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PRUDENTIAL FINANCIAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/17/2017 | 10:30pm CET
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                                                                          Page
                                                                         Number
  Overview                                                                  56
  Executive Summary                                                         57
  Industry Trends                                                           57
  Impact of a Low Interest Rate Environment                                 58
  Outlook                                                                   60
  Results of Operations                                                     61
  Consolidated Results of Operations                                        

61

  Segment Results of Operations                                             

62

  Segment Measures                                                          

64

  Impact of Foreign Currency Exchange Rates                                 

65

  Variable Annuities Recapture and Risk Management Strategy                 

68

  Accounting Policies & Pronouncements                                      

68

  Application of Critical Accounting Estimates                              

68

  Adoption of New Accounting Pronouncements                                 

80

  Results of Operations by Segment                                          80
  Individual Annuities                                                      80
  Retirement                                                                87
  Asset Management                                                          89
  Individual Life                                                           93
  Group Insurance                                                           94
  International Insurance                                                   96
  Corporate and Other                                                      101
  Divested Businesses                                                      103
  Closed Block Division                                                    104
  Income Taxes                                                             105

Experience-Rated Contractholder Liabilities, TAASIL and Other Related Investments

106

  Valuation of Assets and Liabilities                                      

108

  Realized Investment Gains and Losses                                     

109

  General Account Investments                                              

119

  Liquidity and Capital Resources                                          140
  Ratings                                                                  155
  Contractual Obligations                                                  157
  Off-Balance Sheet Arrangements                                           158
  Risk Management                                                          158



                                       55

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Table of Contents



 You should read the following analysis of our consolidated financial condition
and results of operations in conjunction with the Forward-Looking Statements
included below the Table of Contents, "Risk Factors," "Selected Financial Data"
and the Consolidated Financial Statements included in this Annual Report on Form
10-K.

                                    Overview

From December 18, 2001, the date of demutualization, through December 31, 2014,
we organized our principal operations into the Financial Services Businesses and
the Closed Block Business, and had two classes of common stock outstanding. The
Common Stock, which is publicly traded (NYSE:PRU), reflected the performance of
the Financial Services Businesses, while the Class B Stock, which was issued
through a private placement and did not trade on any exchange, reflected the
performance of the Closed Block Business.

On January 2, 2015, Prudential Financial repurchased and canceled all of the
shares of the Class B Stock (the "Class B Repurchase"). As a result, earnings
per share of Common Stock for the year ended December 31, 2015 reflect the
consolidated earnings of Prudential Financial. In addition, we no longer
organize our principal operations into the Financial Services Businesses and the
Closed Block Business. Our principal operations are comprised of four divisions,
which together encompass seven segments, and our Corporate and Other operations.
The U.S. Retirement Solutions and Investment Management division consists of our
Individual Annuities, Retirement and Asset Management segments. The U.S.
Individual Life and Group Insurance division consists of our Individual Life and
Group Insurance segments. The International Insurance division consists of our
International Insurance segment. The Closed Block division consists of our
Closed Block segment. The Closed Block division is accounted for as a divested
business that is reported separately from the divested businesses that are
included in Corporate and Other operations. Our Corporate and Other operations
include corporate items and initiatives that are not allocated to business
segments and businesses that have been or will be divested.

As a result of the Class B Repurchase and resulting elimination of the
separation of the Financial Services Businesses and the Closed Block Business,
in this MD&A we refer to the divisions and segments of the Company that formerly
comprised the Financial Services Businesses as "PFI excluding the Closed Block
division" and we refer to the operations that were formerly included in the
Closed Block Business as the "Closed Block division," except as otherwise noted.
Closed Block Business results were associated with the Company's Class B Stock
for periods prior to January 1, 2015.

Revenues and Expenses


We earn our revenues principally from insurance premiums; mortality, expense,
asset management and administrative fees from insurance and investment products;
and investment of general account and other funds. We earn premiums primarily
from the sale of certain individual life insurance, group life and disability
insurance, retirement and annuity contracts. We earn mortality, expense, and
asset management fees primarily from the sale and servicing of separate account
products including variable life insurance and variable annuities, and from the
sale and servicing of other products including universal life insurance. We also
earn asset management and administrative fees from the distribution, servicing
and management of mutual funds, retirement products and other asset management
products and services. Our operating expenses principally consist of insurance
benefits provided and reserves established for anticipated future insurance
benefits, general business expenses, dividends to policyholders, commissions and
other costs of selling and servicing our products and interest credited on
general account liabilities.

Profitability


Our profitability depends principally on our ability to price our insurance and
annuity products at a level that enables us to earn a margin over the costs
associated with providing benefits and administering those products.
Profitability also depends on, among other items, our actuarial and policyholder
behavior experience on insurance and annuity products, and our ability to
attract and retain customer assets, generate and maintain favorable investment
results, effectively deploy capital and utilize our tax capacity, and manage
expenses.

Historically, the participating products included in the Closed Block have
yielded lower returns on capital invested than many of our other businesses. As
we have ceased offering domestic participating products, we expect that the
proportion of the traditional participating products in our in force business
will gradually diminish as these older policies age, and we grow other
businesses. However, the relatively lower returns to us on this existing block
of business will continue to affect our consolidated results of operations for
many years.

See "Risk Factors" for a discussion of risks that have affected and may affect
in the future 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.

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  Table of Contents


                               Executive Summary
 Industry Trends

Our U.S. and international businesses are impacted by financial markets, economic conditions, regulatory oversight, and a variety of trends that affect the industries where we compete.

U.S. Businesses


Financial and Economic Environment. Global market conditions and uncertainty
continue to be factors in the markets in which we operate. As discussed further
under "Impact of a Low Interest Rate Environment" below, interest rates in the
U.S. remain lower than historical levels, which continue to negatively impact
our portfolio income yields and our net investment spread results.

Regulatory Environment. See "Business-Regulation" for a discussion of regulatory
developments that may impact the Company, including the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the U.S. Department of Labor's new fiduciary
rules and potential changes in U.S. tax legislation. See "Risk
Factors-Regulatory and Legal Risks" for a discussion of the risks associated
with these and other developments.

Demographics. Customer demographics continue to evolve and new opportunities
present themselves in different consumer segments such as the millennial and
multicultural markets. Consumer expectations and preferences are changing. We
believe existing customers and potential customers are increasingly looking for
cost-effective solutions that they can easily understand and access through
technology-enabled devices. At the same time, income protection, wealth
accumulation and the needs of retiring baby boomers are continuing to shape the
insurance industry. A persistent retirement security gap exists in terms of both
savings and protection. Despite the ongoing phenomenon of the risk and
responsibility of retirement savings shifting from employers to employees,
employers are becoming increasingly focused on the financial wellness of the
individuals they employ. Although life insurance ownership among U.S. households
remains low, with consumers citing other financial priorities and cost of
insurance as reasons for the lack of coverage, consumer awareness of the value
proposition that life insurance provides is believed to be on the rise.

Competitive Environment. See "Business-Competition," "Business-U.S. Retirement
Solutions and Investment Management Division" and "Business-U.S. Individual Life
and Group Insurance Division" for a discussion of the competitive environment
and the basis on which we compete.

International Businesses


Financial and Economic Environment. Our international insurance operations,
especially in Japan, continue to operate in a low interest rate environment.
Although the local market in Japan has adapted to low interest rates, as
discussed under "Impact of a Low Interest Rate Environment" below, the current
reinvestment yields for certain blocks of business in our international
insurance operations are now generally lower than the current portfolio yield
supporting these blocks of business, which may negatively impact our net
investment spread results. The continued low interest rate environment in the
U.S. may also impact the relative attractiveness of U.S. dollar-denominated
products to yen-denominated products in Japan. In addition, we are subject to
financial impacts associated with movements in foreign currency rates,
particularly the Japanese yen. Fluctuations in the value of the yen will
continue to impact the relative attractiveness of both yen-denominated and
non-yen denominated products.

Regulatory Environment. See "Business-Regulation" and "Risk Factors-Regulatory
and Legal Risks" for a discussion of regulatory developments that may impact the
Company and associated risks.

Demographics. Japan has an aging population as well as a large pool of household
assets invested in low-yielding deposit and savings vehicles. The aging of
Japan's population, along with strains on government pension programs, have led
to a growing demand for insurance products with a significant savings element to
meet savings and retirement needs as the population prepares for retirement. We
are seeing a similar shift to retirement-oriented products across other Asian
markets, including Korea and Taiwan, each of which also has an aging population.

Competitive Environment. See "Business-Competition," and "Business-International Insurance Division" for a discussion of the competitive environment and the basis on which we compete.

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Table of Contents

Impact of a Low Interest Rate Environment

U.S. Operations excluding the Closed Block Division


Interest rates in the U.S. continue to remain lower than historical levels,
despite the Federal Reserve Board's decision to raise short-term interest rates
in December 2016. Market conditions and events, including but not limited to the
United Kingdom ("U.K.") referendum to leave the European Union contrasted with
strengthening economic growth and job creation, make uncertain the timing and
amount of future monetary policy decisions by the Federal Reserve. Given this
current low rate environment, our current reinvestment yields continue to be
lower than the overall portfolio yield, primarily for our investments in fixed
maturity securities and commercial mortgage loans and, as a result, our overall
portfolio yields are expected to continue to decline.

For the general account supporting our U.S. Retirement Solutions and Investment
Management division, our U.S. Individual Life and Group Insurance division and
our Corporate and Other operations, we expect annual scheduled payments and
prepayments to be approximately 10% of the fixed maturity security and
commercial mortgage loan portfolios through 2018. The general account for these
operations has approximately $183 billion of such assets (based on net carrying
value) as of December 31, 2016. As these assets mature, the average portfolio
yield for fixed maturities and commercial mortgage loans of approximately 4.5%,
as of December 31, 2016, is expected to decline due to reinvesting in a lower
interest rate environment.

Included in the $183 billion of fixed maturity securities and commercial
mortgage loans are approximately $92 billion that are subject to call or
redemption features at the issuer's option and have a weighted average interest
rate of approximately 5%. Of this $92 billion, approximately 70% contains
provisions for prepayment premiums. The reinvestment of scheduled payments at
rates below the current portfolio yield, including in some cases at rates below
those guaranteed under our insurance contracts, will impact future operating
results to the extent we do not, or are unable to, reduce crediting rates on in
force blocks of business, or effectively utilize other asset/liability
management strategies described below, in order to maintain current net interest
margins.

As of December 31, 2016, these operations have approximately $180 billion of
insurance liabilities and policyholder account balances. Of this amount,
approximately $110 billion represents long duration products such as group
annuities, structured settlements and other insurance products that have fixed
and guaranteed terms, for which underlying assets may have to be reinvested at
interest rates that are lower than portfolio rates. We seek to mitigate the
impact of a prolonged low interest rate environment on these contracts through
asset/liability management, as discussed further below.

The $180 billion of insurance liabilities and policyholder account balances also
includes approximately $55 billion related to contracts with crediting rates
that may be adjusted over the life of the contract, subject to guaranteed
minimums. Although we may have the ability to lower crediting rates for those
contracts above guaranteed minimums, our willingness to do so may be limited by
competitive pressures.

The following table sets forth the related account values by range of guaranteed
minimum crediting rates and the related range of the difference, in basis points
("bps"), between rates being credited to contractholders as of December 31,
2016, and the respective guaranteed minimums.
                                             Account Values with Adjustable 

Crediting Rates Subject to Guaranteed Minimums:

                                                                                                                 Greater than
                                                         1 - 49               50 - 99            100 - 150           150
                                     At                 bps above            bps above           bps above        bps above
                                 guaranteed            guaranteed           guaranteed          guaranteed        guaranteed
                                   minimum               minimum              minimum             minimum          minimum         Total
                                                                             ($ in billions)
Range of Guaranteed Minimum
Crediting Rates:
Less than 1.00%               $         0.6         $         0.9         $       0.3         $       0.0       $        0.0     $    1.8
1.00% - 1.99%                           1.8                  12.5                 3.0                 1.2                0.1         18.6
2.00% - 2.99%                           2.0                   0.5                 1.8                 1.1                0.1          5.5
3.00% - 4.00%                          27.4                   0.5                 0.2                 0.1                0.0         28.2
Greater than 4.00%                      0.8                   0.0                 0.0                 0.0                0.0          0.8
Total(1)                      $        32.6         $        14.4         $       5.3         $       2.4       $        0.2     $   54.9
Percentage of total                      60 %                  26 %                10 %                 4 %                0 %        100 %


 __________

(1) Includes approximately $1.2 billion related to contracts that impose a market

    value adjustment if the invested amount is not held to maturity.




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The remaining $15 billion of the $180 billion of insurance liabilities and
policyholder account balances in these operations represent participating
contracts for which the investment income risk is expected to ultimately accrue
to contractholders. The crediting rates for these contracts are periodically
adjusted based on the return earned on the related assets.

Assuming a hypothetical scenario where the average 10-year U.S. Treasury rate is
2.45% for the period from January 1, 2017 through December 31, 2018, and credit
spreads remain unchanged from levels as of December 31, 2016, we estimate that
the unfavorable impact to net interest margins included in pre-tax adjusted
operating income of reinvesting in such an environment, compared to reinvesting
at current average portfolio yields, would be approximately $9 million in 2017
and $26 million in 2018. This impact is most significant in the Retirement,
Individual Life and Individual Annuities segments. This hypothetical scenario
only reflects the impact related to the approximately $55 billion of contracts
shown in the table above, and does not reflect: any benefit from potential
changes to the crediting rates on the corresponding contractholder liabilities
where the Company has the contractual ability to do so, or other potential
mitigants such as changes in investment mix that we may implement as funds are
reinvested; any impact related to assets that do not directly support our
liabilities; any impact from other factors, including but not limited to, new
business, contractholder behavior, product modifications, changes in product
offerings, changes in competitive conditions or changes in capital markets; or
any impact from other factors described below. See "-Segment Measures" for a
discussion of adjusted operating income and its use as a measure of segment
operating performance.

In order to mitigate the unfavorable impact that the current interest rate
environment has on our net interest margins, we employ a proactive
asset/liability management program, which includes strategic asset allocation
and hedging strategies within a disciplined risk management framework. These
strategies seek to match the characteristics of our products, and to closely
approximate the interest rate sensitivity of the assets with the estimated
interest rate sensitivity of the product liabilities. Our asset/liability
management program also helps manage duration gaps, currency and other risks
between assets and liabilities through the use of derivatives. We adjust this
dynamic process as products change, as customer behavior changes and as changes
in the market environment occur. As a result, our asset/liability management
process has permitted us to manage the interest rate risk associated with our
products through several market cycles. Our interest rate exposure is also
mitigated by our business mix, which includes lines of business for which
fee-based and insurance underwriting earnings play a more prominent role in
product profitability.

Closed Block Division
Substantially all of the $60 billion of general account assets in the Closed
Block division support obligations and liabilities relating to the Closed Block
policies only. See Note 12 to the Consolidated Financial Statements for further
information on the Closed Block.

International Insurance Operations


While our international insurance operations have experienced a low interest
rate environment for many years, the current reinvestment yields for certain
blocks of business in our largest international insurance operations are
generally lower than the current portfolio yield supporting these blocks of
business. Recently, the Bank of Japan has been pursuing further expansionary
monetary policy resulting in even lower and, at times, negative yields for
certain tenors of government bonds. Our international insurance operations
employ a proactive asset/liability management program in order to mitigate, to
the extent possible, the unfavorable impact that the current interest rate
environment has on our net interest margins. In conjunction with this program,
we have not purchased negative yielding assets to support the portfolio and we
continue to purchase long-term bonds with tenors of 30 years or greater that
carry positive yields. Additionally, our diverse product portfolio in terms of
currency mix and premium payment mode allows us to further mitigate the negative
impact from this low interest rate environment. We regularly examine our
yen-based product offerings and their profitability. As a result, we have
repriced certain products, adjusted commissions for certain products and have
discontinued sales of other products that do not meet our profit expectations.
The impact of these actions, coupled with the strengthening of the yen against
the U.S. dollar and introduction of certain new products, has resulted in an
increase in sales of U.S. dollar-denominated products relative to products
denominated in other currencies. For additional information on sales within our
international insurance operations, see "-International Insurance
Division-International Insurance-Sales Results," below.


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As of December 31, 2016, our Japanese operations have $148 billion of insurance
liabilities and policyholder account balances. Of this amount, approximately
$117 billion is predominantly comprised of long-duration insurance products that
have fixed and guaranteed terms, for which underlying assets may have to be
reinvested at interest rates that are lower than portfolio rates. The remaining
insurance liabilities and policyholder account balances include $23 billion
related to contracts that impose a market value adjustment if the invested
amount is not held to maturity and $8 billion related to contracts with
crediting rates that may be adjusted over the life of the contract, subject to
guaranteed minimums. However, for these contracts, most of the current crediting
rates are at or near contractual minimums. Although we have the ability to lower
crediting rates in some cases for those contracts that are above guaranteed
minimum crediting rates, the majority of this business has interest crediting
rates that are determined by formula.

Assuming a hypothetical scenario within our Japanese and Korean operations where
2017 new money yields would be 25 basis points lower than projected, and
applying these lower new money yields to annualized investment of renewal
premiums, proceeds from investment disposition and reinvestment of investment
income, we estimate that the unfavorable impact to net interest margins would
reduce adjusted operating income in 2017 by approximately $10 to $15 million.
This hypothetical scenario excludes first-year single premium and multi-currency
fixed annuity cash flows, any potential benefit from repricing products, and any
impact from other factors, including but not limited to new business,
contractholder behavior, changes in competitive conditions, changes in capital
markets, and the effect of derivative instruments.

Outlook


Management expects that results in 2017 will continue to benefit from our
complementary mix of high quality Protection, Retirement and Asset Management
businesses. This business mix provides a diversity in earnings sources, which
helps offset variability in business results or fluctuations in market
conditions, while offering growth opportunities. While challenges exist in the
form of a low interest rate environment (see "Impact of a Low Interest Rate
Environment"), the near-term impacts of strategic investment spending (see
further below) and an evolving regulatory environment (see
"Business-Regulation"), we expect that our choice of businesses coupled with
strong execution will produce attractive returns. In addition, outlook
considerations for each of our divisions include the following:

U.S. Retirement and Investment Management Market. We will seek to continue

our established leadership position in providing retirement and investment

solutions for a U.S. market that is increasingly demanding cost-effective

solutions that can be easily understood and accessed through

technology-enabled distribution methods. There continues to be uncertainty

around the impact the DOL fiduciary rule will have on sales and flows.

However, we expect to benefit from our product diversification strategy

and to improve our risk profile while meeting a broad range of client

needs through ongoing product innovation. Our Individual Annuities

business remains focused on helping its customers meet their investment

and retirement needs. The recapture of living benefit risks from our

reinsurance captive to our statutory insurance entities along with our

enhanced risk management strategies are expected to contribute to higher

       free cash flows and improved capital stability, while also providing an
       ongoing benefit to our operating results. In our Retirement business we

continue to provide products that respond to the needs of plan sponsors to

manage risk and control their benefit costs, while ensuring we maintain

appropriate pricing and return expectations under changing market

conditions. We believe there are growth opportunities in pension risk

transfer as companies are becoming more aware of the potential impact of

longevity risk and higher Pension Benefit Guaranty Corporation premiums,

although we expect growth will not be linear given the episodic nature of

larger cases. While we continue to see fee and spread compression, we

believe these are manageable headwinds. Our Asset Management business, or

PGIM, is focused on meeting clients' evolving needs and capturing

opportunities in the marketplace. We are making substantial investments in

       our multi-manager model as well as in our talent, infrastructure and other
       distribution capabilities in order to capitalize on a business that we
       believe has strong growth opportunities.


U.S. Insurance Market. We will continue to focus on writing high-quality

business and expect to continue to benefit from expansion of our

distribution channels and deepening our relationships with third-party

distributors. Our Individual Life business is continuing to execute on its

product diversification strategy in order to maintain a diversified

product mix and an attractive risk profile. We are expanding the reach of

our multichannel distribution network, including the Prudential Advisors

channel, and are building predictive underwriting and other capabilities.

       In our Group Insurance business, we are seeing benefits from our
       multi-year underwriting efforts, especially in disability, and we are
       expanding our market segment focus to include mid-market clients. We are

also continuing to focus on rigorous expense management, with an objective

       of further improving our return prospects over time.




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• International Markets. We will continue to concentrate on deepening our

       presence in Japan and other markets in which we currently operate and
       expanding our distribution capabilities in emerging markets. Our death

protection products with returns largely driven by mortality or expense

margins help mitigate exposure of results to interest rates. We will

continue to take steps to re-price or in some cases suspend sales of

products most effected by low and negative rates in Japan. With regard to

distribution, we are seeking modest growth in our Life Planner and Life

Consultant count in Japan, as well as expansion of our third-party

distribution networks. Furthermore, we have newer markets that we seek to

       develop in order to contribute more meaningfully to our growth over time,
       such as our insurance operation in Brazil, which we have built
       organically, and our investment in a leading provider of retirement
       services in Chile.



In order to capitalize on the growth opportunities in our domestic and
international markets highlighted above, we continue to make investments in and
across our businesses. We are investing in expanding our distribution
capabilities through a focus on customer experience and technology enabled
advice and distribution, cross-business collaboration, further development of
work site relationships with individuals and expanding our ability to offer
relevant products and services to customers through whichever channels they
choose. We are also investing in product innovation, through the use of data and
digital initiatives to better understand and serve the needs of a customer base
with changing demographics, to achieve a goal of offering a broader array of
cost effective and easily comprehensible products. In addition, we are making
investments in our information technology infrastructure in order to streamline
processes and enhance the effectiveness of our administrative systems.

While we expect these strategic investments to ultimately generate business
growth, they will result in elevated expenses in the near-term. In addition, we
expect the time periods required for these investments to generate returns to
vary. These investments are being funded through a combination of operating cost
efficiencies and the returns generated by our businesses, and we expect to be
able to continue to absorb some of these investment costs through efficiency
gains.

                             Results of Operations

Consolidated Results of Operations

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

                                                              Year ended December 31,
                                                           2016         2015         2014

                                                                   (in millions)
Revenues                                                $ 58,779     $ 57,119     $ 54,105
Benefits and expenses                                     53,074       49,350       52,346
Income (loss) from continuing operations before
income taxes and equity in earnings of operating
joint ventures                                             5,705        7,769        1,759
Income tax expense (benefit)                               1,335        2,072          349
Income (loss) from continuing operations before
equity in earnings of operating joint ventures             4,370        

5,697 1,410 Equity in earnings of operating joint ventures, net of taxes

                                                      49           15           16
Income (loss) from continuing operations                   4,419        

5,712 1,426 Income (loss) from discontinued operations, net of taxes

                                                          0            0           12
Net income (loss)                                          4,419        

5,712 1,438 Less: Income attributable to noncontrolling interests 51 70

           57
Net income (loss) attributable to Prudential
Financial, Inc.                                         $  4,368     $  5,642     $  1,381


2016 to 2015 Annual Comparison. The decrease in "Income (loss) from continuing operations" reflected the following notable items:

$980 million unfavorable variance, on a pre-tax basis, from adjustments to

       DAC and other costs as well as reserves, reflecting updates to the
       estimated profitability of our businesses, including the impact of our
       annual reviews and update of assumptions and other refinements. This

excludes the impact associated with the variable annuity hedging program

discussed below (see "-Results of Operations by Segment-U.S. Retirement

       Solutions and Investment Management Division-Individual Annuities" for
       additional information);




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$972 million unfavorable variance, on a pre-tax basis, reflecting our

decision to manage a portion of our interest rate risk through our Capital

Protection Framework (see "-Results of Operations by Segment-Corporate and

       Other-Capital Protection Framework" for additional information); and


$479 million lower net pre-tax realized gains for PFI excluding the Closed

Block division, and excluding the impact of the hedging program associated

with certain variable annuities, which is discussed below (see "-Realized

Investment Gains (Losses)" for additional information).

Partially offsetting these decreases in "Income (loss) from continuing operations" were the following items:

$737 million favorable impact of lower tax expense reflecting lower
       pre-tax income in 2016 compared to 2015; and


$660 million favorable variance, on a pre-tax basis, reflecting the net

impact from changes in the value of our embedded derivatives and related

hedge positions associated with certain variable annuities and other

products (see "-Results of Operations by Segment-U.S. Retirement Solutions

and Investment Management Division-Individual Annuities-Variable Annuity

Risks and Risk Mitigants" for additional information).

2015 to 2014 Annual Comparison. The increase in "Income (loss) from continuing operations" reflected the following notable items:

$3,136 million higher net pre-tax earnings primarily resulting from the

2014 impact of foreign currency exchange rate movements on certain assets

and liabilities within our Japanese insurance operations (see "-Impact of

Foreign Currency Exchange Rates-Impact of products denominated in

non-local currencies on U.S. GAAP earnings" for additional information);

$3,041 million favorable variance, on a pre-tax basis, reflecting our

decision to manage a portion of our interest rate risk through our Capital

Protection Framework (see "-Results of Operations by Segment-Corporate and

       Other-Capital Protection Framework" for additional information);


$615 million favorable variance, on a pre-tax basis, reflecting the net

impact from changes in the value of our embedded derivatives and related

hedge positions associated with certain variable annuities (see "-Results

       of Operations by Segment-U.S. Retirement Solutions and Investment
       Management Division-Individual Annuities-Variable Annuity Risks and Risk
       Mitigants" for additional information); and


$558 million favorable variance, on a pre-tax basis, from adjustments to

DAC and other costs as well as reserves, reflecting updates to the

estimated profitability of our businesses, including the impact of our

annual reviews and update of assumptions and other refinements performed

in the second quarter of 2015 and the third quarter of 2014. This excludes

the impact associated with the variable annuity hedging program discussed

above (see "-Results of Operations by Segment-U.S. Retirement Solutions

and Investment Management Division-Individual Annuities" for additional

       information).



Partially offsetting these increases in "Income (loss) from continuing operations" were the following items:

$1,723 million unfavorable impact of higher tax expense reflecting higher

       pre-tax income in 2015 compared to 2014; and



•      $1,436 million lower net pre-tax realized gains for PFI excluding the

Closed Block division, and excluding the impact of the hedging program

associated with certain variable annuities discussed above (see "-Realized

Investment Gains (Losses)" for additional information).



Segment Results of Operations


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We analyze the performance of our segments and Corporate and Other operations
using a measure of segment profitability called adjusted operating income. As
discussed in "-Overview," for the year ended December 31, 2015 and onward, the
Closed Block division is accounted for as a divested business under our
definition of adjusted operating income. For the year ended December 31, 2014,
the former Closed Block Business was analyzed using accounting principles
generally accepted in the United States of America ("U.S. GAAP"). Its results
are excluded from adjusted operating income under both the current reporting for
the Closed Block division and the former reporting for the Closed Block
Business. See "-Segment Measures" for a discussion of adjusted operating income
and its use as a measure of segment operating performance.

Shown below are the adjusted operating income contributions of each segment and
Corporate and Other operations for the periods indicated and a reconciliation of
this segment measure of performance to "Income (loss) from continuing operations
before income taxes and equity in earnings of operating joint ventures" as
presented in our Consolidated Statements of Operations.

                                                                Year ended December 31,
                                                             2016        2015        2014

                                                                     (in millions)
Adjusted operating income before income taxes by
segment:
Individual Annuities                                       $ 1,765     $ 1,797     $ 1,467
Retirement                                                   1,012         931       1,215
Asset Management                                               787         779         785
Total U.S. Retirement Solutions and Investment
Management division                                          3,564       3,507       3,467
Individual Life                                                 79         635         498
Group Insurance                                                220         176          23
Total U.S. Individual Life and Group Insurance division        299         811         521
International Insurance                                      3,117       3,226       3,252
Total International Insurance division                       3,117       3,226       3,252
Corporate and Other operations                              (1,581 )    (1,313 )    (1,348 )
Total Corporate and Other                                   (1,581 )    

(1,313 ) (1,348 ) Total segment adjusted operating income before income taxes

                                                        5,399       6,231       5,892
Reconciling Items:
Realized investment gains (losses), net, and related
adjustments(1)                                                 989       

2,258 (3,588 ) Charges related to realized investment gains (losses), net(2)

                                                        (466 )      

(679 ) (542 ) Investment gains (losses) on trading account assets supporting insurance liabilities, net(3)

                       (17 )      (524 )       339
Change in experience-rated contractholder liabilities
due to asset value changes(4)                                   21         433        (294 )
Divested businesses:
Closed Block division(5)                                      (132 )        58           0
Other divested businesses(6)                                   (84 )      

(66 ) 167 Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(7)

            (5 )        58          44
Subtotal(8)                                                  5,705       

7,769 2,018 Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures for Closed Block Business(9)

                                     0          

0 (259 ) Consolidated income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures

                                             $ 5,705     $ 7,769     $ 1,759


__________

(1) Represents "Realized investment gains (losses), net," and related

adjustments. See "-Realized Investment Gains and Losses" and Note 22 to our

Consolidated Financial Statements for additional information.

(2) Includes charges that represent the impact of realized investment gains

(losses), net, on the amortization of DAC and other costs, and on changes in

reserves. Also includes charges resulting from payments related to market

value adjustment features of certain of our annuity products and the impact

of realized investment gains (losses), net, on the amortization of unearned

revenue reserves.

(3) Represents net investment gains (losses) on trading account assets supporting

insurance liabilities. See "-Experience-Rated Contractholder Liabilities,

Trading Account Assets Supporting Insurance Liabilities and Other Related

Investments."

(4) Represents changes in contractholder liabilities due to asset value changes

in the pool of investments supporting these experience-rated contracts. See

"-Experience-Rated Contractholder Liabilities, Trading Account Assets

Supporting Insurance Liabilities and Other Related Investments."

(5) As a result of the Class B Repurchase, for the years ended December 31, 2016

and 2015, the Closed Block, along with certain related assets and

liabilities, comprises the Closed Block division, which is accounted for as a

divested business that is reported separately from the divested businesses

that are included in Corporate and Other operations.

(6) See "-Divested Businesses."

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(7) Equity in earnings of operating joint ventures are included in adjusted

operating income but excluded from income from continuing operations before

income taxes and equity in earnings of operating joint ventures as they are

reflected on an after-tax U.S. GAAP basis as a separate line in our

Consolidated Statements of Operations. Earnings attributable to

noncontrolling interests are excluded from adjusted operating income but

included in income from continuing operations before taxes and equity

earnings of operating joint ventures as they are reflected on a U.S. GAAP

basis as a separate line in our Consolidated Statements of Operations.

Earnings attributable to noncontrolling interests represent the portion of

earnings from consolidated entities that relates to the equity interests of

minority investors.

(8) Amounts for the year ended December 31, 2014 represent "Income (loss) from

continuing operations before income taxes and equity in earnings of operating

joint ventures" of the Company's former Financial Services Businesses,

reflecting the existence of two classes of common stock and the separate

reporting of the Financial Services Businesses and the Closed Block Business

for each period.

(9) Reflects the existence of two classes of common stock and the separate

    reporting of the Company's former Financial Services Businesses and the
    Closed Block Business for the year ended December 31, 2014.


Segment results for 2016 presented above reflect the following:


Individual Annuities. Segment results for 2016 decreased in comparison to 2015,
primarily reflecting lower net asset-based fee income, higher general and
administrative expenses, and an unfavorable comparative impact from changes in
the estimated profitability of the business, partially offset by higher net
investment income, lower amortization costs and interest expense, and the
absence of certain costs for contract cancellations incurred in the prior year.

Retirement. Segment results for 2016 increased in comparison to 2015, reflecting
higher net investment spread results and a favorable comparative net impact from
our annual reviews and update of assumptions, partially offset by a lower
contribution from reserve experience, higher general and administrative
expenses, net of capitalization, and lower fee income.

Asset Management. Segment results for 2016 increased in comparison to 2015, primarily reflecting higher asset management fees, net of expenses, partially offset by lower other related revenues, net of associated expenses.


Individual Life. Segment results for 2016 decreased in comparison to 2015,
primarily reflecting an unfavorable comparative net impact from our annual
reviews and update of assumptions, less favorable mortality experience, net of
reinsurance, as well as higher general and administrative expenses, partially
offset by a higher contribution from investment results.

Group Insurance. Segment results for 2016 increased in comparison to 2015,
including a favorable comparative net impact from our annual reviews and update
of assumptions. Excluding these items, results increased from 2015 reflecting
net favorable underwriting results, higher net investment spread results and
lower expenses.

International Insurance. Segment results for 2016 decreased in comparison to
2015, primarily from net unfavorable impacts from foreign currency exchange
rates and from our annual reviews and update of assumptions. Excluding these
items, segment results increased from the prior year, reflecting the growth of
business in force, including the contribution from the Company's investment in
AFP Habitat in Chile, and more favorable mortality experience, partially offset
by lower contributions from net investment spread results and higher net
expenses, including those supporting business growth.

Corporate and Other operations. The results for 2016 in comparison to 2015 reflected increased losses primarily driven by higher levels of corporate expenses, lower net investment income and lower income from our qualified pension plan, partially offset by lower interest expense.


Closed Block Division. The results for 2016 decreased in comparison to 2015,
primarily driven by a decrease in net realized investment gains and lower net
investment income, partially offset by a decrease in the policyholder dividend
obligation and an increase in the net insurance activity results.

Segment Measures


Adjusted Operating Income. In managing our business, we analyze our segments'
operating performance using "adjusted operating income." Adjusted operating
income does not equate to "Income (loss) from continuing operations before
income taxes and equity in earnings of operating joint ventures" or "Net income
(loss)" as determined in accordance with U.S. GAAP, but is the measure of
segment profit or loss we use to evaluate segment performance and allocate
resources, and consistent with authoritative guidance, is our measure of segment
performance. The adjustments to derive adjusted operating income are important
to an understanding of our overall results of operations. Adjusted operating
income is not a substitute for income determined in accordance with U.S. GAAP,
and our definition of adjusted operating income may differ from that used by
other companies. However, we believe that the presentation of adjusted operating
income as we measure it for management purposes enhances the understanding of
our results of operations by highlighting the results from ongoing operations
and the underlying profitability of our businesses. As discussed in "-Segment
Results of Operations" above, under both the current reporting for the Closed
Block division and the former reporting for the Closed Block Business, its
results are excluded from adjusted operating income.


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See Note 22 to the Consolidated Financial Statements for further information on
the presentation of segment results and our definition of adjusted operating
income.

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

The amount of annualized new business premiums for any given period can be
significantly impacted by several factors, including but not limited to:
addition of new products, discontinuation of existing products, changes in
credited interest rates for certain products and other product modifications,
changes in tax laws, changes in regulations or changes in the competitive
environment. Sales volume may increase or decrease prior to certain of these
changes becoming effective, and then fluctuate in the other direction following
such changes.

Assets Under Management. In managing our Asset Management business, we analyze
assets under management, which do not correspond to U.S. GAAP assets, because
the principal source of revenues is fees based on assets under management.
Assets under management represents the fair market value or account value of
assets which we manage directly for institutional clients, retail clients, and
for our general account, as well as assets invested in our products that are
managed by third-party managers.
Account Values. In managing our Individual Annuities and Retirement businesses,
we analyze account values, which do not correspond to U.S. GAAP assets. Net
sales (redemptions) in our Individual Annuities business and net additions
(withdrawals) in our Retirement business do not correspond to revenues under
U.S. GAAP, but are used as a relevant measure of business activity.

Impact of Foreign Currency Exchange Rates

Foreign currency exchange rate movements and related hedging strategies


As a U.S.-based company with significant business operations outside the U.S.,
particularly in Japan, we are subject to foreign currency exchange rate
movements that could impact our U.S. dollar-equivalent earnings and shareholder
return on equity. We seek to mitigate this impact through various hedging
strategies, including the use of derivative contracts and by holding U.S.
dollar-denominated assets in certain of our foreign subsidiaries.

The operations of certain of our businesses are subject to currency fluctuations
that could materially affect our U.S. dollar-equivalent earnings from period to
period, even if earnings on a local currency basis are relatively constant. We
enter into forward currency derivative contracts as part of our strategy to
effectively fix the currency exchange rates for a portion of our prospective
non-U.S. dollar-denominated earnings streams, thereby reducing earnings
volatility from foreign currency exchange rate movements. The forward currency
hedging program is primarily associated with our insurance operations in Japan
and Korea.

Separately, our Japanese insurance operations offer a variety of non-yen
denominated products, primarily comprised of U.S. and Australian
dollar-denominated products that are supported by investments in corresponding
currencies. While these non-yen denominated assets and liabilities are
economically matched, differences in the accounting for changes in the value of
these assets and liabilities due to changes in foreign currency exchange rate
movements have historically resulted in volatility in reported U.S. GAAP
earnings. As a result of continued growth in these portfolios, we implemented a
structure in Gibraltar Life in the first quarter of 2015 that disaggregated the
U.S. and Australian dollar-denominated businesses into separate divisions, each
with its own functional currency that aligns with the underlying products and
investments, as described further below under "-Impact of products denominated
in non-local currencies on U.S. GAAP earnings."

For further information on the hedging strategies used to mitigate the risks of
foreign currency exchange rate movements on earnings as well as the U.S. GAAP
earnings impact from products denominated in non-local currencies, see "-Impact
of foreign currency exchange rate movements on earnings," below.

We utilize a yen hedging strategy that calibrates the hedge level to preserve
the relative contribution of our yen-based business to the Company's overall
return on equity on a leverage neutral basis. We implement this hedging strategy
utilizing a variety of instruments, including foreign currency derivative
contracts, as discussed above, as well as U.S. dollar-denominated assets and, to
a lesser extent, "dual currency" and "synthetic dual currency" assets held
locally in our Japanese insurance subsidiaries. We may also hedge using
instruments held in our U.S. domiciled entities, such as U.S. dollar-denominated
debt that has been swapped to yen. The total hedge level may vary based on our
periodic assessment of the relative contribution of our yen-based business to
the Company's overall return on equity.


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The table below presents the aggregate amount of instruments that serve to hedge
the impact of foreign currency exchange movements on our U.S. dollar-equivalent
shareholder return on equity from our Japanese insurance subsidiaries for the
periods indicated.

                                                                        December 31,
                                                                       2016        2015

                                                                        (in billions)

Instruments hedging foreign currency exchange rate exposure on U.S. dollar-equivalent earnings: Forward currency hedging program(1)

                                 $    1.6     $  1.9
Instruments hedging foreign currency exchange rate exposure on
U.S. dollar-equivalent equity:
U.S. dollar-denominated assets held in yen-based entities(2):
Available-for-sale U.S. dollar-denominated investments, at
amortized cost                                                          12.6       13.0
Other                                                                    0.1        0.1
Subtotal                                                                12.7       13.1
Dual currency and synthetic dual currency investments(3)                 

0.7 0.8 Total instruments hedging foreign currency exchange rate exposure on U.S. dollar-equivalent equity

13.4       13.9
Total hedges                                                        $   15.0     $ 15.8


__________

(1) Represents the notional amount of forward currency contracts outstanding.

(2) Excludes $36.2 billion and $30.5 billion as of December 31, 2016 and 2015,

respectively, of U.S. dollar-denominated assets supporting U.S.

dollar-denominated liabilities related to U.S. dollar-denominated products

issued by our Japanese insurance operations.

(3) Dual currency and synthetic dual currency investments are held by our

yen-based entities in the form of fixed maturities and loans with a

yen-denominated principal component and U.S. dollar-denominated interest

    income. The amounts shown represent the present value of future U.S.
    dollar-denominated cash flows.



The U.S. dollar-denominated investments that hedge U.S. dollar-equivalent
earnings and shareholder return on equity from our Japanese insurance operations
are reported within yen-based entities and, as a result, foreign currency
exchange rate movements will impact their value reported within our yen-based
Japanese insurance entities. We seek to mitigate the risk that future
unfavorable foreign currency exchange rate movements will decrease the value of
these U.S. dollar-denominated investments reported within our yen-based Japanese
insurance entities, and therefore negatively impact their equity and regulatory
solvency margins, by employing internal hedging strategies between a subsidiary
of Prudential Financial and these yen-based entities. These internal hedging
strategies have the economic effect of moving the change in value of these U.S.
dollar-denominated investments due to foreign currency exchange rate movements
from our Japanese yen-based entities to our U.S. dollar-based entities.

These U.S. dollar-denominated investments also pay a coupon which is generally
higher than what a similar yen-denominated investment would pay. The incremental
impact of this higher yield on our U.S. dollar-denominated investments, as well
as our dual currency and synthetic dual currency investments, will vary over
time, and is dependent on the duration of the underlying investments as well as
interest rate environments in both the U.S. and Japan at the time of the
investments. See "-General Account Investments-Investment Results" for a
discussion of the investment yields generated by our Japanese insurance
operations.

Impact of foreign currency exchange rate movements on earnings


The financial results of our International Insurance, Retirement and Asset
Management segments reflect the impact of intercompany arrangements with our
Corporate and Other operations pursuant to which certain of these segments'
non-U.S. dollar-denominated earnings are translated at fixed currency exchange
rates. Results of our Corporate and Other operations include any differences
between the translation adjustments recorded by the segments at the fixed
currency exchange rate versus the actual average rate during the period. In
addition, specific to our International Insurance segment where we hedge certain
currencies, as further discussed below, the results of our Corporate and Other
operations also include the impact of any gains or losses recorded from forward
currency contracts that settled during the period, which include the impact of
any over or under hedging of actual earnings that differ from projected
earnings.


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For International Insurance, the fixed currency exchange rates are determined in
connection with a foreign currency income hedging program designed to mitigate
the impact of exchange rate changes on the segment's U.S. dollar-equivalent
earnings. Pursuant to this program, Corporate and Other operations execute
forward currency contracts with third parties to sell the net exposure of
projected earnings for certain currencies in exchange for U.S. dollars at
specified exchange rates. The maturities of these contracts correspond with the
future periods (typically on a three year rolling basis) in which the identified
non-U.S. dollar-denominated earnings are expected to be generated. In
establishing the level of non-U.S. dollar-denominated earnings that will be
hedged through this program, we exclude the anticipated level of U.S.
dollar-denominated earnings that will be generated by U.S. dollar-denominated
products and investments. For the twelve months ended December 31, 2016,
approximately 29% of the segment's earnings were yen-based and, as of
December 31, 2016, we have hedged 100%, 73% and 28% of expected yen-based
earnings for 2017, 2018 and 2019, respectively. To the extent currently
unhedged, our International Insurance segment's future expected U.S.
dollar-equivalent of yen-based earnings will be impacted by yen exchange rate
movements.

As a result of this intercompany arrangement, our International Insurance
segment's results for 2016, 2015 and 2014 reflect the impact of translating
yen-denominated earnings at fixed currency exchange rates of 106, 91 and 82 yen
per U.S. dollar, respectively, and Korean won-denominated earnings at fixed
currency exchange rates of 1100, 1120 and 1150 Korean won per U.S. dollar,
respectively. We expect our results for 2017 to reflect the impact of
translating yen-denominated earnings at a fixed currency exchange rate of 112
yen per U.S. dollar and Korean won-denominated earnings at a fixed currency
exchange rate of 1130 Korean won per U.S. dollar. Since determination of the
fixed currency exchange rates for each respective year is impacted by changes in
foreign currency exchange rates over time, the segment's future earnings will
ultimately be impacted by these changes in exchange rates.

The table below presents, for the periods indicated, the increase (decrease) to
revenues and adjusted operating income for the International Insurance, Asset
Management and Retirement segments and for Corporate and Other operations,
reflecting the impact of these intercompany arrangements.

                                                                   Year ended December 31,
                                                                2016          2015        2014

                                                                        (in millions)
Segment impacts of intercompany arrangements:
International Insurance                                      $    23       $    331     $  275
Retirement                                                         9              0          0
Asset Management                                                   6              0          0
Impact of intercompany arrangements(1)                            38            331        275
Corporate and Other operations:
Impact of intercompany arrangements(1)                           (38 )         (331 )     (275 )
Settlement gains (losses) on forward currency contracts(2)        38            286        293
Net benefit (detriment) to Corporate and Other operations          0            (45 )       18
Net impact on consolidated revenues and adjusted operating
income                                                       $    38       $    286     $  293


__________

(1) Represents the difference between non-U.S. dollar-denominated earnings

translated on the basis of weighted average monthly currency exchange rates

versus fixed currency exchange rates determined in connection with the

foreign currency income hedging program.

(2) As of December 31, 2016 and 2015, the notional amounts of these forward

currency contracts within our Corporate & Other operations were $2.7 billion

    and $2.4 billion, respectively, of which $1.6 billion and $1.9 billion,
    respectively, were related to our Japanese insurance operations.


Impact of products denominated in non-local currencies on U.S. GAAP earnings

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Our international insurance operations primarily offer products denominated in
local currency; however, several of our international insurance operations also
offer products denominated in non-local currencies, most notably our Japanese
operations, which offer U.S. and Australian dollar-denominated products. The
non-local currency-denominated insurance liabilities related to these products
are supported by investments denominated in corresponding currencies, including
a significant portion designated as available-for-sale. While the impact from
foreign currency exchange rate movements on these non-local currency-denominated
assets and liabilities is economically matched, differences in the accounting
for changes in the value of these assets and liabilities due to changes in
foreign currency exchange rate movements have historically resulted in
volatility in U.S. GAAP earnings. For example, unrealized gains (losses) on
available-for-sale investments, including those arising from non-local currency
exchange rate movements, are recorded in AOCI, whereas the non-local
currency-denominated liabilities are remeasured for foreign currency exchange
rate movements, and the related changes in value are recorded in earnings within
"Other income." Investments designated as held-to-maturity under U.S. GAAP are
recorded at amortized cost on the balance sheet, but are remeasured for foreign
currency exchange rate movements, with the related change in value recorded in
earnings within "Other income." Due to this non-economic volatility that is
reflected in U.S. GAAP earnings, the gains (losses) resulting from the
remeasurement of these non-local currency-denominated liabilities, and certain
related non-local currency-denominated assets, were excluded from adjusted
operating income and included in "Realized investment gains (losses), net, and
related adjustments." Included in "Realized investment gains (losses), net, and
related adjustments" were net losses of $170 million, net gains of $63 million
and net losses of $3,073 million from foreign currency remeasurement for the
years ended December 31, 2016, 2015 and 2014, respectively.

