance, Ltd. (“Pruco Re”). The living benefits hedging program is primarily executed within Pruco Re to manage capital markets risk associated with the reinsured living benefit guarantees. The program is also executed within the Company related to certain non-reinsured optional living benefit guarantees. We use our hedging program to help manage certain risks associated with certain of our guarantees. The hedging program's objective is to help mitigate fluctuations in net income and capital from living benefit liabilities due to capital market movements, within firm established tolerances. Through our hedging program, we enter into derivative positions that seek to offset the net change in our hedge target. In addition to mitigating fluctuations of the living benefit liabilities due to capital market movements, the hedging program is also focused on a long-term goal of accumulating assets that could be used to pay claims under these benefits irrespective of market path.

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted 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 estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, the Company’s results of operations and financial position as reported in the Unaudited Interim Financial Statements could change significantly.

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


•	Deferred policy acquisition costs (“DAC”) and other costs, including deferred sales inducements (“DSI”) and value of business acquired (“VOBA”);


•	Valuation of investments, including derivatives, and the recognition of other-than-temporary impairments;


•	Policyholder liabilities;


•	Reinsurance recoverables;


•	Taxes on income; and


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

Annually, we perform a comprehensive review of the assumptions used in establishing reserves and in calculating the

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amortization of DAC and other costs. As discussed in “—Results of Operations” below, beginning in 2015, we perform our annual review of assumptions during the second quarter.

DAC and Other Costs

We amortize DAC and other costs over the expected life of the contracts in proportion to total gross profits. Total gross profits include both actual gross profits and estimates of gross profits for future periods. In calculating gross profits, we consider mortality, persistency, and other elements as well as rates of return on investments associated with these contracts, and the cost related to our guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”). Gross profits and amortization rates also include the impacts of the embedded derivatives associated with certain of the living benefit features of our variable annuity contracts and related hedging activities. In calculating amortization expense, we estimate the amounts of gross profits that will be included in our U.S. GAAP results, and utilize these estimates to calculate amortization rates and expense amounts. In addition, in calculating gross profits, we include the profits and losses related contracts previously issued by the Company that are reported in affiliated legal entities other than the Company as a result of, for example, reinsurance agreements with those affiliated entities. The Company is an indirect subsidiary of Prudential Financial (an SEC registrant) and has extensive transactions and relationships with other subsidiaries of Prudential Financial, including reinsurance agreements, as discussed in Note 7 to the Unaudited Interim Financial Statements. Incorporating all product-related profits and losses in gross profits, including those that are reported in affiliated legal entities, produces a DAC amortization pattern representative of the total economics of the products. For a further discussion of the amortization of DAC and other costs, see “—Results of Operations”.

The near-term future equity rate of return assumptions used in evaluating DAC and DSI for our domestic variable annuity products are 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%, we use our maximum future rate of return. As of September 30, 2015, we assume an 8.0% long-term equity expected rate of return and a 7.3% near-term mean reversion equity rate of return.

The weighted average rate of return assumptions consider many factors, including asset durations, asset allocations and other factors. We generally update the near-term equity rate of return and our estimate of total gross profits each quarter to reflect the result of the reversion to the mean approach. We generally update the future interest rates used to project fixed income returns annually and in any quarter when interest rates vary significantly from these assumptions. These market performance related adjustments to our estimate of total gross profits result in cumulative adjustments to prior amortization, reflecting the application of the new required rate of amortization to all prior periods’ gross profits.

For additional information on our policies for DAC and other costs and for the remaining critical accounting estimates listed above, see our Annual Report on Form 10-K for the year ended December 31, 2014, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies & Pronouncements—Application of Critical Accounting Estimates”.

Adoption of New Accounting Pronouncements

See Note 2 to our Unaudited Interim Financial Statements for a discussion of newly adopted accounting pronouncements.

Changes in Financial Position

September 30, 2015 versus December 31, 2014

Total assets decreased by $5.2 billion from $52.5 billion at December 31, 2014 to $47.3 billion at September 30, 2015. Separate account assets decreased $5.0 billion primarily driven by net outflows on the runoff block, unfavorable market performance, policy charges, and the impact of the asset transfer feature which moved contractholder account values from the separate account to the general account due to unfavorable markets in 2015. DAC and DSI decreased $0.5 billion primarily resulting from the impact of the embedded derivatives and related hedge positions and base amortization. Reinsurance recoverables increased $0.3 billion related to the reinsured liability for living benefit embedded derivatives primarily resulting from an increase in the present value of future expected benefit payments driven by declining interest rates.

