UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(MARK ONE)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM              TO

COMMISSION FILE NUMBER 33-18053





Pruco Life Insurance Company of New Jersey

(Exact Name of Registrant as Specified in its Charter)







|                                  |  |                       
|--------------------------------- |  | ----------------------
|New Jersey                        |  | 22-2426091            
|(State or Other Jurisdiction      |  | (I.R.S. Employer      
|of Incorporation or Organization) |  | Identification Number)

213 Washington Street

Newark, New Jersey 07102

(973) 802-6000

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





SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of the Regulation S-T ((§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.  x

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



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  | x |  | Smaller reporting Company |  |  ̈

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    YES   ̈    NO  x

State the aggregate market value of the voting stock held by non-affiliates of the registrant: N/A

As of March 11, 2011, 400,000 shares of the registrants common stock (par value $5), were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

THE INFORMATION REQUIRED TO BE FURNISHED PURSUANT TO PART III OF THIS FORM 10-K IS SET FORTH IN, AND IS HEREBY INCORPORATED BY REFERENCE HEREIN FROM, PRUDENTIAL FINANCIAL, INC.S DEFINITIVE PROXY
STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 10, 2011, TO BE FILED BY PRUDENTIAL FINANCIAL, INC. WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A NOT LATER THAN 120 DAYS AFTER DECEMBER 31, 2010.

Pruco Life Insurance Company of New Jersey meets the conditions set

forth in General Instruction (I) (1) (a) and (b) on Form 10-K

and is therefore filing this Form with reduced disclosure









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TABLE OF CONTENTS



|           |  |          |    |                                                                                                              |  |            |    | 
|---------- |  | -------- | -- | ------------------------------------------------------------------------------------------------------------ |  | ---------- | -- | 
|           |  |          |    |                                                                                                              |  | PageNumber |   
|PART I     |  |          |    |                                                                                                              |  |            |    | 
|           |  |          |   
|           |  | Item 1.  |    | Business                                                                                                     |  |            | 2  | 
|           |  |          |   
|           |  | Item 1A. |    | Risk Factors                                                                                                 |  |            | 11 | 
|           |  |          |   
|           |  | Item 1B. |    | Unresolved Staff Comments                                                                                    |  |            | 22 | 
|           |  |          |   
|           |  | Item 2.  |    | Properties                                                                                                   |  |            | 22 | 
|           |  |          |   
|           |  | Item 3.  |    | Legal Proceedings                                                                                            |  |            | 22 | 
|           |  |          |   
|PART II    |  | Item 5.  |    | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |            | 22 | 
|           |  |          |   
|           |  | Item 7.  |    | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  |            | 22 | 
|           |  |          |   
|           |  | Item 7A  |    | Quantitative and Qualitative Disclosures About Market Risk                                                   |  |            | 35 | 
|           |  |          |   
|           |  | Item 8.  |    | Financial Statements and Supplementary Data                                                                  |  |            | 38 | 
|           |  |          |   
|           |  | Item 9.  |    | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure                         |  |            | 38 | 
|           |  |          |   
|           |  | Item9A.  |    | Controls and Procedures                                                                                      |  |            | 38 | 
|           |  |          |   
|           |  | Item 9B. |    | Other Information                                                                                            |  |            | 38 | 
|           |  |          |   
|           |  | Item 10. |    | Directors, Executive Officers and Corporate Governance                                                       |  |            | 38 | 
|           |  |          |   
|PART III   |  | Item 14. |    | Principal Accountant Fees and Services                                                                       |  |            | 38 | 
|           |  |          |   
|PART IV    |  | Item 15. |    | Exhibits and Financial Statement Schedules                                                                   |  |            | 39 | 
|           | 
|SIGNATURES |  |          | 40 |                                                                                                             

Forward-Looking Statements

Certain of the statements included in this Annual Report on Form 10-K, including but not limited to those in
Managements Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects,
believes, anticipates, includes, plans, assumes, estimates, projects, intends, should, will, shall or variations of
such words are generally part of forward-looking statements. Forward-looking statements are made based on managements current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company
of New Jersey. There can be no assurance that future developments affecting Pruco Life Insurance Company of New Jersey will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve
risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general
economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) the availability and cost of additional debt or equity capital or external financing for
our operations; (3) interest rate fluctuations or prolonged periods of low interest rates; (4) the degree to which we choose not to hedge risks, or the potential ineffectiveness or insufficiency of hedging or risk management strategies we
do implement, with regard to variable annuity or other product guarantees; (5) any inability to access our credit facilities; (6) re-estimates of our reserves for future policy benefits and claims; (7) differences between actual
experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (8) changes in our
assumptions related to deferred policy acquisition costs; (9) changes in our financial strength or credit ratings; (10) statutory reserve requirements associated with term and universal life insurance policies under Regulation XXX and
Guideline AXXX; (11) investment losses, defaults and counterparty non-performance; (12) competition in our product lines and for personnel; (13) difficulties in marketing and distributing products through current or future
distribution channels; (14) changes in tax law; (15) regulatory or legislative changes, including the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act; (16) inability to protect our intellectual property
rights or claims of infringement of the intellectual property rights of others; (17) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (18) domestic or international military actions,
natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (19) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing
risks; (20) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; and (21) changes in statutory or U.S.
GAAP accounting principles, practices or policies. Pruco Life Insurance Company of New Jersey does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See Risk Factors for
discussion of certain risks relating to our businesses.



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PART 1

Item 1. Business

Overview

Pruco Life Insurance Company of New Jersey, or the Company, is a wholly owned subsidiary of the Pruco Life Insurance Company,
or Pruco Life, which in turn is a wholly owned subsidiary of The Prudential Insurance Company of America, or Prudential Insurance. Prudential Insurance is an indirect wholly owned subsidiary of Prudential Financial, Inc., or
Prudential Financial.

The Company is engaged in a business that is highly competitive because of the large number
of stock and mutual life insurance companies and other entities engaged in marketing insurance products, and individual and group annuities. The following paragraphs describe the Companys products, marketing and distribution, and underwriting
and pricing.

Competition

Variable and Fixed Annuities

The Company competes with other providers of retirement savings and accumulation products, including other large, well-established insurance and financial services companies. We compete in the individual
annuities business primarily based on our ability to offer innovative product features. Our risk management allows us to offer these features and helps to hedge or limit our exposure to certain of the related risks, utilizing a combination of
product design elements, such as an asset transfer feature, externally purchased hedging instruments and affiliated reinsurance arrangements with Pruco Reinsurance, Ltd. (Pruco Re). The asset transfer feature, included in the design of
certain optional living benefits, transfers assets between variable investments selected by the annuity contractholder and investments that are expected to be more stable (e.g., a separate account bond portfolio), according to the static
mathematical formula as discussed in more detail below. By transferring assets to the more stable investment, the asset transfer feature helps to reduce our risk associated with the optional living benefit. Our sales have benefited from the impact
of market disruptions on some of our competitors, certain of which have either exited the variable annuity marketplace or have implemented product modifications in recent years to increase pricing and scale back product features. Although we have
implemented similar modifications, we believe our modified product offerings have remained competitively positioned. While new competitors are entering the market and others have become more aggressive in product design and pricing, we believe our
product offerings and differentiated risk management strategies will continue to provide us with an attractive risk and profitability profile, as all currently-offered optional living benefit features include the asset transfer feature and most
sales include the highest daily guaranteed contract value feature which is described below. In addition to our product features, we also compete based on brand recognition, the breadth of our distribution platform and our customer service
capabilities.

Life Insurance

The Company competes with large, well-established life insurance companies. In the markets for our products, we compete primarily based on price, service, distribution channel relationships, brand
recognition and financial stability. Due to the large number of competitors, price competition is strong. Factors that could influence our ability to competitively price products while achieving targeted returns include: the cost and availability of
financing for statutory reserves required for certain term and universal life insurance policies, the timing of and our ability to utilize tax deductions associated with statutory reserves, product designs which impact the amount of statutory
reserves and the associated tax deductions, and the level of and pace of changes in interest rates. The current environment of low interest rates and volatile equity markets has resulted in a greater demand for general account whole life products
across the industry.

Products

Variable and Fixed Annuities

The Company offers a wide array of annuities, including deferred and immediate variable annuities that are registered with the United States Securities and Exchange Commission (the SEC), which
may include (1) fixed interest rate allocation options, subject to a market value adjustment, and (2) fixed rate allocation options not subject to a market value adjustment and not registered with the SEC.

As a result of the launch of the Companys new product line in March 2010, an affiliated company, the Prudential Annuities Life
Assurance Corporation, ceased selling variable annuity products. In general, the new product line offers the same optional living benefits and optional death benefits as offered by the Companys existing variable annuities.

The Company offers variable annuities that provide our customers with tax-deferred asset accumulation together with a base death benefit
and a suite of optional guaranteed death and living benefits. The benefit features contractually guarantee the contractholder a return of no less than (1) total deposits made to the contract less any partial withdrawals (return of net
deposits), (2) total deposits made to the contract less any partial withdrawals plus a minimum return (minimum return), and/or (3) the highest contract value on a specified date minus any withdrawals (contract
value). These guarantees may include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable during specified periods. Our latest optional
living benefits guarantee, among other features, the ability to make withdrawals based on the highest daily contract value plus a minimum return, credited for a period of time. This highest daily guaranteed contract value is accessible through
periodic withdrawals for the life of the contractholder, and not as a lump-sum surrender value.

Our variable annuity
investment options provide our customers with the opportunity to invest in proprietary and non-proprietary mutual funds, frequently under asset allocation programs, and fixed-rate accounts. The investments made by customers in the proprietary and
non-proprietary mutual funds generally represent separate account interests that provide a return linked to an underlying investment portfolio. The general account



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investments made in the fixed rate accounts are credited with interest at rates we determine, subject to certain minimums. We also offer fixed annuities that provide a guarantee of principal and
interest credited at rates we determine, subject to certain contractual minimums. Certain investments made in the fixed rate accounts of our variable annuities and certain fixed annuities impose a market value adjustment if the invested amount is
not held to maturity. Based on the contractual terms, the market value adjustment can be positive, resulting in an additional amount for the contractholder, or negative, resulting in a deduction from the contractholders account value or
redemption proceeds.

The primary risk exposures of our variable annuity contracts relate to actual deviations from, or
changes to, the assumptions used in the original pricing of these products, including equity market returns, interest rates, market volatility, timing of annuitization and withdrawals, contract lapses and contractholder mortality. The rate of return
we realize from our variable annuity contracts will vary based on the extent of the differences between our actual experience and the assumptions used in the original pricing of these products. As part of our risk management strategy we hedge or
limit our exposure to certain of these risks primarily through a combination of product design elements, such as the aforementioned asset transfer feature, externally purchased hedging instruments and affiliated reinsurance arrangements with Pruco
Reinsurance, Ltd. (Pruco Re). Our returns can also vary by contract based on our risk management strategy, including the impact of any capital markets movements that we may hedge in Pruco Re, the impact on that portion of our variable
annuity contracts that benefit from the asset transfer feature and the impact of risks that are not able to be hedged.

As of
December 31, 2010 approximately $2.4 billion or 79% of total variable annuity account values contain a living benefit feature, compared to approximately $0.9 billion or 61% as of December 31, 2009. As of December 31, 2010
approximately $2.0 billion or 86% of variable annuity account values with living benefit features included an asset transfer feature in the product design, compared to approximately $0.6 billion or 65% as of December 31, 2009. As of
December 31, 2010, approximately $0.3 billion or $14% of variable annuity account values with living benefit features did not include an asset transfer feature in the product design, compared to $0.3 billion or 35% as of December 31,2009.
The increase in account values with living benefits and the asset transfer feature reflects the impact of the launch of our new product line, discussed above. The asset transfer feature, included in the design of certain optional living benefits,
transfers assets between the variable investments selected by the annuity contractholder and, depending on the benefit feature, a fixed rate account in the general account or a bond portfolio within the separate account. The transfers are based on
the static mathematical formula used with the particular optional benefit which considers a number of factors, including the impact of investment performance on the contractholders total account value. In general, negative investment
performance may result in transfers to either a fixed rate account in the general account or a bond portfolio within the separate account, and positive investment performance may result in transfers back to contractholder-selected investments.
Overall, the asset transfer feature is designed to help mitigate our exposure, and the exposure of the contractholders account value, to equity market risk and market volatility. Beginning in 2009, our offerings of optional living benefit
features associated with currently-sold variable annuity products all include an asset transfer feature, and in 2009 we discontinued any new sales of optional living benefit features without an asset transfer feature. Other product design elements
we utilize for certain products to manage these risks include asset allocation restrictions and minimum issuance age requirements.