As discussed above, in the first quarter of 2015 we implemented a structure in
Gibraltar Life that disaggregated the U.S. and Australian dollar-denominated
businesses into separate divisions, each with its own functional currency that
aligns with the underlying products and investments. For the U.S. and Australian
dollar-denominated assets that were transferred under this structure, the net
cumulative unrealized investment gains associated with foreign exchange
remeasurement that were recorded in AOCI totaled $6.0 billion and will be
recognized in earnings within "Realized investment gains (losses), net" over
time as the assets mature or are sold. As of December 31, 2016, the remaining
net cumulative unrealized investment gains balance related to these assets was
$4.4 billion. Absent the sale of any of these assets prior to their stated
maturity, approximately 9% of the $4.4 billion balance will be recognized in
2017, approximately 8% will be recognized in 2018, and a majority of the
remaining balance will be recognized from 2019 through 2024.

Variable Annuities Recapture and Risk Management Strategy
Effective April 1, 2016, we recaptured the risks related to our variable
annuities living benefit riders and certain retirement products that were
previously reinsured to our captive reinsurance company, Pruco Reinsurance, Ltd.
("Pruco Re"). These risks were recaptured by the originating insurance entities,
thereby combining those risks with their base contracts. In addition, variable
annuity contracts issued by Pruco Life Insurance Company ("Pruco Life"), a
subsidiary of Prudential Insurance, were reinsured to our subsidiary, Prudential
Annuities Life Assurance Corporation ("PALAC") while variable annuity contracts
issued by Pruco Life Insurance Company of New Jersey ("PLNJ"), a subsidiary of
Pruco Life, were reinsured to Prudential Insurance. These series of transactions
are collectively referred to as the "Variable Annuities Recapture."

The Variable Annuities Recapture allows us to manage the capital and liquidity
risks of these products more efficiently by aggregating both the risks and the
assets supporting these risks in the same entities. The Variable Annuities
Recapture resulted in an increase of highly liquid assets at Prudential
Financial of approximately $1.0 billion, due to payments received from
subsidiaries in the form of dividends, returns of capital, and repayments under
affiliate loan agreements, net of capital contributions, and is expected to
reduce future capital volatility associated with our variable annuities
business.

In connection with this transaction, we evaluated the overall risk management
strategy associated with our Individual Annuities segment, including potential
future enhancements to the living benefits hedging program. During the third
quarter of 2016, we implemented modifications to the Individual Annuities' risk
management strategy in order to more efficiently manage the capital and
liquidity associated with these products while continuing to mitigate
fluctuations in net income due to capital market movements. These modifications
include utilizing a combination of traditional fixed income instruments and
derivatives to manage the associated risks. For more information on the hedging
portion of Individual Annuities' risk management strategy and the results of
that hedging strategy, see "Results of Operations by Segment-U.S. Retirement
Solutions and Investment Management Division-Individual Annuities."

                      Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

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

Deferred Policy Acquisition and Other Costs


We capitalize costs that are directly related to the acquisition or renewal of
insurance and annuity contracts. These costs primarily include commissions, as
well as costs of policy issuance and underwriting and certain other expenses
that are directly related to successfully negotiated contracts. We have also
deferred costs associated with sales inducements related to our variable and
fixed annuity contracts primarily within our Individual Annuities segment. Sales
inducements are amounts that are credited to the policyholder's account balance
mainly as an inducement to purchase the contract. For additional information
about sales inducements, see Note 11 to the Consolidated Financial Statements.
We generally amortize DAC and DSI over the expected lives of the contracts,
based on our estimates of the level and timing of gross margins, gross profits,
or gross premiums, depending on the type of contract. As described in more
detail below, in calculating DAC and DSI amortization, we are required to make
assumptions about investment returns, mortality, persistency, and other items
that impact our estimates of the level and timing of gross margins, gross
profits, or gross premiums. We also periodically evaluate the recoverability of
our DAC and DSI. For certain contracts, this evaluation is performed as part of
our premium deficiency testing, as discussed further below in "-Policyholder
Liabilities." As of December 31, 2016, DAC and DSI for PFI excluding the Closed
Block division were $17.3 billion and $1.1 billion, respectively, and DAC in our
Closed Block division was $336 million.

Amortization methodologies

Gross Premiums. DAC associated with the non-participating whole life and term life policies of our Individual Life segment and the whole life, term life, endowment and health policies of our International Insurance segment is primarily amortized in proportion to gross premiums.


Gross Profits. DAC and DSI associated with the variable and universal life
policies of our Individual Life and International Insurance segments and the
variable and fixed annuity contracts of our Individual Annuities and
International Insurance segments are generally amortized over the expected life
of these policies in proportion to total gross profits. Total gross profits
include both actual gross profits and estimates of gross profits for future
periods. 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 costs related to our guaranteed minimum death and guaranteed
minimum income benefits. For variable annuities in our Individual Annuities
segment, U.S. GAAP gross profits and amortization rates also include the impacts
of the embedded derivatives associated with certain of the optional living
benefit features of our variable annuity contracts and 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 in adjusted
operating income, and utilize these estimates to calculate distinct amortization
rates and expense amounts. We also regularly evaluate and adjust the related DAC
and DSI balances with a corresponding charge or credit to current period
earnings for the impact of actual gross profits and changes in our projections
of estimated future gross profits on our DAC and DSI amortization rates.
Adjustments to the DAC and DSI balances include the impact to our estimate of
total gross profits of the annual review of assumptions, our quarterly
adjustments for current period experience, and our quarterly adjustments for
market performance. Each of these adjustments is further discussed below in
"-Annual assumptions review and quarterly adjustments." For additional
information on our internally-defined hedge target, see "-Results of Operations
by Segment-U.S. Retirement Solutions and Investment Management
Division-Individual Annuities."


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Gross Margins. DAC associated with the traditional participating products of our
Closed Block is amortized over the expected lives of those contracts in
proportion to estimated gross margins. Gross margins consider premiums,
investment returns, benefit claims, costs for policy administration, changes in
reserves, and dividends to policyholders. We evaluate our estimates of future
gross margins and adjust the related DAC balance with a corresponding charge or
credit to current period earnings for the effects of actual gross margins and
changes in our expected future gross margins. DAC adjustments for these
participating products generally have not created significant volatility in our
results of operations since many of the factors that affect gross margins are
also included in the determination of our dividends to these policyholders and,
during most years, the Closed Block has recognized a cumulative policyholder
dividend obligation expense in "Policyholders' dividends," for the excess of
actual cumulative earnings over expected cumulative earnings as determined at
the time of demutualization. However, if actual cumulative earnings fall below
expected cumulative earnings in future periods, thereby eliminating the
cumulative policyholder dividend obligation expense, changes in gross margins
and DAC amortization would result in a net impact to the Closed Block results of
operations. As of December 31, 2016, the excess of actual cumulative earnings
over the expected cumulative earnings was $1,647 million.

The amortization methodologies for products not discussed above primarily relate
to less significant DAC balances associated with products in our Group Insurance
and Retirement segments, which comprised approximately 2% of the Company's total
DAC balance as of December 31, 2016.

Annual assumptions review and quarterly adjustments


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

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

The quarterly adjustments for market performance referred to above reflect the
impact of changes to our estimate of total gross profits to reflect actual fund
performance and market conditions. A significant portion of gross profits for
our variable annuity contracts and, to a lesser degree, our variable life
policies are dependent upon the total rate of return on assets held in separate
account investment options. This rate of return influences the fees we earn,
costs we incur associated with the guaranteed minimum death and guaranteed
minimum income benefit features related to our variable annuity contracts, as
well as other sources of profit. Returns that are higher than our expectations
for a given period produce higher than expected account balances, which increase
the future fees we expect to earn and decrease the future costs we expect to
incur associated with the guaranteed minimum death and guaranteed minimum income
benefit features related to our variable annuity contracts. The opposite occurs
when returns are lower than our expectations. The changes in future expected
gross profits are used to recognize a cumulative adjustment to all prior
periods' amortization.

The near-term future equity rate of return assumption used in evaluating DAC and
other costs for our domestic variable annuity and variable life insurance
products is derived using a reversion to the mean approach, a common industry
practice. Under this approach, we consider historical equity returns and adjust
projected equity returns over an initial future period of five years (the
"near-term") so that equity returns converge to the long-term expected rate of
return. If the near-term projected future rate of return is greater than our
near-term maximum future rate of return of 15%, we use our maximum future rate
of return. As of December 31, 2016, our variable annuities and variable life
insurance businesses assume an 8.0% long-term equity expected rate of return and
a 5.6% near-term mean reversion equity rate of return.

The weighted average rate of return assumptions consider many factors specific
to each business, including asset durations, asset allocations and other
factors. We generally update the near-term equity rates 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.

DAC and DSI Sensitivities

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Variability in the level of amortization expense has historically been driven by
the variable annuities and variable and universal life insurance policies in our
Individual Life and Individual Annuities segments, for which costs are primarily
amortized in proportion to total gross profits. For our International Insurance
segment, these products have historically experienced less significant
variability due to a less material block of variable annuities and variable and
universal life insurance policies.

For the variable and universal life policies of our Individual Life segment, a
significant portion of our gross profits is derived from mortality margins. As a
result, our estimates of future gross profits are significantly influenced by
our mortality assumptions. Our mortality assumptions are used to estimate future
death claims over the life of these policies and may be developed based on
Company experience, industry experience and/or other factors. Unless a material
change in mortality experience that we feel is indicative of a long-term trend
is observed in an interim period, we generally update our mortality assumptions
annually. Updates to our mortality assumptions in future periods could have a
significant adverse or favorable effect on the results of our operations in the
Individual Life segment.

The DAC balance associated with the variable and universal life policies of our
Individual Life segment as of December 31, 2016 was $3.3 billion. The following
table provides a demonstration of the sensitivity of that DAC balance relative
to our future mortality assumptions by quantifying the adjustments that would be
required, assuming both an increase and decrease in our future mortality rate by
1%. The information below is for illustrative purposes only and considers only
the direct effect of changes in our mortality assumptions on the DAC balance,
with no changes in any other assumptions such as persistency, future rate of
return, or expenses included in our evaluation of DAC. Further, this information
does not reflect changes in the unearned revenue reserve, which would partially
offset the adjustments to the DAC balance reflected below. These reserves are
discussed in more detail below in "-Policyholder Liabilities."

                                        December 31, 2016
                                    Increase/(Decrease) in DAC
                                          (in millions)
Decrease in future mortality by 1% $                    50
Increase in future mortality by 1% $                   (50 )



In addition to the impact of mortality experience relative to our assumptions,
other factors may also drive variability in amortization expense, particularly
when our annual assumption updates are performed. As noted above, however, the
impact on our results of operations of changes in these assumptions can be
offsetting and we are unable to predict their movement or offsetting impact over
time. In 2016, valuation system conversion and methodology changes drove the
most significant changes to amortization expense.

For the variable annuity contracts of our Individual Annuities segment, DAC and
DSI are more sensitive to changes in our future rate of return assumptions due
primarily to the significant portion of our gross profits that is dependent upon
the total rate of return on assets held in separate account investment options.
The DAC and DSI balances associated with our domestic variable annuity contracts
were $4.9 billion and $1.1 billion, respectively, as of December 31, 2016. The
following table provides a demonstration of the sensitivity of each of these
balances relative to our future rate of return assumptions by quantifying the
adjustments to each balance that would be required assuming both an increase and
decrease in our future rate of return by 100 bps. The information below is for
illustrative purposes only and considers only the direct effect of changes in
our future rate of return on the DAC and DSI balances and not changes in any
other assumptions such as persistency, mortality, or expenses included in our
evaluation of DAC and DSI. Further, this information does not reflect changes in
reserves, such as the reserves for the guaranteed minimum death and optional
living benefit features of our variable annuity products, or the impact that
changes in such reserves may have on the DAC and DSI balances.

                                                                        December 31, 2016
                                                                 Increase/              Increase/
                                                             (Decrease) in DAC      (Decrease) in DSI

                                                                          (in millions)
Decrease in future rate of return by 100 bps               $            (378 )     $           (126 )
Increase in future rate of return by 100 bps               $             350       $            127




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In addition to the impact of market performance relative to our future rate of
return assumptions, other factors may also drive variability in amortization
expense, particularly when our annual assumption updates are performed. As noted
above, however, the impact on our results of operations of changes in these
assumptions can be offsetting and we are unable to predict their movement or
offsetting impact over time. In 2016, updates to lapse assumptions partially
offset by updates to mapping of funds to related indices and projected interest
rate assumptions, drove the most significant changes to amortization expense.

Value of Business Acquired


In addition to DAC and DSI, we also recognize an asset for VOBA. VOBA is an
intangible asset which represents an adjustment to the stated value of acquired
inforce insurance contract liabilities to present them at fair value, determined
as of the acquisition date. VOBA is amortized over the expected life of the
acquired contracts in proportion to either gross premiums or estimated gross
profits, depending on the type of contract. VOBA is also subject to
recoverability testing. As of December 31, 2016, VOBA was $2.3 billion, and
included $1.3 billion related to the acquisition from American International
Group ("AIG") of AIG Star Life Insurance Co., Ltd, AIG Edison Life Insurance
Company, AIG Financial Assurance Japan K.K. and AIG Edison Service Co., Ltd.
(collectively, the "Star and Edison Businesses") on February 1, 2011, and $0.8
billion related to the acquisition of The Hartford Financial Services Group's
individual life insurance business ("the Hartford Life Business") on January 2,
2013. The remaining $0.2 billion primarily relates to previously-acquired
traditional life, deferred annuity, defined contribution and defined benefit
businesses.

The VOBA associated with the Hartford Life Business is primarily amortized over
the expected life of the acquired contracts in proportion to estimates of gross
profits. A significant portion of our gross profits is derived from mortality
margins. As a result, our estimates of future gross profits are significantly
influenced by our mortality assumptions. Our mortality assumptions are used to
estimate future death claims over the life of these policies and may be
developed based on Company experience, industry experience and/or other factors.
Unless a material change in mortality experience that we feel is indicative of a
long-term trend is observed in an interim period, we generally update our
mortality assumptions annually. Updates to our mortality assumptions in future
periods could have a significant adverse or favorable effect on the results of
our operations in the Individual Life segment. The following table provides a
demonstration of the sensitivity of that VOBA balance relative to our future
mortality assumptions by quantifying the adjustments that would be required,
assuming both an increase and decrease in our future mortality rate by 1%. The
information below is for illustrative purposes only and considers only the
direct effect of changes in our mortality assumptions on the VOBA balance, with
no changes in any other assumptions such as persistency, future rate of return,
or expenses included in our evaluation of VOBA, and does not reflect changes in
reserves.

                                         December 31, 2016
                                    Increase/(Decrease) in VOBA
                                           (in millions)
Decrease in future mortality by 1% $                     8
Increase in future mortality by 1% $                   (17 )



In addition to the impact of mortality experience relative to our assumptions,
other factors may also drive variability in amortization expense, particularly
when our annual assumption updates are performed. As noted above, however, the
impact on our results of operations of changes in these assumptions can be
offsetting and we are unable to predict their movement or offsetting impact over
time. In 2016, partial write-down of VOBA due to a loss recognition event drove
the most significant changes to amortization expense.

The VOBA associated with the inforce contracts acquired from AIG of the Star and
Edison Businesses is less sensitive to assumption changes, as the majority is
amortized in proportion to premiums which are more predictably stable compared
to gross profits. For additional information about VOBA including details on
items included in our estimates of future cash flows for the various acquired
businesses and its bases for amortization, see Note 2 and Note 8 to the
Consolidated Financial Statements.

Goodwill


As of December 31, 2016, our goodwill balance of $833 million is reflected in
the following four reporting units: $444 million related to our Retirement Full
Service business, $230 million related to our Asset Management business, $147
million related to our Gibraltar Life and Other operations and $12 million
related to our International Insurance Life Planner business.


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We test goodwill for impairment on an annual basis, as of December 31 of each
year, or more frequently if events or circumstances indicate the potential for
impairment is more likely than not. The goodwill impairment analysis is
performed at the reporting unit level which is equal to or one level below our
operating segments. Accounting guidance provides for an optional qualitative
assessment for testing goodwill impairment that may allow companies to skip the
quantitative two step test. For additional information on goodwill and the
process for testing goodwill for impairment, see Note 2 and Note 9 to the
Consolidated Financial Statements.

In the International Insurance Life Planner business and the Asset Management
segment, we did not elect to utilize the option for qualitative analysis and
therefore completed a quantitative impairment analysis using an earnings
multiple approach. The earnings multiple approach indicates the value of a
business based on comparison to publicly-traded comparable companies in similar
lines of business. Each comparable company is analyzed based on various factors,
including, but not limited to, financial risk, size, geographic diversification,
profitability, adequate financial data, and an actively traded stock price. A
multiple of price to earnings is developed for the comparable companies using
independent analysts' consensus estimates for each company's 2017 forecasted
earnings. The multiples are then aggregated and a mean and median multiple is
calculated for the group. The lower of the mean or median multiple is then
applied to the 2017 forecasted earnings of the reporting unit to develop a
value. A control premium is then added to determine a total estimated fair value
for the reporting unit.

In the Retirement Full Service business and Gibraltar Life and Other operations,
we also did not elect to utilize the option for qualitative analysis and
therefore completed a quantitative impairment analysis using a discounted cash
flow approach. The discounted cash flow approach calculates the value of a
business by applying a discount rate reflecting the market expected rate of
return of the reporting unit to its projected future cash flows. These projected
future cash flows were based on our internal forecasts, an expected growth rate
and a terminal value. The reporting unit expected rate of return represents the
required rate of return on its total capitalization. The process of deriving
reporting unit specific required rates of return begins with the calculation of
an overall Company Weighted Average Cost of Capital, which includes the
calculation of the required return on equity using a Capital Asset Pricing Model
("CAPM"). The CAPM is a generally accepted method for estimating an equity
investor's return requirement, and hence a company's cost of equity capital. The
calculation using the CAPM begins with the long-term risk-free rate of return,
then applies a market risk premium for large company common stock, as well as
company specific adjustments to address volatility versus the market. The
Company then determines reporting unit specific required rates of return based
on their relative volatilities, benchmarks results against reporting unit
comparable companies, and ensures that the sum of the reporting unit required
returns (after considering the impact of unallocated Corporate costs and
capital) add up to the overall Company required return. This process results in
reporting unit specific discount rates which are then applied to the expected
future cash flows of the Retirement Full Service business and Gibraltar Life and
Other operations to estimate their respective fair values.

After completion of the first step of the quantitative tests, the fair values
exceeded the carrying amounts for each of the four reporting units and we
concluded there was no impairment as of December 31, 2016. The Asset Management,
International Insurance Life Planner, Gibraltar Life and Other operations, and
Retirement Full Service businesses had estimated fair values that exceeded their
carrying amounts, each by at least 45%. Completion of the second step of the
quantitative analysis is therefore not necessary.

Estimating the fair value of reporting units is a subjective process that
involves the use of significant estimates by management. Regarding all reporting
units tested, market declines or other events impacting the fair value of these
businesses, including discount rates, interest rates and growth rate assumptions
or increases in the level of equity required to support these businesses, could
result in goodwill impairments, resulting in a charge to income.

Valuation of Investments, Including Derivatives, and the Recognition of Other-than-Temporary Impairments


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

• Valuation of investments, including derivatives;

• Recognition of other-than-temporary impairments ("OTTI"); and

• Determination of the valuation allowance for losses on commercial mortgage

       and other loans.




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We present at fair value in the statements of financial position our investments
classified as available-for-sale (including fixed maturity and equity
securities), investments classified as trading such as our trading account
assets supporting insurance liabilities, derivatives and embedded derivatives.
For additional information regarding the key estimates and assumptions
surrounding the determination of fair value of fixed maturity and equity
securities, as well as derivative instruments, embedded derivatives and other
investments, see Note 20 to the Consolidated Financial Statements and
"-Valuation of Assets and Liabilities-Fair Value of Assets and Liabilities."

For our investments classified as available-for-sale, the impact of changes in
fair value is recorded as an unrealized gain or loss in AOCI, a separate
component of equity. For our investments classified as trading, the impact of
changes in fair value is recorded within "Other income." In addition,
investments classified as available-for-sale, as well as those classified as
held-to-maturity, are subject to impairment reviews to identify when a decline
in value is other-than-temporary. For a discussion of our policies regarding
other-than-temporary declines in investment value and the related methodology
for recording OTTI of fixed maturity and equity securities, see Note 2 to the
Consolidated Financial Statements.

Commercial mortgage and other loans are carried primarily at unpaid principal
balances, net of unamortized deferred loan origination fees and expenses and
unamortized premiums or discounts and a valuation allowance for losses. For a
discussion of our policies regarding the valuation allowance for commercial
mortgage and other loans, see Note 2 to the Consolidated Financial Statements.

Policyholder Liabilities

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

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

• For most long-duration contracts, we utilize best estimate assumptions as

of the date the policy is issued or acquired with provisions for the risk

of adverse deviation, as appropriate. After the liabilities are initially

established, we perform premium deficiency tests using best estimate

assumptions as of the testing date without provisions for adverse

deviation. If the liabilities determined based on these best estimate

assumptions are greater than the net reserves (i.e., GAAP reserves net of

       any DAC, DSI or VOBA asset), the existing net reserves are adjusted by
       first reducing these assets by the amount of the deficiency or to zero
       through a charge to current period earnings. If the deficiency is more
       than these asset balances for insurance contracts, we then increase the
       net reserves by the excess, again through a charge to current period

earnings. If a premium deficiency is recognized, the assumptions as of the

       premium deficiency test date are locked in and used in subsequent
       valuations and the net reserves continue to be subject to premium
       deficiency testing.

• For certain reserves, such as those related to guaranteed minimum death

       benefits ("GMDB"), guaranteed minimum income benefits ("GMIB") and
       no-lapse guarantees, we utilize current best estimate assumptions in
       establishing reserves. The reserves are subject to adjustments based on

annual reviews of assumptions and quarterly adjustments for experience,

including market performance, and the reserves may be adjusted through a

benefit or charge to current period earnings.

• For certain product guarantees, primarily certain optional living benefit

features of the variable annuity products in our Individual Annuities

segment, the benefits are accounted for as embedded derivatives, with fair

values calculated as the present value of expected future benefit payments

to contractholders less the present value of assessed rider fees

attributable to the embedded derivative feature. Under U.S. GAAP, the fair

values of these benefit features are based on assumptions a market

participant would use in valuing these embedded derivatives. Changes in

the fair value of the embedded derivatives are recorded quarterly through

a benefit or charge to current period earnings.




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

The following paragraphs provide additional details about the reserves established by each of our segments:

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The future policy benefit reserves for our International Insurance segment,
which as of December 31, 2016, represented 43% of our total future policy
benefit reserves, primarily relate to non-participating whole life and term life
products and endowment contracts, and are generally determined as the present
value of expected future benefits to, or on behalf of, policyholders plus the
present value of future maintenance expenses less the present value of future
net premiums. For these reserves, we utilize best estimate assumptions as of the
date the policy is issued or acquired with provisions for the risk of adverse
deviation, as described above. The primary assumptions used in determining
expected future benefits and expenses include mortality, lapse, morbidity,
investment yield and maintenance expense assumptions. In addition, future policy
benefit reserves for certain contracts also include amounts related to our
deferred profit liability.

The reserves for future policy benefits of our Retirement segment, which as of
December 31, 2016, represented 23% of our total future policy benefit reserves,
primarily relate to our non-participating life contingent group annuity and
structured settlement products. These reserves are generally determined as the
present value of expected future benefits and expenses. For these reserves, we
utilize best estimate assumptions as of the date the policy is issued or
acquired with provisions for the risk of adverse deviation, as described above.
For contracts that have recorded a premium deficiency reserve, we use
assumptions as of the most recent premium deficiency reserve establishment. The
primary assumptions used in establishing these reserves include mortality,
retirement, maintenance expense, and investment yield assumptions. In addition,
future policy benefit reserves for certain contracts also include amounts
related to our deferred profit liability.

The reserves for future policy benefits of our Individual Annuities segment,
which as of December 31, 2016, represented 4% of our total future policy benefit
reserves, primarily relate to reserves for the GMDB and GMIB features of our
variable annuities, and for the optional living benefit features that are
accounted for as embedded derivatives. As discussed above, in establishing
reserves for GMDBs and GMIBs, we utilize current best estimate assumptions. The
primary assumptions used in establishing these reserves include annuitization,
lapse, withdrawal and mortality assumptions, as well as interest rate and equity
market return assumptions. Lapse rates are adjusted at the contract level based
on the in-the-moneyness of the 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.

The reserves for certain optional living benefit features, including guaranteed
minimum accumulation benefits ("GMAB"), guaranteed minimum withdrawal benefits
("GMWB") and guaranteed minimum income and withdrawal benefits ("GMIWB"), are
accounted for as embedded derivatives, with fair values calculated as the
present value of expected future benefit payments to contractholders less the
present value of assessed rider fees attributable to the embedded derivative
feature. This methodology could result in either a liability or contra-liability
balance, given changing capital market conditions and various actuarial
assumptions. Since there is no observable active market for the transfer of
these obligations, the valuations are calculated using internally-developed
models with option pricing techniques. The models are based on a risk neutral
valuation framework and incorporate premiums for risks inherent in valuation
techniques, inputs, and the general uncertainty around the timing and amount of
future cash flows. The significant inputs to the valuation models for these
embedded derivatives include capital market assumptions, such as interest rate
levels and volatility assumptions, the Company's market-perceived risk of its
own non-performance ("NPR"), as well as actuarially determined assumptions,
including contractholder behavior, such as lapse rates, benefit utilization
rates, withdrawal rates, and mortality rates. Capital market inputs and actual
contractholders' account values are updated each quarter based on capital market
conditions as of the end of the quarter, including interest rates, equity
markets and volatility. In the risk neutral valuation, the initial swap curve
drives the total returns used to grow the contractholders' account values. The
Company's discount rate assumption is based on the 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, such as available industry studies or
market transactions such as acquisitions and reinsurance transactions. For
additional information regarding the valuation of these optional living benefit
features, see Note 20 to the Consolidated Financial Statements.

The future policy benefit reserves for our Individual Life segment, which as of
December 31, 2016, represented 5% of our total future policy benefit reserves,
primarily relate to term life, universal life and variable life products. For
term life contracts, the future policy benefit reserves are determined as the
present value of expected future benefits to, or on behalf of, policyholders
plus the present value of future maintenance expenses less the present value of
future net premiums. For these reserves, we utilize best estimate assumptions as
of the date the policy is issued or acquired with provisions for the risk of
adverse deviation, as described above. The primary assumptions used in
determining expected future benefits and expenses include mortality, lapse, and
maintenance expense assumptions. For variable and universal life products, which
include universal life contracts that contain no-lapse guarantees, reserves are
established using current best estimate assumptions, as described above.


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The reserves for future policy benefits of our Group Insurance segment, which as
of December 31, 2016, represented 2% of our total future policy benefit
reserves, primarily relate to reserves for group life and disability benefits.
For short-duration contracts, a liability is established when the claim occurs.
The reserves for group life and disability benefits include our liability of
$2.7 billion for unpaid claims and claim adjustment expenses for our Group
Insurance segment as of December 31, 2016, which relates primarily to the group
long-term disability product. This liability represents our estimate of future
disability claim payments and expenses as well as estimates of claims that have
been incurred, but have not yet been reported, as of the balance sheet date. The
liability is determined as the present value of expected future claim payments
and expenses. The primary assumptions used in determining expected future claim
payments are claim termination factors, an assumed interest rate and expected
Social Security offsets. Long-term disability claims and claim termination
experience may be affected by the economic environment and internal factors such
as our claims management process. The remaining reserves for future policy
benefits for group life and disability benefits relate primarily to our group
life business, and include reserves for Waiver of Premium, Claims In Course of
Settlement and Claims Incurred But Not Reported. The Waiver of Premium reserve
is calculated as the present value of future benefits, and utilizes assumptions
such as expected mortality and recovery rates. The Claims In Course of
Settlement reserve is based on the inventory of claims that have been reported
but not yet paid. The Claims Incurred But Not Reported reserve is estimated
using expected patterns of claims reporting.
The reserves for future policy benefits of our Corporate & Other operations,
which as of December 31, 2016, represented 2% of our total future policy benefit
reserves, primarily relate to our long-term care products. These reserves are
generally determined as the present value of expected future benefits and
expenses less future premiums. Most contracts have recorded a premium deficiency
reserve, for which we use assumptions as of the most recent premium deficiency
reserve establishment. The primary assumptions used in establishing these
reserves include interest rate, morbidity, mortality, lapse, premium rate
increase and maintenance expense assumptions. In addition, certain less
significant reserves for our long-term care products, such as our disabled life
reserves, are established using current best estimate actuarial assumptions, as
described above.

The future policy benefit reserves for the traditional participating life
insurance products of the Closed Block division, which as of December 31, 2016,
represented 21% of our total future policy benefit reserves are determined using
the net level premium method. Under this method, the future policy benefit
reserves are accrued as a level proportion of the premium paid by the
policyholder. In applying this method, we use mortality assumptions to determine
our expected future benefits and expected future premiums, and apply an interest
rate to determine the present value of both the expected future benefit payments
and the expected future premiums. The mortality assumptions are based on
standard industry mortality tables that were used to determine the cash
surrender value of the policies, and the interest rates used are the interest
rates used to calculate the cash surrender value of the policies.

Profits Followed by Losses


In certain instances, the policyholder liability for a particular line of
business may not be deficient in the aggregate to trigger loss recognition, but
the pattern of earnings may be such that profits are expected to be recognized
in earlier years followed by losses in later years. In these situations,
accounting standards require that an additional liability (Profits Followed by
Losses or "PFL" liability) be recognized by an amount necessary to sufficiently
offset the losses that would be recognized in later years. As a result, in
connection with the second quarter assumption updates we recorded a charge to
earnings of $444 million to recognize a PFL liability based on our current
estimate of the present value of the amount necessary to offset losses
anticipated in future periods. Because the liability is measured on a discounted
basis, there will also be accretion into future earnings through an interest
charge, and the liability will ultimately be released into earnings as an offset
to future losses. This PFL liability is predominantly associated with certain
universal life contracts that measure GAAP reserves using a dynamic approach and
accordingly, will be updated each quarter using current inforce and market data
and as part of the annual assumption update.

Sensitivity for Future Policy Benefit Reserves


We expect the future benefit reserves in our Individual Annuities segment that
are based on current best estimate assumptions, and those that represent
embedded derivatives recorded at fair value, to be the ones most likely to drive
variability in earnings from period to period.

For the GMDB and GMIB features of our variable annuities in our Individual
Annuities segment, the reserves for these contracts are significantly influenced
by the future rate of return assumptions. The following table provides a
demonstration of the sensitivity of the reserves for GMDBs and GMIBs related to
variable annuity contracts relative to our future rate of return assumptions by
quantifying the adjustments to these reserves that would be required assuming
both a 100 basis point increase and decrease in our future rate of return. The
information below is for illustrative purposes only and considers only the
direct effect of changes in our future rate of return on operating results due
to the change in the reserve balance and not changes in any other assumptions
such as persistency or mortality included in our evaluation of the reserves, or
any changes on DAC or other balances, discussed above in "-Deferred Policy
Acquisition and Other Costs."

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                                                December 31, 2016
                                              Increase/(Decrease) in
                                                GMDB/GMIB Reserves
                                                  (in millions)
Decrease in future rate of return by 100 bps $                186
Increase in future rate of return by 100 bps $               (143 )



In addition to the impact of market performance relative to our future rate of
return assumptions, other factors may also drive variability in the change in
reserves, particularly when our annual assumption updates are performed. As
noted above, however, the impact on our results of operations of changes in
these assumptions can be offsetting and we are unable to predict their movement
or offsetting impact over time. In 2016, updates to lapse, mortality and
utilization rate assumptions, partially offset by updates to projected interest
rate assumptions, drove the most significant changes to these reserves.

For certain optional living benefit features of the variable annuities in our
Individual Annuities segment that are accounted for as embedded derivatives, the
changes in reserves are significantly impacted by changes in both the capital
markets assumptions and actuarial assumptions. Capital market inputs and actual
policyholders' account values are updated each quarter based on capital market
conditions as of the end of the quarter, while actuarial assumptions are
reviewed at least annually, and updated based upon emerging experience, future
expectations and other data. For additional information about the impacts of
capital markets assumptions, including interest rates, NPR credit spreads and
equity returns, refer to "Quantitative and Qualitative Disclosures About Market
Risk" below. In 2016, updates to excess withdrawal assumptions and mapping of
funds to related indices, partially offset by updates to utilization efficiency
assumptions drove the most significant changes to these reserves. Other factors
may also drive variability in the change in reserves, particularly when our
annual assumption updates are performed. As noted above, however, the impact on
our results of operations of changes in these assumptions can be offsetting and
we are unable to predict their movement or offsetting impact over time.

Unearned Revenue Reserve


Our unearned revenue reserve ("URR"), reported as a component of "Policyholders'
account balances," was $2.5 billion as of December 31, 2016. This reserve
primarily relates to variable and universal life products within our Individual
Life segment and represents policy charges for services to be provided in future
periods. The charges are deferred as unearned revenue and are generally
amortized over the expected life of the contract in proportion to the product's
estimated gross profits, similar to DAC as discussed above.

For the variable and universal life policies of our Individual Life segment, a
significant portion of our gross profits is derived from mortality margins. As a
result, our estimates of future gross profits are significantly influenced by
our mortality assumptions. Our mortality assumptions are used to estimate future
death claims over the life of these policies and are developed based on Company
experience, industry experience and/or other factors. Unless a material change
in mortality experience that we feel is indicative of a long-term trend is
observed in an interim period, we generally update our mortality assumptions
annually. Updates to our mortality assumptions in future periods could have a
significant adverse or favorable effect on the results of our operations in the
Individual Life segment.

The URR balance associated with the variable and universal life policies of our
Individual Life segment as of December 31, 2016 was $2.1 billion. The following
table provides a demonstration of the sensitivity of that URR balance relative
to our future mortality assumptions by quantifying the adjustments that would be
required, assuming both an increase and decrease in our future mortality rate by
1%. The information below is for illustrative purposes only and considers only
the direct effect of changes in our mortality assumptions on the URR balance and
not changes in any other assumptions such as persistency, future rate of return,
or expenses included in our evaluation of URR. It does not reflect changes in
assets, such as DAC, which would partially offset the adjustments to the URR
balance reflected below. The impact of DAC is discussed in more detail above in
"-Deferred Policy Acquisition and Other Costs."

                                        December 31, 2016
                                    Increase/(Decrease) in URR
                                          (in millions)
Decrease in future mortality by 1% $                    47
Increase in future mortality by 1% $                   (47 )




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In addition to the impact of mortality experience relative to our assumptions,
other factors may also drive variability in the change in reserves, particularly
when our annual assumption updates are performed. As noted above, however, the
impact on our results of operations of changes in these assumptions can be
offsetting and we are unable to predict their movement or offsetting impact over
time. In 2016, valuation system conversion and methodology changes drove the
most significant changes to our URR reserve.

Pension and Other Postretirement Benefits


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

We determine our expected rate of return on plan assets based upon a building
block approach that considers inflation, real return, term premium, credit
spreads, equity risk premium and capital appreciation as well as expenses,
expected asset manager performance and the effect of rebalancing for the equity,
debt and real estate asset mix applied on a weighted average basis to our
pension asset portfolio. See Note 18 to our Consolidated Financial Statements
for our actual asset allocations by asset category and the asset allocation
ranges prescribed by our investment policy guidelines for both our pension and
other postretirement benefit plans. Our assumed long-term rate of return for
2016 was 6.25% for our domestic pension plans and 7.00% for our other
postretirement benefit plans. Given the amount of plan assets as of December 31,
2015, the beginning of the measurement year, if we had assumed an expected rate
of return for both our domestic pension and other domestic postretirement
benefit plans that was 100 bps higher or 100 bps lower than the rates we
assumed, the change in our net periodic costs would have been as shown in the
table below. The information provided in the table below considers only changes
in our assumed long-term rate of return given the level and mix of invested
assets at the beginning of the measurement year, without consideration of
possible changes in any of the other assumptions described above that could
ultimately accompany any changes in our assumed long-term rate of return.

                                                                For the 

year ended December 31, 2016

                                                                                       Increase/(Decrease) in Net
                                                   Increase/(Decrease) in Net        Periodic Other Postretirement
                                                     Periodic Pension Cost                        Cost

                                                                            (in millions)
Increase in expected rate of return by 100 bps   $                   (118 )         $                     (15 )
Decrease in expected rate of return by 100 bps   $                    118           $                      15



Foreign pension plans represent 5% of plan assets at the beginning of 2016. An
increase in expected rate of return by 100 bps would result in a decrease in net
periodic pension costs of $6 million; conversely, a decrease in expected rate of
return by 100 bps would result in an increase in net periodic pension costs of
$5 million.

We determine our discount rate, used to value the pension and postretirement
benefit obligations, based upon rates commensurate with current yields on high
quality corporate bonds. See Note 18 to the Consolidated Financial Statements
for information regarding the December 31, 2015 methodology we employed to
determine our discount rate for 2016. Our assumed discount rate for 2016 was
4.50% for our domestic pension plans and 4.35% for our other domestic
postretirement benefit plans. Given the amount of pension and postretirement
obligations as of December 31, 2015, the beginning of the measurement year, if
we had assumed a discount rate for both our domestic pension and other
postretirement benefit plans that was 100 bps higher or 100 bps lower than the
rates we assumed, the change in our net periodic costs would have been as shown
in the table below. The information provided in the table below considers only
changes in our assumed discount rate without consideration of possible changes
in any of the other assumptions described above that could ultimately accompany
any changes in our assumed discount rate.

                                                                  For the 

year ended December 31, 2016

                                                                                          Increase/(Decrease) in Net
                                                  Increase/(Decrease) in Net            Periodic Other Postretirement
                                                     Periodic Pension Cost                           Cost

                                                                              (in millions)
Increase in discount rate by 100 bps            $                     (114 )         $                         (6 )
Decrease in discount rate by 100 bps            $                      135           $                          5



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Foreign pension plans represent 13% of plan obligations at the beginning of
2016. An increase in discount rate by 100 bps would result in a decrease in net
periodic pension costs of $4 million; conversely, a decrease in discount rate by
100 bps would result in an increase in net periodic pension costs of $8 million.

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

For a discussion of our expected rate of return on plan assets and discount rate for our qualified pension plan in 2016, see "-Results of Operations by Segment-Corporate and Other."


For purposes of calculating pension income from our own qualified pension plan
for the year ended December 31, 2017, we will decrease the discount rate to
4.15% from 4.50% in 2016. The expected rate of return on plan assets will remain
unchanged at 6.25%, and the assumed rate of increase in compensation will remain
unchanged at 4.5%.

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

At December 31, 2016, the sensitivity of our domestic and foreign pension and
postretirement obligations to a 100 basis point change in discount rate was as
follows:

                                                                           December 31, 2016
                                                                                           Increase/(Decrease) in
                                                        Increase/(Decrease) in           Accumulated Postretirement
                                                     Pension  Benefits Obligation           Benefits Obligation

                                                                             (in millions)
Increase in discount rate by 100 bps               $                     (1,380 )      $                   (178 )
Decrease in discount rate by 100 bps               $                      1,599        $                    195



Taxes on Income

Our effective tax rate is based on income, non-taxable and non-deductible items,
statutory tax rates and tax planning opportunities available in the various
jurisdictions in which we operate. Inherent in determining our annual tax rate
are judgments regarding business plans, planning opportunities and expectations
about future outcomes. The dividend received deduction ("DRD") is a major reason
for the difference between the Company's effective tax rate and the federal
statutory rate of 35%. The DRD estimate incorporates the prior year results as
well as the current year's equity market performance. Both the current estimate
of the DRD and the DRD in future periods can vary based on factors such as, but
not limited to, changes in the amount of dividends received that are eligible
for the DRD, changes in the amount of distributions received from underlying
fund investments, changes in the account balances of variable life and annuity
contracts, and the Company's taxable income before the DRD.

The Company provides for U.S. income taxes on unremitted foreign earnings from
certain operations in Japan, Korea, Brazil, Germany and Taiwan. Unremitted
foreign earnings from operations in other foreign jurisdictions are considered
to be permanently reinvested. See Note 19 to the Consolidated Financial
Statements for a discussion of unremitted earnings for which the Company
provides U.S. Income Taxes.

An increase or decrease in our effective tax rate by one percent of income
(loss) from continuing operations before income taxes and equity in earnings of
operating joint ventures, would have resulted in an increase or decrease in our
consolidated income from continuing operations before equity in earnings of
operating joint ventures in 2016 of $57 million.

The Company's liability for income taxes includes the liability for unrecognized
tax benefits and interest that relate to tax years still subject to review by
the Internal Revenue Service ("IRS") or other taxing authorities. See Note 19 to
the Consolidated Financial Statements for a discussion of the impact in 2016,
2015 and 2014 of changes to our total unrecognized tax benefits. We do not
anticipate any significant changes within the next twelve months to our total
unrecognized tax benefits related to tax years for which the statute of
limitations has not expired.

The Company's affiliates in Japan and Korea file separate tax returns and are subject to audits by the local taxing authority. The general statute of limitations for Japan and Korea are five years from when the return is filed.

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Contingencies

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

Adoption of New Accounting Pronouncements


There are no new critical accounting estimates resulting from new accounting
pronouncements adopted during 2016. See Note 2 to the Consolidated Financial
Statements for a complete discussion of newly issued accounting pronouncements.

                        Results of Operations by Segment

U.S. Retirement Solutions and Investment Management Division

Individual Annuities


The Individual Annuities segment includes both variable and fixed annuities that
may include optional guaranteed living benefits riders (e.g., guaranteed minimum
income benefits ("GMIB"), guaranteed minimum accumulation benefits ("GMAB"),
guaranteed minimum withdrawal benefits ("GMWB"), and guaranteed minimum income
and withdrawal benefits ("GMIWB")), and/or guaranteed minimum death benefits
("GMDB"). We also offer fixed annuities that provide a guarantee of principal
and interest credited at rates we determine, subject to certain contractual
minimums. We derive our revenue mainly from fee income generated on variable
annuity account values, as the investment return on these contractholder funds
is generally attributed directly to the contractholder. We also earn investment
income on general account assets supporting annuity account values and certain
other management fees. Our expenses primarily consist of interest credited and
other benefits to contractholders, amortization of DAC and other costs,
non-deferred expenses related to the selling and servicing of the various
products we offer, costs of managing certain risks associated with these
products, changes in the reserves for benefit guarantees and other general
business expenses. These drivers of our business results are generally included
in adjusted operating income, with exceptions related to certain guarantees, as
discussed below.

The U.S. GAAP accounting and our adjusted operating income treatment for our
guarantees differ depending upon the specific contractual features. Under U.S.
GAAP, the reserves for GMDB and GMIB are calculated based on best estimates
applying our actuarial and capital markets return assumptions in accordance with
an insurance fulfillment accounting framework whereby a liability is established
over time representing the portion of fees collected that is expected to be used
to satisfy the obligation to pay benefits in future periods. The risks
associated with these benefit features are retained and results are included in
adjusted operating income in a manner generally consistent with U.S. GAAP.

In contrast, certain of our guaranteed living benefit riders (e.g., GMAB, GMWB
and GMIWB) are accounted for under U.S. GAAP as embedded derivatives and
reported using a fair value accounting framework. These benefit features are
carried at fair value based on estimates of assumptions a market participant
would use in valuing these embedded derivatives and the change in fair value
during each reporting period is recorded within "Realized investment gains
(losses), net." For purposes of measuring segment performance, adjusted
operating income excludes the changes in fair value and instead reflects the
performance of these riders using an insurance fulfillment accounting framework.
Under this framework, adjusted operating income recognized each period reflects
the rider fees earned during the period less the portion of such fees estimated
to be required to cover future benefit payments and hedging costs. For more
information on how we determine the portion of fees needed to cover estimated
future benefit payments and hedging costs, see "Variable Annuity Risks and Risk
Mitigants" below.

Account Values

Account values are a significant driver of our operating results. Since most
fees are determined by the level of separate account assets, fee income varies
according to the level of account values. Additionally, our fee income generally
drives other items such as the pattern of amortization of DAC and other costs.
Account values are driven by net flows from new business sales, surrenders,
withdrawals and benefit payments, the impact of market value changes, which can
be either positive or negative, and policy charges. The annuity industry's
competitive and regulatory landscapes, which have been dynamic over the last few
years, may impact our net flows, including new business sales. The following
table sets forth account value information for the periods indicated.


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                                                                       Year ended December 31,
                                                                  2016          2015          2014

                                                                            (in millions)
Total Individual Annuities(1):
Beginning total account value                                  $ 152,945     $ 158,664     $ 154,140
Sales                                                              8,054         8,780        10,008
Surrenders and withdrawals                                        (7,881 )      (8,415 )      (8,852 )
Net sales                                                            173           365         1,156
Benefit payments                                                  (1,794 )      (1,910 )      (1,799 )
Net flows                                                         (1,621 )      (1,545 )        (643 )
Change in market value, interest credited and other activity       9,012          (585 )       8,666
Policy charges                                                    (3,553 )      (3,589 )      (3,499 )
Ending total account value                                     $ 156,783     $ 152,945     $ 158,664


__________

(1) Includes variable and fixed annuities sold as retail investment products.

Investments sold through defined contribution plan products are included with

such products within the Retirement segment. Variable annuity account values

were $153.3 billion, $149.4 billion and $155.1 billion as of December 31,

2016, 2015 and 2014, respectively. Fixed annuity account values were $3.5

billion, $3.5 billion and $3.6 billion as of December 31, 2016, 2015 and

    2014, respectively.



2016 to 2015 Annual Comparison. The increase in account values during 2016 was
largely driven by favorable changes in the market value of contractholder funds,
partially offset by contract charges on contractholder accounts and benefit
payments. Net sales for 2016 decreased compared to 2015 reflecting lower gross
sales partially offset by lower surrenders and withdrawals. The decline in gross
sales for 2016 compared to 2015 was largely driven by decreased sales of our
Prudential Premier® Retirement Variable Annuity with "highest daily" benefit
riders and Prudential Premier® Investment Variable Annuity ("PPI"). The declines
in gross sales were partially offset by increases in sales of our Prudential
Defined Income Variable Annuity ("PDI") product.