Total liabilities decreased by $4.8 billion, from $50.8 billion at December 31, 2014 to $46.0 billion at September 30, 2015. Separate account liabilities decreased $5.0 billion offsetting the decrease in separate account assets above. Policyholders’ account balances decreased $0.1 billion primarily driven by account value runoff due to contractholder surrenders partially offset by the impact of the asset transfer feature which moved contractholder account values from the separate account to the general account. Partially offsetting the above decrease was an increase in Future policy benefits and other policyholder liabilities of $0.3 billion primarily driven by the mark-to-market of the liability for living benefit embedded derivatives, as discussed above.

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Total equity decreased by $0.3 billion from $1.7 billion at December 31, 2014 to $1.4 billion at September 30, 2015, reflecting the second quarter 2015 dividend of $0.3 billion.

Results of Operations

Income from Operations before Income Taxes

2015 versus 2014 Three Month Comparison.

Income from operations before income taxes decreased $231 million from $111 million in the third quarter of 2014 to a loss of $120 million in the third quarter of 2015. Excluding the impacts of changes in the estimated profitability of the business, as discussed below, income from operations before income taxes increased $6 million. The increase was primarily related to lower base DAC amortization due to lower gross profits and favorable variance on the mark-to-market of our non-reinsured living benefit features and related hedge positions, partially offset by lower net fees driven by lower average separate account assets due to runoff of the business.

The impacts of changes in the estimated profitability of the business include adjustments to the amortization of DAC and other costs and to reserves, resulted in a net charge of $224 million in the third quarter of 2015. The net charge primarily reflects the impact of NPR gains due to declining interest rates and unfavorable equity performance. The net benefit of $13 million in the third quarter of 2014 primarily reflects an annual review and update of assumptions, partially offset by NPR gains in the third quarter of 2014 due to NPR spread widening and lower interest rates.

2015 versus 2014 Nine Month Comparison.

Income from operations before income taxes decreased $263 million from $273 million in the first nine months of 2014 to $10 million in the first nine months of 2015. Excluding the impacts of changes in the estimated profitability of the business, as discussed below, income from operations before income taxes increased $19 million. The increase was primarily related to lower base DAC amortization due to lower gross profits, lower net general and administrative expenses driven by a lower allocation of operating expenses due to business runoff and a favorable variance on the mark-to-market of our non-reinsured living benefit features and related hedge positions, partially offset by lower net fees driven by lower average separate account asset values due to runoff of the business.

The impacts of changes in the estimated profitability of the business include adjustments to the amortization of DAC and other costs and to reserves, resulted in a net charge of $304 million for the first nine months of 2015. The net charge primarily reflects NPR gains due to spread widening and declining interest rates. The first nine months of 2015 had a benefit related to our annual review and update of assumptions, driven by modifications to both our actuarial and economic assumptions. The net charge of $22 million for the first nine months of 2014 primarily reflects NPR gains due to declining interest rates and the impact of lower expected rates of return on fixed income investments within contractholder accounts and on future expected claims relative to our assumptions, which more than offset favorable equity performance. Partially offsetting the charges above, was a benefit related to our annual review and update of assumptions, driven by modifications to both our actuarial and economic assumptions.

Revenues, Benefits and Expenses

2015 versus 2014 Three Month Comparison.

Revenues decreased $39 million. Excluding the $5 million impact of changes in the estimated profitability of the business, as discussed above, revenues decreased $44 million driven by an unfavorable variance in policy charges and fee income and asset administration fees and other income of $39 million primarily due to lower average separate account assets and the changes to the Rule 12b-1 Plan, as discussed above.

Benefits and expenses increased $192 million. Excluding the $242 million impacts of the amortization of DAC and other costs and to the reserves for the GMDB and GMIB features as discussed above, benefits and expenses decreased $50 million. The decrease was driven by a decline in general, administrative and other expenses of $28 million due to reduced expense allocations and lower distribution costs driven by lower average separate account values due to runoff of the business and the changes to the Rule 12b-1 Plan, as discussed above. DAC amortization and interest credited to policyholders’ account balances, decreased $20 million primarily due to lower base DAC and DSI amortization driven by lower gross profits, and interest expense decreased $2 million due to a repayment of debt in the fourth quarter of 2014.

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2015 versus 2014 Nine Month Comparison.