As mentioned above, in addition to our asset transfer feature, we also manage certain risks associated with our variable annuity products through hedging programs and affiliated reinsurance arrangements.
Primarily in the reinsurance affiliate, equity options and futures as well as interest rate derivatives are purchased to hedge certain optional living benefit features accounted for as embedded derivatives against changes in equity markets, interest
rates, and market volatility. Historically, the hedging strategy sought to generally match the sensitivities of the embedded derivative liability as defined by GAAP, excluding the impact of the market-perceived risk of non-performance, with capital
market derivatives and options. In the third quarter of 2010, the hedging strategy was revised as, in the low interest rate environment, management of the Company and our reinsurance affiliate do not believe the GAAP value of the embedded derivative
liability to be an appropriate measure for determining the hedge target. The new hedge target continues to be grounded in a GAAP/capital markets valuation framework but incorporates modifications to the risk-free return assumption to account for the
fact that the underlying customer separate account funds which support these living benefits are invested in assets that contain risk. Consistent with sound risk management practices, management of the Company and the reinsurance affiliate evaluate
hedge levels versus the target given the overall capital considerations of our ultimate parent Company, Prudential Financial Inc. and its subsidiaries, and prevailing capital market conditions and may decide to temporarily hedge to an amount that
differs from the hedge target definition. This new strategy will result in differences each period between the change in the value of the embedded derivative liability as defined by GAAP and the change in the value of the hedge positions,
potentially increasing volatility in GAAP earnings in the reinsurance affiliate, and increasing volatility in the amortization of deferred acquisition and other costs of the Company as a result of the gross profits impact.

In the second quarter of 2009, we began the expansion of the Companys hedging program to include a portion of the market exposure
related to the overall capital position of our variable annuity business, including the impact of certain statutory reserve exposures. These capital hedges primarily consisted of equity-based total return swaps that were designed to partially offset
changes in our capital position resulting from market driven changes in certain living and death benefit features of our variable annuity products. During the second quarter of 2010, we terminated the capital hedge program in lieu of a new program
managed at the Prudential Financial parent company level that more broadly addresses equity market exposure of the overall statutory capital of Prudential Financial as a whole, under stress scenarios.

Variable Life Insurance

The Company offers a number of individual variable life insurance products which represent 21% of our net individual life insurance in
force at December 31, 2010. Variable products provide a return linked to an underlying investment portfolio selected by the policyholder while providing the policyholder with the flexibility to change both the death benefit and premium
payments. The policyholder generally has the option of investing premiums in a fixed rate option that is part of our general account and /or investing in separate account investment options consisting of equity and fixed income funds. Funds invested
in the fixed rate option will accrue interest at rates we determine that vary periodically based on our portfolio rate. In the separate accounts, the policyholder bears the fund performance risk. Each product provides for the deduction of charges
and expenses from the customers contract fund. The Company also offers a new variable product that has the same basic features as our variable universal life product but also allows for a more flexible guarantee against lapse where
policyholders can select the guarantee period. While variable life insurance continues to be an important product, marketplace demand continues to favor term and universal life insurance.



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A significant portion of our insurance profits are associated with our large in force block
of variable policies. Profit patterns on these policies are not level and as the policies age, insureds generally begin paying reduced policy charges. This, coupled with net policy count and insurance in force runoff over time, reduces our expected
future profits from this product line. Asset management fees and mortality and expense fees are a key component of variable life product profitability and vary based on the average daily net asset value. Due to policyholder options under some of the
variable life contracts, lapses driven by unfavorable equity market performance may occur on a quarter lag with the market risk during this lag being borne by the Company.

Term Life Insurance

The Company offers a variety of term life insurance
products which represent 73% of our net individual life insurance in force at December 31, 2010, that provide coverage for a specified time period. Most term products include a conversion feature that allows the policyholder to convert the
policy into permanent life insurance coverage. The Company also offers term life insurance that provides for a return of premium if the insured is alive at the end of the level premium period. There continues to be significant demand for term life
insurance protection.

The Companys profits from term insurance are not expected to directly correlate, from a timing
perspective, with the increase in term insurance in force. This results from uneven product profitability patterns.

Universal Life
Insurance

The Company offers universal life insurance products which represent 6% of our net individual life insurance in
force at December 31, 2010. Universal life insurance products feature a crediting rate that varies periodically based on portfolio returns, subject to certain minimums, flexible premiums and a choice of guarantees against lapse. Universal life
policies provide for the deduction of charges and expenses from the policyholders contract fund.

The Companys
profits from universal life insurance are impacted by mortality and expense margins, interest spread on policyholder funds as well as the net interest spread on capital management activities related to a portion of the statutory reserves associated
with these products.

Across all of our life insurance products we offer a living benefits option that allows the policy owner
to receive a portion of the life insurance benefit if the insured is diagnosed with a terminal illness, or permanently confined to a nursing home, in advance of death of the insured, to use as needed. The remaining death benefit will be paid to the
beneficiary upon the death of the insured. We also have a variety of settlement and payment options for the settlement of life insurance claims in addition to lump sum checks, including placing benefits in retained asset accounts, which earn
interest and are subject to withdrawal in whole or in part at any time by the beneficiaries.

Marketing and Distribution

Third Party Distribution

Our individual life and annuity products are offered through a variety of third party channels, including independent brokers, general
agencies, producer groups, wirehouses, banks and broker-dealers. We focus on sales through independent intermediaries who provide life insurance solutions to protect individuals, families and businesses and support estate and wealth transfer
planning. The life insurance and annuity products offered are generally the same as those available through Prudential Insurance Agents. Our third party distribution efforts are supported by a network of internal and external wholesalers. We also
offer a simplified-issue term life insurance policy and a single-premium universal life insurance policy available to customers of select banks and other financial institutions.

Prudential Insurance Agents

Prudential Insurance Agents distribute
Prudential variable, term, and universal life insurance, variable and fixed annuities, and investment and other protection products with proprietary and non-proprietary investment options as well as selected insurance products manufactured by
others.

Prudential Agent product sales are primarily to customers in the U.S. mass and mass affluent markets, as well as
small business owners. Other than certain training allowances or salary paid at the beginning of their employment, we pay Prudential Agents on a commission basis for the products they sell. In addition to commissions, Prudential Agents receive
employee benefits, including medical and disability insurance, an employee savings program and qualified retirement plans.

Underwriting
and Pricing

Annuities

We earn asset management and other fees determined as a percentage of the average assets of the proprietary mutual funds in our variable annuity products. We also earn mortality and expense fees and other
fees for various insurance-related options and features, including optional guaranteed death and living benefit features, based on average daily net asset value of the annuity separate accounts or the amount of guaranteed value under the optional
living benefit, as applicable. We also receive fees from certain affiliated and unaffiliated underlying mutual funds (or their affiliates) for administrative services that we perform. We price our variable annuities, including optional guaranteed
death and living benefits, based on an evaluation of the risks assumed and considering applicable hedging costs. We price our fixed annuities as well as the fixed rate accounts of our variable annuities based on assumptions as to investment returns,
expenses and persistency. Competition also influences our pricing. We seek to maintain a spread between the return on our general account invested assets and the interest we credit on our fixed annuities and the fixed rate accounts of our variable
annuities. For assets transferred to a fixed rate account in the general account pursuant to the asset transfer feature discussed above, we earn a spread for the difference between the return on our general account invested assets and the interest
credited, similar to our fixed annuities. To encourage persistency, most of our variable and fixed annuities have surrender or withdrawal charges for a specified number of years.



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Life Insurance

For our fully underwritten life insurance, underwriters follow detailed and uniform policies and procedures to assess and quantify the risk of our individual life insurance products. Depending on the age
of the applicant and amount of insurance requested, we require the applicant to take a variety of underwriting tests, such as medical examinations, electrocardiograms, blood tests, urine tests, and gather information such as physician records and
investigative reports. We base premiums and policy charges for individual life insurance on expected death benefits, surrender benefits, expenses and required reserves. We use assumptions for mortality, interest, expenses, policy persistency, and
premium payment pattern in pricing policies. Some of our policies are fully guaranteed. Others have current premiums/charges and interest credits that we can change subject to contractual guarantees.

Our operating results are impacted by changes in interest rates. We routinely update the interest crediting rates that we credit to
policyholder accounts on our universal life policies and on the fixed account of our variable life policies, which are both subject to contractual minimum rates. In resetting these rates, we consider the returns on our portfolios supporting these
policies, current interest rates, the competitive environment and our profit objectives. We seek to maintain a spread between the return on our general account invested assets and the interest we credit on our policyholder accounts. We seek to
mitigate interest rate risks, including those associated with the current low interest rate environment, with active asset/liability matching portfolio management. For term life products, interest rate assumptions used to calculate reserves are
fixed at the policy issue date and subsequent declines in portfolio yields have an immediate impact on product profitability.

Reserves

We establish and carry as liabilities actuarially-determined reserves for future policy benefits that we believe will meet
our future obligations for our in force life and annuity policies, including the death benefit and living benefit guarantee features associated with some of these contracts. We base these reserves on assumptions we believe to be appropriate for
investment yield, persistency, expenses, withdrawal rates, mortality and morbidity rates, as well as margins for adverse deviation. For certain products, such as term and universal life, we are required to hold statutory reserves in excess of these
liabilities. In these circumstances we engage in capital management activities to reduce the financial and pricing impact of carrying a portion of these excess statutory reserves. For universal and variable life insurance contracts, we establish
liabilities for policyholders account balances that represent cumulative gross premium payments plus credited interest and/or fund performance, less withdrawals, expenses and mortality charges. Certain of the living benefit guarantee features
on variable annuity contracts are accounted for as embedded derivatives and are carried at fair value. The fair values of these benefit features are calculated as the present value of future expected benefit payments to customers less the present
value of assessed rider fees attributable to the embedded derivative feature, and are based on managements expectation of how a market participant would value these embedded derivative liabilities. These features are generally reinsured with
an affiliated company. For universal and variable life insurance and fixed and variable annuity contracts, we establish liabilities for policyholders account balances that represent cumulative gross premium payments plus credited interest
and/or fund performance, less withdrawals, and all applicable mortality and expense charges.

Reinsurance

The Company participates in reinsurance with its affiliates Prudential Insurance, Prudential Arizona Reinsurance Captive Company, or
PARCC, Pruco Re, and Prudential Arizona Reinsurance Term Company, or PAR TERM and unaffiliated companies in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential
arising from large risks. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances
would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. The likelihood of a material reinsurance liability resulting from such
inability of reinsurers to meet their obligation is considered to be remote.

Since 2000, we have reinsured the majority of
the mortality risk we assume under our newly sold individual life insurance products and the maximum amount of mortality risk we may retain on any life is $100,000. See Note 13 to the Consolidated Financial Statements for more information related to
these affiliated reinsurance arrangements.

Regulation

In order to continue to market life insurance, annuity products and market value adjustment annuities, the Company must meet or exceed the statutory capital and surplus requirements of the insurance laws
and regulations of the states in which it conducts business. Statutory accounting practices differ from U.S. generally accepted accounting principles, or U.S. GAAP. First, under statutory accounting practices, the acquisition costs of
new business are charged to expense, while under U.S. GAAP they are initially deferred and amortized over a period of time. Second, under statutory accounting practices, the required additions to statutory reserves for new business in some cases may
initially exceed the statutory revenues attributable to such business. These practices result in a reduction of statutory income and surplus at the time of recording new business.



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Insurance Operations

State Insurance Regulation

State insurance authorities have broad
administrative powers with respect to all aspects of the insurance business including:



| |  |  | licensing to transact business,
| | - |  | -------------------------------



| |  |  | licensing agents,
| | - |  | -----------------



| |  |  | admittance of assets to statutory surplus,
| | - |  | ------------------------------------------



| |  |  | regulating premium rates for certain insurance products,
| | - |  | --------------------------------------------------------



| |  |  | approving policy forms,
| | - |  | -----------------------



| |  |  | regulating unfair trade and claims practices,
| | - |  | ---------------------------------------------



| |  |  | establishing reserve requirements and solvency standards,
| | - |  | ---------------------------------------------------------



| |  |  | fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values, and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | regulating the type, amounts and valuations of investments permitted and other matters.
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State insurance laws and regulations require the Company to file financial statements with state insurance departments everywhere it does
business, and its operations and accounts are subject to examination by those departments at any time. The Company prepares statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these
departments. The National Association of Insurance Commissioners, or the NAIC, has approved a series of statutory accounting principles that have been adopted, in some cases with minor modifications, by all state insurance departments.

Effective with the annual reporting period ending December 31, 2010, the NAIC adopted revisions to the Annual Financial Reporting
Model Regulation, or the Model Audit Rule, related to auditor independence, corporate governance and internal control over financial reporting. The adopted revisions require that we file reports with the state insurance departments regarding our
assessment of internal controls over financial reporting.

State insurance departments conduct periodic examinations of the
books and records, financial reporting, policy filings and market conduct of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance
departments of other states under guidelines promulgated by the NAIC. In February 2008, the New Jersey insurance regulator, along with the insurance regulators of Arizona and Connecticut, completed a coordinated financial examination for the five
year period ended December 31, 2006 for all U.S. life insurance companies and affiliates as part of the normal five year examination cycle and found no material deficiencies.

Financial Regulation

Risk-Based Capital.

In order to enhance the regulation of insurers solvency, the NAIC adopted a model law to implement risk-based capital requirements
for life insurance companies. All states have adopted the NAICs model law or a substantially similar law. The risk-based capital, or RBC, calculation, which regulators use to assess the sufficiency of an insurers statutory capital,
measures the risk characteristics of a companys assets, liabilities and certain off-balance sheet items. In general, RBC is calculated by applying factors to various asset, premium, claim, expense and reserve items. Within a given risk
category, these factors are higher for those items with greater underlying risk and lower for items with lower underlying risk. Insurers that have less statutory capital than the RBC calculation requires are considered to have inadequate capital and
are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. The RBC ratios for the Company are above the ranges that would require any regulatory or corrective action.