2015 to 2014 Annual Comparison. The decrease in account values during 2015 was
largely driven by contract charges on contractholder accounts, benefit payments
and unfavorable changes in the market value of contractholder funds. The decline
in net sales for 2015 compared to 2014 was largely driven by a decrease in sales
of our products with the highest daily benefit, partially offset by an increase
in sales of our PPI and PDI products.

Operating Results

The following table sets forth the Individual Annuities segment's operating results for the periods indicated.

                                                                  Year ended December 31,
                                                                2016        2015        2014

                                                                       (in millions)
Operating results:
Revenues                                                     $  4,666     $ 4,695     $ 4,710
Benefits and expenses                                           2,901       2,898       3,243
Adjusted operating income                                       1,765      

1,797 1,467 Realized investment gains (losses), net, and related adjustments

                                                     2,031       1,588         521
Related charges                                                    68       

(624 ) (137 ) Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures $ 3,864 $ 2,761 $ 1,851





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Adjusted Operating Income


2016 to 2015 Annual Comparison. Adjusted operating income decreased $32 million.
Excluding the impacts of changes in the estimated profitability of the business,
discussed below, adjusted operating income decreased $8 million. The decrease
was primarily driven by lower asset-based fee income, net of associated costs,
as well as higher general and administrative expenses including business growth
initiatives. The decrease in asset-based fee income, net of a related decrease
in asset-based commissions, was driven by a decline in average variable annuity
account values and the decrease in the average effective fee rate as fee rates
on recent sales are generally lower than fee rates on the inforce block. This
decrease was partially offset by an increase due to greater efficiency in
managing product risks associated with a recently implemented asset-liability
management strategy discussed below. Partially offsetting this net decline were
increases in net investment income driven by higher income on non-coupon
investments and higher invested assets, as well as lower amortization costs and
lower interest expense. This net decline was also partially offset by the
absence of certain costs for contract cancellations incurred in 2015.

Adjustments to the amortization of DAC and other costs and to the reserves for
certain living and/or death benefit features of our variable annuity products
resulted in a net benefit of $138 million and $162 million in 2016 and 2015,
respectively. The net benefits primarily reflected the net impact of equity
market performance on contractholder accounts and hedge effectiveness (beginning
in the third quarter of 2016 as a result of our new ALM strategy) relative to
our assumptions, as well as a net benefit resulting from our annual reviews and
update of assumptions and other refinements.

2015 to 2014 Annual Comparison. Adjusted operating income increased $330
million. Excluding the impacts of changes in the estimated profitability of the
business, discussed below, adjusted operating income increased $39 million. The
increase was driven by higher asset-based fee income due to growth in average
variable annuity account values, net of a related increase in asset-based
commissions, a decline in interest expense driven by lower debt, and a decline
in amortization costs. Partially offsetting this net increase were costs for
contract cancellations in connection with remediation of an error in an
illustration contained in certain product marketing materials, higher operating
expenses and a decline in net investment income driven by lower income on
non-coupon investments.

Adjustments to the amortization of DAC and other costs and to the reserves for
the GMDB and GMIB features of our variable annuity products resulted in a net
benefit of $162 million and a net charge of $129 million in 2015 and 2014,
respectively. The $162 million net benefit in 2015 primarily reflected the net
impact of equity market performance on contractholder accounts relative to our
assumptions, as well as a net benefit resulting from our annual review and
update of assumptions. The $129 million net charge in 2014 primarily reflected
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 a net favorable impact from equity market
performance. Partially offsetting this net charge was a net benefit resulting
from the annual review and update of assumptions performed in that year.

Revenues, Benefits and Expenses


2016 to 2015 Annual Comparison. Revenues decreased $29 million. Excluding the $5
million net decrease related to the impacts of certain changes in our estimated
profitability of the business discussed above, revenues decreased $24 million,
primarily driven by a decrease in policy charges and fee income, asset
management and service fees and other income, primarily due to a decline in
average variable annuity account values. Partially offsetting this decrease was
an increase in net investment income driven by higher income on non-coupon
investments and higher invested assets, and an increase in premiums reflecting
an increase in annuitizations of our variable annuity contracts, with offsets in
policyholders' benefits, as discussed below.

Benefits and expenses increased $3 million. Excluding the $19 million net
increase related to the impacts of certain changes in our estimated
profitability of the business discussed above, benefits and expenses decreased
$16 million. Interest credited to policyholders' account balances and
amortization of DAC decreased $21 million and $12 million, respectively, driven
by lower fee income, as discussed above. General and administrative expenses,
net of capitalization, decreased $10 million driven by lower asset management
costs and lower asset-based commissions due to lower average account values,
partially offset by higher operating expenses. Partially offsetting these
decreases was a $25 million increase in policyholders' benefits, including
changes in reserves, primarily reflecting an increase in annuitizations of our
variable annuity contracts with offsets in premiums, as discussed above.

2015 to 2014 Annual Comparison. Revenues decreased $15 million, primarily driven
by a $27 million decrease in net investment income due to lower income on
non-coupon investments, partially offset by a $19 million increase in policy
charges and fee income due to growth in average variable annuity account values.


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Benefits and expenses decreased $345 million. Excluding the $291 million net
decrease related to the impacts of certain changes in our estimated
profitability of the business discussed above, benefits and expenses decreased
$54 million. Interest expense decreased $38 million driven by lower debt and
interest credited to policyholders' account balances decreased $26 million
driven by lower average account values in the general account. Partially
offsetting these decreases was a $14 million increase in policyholders' benefits
driven by costs for contract cancellations, as discussed above.

Variable Annuity Risks and Risk Mitigants


The primary risk exposures of our variable annuity contracts relate to actual
deviations from, or changes to, the assumptions used in the original pricing of
these products, including capital markets assumptions such as equity market
returns, interest rates and market volatility, along with actuarial assumptions
such as contractholder mortality, the timing and amount of annuitization and
withdrawals, and contract lapses. For these risk exposures, achievement of our
expected returns is subject to the risk that actual experience will differ from
the assumptions used in the original pricing of these products. We currently
manage our exposure to certain risks driven by capital markets fluctuations
primarily through a combination of three strategies described below including
Product Design Features, External Reinsurance and our Asset Liability Management
Strategy.

Product Design Features

Certain of the variable annuity contracts that we offer include an automatic
rebalancing feature, also referred to as an asset transfer feature. This feature
is implemented at the contract level, and transfers assets between certain
variable investment sub-accounts selected by the annuity contractholder and,
depending on the benefit feature, a fixed-rate account in the general account or
a bond fund sub-account within the separate accounts. The automatic rebalancing
feature associated with currently-sold highest daily benefit products uses a
designated bond fund sub-account within the separate accounts. The transfers are
based on a static mathematical formula used with the particular benefit which
considers a number of factors, including, but not limited to, the impact of
investment performance on the contractholder's total account value. The
objective of the automatic rebalancing feature is to reduce our exposure to
equity market risk and market volatility. Other product design features we
utilize include, among others, asset allocation restrictions, minimum issuance
age requirements and certain limitations on the amount of contractholder
premiums, as well as a required minimum allocation to our general account for
certain of our products. We have also introduced products that diversify our
risk profile and have incorporated provisions in product design allowing
frequent revisions of key pricing elements. In addition, there is diversity in
our fee arrangements, as certain fees are primarily based on the benefit
guarantee amount, the contractholder account value and/or premiums, which helps
preserve certain revenue streams when market fluctuations cause account values
to decline.

External Reinsurance

Effective April 1, 2015, we entered into an agreement with Union Hamilton
Reinsurance, Ltd. ("Union Hamilton"), an external counterparty, to reinsure
approximately 50% of the Highest Daily Lifetime Income ("HDI") v.3.0 business.
HDI v.3.0 is the most current version of our "highest daily" living benefits
guarantee that is available with our Prudential Premier® Retirement Variable
Annuity. This reinsurance agreement covered most new HDI v.3.0 variable annuity
business issued between April 1, 2015 and December 31, 2016 on a quota share
basis, not to exceed Union Hamilton's quota share of $5.0 billion for new rider
premiums through December 31, 2016. From April 1, 2015 through December 31,
2016, approximately $2.9 billion of new rider premiums were ceded to Union
Hamilton under this agreement. Reinsurance on business subject to this agreement
remains in force for the duration of the underlying annuity contracts. New sales
of HDI v.3.0 subsequent to December 31, 2016 are not covered by this external
reinsurance agreement.

Asset Liability Management ("ALM") Strategy (including fixed income instruments and derivatives)


Under our historical hedging program to manage certain capital market risks
associated with certain variable annuity living benefit guarantees, we utilized
the U.S. GAAP valuation, with certain modifications, to derive a hedge target
that was more reflective of our best estimate of future benefit payments, net of
fees collected. Derivative positions were entered into that sought to offset the
change in value of the hedge target.

During the third quarter of 2016, we implemented a new ALM strategy that
utilizes a combination of both traditional fixed income instruments and
derivatives to help defray potential claims associated with our variable annuity
living benefit guarantees. Under the revised strategy, expected living benefit
claims under less severe market conditions are managed through the accumulation
of fixed income instruments and potential living benefit claims resulting from
more severe market conditions are hedged using derivative instruments. We expect
the revised strategy to result in more efficient management of our capital and
liquidity associated with these products while continuing to mitigate
fluctuations in net income due to capital markets movements.


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The change in hedge strategy had no impact on how we value or account for the
living benefit guarantees under U.S. GAAP. However, under the new ALM strategy,
beginning in the third quarter of 2016, adjusted operating income includes the
fees earned that are in excess of the estimated portion of fees required to
cover expected claims and hedge costs for the economic liability. The portion of
fees required to cover such costs is updated quarterly to reflect updated
estimates and actual experience. The effectiveness of our hedging program as
measured by comparing the change in value of our hedging assets to the change in
value of the liability we are attempting to hedge will ultimately be reflected
in adjusted operating income over time through the inclusion of actual hedge
costs. Expected costs are updated periodically along with our expectation of
claims. For adjusted operating income purposes, DAC and other costs are fully
amortized over the life of the contracts proportional to our actual and
estimated gross profits under the adjusted operating income framework described
above. Overall, we generally expect this strategy to result in a higher portion
of fees being recognized in adjusted operating income than under our prior
strategy.

The following table provides a reconciliation between the liability reported
under U.S. GAAP and the economic liability we intend to manage through our ALM
strategy.

                                                                    As of December 31,
                                                                           2016

                                                                       (in millions)
U.S. GAAP liability (including non-performance risk)               $        

8,179

Non-performance risk adjustment                                             

7,136

Subtotal                                                                    

15,315

Adjustments including risk margins and valuation methodology differences

                                                                   (5,663 )
Economic liability managed by ALM strategy                         $        

9,652

As of December 31, 2016, we have sufficient fixed income instruments and derivative assets supporting the economic liability within the entities in which the risks reside.


Under the new ALM strategy, we expect differences in the U.S. GAAP net income
impact between the changes in value of the fixed income instruments and
derivatives as compared to the changes in the embedded derivative liability
these assets support. These differences can be primarily attributed to three
distinct areas:

• Different valuation methodologies in measuring the liability we intend to

cover with fixed income instruments and derivatives versus the liability

reported under U.S. GAAP-The valuation methodology utilized in estimating

the economic liability we intend to defray with fixed income instruments

and derivatives is different from that required to be utilized to measure

the liability under U.S. GAAP. The valuation of the economic liability

excludes certain items that are included within the U.S. GAAP liability,

      such as non-performance risk ("NPR") (in order to maximize protection
      irrespective of the possibility of our own default), as well as risk
      margins (required by U.S. GAAP but different from our best estimate).


• Different accounting treatment between liabilities and assets supporting

those liabilities-Under U.S. GAAP, changes in value of the embedded

derivative liability and derivative instruments used to hedge a portion of

the economic liability are immediately reflected in net income. In

contrast, changes in fair value of fixed income instruments that support a

portion of the economic liability are designated as available for sale and

are not recorded in net income but rather are recorded as unrealized gains

      (losses) in other comprehensive income.


• General hedge results-For the derivative portion of the ALM strategy, the

net hedging impact (the extent to which the changes in value of the hedging

instruments offset the change in value of the portion of the economic

liability we are hedging) may be impacted by a number of factors including:

      cash flow timing differences between our hedging instruments and the
      corresponding portion of the economic liability we are hedging, basis
      differences attributable to actual underlying contractholder funds to be
      hedged versus hedgeable indices, rebalancing costs related to dynamic

rebalancing of hedging instruments as markets move, certain elements of the

economic liability that may not be hedged (including certain actuarial

      assumptions), and implied and realized market volatility on the hedge
      positions relative to the portion of the economic liability we seek to
      hedge.



For the portion of our ALM strategy executed with derivatives, we enter into a
range of exchange-traded, cleared and over-the-counter ("OTC") equity and
interest rate derivatives including, but not limited to: equity and treasury
futures; total return and interest rate swaps; and options including equity
options, swaptions, and floors and caps.

The following table illustrates the net impact to our Consolidated Statements of
Operations from changes in the U.S. GAAP embedded derivative liability and hedge
positions, and the related amortization of DAC and other costs, for the periods
indicated.


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                                                                  Year ended December 31,
                                                                2016         2015       2014

                                                                            (1)
                                                                       (in millions)
Excluding impact of assumption updates and other
refinements:
Net hedging impact(2)(3)                                     $    (692 )   $ (547 )   $  (421 )
Change in portions of U.S. GAAP liability, before NPR(4)         1,745        (67 )    (1,997 )
Change in the NPR adjustment                                    (1,097 )    2,243       3,824
Net impact from changes in the U.S. GAAP embedded
derivative and hedge positions-reported in Individual
Annuities                                                          (44 )    

1,629 1,406 Related benefit (charge) to amortization of DAC and other costs

                                                        $     243     $ (701 )   $  (496 )
Net impact of assumption updates and other refinements           1,455        (34 )      (631 )
Net impact from changes in the U.S. GAAP embedded
derivative and hedge positions, after the impact of NPR,
DAC and other costs-reported in Individual Annuities(3)      $   1,654     $  894     $   279


__________

(1) Positive amount represents income; negative amount represents a loss.

(2) Net hedging impact represents the difference between the change in fair value

of the risk we seek to hedge using derivatives and the change in fair value

of the derivatives utilized with respect to that risk.

(3) Excludes $(1,523) million, $(585) million and $(3,036) million for 2016, 2015

and 2014, respectively, representing the impact of managing interest rate

risk through capital management strategies other than hedging of particular

exposures. Because this decision was based on the capital considerations of

the Company as a whole, the impact was reported in Corporate and Other

operations. See "-Corporate and Other."

(4) Represents risk margins and valuation methodology differences between the

economic liability managed by the ALM strategy and the U.S. GAAP liability,

as well as the portion of the economic liability managed with fixed income

    instruments.



The net gain of $1,654 million for 2016 primarily reflected the impact of a
$1,455 million benefit from our annual review and update of assumptions, driven
by modifications to both our actuarial assumptions, including updates to
expected withdrawal rates, as well as economic assumptions. The net gain also
reflected the changes in the portions of the U.S. GAAP liability before NPR that
are excluded from our hedge target. This impact was partially offset by changes
in the NPR adjustment, primarily driven by tightening of credit spreads. To a
lesser extent, results also reflected net hedging impacts, primarily driven by
unfavorable liability basis. Each of these items had corresponding partial
offsets included in the related impacts to amortization of DAC and other costs.
Amortization of DAC and other costs also included a benefit of $515 million
related to changes in our estimate of total gross profits as a result of the
implementation of the new ALM strategy in the third quarter of 2016 described
above.

The net gain of $894 million for 2015 primarily reflected a $2,243 million net
benefit from the change in the NPR adjustment, driven by net increases in the
base embedded derivative liability before NPR primarily due to declining
interest rates and widening credit spreads. This impact was partially offset by
a $547 million net charge from changes in the value of our historically defined
hedge target, and related hedge positions, primarily driven by fund
underperformance relative to indices and unfavorable liability basis. Each of
these items resulted in partial offsets included in the $701 million related
charge to the amortization of DAC and other costs. The net charge from the
impact of assumption updates and other refinements of $34 million resulted from
our annual review and update of assumptions, primarily driven by modifications
to our actuarial assumptions and other refinements. Results also reflected the
changes in the portions of the U.S. GAAP liability that are excluded from our
historically defined hedge target, net of related impacts to the amortization of
DAC and other costs.

The net gain of $279 million for 2014 primarily reflected a $3,824 million net
benefit from the change in the NPR adjustment driven by net increases in the
base embedded derivative liability before NPR, primarily due to declining
interest rates. This impact was partially offset by a $421 million net charge
from changes in the value of our historically defined hedge target and related
hedge positions, primarily driven by fund underperformance relative to indices
and unfavorable liability basis. Each of these items resulted in partial offsets
included in the $496 million related charge to the amortization of DAC and other
costs. The net charge from the impact of assumption updates and other
refinements of $631 million was primarily driven by modifications to our
actuarial assumptions, including updates to our lapse assumption, to reflect our
review of emerging experience, future expectations and other data, and other
refinements. Results also reflected the changes in the portions of the U.S. GAAP
liability that are excluded from our historically defined hedge target, net of
related impacts to the amortization of DAC and other costs. In addition, results
included a net charge of $35 million related to prior periods. See Note 1 to the
Consolidated Financial Statements for additional information.

For information regarding the Capital Protection Framework we use to evaluate and support the risks of the ALM strategy, see "-Liquidity and Capital Resources-Capital."

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Through March 31, 2016, we reinsured living benefit guarantees issued by our
domestic statutory life insurance companies to a captive reinsurance company,
Pruco Re, in order to facilitate the capital markets hedging program for these
living benefit guarantees. Effective April 1, 2016, as part of the Variable
Annuities Recapture, living benefit guarantees and certain retirement products
were recaptured. The Variable Annuities Recapture resulted in the transfer of
these product risks to certain of our domestic statutory life insurance
companies. The ALM strategy described above is executed within these domestic
insurance companies. After the foregoing transactions, Pruco Re no longer had
any material active reinsurance with affiliates. On September 30, 2016, Pruco Re
was merged with and into PALAC.

Product Specific Risks and Risk Mitigants


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

The majority of our variable annuity contracts with living benefits guarantees,
and all new contracts sold with our highest daily living benefits feature,
include risk mitigants in the form of an automatic rebalancing feature and/or
inclusion in our ALM strategy. We may also utilize external reinsurance as a
form of additional risk mitigation. The risks associated with the guaranteed
benefits of certain legacy products that were sold prior to our development of
the automatic rebalancing feature are also managed through our ALM strategy.
Certain legacy GMAB products include the automatic rebalancing feature, but are
not included in the ALM strategy. The PDI product and contracts with the GMIB
feature have neither risk mitigant. Certain risks associated with PDI are
managed through the limitation of contractholder asset allocations to a single
bond fund sub-account.

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

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

                                                                                 December 31,
                                                  2016                               2015                               2014
                                      Account Value      % of Total      Account Value      % of Total      Account Value      % of Total

                                                                                (in millions)
Living benefit/GMDB features(1):
Both ALM strategy and automatic
rebalancing(2)                      $       106,585          69 %      $       106,018          71 %      $       110,953          72 %
ALM strategy only                             9,409           6 %                9,994           7 %               11,395           7 %
Automatic rebalancing only                    1,168           1 %                1,393           1 %                1,771           1 %
External reinsurance(3)                       2,932           2 %                1,513           1 %                    0           0 %
PDI                                           7,926           5 %                4,664           3 %                2,777           2 %
Other Products                                2,730           2 %                2,870           2 %                3,324           2 %
Total living benefit/GMDB
features                            $       130,750                    $       126,452                    $       130,220
GMDB features and other(4)                   22,545          15 %               22,989          15 %               24,863          16 %
Total variable annuity account
value                               $       153,295                    $       149,441                    $       155,083


_________

(1) All contracts with living benefit guarantees also contain GMDB features,

    covering the same insured contract.



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(2) Contracts with living benefits that are included in our ALM strategy, and

have an automatic rebalancing feature.

(3) Represents contracts subject to reinsurance transaction with external

    counterparty covering new business for the period April 1, 2015 through
    December 31, 2016. These contracts with living benefits also have an
    automatic rebalancing feature.

(4) Includes contracts that have a GMDB feature and do not have an automatic

    rebalancing feature.



The risk profile of our variable annuity account values as of the periods above reflect our product risk diversification strategy and the runoff of legacy products over time.


Retirement

Operating Results

The following table sets forth the Retirement segment's operating results for
the periods indicated.

                                                              Year ended December 31,
                                                           2016         2015         2014

                                                                   (in millions)
Operating results(1):
Revenues                                                $ 12,876     $ 11,821     $ 12,077
Benefits and expenses                                     11,864       10,890       10,862
Adjusted operating income                                  1,012         

931 1,215 Realized investment gains (losses), net, and related adjustments

                                                 (281 )        255          591
Related charges                                             (272 )         

(1 ) (4 ) Investment gains (losses) on trading account assets supporting insurance liabilities, net

                        (21 )       

(581 ) 151 Change in experience-rated contractholder liabilities due to asset value changes

                                    25          490         (106 )
Income (loss) from continuing operations before
income taxes and equity in earnings of operating
joint ventures                                          $    463     $  1,094     $  1,847


 __________

(1) Certain of our Retirement segment's non-U.S. dollar-denominated earnings are

from longevity reinsurance contracts, which are denominated in British pounds

sterling, and are therefore subject to foreign currency exchange rate risk.

Effective January 1, 2016, the financial results of our Retirement segment

include the impact of an intercompany arrangement with our Corporate and

Other operations designed to mitigate the impact of exchange rate changes on

the segment's U.S. dollar-equivalent earnings. For more information related

    to this intercompany arrangement, see "-Results of Operations-Impact of
    Foreign Currency Exchange Rates," above.


Adjusted Operating Income


2016 to 2015 Annual Comparison. Adjusted operating income increased $81 million.
Results for 2016 reflected a net benefit of $6 million from our annual review
and update of assumptions and other refinements, driven by favorable updates to
actuarial assumptions, while results for 2015 reflected no net impact from our
annual review and update of assumptions. Excluding this favorable comparative
impact, adjusted operating income increased $74 million, primarily driven by
higher net investment spread results, partially offset by a lower contribution
from reserve experience, higher general and administrative expenses, net of
capitalization, and lower fee income. The increase in net investment spread
results primarily reflected higher net prepayment fee income, growth in account
values and higher income on non-coupon investments, partially offset by lower
reinvestment rates net of crediting rate reductions on full service general
account stable value products. The lower contribution from reserve experience
primarily reflected lower mortality gains on a comparative basis for pension
risk transfer contracts. The increase in general and administrative expenses,
net of capitalization, was primarily driven by increased legal costs. The
decrease in fee income primarily reflected lower margins on full service account
values. This decrease was partially offset by growth in account values and
increased billed revenues.


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2015 to 2014 Annual Comparison. Adjusted operating income decreased $284
million. Results for 2015 reflected no net impact from our annual review and
update of assumptions, while results for 2014 reflected a $13 million net
charge. Excluding this favorable comparative impact, adjusted operating income
decreased $297 million, primarily driven by lower net investment spread results,
higher general and administrative expenses, net of capitalization, and lower fee
income, partially offset by a higher contribution from reserve experience. The
decrease in net investment spread results primarily reflected lower income on
non-coupon investments, lower reinvestment rates, lower income on derivatives
used in portfolio management and lower net prepayment fee income, partially
offset by growth in account values. The increase in general and administrative
expenses, net of capitalization, was primarily driven by business growth and
costs associated with strategic initiatives. The decrease in fee income
primarily reflected lower margins on full service account values and net
outflows of investment-only stable value account values, partially offset by
higher income from longevity reinsurance account values. The more favorable
reserve impacts reflected higher mortality gains for pension risk transfer
contracts.

Revenues, Benefits and Expenses


2016 to 2015 Annual Comparison. Revenues increased $1,055 million. Premiums
increased $851 million primarily driven by pension risk transfer transactions.
This increase in premiums resulted in a corresponding increase in policyholders'
benefits, as discussed in benefits and expenses below. Net investment income
increased $181 million, primarily reflecting growth in account values as
discussed below, higher prepayment fee income and higher income on non-coupon
investments, partially offset by lower reinvestment rates.

Benefits and expenses increased $974 million. Excluding the impact of our annual
review and update of assumptions, as discussed above, benefits and expenses
increased $981 million. Policyholders' benefits, including the change in policy
reserves, increased $968 million, primarily related to the increase in premiums
discussed above. Interest credited to policyholders' account balances increased
$32 million, primarily driven by higher prepayment fee income credited to
experience rated account balances and growth in account values as discussed
below, partially offset by the impact of crediting rate reductions on full
service general account stable value account values.

2015 to 2014 Annual Comparison. Revenues decreased $256 million. Premiums
decreased $68 million, primarily driven by more significant group annuity
transactions in 2014, partially offset by ongoing premiums assumed for longevity
reinsurance contracts sold in 2015. Net investment income decreased $127
million, primarily reflecting lower income on non-coupon investments, lower
reinvestment rates and lower prepayment fee income, partially offset by growth
in account values. Policy charges and fee income, asset management and service
fees and other income decreased $61 million, primarily from lower fee income and
lower income on derivatives used in portfolio management.

Benefits and expenses increased $28 million. Excluding the impact of our annual
review and update of assumptions, as discussed above, benefits and expenses
increased $41 million. General and administrative expenses, net of
capitalization, increased $38 million primarily driven by business growth and
costs associated with strategic initiatives. Policyholders' benefits, including
the change in policy reserves, increased $33 million driven by interest accrued
on benefit reserves, partially offset by a decrease in group annuity premiums,
as discussed above and favorable mortality for pension risk transfer contracts.
Partially offsetting these increases was a $35 million decrease in interest
credited to policyholders' account balances, primarily driven by the impact of
crediting rate reductions on full service general account stable value account
values.

Account Values

Account values are a significant driver of our operating results, and are
primarily driven by net additions (withdrawals) and the impact of market
changes. The income we earn on our fee-based products varies with the level of
fee-based account values, since many policy fees are determined by these values.
The investment income and interest we credit to policyholders on our
spread-based products varies with the level of general account values. To a
lesser extent, changes in account values impact our pattern of amortization of
DAC and VOBA and general and administrative expenses. The following table shows
the changes in the account values and net additions (withdrawals) of Retirement
segment products for the periods indicated. Net additions (withdrawals) are plan
sales and participant deposits or additions, as applicable, minus plan and
participant withdrawals and benefits. Account values include both internally-
and externally-managed client balances as the total balances drive revenue for
the Retirement segment. For more information on internally-managed balances, see
"-Asset Management."

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                                                                   Year ended December 31,
                                                              2016          2015          2014

                                                                        (in millions)
Full Service:
Beginning total account value                              $ 188,961     $ 184,196     $ 173,502
Deposits and sales                                            21,928        25,684        23,934
Withdrawals and benefits                                     (20,127 )     (21,559 )     (22,601 )
Change in market value, interest credited and interest
income and other activity                                     12,040           640         9,361
Ending total account value                                 $ 202,802     $ 188,961     $ 184,196
Net additions (withdrawals)                                $   1,801     $   4,125     $   1,333
Institutional Investment Products:
Beginning total account value                              $ 179,964     $ 179,641     $ 149,402
Additions(1)                                                  16,140        15,572        43,293
Withdrawals and benefits                                     (12,161 )     (15,388 )     (16,036 )
Change in market value, interest credited and interest
income                                                         5,299         3,476         5,833
Other(2)                                                      (5,866 )      (3,337 )      (2,851 )
Ending total account value                                 $ 183,376     $ 179,964     $ 179,641
Net additions (withdrawals)                                $   3,979     $     184     $  27,257


__________

(1) Additions primarily include: group annuities calculated based on premiums

received; longevity reinsurance contracts calculated as the present value of

    future projected benefits; and investment-only stable value contracts
    calculated as the fair value of customers' funds held in a client-owned
    trust.

(2) "Other" activity includes the effect of foreign exchange rate changes

associated with our United Kingdom longevity reinsurance business, net

presentation of $2,914 million in receipts offset by $2,364 million in

payments related to funding agreements backed by commercial paper which

typically have maturities of less than 90 days, and changes in asset balances

for externally-managed accounts.




2016 to 2015 Annual Comparison. The increase in full service account values
primarily reflected the favorable changes in the market value of customer funds.
The decrease in net additions was primarily driven by lower large plan sales.
This decrease was partially offset by lower plan lapses, as well as net
participant deposits in 2016 compared to net participant withdrawals in 2015.

The increase in institutional investment products account values primarily
reflected net additions resulting from investment-only stable value accounts and
pension risk transfer transactions. The increase in net additions was primarily
driven by investment-only stable value accounts, which reflected net additions
in 2016 compared to net withdrawals in 2015. This increase was partially offset
by less net additions related to pension risk transfer transactions in 2016 as
compared to 2015 and a bank-owned life insurance stable value transaction in
2015.

2015 to 2014 Annual Comparison. The increase in full service account values
primarily reflected the impact of net additions in 2015. The increase in net
additions was driven by higher large plan sales and lower large plan lapses,
partially offset by higher net participant withdrawals.

The increase in institutional investment products account values reflected net
additions resulting from significant pension risk transfer transactions and a
bank-owned life insurance stable value transaction, partially offset by net
withdrawals of investment-only stable value accounts. The decrease in net
additions was primarily driven by two significant longevity reinsurance
transactions in 2014.

Asset Management

Operating Results

The following table sets forth the Asset Management segment's operating results for the periods indicated.



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                                                              Year ended December 31,
                                                           2016         2015         2014

                                                                   (in millions)
Operating results(1):
Revenues                                                $  2,961     $  2,944     $  2,840
Expenses                                                   2,174        2,165        2,055
Adjusted operating income                                    787         

779 785 Realized investment gains (losses), net, and related adjustments

                                                   (6 )         

(4 ) (10 ) Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests

             45           50           41
Income (loss) from continuing operations before
income taxes and equity in earnings of operating
joint ventures                                          $    826     $    825     $    816


 __________

(1) Certain of our Asset Management segment's investment activities are based in

currencies other than the U.S. dollar and are therefore subject to foreign

currency exchange rate risk. Effective January 1, 2016, the financial results

of our Asset Management segment include the impact of an intercompany

arrangement with our Corporate and Other operations designed to mitigate the

impact of exchange rate changes on the segment's U.S. dollar-equivalent

earnings. For more information related to this intercompany arrangement, see

"-Results of Operations-Impact of Foreign Currency Exchange Rates," above.




Adjusted Operating Income

2016 to 2015 Annual Comparison. Adjusted operating income increased $8 million.
The increase primarily reflected higher asset management fees, net of expenses,
from an increase in average fixed income assets under management as a result of
net inflows and market appreciation as well as from a favorable fee rate
modification within certain real estate funds, partially offset by a decline in
average equity assets under management as a result of net outflows and market
volatility experienced in the first half of the year. The increase was also
partially offset by lower other related revenues, net of associated expenses,
primarily related to lower strategic investing results and lower equity
fund-related incentive fees, net of expenses.

2015 to 2014 Annual Comparison. Adjusted operating income decreased $6 million.
Higher asset management fees from growth in assets under management were more
than offset by higher expenses, including distribution costs associated with
higher retail sales and expenses relating to business growth initiatives. The
decrease also reflected lower other related revenues, net of expenses, primarily
related to lower strategic investing results.

Revenues and Expenses


The following table sets forth the Asset Management segment's revenues,
presented on a basis consistent with the table above under "-Operating Results,"
by type.

                                                    Year ended December 31,
                                                  2016          2015       2014

                                                         (in millions)
Revenues by type:
Asset management fees by source:
Institutional customers                       $   1,046       $   923    $   877
Retail customers(1)                                 707           764        720
General account                                     474           448        424
Total asset management fees                       2,227         2,135      2,021
Incentive fees                                      108            88         91
Transaction fees                                     19            20         26
Strategic investing                                  25            30         45
Commercial mortgage(2)                              103           103        100
Other related revenues(3)                           255           241        262
Service, distribution and other revenues(4)         479           568        557
Total revenues                                $   2,961       $ 2,944    $ 2,840


__________

(1) Consists of fees from: individual mutual funds and variable annuities and

variable life insurance separate account assets; funds invested in

proprietary mutual funds through our defined contribution plan products; and

third-party sub-advisory relationships. Revenues from fixed annuities and the

fixed-rate accounts of variable annuities and variable life insurance are

    included in the general account.



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(2) Includes mortgage origination and spread lending revenues from our commercial

mortgage origination and servicing business.

(3) Future revenues will be impacted by the level and diversification of our

strategic investments, the commercial real estate market, and other domestic

and international markets.

(4) Includes payments from Wells Fargo under an agreement dated as of July 30,

2004, implementing arrangements with respect to money market mutual funds in

connection with the combination of our retail securities brokerage and

clearing operations with those of Wells Fargo. The agreement extends for ten

years after termination of the Wachovia Securities joint venture, which

occurred on December 31, 2009. The revenue from Wells Fargo under this

agreement was $84 million in 2016, $78 million in 2015 and $77 million in

    2014.



2016 to 2015 Annual Comparison. Revenues increased $17 million. Total asset
management fees increased $92 million, primarily as a result of net inflows and
market appreciation within fixed income as well as from a favorable fee rate
modification within certain real estate funds that occurred in the third quarter
of 2016. Other related revenues increased $14 million, primarily due to higher
performance-based incentive fees related to certain fixed income hedge funds.
Partially offsetting these increases was an $89 million decrease in service,
distribution and other revenues reflecting lower service and other fees as well
as the deconsolidation of certain collateralized loan obligations.

Expenses increased $9 million, as a result of business growth, higher compensation related to favorable fixed income results and higher performance-based incentive fees (included in noncontrolling interest), partially offset by the deconsolidation of certain funds, as discussed above.


2015 to 2014 Annual Comparison. Revenues increased $104 million. Asset
management fees increased $114 million primarily as a result of higher assets
under management due to positive net asset flows and market appreciation.
Service, distribution and other revenues increased $11 million reflecting higher
fees from certain consolidated funds, which were partially offset by higher
expenses related to noncontrolling interests in these funds. Partially
offsetting these increases was a $15 million decrease in strategic investing
revenues, primarily reflecting a gain on the sale of an investment in the prior
year.

Expenses increased $110 million, including those related to business growth initiatives, commissions from higher retail sales and higher expenses related to revenues associated with certain consolidated funds, as discussed above.

Assets Under Management


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

                                                            December 31,
                                                     2016        2015       2014

                                                           (in billions)
Assets Under Management (at fair market value):
Institutional customers:
Equity                                            $    59.3    $  59.9    $  63.8
Fixed income                                          332.2      289.9      270.0
Real estate                                            40.0       39.3       36.2
Institutional customers(1)                            431.5      389.1      370.0
Retail customers:
Equity                                                112.4      121.4      122.8
Fixed income                                           94.5       73.7       61.0
Real estate                                             2.3        2.2        2.3
Retail customers(2)                                   209.2      197.3      186.1
General account:
Equity                                                  6.4        7.4        7.7
Fixed income                                          391.3      367.5      368.1
Real estate                                             1.7        1.8        1.6
General account                                       399.4      376.7      377.4
Total assets under management                     $ 1,040.1    $ 963.1    $ 933.5


__________

(1) Consists of third-party institutional assets and group insurance contracts.

(2) Consists of: individual mutual funds and variable annuities and variable life

insurance separate account assets; funds invested in proprietary mutual funds

through our defined contribution plan products; and third-party sub-advisory

relationships. Fixed annuities and the fixed-rate accounts of variable

annuities and variable life insurance are included in the general account.

The following table sets forth the component changes in assets under management by asset source for the periods indicated.

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                                                                    December 31,
                                                           2016         2015         2014

                                                                   (in billions)
Institutional Customers:
Beginning Assets Under Management                       $  389.1     $  370.0     $  341.7
Net additions (withdrawals), excluding money market
activity:
Third-party                                                  5.3         21.2          0.7
Affiliated                                                   0.8         (4.8 )        1.8
Total                                                        6.1         16.4          2.5
Market appreciation (depreciation)                          24.2          2.6         26.9
Other increases (decreases)(1)                              12.1          0.1         (1.1 )
Ending Assets Under Management                          $  431.5     $  389.1     $  370.0
Retail Customers:
Beginning Assets Under Management                       $  197.3     $  186.1     $  170.7
Net additions (withdrawals), excluding money market
activity:
Third-party                                                  0.4          0.8          4.7
Affiliated                                                  (0.5 )        9.2         (0.5 )
Total                                                       (0.1 )       10.0          4.2
Market appreciation (depreciation)                           9.1          1.4         11.6
Other increases (decreases)(1)                               2.9         (0.2 )       (0.4 )
Ending Assets Under Management                          $  209.2     $  197.3     $  186.1
General Account:
Beginning Assets Under Management                       $  376.7     $  377.4     $  357.5
Net additions (withdrawals), excluding money market
activity:
Third-party                                                  0.0          0.0          0.0
Affiliated(2)                                                8.9         (1.1 )        3.9
Total                                                        8.9         (1.1 )        3.9
Market appreciation (depreciation)                          13.3         (1.5 )       25.8
Other increases (decreases)(1)                               0.5          1.9         (9.8 )
Ending Assets Under Management                          $  399.4     $  

376.7 $ 377.4

__________

(1) Includes the effect of foreign exchange rate changes, net money market

activity, impact of acquired business and transfers from/(to) the Retirement

segment as a result of changes in the client contract form. The impact from

foreign currency fluctuations, which primarily impact the general account,

resulted in gains of $2.7 billion, losses of $1.7 billion and losses of $13.9

billion for the years ended December 31, 2016, 2015 and 2014, respectively.

(2) General account affiliated net additions (withdrawals) includes net additions

    of $4.6 billion from two significant pension risk transfer transactions in
    the Retirement segment for the year ended December 31, 2014.


Strategic Investments


The following table sets forth the strategic investments of the Asset Management
segment at carrying value (including the value of derivative instruments used to
mitigate equity market and currency risk) by asset class and source as of the
dates indicated.

                                                        December 31,
                                                        2016       2015

                                                        (in millions)
Co-Investments:
Real estate                                          $     165    $ 197
Fixed income                                               218      166
Seed Investments:
Real estate                                                 46       56
Public equity                                              441      300
Fixed income                                               279      214
Investments Secured by Investor Equity Commitments           0       42
Total                                                $   1,149    $ 975




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U.S. Individual Life and Group Insurance Division

Individual Life

Operating Results


The following table sets forth the Individual Life segment's operating results
for the periods indicated.

                                                              Year ended December 31,
                                                           2016         2015         2014

                                                                   (in millions)
Operating results:
Revenues                                                $  5,355     $  5,233     $  5,226
Benefits and expenses                                      5,276        4,598        4,728
Adjusted operating income                                     79         

635 498 Realized investment gains (losses), net, and related adjustments

                                                   58          166        1,092
Related charges                                             (223 )         (9 )       (341 )
Income (loss) from continuing operations before
income taxes and equity in earnings of operating
joint ventures                                          $    (86 )   $    792     $  1,249



Adjusted Operating Income

2016 to 2015 Annual Comparison. Adjusted operating income decreased $556
million, primarily reflecting unfavorable comparative net impacts from our
annual reviews and update of assumptions and other refinements. Results for 2016
included a $420 million net charge from these impacts, mainly driven by a charge
to accrue a liability to offset the present value of losses expected to be
recognized in later years ("Profits Followed by Losses" liability, see
"-Accounting Policies & Pronouncements-Policyholder Liabilities") and a charge
related to an out of period adjustment (see Note 1 to the Consolidated Financial
Statements). Partially offsetting these charges was a net benefit from the
impacts of other refinements. Results for 2015 included a $68 million net
benefit from our annual review and update of assumptions and other refinements,
mainly driven by net favorable modifications to our economic and actuarial
assumptions. Excluding these impacts, adjusted operating income decreased $68
million, primarily driven by less favorable mortality experience, net of
reinsurance, and higher general and administrative expenses driven by business
growth initiatives, partially offset by a higher contribution from investment
results.

2015 to 2014 Annual Comparison. Adjusted operating income increased $137
million. Results for 2015 reflected a net benefit of $68 million from our annual
review and update of assumptions and other refinements, while results for 2014
included a $63 million net charge from these updates. In addition, 2015 included
$17 million of costs associated with the integration of the Hartford Life
Business, while the year 2014 included $32 million of such costs. Excluding
these impacts, adjusted operating income decreased $9 million. This decrease was
primarily driven by less favorable mortality experience, net of reinsurance, and
a lower contribution from investment results driven by lower income on
non-coupon investments, partially offset by growth of our universal and term
life businesses.

Revenues, Benefits and Expenses


2016 to 2015 Annual Comparison. Revenues increased $122 million. Excluding the
impact of our annual reviews and update of assumptions and other refinements, as
discussed above, revenues increased $199 million. Net investment income
increased $153 million primarily reflecting higher invested assets resulting
from continued business growth and higher required capital, higher prepayment
fee income and higher income on non-coupon investments. Policy charges and fee
income, asset management and service fees and other income increased $82
million, primarily driven by growth in universal life business, partially offset
by a decrease in the amortization of unearned revenue reserves, driven by the
impact of changes in the estimated profitability of the business due to
experience relative to our assumptions. Partially offsetting these increases was
a $36 million decrease in premiums, primarily driven by higher ceded reinsurance
premiums which were mostly offset by reserve changes in Policyholders' benefits.

Benefits and expenses increased $678 million. Excluding the impact of our annual
reviews and update of assumptions and other refinements, as discussed above,
benefits and expenses increased $267 million. Policyholders' benefits and
interest credited to account balances increased $195 million primarily
reflecting universal life business growth and less favorable mortality
experience, partially offset by reserve changes for ceded reinsurance premiums
discussed above. General and administrative expenses, net of capitalization,
increased $40 million primarily driven by business growth and initiatives.
Interest expense increased $33 million related to higher reserve financing
costs.

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2015 to 2014 Annual Comparison. Revenues increased $7 million. Excluding the
impact of our annual reviews and updates of assumptions and other refinements,
as discussed above, revenues increased $98 million. Net investment income
increased $49 million reflecting higher invested assets resulting from business
growth and higher required capital, partially offset by lower investment income
from unaffiliated reserve financing activity. Premiums increased $48 million
primarily driven by growth in our term life insurance business.

Benefits and expenses decreased $130 million. Excluding the impact of our annual
reviews and updates of assumptions and other refinements and costs associated
with the integration of the Hartford Life Business, as discussed above, benefits
and expenses increased $107 million. Policyholders' benefits and interest
credited to account balances increased $214 million primarily reflecting
universal life business growth and less favorable mortality experience, net of
reinsurance. Interest expense increased $17 million due to higher reserve
financing costs. The amortization of DAC decreased $109 million, including the
impact of changes in the estimated profitability of the business due to market
performance and other experience relative to our assumptions. General and
administrative expenses, net of capitalization, decreased $16 million which
included lower amortization of VOBA primarily due to less favorable mortality
experience and the impact of cost savings associated with the Hartford Life
Business integration.

Sales Results


The following table sets forth individual life insurance annualized new business
premiums, as defined under "-Consolidated Results of Operations-Segment
Measures" above, by distribution channel and product, for the periods indicated.

                                      2016                                     2015                                     2014
                       Prudential       Third                   Prudential       Third                   Prudential       Third
                        Advisors        Party       Total        Advisors        Party       Total        Advisors        Party       Total

                                                                          (in millions)
Term Life            $         32     $   168     $   200     $         33     $   171     $   204     $         36     $   145     $   181
Guaranteed
Universal Life(1)              24         219         243               31         189         220               28         121         149
Other Universal
Life(1)                        34          61          95               28          61          89               13          57          70
Variable Life                  26          66          92               22          56          78               21          31          52
Total                $        116     $   514     $   630     $        114     $   477     $   591     $         98     $   354     $   452


__________

(1) Single pay life premiums and excess (unscheduled) premiums are included in

annualized new business premiums based on a 10% credit and represented

approximately 13%, 17% and 10% of Guaranteed Universal Life and 3%, 7% and 8%

of Other Universal Life annualized new business premiums for the years ended

December 31, 2016, 2015 and 2014, respectively.




2016 to 2015 Annual Comparison. Annualized new business premiums increased $39
million, primarily driven by the continued impact of product enhancements in
both universal and variable life as well as continued improvements in
distribution execution.

2015 to 2014 Annual Comparison. Annualized new business premiums increased $139
million, primarily driven by pricing and other actions we have taken to enhance
and diversify product sales.

Group Insurance

Operating Results

The following table sets forth the Group Insurance segment's operating results and benefits and administrative operating expense ratios for the periods indicated.

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                                                                  Year ended December 31,
                                                               2016        2015        2014

                                                                       (in millions)
Operating results:
Revenues                                                     $ 5,343     $ 5,143     $ 5,357
Benefits and expenses                                          5,123       4,967       5,334
Adjusted operating income                                        220       

176 23 Realized investment gains (losses), net, and related adjustments

                                                       (8 )        (1 )        66
Related charges                                                   (6 )      

(4 ) (5 ) Income from continuing operations before income taxes and equity in earnings of operating joint ventures

               $   206     $   171     $    84
Benefits ratio(1):
Group life(2)                                                   89.1 %      88.7 %      89.3 %
Group disability(2)                                             75.7 %      75.7 %      99.8 %
     Total group insurance(2)                                   86.7 %      86.6 %      91.1 %
Administrative operating expense ratio(3):
Group life                                                      10.6 %      11.0 %      11.1 %
Group disability                                                31.4 %      34.1 %      30.2 %


__________

(1) Ratio of policyholder benefits to earned premiums, policy charges and fee

income.

(2) Benefits ratios reflect the impacts of our annual reviews and updates of

assumptions and other refinements. Excluding these impacts, the group life,

group disability and total group insurance benefits ratios were 88.5%, 82.9%

and 87.5% for 2016, respectively, 89.2%, 79.2% and 87.5% for 2015,

respectively, and 89.2%, 87.0% and 88.8% for 2014, respectively.

(3) Ratio of general and administrative expenses (excluding commissions) to gross

premiums plus policy charges and fee income.