Revenues decreased $75 million. Excluding the $5 million impact of changes in the estimated profitability of the business, as discussed above, revenues decreased $80 million driven by an unfavorable variance in policy charges and fee income and asset administration fees and other income of $68 million primarily due to lower average separate account assets and the changes to the Rule 12b-1 Plan, as discussed above. Net investment income decreased $21 million primarily as a result of lower portfolio reinvestment yields and lower average annuity account values in the general account. Offsetting the above was a favorable variance in realized gains and losses of $10 million primarily due to differences between the mark-to-market of the non-reinsured portion of the living benefit embedded derivative liability and related hedge positions, as discussed above.

Benefits and expenses increased $187 million. Excluding the $287 million impacts of the amortization of DAC and other costs and to the reserves for the GMDB and GMIB features, as discussed above, benefits and expenses decreased $100 million. The decrease was driven by a decline in general, administrative and other expenses of $46 million due to reduced expense allocations and lower distribution costs driven by lower average separate account values due to runoff of the business and the changes to the Rule 12b-1 Plan, as discussed above. DAC amortization and interest credited to policyholders’ account balances, decreased $46 million primarily due to lower base DAC and DSI amortization driven by lower gross profits, and interest expense decreased $7 million due to a repayment of debt in the fourth quarter of 2014.

Income Taxes

The income tax provision amounted to an expense of $5 million and $42 million for the nine months ended September 30, 2015 and 2014, respectively. The decrease in income tax expense was primarily driven by the decrease in pre-tax income.

The Company's liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by the Internal Revenue Service (“IRS”) or other taxing authorities. Audit periods remain open for review until the statute of limitations has passed. Generally, for tax years which produce net operating losses, capital losses or tax credit carryforwards (“tax attributes”), the statute of limitations does not close, to the extent of these tax attributes, until the expiration of the statute of limitations for the tax year in which they are fully utilized. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the liability for income taxes.

The Company does not anticipate any significant changes within the next 12 months to its total unrecognized tax benefits related to tax years for which the statute of limitations has not expired.

As of September 30, 2015, the Company remains subject to examination in the U.S. for tax years 2009 through 2014.

The dividends received deduction (“DRD”) reduces the amount of dividend income subject to U.S. tax and is a significant component of the difference between the Company’s effective tax rate and the federal statutory tax rate of 35%. The DRD for the current period was estimated using information from 2014 and current year results, and was adjusted to take into account the current year’s equity market performance and expected business results. The actual current year DRD can vary from the estimate based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from mutual fund investments, changes in the account balances of variable life and annuity contracts, and the Company’s taxable income before the DRD.

There is a possibility that the IRS and the U.S. Treasury will address, through guidance, their issues related to the calculation of the DRD. For the last several years, revenue proposals included in the Obama Administration's budgets have included proposed changes to the method used to determine the amount of the DRD. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through guidance or legislation, could increase actual tax expense and reduce the Company’s consolidated net income.

In 2009, the Company joined in filing the consolidated federal tax return with its parent, Prudential Financial. For tax years 2009 through 2015, the Company is participating in the IRS’s Compliance Assurance Program (“CAP”). Under CAP, the IRS assigns an examination team to review completed transactions as they occur in order to reach agreement with the Company on how they should be reported in the relevant tax returns. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner before the tax returns are filed.

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Liquidity and Capital Resources

This section supplements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in our Annual Report on Form 10-K for the year ended December 31, 2014.

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.

Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of Prudential Financial, Prudential Insurance and the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon through our quarterly planning process. We believe that cash flows from the sources of funds available to us are sufficient to satisfy the current liquidity requirements of Prudential Financial, and the Company, including under reasonably foreseeable stress scenarios. Prudential Financial has a capital management framework in place that governs the allocation of capital and approval of capital uses, and Prudential Financial forecasts capital sources and uses on a quarterly basis. Prudential Financial and the Company also employ a “Capital Protection Framework” to ensure the availability of capital resources to maintain adequate capitalization and competitive risk-based capital ratios under various stress scenarios.

Prudential Financial is a “Designated Financial Company” under Dodd-Frank. As a Designated Financial Company, Prudential Financial is subject to supervision and examination by the Federal Reserve Bank of Boston and to prudential regulatory standards, which include or will include requirements and limitations (some of which are the subject of ongoing rule-making) relating to risk-based capital, leverage, liquidity, stress-testing, overall risk management, resolution plans and early remediation, and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other related subjects. In addition, the FSB has identified Prudential Financial as a G-SII. For information on the potential impact of this regulation on us, see “Business—Regulation” and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2014.

On June 27, 2014, December 19, 2014 and June 29, 2015 the Company paid dividends of $267 million, $75 million and $270 million, respectively, to its parent, Prudential Annuities, Inc.