IRIS Tests

The NAIC has
developed a set of financial relationships or tests known as the Insurance Regulatory Information System, or IRIS, to assist state regulators in monitoring the financial condition of insurance companies and identifying companies that
require special attention or action by insurance regulatory authorities. Insurance companies generally submit data annually to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined usual
ranges. Generally, regulators will begin to investigate or monitor an insurance company if ratios fall outside the usual ranges for four or more of the ratios. If an insurance company has insufficient capital, regulators may act to reduce the
amount of insurance it can issue. The Company is not currently subject to regulatory scrutiny based on these ratios.

Insurance Reserves

State insurance laws require us to analyze the adequacy of our reserves annually. Our actuaries must submit an opinion
that our reserves, when considered in light of the assets we hold with respect to those reserves, make adequate provision for our contractual obligations and related expenses.

Market Conduct Regulation

State insurance laws and regulations include
numerous provisions governing the marketplace activities of insurers, including provisions governing the form and content of disclosure to consumers, illustrations, advertising, sales practices and complaint handling. State regulatory authorities
generally enforce these provisions through periodic market conduct examinations.

Insurance Guaranty Association Assessments

Each state has insurance guaranty association laws under which insurers doing business in the state are members and may be
assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Typically, states assess each member insurer in an amount related to the member insurers proportionate
share of the business written by all member insurers in the state. While we cannot predict the amount and timing of any future assessments on the Company under these laws, we have established reserves that we believe are adequate for assessments
relating to insurance companies that are currently subject to insolvency proceedings.



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State Securities Regulation

In certain states, our variable life insurance and variable annuity products are considered securities within the meaning of state securities laws. As securities, these products may be subject
to certain requirements. Also, sales activities with respect to these products generally are subject to state securities regulation. Such regulation may affect investment advice, sales and related activities for these products.

Federal Regulation

Our
variable life insurance products, as well as our variable annuity products, generally are securities within the meaning of federal securities laws, registered under the federal securities laws and subject to regulation by the Securities
and Exchange Commission, or SEC and the Financial Industry Regulatory Authority, or FINRA. Federal and some state securities regulation affect investment advice, sales and related activities with respect to these products. In
addition, although the federal government does not comprehensively regulate the business of insurance, federal legislation and administrative policies in several areas, including taxation, financial services regulation and pension and welfare
benefits regulation, can significantly affect the insurance industry. Congress also periodically considers and is considering laws affecting privacy of information and genetic testing that could significantly and adversely affect the insurance
industry.

In view of recent events involving certain financial institutions, it is possible that the U.S. federal government
will heighten its oversight of companies in the financial services industry such as us, including possibly through a federal system of insurance regulation.

Tax Legislation

Current U.S. federal income tax laws generally
permit certain holders to defer taxation on the build-up of value of annuities and life insurance products until payments are actually made to the policyholder or other beneficiary and to exclude from taxation the death benefit paid under a life
insurance contract. Congress from time to time considers legislation that could make our products less attractive to consumers, including legislation that would reduce or eliminate the benefit of this deferral on some annuities and insurance
products, as well as other types of changes that could reduce or eliminate the attractiveness of annuities and life insurance products to consumers such as changes to estate tax. The estate tax was eliminated for 2010, but modified carryover basis
rules applied for property acquired from decedents dying in that year. The estate tax has been reinstated through 2012 with a $5 million individual exemption, a 35% maximum rate and step-up in basis rules for property acquired from a decedent.
Estates of decedents who died in 2010 can choose between the rules that were in effect in 2010 or the new rules. It is unclear what Congress will do with respect to the estate tax after 2012.

Legislative or regulatory changes could also impact the amount of taxes that we pay, thereby affecting our consolidated net income. For
example, the U.S. Treasury Department and the Internal Revenue Service intend to address through regulations the methodology to be followed in determining the dividends received deduction, or DRD, related to variable life insurance and annuity
contracts. The DRD reduces the amount of dividend income subject to U.S. tax and is a significant component of the difference between our actual tax expense and expected tax amount determined using the federal statutory tax rate of 35%. On
February 14, 2011, the Obama Administration released the General Explanations of the Administrations Revenue Proposals. Although the Administration has not released proposed statutory language, one proposal would change the
method used to determine the amount of the DRD. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through regulation or legislation, could increase actual tax expense and reduce our consolidated net
income.

There is generally uncertainty regarding US taxes both for individuals and corporations in light of the fact that
many provisions recently enacted or extended will sunset by the end of 2012. In addition, the recommendations made by the Presidents bipartisan National Commission on Fiscal Responsibility and Reform and other deficit reduction panels suggest
the need to reform the US Tax Code. In addition, Congress plans to hold a number of hearings during 2011 devoted to tax reform. It is unclear whether or when Congress may take up overall tax reform and what would be the impact of reform on the
Company and its products.

For additional discussion of possible tax legislative and regulatory risks that could affect our
business, see Risk Factors.

The products we sell have different tax characteristics, in some cases generating tax
deductions. The level of profitability of certain of our products are significantly dependent on these characteristics and our ability to continue to generate taxable income, which are taken into consideration when pricing. Accordingly, a change in
tax law, our ability to generate taxable income, or other factors impacting the availability or value of the tax characteristics generated by our products, could impact product pricing and returns.

USA Patriot Act

The USA
Patriot Act of 2001, enacted in response to the terrorist attacks on September 11, 2001, contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and
other financial services companies, including insurance companies. The Patriot Act seeks to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money
laundering. Anti-money laundering laws outside of the U.S. contain provisions that may be different, conflicting or more rigorous. The increased obligations of financial institutions to identify their customers, watch for and report suspicious
transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions require the implementation and maintenance of internal practices, procedures and
controls.



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Privacy Regulation

Federal and state law and regulation require financial institutions and other businesses to protect the security and confidentiality of personal information, including health-related and customer
information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and
confidentiality of that information. State laws regulate use and disclosure of social security numbers. Federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of
certain personal information, including social security numbers, and require holders of certain personal information to protect the security of the data. Federal regulations require financial institutions and creditors to implement effective
programs to detect, prevent, and mitigate identity theft. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers.
Federal law and regulation regulate the permissible uses of certain personal information, including consumer report information. Federal and state governments and regulatory bodies may be expected to consider additional or more detailed regulation
regarding these subjects and the privacy and security of personal information.

Holding Company Regulation

We are subject to the New Jersey insurance holding company law which requires us to register with the insurance department and to furnish
annually financial and other information about the operations of the Company. Generally, all transactions with affiliates that affect the Company must be fair and reasonable and, if material, require prior notice and approval or non-disapproval by
the New Jersey insurance department.

Most states, including the states in which our U.S. insurance companies are domiciled,
have insurance laws that require regulatory approval of a direct or indirect change of control of an insurer or an insurers holding company. Laws such as these that apply to us prevent any person from acquiring control of Prudential Financial
or of our insurance subsidiaries unless that person has filed a statement with specified information with the insurance regulators and has obtained their prior approval. Under most states statutes, acquiring 10% or more of the voting stock of
an insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. Accordingly, any person who acquires 10% or more of the voting securities of Prudential Financial without the
prior approval of the insurance regulators of the states in which our U.S. insurance companies are domiciled will be in violation of these states laws and may be subject to injunctive action requiring the disposition or seizure of those
securities by the relevant insurance regulator or prohibiting the voting of those securities and to other actions determined by the relevant insurance regulator.

Currently, there are several proposals to amend state insurance holding company laws to increase the scope of regulation of insurance holding companies (such as Prudential Financial). The International
Association of Insurance Supervisors (the IAIS) and the National Association of Insurance Commissioners (the NAIC) have promulgated model laws for adoption internationally and in the United States that would provide for group
wide supervision of Prudential Financial as an insurance holding company in addition to the current regulation of Prudential Financials insurance subsidiaries. While the timing of their adoption and content will vary by jurisdiction, we
have identified the following areas of focus in these model laws: (1) uniform standards for insurer corporate governance; (2) group-wide supervision of insurance holding companies; (3) adjustments to risk-based capital calculations to
account for group-wide risks; and (4) additional regulatory and disclosure requirements for insurance holding companies. At this time, we cannot predict with any degree of certainty what additional capital requirements, compliance costs or
other burdens these requirements may impose on Prudential Financial.

In addition, many state insurance laws require prior
notification of state insurance departments of a change in control of a non-domiciliary insurance company doing business in that state. While these pre-notification statutes do not authorize the state insurance departments to disapprove the change
in control, they authorize regulatory action in the affected state if particular conditions exist such as undue market concentration. Any future transactions that would constitute a change in control of Prudential Financial may require prior
notification in those states that have adopted pre-acquisition notification laws.

Other Business Regulation

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which effects comprehensive changes to the regulation of
financial services in the United States and subjects us to substantial additional federal regulation. Dodd-Frank directs existing and newly-created government agencies and bodies to conduct certain studies and promulgate regulations implementing the
law, a process anticipated to occur over the next few years. We cannot predict with any certainty the results of the studies or the requirements of the regulations ultimately adopted or how Dodd-Frank and such regulations will affect the financial
markets generally, impact our business, credit or financial strength ratings, results of operations, cash flows or financial condition or make it advisable or require us to hold or raise additional capital.

Key aspects we have identified to date of Dodd-Franks potential impact on the Company, our parent and our affiliates include:



| |  |  | Prudential Financial will become subject, as a savings and loan holding company, to the examination, enforcement and supervisory authority of the
Board of Governors of the Federal Reserve System (FRB) after the transfer to the FRB of the existing authority of the Office of Thrift Supervision (expected to occur July 21, 2011). The FRB will have authority, among other powers,
to impose capital requirements on Prudential Financial after the transfer date. Pursuant to the Collins Amendment included in Dodd-Frank, the FRB must establish minimum leverage and risk-based capital requirements for savings and loan
holding companies (including Prudential Financial) and other institutions that are not less than those applicable to insured depository institutions. These requirements will become generally applicable to Prudential Financial on July 21, 2015
(five years after Dodd-Franks enactment) except, for purposes of calculating Tier 1 capital, new issuances of debt and equity capital will be immediately subject to the requirements. The risk-based capital requirements currently
applicable to most bank holding
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| | companies and insured depository institutions are based on the 1988 Capital Accord (Basel I) of the Basel Committee on Banking Supervision (the Basel Committee); U.S.
federal bank regulatory agencies have also adopted new risk-based capital guidelines for large, internationally active banking organizations based on revisions to Basel I issued by the Basel Committee in 2004 (Basel II). In December
2010, the Basel Committee released its final framework for strengthening international capital and liquidity regulation (Basel III). Basel III, when implemented by U.S. regulation and fully phased-in, will require bank holding companies
and insured depository institutions to maintain substantially more capital, with a greater emphasis on common equity, and to comply with liquidity coverage and net stable funding standards, including the imposition of a counter-cyclical capital
buffer. The Collins Amendment requires the FRB to adopt regulations imposing a continuing floor of the Basel I-based capital requirements in cases where the Basel II-based capital requirements and any changes in capital
regulations resulting from Basel III otherwise would permit lower requirements. In December 2010, the FRB published for comment proposed regulations implementing this requirement, including a proposal to permit flexibility in the application of
certain capital requirements imposed by Dodd-Frank to non-bank financial companies such as Prudential Financial. We cannot predict what capital regulations the FRB will promulgate under these authorizations, either generally or as applicable to
insurance-based organizations. We cannot predict how the FRB will exercise general supervisory authority over us as to the Companys business practices.
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| |  |  | Dodd-Frank establishes a Financial Stability Oversight Council (Council) which is authorized to subject non-bank financial companies
such as Prudential Financial to stricter prudential standards (a Designated Financial Company) if the Council determines that material financial distress at Prudential Financial or the scope of Prudential Financials activities
could pose a threat to financial stability of the U.S. If so designated, Prudential Financial would become subject to unspecified stricter prudential standards, including stricter requirements and limitations relating to risk-based capital,
leverage, liquidity and credit exposure, as well as overall risk management requirements, management interlock prohibitions and a requirement to maintain a plan for rapid and orderly dissolution in the event of severe financial distress. The
Collins Amendment capital requirements referred to above would apply when adopted by the FRB (i.e., the 5-year grandfathering would no longer be available). The FRB could also require the issuance of capital securities automatically
convertible to equity in the event of financial distress, require enhanced public disclosures to support market evaluation of risk profile and impose short-term debt limits. If Prudential Financial or a subsidiary were so designated, failure to meet
defined measures of financial condition could result in: limits on capital distributions, acquisitions and/or asset growth; requirements for a capital restoration plan and capital raising; limitations on transactions with affiliates; management
changes and asset sales; and, if the FRB and the Council determined Prudential Financial (or the designated subsidiary) posed a grave threat to the financial stability of the U.S., further limits on acquisitions or combinations, restrictions on
product offerings and/or requirements to sell assets. In January 2011, the Council published for comment proposed regulations setting forth the criteria by which it will determine Designated Financial Companies. We cannot predict whether Prudential
Financial or a subsidiary will be designated as a Designated Financial Company.
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| |  |  | Prudential Financial will become, as a savings and loan holding company (and if designated as a Designated Financial Company), subject to stress
tests to be promulgated by the FRB in consultation with the newly-created Federal Insurance Office (discussed below) to determine whether, on a consolidated basis, Prudential Financial has the capital necessary to absorb losses as a result of
adverse economic conditions. We cannot predict how the stress tests will be designed or conducted or whether the results thereof will cause us to alter our business practices or affect the perceptions of regulators, rating agencies, customers,
counterparties or investors of our financial strength.
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| |  |  | The Council may recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or
practices we and other insurers or other financial services companies engage in that could create or increase the risk that significant liquidity, credit or other problems spread among financial companies. We cannot predict whether any such
recommendations will be made or their effect on our business, results of operations, cash flows or financial condition.
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| |  |  | As a savings and loan holding company, Prudential Financial Inc. will become subject to the Volcker Rule provisions of Dodd-Frank
prohibiting, subject to the rules exceptions, proprietary trading and the sponsorship of, and investment in, funds (referred to in Dodd-Frank as hedge funds or private equity funds) that rely on certain exemptions from the
Investment Company Act of 1940, as amended (collectively, covered funds). In January 2011, the Council provided recommendations on the implementation of the Volcker Rule, and the FRB is to promulgate regulations thereunder within nine
months thereafter. The rule becomes effective on the earlier of one year after adoption of regulations or July 21, 2012 (two years after Dodd-Franks enactment), and activities and investments must be brought into compliance within two
years thereafter, subject to exceptions. We presently believe that the permitted activities exceptions to the rule should be interpreted in a manner that does not require our insurance subsidiaries to materially alter their securities
trading or investing practices, but there can be no assurance that the regulations promulgated will so provide. The Council recommendations expressly direct the FRB and other agencies to consider whether the permitted activities
exception should apply to separate account investments. Further, the Council stated that the agencies will need to consider a process to assess insurance company investment laws since the Volcker Rules permitted activities for
insurers are conditioned on the banking agencies, after consultation with the Council and state insurance regulators, not having jointly determined a states laws insufficient to protect the insurers safety and soundness or the financial
stability of the U.S. If the Volcker Rule were interpreted to prohibit insurance company investments in covered funds, or to apply the aggregate limit of 3% of Tier 1 capital to Prudential Financial Inc.s coinvestment in covered
funds sponsored by our Prudential Real Estate Investors (PREI), Prudential Investment Management (PIM) or other operations, Prudential Financial, Inc. insurance subsidiaries such as the Company could be required to dispose of covered fund
investments. Furthermore, our PREI and PIM investment covered funds in which we coinvest (in both insurance and non-insurance subsidiaries) which are directly affected by the Volcker Rule prohibitions which, among other things, limit permanent
investment by a sponsoring company in any one fund
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| | to no more than 3% of fund capital, limit covered fund marketing except to bona fide trust, fiduciary or investment advisory customers, prohibit covered transactions between a fund and the
sponsoring company and prohibit the use of the sponsoring companys name in the funds name. It is possible that regulations with respect to the foregoing provisions could require us to dispose of covered fund investments, significantly
alter our business practices in these operations and/or diminish the attractiveness of our covered fund products to clients. If Prudential Financial were a Designated Financial Company but not a savings and loan holding company, the foregoing
prohibitions would not apply but Prudential Financial could be subject, pursuant to future FRB rulemaking, to additional capital requirements for, and quantitative limits on, proprietary trading and sponsorship of, and investment in, covered funds.
In addition, actions taken by other financial entities in response to the Volcker Rule could potentially negatively affect the market for, returns from or liquidity of our investments in covered funds affiliated with such other financial entities.
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| |  |  | Dodd-Frank creates a new framework for regulation of the over-the-counter (OTC) derivatives markets which could impact various
activities of Prudential Global Funding (PGF), Prudential Financial and its insurance subsidiaries, which use derivatives for various purposes (including hedging interest rate, foreign currency and equity market exposures). Dodd-Frank
generally requires swaps, subject to a determination by the Commodity Futures Trading Commission (CFTC) or SEC as to which swaps are covered, with all counterparties except non-financial end users to be executed through a centralized
exchange or regulated facility and to be cleared through a regulated clearinghouse. Swap dealers and major swap participants (MSPs) are subject to capital and margin (i.e., collateral) requirements that will be imposed by the applicable
prudential regulator or the CFTC or SEC, as well as business conduct rules and reporting requirements. While we believe Prudential Financial and PGF and our insurance subsidiaries should not be considered dealers or MSPs subject to the capital and
margin requirements, the final regulations adopted could provide otherwise, which could substantially increase the cost of hedging and the related operations. A determination by the Secretary of the Treasury not to exclude foreign currency swaps and
forwards from the foregoing requirements also could have that result. PGF intermediates swaps between Prudential entities (other than PFI) and third parties, and it is possible that PGFs standardized intra-Company transactions might be
required to be executed through an exchange, cleared centrally with posted margin, potentially defeating PGFs key function; if so, Prudential entities might directly enter into swaps with third parties, potentially increasing the economic
costs of hedging. The SEC and CFTC are required to determine whether and how stable value contracts should be treated as swaps and, although we believe otherwise, various other products offered by our insurance subsidiaries might be
treated as swaps; if regulated as swaps, we cannot predict how the rules would be applied to such products or the effect on their profitability or attractiveness to our clients. Finally, the new regulatory scheme imposed on all market participants
may increase the costs of hedging generally and banking institutions (with which we enter into a substantial portion of our derivatives) will be required to conduct at least a portion of their OTC derivatives businesses outside their depositary
institutions. The affiliates through which these institutions will conduct their OTC derivatives businesses might be less creditworthy than the depository institutions themselves, and netting of counterparty exposures with non-banks will
not be allowed, potentially affecting the credit risk these counterparties pose to us and the degree to which we or an affiliate are able to enter into transactions with these counterparties. We cannot predict the effect of the foregoing on our
hedging costs, our hedging strategy or implementation thereof or whether we will need or choose to increase and/or change the composition of the risks we do not hedge.
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| |  |  | Dodd-Frank establishes a Federal Insurance Office within the Department of the Treasury to be headed by a director appointed by the Secretary of the
Treasury. While not having a general supervisory or regulatory authority over the business of insurance, the director of this office will perform various functions with respect to insurance (other than health insurance), including serving as a
non-voting member of the Council and making recommendations to the Council regarding insurers (potentially including the Company) to be designated for stricter regulation. The director is also required to conduct a study on how to modernize and
improve the system of insurance regulation in the United States, including by increased national uniformity through either a federal charter or effective action by the states.
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| |  |  | Dodd-Frank authorizes the FRB to require a savings and loan holding company or a Designated Financial Company to place its financial activities in
an intermediate holding company separate from non-financial activities (as defined for purposes of the Bank Holding Company Act) and imposes restrictions on transactions between the two businesses. While our non-financial activities are relatively
minor, the imposition of such a requirement on us could be burdensome and costly to implement. Dodd-Frank directs the U.S. Government Accountability Office to study and report to Congressional committees within eighteen months of Dodd-Franks
enactment regarding the adequacy of the federal regulatory framework which permits savings and loan holding companies to engage in non-financial activities and the consequence of prohibiting such activities.
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| |  |  | Title II of Dodd-Frank provides that a financial company may be subject to a special orderly liquidation process outside the federal bankruptcy
code, administered by the FDIC as receiver, upon a determination (with the approval of the director of the Federal Insurance Office if  as is true with respect to Prudential Financial  the largest United States subsidiary is an insurer)
that the company is in default or in danger of default and presents a systemic risk to U.S. financial stability. Were Prudential Financial subject to such a proceeding, our U.S. insurance subsidiaries would remain subject to rehabilitation and
liquidation proceedings under state law, although the FDIC has discretion and authority to initiate resolution of an insurer under state law if its state insurance regulator has not filed the appropriate judicial action within 60 days of a
systemic risk determination. However, our non-insurance U.S. subsidiaries engaged in financial activities would be subject to any special orderly liquidation process so commenced. We cannot predict how creditors of Prudential Financial or its
insurance and non-insurance subsidiaries, including the holders of Prudential Financial debt, will evaluate this potential or whether it will impact our financing or hedging costs.
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| |  |  | Dodd-Frank establishes the Bureau of Consumer Financial Protection (CFPB) as an independent agency within the FRB to regulate consumer
financial products and services offered primarily for personal, family or household purposes, with rule-making and enforcement authority over unfair, deceptive or abusive practices. Insurance products and services are not within the CFPBs
general jurisdiction, and broker-dealers and investment advisers are not subject to the CFPBs jurisdiction when acting in their registered capacity. Retirement service providers such as us could become subject to the CFPBs jurisdiction,
but only if the Department of Labor and the Department of the Treasury agree. Otherwise, we believe we offer a very limited number of products subject to CFPB regulation and the impact of Dodd-Frank on our operations in this regard should not be
material; however, it is possible that the regulations promulgated by the CFPB will assert jurisdiction more expansively than we anticipate.
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| |  |  | Dodd-Frank includes various securities law reforms that may affect our business practices and the liabilities and/or exposures associated therewith,
including:
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| |  |  | In January 2011, the SEC staff issued a study that recommends that the SEC adopt a uniform federal fiduciary standard of conduct for registered
broker-dealers and investment advisers that provide retail investors personalized investment advice about securities, consider harmonization of the regulation applicable to investment advisers and broker dealers functions taking into account the
best elements of each regime and conduct rulemakings or provide guidance to facilitate the implementation of a federal fiduciary standard of care. The SEC staff study acknowledges that Dodd-Frank provides that the offering of proprietary products
would not be a per se violation of any new standard of care and that broker-dealers selling proprietary or a limited range of products could be permitted to make certain disclosures about their limited product offerings and obtain customer consents
or acknowledgements.
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| |  |  | The SEC and other regulators are required to promulgate regulations requiring the securitizer, and possibly the originator, of certain asset-backed
securities to retain at least 5% of the credit risk of securities sold, which may apply to activities of our investment management segment if the regulations promulgated treat us as a securitizer or an originator.
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| |  |  | Dodd-Frank imposes various assessments on financial companies, including: ex-post assessments to provide funds necessary to repay any borrowing and
to cover the costs of any special resolution of a financial company conducted under Title II (although the FDIC is to take into account assessments otherwise imposed under state insurance guaranty funds); if Prudential Financial were to become
a Designated Financial Company, assessments to fund a newly-created Office of Financial Research which, among other things, assists the Council; and assessments for the costs of new regulation by the FRB. We are unable to estimate these costs at
this time.
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We cannot predict with any certainty whether these possible outcomes will occur or the effect
they may have on the financial markets or on our business, results of operations, cash flows and financial condition.

Segments

The Company currently operates as one reporting segment. Revenues, net income and total assets for this segment can be
found on the Companys Statements of Financial Position as of December 31, 2010 and 2009 and Statements of Operations and Comprehensive Income for the years ended December 31, 2010, year ended December 31, 2009, and year ended
December 31, 2008. The Companys total assets as of December 31, 2010, 2009, and 2008 were $7.5 billion, $5.4 billion, and $4.2 billion, respectively. Revenues and assets are generated from the Companys life insurance and
annuity plan product offerings.

Employees

The Company has no employees. Services to the Company are provided by employees of Prudential Insurance.

Item 1A. Risk Factors

You should
carefully consider the following risks. These risks could materially affect our business, results of operations or financial condition or cause our actual results to differ materially from those expected or those expressed in any forward looking
statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under Forward-Looking Statements above and the risks
described elsewhere in this Annual Report on Form 10-K.

The Company is indirectly owned by Prudential Financial. It is
possible that we may need to rely on our parent company to meet our capital, liquidity and other needs in the future.

Market fluctuations and general economic, market and political conditions may adversely affect our business and profitability.

Our business and our results of operations were materially adversely affected by adverse conditions in the global
financial markets and adverse economic conditions generally that began in the second half of 2007. While conditions in the global financial markets have improved, with favorable results for our business, our business, results of operations and
financial condition may be adversely affected, possibly materially, if these conditions recur.