Adjusted Operating Income


2016 to 2015 Annual Comparison. Adjusted operating income increased $44 million,
primarily reflecting favorable comparative net impacts from our annual reviews
and updates of assumptions and other refinements. Results for 2016 included a
$41 million net benefit from these updates, while results for 2015 included a
$28 million net benefit. The net benefit in 2016 was primarily driven by
favorable experience related to our group disability business. Excluding the
effect of these items, adjusted operating income increased $30 million primarily
reflecting more favorable underwriting results in our group life business, a
higher contribution from net investment spread results, and lower net expenses,
partially offset by less favorable underwriting results in our group disability
business. The underwriting results in our group life business reflect a
favorable impact from a reserve refinement and more favorable experience, while
the underwriting results in our group disability business reflect the impact of
lower claim resolutions on long-term contracts and higher benefits resulting
from other claims-related charges, partially offset by the impact of fewer new
claims and increased new business.

2015 to 2014 Annual Comparison. Adjusted operating income increased $153
million, primarily reflecting favorable comparative net impacts from our annual
reviews and updates of assumptions and other refinements. Results for 2015
included a $28 million net benefit from these updates related to actuarial
assumptions used in calculating both group disability and group life reserves
and other refinements, while results for 2014 included a $107 million net charge
from these updates. Excluding the effect of these items, adjusted operating
income increased $18 million primarily driven by more favorable underwriting
results in our group disability business and lower expenses, partially offset by
a lower contribution from net investment spread results and less favorable
underwriting results in our group life business. The favorable underwriting
results for our group disability business reflected the impact of higher claim
resolutions and fewer new claims for long-term contracts, while the less
favorable underwriting results for our group life business reflected lower
premiums due to lapsed business.

Revenues, Benefits and Expenses


2016 to 2015 Annual Comparison. Revenues increased $200 million. Excluding a
favorable comparative impact of $42 million resulting from our annual reviews
and updates of assumptions and other refinements, as discussed above, revenues
increased $158 million. The increase reflected $140 million of higher premiums
and policy charges and fee income primarily driven by the increase in new
business in both our group life and group disability businesses, as well as
higher premiums on existing experience-rated contracts in our group life
business. Net investment income increased $21 million driven by higher
prepayment income and income from non-coupon investments.


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Benefits and expenses increased $156 million. Excluding an unfavorable
comparative impact of $29 million resulting from our annual review and update of
assumptions and other refinements, as discussed above, benefits and expenses
increased $127 million. Policyholders' benefits, including the change in
reserves, increased $120 million, driven by the impact of new business for both
our group life and group disability businesses, the impact of lower claim
resolutions on long-term contracts in our group disability business, and higher
benefits on existing experience-rated contracts in our group life business,
partially offset by a decrease in general and administrative expenses.

2015 to 2014 Annual Comparison. Revenues decreased $214 million. Excluding a
favorable impact of $2 million resulting from our annual reviews and updates of
assumptions and other refinements, as discussed above, revenues decreased $216
million. The decrease reflected $160 million lower premiums and policy charges
and fee income in both our group life and group disability businesses primarily
driven by lapses resulting from continued pricing discipline on contract
renewals and improved claim experience for experience-rated contracts. Net
investment income decreased $27 million driven by lower income from non-coupon
investments.

Benefits and expenses decreased $367 million. Excluding a favorable impact of
$133 million resulting from our annual review and update of assumptions and
other refinements, as discussed above, benefits and expenses decreased $234
million. Policyholders' benefits, including the change in reserves, decreased
$198 million, driven by declines in both our group disability and group life
businesses, reflecting fewer claims as a result of lapses. The decline in our
group disability business also reflected the impact of higher claim resolutions
for long-term contracts. The decline in our group life business also reflected
improved claim experience for experience-rated contracts.

Sales Results


The following table sets forth the Group Insurance segment's annualized new
business premiums, as defined under "-Segment Measures" above, for the periods
indicated.
                                             Year ended December 31,
                                              2016           2015     2014

                                                  (in millions)
Annualized new business premiums(1):
Group life                             $    316             $ 204    $ 189
Group disability                            119                69       67
Total                                  $    435             $ 273    $ 256


__________

(1) Amounts exclude new premiums resulting from rate changes on existing

policies, from additional coverage under our Servicemembers' Group Life

Insurance contract and from excess premiums on group universal life insurance

that build cash value but do not purchase face amounts.




2016 to 2015 Annual Comparison. Total annualized new business premiums increased
$162 million as we continued to grow through sales to new and existing clients
in both our group life and group disability businesses while maintaining pricing
and underwriting discipline.

2015 to 2014 Annual Comparison. Total annualized new business premiums increased
$17 million primarily driven by sales to new and existing clients for our group
life and group disability businesses, respectively.

International Insurance Division

International Insurance

Operating Results


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The results of our International Insurance operations are translated on the
basis of weighted average monthly exchange rates, inclusive of the effects of
the intercompany arrangement discussed in "-Impact of Foreign Currency Exchange
Rates" above. To provide a better understanding of operating performance within
the International Insurance segment, where indicated below, we have analyzed our
results of operations excluding the effect of the year over year change in
foreign currency exchange rates. Our results of operations, excluding the effect
of foreign currency fluctuations, were derived by translating foreign currencies
to U.S. dollars at uniform exchange rates for all periods presented, including
for constant dollar information discussed below. The exchange rates used were
Japanese yen at a rate of 106 yen per U.S. dollar and Korean won at a rate of
1100 won per U.S. dollar, both of which were determined in connection with the
foreign currency income hedging program discussed in "-Impact of Foreign
Currency Exchange Rates" above. In addition, for constant dollar information
discussed below, activity denominated in U.S. dollars is generally reported
based on the amounts as transacted in U.S. dollars. Annualized new business
premiums presented on a constant exchange rate basis in the "Sales Results"
section below reflect translation based on these same uniform exchange rates.

The following table sets forth the International Insurance segment's operating results for the periods indicated.

                                                                  Year ended December 31,
                                                               2016        2015        2014

                                                                       (in millions)
Operating results:
Revenues:
Life Planner operations                                      $ 9,986     $ 9,172     $ 9,267
Gibraltar Life and Other operations                           11,023      10,192      10,799
Total revenues                                                21,009      19,364      20,066
Benefits and expenses:
Life Planner operations                                        8,447       7,587       7,678
Gibraltar Life and Other operations                            9,445       8,551       9,136
Total benefits and expenses                                   17,892      16,138      16,814
Adjusted operating income:
Life Planner operations                                        1,539       1,585       1,589
Gibraltar Life and Other operations                            1,578       1,641       1,663
Total adjusted operating income                                3,117       

3,226 3,252 Realized investment gains (losses), net, and related adjustments(1)

                                                   992       1,215      (2,192 )
Related charges                                                  (32 )      

(60 ) (59 ) Investment gains (losses) on trading account assets supporting insurance liabilities, net

                              4        

57 188 Change in experience-rated contractholder liabilities due to asset value changes

                                            (4 )      

(57 ) (188 ) Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests

                (47 )         8           5

Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures $ 4,030 $ 4,389 $ 1,006

__________

(1) Includes gains (losses) from changes in value of certain assets and

    liabilities relating to foreign currency exchange movements that are
    economically matched.



Adjusted Operating Income

2016 to 2015 Annual Comparison. Adjusted operating income from our Life Planner
operations decreased $46 million including a net unfavorable impact of $97
million from currency fluctuations, inclusive of the currency hedging program
discussed above. Both periods included the impact of our annual reviews and
updates of assumptions and other refinements, which resulted in a $38 million
net charge in 2016, including unfavorable economic assumption updates driven by
lower interest rates in Japan and Korea, compared to an $11 million net charge
in 2015.

Excluding the effect of these items, adjusted operating income increased $78
million, primarily reflecting the growth of business in force and continued
strong persistency in Japan, and a larger contribution from non-coupon
investments. These favorable impacts were partially offset by higher expenses,
including those supporting business growth, and less favorable comparative
mortality experience.


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Adjusted operating income from our Gibraltar Life and Other operations decreased
$63 million including a net unfavorable impact of $120 million from currency
fluctuations, inclusive of the currency hedging program discussed above. Both
periods included the impact of our annual reviews and updates of assumptions and
other refinements which resulted in a $34 million net charge in 2016, including
unfavorable economic assumption updates driven by lower interest rates in Japan,
compared to a $10 million net charge in 2015.

Excluding the effect of these items, adjusted operating income increased $81
million as the growth of business in force, including the contribution from the
Company's investment in AFP Habitat in Chile in March of 2016, more favorable
comparative mortality experience and lower net expenses, including a gain on the
sale of a home office property in Japan, were partially offset by a lower
contribution from net investment spreads, primarily from lower income on
non-coupon investments.

2015 to 2014 Annual Comparison. Adjusted operating income from our Life Planner
operations decreased $4 million including a net unfavorable impact of $56
million from currency fluctuations, inclusive of the currency hedging program
discussed above. Both periods included the impact of our annual reviews and
updates of assumptions and other refinements, which resulted in an $11 million
net charge in 2015 compared to a $17 million net benefit in 2014. Results for
2014 also included a $24 million net unfavorable impact primarily from reserve
refinements in our Korean and Japanese operations.

Excluding the effect of these items, adjusted operating income increased $56
million primarily reflecting growth of business in force driven by sales results
and continued strong persistency, partially offset by the impacts of higher
expenses supporting business growth, lower net investment spreads and less
favorable mortality experience.

Adjusted operating income from our Gibraltar Life and Other operations decreased
$22 million including a net unfavorable impact of $77 million from currency
fluctuations, inclusive of the currency hedging program discussed above. Both
periods included the impact of our annual reviews and updates of assumptions and
other refinements which resulted in a $10 million net charge in 2015 compared to
a $15 million net charge in 2014. Results for 2014 also included a $73 million
charge for reserve refinements, $30 million of which was related to 2014 and $43
million of which was related to prior periods. See Note 1 to the Consolidated
Financial Statements for more information.

Excluding the effect of these items, adjusted operating income decreased $23 million primarily reflecting higher expenses due to business growth and the absence of gains on sales of fixed assets that occurred in 2014, partially offset by a higher contribution from net investment spreads.

Revenues, Benefits and Expenses


2016 to 2015 Annual Comparison. Revenues from our Life Planner operations
increased $814 million including a net favorable impact of $273 million from
currency fluctuations. Excluding the impact of currency fluctuations, revenues
increased $541 million. This increase was primarily driven by higher premiums
and policy charges and fee income of $380 million related to growth of business
in force. Net investment income increased $157 million primarily reflecting
investment portfolio growth related to the growth of business in force,
partially offset by the impact of lower reinvestment rates.

Benefits and expenses from our Life Planner operations increased $860 million
including a net unfavorable impact of $370 million from currency fluctuations.
Excluding the impact of currency fluctuations, benefits and expenses increased
$490 million. Policyholder benefits, including changes in reserves, increased
$377 million primarily driven by business growth. General and administrative
expenses, net of capitalization, increased $81 million primarily due to higher
costs, including those supporting business growth.

Revenues from our Gibraltar Life and Other operations increased $831 million,
including a net favorable impact of $386 million from currency fluctuations.
Excluding the impact of currency fluctuations, revenues increased $445 million,
driven by a $211 million increase in premiums and policy charges and fee income
due to business growth, a $116 million increase in net investment income
primarily reflecting investment portfolio growth related to the growth of
business in force, partially offset by lower investment spread income, and the
gain on the sale of a home office property in Japan.

Benefits and expenses from our Gibraltar Life and Other operations increased
$894 million including a net unfavorable impact of $506 million from currency
fluctuations. Excluding the impact of currency fluctuations, benefits and
expenses increased $388 million, primarily reflecting a $346 million increase in
policyholder benefits, including changes in reserves, related to business growth
and $21 million in general and administrative expenses, net of capitalization,
due to higher costs, including those supporting business growth.


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2015 to 2014 Annual Comparison. Revenues from our Life Planner operations
decreased $95 million including a net unfavorable impact of $857 million from
currency fluctuations. Excluding the impact of currency fluctuations, revenues
increased $762 million. This increase was primarily driven by higher premiums
and policy charges and fee income of $547 million related to growth of business
in force. Net investment income increased $158 million primarily reflecting
investment portfolio growth, partially offset by the impact of lower
reinvestment rates.

Benefits and expenses from our Life Planner operations decreased $91 million
including a net favorable impact of $801 million from currency fluctuations.
Excluding the impact of currency fluctuations, benefits and expenses increased
$710 million. Policyholder benefits, including changes in reserves, increased
$520 million primarily driven by business growth. General and administrative
expenses, net of capitalization, increased $116 million primarily due to higher
distribution costs and other costs supporting business growth. Amortization of
DAC increased $66 million, driven by business growth.

Revenues from our Gibraltar Life and Other operations decreased $607 million,
including a net unfavorable impact of $929 million from currency fluctuations.
Excluding the impact of currency fluctuations, revenues increased $322 million,
driven by a $306 million increase in premiums and policy charges and fee income
due to business growth, and an $89 million increase in net investment income
driven by higher net investment spreads. These increases were partially offset
by a decline of $57 million in other income, primarily reflecting the absence of
gains on sales of fixed assets that occurred in 2014.

Benefits and expenses from our Gibraltar Life and Other operations decreased
$585 million including a net favorable impact of $852 million from currency
fluctuations. Excluding the impact of currency fluctuations, benefits and
expenses increased $267 million, primarily reflecting a $272 million increase in
policyholder benefits, including changes in reserves, driven by business growth.

Sales Results

The following table sets forth annualized new business premiums, as defined under "-Executive Summary-Segment Measures" above, on an actual and constant exchange rate basis for the periods indicated.


                                           Year ended December 31,
                                         2016          2015       2014

                                                (in millions)
Annualized new business premiums:
On an actual exchange rate basis:
Life Planner operations              $   1,059       $ 1,117    $ 1,161
Gibraltar Life                           1,726         1,548      1,584
Total                                $   2,785       $ 2,665    $ 2,745
On a constant exchange rate basis:
Life Planner operations              $   1,298       $ 1,181    $ 1,096
Gibraltar Life                           1,728         1,619      1,506
Total                                $   3,026       $ 2,800    $ 2,602



The amount of annualized new business premiums and the sales mix in terms of
types and currency denomination of products for any given period can be
significantly impacted by several factors, including but not limited to: the
addition of new products, discontinuation of existing products, changes in
credited interest rates for certain products and other product modifications,
changes in interest rates or fluctuations in currency markets (as described
below), changes in tax laws, changes in life insurance regulations or changes in
the competitive environment. Sales volume may increase or decrease prior to
certain of these changes becoming effective, and then fluctuate in the other
direction following such changes.

The current low interest rate environment in Japan, as discussed further in
"-Executive Summary-Impact of a Low Interest Rate Environment" above, and
fluctuating currency markets have contributed to a shift in demand for certain
products. Our diverse product portfolio in Japan, in terms of currency mix and
premium payment mode, allows us to mitigate the negative impact from this
extremely low interest rate environment. We regularly examine our yen-based
product offerings and their related profitability and, as a result, we have been
repricing our products and have discontinued sales of certain products that do
not meet our profit expectations. The impact of these actions, coupled with the
strengthening of the yen against the U.S. dollar and introduction of certain new
products, has resulted in an increase in sales of products denominated in U.S.
dollars relative to products denominated in other currencies.


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2016 to 2015 Annual Comparison. The table below presents annualized new business
premiums on a constant exchange rate basis, by product and distribution channel,
for the periods indicated.

                                        Year Ended December 31, 2016                                         Year Ended December 31, 2015
                                  Accident                                                             Accident
                                      &          Retirement                                                &          Retirement
                       Life        Health           (1)           Annuity       Total       Life        Health           (1)           Annuity       Total

                                                                                  (in millions)
Life Planner         $   765     $     118     $        337     $      78     $ 1,298     $   729     $     116     $        271     $      65     $ 1,181
Gibraltar Life:
Life Consultants         366            56              117           208         747         347            61              126           134         668
Banks(2)                 521             0               68           130         719         480             1               40           180         701
Independent Agency       134            23               71            34         262         104            24               69            53         250
Subtotal               1,021            79              256           372       1,728         931            86              235           367       1,619
Total                $ 1,786     $     197     $        593     $     450     $ 3,026     $ 1,660     $     202     $        506     $     432     $ 2,800


__________

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

(2) Single pay life annualized new business premiums, which include 10% of first

year premiums, and 3-year limited pay annualized new business premiums, which

include 100% of new business premiums, represented 9% and 53%, respectively,

of total Japanese bank distribution channel annualized new business premiums,

excluding annuity products, for the year ended December 31, 2016, and 5% and

51%, respectively, of total Japanese bank distribution channel annualized new

    business premiums, excluding annuity products, for the year ended
    December 31, 2015.



Annualized new business premiums, on a constant exchange rate basis, from our
Life Planner operations increased $117 million. Growth in Life Planner headcount
and productivity in our Japan operation, coupled with the factors described
above, resulted in an increase in sales of U.S. dollar-denominated retirement
and whole life products while sales of yen-denominated term life products
remained strong in the corporate market. Lower sales of life protection products
in our Korean operation reflecting pricing actions were partially offset by
higher sales in our Brazilian operation across various product lines as Life
Planner count and average premiums continued to grow.

Annualized new business premiums, on a constant exchange rate basis, from our
Gibraltar Life operations increased $109 million. Life Consultant sales
increased $79 million as higher sales of U.S. dollar-denominated annuity and
whole life products were partially offset by lower sales of yen-denominated life
protection products and Australian dollar-denominated annuity and retirement
income products. Bank channel sales increased $18 million primarily driven by
higher sales of U.S. dollar-denominated whole life, retirement income and
annuity products, partially offset by lower sales of yen-denominated whole life
and annuity products and Australian dollar-denominated annuity products.
Independent Agency sales increased $12 million as higher sales of U.S.
dollar-denominated whole life and retirement income products were partially
offset by lower sales of Australian dollar-denominated annuity products and
yen-denominated retirement and annuity products.

2015 to 2014 Annual Comparison. The table below presents annualized new business
premiums on a constant exchange rate basis, by product and distribution channel,
for the periods indicated.

                                        Year Ended December 31, 2015                                         Year Ended December 31, 2014
                                  Accident                                                             Accident
                                      &          Retirement                                                &          Retirement
                       Life        Health           (1)           Annuity       Total       Life        Health           (1)           Annuity       Total

                                                                                  (in millions)
Life Planner         $   729     $     116     $        271     $      65     $ 1,181     $   613     $     100     $        319     $      64     $ 1,096
Gibraltar Life:
Life Consultants         347            61              126           134         668         330            64              123           142         659
Banks(2)                 480             1               40           180         701         418             1               10           176         605
Independent Agency       104            24               69            53         250          95            24               62            61         242
Subtotal                 931            86              235           367       1,619         843            89              195           379       1,506
Total                $ 1,660     $     202     $        506     $     432     $ 2,800     $ 1,456     $     189     $        514     $     443     $ 2,602


__________

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

(2) Single pay life annualized new business premiums, which include 10% of first

year premiums, and 3-year limited pay annualized new business premiums, which

include 100% of new business premiums, represented 5% and 51%, respectively,

of total Japanese bank distribution channel annualized new business premiums,

excluding annuity products, for the year ended December 31, 2015, and 7% and

57%, respectively, of total Japanese bank distribution channel annualized new

    business premiums, excluding annuity products, for the year ended
    December 31, 2014.



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Annualized new business premiums, on a constant exchange rate basis, from our
Life Planner operations increased $85 million. The increase primarily reflects
growth in Life Planner headcount and productivity in our Japanese operations as
well as in our Brazilian operation. The impacts resulted in an increase in sales
of term life products in Japan and whole life products and accident and health
products in Brazil. The increase also reflects higher sales of certain life
protection products in our Korean operation.

Annualized new business premiums, on a constant exchange rate basis, from our
Gibraltar Life operations increased $113 million. Bank channel sales increased
$96 million primarily driven by higher sales of U.S. dollar-denominated whole
life and retirement products as well as certain yen-denominated life protection
products. Life Consultant sales increased $9 million as higher sales of
yen-denominated whole life products, U.S. dollar-denominated annuity products
and Australian dollar-denominated retirement products were mostly offset by
lower sales of Australian dollar-denominated annuity products. Independent
Agency sales increased $8 million primarily driven by higher sales of
yen-denominated term life products and certain retirement products, partially
offset by lower sales of Australian dollar-denominated annuity products.

Sales Force


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

                                 As of December 31,
                              2016      2015      2014
Life Planners:
Japan                         3,824     3,528     3,328
All other countries           3,856     4,064     4,024
Gibraltar Life Consultants    8,884     8,805     8,707
Total                        16,564    16,397    16,059



2016 to 2015 Comparison. The number of Life Planners increased by 88, driven by
an increase of 296 in Japan as a result of improved recruiting efforts and fewer
terminations. Life Planners decreased by 208 in other operations, primarily in
Korea, Poland and Italy, as a result of more selective recruiting efforts and
restructurings, partially offset by an increase in Brazil as a result of
recruiting efforts.

The number of Gibraltar Life Consultants increased by 79, primarily reflecting fewer terminations.


2015 to 2014 Comparison. The number of Life Planners increased by 240, driven by
an increase of 200 in Japan as a result of recruiting efforts. Life Planner
decreases in other operations, primarily in Poland and Italy, were a result of
more selective recruiting efforts and validation requirements, partially offset
by an increase in Brazil as a result of recruiting efforts.

The number of Gibraltar Life Consultants increased by 98, primarily reflecting improved recruiting efforts and fewer terminations.

Corporate and Other

Corporate and Other includes corporate operations, after allocations to our business segments, and divested businesses other than those that qualify for "discontinued operations" accounting treatment under U.S. GAAP.

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                                                                   Year ended December 31,
                                                                2016         2015         2014

                                                                        (in millions)
Operating results:
Capital debt interest expense                                $   (686 )   $   (731 )   $   (626 )
Operating debt interest expense, net of investment income           1           69         (126 )
Pension and employee benefits                                     103          173          185
Other corporate activities(1)                                    (999 )       (824 )       (781 )
Adjusted operating income                                      (1,581 )     (1,313 )     (1,348 )
Realized investment gains (losses), net, and related
adjustments                                                    (1,797 )       (961 )     (3,656 )
Related charges                                                    (1 )         19            4
Divested businesses                                               (84 )    

(66 ) 167 Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests

                  (3 )          0           (2 )

Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures $ (3,466 ) $ (2,321 ) $ (4,835 )

__________

(1) Includes consolidating adjustments.




2016 to 2015 Annual Comparison. The loss from Corporate and Other operations, on
an adjusted operating income basis, increased $268 million. Net charges from
other corporate activities increased $175 million, primarily reflecting higher
costs for employee compensation plans tied to Company stock and equity market
returns, increased costs for enhanced regulatory supervision, costs associated
with the early extinguishment of certain debt, higher legal costs, the absence
of a favorable impact from escheatment related matters in the prior year and
increased costs related to other corporate initiatives. The increased charges
were partially offset by the absence of certain remediation costs incurred in
the prior year, as described below. Results for operating debt interest expense,
net of investment income, decreased $68 million, primarily reflecting lower
levels of invested assets resulting from assets transferred to other business
segments and lower net investment income from non-coupon investments. This
decrease was partially offset by lower operating debt interest expense resulting
from efforts to reduce leverage through senior debt maturities in late 2015 and
early 2016, and the early extinguishment of certain debt in the second quarter
of 2016. Capital debt interest expense decreased $45 million, primarily
reflecting the reassignment of capital debt to operating debt and efforts to
reduce leverage.

Results from pension and employee benefits decreased $70 million, primarily
reflecting lower income from our qualified pension plan, driven by lower
expected returns on plan assets due to lower than expected plan fixed income
asset growth in 2015, as well as higher interest costs on the plan obligation
due to a higher discount rate.

For purposes of calculating pension income from our qualified pension plan for
the year ended December 31, 2017, we will decrease the discount rate from 4.50%
to 4.15% as of December 31, 2016. The expected rate of return on plan assets and
the assumed rate of increase in compensation will remain unchanged at 6.25% and
4.50%, respectively. Giving effect to the foregoing assumptions and other
factors, we expect income from our qualified pension plan in 2017 to be
approximately $35 million to $45 million higher than 2016 levels. The increase
is driven by higher expected returns on plan assets due to higher than expected
plan fixed income asset growth in 2016 as well as lower interest costs on the
plan obligation due to the lower discount rate.

For purposes of calculating postretirement benefit expenses for the year ended
December 31, 2017, we will decrease the discount rate from 4.35% to 4.05% as of
December 31, 2016. The expected rate of return on plan assets will remain
unchanged at 7.00%. Giving effect to the foregoing assumptions and other
factors, we expect postretirement benefit expenses in 2017 to be approximately
$5 million to $15 million lower than 2016 levels. The decrease in expenses is
driven by favorable census updates at December 31, 2016, partially offset by
lower expected returns on plan assets due to lower than expected asset growth in
2016.

In 2017, pension and other postretirement benefit service costs related to
active employees will continue to be allocated to our business segments. For
further information regarding our pension and postretirement plans, see Note 18
to the Consolidated Financial Statements.


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2015 to 2014 Annual Comparison. The loss from Corporate and Other operations, on
an adjusted operating income basis, decreased $35 million. Results for operating
debt interest expense, net of investment income, increased $195 million,
reflecting higher net investment income due to higher levels of invested assets,
including the transfer of assets to Corporate and Other operations related to
the restructuring of the former Closed Block Business and lower operating debt
interest expense due to the reassignment of operating debt to capital debt.
Capital debt interest expense increased $105 million, primarily reflecting the
reassignment of operating debt to capital debt to support capital needs. Net
charges from other corporate activities increased $43 million, primarily
reflecting increased retained corporate expenses, including $80 million of
estimated remediation costs related to the administration of certain separate
account investments. These remediation costs consisted of compensation for the
benefit of customers for performance on certain securities lending activities
administered by the Company. In addition, the increased retained corporate
expenses included enhanced regulatory supervision costs and a negative impact
recorded in Corporate and Other operations from income translation adjustments
recorded by our International Insurance segment at fixed currency exchange rates
versus the actual average rates related to currencies for which we choose not to
hedge our exchange rate exposure. These increases were partially offset by a
favorable comparative impact from escheatment related and other items.

Results from pension and employee benefits decreased $12 million, including
higher expenses from our non-qualified pension plan driven by unfavorable census
and assumption updates as of December 31, 2014. This decrease was partially
offset by higher income from our qualified pension plan driven by the impact of
the decline in interest rates in 2014, partially offset by the negative impact
of our mortality assumption update as of December 31, 2014, following the
Society of Actuaries' final issuance in October 2014 of a study of mortality
rates and expected future improvement in mortality rates for U.S. benefit plan
participants.

Capital Protection Framework

"Realized investment gains (losses), net and related adjustments," which are
excluded from adjusted operating income, included net losses of $1,649 million,
$673 million and $3,694 million for the years ended December 31, 2016, 2015 and
2014, respectively, primarily resulting from our utilization of capital
management strategies to manage a portion of our interest rate risk, and reflect
changes in interest rates with respect to the exposures outstanding during the
respective periods. In implementing our capital management strategies, Corporate
and Other may enter into intercompany derivatives with certain business
segments. During 2016, primarily as a result of the change in our Individual
Annuities' risk management strategy, we terminated a significant portion of the
existing intercompany derivative transactions related to interest rate risk and
expect to manage most of this risk within the business segments in the future.
For more information on our Individual Annuities risk management strategy, see
"-Executive Summary-Variable Annuities Recapture and Risk Management Strategy"
and "-Individual Annuities." For more information on our Capital Protection
Framework, see "-Liquidity and Capital Resources-Capital Protection Framework."

Divested Businesses

Divested Businesses Included in Corporate and Other


Our income from continuing operations includes results from several businesses
that have been or will be sold or exited, including businesses that have been
placed in wind down status that do not qualify for "discontinued operations"
accounting treatment under U.S. GAAP. The results of these divested businesses
are reflected in our Corporate and Other operations, but are excluded from
adjusted operating income. A summary of the results of the divested businesses
reflected in our Corporate and Other operations is as follows for the periods
indicated:

                                                                   Year ended December 31,
                                                                2016          2015        2014

                                                                        (in millions)
Long-Term Care                                               $    (74 )     $   (67 )   $  171
Other                                                             (10 )    

1 (4 ) Total divested businesses income (loss) excluded from adjusted operating income

                                    $    (84 )     $   (66 )   $  167



Long-Term Care. Results for the year ended December 31, 2016 decreased compared
to 2015 primarily reflecting an increase in net realized investment losses,
driven by the change in market value of derivatives used in duration management.
This decrease was partially offset by favorable policy experience and higher net
investment income. Results for the year ended December 31, 2015 decreased
compared to 2014 primarily reflecting a net realized investment loss in 2015
compared to a net realized investment gain in 2014, primarily driven by the
change in market value of the derivatives used in duration management. This
decrease also reflected unfavorable policy experience and an unfavorable
comparative impact from our annual review and update of assumptions and other
refinements.


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Closed Block Division


The Closed Block division includes certain in force traditional domestic
participating life insurance and annuity products and assets that are used for
the payment of benefits and policyholder dividends on these policies
(collectively the "Closed Block"), as well as certain related assets and
liabilities. We no longer offer these traditional domestic participating
policies. See Note 12 to the Consolidated Financial Statements for additional
details.

Each year, the Board of Directors of Prudential Insurance determines the
dividends payable on participating policies for the following year based on the
experience of the Closed Block, including investment income, net realized and
unrealized investment gains, mortality experience and other factors. Although
Closed Block experience for dividend action decisions is based upon statutory
results, at the time the Closed Block was established, we developed, as required
by U.S. GAAP, an actuarial calculation of the timing of the maximum future
earnings from the policies included in the Closed Block. If actual cumulative
earnings in any given period are greater than the cumulative earnings we
expected, we record this excess as a policyholder dividend obligation. We will
subsequently pay this excess to Closed Block policyholders as an additional
dividend unless it is otherwise offset by future Closed Block performance that
is less favorable than we originally expected. The policyholder dividends we
charge to expense within the Closed Block division will include any change in
our policyholder dividend obligation that we recognize for the excess of actual
cumulative earnings in any given period over the cumulative earnings we expected
in addition to the actual policyholder dividends declared by the Board of
Directors of Prudential Insurance.

As of December 31, 2016, the excess of actual cumulative earnings over the
expected cumulative earnings was $1,647 million, which was recorded as a
policyholder dividend obligation. Actual cumulative earnings, as required by
U.S. GAAP, reflect the recognition of realized investment gains and losses in
the current period, as well as changes in assets and related liabilities that
support the Closed Block policies. Additionally, the accumulation of net
unrealized investment gains that have arisen subsequent to the establishment of
the Closed Block have been reflected as a policyholder dividend obligation of
$3,011 million at December 31, 2016, to be paid to Closed Block policyholders
unless offset by future experience, with a corresponding amount reported in
AOCI.

Operating Results


The following table sets forth the Closed Block division's results for the
periods indicated.

                                                                   Year ended December 31,
                                                                 2016        2015        2014

                                                                        (in millions)
U.S. GAAP results:
Revenues                                                      $  5,669     $ 6,160     $ 6,906
Benefits and expenses                                            5,801     

6,102 7,165 Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures $ (132 ) $ 58 $ (259 )

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


2016 to 2015 Annual Comparison. Income from continuing operations before income
taxes and equity in earnings of operating joint ventures decreased $190 million.
Results for 2016 primarily reflected a $399 million decrease in net realized
investment gains, primarily due to lower gains on equity securities, lower gains
from sales of fixed maturities and less favorable changes in the value of
derivatives used in risk management activities. Net investment income decreased
$75 million, primarily due to lower returns on non-coupon investments and lower
reinvestment rates, partially offset by higher prepayment fee income. Net
insurance activity results increased $35 million, primarily due to lower benefit
payments. As a result of the above and other variances, a $48 million reduction
in the policyholder dividend obligation was recorded in 2016, compared to a $137
million increase in 2015. For a discussion of Closed Block division realized
investment gains (losses), net, see "-Realized Investment Gains and Losses."


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2015 to 2014 Annual Comparison. Income from continuing operations before income
taxes and equity in earnings of operating joint ventures increased $317 million,
reflecting the absence of a $487 million charge representing a make-whole
provision for early redemption of the IHC Debt and the cost of terminating
associated interest rate swaps, $13 million of bank and legal fees related to
the IHC Debt redemption and Class B Repurchase and $13 million for the
acceleration of the amortization of IHC Debt issuance cost in 2014. Excluding
the effects of these items, income from continuing operations before income
taxes and equity in earnings of operating joint ventures decreased $196 million,
reflecting a $367 million decrease in net realized investment gains primarily
due to lower gains from sales of fixed maturities, less favorable changes in the
value of derivatives and higher impairments of invested assets. Net investment
income decreased $354 million primarily due to the sale and transfer of invested
assets as a result of the restructuring of the former Closed Block Business and
lower income from non-coupon investments. Net insurance activity results
declined $104 million primarily reflecting the runoff of policies in force and
higher dividends to policyholders as a result of an increase in the 2015 and
2016 dividend scales. General and administrative expenses, inclusive of interest
expense, declined $122 million primarily driven by lower interest expense,
reflecting the redemption in 2014 of the IHC Debt. As a result of the above and
other variances, a $137 million increase in the policyholder dividend obligation
was recorded in 2015, compared to a $671 million increase in 2014.

Revenues, Benefits and Expenses


2016 to 2015 Annual Comparison. Revenues decreased $491 million, primarily due
to a $399 million decrease in net realized investment gains and a $75 million
decrease in net investment income, as discussed above.

Benefits and expenses decreased $301 million, primarily due to a $189 million
decrease in dividends to policyholders, reflecting a decrease in the
policyholder dividend obligation expense due to changes in cumulative earnings.
In addition, policyholders' benefits, including changes in reserves, decreased
$83 million, primarily due to the runoff of policies in force.

2015 to 2014 Annual Comparison. Revenues decreased $746 million, primarily
driven by a $354 million decrease in net investment income and a $328 million
decrease in net realized investment gains, as discussed above. The $328 million
decrease in net realized investment gains included the absence of $39 million
realized loss from termination of interest rate swaps related to the early
redemption of the IHC Debt in 2014. In addition, premiums declined $35 million,
primarily due to the runoff of policies in force.

Benefits and expenses decreased $1,063 million, primarily driven by a $596
million decrease in general and administrative expenses, inclusive of interest
expense, including the absence of a $448 million charge on a make-whole
provision for early redemption of the IHC Debt, $13 million of bank and legal
fees related to the IHC Debt redemption and Class B Repurchase and $13 million
for the acceleration of the amortization of IHC Debt issuance cost in 2014, as
discussed above. Dividends to policyholders decreased $505 million, reflecting a
decrease in the policyholder dividend obligation expense due to changes in
cumulative earnings, partially offset by an increase in dividends paid and
accrued to policyholders as a result of an increase in the 2015 and 2016
dividend scales.

                                  Income Taxes

Shown below is our income tax provision for the years ended December 31, 2016,
2015 and 2014, separately reflecting the impact of certain significant items.

                                                                    Year ended December 31,
                                                                  2016           2015        2014

                                                                         (in millions)
Tax provision (benefit)                                      $    1,335        $ 2,072     $  349
Impact of:
Non-taxable investment income                                       352            341        381
Foreign taxes at other than U.S. rate                               172             51       (146 )
Low income housing and other tax credits                            118     

116 127 Reversal of acquisition opening balance sheet deferred tax items

                                                                 0              0        (53 )
Change in repatriation assertion                                      0              3        (32 )
Change in law: active financing exception                             0            108          0
Other                                                                20             28        (10 )
Tax provision (benefit) excluding these items                $    1,997        $ 2,719     $  616




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2016 to 2015 Annual Comparison. Our income tax provision, on a consolidated
basis, amounted to an income tax expense of $1,335 million in 2016 compared to
an expense of $2,072 million in 2015. The decreased expense was primarily due to
a decrease in "Income (loss) from continuing operations before income taxes and
equity in earnings of operating joint ventures" in 2016 compared to 2015. On
March 31, 2016, the government of Japan enacted an approximately two percentage
points reduction in the Japanese tax rate, effective April 1, 2016. On March 31,
2015, the government of Japan enacted an approximately two percentage points
reduction in the Japanese tax rate, effective April 1, 2015. As a result, the
impact of lower "Income (loss) from continuing operations before income taxes
and equity in earnings of operating joint ventures" in 2016 compared to 2015 was
partially offset by $24 million and $75 million of additional tax expense
related to re-measurement of Japan deferred tax assets at the new rates during
2016 and 2015, respectively.

Our income tax provision related to foreign operations, on a consolidated basis,
amounted to an income tax expense of $1,158 million in 2016 compared to an
income tax expense of $742 million in 2015. The foreign operations income tax
expense increased primarily due to the increase in foreign operations pre-tax
income from continuing operations before income taxes and equity in earnings of
operating joint ventures partially offset by the impact of tax rate changes in
Japan during 2015 and 2016.

2015 to 2014 Annual Comparison. Our income tax provision, on a consolidated
basis, amounted to an income tax expense of $2,072 million in 2015 compared to
an expense of $349 million in 2014. The increased expense was primarily due to
an increase in "Income (loss) from continuing operations before income taxes and
equity in earnings of operating joint ventures" in 2015 compared to 2014. In
addition, during the fourth quarter of 2014, we changed the repatriation
assertion for our Japanese insurance companies with respect to post-2013
operating earnings and AOCI, except realized and unrealized capital gains and
losses. On March 31, 2015, the government of Japan enacted an approximately two
percentage points reduction in the Japanese tax rate, effective April 1, 2015.
Our income tax provision for 2015 reflects a tax benefit from the lower Japan
tax rate for indefinitely reinvested earnings of our Japanese insurance
operations, partially offset by $75 million of additional tax expense related to
the revaluation of Japan's deferred tax asset. In addition, in December 2015,
Congress enacted legislation renewing the Active Financing Exception ("AFE"),
retroactive to January 1, 2015 and making the provision a permanent part of the
U.S. tax code. As a result of the change in tax law, deferred tax liabilities
associated with Prudential of Korea's and Prudential of Taiwan's unrealized
investment gains were reversed in the fourth quarter of 2015, and an additional
tax benefit of $108 million was reflected in our income tax provision for 2015.

Our income tax provision related to foreign operations, on a consolidated basis,
amounted to an income tax expense of $742 million in 2015 compared to an income
tax benefit of $456 million in 2014. The foreign operations income tax expense
increased primarily due to the increase in foreign operations pre-tax income
from continuing operations before income taxes and equity in earnings of
operating joint ventures partially offset by the impact of tax rate changes in
Japan during 2014 and 2015. We employ various tax strategies, including
strategies to minimize the amount of taxes resulting from realized capital
gains. For additional information regarding income taxes, see Note 19 to the
Consolidated Financial Statements.

                  Experience-Rated Contractholder Liabilities,

Trading Account Assets Supporting Insurance Liabilities and Other Related

                                  Investments

Certain products included in the Retirement and International Insurance segments
are experience-rated in that investment results associated with these products
are expected to ultimately accrue to contractholders. The majority of
investments supporting these experience-rated products are classified as trading
and are carried at fair value. These trading investments are reflected on the
Consolidated Statements of Financial Position as "Trading account assets
supporting insurance liabilities, at fair value" ("TAASIL"). Realized and
unrealized gains (losses) for these investments are reported in "Other income."
Interest and dividend income for these investments is reported in "Net
investment income." To a lesser extent, these experience-rated products are also
supported by derivatives and commercial mortgage and other loans. The
derivatives that support these experience-rated products are reflected on the
Consolidated Statements of Financial Position as "Other long-term investments"
and are carried at fair value, and the realized and unrealized gains (losses)
are reported in "Realized investment gains (losses), net." The commercial
mortgage and other loans that support these experience-rated products are
carried at unpaid principal, net of unamortized discounts and an allowance for
losses, and are reflected on the Consolidated Statements of Financial Position
as "Commercial mortgage and other loans." Gains (losses) on sales and changes in
the valuation allowance for commercial mortgage and other loans are reported in
"Realized investment gains (losses), net."


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Our Retirement segment has two types of experience-rated products that are
supported by TAASIL and other related investments. Fully participating products
are those for which the entire return on underlying investments is passed back
to the policyholders through a corresponding adjustment to the related
liability, primarily classified in the Consolidated Statements of Financial
Position as "Policyholders' account balances." The adjustment to the liability
is based on changes in the fair value of all of the related assets, including
commercial mortgage and other loans, which are carried at amortized cost, less
any valuation allowance. Partially participating products are those for which
only a portion of the return on underlying investments is passed back to the
policyholders over time through changes to the contractual crediting rates. The
crediting rates are typically reset semiannually, often subject to a minimum
crediting rate, and returns are required to be passed back within ten years.

In our International Insurance segment, the experience-rated products are fully
participating. As a result, the entire return on the underlying investments is
passed back to policyholders through a corresponding adjustment to the related
liability.

Adjusted operating income excludes net investment gains (losses) on TAASIL,
related derivatives and commercial mortgage and other loans. This is consistent
with the exclusion of realized investment gains (losses) with respect to other
investments supporting insurance liabilities managed on a consistent basis. In
addition, to be consistent with the historical treatment of charges related to
realized investment gains (losses) on investments, adjusted operating income
also excludes the change in contractholder liabilities due to asset value
changes in the pool of investments (including changes in the fair value of
commercial mortgage and other loans) supporting these experience-rated
contracts, which are reflected in "Interest credited to policyholders' account
balances." The result of this approach is that adjusted operating income for
these products includes net fee revenue and interest spread we earn on these
experience-rated contracts, and excludes changes in fair value of the pool of
investments, both realized and unrealized, that we expect will ultimately accrue
to the contractholders.

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

                                                                  Year ended December 31,
                                                                2016         2015        2014

                                                                       (in millions)
Retirement Segment:
Investment gains (losses) on:
Trading account assets supporting insurance liabilities,
net                                                          $   (21 )     $  (581 )   $  151
Derivatives                                                      (10 )         138        (32 )
Commercial mortgages and other loans                               5        

4 12 Change in experience-rated contractholder liabilities due to asset value changes(1)(2)

                                      25           490       (106 )
Net gains (losses)                                           $    (1 )     $    51     $   25
International Insurance Segment:
Investment gains (losses) on trading account assets
supporting insurance liabilities, net                        $     4       $    57     $  188
Change in experience-rated contractholder liabilities due
to asset value changes                                            (4 )         (57 )     (188 )
Net gains (losses)                                           $     0       $     0     $    0
Total:
Investment gains (losses) on:
Trading account assets supporting insurance liabilities,
net                                                          $   (17 )     $  (524 )   $  339
Derivatives                                                      (10 )         138        (32 )
Commercial mortgages and other loans                               5             4         12
Change in experience-rated contractholder liabilities due
to asset value changes(1)(2)                                      21           433       (294 )
Net gains (losses)                                           $    (1 )     $    51     $   25


__________

(1) Decreases to contractholder liabilities due to asset value changes are

limited by certain floors and therefore do not reflect cumulative declines in

recorded asset values of $10 million, $15 million and $2 million as of

December 31, 2016, 2015 and 2014, respectively. We have recovered and expect

to recover in future periods these declines in recorded asset values through

subsequent increases in recorded asset values or reductions in crediting

rates on contractholder liabilities.

(2) Included in the amounts above related to the change in the liability to

contractholders as a result of commercial mortgage and other loans are an

increase of $4 million, a decrease of $64 million and a decrease of $1

million for the years ended December 31, 2016, 2015 and 2014, respectively.

As prescribed by U.S. GAAP, changes in the fair value of commercial mortgage

and other loans held for investment in our general account, other than when

associated with impairments, are not recognized in income in the current

period, while the impact of these changes in fair value are reflected as a

change in the liability to fully participating contractholders in the current

    period.




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The net impacts for the Retirement segment of changes in experience-rated
contractholder liabilities and investment gains (losses) on trading account
assets supporting insurance liabilities and other related investments reflect
timing differences between the recognition of the mark-to-market adjustments and
the recognition of the recovery of these adjustments in future periods through
subsequent increases in asset values or reductions in crediting rates on
contractholder liabilities for partially participating products. These impacts
also reflect the difference between the fair value of the underlying commercial
mortgage and other loans and the amortized cost, less any valuation allowance,
of these loans, as described above.

                      Valuation of Assets and Liabilities

Fair Value of Assets and Liabilities


The authoritative guidance related to fair value measurement establishes a
framework that includes a three-level hierarchy used to classify the inputs used
in measuring fair value. The level in the hierarchy within which the fair value
falls is determined based on the lowest level input that is significant to the
measurement. The fair values of assets and liabilities classified as Level 3
include at least one significant unobservable input in the measurement. See Note
20 to the Consolidated Financial Statements for an additional description of the
valuation hierarchy levels as well as for the balances of assets and liabilities
measured at fair value on a recurring basis by hierarchy level presented on a
consolidated basis.

The table below presents the balances of assets and liabilities measured at fair
value on a recurring basis, as of the periods indicated, and the portion of such
assets and liabilities that are classified in Level 3 of the valuation
hierarchy. The table also provides details about these assets and liabilities
excluding those held in the Closed Block division. We believe the amounts
excluding the Closed Block division are most relevant to an understanding of our
operations that are pertinent to investors in Prudential Financial because
substantially all Closed Block division assets support obligations and
liabilities relating to the Closed Block policies only. See Note 12 to the
Consolidated Financial Statements for further information on the Closed Block.

