PRUDENTIAL FINANCIAL, INC.
TABLE OF CONTENTS
Page
Overview 79
COVID-19 79
Regulatory Developments 82
Impact of a Low Interest Rate Environment 82
Results of Operations
85
Consolidated Results of Operations
85
Segment Results of Operations
86
Segment Measures
90
Impact of Foreign Currency Exchange Rates
90
Accounting Policies & Pronouncements
93
Results of Operations by Segment 94PGIM 94U.S. Businesses 99 Retirement 100Group Insurance 102 Individual Annuities 104 Individual Life 109 Assurance IQ 111 International Businesses 112 Corporate and Other 117 Divested and Run-off Businesses 118 Closed Block Division 118 Income Taxes 120
Experience-Rated Contractholder Liabilities, Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments
120
Valuation of Assets and Liabilities
121
General Account Investments
123
Liquidity and Capital Resources
144
Ratings
154
Off-Balance Sheet Arrangements
155
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the consolidated financial condition of Prudential
Financial, Inc. ("Prudential," "Prudential Financial ," "PFI," or "the Company")
as of June 30, 2020 , compared with December 31, 2019 , and its consolidated
results of operations for the three and six months ended June 30, 2020 and 2019.
You should read the following analysis of our consolidated financial condition
and results of operations in conjunction with the MD&A, the "Risk Factors"
section, and the audited Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2019 , as
well as the statements under "Forward-Looking Statements," the "Risk Factors"
section, and the Unaudited Interim Consolidated Financial Statements included
elsewhere in this Quarterly Report on Form 10-Q.
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Overview
Prudential Financial , a financial services leader with approximately $1.605
trillion of assets under management as of June 30, 2020 , has operations
primarily in the United States of America ("U.S."), Asia , Europe and Latin
America . Through our subsidiaries and affiliates, we offer a wide array of
financial products and services, including life insurance, annuities,
retirement-related services, mutual funds and investment management. We offer
these products and services to individual and institutional customers through
one of the largest distribution networks in the financial services industry.
Our principal operations are comprised of PGIM (our global investment management
business), our U.S. Businesses (consisting of our U.S. Workplace Solutions, U.S.
Individual Solutions, and Assurance IQ divisions), our International Businesses,
the Closed Block division, and our Corporate and Other operations. The U.S.
Workplace Solutions division consists of our Retirement and Group Insurance
businesses, the U.S. Individual Solutions division consists of our Individual
Annuities and Individual Life businesses, and the Assurance IQ division consists
of our Assurance IQ business. In October 2019 , we completed the acquisition of
Assurance IQ, LLC ("Assurance IQ"), a leading consumer solutions platform that
offers a range of solutions that help meet consumers' financial needs (see Note
1 to the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2019 for additional
information). The Closed Block division is accounted for as a divested business
that is reported separately from the Divested and Run-off Businesses that are
included in Corporate and Other. Divested and Run-off Businesses are comprised
of businesses that have been, or will be, sold or exited, including businesses
that have been placed in wind down status that do not qualify for "discontinued
operations" accounting treatment under generally accepted accounting principles
in the United States of America ("U.S. GAAP"). Our Corporate and Other
operations include corporate items and initiatives that are not allocated to
business segments and businesses that have been or will be divested or placed in
run-off, excluding the Closed Block division.
Our strategy centers on our mix of high-quality protection, retirement and
investment management businesses which creates growth potential due to earnings
diversification and the opportunity to provide customers with integrated
cross-business solutions, as well as capital benefits from a balanced risk
profile. We are well positioned to meet the needs of customers and tap into
significant market opportunities through our
We attribute financing costs to each segment based on the amount of financing used by each segment, excluding financing costs associated with corporate debt which are reflected in our Corporate and Other operations. The net investment income of each segment includes earnings on the amount of capital that management believes is necessary to support the risks of that segment.
