The Prudential Series Fund

Pruco Life Insurance Company
Notes to Consolidated Financial Statements
1. BUSINESS
Pruco Life Insurance Company, or ―the Company,‖ is a stock life insurance company, organized in 1971 under the laws of the
state of Arizona. The Company is licensed to sell interest sensitive individual life insurance, variable life insurance, term life
insurance, variable and fixed annuities, in the District of Columbia, Guam and in all states except New York. Pruco Life
Insurance Company also had marketed individual life insurance through its branch office in Taiwan. The branch office was
transferred to an affiliated Company on January 31, 2001, as described in Note 13 to the Consolidated Financial Statements.
The Company has three subsidiaries, which include one wholly owned life insurance subsidiary, Pruco Life Insurance Company
of New Jersey or, ―PLNJ,‖ and two subsidiaries formed in 2003 for the purpose of acquiring and investing in municipal fixed
maturities from an affiliated company see Note 13 to the Consolidated Financial Statements. All financial information is shown
on a consolidated basis.
PLNJ is a stock life insurance company organized in 1982 under the laws of the state of New Jersey. It is licensed to sell
individual life insurance, variable life insurance, term life insurance, fixed and variable annuities only in the states of New Jersey
and New York.
The Company is a wholly owned subsidiary of The Prudential Insurance Company of America or ―Prudential Insurance‖, an
insurance company founded in 1875 under the laws of the state of New Jersey. On December 18, 2001 or, ―the date of
demutualization,‖ Prudential Insurance converted from a mutual life insurance company to a stock life insurance company and
became an indirect wholly owned subsidiary of Prudential Financial, Inc. or ―Prudential Financial.‖
Prudential Insurance intends to make additional capital contributions to the Company, as needed, to enable it to comply with its
reserve requirements and fund expenses in connection with its business. Generally, Prudential Insurance is under no obligation
to make such contributions and its assets do not back the benefits payable under the Company’s policyholder contracts.
The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance
companies and other entities engaged in manufacturing insurance products, and individual and group annuities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Pruco Life Insurance Company and its subsidiaries. The
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America, ―GAAP.‖ The Company has extensive transactions and relationships with Prudential Insurance and other
affiliates, (as more fully described in Note 13 to the Consolidated Financial Statements). Due to these relationships, it is
possible that the terms of these transactions are not the same as those that would result from transactions among wholly
unrelated parties.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The most significant estimates include those used in determining deferred policy acquisition costs and related amortization;
valuation of investments including derivatives (in the absence of quoted market values) and the recognition of other-thantemporary
impairments; future policy benefits including guarantees; provision for income taxes and valuation of deferred tax
assets; and reserves for contingent liabilities, including reserves for losses in connection with unresolved legal matters.
Investments
Fixed maturities are comprised of bonds, notes and redeemable preferred stock. Fixed maturities classified as ―available for sale‖
are carried at fair value. The amortized cost of fixed maturities is adjusted for amortization of premiums and accretion of
discounts to maturity. Interest income, as well as the related amortization of premium and accretion of discount is included in
―Net investment income‖ under the effective yield method. For mortgage-backed and asset-backed securities, the effective yield
is based on estimated cash flows, including prepayment assumptions based on data from widely accepted third-party data sources
or internal estimates. For high credit quality mortgage-backed and asset-backed securities (those rated AA or above), cash flows
are provided quarterly, and the amortized cost and effective yield of the security
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