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Even under relatively favorable market conditions, our insurance and annuities products, as
well as our investment returns and our access to and cost of financing, are sensitive to fixed income, equity, real estate and other market fluctuations and general economic, market and political conditions. These fluctuations and conditions could
adversely affect our results of operations, financial position and liquidity, including in the following respects:



| |  |  | The profitability of many of our insurance and annuities products depends in part on the value of the separate accounts supporting these products,
which fluctuate substantially depending on the foregoing conditions.
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| |  |  | A change in market conditions, including prolonged periods of high inflation, could cause a change in consumer sentiment adversely affecting sales
and persistency of our long-term savings and protection products. A prolonged period of low interest rates could cause persistency of these products to vary from that anticipated and adversely affect profitability (as further described below).
Similarly, changing economic conditions and unfavorable public perception of financial institutions can influence customer behavior, including but not limited to increasing claims or surrenders in certain product lines.
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| |  |  | Sales of our products and services may decline, and lapses and surrenders of variable life and annuity products may increase if a market downturn,
increased market volatility or other market conditions result in customers becoming dissatisfied with their investments or products.
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| |  |  | A market decline could further result in guaranteed minimum benefits contained in many of our variable annuity products being higher than current
account values or our pricing assumptions would support, requiring us to materially increase reserves for such products and may cause customers to retain contracts in force in order to benefit from the guarantees, thereby increasing their cost to
us. Any increased cost may or may not be more than offset by the favorable impact of greater persistency from prolonged fee streams. Our valuation of the liabilities for the minimum benefits contained in many of our variable annuity products
requires us to consider the market perception of our risk of non-performance, and a decrease in our own credit spreads resulting from ratings upgrades or other events or market conditions could cause the recorded value of these liabilities to
increase, which in turn could adversely affect our results of operations and financial position.
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| |  |  | Market conditions determine the availability and cost of the reinsurance protection we purchase. Accordingly, we may be forced to incur additional
expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms which could adversely affect the profitability of future business or our willingness to write future business.
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| |  |  | Hedging instruments we and our affiliates hold to manage product and other risks might not perform as intended or expected resulting in higher
realized losses and unforeseen cash needs. Market conditions can limit availability of hedging instruments and also further increase the cost of executing product related hedges and such costs may not be recovered in the pricing of the underlying
products being hedged. We execute our hedges through an affiliate that, in turn, may execute hedges with unaffiliated counterparties. Accordingly, our hedging strategies depend on the performance of this affiliate and on the performance of its
unaffiliated counterparties to such hedges. These unaffiliated counterparties may fail to perform for various reasons resulting in unhedged exposures and losses on uncollateralized positions.
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| |  |  | We have significant investment and derivative portfolios, including but not limited to corporate and asset-backed securities, equities and
commercial real estate. Economic conditions as well as adverse capital market conditions, including but not limited to a lack of buyers in the marketplace, volatility, credit spread changes, benchmark interest rate changes, and declines in value of
underlying collateral will impact the credit quality, liquidity and value of our investments and derivatives, potentially resulting in higher capital charges and unrealized or realized losses, the latter especially if we were to need to sell a
significant amount of investments under such conditions. For example, a widening of credit spreads increases the net unrealized loss position of our investment portfolio and may ultimately result in increased realized losses. Values of our
investments and derivatives can also be impacted by reductions in price transparency, changes in assumptions or inputs we use in estimating fair value and changes in investor confidence and preferences, potentially resulting in higher realized or
unrealized losses. Volatility can make it difficult to value certain of our securities if trading becomes less frequent. Valuations may include assumptions or estimates that may have significant period to period changes which could have a material
adverse effect on our results of operations or financial condition and in certain cases under U.S. GAAP such period to period changes in the value of investments are not recognized in our results of operations or statements of financial condition.
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| |  |  | Opportunities for investment of available funds at appropriate returns may be limited, including due to the low interest rate environment or other
factors, with a possible negative impact on our overall results. The consequences of holding cash for long periods of time may result in increased purchase of derivatives for duration management purposes. The increased use of derivatives may
increase the volatility of our U.S. GAAP results and our statutory capital.
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| |  |  | Regardless of market conditions, certain investments we hold, including private bonds and commercial mortgages, are relatively illiquid. If we
needed to sell these investments, we may have difficulty doing so in a timely manner at a price that we could otherwise realize.
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| |  |  | Fluctuations in our operating results and the impact on our investment portfolio may impact the Companys tax profile and its ability to
optimally utilize tax attributes.
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Adverse capital market conditions have in the past, and could in the future,
significantly affect our ability to meet liquidity needs, our access to capital and our cost of capital.

Adverse capital
market conditions have affected and may affect in the future the availability and cost of borrowed funds and could impact our ability to refinance existing borrowings, thereby ultimately impacting our profitability and ability to support or grow our
businesses. We need liquidity to pay our operating expenses and interest on our debt and replace certain maturing debt obligations. The principal sources of our liquidity are insurance premiums, annuity considerations, cash flow from our investment
portfolio, and fees from separate account assets. Sources of liquidity in normal markets also include debt instruments, including securities lending, repurchase agreements and commercial paper.

Disruptions, uncertainty and volatility in the financial markets limited and, to the extent they persist or recur, may limit in the
future our access to capital required to operate our business. These market conditions may in the future limit our ability to replace, in a timely manner, maturing debt obligations and access the capital necessary to grow our business or replace
capital withdrawn by customers. As a result, under such conditions we may be forced to delay raising capital, bear an unattractive cost of capital or be unable to access capital at any price, which could decrease our profitability and significantly
reduce our financial flexibility. Actions we might take to access financing may in turn cause rating agencies to reevaluate our ratings. Our ability to borrow funds from our affiliates through their commercial paper borrowings or otherwise may also
be dependent upon market conditions. Our internal sources of liquidity may prove to be insufficient.

The Risk Based Capital,
or RBC, ratio is a primary measure by which we and state insurance regulators evaluate our capital adequacy. We have managed the Companys RBC ratio to a level consistent with their rating objectives; however, rating agencies take into account
a variety of factors in assigning ratings in addition to RBC levels. RBC is determined by statutory rules that consider risks related to the type and quality of the invested assets, insurance-related risks associated with our products, interest rate
risks and general business risks. The RBC ratio calculations are intended to assist insurance regulators in measuring the adequacy of our statutory capitalization. Our failure to meet applicable RBC requirements or minimum statutory capital and
surplus requirements could subject us to further examination or corrective action by state insurance regulators. Our failure to maintain our RBC ratio at desired levels could also adversely impact our competitive position. In addition, RBC ratios
may impact our credit and claims paying ratings.

Disruptions in the capital markets could adversely affect our ability to
access sources of liquidity, as well as threaten to reduce our capital below a level that is consistent with our existing ratings objectives. Therefore, we may need to take actions, which may include but are not limited to: (1) undertake
capital management activities, including reinsurance transactions; (2) limit or curtail sales of certain products and/or restructure existing products; (3) undertake further asset sales or internal asset transfers; (4) seek temporary
or permanent changes to regulatory rules; and (5) maintain greater levels of cash balances or for longer periods thereby reducing investment returns. Certain of these actions may require regulatory approval and/or agreement of counterparties
which are outside of our control or have economic costs associated with them.

We have experienced and may experience
additional downgrades in our financial strength or credit ratings. A downgrade or potential downgrade in our financial strength or credit ratings could limit our ability to market our products, increase the number or value of policies being
surrendered, increase our borrowing costs and/or hurt our relationships with creditors or trading counterparties.

Financial strength ratings, which are sometimes referred to as claims-paying ratings, represent the opinions of rating
agencies regarding the financial ability of an insurance company to meet its obligations under an insurance policy, and are important factors affecting public confidence in an insurer and its competitive position in marketing products. Credit
ratings represent the opinions of rating agencies regarding an entitys ability to repay its indebtedness. A downgrade in our financial strength or credit ratings 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, 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, including insurance liabilities that are classified as embedded derivatives under U.S. GAAP.
Therefore, changes in our credit or financial strength ratings may affect the fair value of our liabilities.

We cannot
predict what additional actions rating agencies may take, or what actions we may take in response to the actions of rating agencies, which could adversely affect our business. As with other companies in the financial services industry, our ratings
could be downgraded at any time and without notice by any rating agency.

Interest rate fluctuations or prolonged periods
of low interest rates could adversely affect our business and profitability and require us to increase reserves and statutory capital.

Our insurance and annuities products, and our investment returns, are sensitive to interest rate fluctuations, and changes in interest rates could adversely affect our investment returns and results of
operations, including in the following respects:



| |  |  | Some of our products expose us to the risk that changes in interest rates will reduce the spread between the amounts that we are required to pay
under the contracts and the rate of return we are able to earn on our general account investments supporting the contracts. When interest rates decline, we have to reinvest the cash income from our investments in lower yielding instruments,
potentially reducing net investment income. Since many of our policies and contracts have guaranteed minimum interest or crediting rates or limit the resetting of interest rates, the spreads could decrease and potentially become negative. When
interest rates rise, we may not be able to replace the assets in our general account as quickly with the higher yielding assets needed to fund the higher crediting rates necessary to keep these products and contracts competitive.
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| |  |  | When interest rates rise, policy loans and surrenders and withdrawals of life insurance policies and annuity contracts may increase as policyholders
seek to buy products with perceived higher returns, requiring us to sell investment assets potentially resulting in realized investment losses, or requiring us to accelerate the amortization of deferred policy acquisition costs (as defined below).
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| |  |  | A decline in interest rates accompanied by unexpected prepayments of certain investments could result in reduced investments and a decline in our
profitability. An increase in interest rates accompanied by unexpected extensions of certain lower yielding investments could result in a decline in our profitability.
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| |  |  | Changes in the relationship between long-term and short-term interest rates could adversely affect the profitability of some of our products.
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| |  |  | Changes in interest rates could increase our costs of financing.
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| |  |  | Our mitigation efforts with respect to interest rate risk are primarily focused on maintaining an investment portfolio with diversified maturities
that has a weighted average duration that is approximately equal to the duration of our estimated liability cash flow profile. However, our estimate of the liability cash flow profile may turn out to be inaccurate. Due to these and other factors we
may need to liquidate investments prior to maturity at a loss in order to satisfy liabilities or be forced to reinvest funds in a lower rate environment. Although we take measures to manage the economic risks of investing in a changing interest rate
environment, we may not be able to effectively mitigate, and we may sometimes choose based on economic considerations and other factors not to fully mitigate, the interest rate risk of our assets relative to our liabilities.
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| |  |  | For certain of our products, a delay between the time we make changes in interest rate and other assumptions used for product pricing and the time
we are able to reflect these assumptions in products available for sale could negatively impact the long-term profitability of products sold during the intervening period.
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Recent periods have been characterized by low interest rates. A prolonged period during which interest rates remain at levels lower than
those anticipated may result in greater costs associated with certain of our product features which guarantee death benefits or income streams for stated periods or for life; higher costs for derivative instruments used to hedge certain of our
product risks; or shortfalls in investment income on assets supporting policy obligations, each of which may require us to record charges to increase reserves. In addition to compressing spreads and reducing net investment income, such an
environment may cause policies to remain in force for longer periods than we anticipated in our pricing, potentially resulting in greater claims costs than we expected and resulting in lower overall returns on business in force. In addition, certain
statutory capital requirements are based on formulas or models that consider interest rates, and a prolonged period of low interest rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to
support statutory reserves.

Guarantees within certain of our products that protect policyholders may decrease our earnings
or increase the volatility of our results of operations or financial position under U.S. GAAP if our hedging or risk management strategies prove ineffective or insufficient.

Certain of our products, including our variable annuity products include guarantees of income streams for stated periods or for life.
Downturns in equity markets, increased equity volatility, or (as discussed above) reduced interest rates could result in an increase in the valuation of liabilities associated with such products, resulting in increases in reserves and reductions in
net income. We use a variety of affiliated reinsurance hedging and risk management strategies, including product features, to mitigate these risks in part. These strategies may, however, not be fully effective. We and our reinsurance affiliates may
also choose not to fully hedge these risks. Hedging instruments may not effectively offset the costs of guarantees or may otherwise be insufficient in relation to our obligations. Hedging instruments also may not change in value correspondingly with
associated liabilities due to equity market or interest rate conditions or other reasons. We and our reinsurance affiliates sometimes choose to hedge these risks on a basis that does not correspond to their anticipated or actual impact upon our
results of operations or financial position under U.S. GAAP. For example, during the third quarter of 2010 we and our reinsurance affiliate have begun to hedge certain risks associated with variable annuity products on a basis that does not fully
correspond to the associated U.S. GAAP liability. Changes from period to period in the valuation of these policy benefits, and in the amount of our obligations effectively hedged, will result in volatility in our results of operations and financial
position under U.S. GAAP. Estimates and assumptions we make in connection with hedging activities may fail to reflect or correspond to our actual long-term exposure in respect of our guarantees. Further, the risk of increases in the costs of our
guarantees not covered by our hedging and other capital and risk management strategies may become more significant due to changes in policyholder behavior driven by market conditions or other factors. The above factors, individually or collectively,
may have a material adverse effect on our and our reinsurance affiliates results of operations, financial condition or liquidity.

Losses due to defaults by others, including issuers of investment securities or reinsurance, bond insurers and our derivative instrument counterparty, downgrades in the ratings of securities we hold or
of bond insurers, insolvencies of insurers in jurisdictions where we write business and other factors affecting our counterparties or the value of their securities could adversely affect the value of our investments, the realization of amounts
contractually owed to us, result in assessments or additional statutory capital requirements or reduce our profitability or sources of liquidity.

Issuers and borrowers whose securities or loans we hold, customers, vendors, trading counterparties, counterparties under swaps and other derivative contracts, reinsurers, clearing agents, exchanges,
clearing houses and other financial intermediaries and guarantors, including bond insurers, may default on their obligations to us or be unable to perform service functions that are significant to our business due to bankruptcy, insolvency, lack of
liquidity, adverse economic conditions, operational failure, fraud or other reasons. Such defaults, instances of which have occurred in recent periods, could have an adverse effect on our results of operations and financial condition. A downgrade in
the ratings of bond insurers could also result in declines in the value of our fixed maturity investments supported by guarantees from bond insurers.



14



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In addition, we and our reinsurance affiliate use derivative instruments to hedge various
risks, including certain guaranteed minimum benefits contained in many of our variable annuity products. We and our reinsurance affiliate enter into a variety of derivative instruments, including options, forwards, interest rate, credit default and
currency swaps with an affiliate. Amounts that we expect to collect under current and future contracts, including, but not limited to reinsurance contracts, are subject to counterparty risk. Our obligations under our products are not changed by our
hedging activities and we are liable for our obligations even if our derivative counterparties, including reinsurers, do not pay us. This is a more pronounced risk to us in view of the recent stresses suffered by financial institutions. Such
defaults could have a material adverse effect on our financial condition and results of operations.

Under state insurance
guaranty association laws, we are subject to assessments, based on the share of business we write in the relevant jurisdiction, for certain obligations of insolvent insurance companies to policyholders and claimants.