COVID-19
Beginning in the first quarter of 2020, the outbreak of the 2019 novel
coronavirus ("COVID-19") created extreme stress and disruption in the global
economy and financial markets and elevated mortality and morbidity experience
for the global population. These events impacted our results of operations in
the current period and are expected to drive future impacts to our results of
operations. The Company has taken several measures to manage the impacts of this
crisis. The actual and expected impacts of these events and other items are
included in the following update:
• Outlook
PGIM . Our global investment management business,PGIM , is focused on maintaining strong investment performance while leveraging the scale of its approximately$1.4 trillion of assets under management through its distinctive multi-manager model. Although equity markets have largely recovered and credit spreads have compressed from their highs, there remain risks to earnings across the asset management industry, includingPGIM , if economic conditions remain unstable and markets decline or credit spreads widen further. The economic downturn is also having an impact on real estate prices as well as transaction volume in certain private asset classes. These factors could lead to lower fee-based revenues, incentive fees taking longer to be realized and losses emerging in our strategic investing portfolio. While the impacts of COVID-19 are a net negative forPGIM , and the overall asset management industry, we believe there is an opportunity for earnings growth as markets recover, potentially leading to higher asset management fees, incentive fees and transaction activity. We believePGIM's uniquely diversified global platform is well positioned to be resilient in the face of market and industry headwinds. Underpinning our growth strategy is our ability to continue to deliver robust investment performance, and to attract and retain high-caliber investment talent.U.S. Businesses: 79
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U.S. Workplace Solutions. In our Retirement business, we expect that account values in our full-service business will be impacted by market volatility and by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which provides qualified individuals the ability to withdraw from defined contribution plans and individual retirement accounts up to$100,000 penalty-free, with the withdrawal taxed over a three-year period (unless otherwise elected by the individual). Market conditions are also likely to have an impact on Retirement sales volume. We continue to maintain pricing discipline to ensure we are achieving appropriate returns in the current market, including in our funded pension risk transfer business, where we have seen a slowdown in the pipeline as a result of the impact of these market conditions on pension plan funding levels. Given many of the products in our institutional investment products business assume longevity risk, elevated levels of mortality resulting from COVID-19 may continue, resulting in a higher level of underwriting gains in this business. In ourGroup Insurance business, we expect COVID-19 to drive elevated levels of mortality resulting in increased life insurance claims in the near-term. In bothRetirement and Group Insurance , we believe over time COVID-19 may contribute to heightened interest in the solutions we offer to help improve the financial wellness of individuals at the workplace; however, we expect near-term revenue growth prospects to be slowed by the impact of social distancing on new business sales and the impact of employee financial hardships on utilization of workplace benefits.U.S. Individual Solutions. In our Individual Life insurance business, we expect COVID-19 to drive elevated levels of mortality, resulting in increased life insurance claims in the near-term. In our Individual Annuities business, we expect account values and fee income will be impacted by market volatility. Across our Individual Solutions businesses, we have taken pricing and product actions, including the suspension of our single life guaranteed universal life product inJuly 2020 , to ensure we realize appropriate returns for the current economic environment, and to diversify our product mix to further limit our sensitivity to interest rates, while maintaining a solid value proposition for our customers. In addition, while our distribution platforms include a suite of digital, hybrid advisory, and in-person advisory options, mandated social distancing has limited in-person engagement between customers and advisors. Collectively, we expect the product actions we have taken and the constrained distribution environment to adversely impact our sales prospects in the near-term. Sales to employees of our Workplace Solutions clients may also be delayed as a result of current economic conditions, as we encourage employees to prioritize workplace benefits to regain or retain their financial wellness. We continue to expect to offer our Individual Solutions products on the Assurance IQ platform over time, beginning with an Individual Life product offering added in the second quarter. Assurance IQ. We expect the impacts of COVID-19 on our Assurance IQ business to be limited, as this business does not have direct exposure to capital markets conditions or mortality, and its distribution is not dependent on in-person engagement with consumers; however, consumer financial hardships created by the current economic conditions could negatively impact persistency and expected sales levels. International Businesses. Our International Businesses remain focused on meeting customers' protection and financial needs and maintaining the underlying strength of our distribution channels. With the implementation of social distancing protocols globally, in-person engagement between customers and advisors has been reduced within both our captive agent and third-party distribution channels. Reflective of the disruptions in the global financial markets and the low interest rate environment, certain pricing and product actions have been implemented and we expect we will take additional actions as needed as we move forward to ensure we maintain appropriate returns, while maintaining a solid value proposition for our customers. Collectively, we expect the constrained distribution environment and potential product actions may adversely impact our sales prospects in the near-term. However, we expect the adverse impacts to be mitigated over time and we have seen a degree of relaxation of social distancing protocols in some markets and increased usage of virtual tools to connect with customers. We also expect an increased level of claims in the near-term and temporary higher expenses mostly related to supporting our captive agents. We believe over time COVID-19 may contribute to heightened interest in protection products, particularly the death protection products that are at the core of our needs-based selling approach. Corporate and Other Operations. In our Corporate and Other operations, if equity markets and interest rates decline throughDecember 31, 2020 , it will potentially result in higher expenses in the future associated with the Company's pension and post retirement plans due to lower than expected returns on plan assets and increases in plan obligations. • Results of Operations. For the three months and six months endedJune 30 ,
2020 we reported a net loss of
respectively, as unfavorable financial market conditions had a substantial
negative effect on the reported results of our businesses. See "Results of
Operations" and "Results of Operations by Segment" for a discussion of
results for second quarter and first half of the year.