                                                      As of December 31, 2016                                              As of December 31, 2015
                                    PFI excluding Closed Block               Closed Block                PFI excluding Closed Block               Closed Block
                                             Division                          Division                           Division                          Division
                                    Total at           Total           Total at          Total           Total at           Total           Total at          Total
                                   Fair Value        Level 3(1)       Fair Value       Level 3(1)       Fair Value        Level 3(1)       Fair Value       Level 3(1)

                                                                                              (in millions)
Fixed maturities,
available-for-sale               $     282,515     $      5,501     $     38,904     $      1,356     $     252,528     $      4,598     $     37,795     $      1,022
Trading account assets:
Fixed maturities                        23,143              747              160                0            29,091              840              176                0
Equity securities                        2,267              429              124               58             2,240              537              112               52
All other(2)                             1,760                1                0                0             3,361                5                0                0
Subtotal                                27,170            1,177              284               58            34,692            1,382              288               52
Equity securities,
available-for-sale                       7,176              253            2,572               12             6,547              264            2,727                2
Commercial mortgage and other
loans                                      519                0                0                0               274                0                0                0
Other long-term investments(3)             146                7                3                0               172               39               10               10
Short-term investments                   6,383                1              799                0             6,270                0            1,217                0
Cash equivalents                         7,108                0            1,198                0            13,143                0            1,065                0
Other assets                                 0                0                0                0                16                7                0                0
Subtotal excluding separate
account assets                         331,017            6,939           43,760            1,426           313,642            6,290           43,102            1,086
Separate account assets(3)             262,017            1,849                0                0           259,909            1,995                0                0
Total assets                     $     593,034     $      8,788     $     43,760     $      1,426     $     573,551     $      8,285     $     43,102     $      1,086
Future policy benefits           $       8,238     $      8,238     $          0     $          0     $       8,434     $      8,434     $          0     $          0
Other liabilities(2)                       368               22                1                0                32                2                1                0
Notes issued by consolidated
variable interest entities
("VIEs")                                 1,839            1,839                0                0             8,597            8,597                0                0
Total liabilities                $      10,445     $     10,099     $          1     $          0     $      17,063     $     17,033     $          1     $          0



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__________

(1) The amount of Level 3 assets taken as a percentage of total assets measured

at fair value on a recurring basis for PFI excluding the Closed Block

division and for the Closed Block division totaled 1.5% and 3.3%,

respectively, as of December 31, 2016 and 1.4% and 2.5% as of December 31,

2015.

(2) "All other" and "Other liabilities" primarily include derivatives. The

amounts classified as Level 3 exclude the impact of netting.

(3) Prior period amounts are presented on a basis consistent with the current

period presentation, reflecting the adoption of ASU 2015-07.




The determination of fair value, which for certain assets and liabilities is
dependent on the application of estimates and assumptions, can have a
significant impact on our results of operations and may require the application
of a greater degree of judgment depending on market conditions, as the ability
to value assets and liabilities can be significantly impacted by a decrease in
market activity or a lack of transactions executed in an orderly manner. The
following sections provide information regarding certain assets and liabilities
which are valued using Level 3 inputs and could have a significant impact on our
results of operations.

Fixed Maturity and Equity Securities


Fixed maturity securities included in Level 3 in our fair value hierarchy are
generally priced based on internally-developed valuations or indicative broker
quotes. For certain private fixed maturity and equity securities, the
internally-developed valuation model uses significant unobservable inputs and,
accordingly, such securities are included in Level 3 in our fair value
hierarchy. Level 3 fixed maturity securities for PFI excluding the Closed Block
division included approximately $4.4 billion of public fixed maturities as of
December 31, 2016 with values primarily based on indicative broker quotes, and
approximately $1.8 billion of private fixed maturities, with values primarily
based on internally-developed models. Significant unobservable inputs used
included: issue specific credit adjustments, material non-public financial
information, management judgment, estimation of future earnings and cash flows,
default rate assumptions, liquidity assumptions and indicative quotes from
market makers. These inputs are usually considered unobservable, as not all
market participants have access to this data.

The impact our determination of fair value for fixed maturity and equity
securities has on our results of operations is dependent on our classification
of the security as either trading, available-for-sale, or held-to-maturity. For
our investments classified as trading, the impact of changes in fair value is
recorded within "Other income." For our investments classified as
available-for-sale, the impact of changes in fair value is recorded as an
unrealized gain or loss in AOCI, a separate component of equity. Our investments
classified as held-to-maturity are carried at amortized cost.

Separate Account Assets


Separate account assets included in Level 3 primarily include corporate
securities and commercial mortgage loans. The valuation of corporate securities
are determined as described above for fixed maturity and equity securities. See
Note 20 to the Consolidated Financial Statements for additional information on
the valuation of commercial mortgage loans. Separate account liabilities are
reported at contract value and not at fair value.

Variable Annuity Living Benefit Features


Future policy benefits classified in Level 3 primarily include liabilities
related to guarantees associated with the living benefit features of certain
variable annuity contracts offered by our Individual Annuities segment,
including GMAB, GMWB and GMIWB. These benefits are accounted for as embedded
derivatives and carried at fair value with changes in fair value included in
"Realized investment gains (losses), net." The fair values of the GMAB, GMWB and
GMIWB liabilities are calculated as the present value of future expected benefit
payments to customers less the present value of future rider fees attributable
to the embedded derivative feature. This methodology could result in either a
liability or contra-liability balance, based on capital market conditions and
various policyholder behavior 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. These models
utilize significant assumptions that are primarily unobservable, including
assumptions as to lapse rates, NPR, utilization rates, withdrawal rates,
mortality rates and equity market volatility. Future policy benefits classified
as Level 3 for PFI excluding the Closed Block division were a net liability of
$8.2 billion as of December 31, 2016. For additional information, see "-Results
of Operations by Segment-U.S. Retirement Solutions and Investment Management
Division-Individual Annuities."

Notes Issued by Consolidated VIEs


As discussed in Note 5 to the Consolidated Financial Statements, notes issued by
consolidated VIEs represent non-recourse notes issued by certain asset-backed
investment vehicles, primarily collateralized loan obligations, which we are
required to consolidate. We have elected the fair value option for these notes,
which are valued based on corresponding bank loan collateral.

For additional information about the key estimates and assumptions used in our determination of fair value, see Note 20 to the Consolidated Financial Statements.


                      Realized Investment Gains and Losses

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Realized investment gains and losses are generated from numerous sources, including the following significant items:

• sale of investments;

• maturities of foreign-denominated investments;

• adjustments to the cost basis of investments for OTTI;


•      recognition of OTTI in earnings for foreign-denominated securities that
       are approaching maturity and are in an unrealized loss position due to
       foreign currency exchange rate movements;


•      net changes in the allowance for losses, certain restructurings and
       foreclosures on commercial mortgage and other loans; and

• fair value changes on embedded derivatives and free-standing derivatives

that do not qualify for hedge accounting treatment.




Effective January 1, 2016, the Company classifies fixed maturity prepayment fees
and call premiums in "Net investment income" rather than "Realized investment
gains (losses), net." The impact of this change to prior periods was immaterial.

The level of OTTI generally reflects economic conditions and is expected to
increase when economic conditions worsen and to decrease when economic
conditions improve. Historically, the causes of OTTI have been specific to each
individual issuer and have not directly resulted in impairments to other
securities within the same industry or geographic region. We may also realize
additional credit and interest rate-related losses through sales of investments
pursuant to our credit risk and portfolio management objectives. For additional
information regarding our policies regarding OTTI for fixed maturity and equity
securities, see Note 2 to the Consolidated Financial Statements.

We use interest rate and currency derivatives to manage interest and currency
exchange rate exposures arising from mismatches between assets and liabilities,
including duration mismatches. We also use derivative contracts to mitigate the
risk that unfavorable changes in currency exchange rates will materially affect
U.S. dollar-equivalent earnings generated by certain of our non-U.S. businesses.
In addition, equity-based and interest rate derivatives hedge a portion of the
risks embedded in certain variable annuity products with optional living benefit
guarantees. Many of these derivative contracts do not qualify for hedge
accounting; and consequently, we recognize the changes in fair value of such
contracts from period to period in current earnings, although the required
accounting for associated hedged assets and liabilities may or may not be
similar.

Accordingly, realized investment gains and losses from our derivative activities
can contribute significantly to fluctuations in net income. For a further
discussion of living benefit guarantees and related hedge positions in our
Individual Annuities segment, see "-Results of Operations by Segment-U.S.
Retirement Solutions and Investment Management Division-Individual Annuities"
above.

Adjusted operating income generally excludes "Realized investment gains
(losses), net," subject to certain exceptions. These exceptions primarily
include realized investment gains or losses within certain of our businesses for
which such gains or losses are a principal source of earnings, gains or losses
associated with terminating hedges of foreign currency earnings and current
period yield adjustments and related charges and adjustments. OTTI, interest
rate-related losses and credit-related losses on sales (other than those related
to certain of our businesses which primarily originate investments for sale or
syndication to unrelated investors) are excluded from adjusted operating income.
Additionally, adjusted operating income generally excludes realized investment
gains and losses from products that contain embedded derivatives, and from
associated derivative portfolios that are part of an asset liability management
program related to the risk of those products. However, the effectiveness of the
hedging program will ultimately be reflected in adjusted operating income over
time. For additional details regarding adjusted operating income, see Note 22 to
the Consolidated Financial Statements.

The following table sets forth "Realized investment gains (losses), net," by investment type as well as related charges and adjustments for the periods indicated:

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                                                                  Year Ended December 31,
                                                               2016        2015         2014

                                                                       (in millions)
Realized investment gains (losses), net:
PFI excluding Closed Block division                          $ 1,760     $ 3,192     $    475
Closed Block division                                            434         833        1,161
Consolidated realized investment gains (losses), net         $ 2,194     $ 4,025     $  1,636
PFI excluding Closed Block Division:
Realized investment gains (losses), net:
Fixed maturity securities                                    $   617     $ 1,431     $    753
Equity securities                                                127           4           81
Commercial mortgage and other loans                               54          36           79
Derivative instruments                                         1,013       1,775         (445 )
Other                                                            (51 )       (54 )          7
Total                                                        $ 1,760     $ 3,192     $    475
Related adjustments                                             (771 )     

(934 ) (4,063 ) Realized investment gains (losses), net, and related adjustments

                                                      989       2,258       (3,588 )
Related charges                                                 (466 )      

(679 ) (542 ) Realized investment gains (losses), net, and related charges and adjustments

                                      $   523     $ 1,579     $ (4,130 )
Closed Block Division:
Realized investment gains (losses), net:
Fixed maturity securities                                    $    49     $   203     $    441
Equity securities                                                249         447          431
Commercial mortgage and other loans                                1           1           31
Derivative instruments                                           162         195          263
Other                                                            (27 )       (13 )         (5 )
Total                                                        $   434     $   833     $  1,161


2016 to 2015 Annual Comparison

PFI excluding Closed Block Division

The following table sets forth net realized gains (losses) on fixed maturity securities, as of the dates indicated:

                                                                       Year Ended December 31,
                                                                        2016             2015

                                                                            (in millions)
Gross realized investment gains:
Gross gains on sales and maturities(1)                             $     1,229       $     1,809
Gross realized investment losses:
Net OTTI recognized in earnings(2)                                        (144 )             (97 )
Gross losses on sales and maturities(3)                                   (456 )            (273 )
Credit-related losses on sales                                             (12 )              (8 )
Total gross realized investment losses                                    (612 )            (378 )

Realized investment gains (losses), net-Fixed Maturity Securities

                                                         $       617       $     1,431
Net gains (losses) on sales and maturities-Fixed Maturity
Securities(1)                                                      $       773       $     1,536


__________

(1) During 2016, fixed maturity prepayment fees and call premiums were

reclassified to "Net investment income." Prior periods were not restated. The

    impact of this change was immaterial.



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(2) Excludes the portion of OTTI 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 impairment.

(3) Excludes OTTI and credit-related losses through sales of investments due to

expected near-term credit conditions of an underlying issuer.




Net gains on sales and maturities of fixed maturity securities were $773 million
in 2016. Excluding energy sector losses, net gains of $966 million were
primarily from sales and maturities of U.S. dollar-denominated securities within
our International Insurance segment. The net gains in 2016 were partially offset
by net trading losses of approximately $193 million on sales of securities
within the energy sector. Net gains on sales and maturities of fixed maturity
securities were $1,536 million in 2015 primarily due to net gains of $1,363
million on sales and maturities of U.S. dollar-denominated securities within our
International Insurance segment. See below for additional information regarding
the OTTI of fixed maturity securities in 2016 and 2015.

Net realized gains on equity securities were $127 million and $4 million for the
years ended December 31, 2016 and 2015, respectively, and included net gains on
sales of equity securities of $188 million and $115 million, respectively. Both
periods' gains were partially offset by OTTI of $61 million and $111 million for
the years ended December 31, 2016 and 2015, respectively. See below for
additional information regarding the OTTI of equity securities in 2016 and 2015.

Net realized gains on commercial mortgage and other loans for the year ended
December 31, 2016 were $54 million, primarily driven by servicing revenue of $53
million in our Asset Management business and a net decrease in the allowance for
losses of $5 million. Net realized gains on commercial mortgage and other loans
for the year ended December 31, 2015 were $36 million, primarily driven by
servicing revenue of $31 million in our Asset Management business and a net
decrease in the allowance for losses of $5 million. For additional information
regarding our allowance for losses, see "-General Account Investments-Commercial
Mortgage and Other Loans-Commercial Mortgage and Other Loan Quality" below.

Net realized gains on derivatives were $1,013 million and $1,775 million for the
years ended December 31, 2016 and 2015, respectively. The net derivative gains
in 2016 primarily reflect $523 million of gains on product-related embedded
derivatives and related hedge positions mainly associated with certain variable
annuity contracts, $192 million of gains on currency derivatives in Japan
operations used to hedge non-Japanese yen denominated investments as the
Japanese yen strengthened against various currencies, $172 million of gains on
currency derivatives in U.S. operations used to hedge foreign denominated
investments as the U.S. dollar strengthened against various currencies and $157
million of gains primarily representing the fees earned on fee-based guaranteed
investment contracts ("GICs") which are accounted for as derivatives. The net
gains in 2015 primarily reflect $995 million of gains on product-related
embedded derivatives and related hedge positions mainly associated with certain
variable annuity contracts, $326 million of gains on interest rate derivatives
used to manage duration as interest rates decreased, $345 million of gains on
foreign currency derivatives used to hedge foreign denominated investments as
the U.S. dollar strengthened against various currencies and $159 million of
gains primarily representing fees earned on fee-based GICs.

Related adjustments include the portions of "Realized investment gains (losses),
net" that are included in adjusted operating income and the portions of "Other
income" and "Net investment income" that are excluded from adjusted operating
income. These adjustments are made to arrive at "Realized investment gains
(losses), net, and related adjustments" which are excluded from adjusted
operating income. Results for 2016 and 2015 included net negative related
adjustments of $771 million and $934 million, respectively, primarily driven by
settlements on interest rate and currency derivatives.

 Charges that relate to "Realized investment gains (losses), net" are also
excluded from adjusted operating income, and may be reflected as net charges or
net benefits. Results for 2016 included net related charges of $466 million,
compared to net related charges of $679 million in 2015. Both periods' results
were driven by the impact of derivative activity on the amortization of DAC and
other costs and certain policyholder reserves. Results for 2016 were partially
offset by a benefit of $515 million from the implementation of a new ALM
strategy in the Individual Annuities segment discussed above. For additional
information, see Note 22 to the Consolidated Financial Statements.

The following tables set forth, for the periods indicated, the composition of OTTI recorded in earnings attributable to PFI excluding the Closed Block division by asset type and for fixed maturity securities by reason:

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                                        Year Ended December 31,
                                             2016                2015

                                             (in millions)
Public fixed maturity securities  $         56                  $  31
Private fixed maturity securities           88                     66
Total fixed maturity securities            144                     97
Equity securities                           61                    111
Other invested assets(1)                    57                    121
Total(2)                          $        262                  $ 329


__________

(1) Includes OTTI related to investments in joint ventures and limited

partnerships.

(2) Excludes the portion of OTTI 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 impairment.



                                                                        Year Ended December 31,
                                                                          2016                    2015

                                                                           

(in millions) Due to credit events or adverse conditions of the respective issuers(1)

                                                    $         111                   $       82
Due to other accounting guidelines(2)                                    33                           15
Total fixed maturity securities(3)                            $         144                   $       97


__________

(1) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused or will lead to a deficiency

in the contractual cash flows related to the investment. The amount of the

impairment recorded in earnings is the difference between the amortized cost

of the debt security and the net present value of its projected future cash

flows discounted at the effective interest rate implicit in the debt security

prior to impairment.

(2) Primarily represents circumstances where securities are being actively

marketed for sale by the company and where securities with losses from

foreign currency exchange rate movements approach maturity.

(3) Excludes the portion of OTTI 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 impairment.



Fixed maturity security OTTI in 2016 were concentrated in the energy, capital
goods and transportation sectors within corporate securities. Fixed maturity
security OTTI in 2015 were concentrated in the industrial other, consumer
cyclical and energy sectors within corporate securities. In both periods, these
OTTI were primarily related to securities with liquidity concerns, downgrades in
credit, bankruptcy or other adverse financial conditions of the respective
issuers.

Equity security OTTI in both 2016 and 2015 were primarily due to the extent and duration of declines in values.

Other invested assets OTTI in 2016 and 2015 were primarily due to the extent and duration of declines in values of investments in private equity limited partnerships.

Closed Block Division

The following table sets forth net realized gains (losses) on fixed maturity securities, as of the dates indicated:

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                                                                       Year Ended December 31,
                                                                        2016              2015

                                                                            (in millions)
Gross realized investment gains:
Gross gains on sales and maturities(1)                             $       204         $     306
Gross realized investment losses:
Net OTTI recognized in earnings(2)                                         (78 )             (44 )
Gross losses on sales and maturities(3)                                    (73 )             (57 )
Credit-related losses on sales                                              (4 )              (2 )
Total gross realized investment losses                                    (155 )            (103 )

Realized investment gains (losses), net-Fixed Maturity Securities

                                                         $        49         $     203
Net gains (losses) on sales and maturities-Fixed Maturity
Securities(1)                                                      $       131         $     249


__________

(1) During 2016, fixed maturity prepayment fees and call premiums were

reclassified to "Net investment income." Prior periods were not restated. The

impact of this change was immaterial.

(2) Excludes the portion of OTTI 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 impairment.

(3) Excludes OTTI and credit-related losses through sales of investments due to

expected near-term credit conditions of an underlying issuer.




Net realized gains on equity securities were $249 million and $447 million for
the years ended December 31, 2016 and 2015, respectively, resulting from net
gains on sales partially offset by OTTI of $13 million and $15 million,
respectively. See below for additional information regarding the OTTI of equity
securities in 2016 and 2015.

Net realized gains on derivatives were $162 million and $195 million for the
years ended December 31, 2016 and 2015, respectively. The net derivative gains
in 2016 primarily reflect $132 million of gains on currency derivatives used to
hedge foreign denominated investments as the U.S. dollar strengthened against
various currencies and $30 million of gains on interest rate derivatives used to
manage duration as interest rates increased. The net gains in 2015 primarily
reflect $193 million on currency derivatives used to hedge foreign denominated
investments as the U.S. dollar strengthened against various currencies.

The following tables set forth, for the periods indicated, the composition of
OTTI recorded in earnings attributable to the Closed Block division by asset
type and for fixed maturity securities by reason:
                                           Year Ended December 31,
                                                2016                 2015

                                                (in millions)
Public fixed maturity securities    $          22                   $   9
Private fixed maturity securities              56                      35
Total fixed maturity securities                78                      44
Equity securities                              13                      15
Other invested assets(1)                       30                      21
Total(2)                            $         121                   $  80


__________

(1) Includes OTTI related to investments in joint ventures and limited

partnerships.

(2) Excludes the portion of OTTI 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 impairment.


                                                                            Year Ended December 31,
                                                                               2016                   2015

                                                                            

(in millions) Due to credit events or adverse conditions of the respective issuers(1)

                                                         $         65                    $     41
Due to other accounting guidelines(2)                                        13                           3
Total fixed maturity securities(3)                                 $         78                    $     44



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__________

(1) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused or will lead to a deficiency

in the contractual cash flows related to the investment. The amount of the

impairment recorded in earnings is the difference between the amortized cost

of the debt security and the net present value of its projected future cash

flows discounted at the effective interest rate implicit in the debt security

prior to impairment.

(2) Primarily represents circumstances where securities are being actively

marketed for sale by the company and where securities with losses from

foreign currency exchange rate movements approach maturity.

(3) Excludes the portion of OTTI 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 impairment.



Fixed maturity security OTTI in 2016 were concentrated in the energy,
transportation and industrial other sectors within corporate securities. Fixed
maturity security OTTI in 2015 were concentrated in foreign government
securities and the industrial other and consumer cyclical sectors within
corporate securities. In both periods these OTTI were primarily related to
securities with liquidity concerns, downgrades in credit, bankruptcy or other
adverse financial conditions of the respective issuers.
Equity security OTTI in both 2016 and 2015 were primarily due to the extent and
duration of declines in values.

Other invested assets OTTI in 2016 and 2015 were primarily due to the extent and duration of declines in values of investments in private equity limited partnerships.

2015 to 2014 Annual Comparison

PFI excluding Closed Block Division

The following table sets forth net realized gains (losses) on fixed maturity securities as of dates indicated:

                                                                       Year Ended December 31,
                                                                        2015             2014

                                                                            (in millions)
Gross realized investment gains:
Gross gains on sales and maturities(1)                             $     1,809       $     1,154
Gross realized investment losses:
Net OTTI recognized in earnings(2)                                         (97 )             (36 )
Gross losses on sales and maturities(3)                                   (273 )            (327 )
Credit-related losses on sales                                              (8 )             (38 )
Total gross realized investment losses                                    (378 )            (401 )

Realized investment gains (losses), net-Fixed Maturity Securities

                                                         $     1,431       $       753
Net gains (losses) on sales and maturities-Fixed Maturity
Securities(1)                                                      $     1,536       $       827


__________

(1) Amounts include fixed maturity prepayment fees and call premiums.

(2) Excludes the portion of OTTI 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 impairment.

(3) Excludes OTTI and credit-related losses through sales of investments due to

expected near-term credit conditions of an underlying issuer.




Net gains on sales and maturities of fixed maturity securities were $1,536
million in 2015 primarily due to net gains of $511 million on sales and
maturities of U.S. dollar-denominated securities within our International
Insurance segment, and gains of $852 million associated with foreign exchange
remeasurement on assets that were transferred under the new structure in
Gibraltar Life. These gains were partially offset by OTTI of $97 million. Net
gains on sales and maturities of fixed maturity securities of $827 million in
2014 were primarily due to sales and maturities of U.S. dollar-denominated
securities within our International Insurance segment. These gains were
partially offset by OTTI of $36 million. See below for additional information
regarding the OTTI of fixed maturity securities in 2015 and 2014.

Net realized gains on equity securities were $4 million and $81 million for the
years ended December 31, 2015 and 2014, respectively, primarily driven by gains
on sales within our International Insurance segment. These gains were partially
offset by OTTI of $111 million and $26 million for the years ended December 31,
2015 and 2014, respectively. See below for additional information regarding the
OTTI of equity securities in 2015 and 2014.


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Net realized gains on commercial mortgage and other loans for the year ended
December 31, 2015 were $36 million, primarily driven by servicing revenue of $31
million in our Asset Management business and a net decrease in the allowance for
losses of $5 million. Net realized gains on commercial mortgage and other loans
were $79 million for the year ended December 31, 2014 and were primarily driven
by a net decrease in the allowance for losses of $65 million, including the
impact of assumption updates. For additional information regarding our allowance
for losses, see "-General Account Investments-Commercial Mortgage and Other
Loans-Commercial Mortgage and Other Loan Quality" below.

Net realized gains on derivatives were $1,775 million in 2015, compared to net
realized losses of $445 million in 2014. The net gains in 2015 primarily reflect
$995 million of gains on product-related embedded derivatives and related hedge
positions mainly associated with certain variable annuity contracts, $326
million of gains on interest rate derivatives used to manage duration as
interest rates decreased, $345 million of gains on foreign currency derivatives
used to hedge foreign denominated investments as the U.S. dollar strengthened
against various currencies and $159 million of gains primarily representing fees
earned on fee-based GICs which are accounted for as derivatives. The net
derivative losses in 2014 primarily reflect net losses of $2,627 million on
product-related embedded derivatives and related hedge positions mainly
associated with certain variable annuity contracts. Also contributing were net
losses of $500 million on foreign-currency derivatives used to hedge portfolio
assets in our Japan business, primarily due to the weakening of the Japanese yen
against the U.S. dollar and other currencies. These losses were partially offset
by gains of $1,502 million on interest rate derivatives used to manage duration
as long-term interest rates decreased, $869 million of gains on other
foreign-currency derivatives primarily associated with hedges of portfolio
assets in our U.S. business and hedges of future income of non-U.S. businesses
(predominantly in Japan) as the U.S. dollar strengthened against various
currencies and $166 million of gains of fees earned on fee-based GICs.

Net realized losses within other investments were $54 million in 2015 primarily
driven by OTTI of $121 million on investments in limited partnerships, partially
offset by gains of $40 million on sales of real estate. Net realized gains on
other investments were $7 million in 2014 and included net gains of $28 million,
primarily from our Asset Management and International Insurance segments,
partially offset by OTTI of $21 million on real estate and joint ventures and
limited partnership investments. See below for additional information regarding
the OTTI of other invested assets in 2015 and 2014.

Related adjustments for 2015 included net negative related adjustments of $934
million primarily driven by settlements on interest rate and currency
derivatives. Results for 2014 included net negative related adjustments of
$4,063 million primarily driven by the impact of foreign-currency exchange rate
movements on certain non-yen denominated assets and liabilities within our Japan
insurance operations and by settlements on interest rate and currency
derivatives. We implemented a structure in Gibraltar Life, effective for
financial reporting beginning in the first quarter of 2015, which has minimized
volatility in reported U.S. GAAP earnings arising from foreign currency
remeasurement. For additional information, see "-Results of Operations-Impact of
Foreign Currency Exchange Rates" above.

Related charges for 2015 and 2014 included net related charges of $679 million
and $542 million, respectively. Both periods' results were driven by the impact
of derivative activity on the amortization of DAC and other costs and certain
policyholder reserves.

The following tables set forth, for the periods indicated, the composition of
OTTI recorded in earnings attributable to the PFI excluding the Closed Block
division by asset type and for fixed maturity securities by reason:
                                           Year Ended December 31,
                                                2015                 2014

                                                (in millions)
Public fixed maturity securities    $          31                   $  22
Private fixed maturity securities              66                      14
Total fixed maturity securities                97                      36
Equity securities                             111                      26
Other invested assets(1)                      121                      21
Total(2)                            $         329                   $  83


__________

(1) Includes OTTI related to investments in joint ventures and limited

partnerships and real estate investments.

(2) Excludes the portion of OTTI 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 impairment.




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                                                                        Year Ended December 31,
                                                                          2015                    2014

                                                                           

(in millions) Due to credit events or adverse conditions of the respective issuers(1)

                                                    $         82                    $       24
Due to other accounting guidelines(2)                                   15                            12
Total fixed maturities(3)                                     $         97                    $       36


__________

(1) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused or will lead to a deficiency

in the contractual cash flows related to the investment. The amount of the

impairment recorded in earnings is the difference between the amortized cost

of the debt security and the net present value of its projected future cash

flows discounted at the effective interest rate implicit in the debt security

prior to impairment.

(2) Primarily represents circumstances where securities with losses from foreign

currency exchange rate movements approach maturity.

(3) Excludes the portion of OTTI 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 impairment.



Fixed maturity security OTTI in 2015 were concentrated in the industrial other,
consumer cyclical and energy sectors within corporate securities. Fixed maturity
security OTTI in 2014 were concentrated in the utility, consumer cyclical and
finance sectors within corporate securities. In both periods, these OTTI were
primarily related to securities with liquidity concerns, downgrades in credit,
bankruptcy or other adverse financial conditions of the respective issuers.

Equity security OTTI in both 2015 and 2014 were primarily due to the extent and duration of declines in values.


Other invested assets OTTI in 2015 were primarily driven by the extent and
duration of declines in values of investments in limited partnerships within the
energy, finance and utility sectors. Other invested assets OTTI in 2014 were
primarily driven by the extent and duration of declines in values of investments
in limited partnerships.

Closed Block Division

The following table sets forth net realized gains (losses) on fixed maturity securities, as of the dates indicated:

                                                                       Year Ended December 31,
                                                                        2015              2014

                                                                            (in millions)
Gross realized investment gains:
Gross gains on sales and maturities(1)                             $       306         $     510
Gross realized investment losses:
Net OTTI recognized in earnings(2)                                         (44 )             (20 )
Gross losses on sales and maturities(3)                                    (57 )             (37 )
Credit-related losses on sales                                              (2 )             (12 )
Total gross realized investment losses                                    (103 )             (69 )

Realized investment gains (losses), net-Fixed Maturity Securities

                                                         $       203         $     441
Net gains (losses) on sales and maturities-Fixed Maturity
Securities(1)                                                      $       249         $     473


__________

(1) Amounts include fixed maturity prepayment fees and call premiums.

(2) Excludes the portion of OTTI 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 impairment.

(3) Excludes OTTI and credit related losses through sales of investments due to

expected near-term credit conditions of an underlying issuer.




Net realized gains on equity securities were $447 million and $431 million for
the years ended December 31, 2015 and 2014, respectively, resulting from net
gains on sales of equity securities of $462 million and $437 million,
respectively, partially offset by OTTI of $15 million and $6 million,
respectively. See below for additional information regarding the OTTI of equity
securities in 2015 and 2014.


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Net realized gains on commercial mortgage and other loans were $1 million and
$31 million for the years ended December 31, 2015 and 2014, respectively. Net
realized gains on commercial mortgage and other loans of $31 million for the
year ended December 31, 2014 were primarily driven by a net decrease in the
allowance for losses of $32 million, including the impact of assumption updates.
For additional information regarding our allowance for losses, see "-General
Account Investments-Commercial Mortgage and Other Loans-Commercial Mortgage and
Other Loan Quality" below.

Net realized gains on derivatives were $195 million and $263 million in 2015 and
2014, respectively. The net gains in 2015 primarily reflect $193 million on
currency derivatives used to hedge foreign denominated investments as the U.S.
dollar strengthened against various currencies. Derivative gains in 2014
primarily reflect net gains of $182 million on currency derivatives used to
hedge foreign denominated investments as the U.S. dollar strengthened against
the euro, net gains of $72 million on interest rate derivatives primarily used
to manage duration as long-term interest rates decreased and net gains of $45
million on "to be announced" ("TBA") forward contracts as interest rates
declined. These gains were partially offset by losses of $41 million on
terminated capital cash flow hedges due to debt extinguishment.

The following tables set forth, for the periods indicated, the composition of
OTTI recorded in earnings attributable to the Closed Block division by asset
type and for fixed maturity securities by reason:
                                           Year Ended December 31,
                                                2015                 2014

                                                (in millions)
Public fixed maturity securities    $          9                    $  13
Private fixed maturity securities             35                        7
Total fixed maturity securities               44                       20
Equity securities                             15                        6
Other invested assets(1)                      21                        5
Total(2)                            $         80                    $  31


__________

(1) Includes OTTI related to investments in joint ventures and limited

partnerships.

(2) Excludes the portion of OTTI 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 impairment.



                                                                            Year Ended December 31,
                                                                               2015                   2014

                                                                            

(in millions) Due to credit events or adverse conditions of the respective issuers(1)

                                                         $         41                    $     19
Due to other accounting guidelines(2)                                         3                           1
Total fixed maturity securities(3)                                 $         44                    $     20


__________

(1) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused or will lead to a deficiency

in the contractual cash flows related to the investment. The amount of the

impairment recorded in earnings is the difference between the amortized cost

of the debt security and the net present value of its projected future cash

flows discounted at the effective interest rate implicit in the debt security

prior to impairment.

(2) Primarily represents circumstances where securities with losses from foreign

currency exchange rate movements approach maturity.

(3) Excludes the portion of OTTI 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 impairment.



Fixed maturity security OTTI in 2015 were concentrated in foreign government
securities and the industrial other and consumer cyclical sectors within
corporate securities. Fixed maturity security OTTI in 2014 were concentrated in
foreign government securities, asset-backed securities collateralized by
sub-prime mortgages and the consumer cyclical sector within corporate
securities. In both periods, these OTTI primarily reflect adverse financial
conditions of the respective issuers.

Equity security OTTI in 2015 and 2014 were primarily due to the extent and duration of declines in values.


Other invested assets OTTI in 2015 were primarily driven by the extent and
duration of declines in values of investments in limited partnerships within the
energy, finance and utility sectors. Other invested assets OTTI in 2014 were
primarily driven by the extent and duration of declines in values of investments
in limited partnerships.


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                          General Account Investments

We maintain diversified investment portfolios in our general account to support
our liabilities to customers as well as our other general liabilities. Our
general account does not include: (1) assets of our derivative operations; (2)
assets of our asset management operations, including assets managed for third
parties; and (3) those assets classified as "Separate account assets" on our
balance sheet.

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

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

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

• for certain portfolios, optimizing total return, including both investment

income yield and capital appreciation, within risk constraints over time,

while managing the market risk exposures associated with the corresponding

       product liabilities.



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

• the investment of net operating cash flows, including new product premium

inflows, and proceeds from investment sales, repayments and prepayments

into investments with attractive risk-adjusted yields; and

• the sale of lower-yielding investments, where appropriate, either to meet

various cash flow needs or to manage the portfolio's risk exposure profile

       with respect to duration, credit, currency and other risk factors, while
       considering the impact on taxes and capital.


The primary investment objectives of the Closed Block division include:

• providing for the reasonable dividend expectations of the participating

       policyholders within the Closed Block division; and


•      optimizing total return, including both investment income yield and

capital appreciation, within risk constraints, while managing the market

risk exposures associated with the major products in the Closed Block

       division.



Our portfolio management approach, while emphasizing our investment income yield
and asset/liability risk management objectives, also takes into account the
capital and tax implications of portfolio activity, our assertions regarding our
ability and intent to hold debt and equity securities to recovery. For a further
discussion of our policies regarding other-than-temporary impairments, including
our assertions regarding our ability and intent to hold equity securities to
recovery and any intention or requirement to sell debt securities before
anticipated recovery, see "-Fixed Maturity Securities-OTTI of Fixed Maturity
Securities" and "-Equity Securities-OTTI of Equity Securities" below.

Management of Investments


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

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


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

• interest-crediting products for which the rates credited to customers are

periodically adjusted to reflect market and competitive forces and actual

       investment experience, such as fixed annuities and universal life
       insurance;

• participating individual and experience-rated group products in which

customers participate in actual investment and business results through

       annual dividends, interest or return of premium; and


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



Our total investment portfolio is composed of a number of operating portfolios.
Each operating portfolio backs a specific set of liabilities, and the portfolios
have a target asset mix that supports the liability characteristics, including
duration, cash flow, liquidity needs and other criteria. As of December 31,
2016, the average duration of our domestic general account investment portfolios
attributable to PFI excluding the Closed Block division, including the impact of
derivatives, is between 7 and 8 years. As of December 31, 2016, the average
duration of our international general account portfolios attributable to our
Japanese insurance operations, including the impact of derivatives, is between
11 and 12 years and represents a blend of yen-denominated and U.S. dollar and
Australian dollar-denominated investments, which have distinct average durations
supporting the insurance liabilities we have issued in those currencies. Our
asset/liability management process has enabled us to manage our portfolios
through several market cycles.

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

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

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

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

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

Portfolio Composition

Our investment portfolio consists of public and private fixed maturity
securities, commercial mortgage and other loans, policy loans and non-coupon
investments as defined above. The composition of our general account reflects,
within the discipline provided by our risk management approach, our need for
competitive results and the selection of diverse investment alternatives
available primarily through our Asset Management segment. The size of our
portfolio enables us to invest in asset classes that may be unavailable to the
typical investor.

The following tables set forth the composition of the investments of our general account apportioned between PFI excluding the Closed Block division and the Closed Block division as of the dates indicated:

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                                                                    December 31, 2016
                                                      PFI Excluding              Closed Block
                                                  Closed Block Division            Division          Total
                                                                     ($ in millions)
Fixed maturities:
Public, available-for-sale, at fair value    $     243,201            64.2 %   $       24,917     $ 268,118
Public, held-to-maturity, at amortized
cost                                                 1,772             0.5                  0         1,772
Private, available-for-sale, at fair value          39,074            10.3             13,987        53,061
Private, held-to-maturity, at amortized
cost                                                   372             0.1                  0           372
Trading account assets supporting
insurance liabilities, at fair value                21,840             5.8                  0        21,840
Other trading account assets, at fair
value                                                1,521             0.4                284         1,805
Equity securities, available-for-sale, at
fair value                                           7,163             1.9              2,572         9,735
Commercial mortgage and other loans, at
book value                                          42,771            11.2              9,437        52,208
Policy loans, at outstanding balance                 7,095             1.9              4,660        11,755
Other long-term investments(1)                       7,231             1.9              3,020        10,251
Short-term investments                               6,657             1.8                837         7,494
Total general account investments                  378,697           100.0 %           59,714       438,411
Invested assets of other entities and
operations(2)                                        5,829                                  0         5,829
Total investments                            $     384,526                     $       59,714     $ 444,240

                                                                    December 31, 2015
                                                      PFI Excluding              Closed Block
                                                  Closed Block Division            Division          Total
                                                                     ($ in millions)
Fixed maturities:
Public, available-for-sale, at fair value    $     216,628            63.1 %   $       23,505     $ 240,133
Public, held-to-maturity, at amortized
cost                                                 1,834             0.5                  0         1,834
Private, available-for-sale, at fair value          35,767            10.4             14,290        50,057
Private, held-to-maturity, at amortized
cost                                                   474             0.1                  0           474
Trading account assets supporting
insurance liabilities, at fair value                20,522             6.0                  0        20,522
Other trading account assets, at fair
value                                                1,561             0.5                288         1,849
Equity securities, available-for-sale, at
fair value                                           6,537             1.9              2,726         9,263
Commercial mortgage and other loans, at
book value                                          40,486            11.8              9,771        50,257
Policy loans, at outstanding balance                 6,867             2.0              4,790        11,657
Other long-term investments(1)                       6,549             1.9              2,921         9,470
Short-term investments                               6,250             1.8              1,467         7,717
Total general account investments                  343,475           100.0 %           59,758       403,233
Invested assets of other entities and
operations(2)                                       13,959                                  0        13,959
Total investments                            $     357,434                     $       59,758     $ 417,192


__________

(1) Other long-term investments consist of real estate and non-real

estate-related investments in joint ventures and limited partnerships,

investment real estate held through direct ownership and other miscellaneous

investments. For additional information regarding these investments, see

"-Other Long-Term Investments" below.

(2) Includes invested assets of our asset management and derivative operations.

Excludes assets of our asset management operations that are managed for

third- parties and those assets classified as "Separate account assets" on

our balance sheet. For additional information regarding these investments,

see "-Invested Assets of Other Entities and Operations" below.




The increase in general account investments attributable to PFI excluding the
Closed Block division in 2016 was primarily due to the reinvestment of net
investment income and net business inflows, the translation impact of the yen
strengthening against the U.S. dollar, credit spread tightening and a decrease
in interest rates in Japan. The general account investments attributable to the
Closed Block division in 2016 remained relatively flat compared to 2015. For
information regarding the methodology used in determining the fair value of our
fixed maturities, see Note 20 to the Consolidated Financial Statements.

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As of December 31, 2016 and 2015, 42% and 41%, respectively, of our general account investments attributable to PFI excluding the Closed Block division related to our Japanese insurance operations.

The following table sets forth the composition related to the investments of our Japanese insurance operations' general account as of the dates indicated:

                                                                  December 31,
                                                              2016             2015
                                                                  (in millions)
Fixed maturities:
Public, available-for-sale, at fair value                $    123,285     $ 

109,257

Public, held-to-maturity, at amortized cost                     1,772       

1,834

Private, available-for-sale, at fair value                     11,646       

9,747

Private, held-to-maturity, at amortized cost                      372       

474

Trading account assets supporting insurance
liabilities, at fair value                                      2,166       

2,020

Other trading account assets, at fair value                       434       

647

Equity securities, available-for-sale, at fair value            2,654       

2,660

Commercial mortgage and other loans, at book value             11,700       

9,756

Policy loans, at outstanding balance                            2,369       

2,208

Other long-term investments(1)                                  1,186       

1,742

Short-term investments                                            398       

417

Total Japanese general account investments               $    157,982     $ 

140,762

__________

(1) Other long-term investments consist of real estate and non-real

estate-related investments in joint ventures and limited partnerships,

investment real estate held through direct ownership, derivatives and other

miscellaneous investments.




The increase in general account investments related to our Japanese insurance
operations in 2016 was primarily attributable to the reinvestment of net
investment income and net business inflows, the translation impact of the yen
strengthening against the U.S. dollar and a decrease in interest rates in Japan.

As of December 31, 2016, our Japanese insurance operations had $55.7 billion, at
carrying value, of investments denominated in U.S. dollars, including $5.3
billion that were hedged to yen through third-party derivative contracts and
$36.1 billion that support liabilities denominated in U.S. dollars, with the
remainder hedging our foreign currency exchange rate exposure on U.S.
dollar-equivalent equity. As of December 31, 2015, our Japanese insurance
operations had $50.2 billion, at carrying value, of investments denominated in
U.S. dollars, including $4.0 billion that were hedged to yen through third-party
derivative contracts and $32.3 billion that support liabilities denominated in
U.S. dollars, with the remainder hedging our foreign currency exchange rate
exposure on U.S. dollar-equivalent equity. The $5.5 billion increase in the
carrying value of U.S. dollar-denominated investments from December 31, 2015 is
primarily attributable to portfolio growth as a result of net business inflows
and the reinvestment of net investment income offset by a net increase in fair
value driven by the decrease in interest rates.

Our Japanese insurance operations had $11.0 billion and $10.0 billion, at
carrying value, of investments denominated in Australian dollars that support
liabilities denominated in Australian dollars as of December 31, 2016 and 2015,
respectively. The $1.0 billion increase in the carrying value of Australian
dollar-denominated investments from December 31, 2015 is primarily attributable
to portfolio growth as a result of net business inflows and the reinvestment of
net investment income.

For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations and a discussion of our yen hedging strategy, see "-Results of Operations by Segment-International Insurance Division," above.

Investment Results


The following tables set forth the income yield and investment income for each
major investment category of our general account for the periods indicated. The
yields are based on net investment income as reported under U.S. GAAP and as
such do not include certain interest related items, such as settlements of
duration management swaps which are included in realized gains (losses).
Effective January 1, 2016, the Company classified fixed maturity prepayment fees
and call premiums in "Net investment income" rather than "Realized investment
gains (losses), net." The impact of this change to prior periods was immaterial.

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                                                       Year Ended December 31, 2016
                                    PFI Excluding               Closed Block
                                Closed Block Division             Division                  Combined
                               Yield(1)        Amount       Yield(1)      Amount      Yield(1)      Amount
                                                             ($ in millions)
Fixed maturities                 3.95  %     $   9,515        4.98  %   $  1,696        4.07  %   $ 11,211
Trading account assets
supporting insurance
liabilities                      3.59              758        0.00             0        3.59           758
Equity securities                5.97              307        3.43            59        5.33           366
Commercial mortgage and
other loans                      4.32            1,751        5.06           476        4.46         2,227
Policy loans                     5.00              347        6.10           280        5.44           627
Short-term investments and
cash equivalents                 0.68              122        2.23            20        0.73           142
Other investments                5.67              473        6.40           203        5.87           676
Gross investment income
before investment expenses       3.90           13,273        5.10         2,734        4.07        16,007
Investment expenses             (0.13 )           (413 )     (0.26 )        (156 )     (0.15 )        (569 )
Investment income after
investment expenses              3.77  %        12,860        4.84  %      2,578        3.92  %     15,438
Investment results of other
entities and operations(2)                          82                         0                        82
Total investment income                      $  12,942                  $  2,578                  $ 15,520


                                                       Year Ended December 31, 2015
                                    PFI Excluding               Closed Block
                                Closed Block Division             Division                  Combined
                               Yield(1)        Amount       Yield(1)      Amount      Yield(1)      Amount
                                                             ($ in millions)
Fixed maturities                 4.03  %     $   8,876        4.94  %   $  1,692        4.15  %   $ 10,568
Trading account assets
supporting insurance
liabilities                      3.59              720        0.00             0        3.59           720
Equity securities                5.67              266        3.49            70        5.01           336
Commercial mortgage and
other loans                      4.58            1,728        5.42           512        4.75         2,240
Policy loans                     5.01              334        6.06           285        5.45           619
Short-term investments and
cash equivalents                 0.25               43        1.14            12        0.28            55
Other investments                5.91              489        7.24           222        6.27           711
Gross investment income
before investment expenses       3.97           12,456        5.14         2,793        4.14        15,249
Investment expenses             (0.14 )           (394 )     (0.25 )        (140 )     (0.16 )        (534 )
Investment income after
investment expenses              3.83  %        12,062        4.89  %      2,653        3.98  %     14,715
Investment results of other
entities and operations(2)                         114                         0                       114
Total investment income                      $  12,176                  $  2,653                  $ 14,829



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                                                       Year Ended December 31, 2014
                                    PFI Excluding               Closed Block
                                Closed Block Division             Division                  Combined
                               Yield(1)        Amount       Yield(1)      Amount      Yield(1)      Amount
                                                             ($ in millions)
Fixed maturities                 3.90  %     $   8,762        5.18  %   $  1,917        4.08  %   $ 10,679
Trading account assets
supporting insurance
liabilities                      3.75              765        0.00             0        3.75           765
Equity securities                5.97              275        3.40            79        5.11           354
Commercial mortgage and
other loans                      4.80            1,565        5.45           524        4.95         2,089
Policy loans                     5.08              341        6.07           292        5.49           633
Short-term investments and
cash equivalents                 0.21               26        1.03             8        0.25            34
Other investments                9.10              753       13.35           342       10.11         1,095
Gross investment income
before investment expenses       4.04           12,487        5.54         3,162        4.28        15,649
Investment expenses             (0.14 )           (362 )     (0.27 )        (155 )     (0.16 )        (517 )
Investment income after
investment expenses              3.90  %        12,125        5.27  %      3,007        4.12  %     15,132
Investment results of other
entities and operations(2)                         124                         0                       124
Total investment income                      $  12,249                  $  3,007                  $ 15,256


__________

(1) Yields are based on quarterly average carrying values except for fixed

maturities, equity securities and securities lending activity. Yields for

fixed maturities are based on amortized cost. Yields for equity securities

are based on cost. Yields for fixed maturities and short-term investments and

    cash equivalents are calculated net of liabilities and rebate expenses
    corresponding to securities lending activity. Yields exclude investment
    income on assets other than those included in invested assets.

(2) Includes investment income of our asset management operations and derivative

    operations.



See below for a discussion of the change in the yields for PFI excluding the
Closed Block division. The decrease in net investment income yield attributable
to the Closed Block division for 2016 compared to 2015 was primarily due to
lower fixed income reinvestment rates and lower yields from non-coupon
investments partially offset by higher fixed maturity prepayment fees and call
premiums.