Capital

Our capital management framework is primarily based on statutory risk based capital ("RBC") measures. The RBC ratio is a primary measure of the capital adequacy of the Company. RBC is calculated based on statutory financial statements and risk formulas consistent with the practices of the NAIC. RBC considers, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. RBC ratio calculations are intended to assist insurance regulators in measuring an insurer’s solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public. The RBC ratio is an annual calculation, however, as of September 30, 2015 we estimate that the Company’s RBC ratio exceeds the minimum level required by applicable insurance regulations.

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 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.

Capital Protection Framework

Prudential Financial employs a “Capital Protection Framework” (“the Framework”) to ensure that sufficient capital resources are available to maintain adequate capitalization and competitive RBC ratios and solvency margins under various stress scenarios. The Framework incorporates the potential impacts from market related stresses, including equity markets, real estate, interest rates, and credit losses. The Framework addresses the potential capital consequences, under stress scenarios, of certain of these net risks and the strategies we use to mitigate them, including the following:

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• Equity market exposure affecting the statutory capital of the Company and Prudential Financial as a whole, which is managed through Prudential Financial's equity hedge program and on-balance sheet and contingent sources of capital; and

• Activities of Prudential Financial's business segments, including those for which specific risk mitigation strategies have been implemented, such as the living benefits hedging program within Pruco Re that covers certain risks associated with our variable annuity products.

The hedging strategy is periodically recalibrated in response to changing market conditions. The Framework accommodates

periodic volatility within ranges that are deemed acceptable, while also providing for additional potential sources of capital, including on-balance sheet capital, derivatives, and contingent sources of capital. Although Prudential Financial continues to enhance its approach, we believe we currently have access to sufficient resources, either directly, or indirectly through Prudential Financial, to maintain adequate capitalization and a competitive RBC ratio under a range of potential stress scenarios.

Affiliated 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, 2014 for a discussion of our use of captive reinsurance companies.

Liquidity

There have been no material changes to the liquidity position of the Company since December 31, 2014. We continue to believe that cash generated by ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios for the Company.

The principal sources of the Company’s liquidity are certain annuity considerations, investment and fee income, investment maturities, as well as 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 to the parent holding company, hedging activity and payments in connection with financing activities. We use a projection process for cash flows from operations to ensure sufficient liquidity is available to meet projected cash outflows, including claims. As discussed above, in March 2010, the Company ceased offering its existing variable annuity products to new investors upon the launch of a new product line by certain affiliates. Therefore, the Company expects to continue to see the overall level of cash flows decrease going forward as the book of business runs off.

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 financing capacity on liquidity (as described below) is considered in the internal liquidity measures of the Company.

Liquid assets include cash and cash equivalents, short-term investments and fixed maturities that are not designated as held-to-maturity and public equity securities. As of September 30, 2015 and December 31, 2014, the Company had liquid assets of $2.9 billion and $2.9 billion, respectively. The portion of liquid assets comprised of cash and cash equivalents and short-term investments was $0.3 billion and $0.1 billion as of September 30, 2015 and December 31, 2014, respectively. As of September 30, 2015, $2.3 billion, or 91%, of the fixed maturity investments in company general account portfolios were rated high or highest quality based on NAIC or equivalent rating. The remaining $0.2 billion, or 9%, of these fixed maturity investments were rated other than high or highest quality.

Prudential Financial and Prudential Funding, LLC, or Prudential Funding, a wholly-owned subsidiary of Prudential Insurance, 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.

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. There have been no material changes in our market risk exposures from December 31, 2014, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, 2014, Item 7A, “Quantitative and

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Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission. See Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2014, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.

Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the “Exchange Act”, as amended, as of September 30, 2015. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2015, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), occurred during the quarter ended September 30, 2015 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 6 to the Unaudited Interim Financial Statements under “—Litigation and Regulatory Matters” for a description of material pending litigation and regulatory matters affecting us, and certain risks to our businesses presented by such matters, which is incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014. 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” above and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q.

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Item 6. Exhibits

See accompanying Exhibit Index.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION

By:		/s/ Yanela C. Frias
		Yanela C. Frias
		Executive Vice President and Chief Financial Officer
		(Authorized Signatory and Principal Financial Officer)

Date: November 12, 2015

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EXHIBIT INDEX

Exhibit Number and Description



31.1	Section 302 Certification of the Chief Executive Officer.

31.2	Section 302 Certification of the Chief Financial Officer.

32.1	Section 906 Certification of the Chief Executive Officer.

32.2	Section 906 Certification of the Chief Financial Officer.

101.INS-XBRL	Instance 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.

PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT - FORM 10-Q - November 12, 2015

Attached files

PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT Reports