• Liquidity. As of
assets at
several steps to proactively manage liquidity, including entering into a
alternative sources of liquidity and issuing
part to pre-
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fund 2020 and 2021 maturities. We temporarily suspended Common Stock repurchases beginningApril 1, 2020 under our existing repurchase authorization, after repurchasing$500 million of shares ofPrudential Financial's Common Stock in the first quarter of 2020. We continue to evaluate the resumption of share repurchases under our existing Board authorization for 2020. The impact of COVID-19 and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings or ratings outlooks. See "Liquidity and Capital Resources-Liquidity" for a discussion of our liquidity.
• Capital Resources. As of
subsidiaries maintained capital levels consistent with their ratings
targets. However, market conditions could negatively impact the statutory
capital of our insurance companies and constrain our overall capital
flexibility, including as a result of credit migration and losses in our
investment portfolio as discussed below. Adverse market conditions could
require us to take additional management actions for our insurance
subsidiaries to maintain capital consistent with their ratings objectives,
which may include redeploying financial resources from internal sources, or
using available external sources of capital or seeking additional sources.
See "Liquidity and Capital Resources-Capital " for a discussion of our
capital resources.
• Investment Portfolio. Net unrealized gains (losses) on fixed maturity
investments (excluding securities classified as trading) were a net
unrealized gain of
unrealized gain of
unrealized gains increased from
from
gross unrealized gains was primarily due to a decrease in
rates, while the increase in gross unrealized losses was primarily due to
credit spread widening and liquidity concerns. The continued impact of
COVID-19 on the global economy and corporate credit may continue to result
in negative credit migration and possible losses in our investment
portfolio. Due to the highly uncertain nature of these conditions, it is
not possible to estimate the overall impacts at this time. The sectors most
impacted by the COVID-19 crisis include energy, consumer cyclical and
retail related investments (see "-General Account Investments" for
additional information). During 2020, approximately 1% of total invested
assets were modified to allow for limited forbearance. Under the terms of
forbearance, the borrower is allowed to defer a portion of current year
principal and/or interest payments for a short period (e.g., 6 months).
These deferrals accrue additional interest and do not have a material
impact on our investment value.
• Sales and Flows. See "Segment Results of Operations" for a discussion of
sales and flows in each of our segments.
• Underwriting Results. See "Segment Results of Operations" for a discussion
of mortality experience in each of our segments.
In the second quarter of 2020, we estimate that COVID-19 had a net positive impact on our underwriting results reflecting the complementary risk profile of our mortality and longevity exposures. Going forward, we estimate that our net underwriting results will be adversely impacted by approximately$70 million for every incremental 100,000 fatalities in theU.S. However, the ultimate impact on our underwriting results will depend on factors such as age, geographic location, and insured versus uninsured populations among the fatalities. • Expenses. We expect higher expenses in 2020 from costs associated with COVID-19, including approximately$80 million incurred in the second quarter of 2020 and approximately$60 million expected in the second half
of 2020. These higher expenses are primarily related to agent compensation,
as well as technology and third-party vendor capabilities related to remote
work functionality and protecting our employees' health. However, we also
expect cost savings associated with COVID-19 of approximately
in 2020, including approximately
realized in aggregate over the third and fourth quarters of 2020. These
cost savings are from lower employee health and welfare claims, and lower
travel, meeting, meal and entertainment costs.
We have initiated a number of customer accommodations in response to the COVID-19 pandemic, including in some cases extending grace periods for premium payments, expediting claim payments and withdrawal requests, waiving certain claims payment requirements, waiving certain transaction fees, waiving interest on policy loans and wiring funds at the Company's expense.