The net investment income yield attributable to the Closed Block division for
2015 decreased compared to 2014, due to lower yields on non-coupon investments
and lower fixed income reinvestment rates.

The following table sets forth the income yield and investment income for each
major investment category of our general account investments, excluding both the
Closed Block division and the Japanese insurance operations' portion of the
general account which is presented separately below, for the periods indicated.
The yields are based on net investment income as reported under U.S. GAAP and as
such do not include certain interest related items, such as settlements of
duration management swaps which are included in realized gains (losses).


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                                                              Year Ended December 31,
                                               2016                    2015                    2014
                                       Yield(1)     Amount     Yield(1)     Amount     Yield(1)     Amount
                                                                  ($ in millions)
Fixed maturities                         4.63  %   $ 6,043       4.67  %   $ 5,686       4.69  %   $ 5,461
Trading account assets supporting
insurance liabilities                    3.80          721       3.79          688       3.96          730
Equity securities                        6.49          232       6.07          197       6.49          191
Commercial mortgage and other loans      4.35        1,306       4.62        1,338       4.96        1,271
Policy loans                             5.49          252       5.52          250       5.66          253
Short-term investments and cash
equivalents                              0.67          113       0.25           38       0.21           22
Other investments                        5.96          344       6.17          356      10.03          598
Gross investment income before
investment expenses                      4.31        9,011       4.33        8,553       4.63        8,526
Investment expenses                     (0.14 )       (248 )    (0.15 )       (239 )    (0.15 )       (209 )
Investment income after investment
expenses                                 4.17  %     8,763       4.18  %     8,314       4.48  %     8,317
Investment results of other entities
and operations(2)                                       82                     114                     124
Total investment income                            $ 8,845                 $ 8,428                 $ 8,441


__________

(1) Yields are based on quarterly average carrying values except for fixed

maturities, equity securities and securities lending activity. Yields for

fixed maturities are based on amortized cost. Yields for equity securities

are based on cost. Yields for fixed maturities and short-term investments and

    cash equivalents are calculated net of liabilities and rebate expenses
    corresponding to securities lending activity. Yields exclude investment
    income on assets other than those included in invested assets.

(2) Includes investment income of our asset management operations and derivative

    operations,.



The decrease in net investment income yield attributable to our general account
investments, excluding both the Closed Block division and the Japanese
operations' portfolio, for 2016, compared to 2015, was primarily the result of
lower fixed income reinvestment rates and lower yields from non-coupon
investments offset by higher fixed maturity prepayment fees and call premiums.

The decrease in net investment income yield attributable to our general account
investments, excluding both the Closed Block division and the Japanese
operations' portfolio, for 2015, compared to 2014, was primarily the result of
lower income from non-coupon investments and lower fixed income reinvestment
rates.

The following table sets forth the income yield and investment income for each
major investment category of our Japanese insurance operations' general account
for the periods indicated. The yields are based on net investment income as
reported under U.S. GAAP and as such do not include certain interest related
items, such as settlements of duration management swaps which are included in
realized gains (losses).

                                                              Year Ended December 31,
                                               2016                    2015                    2014
                                       Yield(1)     Amount     Yield(1)     Amount     Yield(1)     Amount
                                                                  ($ in 

millions)

Fixed maturities                         3.14  %   $ 3,472       3.23  %   $ 3,190       3.06  %   $ 3,301
Trading account assets supporting
insurance liabilities                    1.75           37       1.66           32       1.80           35
Equity securities                        4.80           75       4.77           69       5.06           84

Commercial mortgage and other loans 4.23 445 4.45

    390       4.20          294
Policy loans                             4.05           95       3.93           84       3.93           88
Short-term investments and cash
equivalents                              0.78            9       0.32            5       0.24            4
Other investments                        5.01          129       5.32          133       6.67          155
Gross investment income before
investment expenses                      3.26        4,262       3.35        3,903       3.18        3,961
Investment expenses                     (0.12 )       (165 )    (0.13 )       (155 )    (0.12 )       (153 )
Total investment income                  3.14  %   $ 4,097       3.22  %   $ 3,748       3.06  %   $ 3,808



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__________

(1) Yields are based on quarterly average carrying values except for fixed

maturities, equity securities and securities lending activity. Yields for

fixed maturities are based on amortized cost. Yields for equity securities

are based on cost. Yields for fixed maturities and short-term investments and

    cash equivalents are calculated net of liabilities and rebate expenses
    corresponding to securities lending activity. Yields exclude investment
    income on assets other than those included in invested assets.



 The decrease in net investment income yield on the Japanese insurance portfolio
for 2016, compared to 2015, was primarily attributable to lower fixed income
reinvestment rates and lower yields from non-coupon investments.

The increase in net investment income yield on the Japanese insurance portfolio
for 2015, compared to 2014, was primarily attributable to a higher allocation
into U.S. dollar-denominated investments.

Both the U.S. dollar-denominated and Australian dollar-denominated fixed
maturities that are not hedged to yen through third-party derivative contracts
provide a yield that is substantially higher than the yield on comparable
yen-denominated fixed maturities. The average amortized cost of U.S.
dollar-denominated fixed maturities that are not hedged to yen through
third-party derivative contracts was approximately $37.7 billion and $35.0
billion, for the years ended December 31, 2016 and 2015, respectively. The
majority of U.S. dollar-denominated fixed maturities support liabilities that
are denominated in U.S. dollars. The average amortized cost of Australian
dollar-denominated fixed maturities that are not hedged to yen through
third-party derivative contracts was approximately $9.5 billion and $9.3
billion, for the years ended December 31, 2016 and 2015, respectively. The
Australian dollar-denominated fixed maturities support liabilities that are
denominated in Australian dollars.

For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations see, "-Results of Operations by Segment-International Insurance Division."

General Account Investments of PFI excluding Closed Block Division


In the following sections, we provide details about our investment portfolio,
excluding investments held in the Closed Block division. We believe the details
of the composition of our investment portfolio excluding the Closed Block
division are most relevant to an understanding of our operations that are
pertinent to investors in Prudential Financial because substantially all Closed
Block division assets support obligations and liabilities relating to the Closed
Block policies only. See Note 12 to the Consolidated Financial Statements for
further information on the Closed Block.

Energy Related Exposure


As of December 31, 2016, PFI excluding the Closed Block division had direct and
indirect energy and related exposure with a market value of approximately $12.6
billion and a net unrealized gain of approximately $0.5 billion, which was
reflected in AOCI. Of this exposure, $10.8 billion represented investments in
public and private corporate fixed maturity securities and was concentrated
primarily in midstream (33%), independent energy (29%), integrated energy (18%)
and oil field services (14%). As of December 31, 2016, the credit quality of
energy sector fixed maturity securities was 83% investment grade. The remaining
exposure of $1.8 billion was comprised of trading account assets, equity
securities and private equity investments. Energy investment realized losses
were approximately $138 million from OTTI and $193 million from sales for the
year ended December 31, 2016. Our investments in the energy sector could
experience future valuation declines or impairments if energy prices decline
from current levels for an extended period of time.

United Kingdom / European Union Exposure


As of December 31, 2016, PFI excluding the Closed Block division had direct and
indirect United Kingdom exposure with a market value of approximately $10.4
billion. Net unrealized gains were approximately $0.4 billion, which were
reflected in AOCI. Of this exposure, $7.1 billion represented public and private
corporate fixed maturity securities across a range of sectors, 91% of which was
investment grade. In addition, $1.2 billion represented commercial mortgage
loans with a weighted average loan-to-value ratio of 60% and a weighted average
debt service coverage ratio of 2.55 times. The remaining United Kingdom exposure
of $2.1 billion was comprised of trading account assets, equity securities,
private equity investments and real estate held through direct ownership. Of the
total exposure, 42% was denominated in pound sterling, substantially all of
which was hedged back to U.S. dollars.


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As of December 31, 2016, PFI excluding the Closed Block division had direct and
indirect European Union exposure excluding the United Kingdom with a market
value of approximately $17.0 billion. Net unrealized gains were approximately
$0.8 billion, which were reflected in AOCI. Of this exposure, $14.0 billion
represented public and private corporate fixed maturity securities, 96% of which
was investment grade. The remaining European Union exposure excluding the United
Kingdom of $3.0 billion was comprised of trading account assets, commercial
mortgages, equity securities, private equity investments and real estate held
through direct ownership. Of the total exposure, 44% was denominated in foreign
currencies, substantially all of which was hedged back to U.S. dollars. The
total exposure was concentrated primarily in The Netherlands (28%), France
(19%), Italy (13%), Germany (11%), Luxembourg (7%), Ireland (5%) and Sweden
(5%).

Fixed Maturity Securities

Fixed Maturity Securities by Contractual Maturity Date


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

                                              December 31, 2016
                                           Amortized
                                              Cost       % of Total
                                               ($ in millions)
Corporate & government securities:
Maturing in 2017                          $     8,506          3.3 %
Maturing in 2018                                8,005          3.1
Maturing in 2019                                8,976          3.5
Maturing in 2020                               10,093          3.9
Maturing in 2021                               11,449          4.5
Maturing in 2022                               10,030          3.9
Maturing in 2023                               10,776          4.2
Maturing in 2024                               10,572          4.1
Maturing in 2025                               10,624          4.1
Maturing in 2026                               10,524          4.1
Maturing in 2027                                6,564          2.6
Maturing in 2028 and beyond                   129,678         50.4

Total corporate & government securities 235,797 91.7 Asset-backed securities

                         8,182          3.2
Commercial mortgage-backed securities           8,883          3.4

Residential mortgage-backed securities 4,352 1.7 Total fixed maturities

                    $   257,214        100.0 %



Fixed Maturity Securities and Unrealized Gains and Losses by Industry Category


The following table sets forth the composition of the portion of our fixed
maturity securities portfolio by industry category attributable to PFI excluding
the Closed Block division as of the dates indicated and the associated gross
unrealized gains and losses:


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                                            December 31, 2016                                              December 31, 2015
                                          Gross            Gross                                         Gross            Gross
                        Amortized       Unrealized       Unrealized        Fair        Amortized       Unrealized       Unrealized        Fair
    Industry(1)            Cost          Gains(2)        Losses(2)         Value          Cost          Gains(2)        Losses(2)         Value
                                                                              (in millions)
Corporate
securities:
Finance                $   24,324     $      1,260     $        322     $  25,262     $   21,505     $      1,385     $        224     $  22,666
Consumer
non-cyclical               22,941            1,918              423        24,436         20,732            2,073              408        22,397
Utility                    19,618            1,556              385        20,789         17,369            1,423              393        18,399
Capital goods              10,936              911              236        11,611         10,503              978              241        11,240
Consumer cyclical          10,348              792              143        10,997          9,223              846              146         9,923
Foreign agencies            5,423            1,035               41         6,417          5,222            1,086               67         6,241
Energy                      9,220              774              275         9,719         10,793              674              855        10,612
Communications              6,227              667              121         6,773          6,294              690              200         6,784
Basic industry              5,843              401              114         6,130          5,658              404              321         5,741
Transportation              7,442              625              116         7,951          6,536              605              105         7,036
Technology                  3,775              251               66         3,960          3,459              278               72         3,665
Industrial other            3,653              226               92         3,787          3,547              245               73         3,719
Total corporate
securities                129,750           10,416            2,334       137,832        120,841           10,687            3,105       128,423
Foreign
government(3)              80,309           16,967              344        96,932         72,265           12,167              131        84,301
Residential
mortgage-backed             4,352              256               13         4,595          4,861              353                6         5,208
Asset-backed
securities                  8,182              193               26         8,349          6,873              195               69         6,999
Commercial
mortgage-backed             8,883              195               86         8,992          7,300              160               37         7,423
U.S. Government            17,090            2,725              924        18,891         11,479            2,900               11        14,368
State & Municipal(4)        8,648              642               82         9,208          7,661              675               39         8,297
Total(5)               $  257,214     $     31,394     $      3,809     $ 284,799     $  231,280     $     27,137     $      3,398     $ 255,019


__________

(1) Investment data has been classified based on standard industry

categorizations for domestic public holdings and similar classifications by

industry for all other holdings.

(2) Includes $380 million of gross unrealized gains and $0 million of gross

unrealized losses as of December 31, 2016, compared to $316 million of gross

unrealized gains and $0 million of gross unrealized losses as of December 31,

2015, on securities classified as held-to-maturity.

(3) As of both December 31, 2016 and 2015, based on amortized cost, 76% represent

Japanese government bonds held by our Japanese insurance operations, with no

other individual country representing more than 9% of the balance.

(4) Includes securities related to the Build America Bonds program.

(5) Excluded from the table above are securities held outside the general account

in other entities and operations. For additional information regarding

investments held outside the general account, see "-Invested Assets of Other

Entities and Operations" below. Also excluded from the table above are fixed

maturity securities classified as trading. See "-Trading Account Assets

Supporting Insurance Liabilities" and "-Other Trading Account Assets" for

    additional information.



The increase in net unrealized gains from December 31, 2015 to December 31, 2016, was primarily due to a net increase in fair value driven by a decrease in interest rates in Japan and credit spread tightening.

Asset-Backed Securities

The following tables set forth the amortized cost and fair value of our asset-backed securities attributable to PFI excluding the Closed Block division, by credit quality, as of the dates indicated:

Asset-Backed Securities at Amortized Cost

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                                                           December 31, 2016
                                              Lowest Rating Agency Rating
                                                                                                Total            Total
                                                                                 BB and       Amortized      December 31,
                                   AAA           AA         A         BBB        below          Cost             2015
                                                                      (in millions)
Collateralized by sub-prime
mortgages(1)                  $       0       $    0     $   18     $   36     $    352     $       406     $       1,141
Collateralized loan
obligations                       6,178           18          0          0            0           6,196             4,280
Collateralized by education
loans(2)                             28          370          0          0            0             398               392
Collateralized by credit
cards                               116            0          0          0            0             116               201
Collateralized by auto
loans                               818            0          0          0            0             818               518
Other asset-backed
securities(3)                         7           75         38         22          106             248               341
Total asset-backed
securities(4)                 $   7,147       $  463     $   56     $   58     $    458     $     8,182     $       6,873


__________

(1) While there is no market standard definition for securities collateralized by

sub-prime mortgages, we define sub-prime mortgages as residential mortgages

that are originated to weaker-quality obligors as indicated by weaker credit

scores, as well as mortgages with higher loan-to-value ratios or limited

documentation.

(2) All of the $398 million of education loans included above carry a Department

of Education guaranty as of December 31, 2016.

(3) Includes asset-backed securities collateralized by bond obligations,

aircraft, equipment leases, franchises and timeshares.

(4) Excluded from the table above are asset-backed securities held outside the

general account in other entities and operations. Also excluded from the

table above are asset-backed securities classified as trading.

Asset-Backed Securities at Fair Value

                                                           December 31, 2016
                                              Lowest Rating Agency Rating
                                                                                                                  Total
                                                                                 BB and         Total         December 31,
                                   AAA           AA         A         BBB        below        Fair Value          2015
                                                                      (in millions)
Collateralized by sub-prime
mortgages(1)                  $       0       $    0     $   19     $   36     $    432     $        487     $       1,189
Collateralized loan
obligations                       6,231           18          0          0            0            6,249             4,317
Collateralized by education
loans(2)                             28          379          0          0            0              407               395
Collateralized by credit
cards                               119            0          0          0            0              119               206
Collateralized by auto
loans                               816            0          0          0            0              816               516
Other asset-backed
securities(3)                         6           76         43         22          124              271               376
Total asset-backed
securities(4)                 $   7,200       $  473     $   62     $   58     $    556     $      8,349     $       6,999


__________

(1) While there is no market standard definition for securities collateralized by

sub-prime mortgages, we define sub-prime mortgages as residential mortgages

that are originated to weaker-quality obligors as indicated by weaker credit

scores, as well as mortgages with higher loan-to-value ratios or limited

documentation.

(2) All of the $407 million of education loans included above carry a Department

of Education guaranty as of December 31, 2016.

(3) Includes asset-backed securities collateralized by bond obligations,

aircraft, equipment leases, franchises and timeshares.

(4) Excluded from the table above are asset-backed securities held outside the

general account in other entities and operations. Also excluded from the

table above are asset-backed securities classified as trading.




The tables above provide ratings as assigned by nationally recognized rating
agencies as of December 31, 2016, including Standard & Poor's, Moody's and
Fitch. In making our investment decisions, rather than relying solely on the
rating agencies' evaluations, we assign internal ratings to our asset-backed
securities based upon our dedicated asset-backed securities unit's independent
evaluation of the underlying collateral and securitization structure, including
any guarantees from monoline bond insurers.

Residential Mortgage-Backed Securities

The following table sets forth the amortized cost of our residential mortgage-backed securities attributable to PFI excluding the Closed Block division as of the dates indicated:

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                                                     December 31, 2016                December 31, 2015
                                                  Amortized                        Amortized
                                                     Cost         % of Total          Cost         % of Total
                                                                       ($ in millions)
By security type:
Agency pass-through securities(1)              $     3,803             87.4 %   $     4,382             90.1 %
Collateralized mortgage obligations                    549             12.6             479              9.9
Total residential mortgage-backed securities   $     4,352            100.0 %   $     4,861            100.0 %
Portion rated AA or higher(2)                  $     4,114             94.5 %   $     4,791             98.6 %


__________

(1) As of December 31, 2016, of these securities, $2.834 billion are supported by

the U.S. government, and $0.969 billion are supported by foreign governments.

As of December 31, 2015, of these securities, $3.267 billion were supported

by the U.S. government, and $1.115 billion were supported by foreign

governments.

(2) Based on lowest external rating agency rating.

Commercial Mortgage-Backed Securities

The following tables set forth the amortized cost and fair value of our commercial mortgage-backed securities attributable to PFI excluding the Closed Block division as of the dates indicated, by credit quality and by year of issuance (vintage):

Commercial Mortgage-Backed Securities at Amortized Cost

                                                       December 31, 2016
                                         Lowest Rating Agency Rating(1)
                                                                                                 Total            Total
                                                                                 BB and        Amortized      December 31,
Vintage                    AAA            AA           A            BBB          below           Cost             2015
                                                                  (in millions)
2016                  $     2,071     $    348     $     32     $       0     $        0     $     2,451     $           0
2015                          617          146            2             0              0             765               607
2014                        2,474            2            2             0              0           2,478             2,420
2013                        2,472           99            0             9              0           2,580             2,568
2012-2009                     168          239            0             0              0             407               469
2008-2007                     101           43            3             0              0             147               113
2006 & Prior                   52            0            3             0              0              55             1,123
Total commercial
mortgage-backed
securities(2)(3)(4)   $     7,955     $    877     $     42     $       9   

$ 0 $ 8,883 $ 7,300

__________

(1) The table above provides ratings as assigned by nationally recognized rating

agencies as of December 31, 2016.

(2) Excluded from the table above are commercial mortgage-backed securities held

outside the general account in other entities and operations. Also excluded

from the table above are commercial mortgage-backed securities classified as

trading.

(3) Included in the table above, as of December 31, 2016, are downgraded super

senior securities with amortized cost of $16 million in AA and $3 million in

A.

(4) Included in the table above, as of December 31, 2016, are agency commercial

mortgage-backed securities with amortized cost of $890 million, all rated A

    or higher.




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Commercial Mortgage-Backed Securities at Fair Value

                                                      December 31, 2016
                                       Lowest Rating Agency Rating(1)
                                                                                                                 Total
                                                                               BB and          Total         December 31,
Vintage                  AAA            AA           A            BBB          below         Fair Value          2015
                                                                 (in millions)
2016                $     2,010     $    338     $     31     $       0     $        0     $      2,379     $           0
2015                        620          143            2             0              0              765               601
2014                      2,548            3            2             0              0            2,553             2,471
2013                      2,561          102            0             8              0            2,671             2,621
2012-2009                   167          250            0             0              0              417               480
2008-2007                   101           44            3             0              0              148               115
2006 & Prior                 56            0            3             0              0               59             1,135
Total commercial
mortgage-backed
securities(2)(3)    $     8,063     $    880     $     41     $       8     $        0     $      8,992     $       7,423


__________

(1) The table above provides ratings as assigned by nationally recognized rating

agencies as of December 31, 2016.

(2) Excluded from the table above are commercial mortgage-backed securities held

outside the general account in other entities and operations. Also excluded

from the table above are commercial mortgage-backed securities classified as

trading.

(3) Included in the table above, as of December 31, 2016, are agency commercial

    mortgage-backed securities with fair value of $892 million, all rated A or
    higher.


Fixed Maturity Securities Credit Quality


The Securities Valuation Office ("SVO") of the NAIC, evaluates the investments
of insurers for statutory reporting purposes and assigns fixed maturity
securities to one of six categories called "NAIC Designations." In general, NAIC
Designations of "1" highest quality, or "2" high quality, include fixed
maturities considered investment grade, which include securities rated Baa3 or
higher by Moody's or BBB- or higher by Standard & Poor's. NAIC Designations of
"3" through "6" generally include fixed maturities referred to as below
investment grade, which include securities rated Ba1 or lower by Moody's and BB+
or lower by Standard & Poor's. The NAIC Designations for commercial
mortgage-backed securities and non-agency residential mortgage-backed
securities, including our asset-backed securities collateralized by sub-prime
mortgages, are based on security level expected losses as modeled by an
independent third-party (engaged by the NAIC) and the statutory carrying value
of the security, including any purchase discounts or impairment charges
previously recognized.

As a result of time lags between the funding of investments, the finalization of legal documents, and the completion of the SVO filing process, the fixed maturity portfolio generally includes securities that have not yet been designated by the SVO as of each balance sheet date. Pending receipt of SVO designations, the categorization of these securities by NAIC Designation is based on the expected ratings indicated by internal analysis.


Investments of our international insurance companies are not subject to NAIC
guidelines. Investments of our Japanese insurance operations are regulated
locally by the FSA, an agency of the Japanese government. The FSA has its own
investment quality criteria and risk control standards. Our Japanese insurance
companies comply with the FSA's credit quality review and risk monitoring
guidelines. The credit quality ratings of the investments of our Japanese
insurance companies are based on ratings assigned by nationally recognized
credit rating agencies, including Moody's, Standard & Poor's, or rating
equivalents based on ratings assigned by Japanese credit ratings agencies.

The following table sets forth our fixed maturity portfolio by NAIC Designation
or equivalent ratings attributable to PFI excluding the Closed Block division as
of the dates indicated:


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                                              December 31, 2016                                               December 31, 2015
                                           Gross             Gross                                         Gross             Gross
        NAIC             Amortized       Unrealized       Unrealized         Fair        Amortized       Unrealized       Unrealized         Fair
  Designation(1)(2)         Cost          Gains(3)       Losses(3)(4)        Value          Cost          Gains(3)       Losses(3)(4)        Value
                                                                                (in millions)
          1             $  195,279     $     26,886     $       2,425     $ 219,740     $  177,350     $     22,783     $       1,445     $ 198,688
          2                 49,286            3,728             1,081        51,933         43,731            3,698             1,545        45,884
Subtotal High or
Highest Quality
Securities(5)              244,565           30,614             3,506       271,673        221,081           26,481             2,990       244,572
          3                  8,546              454               182         8,818          7,085              408               292         7,201
          4                  2,878              200                82         2,996          2,332              150               100         2,382
          5                    879               73                28           924            415               78                12           481
          6                    346               53                11           388            367               20                 4           383
Subtotal Other
Securities(6)(7)            12,649              780               303        13,126         10,199              656               408        10,447
Total fixed
maturities              $  257,214     $     31,394     $       3,809     $ 284,799     $  231,280     $     27,137     $       3,398     $ 255,019


__________

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

operations.

(2) Includes, as of December 31, 2016 and 2015, 918 securities with amortized

cost of $4,634 million (fair value, $4,759 million) and 938 securities with

amortized cost of $4,253 million (fair value, $4,325 million), respectively,

that have been categorized based on expected NAIC Designations pending

receipt of SVO ratings.

(3) Includes $380 million of gross unrealized gains and $0 million of gross

unrealized losses as of December 31, 2016, compared to $316 million of gross

unrealized gains and $0 million of gross unrealized losses as of December 31,

2015, on securities classified as held-to-maturity.

(4) As of December 31, 2016, includes gross unrealized losses of $149 million on

public fixed maturities and $154 million on private fixed maturities

considered to be other than high or highest quality and, as of December 31,

2015, includes gross unrealized losses of $212 million on public fixed

maturities and $196 million on private fixed maturities considered to be

other than high or highest quality.

(5) On an amortized cost basis, as of December 31, 2016, includes $211,753

million of public fixed maturities and $32,812 million of private fixed

maturities and, as of December 31, 2015, includes $190,638 million of public

fixed maturities and $30,443 million of private fixed maturities.

(6) On an amortized cost basis, as of December 31, 2016, includes $7,170 million

of public fixed maturities and $5,479 million of private fixed maturities

and, as of December 31, 2015, includes $5,836 million of public fixed

maturities and $4,363 million of private fixed maturities.

(7) On an amortized cost basis, as of December 31, 2016, securities considered

below investment grade based on lowest of external rating agency ratings,

total $13,820 million, or 5% of the total fixed maturities, and include

securities considered high or highest quality by the NAIC based on the rules

    described above.



Credit Derivative Exposure to Public Fixed Maturities


In addition to the credit exposure from public fixed maturities noted above, we
sell credit derivatives to enhance the return on our investment portfolio by
creating credit exposure similar to an investment in public fixed maturity cash
instruments.

In a credit derivative, we may sell credit protection on an identified name or a
broad based index, and in return receive a quarterly premium. The majority of
the underlying reference names in single name and index credit derivatives where
we have sold credit protection, as well as all the counterparties to these
agreements, are investment grade credit quality and our credit derivatives have
a remaining term to maturity of thirty-one years or less. The premium or credit
spread generally corresponds to the difference between the yield on the
reference name's (or index's underlying reference names) public fixed maturity
cash instruments and swap rates at the time the agreement is executed. Credit
derivative contracts are recorded at fair value with changes in fair value,
including the premiums received, recorded in "Realized investment gains
(losses), net."

As of December 31, 2016 and 2015, PFI excluding the Closed Block division had
$162 million and $807 million, respectively, of notional amounts of exposure,
where we have sold credit protection through credit derivatives, reported at
fair value as an asset of less than $1 million and a liability of $27 million,
respectively. "Realized investment gains (losses), net" from credit derivatives
we sold was a gain of $7 million and $6 million for the years ended December 31,
2016 and 2015, respectively. This excludes a credit derivative related to
surplus notes issued by a subsidiary of Prudential Insurance. See Note 14 to the
Consolidated Financial Statements for additional information regarding this
derivative.

In addition to selling credit protection, we have purchased credit protection
using credit derivatives in order to hedge specific credit exposures in our
investment portfolio. As of December 31, 2016 and 2015, PFI excluding the Closed
Block division had $141 million and $409 million of notional amounts,
respectively, reported at fair value as a liability of $4 million for both
years. "Realized investment gains (losses), net" from credit derivatives we
purchased was a loss of $5 million and $9 million for the years ended December
31, 2016 and 2015, respectively. See Note 14 to the Consolidated Financial
Statements for additional information regarding credit derivatives and an
overall description of our derivative activities.


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OTTI of Fixed Maturity Securities


We maintain separate monitoring processes for public and private fixed
maturities and create watch lists to highlight securities that require special
scrutiny and management. Our public fixed maturity asset managers review all
public fixed maturity holdings on a quarterly basis and more frequently when
necessary to identify potential credit deterioration whether due to ratings
downgrades, unexpected price variances and/or company or industry specific
concerns.

For private placements, our credit and portfolio management processes help
ensure prudent controls over valuation and management. We have separate pricing
and authorization processes to establish "checks and balances" for new
investments. We apply consistent standards of credit analysis and due diligence
for all transactions, whether they originate through our own in-house
origination staff or through agents. Our regional offices closely monitor the
portfolios in their regions. We set all valuation standards centrally, and we
assess the fair value of all investments quarterly. Our private fixed maturity
asset managers formally review all private fixed maturity holdings on a
quarterly basis and more frequently when necessary to identify potential credit
deterioration whether due to ratings downgrades, unexpected price variances
and/or company or industry specific concerns. For additional information
regarding our policies regarding OTTI for fixed maturity securities, see Note 2
to the Consolidated Financial Statements.

OTTI of general account fixed maturity securities attributable to PFI excluding
the Closed Block division that were recognized in earnings were $144 million,
$97 million and $36 million for the years ended December 31, 2016, 2015 and
2014, respectively. For a further discussion of OTTI, see "-Realized Investment
Gains (Losses)" above.

Trading Account Assets Supporting Insurance Liabilities


The following table sets forth the composition of the TAASIL portfolio
attributable to PFI excluding the Closed Block division as of the dates
indicated:
                                                       December 31, 2016            December 31, 2015
                                                     Amortized        Fair        Amortized        Fair
                                                       Cost          Value          Cost          Value
                                                                        (in millions)

Short-term investments and cash equivalents $ 655 $ 655

     $       765     $    765
Fixed maturities:
Corporate securities                                    13,903       13,997          12,797       12,851
Commercial mortgage-backed securities                    2,032        2,052           1,860        1,862
Residential mortgage-backed securities                   1,142        1,150           1,411        1,428
Asset-backed securities                                  1,333        1,349           1,295        1,299
Foreign government bonds                                   915          926             680          694
U.S. government authorities and agencies and
obligations of U.S. states                                 330          376             326          369
Total fixed maturities                                  19,655       19,850          18,369       18,503
Equity securities                                        1,097        1,335           1,030        1,254
Total trading account assets supporting
insurance liabilities(1)                           $    21,407     $ 21,840     $    20,164     $ 20,522


__________

(1) As a percentage of amortized cost, 80% and 77% of the portfolio was

publicly-traded as of December 31, 2016 and 2015, respectively.

Other Trading Account Assets


Other trading account assets consist primarily of certain financial instruments
that contain an embedded derivative where we elected to classify the entire
instrument as a trading account asset rather than bifurcate. These instruments
are carried at fair value, with realized and unrealized gains (losses) reported
in "Other income" and excluded from adjusted operating income. Interest and
dividend income from these investments is reported in "Net investment income"
and is included in adjusted operating income.

The following table sets forth the composition of our other trading account assets attributable to PFI excluding the Closed Block division as of the dates indicated:

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                                                     December 31, 2016               December 31, 2015
                                                  Amortized          Fair         Amortized          Fair
                                                     Cost           Value            Cost           Value
                                                                       (in millions)

Short-term investments and cash equivalents $ 1 $ 1

   $         1        $      1
Fixed maturities                                     1,201           1,058           1,016             964
Equity securities(1)                                   412             462             537             596
Total other trading account assets             $     1,614        $  1,521  

$ 1,554 $ 1,561

__________

(1) Included in equity securities are perpetual preferred stock securities that

have characteristics of both debt and equity securities.

Commercial Mortgage and Other Loans

Investment Mix


As of December 31, 2016 and 2015, we held approximately 11% and 12%,
respectively, of our general account investments attributable to PFI excluding
the Closed Block division in commercial mortgage and other loans. These
percentages are net of a $90 million and $95 million allowance for losses as of
December 31, 2016 and 2015, respectively.

The following table sets forth the composition of our commercial mortgage and other loans portfolio, before the allowance for losses, attributable to PFI excluding the Closed Block division as of the dates indicated:

                                                        December 31, 2016   

December 31, 2015

                                                                      (in 

millions)

Commercial mortgage and agricultural property loans   $            41,964     $            39,002
Uncollateralized loans                                                636                     966
Residential property loans                                            252                     301
Other collateralized loans                                              9                     312
Total commercial mortgage and other loans(1)(2)       $            42,861     $            40,581


__________

(1) As a percentage of recorded investment gross of allowance, more than 99% of

these assets were current as of both December 31, 2016 and 2015.

(2) Excluded from the table above are commercial mortgage and other loans held

outside the general account in other entities and operations. For additional

information regarding commercial mortgage and other loans held outside the

general account, see "-Invested Assets of Other Entities and Operations"

    below.



We originate commercial mortgage and agricultural property loans using a
dedicated investment staff through our various regional offices in the U.S. and
international offices primarily in London and Tokyo. All loans are underwritten
consistently to our standards using a proprietary quality rating system that has
been developed from our experience in real estate and mortgage lending.

Uncollateralized loans primarily represent corporate loans which do not meet the definition of a security under authoritative accounting guidance.


Residential property loans primarily include Japanese recourse loans. Upon
default of these recourse loans, we can make a claim against the personal assets
of the property owner, in addition to the mortgaged property. These loans are
also backed by third-party guarantors.

Other collateralized loans include collateralized structured loans and consumer loans.

Composition of Commercial Mortgage and Agricultural Property Loans


Our commercial mortgage and agricultural property loan portfolio strategy
emphasizes diversification by property type and geographic location. The
following tables set forth the breakdown of the gross carrying values of our
general account investments in commercial mortgage and agricultural property
loans attributable to PFI excluding the Closed Block division by geographic
region and property type as of the dates indicated:


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                                                   December 31, 2016           December 31, 2015
                                                   Gross                       Gross
                                                 Carrying        % of        Carrying        % of
                                                   Value         Total         Value         Total
                                                                  ($ in millions)
Commercial mortgage and agricultural
property loans by region:
U.S. Regions:
Pacific                                        $    13,817        32.9 %   $    12,285        31.5 %
South Atlantic                                       8,066        19.2           7,764        19.9
Middle Atlantic                                      5,476        13.1           5,271        13.5
East North Central                                   2,341         5.6           2,704         6.9
West South Central                                   4,506        10.7           3,945        10.1
Mountain                                             1,796         4.3           1,697         4.4
New England                                          1,774         4.2           1,752         4.5
West North Central                                     621         1.5             608         1.6
East South Central                                     595         1.4             533         1.4
Subtotal-U.S.                                       38,992        92.9          36,559        93.8
Europe                                               1,725         4.1           1,608         4.1
Asia                                                   504         1.2             406         1.0
Other                                                  743         1.8             429         1.1
Total commercial mortgage and agricultural
property loans                                 $    41,964       100.0 %   $    39,002       100.0 %



                                                   December 31, 2016           December 31, 2015
                                                   Gross                       Gross
                                                 Carrying        % of        Carrying        % of
                                                   Value         Total         Value         Total
                                                                  ($ in millions)
Commercial mortgage and agricultural
property loans by property type:
Industrial                                     $     6,899        16.5 %   $     6,510        16.7 %
Retail                                               6,562        15.6           6,813        17.5
Office                                               9,619        22.9           8,498        21.8
Apartments/Multi-Family                             11,488        27.4          10,079        25.8
Other                                                3,368         8.0           3,133         8.0
Agricultural properties                              2,279         5.4           2,130         5.5
Hospitality                                          1,749         4.2           1,839         4.7
Total commercial mortgage and agricultural
property loans                                 $    41,964       100.0 %   $    39,002       100.0 %



Loan-to-value and debt service coverage ratios are measures commonly used to
assess the quality of commercial mortgage and agricultural property loans. The
loan-to-value ratio compares the amount of the loan to the fair value of the
underlying property collateralizing the loan and is commonly expressed as a
percentage. A loan-to-value ratio less than 100% indicates an excess of
collateral value over the loan amount. Loan-to-value ratios greater than 100%
indicate that the loan amount exceeds the collateral value. The debt service
coverage ratio compares a property's net operating income to its debt service
payments. Debt service coverage ratios less than 1.0 times indicate that
property operations do not generate enough income to cover the loan's current
debt payments. A debt service coverage ratio greater than 1.0 times indicates an
excess of net operating income over the debt service payments.

As of December 31, 2016, our general account investments in commercial mortgage
and agricultural property loans attributable to PFI excluding the Closed Block
division had a weighted average debt service coverage ratio of 2.38 times and a
weighted average loan-to-value ratio of 55%. As of December 31, 2016,
approximately 96% of commercial mortgage and agricultural property loans were
fixed rate loans. For those general account commercial mortgage and agricultural
property loans that were originated in 2016, the weighted average debt service
coverage ratio was 2.47 times, and the weighted average loan-to-value ratio was
62%.

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The values utilized in calculating these loan-to-value ratios are developed as
part of our periodic review of the commercial mortgage and agricultural property
loan portfolio, which includes an internal evaluation of the underlying
collateral value. Our periodic review also includes a quality re-rating process,
whereby we update the internal quality rating originally assigned at
underwriting based on the proprietary quality rating system mentioned above. As
discussed below, the internal quality rating is a key input in determining our
allowance for loan losses.

For loans with collateral under construction, renovation or lease-up, a
stabilized value and projected net operating income are used in the calculation
of the loan-to-value and debt service coverage ratios. Our commercial mortgage
and agricultural property loan portfolio included approximately $1.4 billion of
such loans as of both December 31, 2016 and 2015. All else being equal, these
loans are inherently more risky than those collateralized by properties that
have already stabilized. As of December 31, 2016, there are no loan-specific
reserves related to these loans. In addition, these unstabilized loans are
included in the calculation of our portfolio reserve as discussed below.

The following table sets forth the gross carrying value of our general account
investments in commercial mortgage and agricultural property loans attributable
to PFI excluding the Closed Block division as of the date indicated by
loan-to-value and debt service coverage ratios:

Commercial Mortgage and Agricultural Property Loans by Loan-to-Value and Debt
Service Coverage Ratios

                                                                  December 31, 2016
                                                             Debt Service Coverage Ratio
                                                                                            Total
                                                                                     Commercial Mortgage
                                                             1.0x         Less        and Agricultural
                                                              to          than            Property
                                               > 1.2x       < 1.2x        1.0x              Loans
Loan-to-Value Ratio                                                 (in millions)
0%-59.99%                                    $ 23,986     $    420     $    553     $            24,959
60%-69.99%                                     10,730          363          115                  11,208
70%-79.99%                                      4,862          597           57                   5,516
80% or greater                                    130           50          101                     281
Total commercial mortgage and agricultural
property loans                               $ 39,708     $  1,430     $    826     $            41,964


The following table sets forth the breakdown of our commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division as of the date indicated by year of origination:

                                                              December 31, 2016
                                                               Gross
                                                              Carrying      % of
                                                               Value        Total
Year of Origination                                            ($ in millions)
2016                                                        $     7,482     17.8 %
2015                                                              7,743     18.5
2014                                                              7,136     17.0
2013                                                              7,488     17.8
2012                                                              3,807      9.1
2011                                                              3,436      8.2
2010                                                              1,975      4.7
2009 & Prior                                                      2,897      6.9

Total commercial mortgage and agricultural property loans $ 41,964 100.0 %

Commercial Mortgage and Other Loans by Contractual Maturity Date

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

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                                                   December 31, 2016
                                                  Gross
                                             Carrying Value     % of Total
                                                    ($ in millions)
Vintage
Maturing in 2017                            $          1,786          4.1 %
Maturing in 2018                                       3,075          7.2
Maturing in 2019                                       3,243          7.6
Maturing in 2020                                       4,179          9.8
Maturing in 2021                                       3,546          8.3
Maturing in 2022                                       3,084          7.2
Maturing in 2023                                       3,024          7.1
Maturing in 2024                                       2,743          6.4
Maturing in 2025                                       4,415         10.3
Maturing in 2026                                       4,334         10.1
Maturing in 2027                                       1,508          3.5
Maturing in 2028 and beyond                            7,924         18.4

Total commercial mortgage and other loans $ 42,861 100.0 %

Commercial Mortgage and Other Loans Quality


Ongoing review of the portfolio is performed, and loans are placed on watch list
status based on a predefined set of criteria, where they are assigned to one of
the following categories. We classify loans as closely monitored when we
determine there is a collateral deficiency or other credit events that may lead
to a potential loss of principal or interest. Loans not in good standing are
those loans where we have concluded that there is a high probability of loss of
principal, such as when the loan is in the process of foreclosure or the
borrower is in bankruptcy. Our workout and special servicing professionals
manage the loans on the watch list. As described below, in determining our
allowance for losses we evaluate each loan on the watch list to determine if it
is probable that amounts due according to the contractual terms of the loan
agreement will not be collected.

We establish an allowance for losses to provide for the risk of credit losses
inherent in the lending process. The allowance includes loan-specific reserves
for loans that are determined to be impaired as a result of our loan review
process and a portfolio reserve for probable incurred but not specifically
identified losses for loans which are not on the watch list. We define an
impaired loan as a loan for which we estimate it is probable that amounts due
according to the contractual terms of the loan agreement will not be collected.
The loan-specific portion of the loss allowance is based on our assessment as to
ultimate collectability of loan principal and interest. Valuation allowances for
an impaired loan are recorded based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or based on the fair
value of the collateral if the loan is collateral dependent. The portfolio
reserve for incurred but not specifically identified losses considers the
current credit composition of the portfolio based on the internal quality
ratings mentioned above. The portfolio reserves are determined using past loan
experience, including historical credit migration, loss probability and loss
severity factors by property type. These factors are reviewed and updated as
appropriate. The valuation allowance for commercial mortgage and other loans can
increase or decrease from period to period based on these factors.

The following table sets forth the change in valuation allowances for our commercial mortgage and other loans portfolio as of the dates indicated:

                                                        December 31, 2016   

December 31, 2015

                                                                        (in 

millions)

Allowance, beginning of year                         $               95         $               99
Addition to (release of) allowance for losses                        (6 )                       (4 )
Charge-offs, net of recoveries                                        0                          0
Change in foreign exchange                                            1                          0
Allowance, end of period                             $               90         $               95
Loan-specific reserve                                $                6         $                0
Portfolio reserve                                    $               84         $               95



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The decrease in the allowance for losses for the year ended December 31, 2016 was primarily driven by improved credit quality of the portfolio.

Equity Securities

Investment Mix


The equity securities attributable to PFI excluding the Closed Block division
consist principally of investments in common and preferred stock of
publicly-traded companies, as well as mutual fund shares. The following table
sets forth the composition of our equity securities portfolio and the associated
gross unrealized gains and losses as of the dates indicated:
                                             December 31, 2016                                         December 31, 2015
                                          Gross            Gross                                    Gross            Gross
                                        Unrealized       Unrealized       Fair                    Unrealized       Unrealized       Fair
                            Cost          Gains            Losses         Value       Cost          Gains            Losses         Value
                                                                            (in millions)
Non-redeemable
preferred stocks          $     9     $          0     $          2     $     7     $    21     $          1     $          1     $    21
Mutual funds(1)             3,193              545                2       3,736       2,918              333               76       3,175
Other common stocks         2,207            1,229               16       3,420       2,033            1,339               31       3,341
Total equity
securities(2)             $ 5,409     $      1,774     $         20     $ 7,163     $ 4,972     $      1,673     $        108     $ 6,537


__________

(1) Includes mutual fund shares representing our interest in the underlying

assets of certain investments supporting corporate-owned life insurance.

These mutual funds invest primarily in high yield bonds.

(2) Amounts presented exclude investments in private equity and hedge funds and

other investments which are reported in "Other long-term investments."

OTTI of Equity Securities


For those equity securities classified as available-for-sale, we record
unrealized gains (losses) to the extent that cost is different from estimated
fair value. All securities with unrealized losses are subject to our review to
identify OTTI in value. For additional information regarding our policies
regarding OTTI for equity securities, see Note 2 to the Consolidated Financial
Statements.

OTTI of equity securities attributable to PFI excluding the Closed Block division were $61 million, $111 million and $26 million for the years ended December 31, 2016, 2015 and 2014, respectively. For a further discussion of OTTI, see "-Realized Investment Gains (Losses)" above.

Other Long-Term Investments


The following table sets forth the composition of "Other long-term investments,"
which primarily consists of investments in joint ventures and limited
partnerships, other than operating joint ventures, as well as wholly-owned
investment real estate and other investments attributable to PFI excluding the
Closed Block division, as of the dates indicated:
                                             December 31, 2016      

December 31, 2015

                                                           (in millions)
Joint ventures and limited partnerships:
Private equity                              $             2,619    $             2,927
Hedge funds                                               1,708                  1,160
Real estate-related                                         451                    285
Real estate held through direct ownership                 1,677             

1,456

Other(1)                                                    776             

721

Total other long-term investments           $             7,231    $        

6,549

__________

(1) Primarily includes derivatives and member and activity stock held in the

Federal Home Loan Banks of New York and Boston. For additional information

regarding our holdings in the Federal Home Loan Banks of New York and Boston,

see Note 14 to the Consolidated Financial Statements.

OTTI of Other Long-Term Investments

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For joint ventures and limited partnerships, the carrying value of these investments is written down or impaired to fair value when a decline in value is considered to be other-than-temporary.


OTTI on joint ventures and limited partnerships attributable to PFI excluding
the Closed Block division were $57 million, $121 million and $21 million for the
years ended December 31, 2016, 2015 and 2014, respectively. For a further
discussion of OTTI, see "-Realized Investment Gains (Losses)" above.

For additional information regarding our policies regarding OTTI for joint
ventures and limited partnerships, other than operating joint ventures, as well
as wholly-owned investment real estate and other investments, see Note 2 to the
Consolidated Financial Statements.

Invested Assets of Other Entities and Operations


"Invested Assets of Other Entities and Operations" presented below includes
investments held outside the general account and primarily represents
investments associated with our asset management operations and derivative
operations. Our derivative operations act on behalf of affiliates primarily to
manage interest rate, foreign currency, credit and equity exposures. Assets
within our asset management operations that are managed for third parties and
those assets classified as "Separate account assets" on our balance sheet are
not included.

                                                          December 31, 2016       December 31, 2015
                                                                        (in millions)
Fixed maturities:
Public, available-for-sale, at fair value               $               237     $                94
Private, available-for-sale, at fair value                                3                      39
Other trading account assets, at fair value                           3,959                  12,609
Equity securities, available-for-sale, at fair value                     13                      11
Commercial mortgage and other loans, at book value(1)                   571                     302
Other long-term investments                                           1,032                     516
Short-term investments                                                   14                     388
Total investments                                       $             5,829     $            13,959


__________

(1) Book value is generally based on unpaid principal balance net of any

    allowance for losses, the lower of cost or fair value, or fair value,
    depending on the loan.



The $8 billion decrease in investments related to the invested assets of other
entities and operations in 2016 was primarily attributable to a $9 billion
decrease in other trading account assets of which $6 billion was due to adoption
of the consolidation accounting standard update, which resulted in the
deconsolidation of certain of its previously consolidated collateralized loan
obligations effective January 1, 2016 and $3 billion of additional
deconsolidations throughout 2016.