Our profitability may decline if mortality rates, morbidity rates or persistency rates differ significantly from our pricing
expectations.

We set prices for many of our insurance and annuity products based upon expected claims and payment
patterns, using assumptions for mortality rates, or likelihood of death, and morbidity rates, or likelihood of sickness, of our policyholders. In addition to the potential effect of natural or man-made disasters, significant changes in mortality or
morbidity could emerge gradually over time, due to changes in the natural environment, the health habits of the insured population, treatment patterns and technologies for disease or disability, the economic environment, or other factors. Pricing of
our insurance and deferred annuity products are also based in part upon expected persistency of these products, which is the probability that a policy or contract will remain in force from one period to the next. Persistency may be significantly
impacted by the value of guaranteed minimum benefits contained in many of our variable annuity products being higher than current account values in light of poor equity market performance or extended periods of low interest rates as well as other
factors. Persistency could be adversely affected generally by developments affecting client perception of us, including perceptions arising from adverse publicity. Results may also vary based on differences between actual and expected premium
deposits and withdrawals for these products. The development of a secondary market for life insurance, including life settlements or viaticals and investor owned life insurance, and third-party investor strategies in the annuities
business, could adversely affect the profitability of existing business and our pricing assumptions for new business. Significant deviations in actual experience from our pricing assumptions could have an adverse effect on the profitability of our
products. Although some of our products permit us to increase premiums or adjust other charges and credits during the life of the policy or contract, the adjustments permitted under the terms of the policies or contracts may not be sufficient to
maintain profitability. Many of our products do not permit us to increase premiums or adjust other charges and credits or limit those adjustments during the life of the policy or contract. Even if permitted under the policy or contract, we may not
be able or willing to raise premiums or adjust other charges sufficiently, or at all, for regulatory or competitive reasons.

If our reserves for future policyholder benefits and claims are inadequate, we may be required to increase our reserves, which would
adversely affect our results of operations and financial condition.

We establish and carry reserves to pay future
policyholder benefits and claims. Our reserves do not represent an exact calculation of liability, but rather are actuarial or statistical estimates based on data and models that include many assumptions and projections which are inherently
uncertain and involve the exercise of significant judgment, including as to the levels of and/or timing of receipt or payment of premiums, benefits, claims, expenses, interest credits, investment results (including equity market returns),
retirement, mortality, morbidity and persistency. We cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of, actual benefits, claims and expenses or whether the assets supporting our policy
liabilities, together with future premiums, will be sufficient for payment of benefits and claims. If we conclude that our reserves, together with future premiums, are insufficient to cover future policy benefits and claims, we would be required to
increase our reserves and incur income statement charges for the period in which we make the determination, which would adversely affect our results of operations and financial condition.

For certain of our products, market performance and interest rates (as well as the regulatory environment, as discussed further below)
impact the level of statutory reserves and statutory capital we are required to hold, and may have an adverse effect on returns on capital associated with these products. For example, equity market declines in the fourth quarter of 2008 caused a
significant increase in the level of statutory reserves and statutory capital we were required to hold in relation to our Individual Annuities business. We finance uneconomic reserves associated with our Individual Life business. Marketplace
capacity for reserve funding structures may be limited as a result of market conditions generally. Our ability to efficiently manage capital and economic reserve levels may be impacted, thereby impacting profitability and return on capital.

We may be required to accelerate the amortization of deferred policy acquisition costs, or DAC, or be required to
establish a valuation allowance against deferred income tax assets, either of which could adversely affect our results of operations and financial condition.

Deferred policy acquisition costs, or DAC, represent the costs that vary with and are related primarily to the acquisition of new and renewal insurance and annuity contracts, and we amortize these costs
over the expected lives of the contracts. Management, on an ongoing basis, tests the DAC recorded on our balance sheet to determine if the amount is recoverable under current assumptions. In addition, we regularly review the estimates and
assumptions underlying DAC for those products for which we amortize DAC in proportion to gross profits or gross margins. Given changes in facts and circumstances, these tests and reviews could lead to reductions in DAC that could have an adverse
effect on the results of our operations and our financial condition. Significant or sustained equity market declines as well as investment losses could result in acceleration of amortization of the DAC related to variable annuity and variable
universal life contracts, resulting in a charge to income. As discussed earlier, the amortization of DAC is also sensitive to changes in interest rates.

Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Deferred tax assets are assessed periodically by management to determine if they
are realizable. Factors in managements determination include the performance of the business, the ability to generate capital gains from a variety of sources, and tax planning strategies. If based on available information, it is more likely
than not that the deferred income tax asset will not be realized then a valuation allowance must be established with a corresponding charge to net income. Such charges could have a material adverse effect on our results of operations or financial
position.



15



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Our valuation of fixed maturity and equity securities may include methodologies,
estimations and assumptions that are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect our results of operations or financial condition.

During periods of market disruption, it may be difficult to value certain of our securities, such as sub-prime mortgage backed
securities, if trading becomes less frequent and/or market data becomes less observable. There may be cases where certain asset classes that were in active markets with significant observable data become inactive or for which data becomes
unobservable due to the current financial environment or market conditions. As a result, valuations may include inputs and assumptions that are less observable or require greater estimation and judgment as well as valuation methods which are more
complex. These values may not be ultimately realizable in a market transaction, and such values may change very rapidly as market conditions change and valuation assumptions are modified. Decreases in value may have a material adverse effect on our
results of operations or financial condition.

The decision on whether to record an other-than-temporary impairment or
write-down is determined in part by managements assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability of the particular security. Managements conclusions on such
assessments are highly judgmental and include assumptions and projections of future cash flows which may ultimately prove to be incorrect as assumptions, facts and circumstances change.

We may not be able to mitigate the reserve strain associated with Regulation XXX and Guideline AXXX, potentially resulting in a
negative impact on our capital position or in a need to increase prices and/or reduce sales of term or universal life products.

The NAIC has adopted a Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, and a supporting Guideline entitled The Application
of the Valuation of Life Insurance Policies, 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 that are consistent with the statutory reserves required for other individual life insurance policies with similar guarantees. Many market participants believe that this level of reserves is excessive, and we have implemented
reinsurance and capital management actions to mitigate the impact of Regulation XXX and Guideline AXXX on our term and universal life insurance business. As we continue to underwrite term and universal life business, we expect our reinsurance
affiliates to have borrowing needs to finance statutory reserves required under Regulation XXX and Guideline AXXX. Our reinsurance affiliates continue to explore options available to fund additional projected reserve growth, including obtaining
letters of credit, entering into reinsurance transactions and executing other capital market strategies. However the ability to execute these strategies may depend on market conditions and other factors. If unsuccessful in executing these solutions
as a result of market conditions or otherwise, this financing need could require us to increase prices and or/reduce our sales of term or universal life products and/or have a negative impact on our capital position.

Intense competition, including the impact of government sponsored programs and other actions on us and our competitors, could
adversely affect our ability to maintain or increase our market share or profitability.

In each of our businesses we face
intense competition from domestic and foreign insurance companies, asset managers and diversified financial institutions, both for the ultimate customers for our products and, in many businesses, for distribution through non-affiliated distribution
channels. We compete based on a number of factors including brand recognition, reputation, quality of service, quality of investment advice, investment performance of our products, product features, scope of distribution and distribution
arrangements, price, perceived financial strength and claims-paying and credit ratings. A decline in our competitive position as to one or more of these factors could adversely affect our profitability and assets under management. Many of our
competitors are large and well-established and some have greater market share or breadth of distribution, offer a broader range of products, services or features, assume a greater level of risk, have lower profitability expectations or have higher
claims-paying or credit ratings than we do. The proliferation and growth of non-affiliated distribution channels puts pressure on our captive sales channels to increase their productivity and reduce their costs in order to remain competitive, and we
run the risk that the marketplace will make a more significant or rapid shift to non-affiliated or direct distribution alternatives than we anticipate or are able to achieve ourselves, potentially adversely affecting our market share and results of
operations.

Competition for personnel in all of our businesses is intense, including for executive officers and management
personnel, face-to-face sales personnel, desirable non-affiliated distribution channels and our investment managers. We devote significant efforts to talent management and development and are subject to the risk that executive, management and other
personnel will be hired or recruited by competitors. The loss of key personnel could have an adverse effect on our business and profitability.

The adverse market and economic conditions that began in the second half of 2007 have resulted in changes in the competitive landscape. For example, the financial distress experienced by certain financial
services industry participants as a result of such conditions, including government mandated sales of certain businesses, may lead to additional favorable acquisition opportunities, although our ability or that of our competitors to pursue such
opportunities may be limited due to lower earnings, reserve increases, and a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by us or our competitors in product offerings, product
pricing and business mix that could affect our and their relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which we operate may be further affected by the government sponsored programs in the U.S. in
response to the dislocations in financial markets. Competitors receiving governmental financing or other assistance or subsidies, including governmental guarantees of their obligations, may obtain pricing or other competitive advantages.



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We may experience difficulty in marketing and distributing products through our current
and future distribution channels.

Although we distribute our products through a wide variety of distribution channels, we
do maintain relationships with certain key distributors. We periodically negotiate the terms of these relationships, and there can be no assurance that such terms will remain acceptable to us or such third parties. An interruption in certain key
relationships could materially affect our ability to market our products and could have a material adverse effect on our business, operating results and financial condition. Distributors may elect to reduce or terminate their distribution
relationships with us, including for such reasons as adverse developments in our business, adverse rating agency actions or concerns about market-related risks. We are also at risk that key distribution partners may merge, change their business
models in ways that affect how our products are sold, or terminate their distribution contracts with us. An increase in bank and broker-dealer consolidation activity could increase competition for access to distributors, result in greater
distribution expenses and impair our ability to market products through these channels. Consolidation of distributors and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing
selling agreements to terms less favorable to us.

When our products are distributed through unaffiliated firms, we may not be
able to monitor or control the manner of their distribution despite our training and compliance programs. If our products are distributed by such firms in an inappropriate manner, or to customers for whom they are unsuitable, we may suffer
reputational and other harms to our business.

Our business is heavily regulated and changes in regulation may reduce our
profitability.

Our business is subject to comprehensive regulation and supervision. The purpose of this regulation is
primarily to protect our customers. Many of the laws and regulations to which we are subject are regularly re-examined, and existing or future laws and regulations may become more restrictive or otherwise adversely affect our operations. The
financial market dislocations we have experienced have produced, and are expected to continue to produce, extensive changes in existing laws and regulations, and regulatory frameworks, applicable to our business.

The Company is subject to the rules and regulations of the SEC relating to public reporting and disclosure, and corporate governance
matters. The Sarbanes-Oxley Act of 2002 and rules and regulations adopted in furtherance of that Act have substantially increased the requirements in these and other areas for the Company and certain of our affiliates.

Many insurance regulatory and other governmental or self-regulatory bodies have the authority to review our products and business
practices and those of our agents and employees and to bring regulatory or other legal actions against us if, in their view, our practices, or those of our agents or employees, are improper. These actions can result in substantial fines, penalties
or prohibitions or restrictions on our business activities and could adversely affect our business, reputation, results of operations or financial condition. For a discussion of material pending litigation and regulatory matters, see
Contingent Liabilities and Regulatory Matters in the Notes to Financial Statements included in this Annual Report on Form 10-K. Insurance regulators have begun to implement significant changes in the way in which industry participants
must determine statutory reserves and statutory capital, particularly for products with embedded options and guarantees such as variable annuities, and are considering further potentially significant changes in these requirements. Regulatory capital
requirements based on scenario testing have already gone into effect for variable and certain fixed annuity products, and new reserving requirements for these products were implemented as of the end of 2009. The timing and extent of further changes
to the statutory reporting framework are uncertain.

Compliance with applicable laws and regulations is time consuming and
personnel-intensive, and changes in these laws and regulations may materially increase our direct and indirect compliance and other expenses of doing business, thus having a material adverse effect on our financial condition or results of
operations.

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act will subject the Company, our
parent and our affiliates to substantial additional federal regulation and we cannot predict the effect on our business, results of operations, cash flows or financial condition.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank), which effects comprehensive changes to the regulation of financial services in the United States and will subject the Company, our parent and our affiliates to substantial additional federal regulation. Dodd-Frank directs
existing and newly-created government agencies and bodies to promulgate regulations implementing the law, a process anticipated to occur over the next few years. We cannot predict with any certainty the requirements of the regulations ultimately
adopted or how Dodd-Frank and such regulations will affect the financial markets generally, impact our business, credit or financial strength ratings, results of operations, cash flows or financial condition.