• Risk Management. Prudential has a robust risk management framework that
seeks to ensure we can fulfill our customer, regulatory, and other
stakeholder obligations under a range of stress scenarios by maintaining
the appropriate balance between the Company's resources and risks. We
evaluate the Company's exposure to stress under four lenses (economic,
STAT, GAAP, and liquidity).
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Our risk management framework incorporates severe to very severe stresses across equities, interest rates, credit migration and defaults, currencies and pandemics. This framework includes a specific "pandemic and sell-off" scenario with a mortality calamity (1.5 extra deaths per 1,000 lives in the first year) based on a modern-day interpretation of the 1918 Spanish Flu experience that is aligned with most regulatory frameworks. The stress scenario assumes an even distribution of increased mortality across the population, while current COVID-19 mortality is sharply skewed toward older ages. As the COVID-19 event continues to unfold, we continue to update our analysis and take management actions in response to this specific event. As ofJune 30, 2020 the COVID-19 pandemic has not reached the most severe levels included in the Company's stress testing. In addition, we expect the impact of COVID-19-related claims to be moderated by the balance between our mortality exposure (such as in our individual and group life businesses) and our longevity exposure (such as in our retirement business).
• Risk Factors. The COVID-19 pandemic has adversely impacted our results of
operations, financial position, investment portfolio, new business
opportunities and operations, and these impacts are expected to continue.
For additional information on the risks to our business posed by the
COVID-19 pandemic, see "Risk Factors."
• Business Continuity. One of the main impacts of the COVID-19 pandemic has
been executing our business continuity protocols to ensure our employees
are safe and able to serve our customers. This included effectively
transitioning the vast majority of our employees to remote work
arrangements.
We believe all of our businesses can sustain remote work and social distancing
for an indefinite period while ensuring that critical business operations are
sustained. In addition, we are managing COVID-19-related impacts on third-party
provided services, and do not anticipate significant interruption in critical
operations.
• CARES Act and Other Regulatory Developments. In
the CARES Act, which provides $2 trillion in economic stimulus to
taxpayers, small businesses, and corporations through various grant and
loan programs, tax provisions and regulatory relief. One provision of theCARES Act amends the Tax Cuts and Jobs Act ("TCJA") and allows companies
with net operating losses ("NOLs") originating in 2018, 2019 or 2020 to
carry back those losses for five years. See Note 8 to the Unaudited Interim
Financial Statements for more information. We are continuing to analyze the
CARES Act and its potential impact on Prudential, and implementing
operational changes necessary in our Retirement, Annuities and PGIM
businesses to accommodate the CARES Act.
Other governments and regulators, including the Japan FSA, the NAIC and state
insurance regulators, have implemented, or are considering, a number of actions
in response to the crisis, including delaying implementation of certain
regulatory changes, temporarily waiving certain regulatory requirements and
requiring or requesting insurers to waive premium payments and policy provisions
and exclusions for certain periods of time.
The Company is not aware of any new or proposed government mandates that could materially impact the Company's solvency or liquidity position.
Regulatory Developments DOL Fiduciary Rules InJune 2020 , the DOL announced that it is proposing a new exemption to replace the previously vacated "best interest contract exemption." This proposed exemption would allow fiduciaries meeting the requirements of the exemption to receive compensation, including as a result of advice to roll over assets from a qualified plan to an Individual Retirement Account ("IRA"), and to purchase from or sell certain investments to qualified plans and IRAs. The DOL also reinstated the prior investment advice regulation and other existing exemptions and provided its current interpretation of the pre-2016 fiduciary investment advice regulation. We cannot predict what impact the newly proposed exemption or interpretative guidance will have on the Company.
Impact of a Low Interest Rate Environment
As a global financial services company, market interest rates are a key driver
of our results of operations and financial condition. Changes in interest rates
can affect our results of operations and/or our financial condition in several
ways, including favorable or adverse impacts to:
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• investment-related activity, including: investment income returns, net
interest margins, net investment spread results, new money rates, mortgage
loan prepayments and bond redemptions;
• insurance reserve levels, market experience true-ups and amortization of
both deferred policy acquisition costs ("DAC") and value of business
acquired ("VOBA");
• customer account values, including their impact on fee income;
• fair value of, and possible impairments on, intangible assets such as
goodwill;
• product offerings, design features, crediting rates and sales mix; and
• policyholder behavior, including surrender or withdrawal activity.