Other Trading Account Assets


Other trading account assets are primarily related to assets associated with
consolidated variable interest entities for which the Company is the investment
manager, as well as our derivative operations used to manage interest rate,
foreign currency, credit and equity exposures. The assets of the consolidated
variable interest entities are generally offset by liabilities for which the
fair value option has been elected. For further information on these
consolidated variable interest entities, see Note 5 to the Consolidated
Financial Statements.

Commercial Mortgage and Other Loans

Our asset management operations include our commercial mortgage operations, which provide mortgage origination, asset management and servicing for our general account, institutional clients and government-sponsored entities such as Fannie Mae, the Federal Housing Administration and Freddie Mac.

The mortgage loans of our commercial mortgage operations are included in "Commercial mortgage and other loans," with related derivatives and other hedging instruments primarily included in "Other trading account assets" and "Other long-term investments."

Other Long-Term Investments

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Other long-term investments primarily include strategic investments made as part
of our asset management operations. We make these strategic investments in real
estate, as well as fixed income, public equity and real estate securities,
including controlling interests. Certain of these investments are made primarily
for purposes of co-investment in our managed funds and structured products.
Other strategic investments are made with the intention to sell or syndicate to
investors, including our general account, or for placement in funds and
structured products that we offer and manage (seed investments). As part of our
asset management operations, we also make loans to our managed funds that are
secured by equity commitments from investors or assets of the funds. Other
long-term investments also include certain assets in consolidated investment
funds where the Company is deemed to exercise control over the funds.

                        Liquidity and Capital Resources

Overview


Liquidity refers to the ability to generate sufficient cash resources to meet
the payment obligations of the Company. Capital refers to the long-term
financial resources available to support the operations of our businesses, fund
business growth, and provide a cushion to withstand adverse circumstances. Our
ability to generate and maintain sufficient liquidity and capital depends on the
profitability of our businesses, general economic conditions and our access to
the capital markets and the alternate sources of liquidity and capital described
herein.

Effective and prudent liquidity and capital management is a priority across the
organization. Management monitors the liquidity of Prudential Financial and its
subsidiaries on a daily basis and projects borrowing and capital needs over a
multi-year time horizon through our periodic 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 its subsidiaries,
including under reasonably foreseeable stress scenarios. We have a capital
management framework in place that governs the allocation of capital and
approval of capital uses. We also employ a Capital Protection Framework to
ensure the availability of capital resources to maintain adequate capitalization
on a consolidated basis and competitive RBC ratios and solvency margins for our
insurance subsidiaries 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 stricter prudential
regulatory standards, which include or will include requirements and limitations
(many of which are the subject of ongoing rule-making) relating to capital,
leverage, liquidity, stress-testing, overall risk management, resolution and
recovery plans, credit exposure reporting, early remediation, management
interlocks and credit concentration. They may also include additional standards
regarding enhanced public disclosure, short-term debt limits and other related
subjects. Emerging state and international standards may also impose additional
capital and other requirements. For information on these regulatory initiatives
and their potential impact on us, see "Business-Regulation" and "Risk Factors."

During 2016, we took the following significant actions that impacted our liquidity and capital position:

• We executed the Variable Annuities Recapture, which enabled the Individual

Annuities segment to distribute $1.0 billion of highly liquid assets to

Prudential Financial and is expected to result in more efficient management

of capital and liquidity associated with our variable annuities business.

      See "-Results of Operations-Variable Annuities Recapture and Risk
      Management Strategy" for further details;

• We repurchased $2.0 billion of shares of our Common Stock and declared

aggregate Common Stock dividends of $1.2 billion;

• We retired $750 million of our outstanding senior debt through maturities;

• We repurchased $500 million of our outstanding senior debt through a tender

offer;

• We restructured the terms of a $3.0 billion captive financing facility for

Regulation XXX reserves by redeeming $300 million of outstanding debt under

the facility and converting an additional $300 million of outstanding debt

to a credit-linked note structure;

• We obtained additional financing for Guideline AXXX and Regulation XXX

reserves by increasing the amounts outstanding under captive financing

facilities by $553 million and $406 million, respectively; and

• A subsidiary, Prudential Holdings of Japan, entered into a new ¥100 billion

      three-year syndicated, unsecured committed credit facility, providing us
      with an additional source of liquidity.



Capital


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

We seek to capitalize all of our subsidiaries and businesses in accordance with
their ratings targets, and we believe Prudential Financial's capitalization and
use of financial leverage are consistent with those ratings targets. Our
long-term senior debt rating targets for Prudential Financial are "A" for
Standard & Poor's Rating Services ("S&P"), Moody's Investors Service, Inc.
("Moody's"), and Fitch Ratings Ltd. ("Fitch"), and "a" for A.M. Best Company
("A.M. Best"). Our financial strength rating targets for our life insurance
companies are "AA/Aa/AA" for S&P, Moody's and Fitch, respectively, and "A+" for
A.M. Best. Some entities may currently be rated below these targets, and not all
of our life insurance companies are rated by each of these rating agencies. See
"-Ratings" below for a description of the potential impacts of ratings
downgrades.

Capital Governance


Our capital management framework is ultimately reviewed and approved by our
Board of Directors (the "Board"). The Board has adopted a Capital Policy that
authorizes our Chairman and Chief Executive Officer and Vice Chairman to approve
certain capital actions on behalf of the Company and to further delegate
authority with respect to capital actions to appropriate officers. Any capital
commitment that exceeds the authority granted to senior management under the
capital policy is separately authorized by the Board.

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

Capitalization


The primary components of the Company's capitalization consist of equity and
outstanding capital debt, including junior subordinated debt. As shown in the
table below, as of December 31, 2016, the Company had $42.9 billion in capital,
all of which was available to support the aggregate capital requirements of its
divisions and its Corporate and Other operations. Based on our assessment of
these businesses and operations, we believe this level of capital is consistent
with our ratings targets.

                                                         December 31,
                                                       2016       2015(1)

                                                         (in millions)
Equity(2)                                            $ 31,242    $ 29,605
Junior subordinated debt (i.e., hybrid securities)      5,817       5,811
Other capital debt                                      5,822       6,069
Total capital                                        $ 42,881    $ 41,485


__________

(1) Prior period had been revised to conform to current period presentation due

to the adoption of ASU 2015-03 regarding the classification of debt issuance

costs. For more information, see Note 2 to the Consolidated Financial

Statements.

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




The decrease in other capital debt from December 31, 2015 primarily reflects a
senior debt maturity, which was previously utilized to meet capital requirements
of our businesses.

Insurance Regulatory Capital

We manage Prudential Insurance, Prudential of Japan, Gibraltar Life, and our
other domestic and international insurance subsidiaries to regulatory capital
levels consistent with our "AA" ratings targets. We utilize the RBC ratio as a
primary measure of the capital adequacy of our domestic insurance subsidiaries
and the solvency margin ratio as a primary measure of the capital adequacy of
our international insurance subsidiaries.


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

The table below presents the RBC ratios of our most significant domestic insurance subsidiaries as of December 31, 2015, the most recent statutory fiscal year-end for these subsidiaries for which RBC information has been filed.

                                               Ratio
Prudential Insurance(1)                          484 %
PALAC                                            550 %

Composite Major U.S. Insurance Subsidiaries(2) 486 %

__________

(1) Includes PRIAC, Pruco Life, PLNJ (which is a subsidiary of Pruco Life) and

PLIC.

(2) Includes Prudential Insurance and its subsidiaries, as noted above, and

PALAC. Composite RBC is not reported to regulators and is based on the

summation of total adjusted capital and risk charges for the included

companies as determined under statutory accounting and RBC guidance to

calculate a composite numerator and denominator, respectively, for purposes

of calculating the composite ratio.

Although not yet filed, we expect the Prudential Insurance, PALAC and Composite RBC ratios to be greater than 400% as of December 31, 2016.


Similar to the RBC ratios that are employed by U.S. insurance regulators,
regulatory authorities in the international jurisdictions in which we operate
generally establish some form of minimum solvency margin requirements for
insurance companies based on local statutory accounting practices. These
solvency margins are a primary measure of the capital adequacy of our
international insurance operations. Maintenance of our solvency margins at
certain levels is also important to our competitive positioning, as in certain
jurisdictions, such as Japan, these solvency margins are required to be
disclosed to the public and therefore impact the public perception of an
insurer's financial strength.

The table below presents the solvency margin ratios of our most significant international insurance subsidiaries as of September 30, 2016, the most recent date for which this information is available.


                                    Ratio
Prudential of Japan consolidated(1)   858 %
Gibraltar Life consolidated(2)        975 %


__________

(1) Includes Prudential Trust Co., Ltd., a subsidiary of Prudential of Japan.

(2) Includes PGFL, a subsidiary of Gibraltar Life.

Although not yet filed, we expect the solvency margin ratio for each of these subsidiaries to be greater than 700% as of December 31, 2016.

All of our domestic and significant international insurance subsidiaries have capital levels that substantially exceed the minimum level required by applicable insurance regulations.


We evaluate the regulatory capital of our domestic and international insurance
operations under reasonably foreseeable stress scenarios and believe we have
adequate resources to maintain our capital levels comfortably above regulatory
requirements under these scenarios. For further information on the calculation
of RBC and solvency margin ratios, as well as regulatory minimums, see Note 15
to the Consolidated Financial Statements.

Capital Protection Framework


We employ a "Capital Protection Framework" (the "Framework") to ensure that
sufficient capital resources are available to maintain adequate capitalization
on a consolidated basis and competitive RBC ratios and solvency margins for our
insurance subsidiaries under various stress scenarios. The Framework
incorporates the potential impacts from market related stresses, including
equity markets, real estate, interest rates, credit losses, credit spreads, and
foreign currency exchange rates. In evaluating these potential impacts, we
assess risk holistically at the enterprise level, recognizing that our business
mix may produce results that partially offset on a net basis. 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 as a

whole, which we manage through our equity hedge program and on-balance

       sheet and contingent sources of capital;


• Our decision to manage a portion of our interest rate risk internally, on

       a net basis, at an enterprise level. In implementing this strategy, we
       execute intercompany derivative transactions between our Corporate and

Other operations and certain business segments. We limit our exposure to

the resulting net interest rate risk at the enterprise level through

options embedded in our hedging strategy that may be exercised if interest

rates decline below certain thresholds. During 2016, primarily as a result

       of the change in our Individual Annuities' risk management strategy, we
       replaced a significant portion of these intercompany derivatives with
       external derivatives and expect to manage most of this interest rate risk
       within the business segments in the future. For more information, see

"Management's Discussion and Analysis of Financial Condition and Results

       of Operations-Corporate and Other" and "Management's Discussion and
       Analysis of Financial Condition and Results of Operations-Individual
       Annuities."



We periodically recalibrate our hedging strategies in response to changing
market conditions. The Framework accommodates periodic volatility within ranges
that we deem acceptable, while also providing for additional potential sources
of capital, including on-balance sheet capital, derivatives, and contingent
sources of capital. Although we continue to enhance our approach, we believe we
currently have access to sufficient resources to maintain adequate
capitalization and competitive RBC ratios and solvency margins under a range of
potential stress scenarios.

Captive Reinsurance Companies


We use captive reinsurance companies in our domestic insurance operations to
more effectively manage our reserves and capital on an economic basis and to
enable the aggregation and transfer of risks. Our captive reinsurance companies
assume business from affiliates only. To support the risks they assume, our
captives are capitalized to a level we believe is consistent with the "AA"
financial strength rating targets of our insurance subsidiaries. All of our
captive reinsurance companies are wholly-owned subsidiaries and are located
domestically, typically in the state of domicile of the direct writing insurance
subsidiary that cedes the majority of business to the captive. In addition to
state insurance regulation, our captives are subject to internal policies
governing their activities. In the normal course of business we contribute
capital to the captives to support business growth and other needs. Prudential
Financial has also entered into support agreements with the captives in
connection with financing arrangements.

Our domestic life insurance subsidiaries are subject to a regulation entitled
"Valuation of Life Insurance Policies Model Regulation," commonly known as
"Regulation XXX," and a supporting guideline entitled "The Application of the
Valuation of Life Insurance Policies Model Regulation," commonly known as
"Guideline AXXX." The regulation and supporting guideline require insurers to
establish statutory reserves for term and universal life insurance policies with
long-term premium guarantees at a level that exceeds what our actuarial
assumptions for this business would otherwise require. We use captive
reinsurance companies to finance the portion of the reserves for this business
that we consider to be non-economic as described below under "-Financing
Activities-Subsidiary borrowings-Financing of regulatory reserves associated
with domestic life insurance products."

Through March 31, 2016, we reinsured the living benefit guarantees on certain
variable annuity and retirement products from our domestic life insurance
companies to a captive reinsurance company, Pruco Re. Effective April 1, 2016,
the risks related to these products no longer reside within Pruco Re as a result
of the Variable Annuities Recapture. See "-Results of Operations-Variable
Annuities Recapture and Risk Management Strategy" for further information. On
September 30, 2016, Pruco Re was merged with and into PALAC.

Shareholder Distributions

Share Repurchase Program and Shareholder Dividends


In December 2015, the Board authorized the Company to repurchase at management's
discretion up to $1.5 billion of its outstanding Common Stock during the period
from January 1, 2016 through December 31, 2016, which superseded a previous
authorization covering a portion of this period. In August 2016, the Board
authorized a $500 million increase to the authorization for calendar year 2016.
As a result, the Company's aggregate share repurchase authorization for the full
year 2016 was $2.0 billion.

In December 2016, the Board authorized the Company to repurchase at management's
discretion up to $1.25 billion of its outstanding Common Stock during the period
from January 1, 2017 through December 31, 2017.


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The timing and amount of share repurchases are determined by management based on
market conditions and other considerations, including any increased capital
needs of our businesses due to, among other things, changes in regulatory
capital requirements and opportunities for growth and acquisitions. Repurchases
may be effected in the open market, through derivative, accelerated repurchase
and other negotiated transactions and through plans designed to comply with Rule
10b5-1(c) under the Exchange Act.

The following table sets forth information about declarations of Common Stock
dividends, as well as repurchases of shares of Prudential Financial's Common
Stock, for each of the quarterly periods in 2016 and for the prior four years.

                                                            Dividend Amount                    Shares Repurchased
Quarterly period ended:                                Per Share         Aggregate           Shares           Total Cost

                                                                    (in millions, except per share data)
December 31, 2016                                  $      0.70         $       307         6.6              $        625
September 30, 2016                                 $      0.70         $       309         8.1              $        625
June 30, 2016                                      $      0.70         $       313         5.0              $        375
March 31, 2016                                     $      0.70         $       316         5.4              $        375



                          Dividend Amount               Shares Repurchased
Year ended:          Per Share      Aggregate         Shares         Total Cost

                                (in millions, except per share data)
December 31, 2015   $   2.44       $     1,115       12.1           $      1,000
December 31, 2014   $   2.17       $     1,005       11.6           $      1,000
December 31, 2013   $   1.73       $       810       10.0           $        750
December 31, 2012   $   1.60       $       749       11.5           $        650



In addition, on February 8, 2017, Prudential Financial's Board of Directors
declared a cash dividend of $0.75 per share of Common Stock, payable on March
16, 2017. As a Designated Financial Company under Dodd-Frank, Prudential
Financial expects to be subject to stricter requirements and limitations
regarding capital, leverage and liquidity. Our compliance with these and other
requirements under Dodd-Frank could limit our ability to pay Common Stock
dividends and/or repurchase shares in the future.

Liquidity


The principles of our liquidity management framework are described in an
enterprise-wide Liquidity Policy that is reviewed and approved by the Board.
Liquidity management and stress testing are performed on a legal entity basis as
the ability to transfer funds between subsidiaries is limited due in part to
regulatory restrictions. Liquidity needs are determined through daily and
quarterly cash flow forecasting at the holding company and within our operating
subsidiaries. A minimum balance of highly liquid assets of at least $1.3 billion
is targeted to ensure that adequate liquidity is available at Prudential
Financial to cover fixed expenses in the event that we experience reduced cash
flows from our operating subsidiaries at a time when access to capital markets
is also not available. This targeted minimum balance is reviewed and approved
annually by the Board.

We seek to mitigate the risk of having limited or no access to financing due to
stressed market conditions by generally pre-funding capital debt in advance of
maturity. We mitigate the refinancing risk associated with our debt that is used
to fund operating needs by matching the term of debt with the assets financed.
To ensure adequate liquidity in stress scenarios, stress testing is performed
for our major operating subsidiaries. We seek to further mitigate liquidity risk
by maintaining our access to alternative sources of liquidity, as discussed
below.

Liquidity of Prudential Financial


The principal sources of funds available to Prudential Financial, the parent
holding company, are dividends and returns of capital from subsidiaries,
repayments of operating loans from subsidiaries and highly liquid assets. These
sources of funds may be supplemented by Prudential Financial's access to the
capital markets as well as the "-Alternative Sources of Liquidity" described
below.

The primary uses of funds at Prudential Financial include servicing debt, paying
operating expenses, making capital contributions and loans to subsidiaries,
paying declared shareholder dividends and repurchasing outstanding shares of
Common Stock executed under authority from the Board.


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As of December 31, 2016, Prudential Financial had highly liquid assets
consisting of cash, short-term investments and U.S. Treasury fixed maturities
with a carrying value totaling $5,393 million. We maintain an intercompany
liquidity account that is designed to optimize the use of cash by facilitating
the lending and borrowing of funds between Prudential Financial and its
subsidiaries on a daily basis. Excluding net borrowings from this intercompany
liquidity account, Prudential Financial had highly liquid assets of $4,553
million as of December 31, 2016, a decrease of $509 million from December 31,
2015.

The following table sets forth Prudential Financial's principal sources and uses of highly liquid assets, excluding net borrowings from our intercompany liquidity account, for the periods indicated.

                                                                      Year Ended December 31,
                                                                      2016               2015

                                                                           (in millions)
Sources:
Dividends and/or returns of capital from subsidiaries(1)         $      3,843       $      4,632
Net distributions from subsidiaries associated with Variable
Annuities Recapture                                                     1,042                  0

Proceeds from stock-based compensation and exercise of stock options

                                                                   625                379
Net income tax receipts                                                   544                  0

Interest income from subsidiaries on intercompany agreements, net of interest paid

                                                      214                257
Net receipts under intercompany loan agreements(2)                         43              3,271

Proceeds from the issuance of junior subordinated debt (hybrid securities)

                                                                 0              1,000
Proceeds from the issuance of retail medium-term notes                      0                180
Other, net                                                                  0                190
Total sources                                                           6,311              9,909
Uses:
Share repurchases                                                $      2,000       $      1,013
Common Stock dividends(3)                                               1,300              1,117
Capital contributions to subsidiaries(4)                                  939              2,545
Interest paid on external debt                                            902                970

Maturities of long-term senior debt, excluding retail medium-term notes

                                                         750                  0
Repurchase of medium-term notes                                           500                 77
Class B Stock repurchase settlement                                       119                651
Cash settlements - terminated swaps                                        95                  0
Repayments from short-term debt, net of proceeds                           16                 17

Maturities of medium-term notes, excluding retail medium-term notes

                                                                       0              2,148
Expenditures for new home office construction                               0                579
Net income tax payments                                                     0                 46
Other, net                                                                199                  0
Total uses                                                              6,820              9,163
Net increase (decrease) in highly liquid assets                  $       

(509 ) $ 746

__________

(1) 2016 includes dividends and/or returns of capital of $1,238 million from

Prudential Annuities Holding Company, of which $1,140 million was from PALAC,

$939 million from international insurance subsidiaries, $900 million from

Prudential Insurance, $746 million from Asset Management subsidiaries, and

$20 million from other subsidiaries. Excludes dividends and/or returns of

capital associated with the Variable Annuities Recapture. 2015 includes

dividends and/or returns of capital of $1,950 million from Prudential

Insurance, $1,818 million from international insurance subsidiaries, $552

million from Prudential Annuities Holding Company, of which $450 million was

from PALAC, $266 million from Asset Management subsidiaries, and $46 million

from other subsidiaries.

(2) 2016 includes net receipts from subsidiaries of $378 million from PLAZ, $116

million from PLNJ, net proceeds of $644 million from the issuance of notes to

international insurance subsidiaries, offset by net borrowing of $600 million

by Prudential Universal Reinsurance Company, $490 million by Asset Management

subsidiaries and $5 million by other subsidiaries. Excludes receipts

associated with the Variable Annuities Recapture. 2015 includes net receipts

from subsidiaries of $2,113 million from Pruco Re, $300 million from

Prudential Arizona Reinsurance Term Company, $187 million from Asset

Management subsidiaries and $6 million from other subsidiaries, net proceeds

of $820 million from the issuance of notes to international insurance

subsidiaries, and net proceeds of $496 million from the issuance of notes to

various affiliates to finance new home office construction, offset by net

borrowing of $317 million by Pruco Life and $34 million by PLNJ, and net

repayments of $200 million to Pruco Re, and $100 million to PGIM Real Estate

Finance.

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

(4) 2016 includes capital contributions of $824 million to international

insurance subsidiaries ($159 million which was related to our indirect

investment in AFP Habitat), $36 million to Pruco Re, $74 million to Asset

Management subsidiaries, and $5 million to other subsidiaries. Excludes

capital contributions associated with the Variable Annuities Recapture. 2015

includes capital contributions of $1,960 million to Pruco Re, $268 million to

    Asset Management subsidiaries, $222 million to international insurance
    subsidiaries and $95 million to other subsidiaries.




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Restrictions on Dividends and Returns of Capital from Subsidiaries


Our insurance companies are subject to limitations on the payment of dividends
and other transfers of funds to Prudential Financial and other affiliates under
applicable insurance law and regulation. Also, more generally, the payment of
dividends by any of our subsidiaries is subject to declaration by their Board of
Directors and can be affected by market conditions and other factors. See Note
15 to the Consolidated Financial Statements for details on specific dividend
restrictions.

Domestic insurance subsidiaries. Prudential Insurance is permitted to pay
ordinary dividends based on calculations specified under New Jersey insurance
law, subject to prior notification to the New Jersey Department of Banking and
Insurance ("NJDOBI"). Any distributions above this amount in any twelve month
period are considered to be "extraordinary" dividends, and the approval of the
NJODBI is required prior to payment. The laws regulating dividends of the states
where our other domestic insurance companies are domiciled are similar, but not
identical, to New Jersey's. During 2016, Prudential Insurance paid aggregate
dividends of $3.0 billion ($1.0 billion as an ordinary dividend and $2.0 billion
as an extraordinary dividend) to Prudential Financial. This amount consisted of
a $2.1 billion dividend associated with the Variable Annuities Recapture, which
was subsequently contributed to PALAC to support the risks of that business, and
a $900 million dividend relating to the operations of Prudential Insurance.

International insurance subsidiaries. Capital redeployment from our
international insurance subsidiaries is subject to local regulatory requirements
in the international jurisdictions in which they operate. Our most significant
international insurance subsidiaries, Prudential of Japan and Gibraltar Life,
are permitted to pay common stock dividends based on calculations specified by
Japanese insurance law, subject to prior notification to the FSA. Dividends in
excess of these amounts and other forms of capital distribution require the
prior approval of the FSA. In addition to paying common stock dividends,
International Insurance operations may return capital to Prudential Financial
through other means, such as the repayment of subordinated debt or preferred
stock obligations held by Prudential Financial or other affiliates. The current
regulatory fiscal year end for both Prudential of Japan and Gibraltar Life is
March 31, 2017, after which time the common stock dividend amount permitted to
be paid without prior approval from the FSA can be determined.

During 2016, Prudential Financial received a total of $476 million from
Prudential International Insurance Holdings, the domestic parent of the
International Insurance subsidiaries. Of this $476 million, $446 million is
attributable to Prudential Holdings of Japan, Inc. ("PHJ"), the parent of the
Company's Japanese operations, and $30 million is attributable to Prudential of
Korea. During 2016, PHJ received a total of ¥98.3 billion, or $842 million at
year-end 2016 foreign currency exchange rates, from its subsidiaries, of which a
portion was sent to Prudential Financial, as noted above, and $450 million was
retained at PHJ but remains available to be paid as a dividend to Prudential
Financial. PHJ's cash receipts from subsidiaries include dividends of ¥47.4
billion, or $406 million, from Gibraltar Life and Other Japan Operations and
¥10.6 billion, or $91 million, from Prudential of Japan. PHJ also received ¥40.2
billion, or $345 million, from Gibraltar Life, primarily as repayment of
subordinated debt.

Other subsidiaries. The ability of our asset management subsidiaries and the majority of our other operating subsidiaries to pay dividends is largely unrestricted from a regulatory standpoint.

Liquidity of Insurance Subsidiaries


We manage the liquidity of our insurance operations to ensure stable, reliable
and cost-effective sources of cash flows to meet all of our obligations.
Liquidity within each of our insurance subsidiaries is provided by a variety of
sources, including portfolios of liquid assets. The investment portfolios of our
subsidiaries are integral to the overall liquidity of our insurance operations.
We segment our investment portfolios and employ an asset/liability management
approach specific to the requirements of each of our product lines. This
enhances the discipline applied in managing the liquidity, as well as the
interest rate and credit risk profiles, of each portfolio in a manner consistent
with the unique characteristics of the product liabilities.

Liquidity is measured against internally-developed benchmarks that take into
account the characteristics of both the asset portfolio and the liabilities that
they support. We consider attributes of the various categories of liquid assets
(for example, type of asset and credit quality) in calculating internal
liquidity measures to evaluate our insurance operations' liquidity under various
stress scenarios, including company-specific and market-wide events. We continue
to believe that cash generated by ongoing operations and the liquidity profile
of our assets provide sufficient liquidity under reasonably foreseeable stress
scenarios for each of our insurance subsidiaries.


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Cash Flow


The principal sources of liquidity for our insurance subsidiaries are premiums,
investment and fee income, and investment maturities and sales associated with
our insurance and annuity operations, as well as internal and external
borrowings. The principal uses of that liquidity include benefits, claims and
dividends paid to policyholders, and payments to policyholders and
contractholders in connection with surrenders, withdrawals and net policy loan
activity. Other uses of liquidity 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.

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

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

                                                                          December 31,
                                                                        2016        2015

                                                                          (in billions)
Prudential Insurance                                                  $ 190.5     $ 172.0
PLIC                                                                     53.7        54.0
Pruco Life                                                               35.4        32.4
PRIAC                                                                    26.4        25.3
PALAC                                                                    13.4         6.0
Other(1)                                                               

(83.2 ) (62.6 ) Total future policy benefits and policyholders' account balances(2) $ 236.2 $ 227.1

__________

(1) Includes the impact of intercompany eliminations.

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




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

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

For PRIAC, the liabilities presented above primarily include reserves for stable
value contracts. Although many of these contracts are subject to discretionary
withdrawal, withdrawals are typically at the market value of the underlying
assets. Risk is further reduced by the high persistency of clients driven in
part by our competitive position in our target markets and contractual
provisions such as deferred payouts.


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Gross account withdrawals for our domestic insurance operations' products in
2016 were generally consistent with our assumptions in asset/liability
management, and the associated cash outflows did not have a material adverse
impact on our overall liquidity.

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

                                                                          December 31,
                                                                        2016        2015

                                                                          (in billions)
Prudential of Japan(1)                                                $  42.0     $  37.4
Gibraltar Life(2)                                                        95.2        84.3
All other international insurance subsidiaries(3)                        

12.7 12.4 Total future policy benefits and policyholders' account balances(4) $ 149.9 $ 134.1

__________

(1) As of December 31, 2016 and 2015, $10.3 billion and $9.1 billion,

respectively, of the insurance-related liabilities for Prudential of Japan

are associated with U.S. dollar-denominated products that are coinsured to

our domestic insurance operations and supported by U.S. dollar-denominated

assets.

(2) Includes PGFL, a subsidiary of Gibraltar Life.

(3) Represents our international insurance operations, excluding Japan.

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




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

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


Gibraltar Life sells fixed annuities, denominated in U.S. and Australian dollars
that may be subject to increased surrenders should the yen depreciate in
relation to these currencies and interest rates in Australia and the U.S.
decline relative to Japan. A significant portion of the liabilities associated
with these contracts include a market value adjustment feature, which mitigates
the profitability impact from surrenders. As of December 31, 2016, products with
a market value adjustment feature represented $23.3 billion of our Japan
operations' insurance-related liabilities, which included $19.1 billion
attributable to non-yen denominated fixed annuities.

Liquid Assets


Liquid assets include cash and cash equivalents, short-term investments, U.S.
Treasury fixed maturities, fixed maturities that are not designated as
held-to-maturity and public equity securities. In addition to access to
substantial investment portfolios, our insurance companies' liquidity is managed
through access to a variety of instruments available for funding and/or managing
cash flow mismatches, including from time to time those arising from claim
levels in excess of projections. Our ability to utilize assets and liquidity
between our subsidiaries is limited by regulatory and other constraints. We
believe that ongoing operations and the liquidity profile of our assets provide
sufficient liquidity under reasonably foreseeable stress scenarios for each of
our insurance subsidiaries.

The following table sets forth the fair value of certain of our domestic
insurance operations' portfolio of liquid assets, including cash and short-term
investments, fixed maturity investments other than those designated as
held-to-maturity, classified by NAIC or equivalent rating, and public equity
securities, as of the dates indicated.


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                                                  December 31, 2016
                           Prudential
                           Insurance        PLIC        PRIAC       PALAC       Pruco Life       Total       December 31, 2015

                                                                      (in billions)
Cash and short-term
investments              $        6.5     $   2.1     $   0.7     $   3.0     $        0.1     $  12.4     $              10.3
Fixed maturity
investments(1):
High or highest
quality                          97.6        33.4        19.4         9.1              5.2       164.7                   147.5
Other than high or
highest quality                   7.0         3.6         1.7         0.5              0.4        13.2                    12.3
Subtotal                        104.6        37.0        21.1         9.6              5.6       177.9                   159.8
Public equity
securities                        0.3         2.7         0.0         0.0              0.0         3.0                     3.2
Total                    $      111.4     $  41.8     $  21.8     $  12.6     $        5.7     $ 193.3     $             173.3


__________

(1) Excludes fixed maturities designated as held-to-maturity. Classified by NAIC

    or equivalent rating.



The following table sets forth the fair value of our international insurance
operations' portfolio of liquid assets, including cash and short-term
investments, fixed maturity investments other than those designated as
held-to-maturity, classified by NAIC or equivalent rating, and public equity
securities, as of the dates indicated.

                                                               December 31, 2016
                                             Prudential       Gibraltar         All
                                              of Japan         Life(1)        Other(2)       Total       December 31, 2015

                                                                             (in billions)
Cash and short-term investments             $       0.9     $       2.1     $      2.4     $   5.4     $               3.5
Fixed maturity investments(3):
High or highest quality(4)                         33.7            88.2           15.9       137.8                   123.8
Other than high or highest quality                  0.8             2.4            1.1         4.3                     3.3
Subtotal                                           34.5            90.6           17.0       142.1                   127.1
Public equity securities                            1.8             2.3            0.7         4.8                     4.6
Total                                       $      37.2     $      95.0     $     20.1     $ 152.3     $             135.2


__________

(1) Includes PGFL, a subsidiary of Gibraltar Life.

(2) Represents our international insurance operations, excluding Japan.

(3) Excludes fixed maturities designated as held-to-maturity. Classified by NAIC

or equivalent rating.

(4) As of December 31, 2016, $98.0 billion, or 71%, were invested in government

or government agency bonds.




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

Liquidity associated with other activities

Hedging activities associated with living benefit guarantees

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For the portion of our Individual Annuities' risk management strategy executed
through hedging, we enter into a range of exchange-traded, cleared and other OTC
equity and interest rate derivatives in order to hedge certain capital market
risks related to more severe market conditions. For a full discussion of our
Individual Annuities' risk management strategy, see "-Results of Operations by
Segment-U.S. Retirement Solutions and Investment Management Division-Individual
Annuities." This portion of our Individual Annuities' risk management strategy
requires access to liquidity to meet payment obligations relating to these
derivatives, such as payments for periodic settlements, purchases, maturities
and terminations. These liquidity needs can vary materially due to, among other
items, changes in interest rates, equity markets, mortality and policyholder
behavior. Through March 31, 2016, this hedging portion of our risk management
strategy was executed in Pruco Re. Effective April 1, 2016, following the
Variable Annuities Recapture, this hedging portion of our risk management
strategy resides in certain of our domestic life insurance subsidiaries. Future
liquidity needs may be funded with available resources within these subsidiaries
and from other resources of Prudential Financial and its affiliates.

The hedging portion of our Individual Annuities' risk management strategy may
also result in collateral postings on derivatives to or from counterparties. The
net collateral position depends on changes in interest rates and equity markets
related to the amount of the exposures hedged. Depending on market conditions,
the collateral posting requirements can result in material liquidity needs.

As of December 31, 2016, the living benefit hedging derivatives were in a net
receive position of $3.1 billion compared to a net receive position of $4.8
billion as of December 31, 2015. The change in collateral position was primarily
driven by an increase in interest rates, partially offset by the inclusion of
collateral from certain of our domestic statutory life insurance entities as a
result of the Variable Annuities Recapture.

Foreign exchange hedging activities


We employ various hedging strategies to manage potential exposure to foreign
currency exchange rate movements, particularly those associated with the yen.
Our overall yen hedging strategy calibrates the hedge level to preserve the
relative contribution of our yen-based business to the Company's overall return
on equity on a leverage neutral basis. The hedging strategy includes two primary
components:

• Income Hedges-We hedge a portion of our prospective yen-based earnings

streams by entering into external forward currency derivative contracts

       that effectively fix the currency exchange rates for that portion of
       earnings, thereby reducing volatility from foreign currency exchange rate
       movements. As of December 31, 2016, we have hedged 100%, 73% and 28% of
       expected yen-based earnings for 2017, 2018 and 2019, respectively.

• Equity Hedges-We hold both internal and external hedges primarily to hedge

our U.S. dollar-equivalent equity. These hedges also mitigate volatility

in the solvency margins of yen-based subsidiaries resulting from changes

in the market value of their U.S. dollar-denominated investments hedging

our U.S. dollar-equivalent equity attributable to changes in the yen-U.S.

dollar exchange rate.

For additional information on our hedging strategy, see "-Results of Operations by Segment-International Insurance Division."


Cash settlements from these hedging activities result in cash flows between
subsidiaries of Prudential Financial and either international-based subsidiaries
or external parties. The cash flows are dependent on changes in foreign currency
exchange rates and the notional amount of the exposures hedged. For example, a
significant yen depreciation over an extended period of time could result in net
cash inflows, while a significant yen appreciation could result in net cash
outflows. The following tables set forth information about net cash settlements
and the net asset or liability resulting from these hedging activities related
to the yen and other currencies:

                                 Year ended December 31,
                                  2016             2015
                                      (in millions)
Cash Settlements:
Income Hedges (External)(1)   $      38       $        286
Equity Hedges:
Internal(2)                         (57 )            1,061
External                            652                (84 )
Total Equity Hedges           $     595       $        977
Total Cash Settlements        $     633       $      1,263



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                                  As of December 31,
                                    2016           2015
                                     (in millions)
Assets (Liabilities):
Income Hedges (External)(3)   $     85           $   162
Equity Hedges:
Internal(2)                        802               964
External                            32               699
Total Equity Hedges(4)        $    834           $ 1,663
Total Assets (Liabilities)    $    919           $ 1,825


__________

(1) Includes non-yen related cash settlements of $17 million and $5 million for

the year ended December 31, 2016 and 2015, respectively, both of which are

primarily denominated in Korean won.

(2) Represents internal transactions between international-based and U.S.-based

entities. Amounts noted are from the U.S.-based entities' perspectives.

(3) Includes non-yen related assets of $41 million and $29 million as of

December 31, 2016 and 2015, respectively, both of which are primarily

denominated in Korean won.

(4) As of December 31, 2016, approximately $(186) million, $364 million and $657

million of the net market value is scheduled to settle in 2017, 2018, and

thereafter, respectively. The net market value of the assets (liabilities)

    will vary with changing market conditions to the extent there are no
    corresponding offsetting positions.


Asset Management operations


The principal sources of liquidity for our fee-based asset management businesses
include asset management fees and commercial mortgage origination and servicing
fees. The principal uses of liquidity include general and administrative
expenses and distributions of dividends and returns of capital to Prudential
Financial. The primary liquidity risks for our fee-based asset management
businesses relate to their profitability, which is impacted by market conditions
and our investment management performance. We believe the cash flows from our
fee-based asset management businesses are adequate to satisfy the current
liquidity requirements of these operations, as well as requirements that could
arise under reasonably foreseeable stress scenarios, which are monitored through
the use of internal measures.

The principal sources of liquidity for our strategic investments held in our asset management businesses are cash flows from investments, the ability to liquidate investments, and available borrowing lines from internal sources, including Prudential Financial and Prudential Funding, LLC ("Prudential Funding"), a wholly-owned subsidiary of Prudential Insurance. The primary liquidity risks include the inability to sell assets in a timely manner, declines in the value of assets and credit defaults. There were no material changes to the liquidity position of our asset management operations during 2016.

Alternative Sources of Liquidity


In addition to the sources of liquidity discussed above, and asset-based
financing as discussed below, Prudential Financial and certain subsidiaries have
access to other sources of liquidity, including membership in the Federal Home
Loan Banks, commercial paper programs, and a put option agreement. The Company
also maintains syndicated, unsecured committed credit facilities as an
alternative source of liquidity. In September 2016, PHJ, a wholly-owned
subsidiary of Prudential Financial, entered into a ¥100 billion three-year
syndicated, unsecured committed credit facility. See Note 14 to our Consolidated
Financial Statements for more information on these sources of liquidity.

Asset-based Financing


We conduct asset-based or secured financing within our insurance and other
subsidiaries, including transactions such as securities lending, repurchase
agreements and mortgage dollar rolls, to earn spread income, to borrow funds, or
to facilitate trading activity. These programs are primarily driven by portfolio
holdings of securities that are lendable based on counterparty demand for these
securities in the marketplace. The collateral received in connection with these
programs is primarily used to purchase securities in the short-term spread
portfolios of our insurance entities. Investments held in the short-term spread
portfolios include cash and cash equivalents, short-term investments, mortgage
loans and fixed maturities, including mortgage- and asset-backed securities,
with a weighted average life at time of purchase by the short-term portfolios of
four years or less. Floating rate assets comprise the majority of our short-term
spread portfolio. These short-term portfolios are subject to specific investment
policy statements, which among other things, do not allow for significant
asset/liability interest rate duration mismatch.

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

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                                                December 31, 2016                                   December 31, 2015
                                      PFI                                                 PFI
                                   Excluding         Closed                            Excluding         Closed
                                 Closed Block        Block                           Closed Block        Block
                                   Division         Division      

Consolidated Division Division Consolidated

                                                                           ($ in millions)
Securities sold under
agreements to repurchase        $       4,906     $    2,700     $        7,606     $       5,421     $    2,461     $        7,882
Cash collateral for loaned
securities                              3,057          1,276              4,333             2,095          1,401              3,496
Securities sold but not yet
purchased                                   2              0                  2                 2              0                  2
Total(1)                        $       7,965     $    3,976     $       11,941     $       7,518     $    3,862     $       11,380
Portion of above securities
that may be returned to the
Company overnight requiring
immediate return of the cash
collateral(2)                   $       3,583     $    1,631     $        5,214     $       5,574     $    2,117     $        7,691
Weighted average maturity, in
days(3)                                     9              6                                    8             17


__________

(1) The daily weighted average outstanding balance for the year ended

December 31, 2016 and 2015 was $8,436 million and $8,221 million,

respectively, for PFI excluding the Closed Block division, and $4,249 million

and $4,755 million, respectively, for the Closed Block division.

(2) Amount for PFI excluding the Closed Block division as of December 31, 2015

includes $2,256 million of securities that had a term greater than one day

due to the timing of the January 1, 2016 holiday.

(3) Excludes securities that may be returned to the Company overnight.




As of December 31, 2016, our domestic insurance entities had assets eligible for
the asset-based or secured financing programs of $110.0 billion, of which $11.9
billion were on loan. Taking into account market conditions and outstanding loan
balances as of December 31, 2016, we believe approximately $16.6 billion of the
remaining eligible assets are readily lendable, including approximately $12.7
billion relating to PFI excluding the Closed Block division, of which $3.2
billion relates to certain separate accounts and may only be used for financing
activities related to those accounts, and the remaining $3.9 billion relating to
the Closed Block division.

Financing Activities

As of December 31, 2016 and 2015, total short-term and long-term debt of the
Company on a consolidated basis was $19.2 billion and $20.8 billion,
respectively. We may, from time to time, seek to redeem or repurchase our
outstanding debt securities through open market purchases, individually
negotiated transactions or otherwise. Any such repurchases will depend on
prevailing market conditions, our liquidity position and other factors. The
following table sets forth total consolidated borrowings of the Company as of
the dates indicated.

                                                         December 31, 2016                                   December 31, 2015(1)
                                          Prudential                                            Prudential
                                          Financial       Subsidiaries       Consolidated       Financial       Subsidiaries       Consolidated
                                                                                      (in millions)
General obligation short-term debt:
Commercial paper                        $         65     $         525     

$ 590 $ 80 $ 384 $ 464 Current portion of long-term debt

                470                 0                470              751                 1                752
Subtotal                                         535               525              1,060              831               385              1,216
General obligation long-term debt:
Senior debt                                    9,572               727             10,299           10,543             1,323             11,866
Junior subordinated debt                       5,817                 0              5,817            5,811                 0              5,811
Surplus notes (2)                                  0             1,339              1,339                0             1,352              1,352
Subtotal                                      15,389             2,066             17,455           16,354             2,675             19,029
Total general obligations                     15,924             2,591             18,515           17,185             3,060             20,245
Limited and non-recourse borrowings (3)
Current portion of long-term debt                  0                73                 73                0                 0                  0
Long-term debt                                     0               586                586                0               565                565
Subtotal                                           0               659                659                0               565                565
Total borrowings                        $     15,924     $       3,250     $       19,174     $     17,185     $       3,625     $       20,810


__________

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(1) Prior period has been revised to conform to current period presentation due

to the adoption of ASU 2015-03 regarding the classification of debt issuance

costs. For more information, see Note 2 to the Consolidated Financial

Statements.

(2) Amounts are net of assets under set-off arrangements of $5,859 million and

$4,889 million, as of December 31, 2016 and 2015, respectively.

(3) Limited and non-recourse borrowing represents mortgage debt of our

subsidiaries that has recourse only to real estate investment property.




As of December 31, 2016 and 2015, we were in compliance with all debt covenants
related to the borrowings in the table above. For further information on our
short- and long-term debt obligations, see Note 14 to our Consolidated Financial
Statements.

Based on the use of proceeds, we classify our borrowings as capital debt,
investment-related debt, and debt related to specified businesses. Capital debt,
which is debt utilized to meet the capital requirements of our businesses, was
$11.6 billion and $11.9 billion as of December 31, 2016 and 2015, respectively.
Investment-related debt of $5.4 billion and $7.0 billion as of December 31, 2016
and 2015, respectively, consists of debt issued to finance specific investment
assets or portfolios of investment assets, the proceeds from which will service
the debt. Specifically, this includes institutional spread lending investment
portfolios, assets supporting reserve requirements under Regulation XXX and
Guideline AXXX as described below, as well as funding for institutional and
insurance company portfolio cash flow timing differences. Our remaining
borrowings are utilized for business funding to meet specific purposes,
including funding new business acquisition costs associated with our individual
annuities business, operating needs associated with hedging our individual
annuities products as discussed above and activities associated with our asset
management business.

Prudential Financial Borrowings


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

Prudential Financial's borrowings decreased $1,261 million from December 31, 2015, driven primarily by maturities of $750 million of senior debt and our repurchase of $500 million of senior debt through a tender offer. For more information on long-term debt, see Note 14 to the Consolidated Financial Statements.

Subsidiary Borrowings


Subsidiary borrowings principally consist of surplus note issuances by our
insurance and captive reinsurance subsidiaries, commercial paper borrowings by
Prudential Funding, asset-based financing and real estate investment financing.
Borrowings of our subsidiaries decreased $375 million from December 31, 2015,
primarily driven by prepayments of $600 million of senior debt, offset by a $141
million increase in commercial paper outstanding and the issuance of $113
million of mortgage debt.

Term and Universal Life reserve financing


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

We use captive reinsurance subsidiaries to finance the portion of the statutory
reserves that we consider to be non-economic. The financing arrangements involve
the reinsurance of term and universal life business to our captive reinsurers
and the issuance of surplus notes by those captives that are treated as capital
for statutory purposes. These surplus notes are subordinated to policyholder
obligations, and the payment of principal on the surplus notes may only be made
with prior insurance regulatory approval.


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To date, we have entered into agreements with external counterparties providing
for the issuance of up to an aggregate of $9,150 million of surplus notes by our
captive reinsurers in return for the receipt of credit-linked notes
("Credit-Linked Note Structures"), of which $7,759 million of surplus notes was
outstanding as of December 31, 2016. Under the agreements, the captive receives
in exchange for the surplus notes one or more credit-linked notes issued by a
special-purpose affiliate of the Company with an aggregate principal amount
equal to the surplus notes outstanding. The captive holds the credit-linked
notes as assets supporting Regulation XXX or Guideline AXXX non-economic
reserves, as applicable. The captive can redeem the principal amount of the
outstanding credit-linked notes for cash upon the occurrence of, and in an
amount necessary to remedy, a specified liquidity stress event affecting the
captive. Under the agreements, the external counterparties have agreed to fund
any such payments under the credit-linked notes in return for the receipt of
fees. Prudential Financial has agreed to make capital contributions to the
captive to reimburse it for investment losses in excess of specified amounts
and, under certain of the transactions, Prudential Financial has agreed to
reimburse the external counterparties for any payments made under the
credit-linked notes. To date, no such payments under the credit-linked notes
have been required. Under these transactions, because valid rights of set-off
exist, interest and principal payments on the surplus notes and on the
credit-linked notes are settled on a net basis, and the surplus notes are
reflected in the Company's total consolidated borrowings on a net basis.