Key aspects we have identified to date of Dodd-Franks potential impact on the Company, our parent and our affiliates include:



| |  |  | Prudential Financial will become subject, as a savings and loan holding company, to regulation by the Board of Governors of the Federal Reserve
System (FRB) after the transfer to the FRB of the existing authority of the Office of Thrift Supervision (expected to occur within a year of Dodd-Franks enactment). The FRB will have authority, among other powers, to impose capital
requirements Prudential Financial and its subsidiaries (including the Company) after the transfer date. Pursuant to the Collins Amendment included in Dodd-Frank, the FRB must establish minimum leverage and risk-based capital requirements
for savings and loan holding companies (including Prudential Financial) and other institutions that are not less than those applicable to insured depository institutions. These requirements will become generally applicable to Prudential Financial
five years after Dodd-Franks enactment except, for purposes of calculating Tier 1 capital, new issuances of debt and equity capital will be immediately subject to the requirements. We cannot predict what capital regulations the FRB will
promulgate under these authorizations, either generally or as applicable to insurance-based organizations. We cannot predict how the FRB will exercise general supervisory authority over Prudential Financial and its subsidiaries (including the
Company) as to their business practices.
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| |  |  | Dodd-Frank establishes a Financial Stability Oversight Council (Council) which is authorized to subject non-bank financial companies
such as Prudential Financial to stricter prudential standards (a Designated Financial Company) if the Council determines that material financial distress at the company or the scope of the companys activities could pose a threat to
financial stability of the U.S. If so designated, Prudential Financial and/or its subsidiaries (including the Company) would become subject to unspecified stricter prudential standards, including stricter requirements and limitations relating to
risk-based capital, leverage, liquidity and credit exposure, as well as overall risk management requirements, management interlock prohibitions and a requirement to maintain a plan for rapid and orderly dissolution in the event of severe financial
distress. The Collins Amendment capital requirements referred to above would apply when adopted by the FRB (i.e., the 5-year grandfathering would no longer be available). The FRB could also require the issuance of capital securities
automatically convertible to equity in the event of financial distress, require enhanced public disclosures to support market evaluation of risk profile and impose short-term debt limits. If Prudential Financial or a subsidiary (such as the Company)
were so designated, failure to meet defined measures of financial condition could result in: limits on capital distributions, acquisitions and/or asset growth; requirements for a capital restoration plan and capital raising, limitations on
transactions with affiliates, management changes and asset sales; and, if the FRB and the Council determined Prudential Financial (or the designated subsidiary) posed a grave threat to the financial stability of the U.S., further limits on
acquisitions or combinations, restrictions on product offerings and/or requirements to sell assets. We cannot predict whether Prudential Financial or a subsidiary will be designated as a Designated Financial Company.
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| |  |  | Prudential Financial will become, as a savings and loan holding company (and if designated, as a Designated Financial Company), subject to stress
tests to be promulgated by the FRB in consultation with the newly-created Federal Insurance Office (discussed below) to determine whether, on a consolidated basis, Prudential Financial has the capital necessary to absorb losses as a result of
adverse economic conditions. We cannot predict how the stress tests will be designed or conducted or whether the results thereof will cause Prudential Financial or a subsidiary (such as the Company) to alter its business practices or affect the
perceptions of regulators, rating agencies, customers, counterparties or investors of its financial strength.
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| |  |  | The Council may recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or
practices we and other insurers or other financial services companies engage in that could create or increase the risk that significant liquidity, credit or other problems spread among financial companies. We cannot predict whether any such
recommendations will be made or their effect on our business, results of operations, cash flows or financial condition.
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| |  |  | As a savings and loan holding company, Prudential Financial and its subsidiaries will become subject to the Volcker Rule provisions of
Dodd-Frank prohibiting, subject to the rules exceptions, proprietary trading and the sponsorship of, and investment in, funds (referred to in Dodd-Frank as hedge funds or private equity funds) that rely on certain exemptions from
the Investment Company Act of 1940, as amended. The Council is to provide recommendations on the implementation of the Volcker Rule within six months of Dodd-Franks enactment, and the FRB is to promulgate regulations thereunder within nine
months thereafter, and substantial uncertainty as to the rules application to our business may exist over this period. The rule becomes effective on the earlier of one year after adoption of regulations or two years after Dodd-Franks
enactment, and activities and investments must be brought into compliance within two years thereafter, subject to exceptions. We presently believe that the permitted activities exceptions to the rule should be interpreted in a manner
that does not require us to materially alter our securities trading or investing practices, but there can be no assurance that the regulations promulgated will so provide.
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| |  |  | Dodd-Frank creates a new framework for regulation of the over-the-counter (OTC) derivatives markets which could impact various
activities of our affiliate Prudential Global Funding, LLC (PGF), Prudential Financial and its insurance subsidiaries (including the Company), which use derivatives for various purposes (including hedging interest rate, foreign currency
and equity market exposures). Dodd-Frank generally requires swaps, subject to a determination by the CFTC or SEC as to which swaps are covered, with all counterparties except non-financial end users to be executed through a centralized exchange or
regulated facility and to be cleared through a regulated clearinghouse. Swap dealers and major swap participants (MSPs) are subject to capital and margin (i.e., collateral) requirements that will be imposed by the applicable prudential
regulator or the CFTC or SEC, as well as business conduct rules and reporting requirements. While we believe Prudential Financial and PGF should not be considered dealers or MSPs subject to the capital and margin requirements, the final regulations
adopted could provide otherwise, which could substantially increase the cost of hedging and the related operations. A determination by the Secretary of the Treasury not to exclude foreign currency swaps and forwards from the foregoing requirements
also could have that result. PGF intermediates swaps between Prudential entities and third parties, and it is possible that PGFs standardized intra-Company transactions might be required to be executed through an exchange, clear centrally and
post margin, potentially defeating PGFs key function; if so, Prudential entities (including the Company) might directly enter into swaps with third parties, potentially increasing the economic costs of hedging. The SEC and CFTC are required to
determine whether and how stable value contracts should be treated as swaps and, although we believe otherwise, various other insurance products offered by us might be treated as swaps; if regulated as swaps, we cannot predict how the
rules would be applied to such products or the effect on their profitability or attractiveness to our clients. Finally, the new regulatory scheme imposed on all market participants may increase the costs of hedging generally and banking institutions
(with which we enter into a substantial portion of our derivatives) may be required to conduct at least a portion of their OTC derivatives businesses outside their depositary institutions. The affiliates through which these institutions will conduct
their OTC derivatives businesses might be less creditworthy than the depository institutions themselves, and netting of counterparty exposures with non-banks will not be allowed, potentially affecting the credit risk these counterparties
pose to us and the degree to which we are able to enter into transactions with these counterparties. We cannot predict the effect of the foregoing on our hedging costs, our hedging strategy or implementation thereof or whether we will need or choose
to increase and/or change the composition of the risks we do not hedge.
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| |  |  | Dodd-Frank establishes a Federal Insurance Office within the Department of the Treasury to be headed by a director appointed by the Secretary of the
Treasury. While not having a general supervisory or regulatory authority over the business of insurance, the director of this office will perform various functions with respect to insurance (other than health insurance), including serving as a
non-voting member of the Council and making recommendations to the Council regarding insurers to be designated for stricter regulation. The director is also required to conduct a study on how to modernize and improve the system of insurance
regulation in the United States, including by increased national uniformity through either a federal charter or effective action by the states.
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| |  |  | Title II of Dodd-Frank provides that a financial company may be subject to a special orderly liquidation process outside the federal bankruptcy
code, administered by the FDIC as receiver, upon a determination (with the approval of the director of the Federal Insurance Office if  as is true with respect to Prudential Financial  the largest United States subsidiary is an insurer)
that the company is in default or in danger of default and presents a systemic risk to U.S. financial stability. Were Prudential Financial subject to such a proceeding, the Company would remain subject to rehabilitation and liquidation proceedings
under state law, although the FDIC has discretion and authority to initiate resolution of an insurer under state law if its state insurance regulator has not filed the appropriate judicial action within 60 days of a systemic risk determination. We
cannot predict how our creditors or creditors of Prudential Financial or its insurance and non-insurance subsidiaries, including the holders of Prudential Financial debt, will evaluate this potential or whether it will impact the Companys or
our affiliates financing or hedging costs.
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| |  |  | Dodd-Frank establishes the Bureau of Consumer Financial Protection (BCFP) as an independent agency within the FRB to regulate consumer
financial products and services offered primarily for personal, family or household purposes, with rule-making and enforcement authority over unfair, deceptive or abusive practices. Insurance products and services are not within the BCFPs
general jurisdiction, and broker-dealers and investment advisers are not subject to the BCFPs jurisdiction when acting in their registered capacity. Retirement service providers (which may include certain of our affiliates) could become
subject to the BCFPs jurisdiction, but only if the Department of Labor and the Department of the Treasury agree. Otherwise, we believe that the Company and its affiliates offer a very limited number of products subject to BCFP regulation and
the impact of Dodd-Frank on their operations in this regard should not be material; however, it is possible that the regulations promulgated by the BCFP will assert jurisdiction more expansively than we anticipate.
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| |  |  | Dodd-Frank includes various securities law reforms that may affect the business practices of the Company and its affiliates and the liabilities
and/or exposures associated therewith, including:
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| |  |  | The SEC has issued a study and may impose on registered broker-dealers that provide retail investors personalized investment advice about securities
a new standard of conduct the same or similar as the overall standard for investment advisers (i.e. a fiduciary standard). The SEC may also require broker-dealers selling proprietary or a limited range of products to make certain disclosures and
obtain customer consents or acknowledgements.
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| |  |  | Dodd-Frank imposes various assessments on financial companies, including (as applicable Prudential Financial and its subsidiaries) ex-post
assessments to provide funds necessary to repay any borrowing and to cover the costs of any special resolution of a financial company conducted under Title II (although the FDIC is to take into account assessments otherwise imposed under state
insurance guaranty funds); if Prudential Financial and//or one of its subsidiaries (such as the Company) were to become a Designated Financial Company, assessments to fund a newly-created Office of Financial Research which, among other things,
assists the Council; and the costs of the new regulation by the FRB. We are unable to estimate these costs at this time.
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Changes in U.S. federal income tax law could make some of our products less attractive to consumers and increase our tax costs.

Current U.S. federal income tax laws generally permit certain holders to defer taxation on the build-up of value of annuities and life
insurance products until payments are actually made to the policyholder or other beneficiary and to exclude from taxation the death benefit paid under a life insurance contract. Congress from time to time considers legislation that could make our
products less attractive to consumers, including legislation that would reduce or eliminate the benefit of this deferral on some annuities and insurance products, as well as other types of changes that could reduce or eliminate the attractiveness of
annuities and life insurance products to consumers.

For example, the estate tax was completely eliminated for the year 2010;
however, certain carryover basis rules applied. The tax has been reinstated through 2012 with a $5 million per individual exemption, a 35% maximum rate and step up in basis rules. Estates of decedents who died in 2010 can choose between the rules
that were in effect in 2010 or the new rules. It is unclear what Congress will do after 2012. This uncertainty makes estate planning difficult and may impact sales of our products.

Congress, as well as state and local governments, also considers from time to time legislation that could increase the amount of
corporate taxes we pay. For example, changes in the law relating to tax reserving methodologies for term life or universal life insurance policies with secondary guarantees or other products could result in higher current taxes.

The U.S. Treasury Department and the Internal Revenue Service have indicated that they intend to address through regulations the
methodology to be followed in determining the dividends received deduction, or DRD, related to variable life insurance and annuity contracts. The DRD reduces the amount of dividend income subject to tax and is a significant component of the
difference between our actual tax expense and the expected amount determined using the federal statutory tax rate of 35%. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through regulations or
legislation, could increase our actual tax expense and reduce our net income.



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On February 14, 2011, the Obama Administration released the General Explanations
of the Administrations Revenue Proposals. Although the Administration has not released proposed statutory language, the Revenue Proposals include proposals which, if enacted, would affect the taxation of life insurance companies and
certain life insurance products. In particular, the proposals would affect the treatment of corporate owned life insurance policies, or COLIs, by limiting the availability of certain interest deductions for companies that purchase those policies.
The proposals would also change the method used to determine the amount of dividend income received by a life insurance company on assets held in separate accounts used to support products, including variable life insurance and variable annuity
contracts that are eligible for the DRD. If proposals of this type were enacted, the Companys sale of COLI, variable annuities, and variable life insurance products could be adversely affected and the Companys actual tax expense could
increase, thereby reducing earnings.

There is generally uncertainty regarding U.S. taxes both for individuals and
corporations in light of the fact that many tax provisions recently enacted or extended will sunset by the end of 2012. In addition, the recommendations made by the Presidents bipartisan National Commission on Fiscal Responsibility and Reform
and other deficit reduction panels suggest the need to reform the U.S. tax code. In addition, Congress will be holding a number of hearings throughout the year devoted to tax reform. It is unclear whether or when Congress may take up overall tax
reform and what would be the impact of reform on the Company and its products. However even in the absence of overall tax reform, the large federal deficit, as well as the budget constraints faced by many states and localities, increases the
likelihood that Congress and state and local governments will raise revenue by enacting legislation increasing the taxes paid by individuals and corporations. This can be accomplished either by raising rates or otherwise changing the tax rules.
While higher tax rates increase the benefits of tax deferral on the build-up of value of annuities and life insurance, making our products more attractive to consumers, legislation that reduces or eliminates deferral would have a potential negative
effect on our products. In addition, changes in the tax rules that result in higher corporate taxes will increase the Companys actual tax expense, thereby reducing earnings.

The products we sell have different tax characteristics, in some cases generating tax deductions. The level of profitability of certain
of our products is significantly dependent on these characteristics and our ability to continue to generate taxable income, which is taken into consideration when pricing products and is a component of our capital management strategies. Accordingly,
changes in tax law, our ability to generate taxable income, or other factors impacting the availability or value of the tax characteristics generated by our products, could impact product pricing and returns or require us to reduce our sales of
these products or implement other actions that could be disruptive to our businesses.

Legal and regulatory actions are
inherent in our business and could adversely affect our results of operations or financial position or harm our business or reputation.