For more information on interest rate risks, see "Risk Factors" in this
Quarterly Report on Form 10-Q and "Risk Factors-Market Risk" included in our
Annual Report on Form 10-K for the year ended
See below for discussions related to the current interest rate environments in our two largest markets, theU.S. andJapan ; the composition of our insurance liabilities and policyholder account balances; and the hypothetical impacts to our investment results if these interest rate environments are sustained.
Interest rates in theU.S. have experienced a sustained period of historically low levels with certain benchmarks reaching significant lows in the first quarter of 2020. While market conditions and events make uncertain the timing, amount and impact of any monetary policy decisions by theFederal Reserve , changes in interest rates may impact our reinvestment yields, primarily for our investments in fixed maturity securities and commercial mortgage loans. As interest rates decline, our reinvestment yield may be below our overall portfolio yield, resulting in an unfavorable impact to earnings. Conversely, as interest rates rise, our reinvestment yield may exceed the overall portfolio yield resulting in a favorable impact to earnings. For the general account supporting ourU.S. Individual Solutions division,U.S. Workplace Solutions division and our Corporate and Other operations, we estimate annual principal payments and prepayments that we would be required to reinvest to be approximately 5.5% of the fixed maturity security and commercial mortgage loan portfolios through 2021. The portion of the general account attributable to these operations has approximately$248 billion of such assets (based on net carrying value) as ofJune 30, 2020 . The average portfolio yield for fixed maturity securities and commercial mortgage loans is approximately 4.1% as ofJune 30, 2020 . Included in the$248 billion of fixed maturity securities and commercial mortgage loans are approximately$155 billion that are subject to call or redemption features at the issuer's option and have a weighted average interest rate of approximately 4%. Of this$155 billion , approximately 55% contain provisions for prepayment premiums. If we reinvest scheduled payments or prepayments (not subject to a prepayment fee) at rates below the current portfolio yield, including in some cases at rates below those guaranteed under our insurance contracts, future operating results will be impacted to the extent we do not, or are unable to, reduce crediting rates on in-force blocks of business, or effectively utilize other asset/liability management strategies described below, in order to maintain current net interest margins. The following table sets forth the insurance liabilities and policyholder account balances of ourU.S. Operations excluding the Closed Block Division, by type, for the date indicated: As ofJune 30, 2020 (in billions)
Long-duration insurance products with fixed and guaranteed terms $
157
Contracts with adjustable crediting rates subject to guaranteed minimums
60
Participating contracts where investment income risk ultimately accrues to contractholders 14 Total $ 231 The$157 billion above relates to long-duration products such as group annuities, structured settlements and other insurance products that have fixed and guaranteed terms, for which underlying assets may have to be reinvested at interest rates that are lower than portfolio rates. We seek to mitigate the impact of a prolonged low interest rate environment on these contracts through asset/liability management, as discussed further below.
The
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our willingness to do so may be limited by competitive pressures. The following
table sets forth the related account values by range of guaranteed minimum
crediting rates and the related range of the difference, in basis points
("bps"), between rates being credited to contractholders as of June 30, 2020 ,
and the respective guaranteed minimums.
Account Values with Adjustable Crediting Rates Subject to Guaranteed Minimums:
Greater than
1-49 50-99 100-150 150
At bps above bps above bps above bps above
guaranteed guaranteed guaranteed guaranteed guaranteed
minimum minimum minimum minimum minimum Total
($ in billions)
Range of Guaranteed
Minimum
Crediting Rates:
Less than 1.00% $ 0.6 $ 1.3 $ 0.4 $ 0.1 $ 0.0 $ 2.4
1.00% - 1.99% 1.1 5.0 11.5 2.6 1.1 21.3
2.00% - 2.99% 1.3 0.9 0.5 2.6 1.2 6.5
3.00% - 4.00% 24.8 3.8 0.2 0.2 0.0 29.0
Greater than 4.00% 0.9 0.0 0.0 0.0 0.0 0.9
Total(1) $ 28.7 $ 11.0 $ 12.6 $ 5.5 $ 2.3 $ 60.1
Percentage of total 48 % 18 % 21 % 9 % 4 % 100 %
__________
(1) Includes approximately
market value adjustment if the invested amount is not held to maturity.