The following table summarizes our Credit-Linked Note Structures, which are reported on a net basis, as of December 31, 2016:


                                                Surplus Notes
                                            Original     Maturity     Outstanding as of       Facility
Credit-Linked Note Structures:             Issue Dates     Dates      December 31, 2016         Size

                                                                  ($ in millions)
XXX                                          2011-2014   2021-2024   $       1,750   (1)    $    2,000
AXXX                                         2013-2014        2033           2,653               3,500
XXX                                          2014-2016   2027-2034           1,900   (2)         1,900
XXX                                               2014        2024           1,456               1,750
Total Credit-Linked Note Structures                                  $      

7,759 $ 9,150

__________

(1) Prudential Financial has agreed to reimburse any amounts paid under the

credit-linked notes issued in this structure.

(2) The $1.9 billion of surplus notes represents an intercompany transaction that

eliminates upon consolidation. Prudential Financial has agreed to reimburse

amounts paid under credit-linked notes issued in this structure up to $1.0

    billion.



As of December 31, 2016, we also had outstanding an aggregate of $3.1 billion of
debt issued for the purpose of financing Regulation XXX and Guideline AXXX
non-economic reserves, of which approximately $0.9 billion relates to Regulation
XXX reserves and approximately $2.2 billion relates to Guideline AXXX reserves,
all of which was issued directly by or guaranteed by Prudential Financial. Under
certain of the financing arrangements pursuant to which this debt was issued,
Prudential Financial has agreed to make capital contributions to the applicable
captive reinsurance subsidiary to reimburse it for investment losses or to
maintain its capital above prescribed minimum levels. In addition, as of
December 31, 2016, for purposes of financing Guideline AXXX reserves, our
captives had outstanding approximately $4.0 billion of surplus notes that were
issued to affiliates.

The NAIC's actuarial guideline known as "AG 48" requires us to hold cash and
rated securities in greater amounts than we previously held to support economic
reserves for certain of our term and universal life policies reinsured to a
captive. The additional asset requirement as of December 31, 2015, was
approximately $400 million, and we expect the requirement as of December 31,
2016, to be an additional $600 million, for a total additional asset requirement
of approximately $1 billion. We funded the first $400 million using a
combination of existing assets and newly purchased assets sourced from
affiliated financing, and have funded, or expect to fund, the remaining $600
million in the same manner. We believe we have sufficient internal resources to
satisfy the additional asset requirement through 2017.

As discussed under "Business-Regulation," in June 2016, the NAIC adopted a
recommendation that will activate a principles-based reserving approach for life
insurance products. At the Company's discretion, it may be applied to new
individual life business beginning as early as January 1, 2017, and must be
applied for all new individual life business issued January 1, 2020 and later.
During 2017, the Company expects to adopt principles-based reserving for its
guaranteed universal life products and to introduce updated versions of these
products. The updated products are expected to support the principles-based
statutory reserve level without the need for captive reserve financing or
additional assets under AG 48. The Company is continuing to assess the impact of
this new reserving approach on projected statutory reserve levels and product
pricing for its remaining portfolio of individual life product offerings.

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                                    Ratings

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

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

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

                                                  A.M.
                                                Best(1)     S&P(2)     Moody's(3)    Fitch(4)
Last review date                                9/2/2016   1/26/2017   11/11/2015   11/15/2016
Current outlook                                  Stable     Stable       Stable      Negative
Financial Strength Ratings:
The Prudential Insurance Company of America        A+         AA-          A1          AA-
Pruco Life Insurance Company                       A+         AA-          A1          AA-
Pruco Life Insurance Company of New Jersey         A+         AA-         NR*          AA-
Prudential Annuities Life Assurance
Corporation                                        A+         AA-          NR          AA-
Prudential Retirement Insurance and Annuity
Company                                            A+         AA-          A1          AA-
The Prudential Life Insurance Company Ltd.
(Prudential of Japan)                              NR         A+           NR           NR
Gibraltar Life Insurance Company, Ltd.             NR         A+           NR           NR
The Prudential Gibraltar Financial Life
Insurance Co. Ltd                                  NR         A+           NR           NR
Prudential Life Insurance Co. of Taiwan,
Inc.(5)                                            NR        twAA+         NR           NR

Credit Ratings:
Prudential Financial, Inc.:
Short-term borrowings                            AMB-1        A-1         P-2           F1
Long-term senior debt                              a-          A          Baa1          A-
Junior subordinated long-term debt                bbb        BBB+         Baa2         BBB
The Prudential Insurance Company of America:
Capital and surplus notes                          a           A           A3           A
Prudential Funding, LLC:
Short-term debt                                  AMB-1       A-1+         P-1          F1+
Long-term senior debt                              a+         AA-          A2           A+
PRICOA Global Funding I:
Long-term senior debt                             aa-         AA-          A1          AA-


__________

* "NR" indicates not rated. (1) A.M. Best Company, which we refer to as A.M. Best, financial strength ratings

for insurance companies range from "A++ (superior)" to "s (suspended)." A

rating of A+ is the second highest of sixteen rating categories. A.M. Best

long-term credit ratings range from "aaa (exceptional)" to "s (suspended)."

A.M. Best short-term credit ratings range from "AMB-1+," which represents an

strongest ability to repay short-term debt obligations, to "s(suspended)."

(2) Standard & Poor's Rating Services, which we refer to as S&P, financial

strength ratings for insurance companies range from "AAA (extremely strong)"

to "D (default)." A rating of AA- is the fourth highest of twenty-three

rating categories. S&P's long-term issue credit ratings range from "AAA

(extremely strong)" to "D (default)." S&P short-term ratings range from "A-1

    (highest category)" to "D (default)."



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(3) Moody's Investors Service, Inc., which we refer to as Moody's, insurance

financial strength ratings range from "Aaa (exceptional)" to "C (lowest)." A

rating of A1 is the fifth highest of twenty-one rating categories. Numeric

modifiers are used to refer to the ranking within the group-with 1 being the

highest and 3 being the lowest. These modifiers are used to indicate relative

strength within a category. Moody's credit ratings range from "Aaa (highest)"

to "C (default)". Moody's short-term ratings range from "Prime-1 (P-1),"

which represents a superior ability for repayment of senior short-term debt

obligations, to "Prime-3 (P-3)," which represents an acceptable ability for

repayment of such obligations. Issuers rated "Not Prime" do not fall within

any of the Prime rating categories.

(4) Fitch Ratings Inc., which we refer to as Fitch, financial strength ratings

range from "AAA (exceptionally strong)" to "C (distressed)." A rating of AA-

is the fourth highest of nineteen rating categories. Fitch long-term credit

ratings range from "AAA (highest credit quality)," which denotes

exceptionally strong capacity for timely payment of financial commitments, to

    "D (default)." Investment grade ratings range between "AAA" and "BBB."
    Short-term ratings range from "F1+ (highest credit quality)" to "D
    (default)."

(5) This rating for Prudential Life Insurance Company of Taiwan, Inc. was

affirmed on November 17, 2016 by Taiwan Ratings Corporation, a partner of

    S&P.



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

Rating agencies use an "outlook" statement for both industry sectors and
individual companies. For an industry sector, a stable outlook generally implies
that over the next 12-18 months the rating agency expects ratings to remain
unchanged among companies in the sector. This year, Moody's and A.M. Best
changed the Rating Outlook on the U.S. life insurance industry to Negative from
Stable. Fitch and S&P continued to keep the life insurance industry on Stable
outlook; however, Fitch revised its Sector Outlook for U.S. life insurers to
Negative. For a particular company, an outlook generally indicates a medium- or
long-term trend (generally six months to two years) in credit fundamentals,
which if continued, may lead to a rating change. These indicators are not
necessarily a precursor of a rating change nor do they preclude a rating agency
from changing a rating at any time without notice. Currently, Fitch has all the
Company's ratings on Stable outlook, except for the financial strength ratings
assigned to Prudential Insurance and certain other insurance subsidiaries which
are on Negative outlook. Moody's, S&P, and A.M. Best have all the Company's
ratings on Stable outlook.

Requirements to post collateral or make other payments as a result of ratings
downgrades under certain agreements, including derivative agreements, can be
satisfied in cash or by posting permissible securities held by the subsidiaries
subject to the agreements. In addition, a ratings downgrade by A.M. Best to "A-"
for our domestic life insurance companies would require Prudential Insurance to
either post collateral or a letter of credit in the amount of approximately $1.5
billion, based on the level of statutory reserves related to the variable
annuity business acquired from Allstate. We believe that the posting of such
collateral would not be a material liquidity event for Prudential Insurance.

In view of the difficulties experienced in recent years by many financial
institutions, the rating agencies have heightened the level of scrutiny that
they apply to such institutions, have increased the frequency and scope of their
credit reviews, have requested additional information from the companies that
they rate, and may adjust upward the capital and other requirements employed in
the rating agency models for maintenance of certain ratings levels, such as the
financial strength ratings currently held by our life insurance subsidiaries. In
addition, actions we might take to access third-party financing or to realign
our capital structure may in turn cause rating agencies to reevaluate our
ratings.

The following is a summary of the significant changes or actions in ratings and
rating outlooks for our Company, as well as for the life insurance industry and
sector, that have occurred from January 1, 2016 through the date of this filing:

On September 7, 2016, Fitch revised its Sector Outlook for U.S. life insurers to
Negative. Fitch's Sector Outlook reflects its view of underlying fundamental
trends in the industry and the current operating environment. The revision of
the Sector Outlook to Negative is due to macro challenges tied to declining
interest rates and market volatility. At the same time, Fitch kept its Rating
Outlook, which indicates the direction in which ratings are likely to move over
the next 18-24 months, on the U.S. life insurance sector as Stable. The current
Stable rating reflects Fitch's view that the impact of the negative fundamentals
indicated in their Sector Outlook remain manageable in the context of industry
earnings and capital over the outlook period, and Fitch's expectations that key
credit metrics will remain largely consistent with current ratings. These
indicators are not necessarily a precursor of a rating change nor do they
preclude a rating agency from changing a rating at any time without notice.

On November 15, 2016, Fitch upgraded Prudential Financial's long-term senior
debt rating to A- from BBB+ with a Stable outlook and the financial strength
ratings of our U.S. operating entities to "AA-" from "A+" with a Negative
outlook.


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On November 15, 2016, Moody's revised its Rating Outlook on the U.S. life
insurance industry to Negative. Moody's outlook indicates their expectations for
the fundamental credit conditions driving the U.S. life insurance industry over
the next 12-18 months. The change in the outlook is a result of increased
pressure on life insurers' sales, revenues and profitability due to persistent
low interest rates and weak economic growth, together with regulatory pressures
on product distribution. The change in outlook back to Stable from Negative can
occur with a gradual, steady increase in long-term interest rates in 2017,
underpinned by strong equity market levels and an improvement in economic
growth.

On December 7, 2016, A.M. Best revised its Rating Outlook on the U.S. life
insurance industry to Negative. The revision of the Rating Outlook to Negative
reflects A.M. Best's view that the industry is entering into a period of
increased volatility across both economic and regulatory fronts. A.M. Best's
outlook indicates that there is uncertainty around the slow premium growth for
life and other products, disruption from merger and acquisition activity, and
the industry's historic slow incremental approach in the face of a rapidly
changing landscape.

                            Contractual Obligations

The table below summarizes the future estimated cash payments related to certain
contractual obligations as of December 31, 2016. The estimated payments
reflected in this table are based on management's estimates and assumptions
about these obligations. Because these estimates and assumptions are necessarily
subjective, the actual cash outflows in future periods will vary, possibly
materially, from those reflected in the table. In addition, we do not believe
that our cash flow requirements can be adequately assessed based solely upon an
analysis of these obligations, as the table below does not contemplate all
aspects of our cash inflows, such as the level of cash flow generated by certain
of our investments, nor all aspects of our cash outflows.

                                                            Estimated Payments Due by Period
                                                                                                       2022 and
                                           Total          2017        2018-2019       2020-2021       thereafter

                                                                      (in millions)
Short-term and long-term debt
obligations(1)                         $    38,931     $  2,097     $     4,811     $     3,361     $     28,662
Operating and capital lease
obligations(2)                                 718          150             235             148              185
Purchase obligations:
Commitments to purchase or fund
investments(3)                               6,376        5,486             533             212              145
Commercial mortgage loan
commitments(4)                               1,984        1,643             327               0               14
Other liabilities:
Insurance liabilities(5)                 1,124,645       44,024          69,170          72,569          938,882
Other(6)                                    12,157       11,966              85              53               53
Total                                  $ 1,184,811     $ 65,366     $    75,161     $    76,343     $    967,941


__________

(1) The estimated payments due by period for long-term debt reflects the

contractual maturities of principal, as disclosed in Note 14 to the

Consolidated Financial Statements, as well as estimated future interest

payments. The payment of principal and estimated future interest for

short-term debt are reflected in estimated payments due in 2017. The estimate

for future interest payments includes the effect of derivatives that qualify

for hedge accounting treatment. See Note 14 to the Consolidated Financial

Statements for additional information concerning our short-term and long-term

debt.

(2) The estimated payments due by period for operating and capital leases reflect

the future minimum lease payments under non-cancelable operating and capital

leases, as disclosed in Note 23 to the Consolidated Financial Statements.

(3) As discussed in Note 23 to the Consolidated Financial Statements, we have

commitments to purchase or fund investments, some of which are contingent

upon events or circumstances not under our control, including those at the

discretion of our counterparties. The timing of the fulfillment of certain of

these commitments cannot be estimated, therefore the settlement of these

obligations are reflected in estimated payments due in less than one year.

Commitments to purchase or fund investments include $374 million that we

anticipate will ultimately be funded from our separate accounts.

(4) As discussed in Note 23 to the Consolidated Financial Statements, loan

commitments of our commercial mortgage operations, which are legally binding

commitments to extend credit to a counterparty, have been reflected in the

contractual obligations table above principally based on the expiration date

of the commitment; however, it is possible these loan commitments could be

funded prior to their expiration date. In certain circumstances the

counterparty may also extend the date of the expiration in exchange for a

fee.

(5) The estimated cash flows due by period for insurance liabilities reflect

future estimated cash payments to be made to policyholders and others for

future policy benefits, policyholders' account balances, policyholder's

dividends, reinsurance payables and separate account liabilities, net of

premium receipts and reinsurance recoverables. These future estimated cash

flows for current policies in force generally reflect our best estimate

economic and actuarial assumptions. These cash flows are undiscounted with

respect to interest. The sum of the cash flows shown for all years in the

table of $1,125 billion exceeds the corresponding liability amounts of

approximately $682 billion included in the Consolidated Financial Statements

as of December 31, 2016. Separate account liabilities are legally insulated

from general account obligations, and it is generally expected these

liabilities will be fully funded by separate account assets and their related

cash flows. We have made significant assumptions to determine the future

estimated cash flows related to the underlying policies and contracts. Due to

the significance of the assumptions used, actual cash flows will differ,

possibly materially, from these estimates.

(6) The estimated payments due by period for other liabilities includes

securities sold under agreements to repurchase, cash collateral for loaned

securities, liabilities for unrecognized tax benefits, bank customer

liabilities, and other miscellaneous liabilities. Amounts presented in the

table also exclude $2,150 billion of notes issued by consolidated VIE's which

recourse for these obligations is limited to the assets of the respective VIE

    and do not have recourse to the general credit of the company.




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We also enter into agreements to purchase goods and services in the normal course of business; however, these purchase obligations are not material to our consolidated results of operations or financial position as of December 31, 2016.

                         Off-Balance Sheet Arrangements

Guarantees and Other Contingencies


In the course of our business, we provide certain guarantees and indemnities to
third parties pursuant to which we may be contingently required to make payments
in the future. See "Commitments and Guarantees" within Note 23 to the
Consolidated Financial Statements for additional information.

Other Contingent Commitments


We also have other commitments, some of which are contingent upon events or
circumstances not under our control, including those at the discretion of our
counterparties. See "Commitments and Guarantees" within Note 23 to the
Consolidated Financial Statements for additional information regarding these
commitments. For further discussion of certain of these commitments that relate
to our separate accounts, also see "-Liquidity associated with other
activities-Asset Management operations."

Other Off-Balance Sheet Arrangements


In November 2013, we entered into a put option agreement with a Delaware trust
that gives Prudential Financial the right, at any time over a ten-year period,
to issue up to $1.5 billion of senior notes to the trust in return for principal
and interest strips of U.S. Treasury securities that are held by the trust. See
Note 14 to our Consolidated Financial Statements for more information on this
put option agreement. In 2014, Prudential Financial entered into financing
transactions, pursuant to which it issued $500 million of limited recourse notes
and, in return, obtained $500 million of asset-backed notes from a Delaware
master trust and ultimately contributed the asset-backed notes to its
subsidiary, PRIAC. As of December 31, 2016, no principal payments have been
received or are currently due on the asset-backed notes and, as a result, there
was no payment obligation under the limited recourse notes. Accordingly, none of
the notes are reflected in the Company's Consolidated Financial Statements as of
that date.

Other than as described above, we do not have retained or contingent interests
in assets transferred to unconsolidated entities, or variable interests in
unconsolidated entities or other similar transactions, arrangements or
relationships that serve as credit, liquidity or market risk support, that we
believe are reasonably likely to have a material effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or our access to or requirements for
capital resources. In addition, other than the agreements referred to above, we
do not have relationships with any unconsolidated entities that are
contractually limited to narrow activities that facilitate our transfer of or
access to associated assets.

                                Risk Management

Overview

We employ a risk governance structure, overseen by senior management and our
Board of Directors and managed by Enterprise Risk Management ("ERM"), to provide
a common framework for evaluating the risks embedded in and across our
businesses, developing risk appetites, managing these risks and identifying
current and future risk challenges and opportunities.

Risk Governance Framework


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

Board of Directors' Role in Risk Management


Our Board of Directors oversees our risk profile and management's processes for
assessing and managing risk. Certain specific categories of risk are assigned to
Board committees that report back to the full Board, as summarized below:

• Audit Committee: oversees risks related to operational risks, financial

       controls, legal, regulatory and compliance risks, and the overall risk
       management governance structure and risk management function.

• Finance Committee: oversees risks involving our capital and liquidity

management, the incurrence and repayment of borrowings, the capital

structure, the funding of benefit plans and statutory insurance reserves.

It also oversees the strength of the finance function. The Finance

Committee reviews and recommends for approval to the Board our capital

plan. The Finance Committee also receives regular updates on the sources

and uses of capital relative to plan, as well as on our Capital Protection

       Framework.



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• Investment Committee: oversees investment and market risk and the strength

of the investment function. The Investment Committee approves investment

and market risk limits for Prudential Financial and for Prudential

Insurance's general account based on asset class, issuer, credit quality

       and geography.


•      Compensation Committee: oversees our compensation programs so that
       incentives are aligned with appropriate risk taking.

• Corporate Governance and Business Ethics Committee: oversees our political

contributions, lobbying expenses and overall political strategy, as well

as our environmental, sustainability and corporate social responsibility.

• Risk Committee: oversees the governance of significant risks throughout

the Company and the establishment and ongoing monitoring of our risk

profile, risk capacity and risk appetite. The Risk Committee also serves

to coordinate the risk oversight functions of the other committees of the

       Board.



Management Committees

Our primary risk management committee is the Enterprise Risk Committee ("ERC").
The ERC is chaired by our Chief Risk Officer and otherwise comprised of the Vice
Chairman, Chief Operating Officers for the U.S. and International Businesses,
General Counsel, Chief Financial Officer, Chief Investment Officer and Chief
Actuary. Our Chief Auditor also attends meetings of the ERC. The ERC's mandate
is to review significant risks that impact us and approve, or recommend to the
Board for approval, our risk management policies and limits to keep our risk
profile consistent with our strategy.

The ERC is supported by five Risk Oversight Committees, each of which is
comprised of subject matter experts and dedicated to one of the following risk
types: investment risk, market risk, insurance risk, operational risk and model
risk. These Risk Oversight Committees report their activities to the ERC, and
significant matters or matters where there are unresolved points of view are
reviewed and brought to the ERC. The Risk Oversight Committees provide an
opportunity to evaluate complex issues by subject matter experts within the
various risk areas. They evaluate the adequacy and effectiveness of risk
mitigation options, identify stakeholders of risks and issues, review material
risk assumptions for reasonability and consistency across the Company and,
working with the different risk areas, develop recommendations for risk limits,
among other responsibilities.

Each of our business units and significant corporate functions maintains its own
risk committee. The business unit risk committees serve as a forum for leaders
within each business unit to identify, assess and resolve risk and exposure
issues and to review new products and initiatives, prior to such issues being
reviewed by the Risk Oversight Committees and/or the ERC as appropriate.
Corporate function risk committees assess and monitor risks associated with
performing the relevant corporate functions, set standards and exercise
oversight over specific risks.

Risk Identification


We use a variety of tools and processes to assess risk, such as quantitative
tools for measurable financial risks and qualitative assessments for
non-financial risks, such as certain operational risks. These tools form a part
of the Company's risk identification framework, which uses three levels of
activities to identify and escalate risks: (1) business unit activities, (2)
corporate function activities, and (3) processes involving senior management and
the Board of Directors.

Beginning with the development of material new products or services, we complete
a risk assessment which may lead to changes in design features, terms, pricing,
investment strategy or the use of other risk mitigation techniques to affect the
risk/reward dynamics for the product or service. We also weigh risk decisions
against the impact to our reputation and our ability to achieve our ratings
objectives.

Risk Exposure and Monitoring

We classify our risks into four general categories: investment risk, market risk, insurance risk and operational risk (which includes legal, regulatory and technology risk). In addition we are exposed to model risk, as well as reputational risk, which underlies, and is a part of, each risk assessment.

For information on risk as it relates to our capital and liquidity, see "-Liquidity and Capital Resources."

Investment Risk Management


We view investment risk as the risk of loss on fixed maturity investments due to
default or deterioration in credit quality, or loss on equity or real estate
investments due to deterioration in value. Our exposure to investment risk is
primarily comprised of:

•      the risk that we will not receive contractual payments on a timely basis
       on fixed maturity investments (for example, credit default risk);



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• the risk that our fixed maturity investments lose value due to a

deterioration of credit quality (for example, the probability of default

       rises or the likelihood of recovery on a default deteriorates);


•      the risk that a counterparty on derivatives, securities lending,
       reinsurance or other transactions does not meet its contractual
       obligations to us; and

• the risk that values of our non-coupon, equity and/or real estate equity

       investments decline.



With general account fixed maturities of $347 billion as of December 31, 2016,
Prudential Financial is exposed to significant credit risk. To manage this risk,
we have a set of risk limits in place, including enterprise-level risk limits
set by the Investment Committee of the Board of Directors. These limits are
delineated into formal Investment Policy Statements which set limits on asset
classes, permissible instruments, individual issuer, industry/sector and
geographic exposures by individual legal entities, segments and business units.
Compliance with most of these limits is measured on a daily basis, with some
limits measured monthly or quarterly. In addition, our credit research
departments closely monitor our credit exposures and maintain watch lists of
exposures where there is a risk of impairment. If we have concerns about credit
for a public exposure, we may sell some or all of that exposure or hedge the
exposure with credit derivatives. See "-General Account Investments" for further
information on our general account portfolio, including the composition of our
fixed maturity portfolio by industry category and credit quality.

Our fixed income investments are subject to the risk of credit spread widening;
however, changes in valuation due to credit spread widening or tightening are
not realized unless we sell the assets prior to maturity. We consider this risk
in the asset valuations used in our liquidity analysis.

We also monitor our equity, real estate equity and other non-coupon investment
exposures on an ongoing basis, and our risk and portfolio management functions
review these portfolios quarterly.

Market Risk Management


We view market risk as the risk of loss from changes in interest rates, equity
prices and foreign currency exchange rates resulting from asset/liability
mismatches where the change in the value of our liabilities is not offset by the
change in value of our assets.

Our asset/liability mismatch exposure is primarily comprised of:

• Interest rate risk arising from asset/liability duration mismatches within

our general account investments as well as invested assets of other

entities and operations. For further information, see "-General Account

       Investments-Management of Investments" and "-General Account
       Investments-Invested Assets of Other Entities and Operations" above.


•      Equity risk primarily arising from unhedged equity exposure in our
       insurance liabilities, principally within our Annuities segment. For

further information, see "-Individual Annuities-Variable Annuity Risks and

Risk Mitigants" above.

• Foreign currency exchange rate risk arising from assets that are invested

in a different currency than the related liability, as well as the

unhedged portion of the Company's earnings from, and capital supporting,

       operations in a foreign currency. For further information, see
       "-International Insurance Division-Foreign Currency Exchange Rate
       Movements and Related Hedging Strategies" above.


In addition, market factors impact certain fee based earnings streams, accounting for the amortization of costs into earnings and the capital levels of our regulated entities.


For additional information on our exposure to market risk, including how this
risk is managed, see Item 7A. "Quantitative and Qualitative Disclosures About
Market Risk."

Insurance Risk Management

We define insurance risk as the risk of loss due to deviations in experience compared to our assumptions. Our exposure is primarily comprised of:

• Mortality risk, or the risk that death claims are greater than expected,

    primarily within our Individual Life, Group Insurance and International
    Insurance segments, or the risk that policyholders survive longer than
    expected, primarily within our Retirement, Individual Annuities and
    International Insurance segments;

• Morbidity risk, or the risk that health claims from sickness or disability

are greater than expected, primarily within our Group Insurance and

International Insurance segments as well as from long-term care policies

    within Divested Businesses; and



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• Policyholder behavior risk, or the risk that our customers' persistency

experience or utilization experience differs from our expectations.




Underwriting insurance risk is a fundamental part of our business. We believe
our scale provides for the benefits of diversification, both within an insurance
risk type (potentially enhancing predictability of experience) and across
insurance risk types (for example, mortality trend risk benefits from a
potential natural hedge between life and annuity blocks). Insurance risk
mitigation begins with product design, as well as underwriting and pricing
standards at the business unit level with corporate oversight. In some cases,
the availability and/or credibility of policyholder behavior experience may be
limited, which we strive to reflect in the product design and pricing of the
product. Processes are in place to ensure corporate oversight of the material
insurance risk assumptions utilized in pricing and valuation.

Operational Risk Management


Operational risk is defined as the risk of direct or indirect loss resulting
from inadequate or failed internal processes and systems, employee actions, or
as the result of external events. Operational risks are broad in scope and
evident in each business unit and corporate function. We are exposed to
operational risk in many ways, including, but not limited to:

• Legal and regulatory compliance risk

• Sales practices risk

• Fraud (internal and external) risk


• Reputational risk


• Employee risk

• Technology risk, including data security, system failures and processing

errors

• Financial reporting risk

• Extreme events risk, such as loss of people and/or infrastructure caused

by natural disasters, terrorism, disease, etc.


• Information risk


• Vendor risk



Each of our businesses and corporate functions is expected to manage its
operational risks in compliance with enterprise standards. Our framework for
identifying, evaluating, monitoring and managing operational risk includes: risk
management committees; key risk indicators; risk and control assessments; loss
event data collection and analysis; and resolution of control issues. We also
have enterprise policies and standards, including: Legal and
Regulatory/Compliance Policies, such as those relating to sales practices and
supervision, fraud prevention, safeguarding of personal information, protection
and use of material non-public information, personal conflicts of interest and
outside business activities, anti-money laundering, and gifts and entertainment;
Human Resources Policies, such as those relating to hiring, training and
terminating the employment of our associates and succession planning; and
Information Technology policies, including those on systems development and
information security. We also maintain policies and standards to support the
effective management of operational risk, including those concerning new product
development, business continuation and disaster recovery, enterprise crisis
management,vendor governance and privacy. Our Internal Audit Department
independently audits key operational controls on a periodic basis to assess the
effectiveness of our framework.

In order to respond to the threat of security breaches and cyber attacks, we
have developed a program overseen by the Chief Information Security Officer and
the Information Security Office that is designed to protect and preserve the
confidentiality, integrity, and continued availability of all information owned
by, or in the care of the Company. As part of this program, we also maintain an
incident response plan. The program provides for the coordination of various
corporate functions and governance groups, and serves as a framework for the
execution of responsibilities across businesses and operational roles. The
program establishes security standards for our technological resources, and
includes training for employees, contractors and third parties. As part of the
program, we conduct periodic exercises and a response readiness assessment with
outside advisors to gain a third-party independent assessment of our technical
program and our internal response preparedness. We regularly engage with the
outside security community and monitor cyber threat information.

We are also exposed to emerging risks, such as those conditions, situations or
trends that may significantly impact us in the future. By nature, these risks
involve a high degree of uncertainty. ERM, together with our businesses,
monitors and evaluates emerging risks on a regular basis.

Model Risk Management

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Models are utilized by our businesses and corporate functions primarily in
projecting future cash flows associated with pricing products, calculating
reserves and valuing assets, as well as in evaluating risk and determining
capital requirements, among other uses. As our businesses continue to grow and
evolve, the number and complexity of models we utilize expands, increasing our
exposure to error in the design, implementation or use of models, including the
associated input data and assumptions. We are mitigating this risk by
implementing our Model Risk Policy, which outlines the governance and control
requirements over the implementation and use of models, and through the
activities of our Model Risk Oversight Committee which provides oversight and
guidance on issues relating to model risk and the management of that risk.

For further information on the risks to which the Company is exposed, see Item. 1A "Risk Factors."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk


Market risk is defined as the risk of loss from changes in interest rates,
equity prices and foreign currency exchange rates resulting from asset/liability
mismatches where the change in the value of our liabilities is not offset by the
change in value of our assets.

For additional information regarding the potential impacts of interest rate and
other market fluctuations, as well as general economic and market conditions on
our businesses and profitability, see Item 1A. "Risk Factors" above. For
additional information regarding the overall management of our general account
investments and our asset mix strategies, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-General Account
Investments-Management of Investments" above. For additional information
regarding our liquidity and capital resources, which may be impacted by changing
market risks, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Capital Resources" above.

Market Risk Management


Management of market risk, which we consider to be a combination of both
investment risk and market risk exposures as described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Risk
Management" above, includes the identification and measurement of various forms
of risk, the establishment of risk thresholds and the creation of processes
intended to maintain risks within these thresholds while optimizing returns on
the underlying assets or liabilities. Risk range limits are established for each
type of market risk and are approved by the Investment Committee of the Board of
Directors and subject to ongoing review.

Our risk management process utilizes a variety of tools and techniques, including:

• Measures of price sensitivity to market changes (e.g., interest rates,

equity index prices, foreign exchange);

• Asset/liability mismatch analytics;


• Stress scenario testing;


• Hedging programs; and

• Risk management governance, including policies, limits, and a committee

that oversees investment and market risk. For additional information

regarding our overall risk management framework and governance structure,

       see "Management's Discussion and Analysis of Financial Condition and
       Results of Operations-Risk Management" above.


Market Risk Mitigation

Risk mitigation takes three primary forms:

• Asset/Liability Management: Managing assets to liability-based measures.

For example, investment policies identify target durations for assets

based on liability characteristics and asset portfolios are managed to

within ranges around them. This mitigates potential unanticipated economic

losses from interest rate movements.

• Hedging non-strategic exposures. For example, our investment policies for

our general account portfolios generally require hedging currency risk for

       cash flows not offset by similarly denominated liabilities.


•      Management of portfolio concentration risk. For example, ongoing

monitoring and management at the enterprise level of key rate, currency

and other concentration risks support diversification efforts to mitigate

       exposure to individual markets and sources of risk.




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Market Risk Related to Interest Rates


We perform liability-driven investing and engage in careful asset/liability
management. Asset/liability mismatches create the risk that changes in liability
values will differ from the changes in the value of the related assets.
Additionally, changes in interest rates may impact other items including, but
not limited to, the following:

• Net investment spread between the amounts that we are required to pay and

the rate of return we are able to earn on investments for certain products

supported by general account investments;

• Asset-based fees earned on assets under management or contractholder

account values;

• Estimated total gross profits and the amortization of deferred policy

acquisition and other costs;

• Net exposure to the guarantees provided under certain products; and

• Capital levels of our regulated entities.




We use duration and convexity analyses to measure price sensitivity to interest
rate changes. Duration measures the relative sensitivity of the fair value of a
financial instrument to changes in interest rates. Convexity measures the rate
of change of duration with respect to changes in interest rates. We use
asset/liability management and derivative strategies to manage our interest rate
exposure by legal entity by matching the relative sensitivity of asset and
liability values to interest rate changes, or controlling "duration mismatch" of
assets and liabilities. We have duration mismatch constraints tailored to the
rate sensitivity of products in each entity. In certain markets, primarily
outside the U.S. and Japan, capital market limitations that hinder our ability
to acquire assets that approximate the duration of some of our liabilities are
considered in setting the limits. As of December 31, 2016 and 2015, the
difference between the duration of assets and the target duration of liabilities
in our duration-managed portfolios was within our policy limits. We consider
risk-based capital and tax implications as well as current market conditions in
our asset/liability management strategies.

We assess the impact of interest rate movements on the value of our financial
assets, financial liabilities and derivatives using hypothetical test scenarios
that assume either upward or downward 100 basis point parallel shifts in the
yield curve from prevailing interest rates, reflecting changes in either credit
spreads or the risk-free rate. The following table sets forth the net estimated
potential loss in fair value on these financial instruments from a hypothetical
100 basis point upward shift as of December 31, 2016 and 2015. This table is
presented on a gross basis and excludes offsetting impacts to insurance
liabilities that are not considered financial liabilities under U.S GAAP. This
scenario results in the greatest net exposure to interest rate risk of the
hypothetical scenarios tested at those dates. While the test scenario is for
illustrative purposes only and does not reflect our expectations regarding
future interest rates or the performance of fixed income markets, it is a
near-term, reasonably possible hypothetical change that illustrates the
potential impact of such events. These test scenarios do not measure the changes
in value that could result from non-parallel shifts in the yield curve which we
would expect to produce different changes in discount rates for different
maturities. As a result, the actual loss in fair value from a 100 basis point
change in interest rates could be different from that indicated by these
calculations. The estimated changes in fair values do not include separate
account assets.


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                                             As of December 31, 2016                       As of December 31, 2015
                                                                Hypothetical                                  Hypothetical
                                                    Fair          Change in                       Fair          Change in
                                    Notional        Value        Fair Value       Notional        Value        Fair Value

                                                                         (in millions)
Financial assets with interest
rate risk:
Fixed maturities(1)                              $ 347,246     $     (33,171 )                 $ 322,207     $     (27,832 )
Commercial mortgage and other
loans                                               54,283            (2,626 )                    51,853            (2,369 )
Derivatives with interest rate
risk:
Swaps                              $ 209,406         7,097            (5,415 )   $ 219,511         8,423            (5,960 )
Futures                               32,555            49              (995 )      28,538            10              (131 )
Options                               25,403           166               284        89,107           232              (868 )
Forwards                              21,530          (519 )             (20 )      17,809           204                (5 )
Synthetic GICs                        77,197             5                (1 )      72,585             7                 0
Variable annuity and other
living benefit feature embedded
derivatives(2)                                      (8,238 )           5,386                      (8,434 )           5,072
Financial liabilities with
interest rate risk(3):
Short-term and long-term debt                      (21,079 )           3,049                     (22,522 )           3,214
Policyholders' account
balances-investment contracts                     (100,045 )           3,570                     (94,271 )           3,302
Net estimated potential loss                                   $     (29,939 )                               $     (25,577 )


__________

(1) Includes fixed maturities classified as "trading account assets supporting

insurance liabilities" and other fixed maturities classified as trading

securities under U.S. GAAP, but are held for "other than trading" activities

in our segments that offer insurance, retirement and annuities products.

Includes approximately $345 billion and $320 billion as of December 31, 2016

and 2015, respectively, of fixed maturities classified as

"available-for-sale", where unrealized gains and losses are recorded in AOCI.

(2) Excludes any offsetting impact of derivative instruments purchased to hedge

changes in the embedded derivatives. Amounts reported net of third-party

reinsurance.

(3) Excludes approximately $286 billion and $267 billion as of December 31, 2016

and 2015, respectively, of insurance reserve and deposit liabilities which

are not considered financial liabilities. We believe that the interest rate

sensitivities of these insurance liabilities would serve as an offset to the

net interest rate risk of the financial assets and liabilities, including

    investment contracts.



Under U.S. GAAP, the fair value of the embedded derivatives for certain variable
annuity and other living benefit features, reflected in the table above,
includes the impact of the market's perception of our own NPR. The additional
credit spread over LIBOR rates incorporated into the discount rate as of
December 31, 2016, to reflect NPR in the valuation of these embedded
derivatives, ranged from 25 to 150 basis points.

The following table provides a demonstration of the sensitivity of these
embedded derivatives to our NPR credit spread by quantifying the adjustments
that would be required assuming both a 50 basis point parallel increase and
decrease in our NPR credit spreads. While the information below is for
illustrative purposes only and does not reflect our expectations regarding our
credit spreads, it is a near-term, reasonably possible change that illustrates
the potential impact of such a change. This information considers only the
direct effect of changes in our credit spread on operating results due to the
change in these embedded derivatives, and not changes in any other assumptions
such as persistency, utilization and mortality, or the effect of these changes
on DAC or other balances.
                                                        December 31, 2016                     December 31, 2015
                                                    (Increase) / Decrease in              (Increase) / Decrease in
                                                  Embedded Derivative Liability         Embedded Derivative Liability

                                                                             (in millions)
Increase in credit spread by 50 basis points   $                        1,964        $                        1,714
Decrease in credit spread by 50 basis points   $                       (1,726 )      $                       (2,047 )



For an additional discussion of our variable annuity optional living benefit
guarantees accounted for as embedded derivatives and related derivatives used to
hedge the changes in fair value of these embedded derivatives, see "Market Risk
Related to Certain Variable Annuity Products" below. For additional information
about the key estimates and assumptions used in our determination of fair value,
see Note 20 to the Consolidated Financial Statements below. For information on
the impacts of a sustained low interest rate environment, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Executive Summary-Impact of a Low Interest Rate Environment" above.

Market Risk Related to Equity Prices

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We have exposure to equity risk through asset/liability mismatches, including
our investments in equity securities held in our general account investment
portfolio and unhedged exposure in our insurance liabilities, principally
related to certain variable annuity living benefit feature embedded derivatives.
Our equity-based derivatives primarily hedge the equity risk embedded in these
living benefit feature embedded derivatives, and are also part of our capital
hedging program. Changes in equity prices create risk that the resulting changes
in asset values will differ from the changes in the value of the liabilities
relating to the underlying or hedged products. Additionally, changes in equity
prices may impact other items including, but not limited to, the following:

• Asset-based fees earned on assets under management or contractholder

account value;

• Estimated total gross profits and the amortization of deferred policy

acquisition and other costs; and

• Net exposure to the guarantees provided under certain products.




We manage equity risk against benchmarks in respective markets. We benchmark our
return on equity holdings against a blend of market indices, mainly the S&P 500
and Russell 2000 for U.S. equities. We benchmark foreign equities against the
Tokyo Price Index, and the MSCI EAFE, a market index of European, Australian,
and Far Eastern equities. We target price sensitivities that approximate those
of the benchmark indices.

We estimate our equity risk from a hypothetical 10% decline in equity benchmark
market levels. The following table sets forth the net estimated potential loss
in fair value from such a decline as of December 31, 2016 and 2015. While these
scenarios are for illustrative purposes only and do not reflect our expectations
regarding future performance of equity markets or of our equity portfolio, they
represent near-term reasonably possible hypothetical changes that illustrate the
potential impact of such events. These scenarios consider only the direct impact
on fair value of declines in equity benchmark market levels and not changes in
asset-based fees recognized as revenue, changes in our estimates of total gross
profits used as a basis for amortizing deferred policy acquisition and other
costs, or changes in any other assumptions such as market volatility or
mortality, utilization or persistency rates in our variable annuity contracts
that could also impact the fair value of our living benefit features. In
addition, these scenarios do not reflect the impact of basis risk, such as
potential differences in the performance of the investment funds underlying the
variable annuity products relative to the market indices we use as a basis for
developing our hedging strategy. The impact of basis risk could result in larger
differences between the change in fair value of the equity-based derivatives and
the related living benefit features in comparison to these scenarios. In
calculating these amounts, we exclude separate account equity securities.

                                             As of December 31, 2016                     As of December 31, 2015
                                                                Hypothetical                                Hypothetical
                                                     Fair        Change in                       Fair        Change in
                                     Notional       Value        Fair Value      Notional       Value        Fair Value

                                                                        (in millions)
Equity securities(1)                              $ 12,139     $     (1,214 )                 $ 11,626     $     (1,163 )
Equity-based derivatives(2)         $  31,558         (285 )          1,137     $  68,011          (38 )          1,917
Variable annuity and other living
benefit feature embedded
derivatives(2)(3)                                   (8,238 )         (1,116 )                   (8,434 )         (1,355 )
Net estimated potential loss                                   $     (1,193 )                              $       (601 )


__________

(1) Includes equity securities classified as "trading account assets supporting

insurance liabilities" and other equity securities classified as trading

securities under U.S. GAAP, but are held for "other than trading" activities

in our segments that offer insurance, retirement and annuities products.

(2) The notional and fair value of equity-based derivatives and the fair value of

variable annuity and other living benefit feature embedded derivatives are

also reflected in amounts under "Market Risk Related to Interest Rates"

above, and are not cumulative.

(3) Excludes any offsetting impact of derivative instruments purchased to hedge

changes in the embedded derivatives. Amounts reported net of third-party

    reinsurance.



Market Risk Related to Foreign Currency Exchange Rates


As a U.S.-based company with significant business operations outside of the
U.S., particularly in Japan, we are exposed to foreign currency exchange rate
risk related to these operations, as well as in our general account investment
portfolio and other proprietary investment portfolios.


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For our international insurance operations, changes in foreign currency exchange
rates create risk that we may experience volatility in the U.S.
dollar-equivalent earnings and equity of these operations. We actively manage
this risk through various hedging strategies, including the use of foreign
currency hedges and through holding U.S. dollar-denominated securities in the
investment portfolios of certain of these operations. Additionally, our Japanese
insurance operations offer a variety of non-yen denominated products which are
supported by investments in corresponding currencies. While these non-yen
denominated assets are economically matched to the currency of the product
liabilities, the accounting treatment may differ for changes in the value of
these assets and liabilities due to moves in foreign currency exchange rates,
resulting in volatility in reported U.S. GAAP earnings. This volatility has been
mitigated by disaggregating the U.S. and Australian dollar-denominated
businesses in Gibraltar Life into separate divisions, each with its own
functional currency that aligns with the underlying products and investments.
For certain of our international insurance operations outside of Japan, we elect
to not hedge the risk of changes in our equity investments due to foreign
exchange rate movements. For further information, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Impact of Foreign
Currency Exchange Rates-Impact of products denominated in non-local currencies
on U.S. GAAP earnings" above.

For our domestic general account investment portfolios supporting our U.S.
insurance operations and other proprietary investment portfolios, our foreign
currency exchange rate risk arises primarily from investments that are
denominated in foreign currencies. We manage this risk by hedging substantially
all domestic foreign currency denominated fixed income investments into U.S.
dollars. We generally do not hedge all of the foreign currency risk of our
investments in equity securities of unaffiliated foreign entities.

We manage our foreign currency exchange rate risks within specified limits, and
estimate our exposure, excluding equity in our Japanese insurance operations, to
a hypothetical 10% change in foreign currency exchange rates. The following
table sets forth the net estimated potential loss in fair value from such a
change as of December 31, 2016 and 2015. While these scenarios are for
illustrative purposes only and do not reflect our expectations regarding future
changes in foreign exchange markets, they represent reasonably possible
near-term hypothetical changes that illustrate the potential impact of such
events.

                                                     As of December 31, 2016              As of December 31, 2015
                                                                   Hypothetical                        Hypothetical
                                                      Fair          Change in             Fair          Change in
                                                     Value          Fair Value           Value          Fair Value

                                                                             (in millions)
Unhedged portion of equity investment in
international subsidiaries and foreign
currency denominated investments in domestic
general account portfolio                        $      5,003     $      (500 )      $      3,934     $      (393 )


For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-General Account Investments-Portfolio Composition" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations by Segment-International Insurance Division" above.

Derivatives


We use derivative financial instruments primarily to reduce market risk from
changes in interest rates, equity prices and foreign currency exchange rates,
including their use to alter interest rate or foreign currency exposures arising
from mismatches between assets and liabilities. Our derivatives primarily
include swaps, futures, options and forward contracts that are exchange-traded
or contracted in the OTC market.

Our derivatives also include interest rate guarantees we provide on our
synthetic GIC products. Synthetic GICs simulate the performance of traditional
insurance-related GICs but are accounted for as derivatives under U.S. GAAP due
to the fact that the policyholders own the underlying assets, and we only
provide a book value "wrap" on the customers' funds, which are held in a
client-owned trust. Since these wraps provide payment of guaranteed principal
and interest to the customer, changes in interest rates create risk that
declines in the market value of customers' funds would increase our net exposure
to these guarantees; however, our obligation is limited to payments that are in
excess of the existing customers' fund value. Additionally, we have the ability
to periodically reset crediting rates, subject to a 0% minimum floor, as well as
the ability to increase prices. Further, our contract provisions provide that,
although participants may withdraw funds at book value, contractholder
withdrawals may only occur at market value immediately, or at book value over
time. These factors, among others, result in these contracts experiencing
minimal changes in fair value, despite a more significant notional value.


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Our derivatives also include those that are embedded in certain financial
instruments, and primarily relate to certain optional living benefit features
associated with our variable annuity products, as discussed in more detail in
"Market Risk Related to Certain Variable Annuity Products" below. For additional
information on our derivative activities, see Note 21 to the Consolidated
Financial Statements below.

Market Risk Related to Certain Variable Annuity Products


The primary risk exposures of our variable annuity contracts relate to actual
deviations from, or changes to, the assumptions used in the original pricing of
these products, including capital markets assumptions, such as equity market
returns, interest rates and market volatility and actuarial assumptions. For our
capital markets assumptions, we manage our exposure to the risk created by
capital markets fluctuations through a combination of product design elements,
such as an automatic rebalancing element and inclusion of certain optional
living benefits in our living benefits hedging program. In addition, we consider
external reinsurance a form of risk mitigation. Certain variable annuity
optional living benefit features are accounted for as an embedded derivative and
recorded at fair value. The market risk sensitivities associated with U.S. GAAP
values of both the embedded derivatives and the related derivatives used to
hedge the changes in fair value of these embedded derivatives are provided under
"Market Risk Related to Interest Rates" and "Market Risk Related to Equity
Prices" above.

For additional information regarding our risk management strategies, including our living benefit hedging program and other product design elements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations by Segment-Individual Annuities" above.

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