The remaining$14 billion of insurance liabilities and policyholder account balances in these operations relates to participating contracts for which the investment income risk is expected to ultimately accrue to contractholders. The crediting rates for these contracts are periodically adjusted based on the return earned on the related assets. Assuming a hypothetical scenario where the average 10-yearU.S. Treasury rate is 0.65% (which is reasonably consistent with recent rates) for the period fromJuly 1, 2020 throughJune 30, 2021 (and credit spreads remain unchanged from levels as ofJune 30, 2020 ), we estimate that the unfavorable impact to net investment income of reinvesting activities, including scheduled maturities and estimated prepayments of fixed maturities and commercial mortgage and other loans (excluding assets supporting participating contracts) would be between$40 million and$80 million for the period fromJuly 1, 2020 throughJune 30, 2021 . In order to mitigate the unfavorable impact that a low interest rate environment has on our net interest margins, we employ a proactive asset/liability management program, which includes strategic asset allocation and hedging strategies within a disciplined risk management framework. These strategies seek to match the characteristics of our products, and to closely approximate the interest rate sensitivity of the assets with the estimated interest rate sensitivity of the product liabilities. Our asset/liability management program also helps manage duration gaps, currency and other risks between assets and liabilities through the use of derivatives. We adjust this dynamic process as products change, as customer behavior changes and as changes in the market environment occur. As a result, our asset/liability management process has permitted us to manage the interest rate risk associated with our products through several market cycles. Our interest rate exposure is also mitigated by our business mix, which includes lines of business for which fee-based and insurance underwriting earnings play a more prominent role in product profitability. Closed Block Division Substantially all of the$61 billion of general account assets in the Closed Block division support obligations and liabilities relating to the Closed Block policies only. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information on the Closed Block.
International Insurance Operations
While our international insurance operations have experienced a low interest
rate environment for many years, the current reinvestment yields for certain
blocks of business in our international insurance operations are generally lower
than the current portfolio yield supporting these blocks of business. In recent
years, the Bank of Japan's monetary policy has resulted in even lower and, at
times, negative yields for certain tenors of government bonds. Our international
insurance operations employ a proactive asset/liability management program in
order to mitigate, to the extent possible, the unfavorable impact that the
current interest rate environment has on our net interest margins. In
conjunction with this program, we have not purchased negative yielding assets to
support the portfolio and we continue to purchase long-term bonds with tenors of
30 years or greater. Additionally, our diverse product portfolio in terms of
currency mix and premium payment structure allows us to further mitigate the
negative impact from
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this low interest rate environment. We regularly examine our 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 and the introduction of certain new products, has resulted in an increase in sales ofU.S. dollar-denominated products relative to products denominated in other currencies. For additional information on sales within our international insurance operations, see "-International Businesses-Sales Results," below. The following table sets forth the insurance liabilities and policyholder account balances of our Japanese operations, by type, for the date indicated: As ofJune 30, 2020 (in billions) Insurance products with fixed and guaranteed terms $
132
Contracts with a market value adjustment if invested amount is not held to maturity
25
Contracts with adjustable crediting rates subject to guaranteed minimums 11 Total $ 168 The$132 billion above is primarily comprised of long-duration insurance products that have fixed and guaranteed terms, for which underlying assets may have to be reinvested at interest rates that are lower than current portfolio yields. The remaining insurance liabilities and policyholder account balances include$25 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity and$11 billion related to contracts with crediting rates that may be adjusted over the life of the contract, subject to guaranteed minimums. Most of the current crediting rates on these contracts, however, are at or near contractual minimums. Although we have the ability in some cases to lower crediting rates for those contracts that are above guaranteed minimum crediting rates, the majority of this business has interest crediting rates that are determined by formula. Assuming a hypothetical scenario where the average 30-year Japanese Government Bond yield is 0.60% and the 10-yearU.S. Treasury rate is 0.65% (which is reasonably consistent with recent rates) for the period fromJuly 1, 2020 throughJune 30, 2021 (and credit spreads remain unchanged from levels as ofJune 30, 2020 ), we estimate that the unfavorable impact to net investment income of reinvesting activities, including scheduled maturities and estimated prepayments of fixed maturities and commercial mortgage and other loans (excluding assets supporting participating contracts) would be between$40 million and$80 million for the period fromJuly 1, 2020 throughJune 30, 2021 . Results of Operations
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