We are, and in the future may be, subject to legal and regulatory actions in the ordinary course of our business. Some of these proceedings have been brought on behalf of various alleged classes of
complainants. In certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. Legal liability or adverse publicity in respect of these or future legal or regulatory actions could
have an adverse affect on us or cause us reputational harm, which in turn could harm our business prospects.

Material pending
litigation and regulatory matters affecting us, and certain risks to our businesses presented by such matters, are discussed under Contingent Liabilities and Regulatory Matters in the Notes to Financial Statements included in this Annual
Report on Form 10-K. Our litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcome cannot be predicted. Our reserves for litigation and regulatory matters may prove to be inadequate. It
is possible that our results of operations or cash flow in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results
of operations or cash flow for such period. In light of the unpredictability of the Companys litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or
regulatory matters could have a material adverse effect on the Companys financial position.

We may not be able to
protect our intellectual property and may be subject to infringement claims.

We rely on a combination of contractual
rights with third parties and copyright, trademark and trade secret laws to establish and protect our intellectual property. Although we endeavor to protect our rights, third parties may infringe or misappropriate our intellectual property. We may
have to litigate to enforce and protect our copyrights, trademarks, trade secrets and know-how or to determine their scope, validity or enforceability. This would represent a diversion of resources that may be significant and our efforts may not
prove successful. The inability to secure or protect our intellectual property assets could have a material adverse effect on our business and our ability to compete.

We may be subject to claims by third parties for (i) patent, trademark or copyright infringement, (ii) breach of copyright, trademark or license usage rights, or (iii) misappropriation of
trade secrets. Any such claims and any resulting litigation could result in significant expense and liability for damages. If we were found to have infringed or misappropriated a third-party patent or other intellectual property right, we could in
some circumstances be enjoined from providing certain products or services to our customers or from utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to
enter into costly licensing arrangements with third parties or implement a costly work around. Any of these scenarios could have a material adverse effect on our business and results of operations.



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The occurrence of natural or man-made disasters could adversely affect our results of
operations and financial condition.

The occurrence of natural disasters, including hurricanes, floods, earthquakes,
tornadoes, fires, explosions, pandemic disease and man-made disasters, including acts of terrorism and military actions, could adversely affect our results of operations or financial condition, including in the following respects:



| |  |  | Catastrophic loss of life due to natural or man-made disasters could cause us to pay benefits at higher levels and/or materially earlier than
anticipated and could lead to unexpected changes in persistency rates.
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| |  |  | A natural or man-made disaster could result in losses in our investment portfolio or the failure of our counterparties to perform, or cause
significant volatility in global financial markets.
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| |  |  | A terrorist attack affecting financial institutions in the United States or elsewhere could negatively impact the financial services industry in
general and our business operations, investment portfolio and profitability in particular. In August 2004, the U.S. Department of Homeland Security identified our Newark, New Jersey facilities, along with those of several other financial
institutions in New York and Washington, D.C., as possible targets of a terrorist attack.
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| |  |  | Pandemic disease, caused by a virus such as H5N1, the avian flu virus, or H1N1, the swine flu virus, could have a severe
adverse effect on our business. The potential impact of such a pandemic on our results of operations and financial position is highly speculative, and would depend on numerous factors, including: in the case of the avian flu virus, the probability
of the virus mutating to a form that can be passed easily from human to human; the effectiveness of vaccines and the rate of contagion; the regions of the world most affected; the effectiveness of treatment for the infected population; the rates of
mortality and morbidity among various segments of the insured versus the uninsured population; the collectability of reinsurance; the possible macroeconomic effects of a pandemic on the Companys asset portfolio; the effect on lapses and
surrenders of existing policies, as well as sales of new policies; and many other variables.
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There can be
no assurance that our business continuation plans and insurance coverages would be effective in mitigating any negative effects on our operations or profitability in the event of a terrorist attack or other disaster.

Climate change, and its regulation, may affect the prospects of companies and other entities whose securities we hold and other
counterparties, including reinsurers, and affect the value of investments, including real estate investments that we hold. Our current evaluation is that the near term effects of climate change and climate change regulation on the Company are not
material, but we cannot predict the long term impacts on us from climate change or its regulation.

Our risk management
policies and procedures may leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses or result in losses.

Our policies, procedures and controls to monitor and manage risks, including hedging programs that utilize derivative financial instruments, may not be fully effective in achieving their purposes and may
leave us exposed to unidentified and unanticipated risks. The Company uses models in its hedging programs and many other aspects of its operations, including but not limited to the estimation of actuarial reserves, the amortization of deferred
acquisition costs, and the valuation of certain other assets and liabilities. These models rely on assumptions and projections that are inherently uncertain. Management of operational, legal and regulatory risks requires, among other things,
policies, procedures and controls to record properly and verify a large number of transactions and events, and these policies, procedures and controls may not be fully effective.

Past or future misconduct by our employees or employees of our vendors could result in violations of law by us, regulatory sanctions
and/or serious reputational or financial harm and the precautions we take to prevent and detect this activity may not be effective in all cases. Although we employ controls and procedures designed to monitor associates business decisions and
prevent us from taking excessive or inappropriate risks, there can be no assurance that these controls and procedures are or may be effective. We review our compensation policies and practices as part of our overall risk management program, but it
is possible that our compensation policies and practices could inadvertently incent excessive or inappropriate risk taking. If our associates take excessive or inappropriate risks, those risks could harm our reputation and have a material adverse
effect on our results of operations or financial condition.

Interruption in telecommunication, information technology and
other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems, could harm our business.

We depend heavily on our telecommunication, information technology and other operational systems and on the integrity and timeliness of data we use to run our businesses and service our customers. These
systems may fail to operate properly or become disabled as a result of events or circumstances wholly or partly beyond our control. Further, we face the risk of operational and technology failures by others, including clearing agents, exchanges and
other financial intermediaries and of vendors and parties to which we outsource the provision of services or business operations. If these parties do not perform as anticipated, we may experience operational difficulties, increased costs and other
adverse effects on our business. These risks are heightened by our offering of increasingly complex products, such as those that feature automatic asset transfer or re-allocation strategies, and by our employment of complex investment, trading and
hedging programs.

Despite our implementation of a variety of security measures, our information technology and other systems
could be subject to physical or electronic break-ins, unauthorized tampering or other security breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to
customers.



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Interruption in telecommunication, information technology and other operational systems, or
a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems, whether due to actions by us or others, could delay or disrupt our ability to do business and service our customers, harm our reputation,
subject us to regulatory sanctions and other claims, lead to a loss of customers and revenues and otherwise adversely affect our business.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Office space is provided by Prudential Insurance, as is described in the Notes to the Financial Statements.

Item 3. Legal Proceedings

We are subject to legal and regulatory actions in the ordinary course of our business, including class action lawsuits. Our pending legal and regulatory actions may include proceedings specific to us and
proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and individual lawsuits involving a variety of issues, including sales practices, underwriting practices, claims
payment and procedures, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, return of premiums or excessive premium charges and breaching fiduciary duties to customers. We are subject to litigation
involving commercial disputes with counterparties or partners and class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of assets and annuity and
investment products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We may be a defendant in, or be contractually
responsible to third parties for, class action lawsuits and individual litigation arising from our operations, including claims for breach of contract. We are also subject to litigation arising out of our general business activities, such as our
investments, contracts, leases and labor and employment relationships, including claims of discrimination and harassment and could be exposed to claims or litigation concerning certain business or process patents. Regulatory authorities from time to
time make inquiries and conduct investigations and examinations relating particularly to us and our products. In addition, we, along with other participants in the businesses in which we engage, may be subject from time to time to investigations,
examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties may seek large and/or indeterminate amounts,
including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain.

Material pending litigation and regulatory matters affecting us, and certain risks to our business presented by such matters, are
discussed within Note 12 to the Financial Statements included in this Annual Report on Form 10-K, under Litigation and Regulatory Matters.

Our litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcome cannot be predicted. It is possible that our results of operations or cash flow
in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation or regulatory matters depending, in part, upon the results of operations or cash flow for such period. In light of
the unpredictability of the Companys litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters could have a material adverse effect
on our financial position. Management believes, however, that based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to
indemnification, is not likely to have a material adverse effect on our financial position.

PART II

Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

The Company is a wholly owned subsidiary of Pruco Life Insurance Company. There is no public market for the
Companys common stock.

Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Managements Discussion and Analysis of Financial Condition and Results of Operations,
or MD&A, is omitted pursuant to General Instruction I (2) (a) of Form 10-K. The management narrative for Pruco Life Insurance Company of New Jersey that follows should be read in conjunction with the Forward-looking
Statements included below the Table of Contents, Risk Factors, and the Financial Statements and related notes included in this Annual Report on Form 10-K.

Managements narrative addresses the financial condition of Pruco Life Insurance Company of New Jersey as of December 31, 2010, compared with December 31, 2009, and its results of
operations for the years ended December 31, 2010 and 2009.

Overview

The Company sells universal life insurance and variable life insurance, term life insurance and variable annuities, primarily through
third party distributors in New Jersey and New York. These markets are subject to regulatory oversight, with particular emphasis placed on company solvency and sales practices. These markets are also subject to increasing competitive pressure as the
legal barriers, that have historically segregated the markets of the financial services industry have been changed. Regulatory changes have opened the insurance industry to competition from other financial institutions, particularly banks and mutual
funds that are positioned to deliver competing investment products through large, stable distribution channels.



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Beginning in March 2010, Prudential Annuities Life Assurance Corporation
(PALAC), an affiliate of the Company, ceased offering its existing variable annuity products (and where offered, the companion market value adjustment option) to new investors upon the launch of a new product in Pruco Life Insurance
Company of New Jersey. In general, the new product line offers the same optional living benefits and optional death benefits as offered by PALACs existing variable annuities. However, subject to applicable contractual provisions and
administrative rules, PALAC will continue to accept subsequent purchase payments on in force contracts under existing annuity products. These initiatives were implemented to create operational and administrative efficiencies by offering a single
product line of annuity products from a more limited group of legal entities. In addition, by limiting its variable annuity offerings to a single product line sold through one insurer the Prudential Annuities business unit of Prudential Financial
expects to convey a more focused, cohesive image in the marketplace.

Industry Trends

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

Financial and Economic Environment. Our businesses and results of operations are impacted
by general economic and market conditions and are sensitive to changes in equity markets and interest rates. The adverse market and economic conditions that began in the second half of 2007 have improved, with equity and fixed income markets
continuing to recover. Interest rates and the pace and extent of changes in rates have impacted the profitability of certain products we offer as well as returns on the investment portfolio backing our insurance liabilities and equity.

Regulatory Environment. Our businesses are subject to comprehensive regulation and supervision. The financial market dislocations
we have experienced have produced, and are expected to continue to produce, extensive changes in existing laws and regulations, and regulatory frameworks applicable to our businesses. In particular, the Dodd-Frank Wall Street Reform and Consumer
Protection Act signed into law on July 21, 2010 made comprehensive changes to the regulation of financial services in the U.S. and subjects us to substantial additional federal regulation. In addition, state insurance laws regulate all aspects
of our businesses and our insurance products are substantially affected by federal and state tax laws. Insurance regulators have begun to implement significant changes in the way in which industry participants must determine statutory reserves and
statutory capital, particularly for products with embedded options and guarantees such as variable annuities, and are considering further potentially significant changes in these requirements. In addition, Congress from time to time considers
legislation impacting U.S. federal income tax laws, such as the possible elimination of the dividends received deduction, which could adversely impact profitability or make our products less attractive to consumers.

Demographics.Income protection, wealth accumulation and the needs of retiring baby boomers continue to shape the insurance
industry. Retirement security is one of the most critical issues in the U.S. for individuals and the investment professionals and institutions that support them. The risk and responsibility of retirement savings continues to shift to employees, away
from the government and employers. Life insurance ownership among U.S. households has reached its lowest point in fifty years, with consumers citing other financial priorities and cost of insurance as reasons for the lack of coverage.

Competitive Environment. Our annuities business operates in a highly competitive environment. Market volatility in recent years
has led many companies within the industry to reduce risk in product features and increase costs. In addition, some peer companies have either exited the variable annuity marketplace or substantially reduced product features. We believe our
innovative product offerings have increased our competitiveness, thus increasing our sales. As a result of the launch of the Companys new product line in March 2010, an affiliated company, the Prudential Annuities Life Assurance Corporation,
ceased selling variable annuity products. In general, the new product line offers the same optional living benefits and optional death benefits as offered by the Companys existing variable annuities. Most of our new variable annuity sales, as
well as a significant portion of our in force business, where an optional living benefit has been elected, include an asset transfer feature, which is valued in the marketplace.

The individual life market is mature and, due to the large number of competitors, competition is driven mainly by price and service. The
economy has exacerbated pressure on pricing, creating an even greater challenge of maintaining pricing discipline. This has negatively impacted our individual life sales, in an industry which has shifted toward non-proprietary distribution channels,
which are more price sensitive than proprietary distribution channels.

Revenues and Expenses

The Company earns revenues principally from insurance premiums; mortality, expense, and asset administration fees from insurance and
investment products; and investment of general account and other funds. The Company earns premiums primarily from the sale of individual life insurance. The Company earns mortality, expense fees, and asset administration fees on the servicing of
separate account products including universal and variable life insurance and variable annuities. The Companys operating expenses principally consist of insurance benefits provided, general business expenses, commissions and other costs of
selling and servicing the various products we sell and interest credited on general account liabilities.

Profitability

The Companys profitability depends principally on its ability and Prudential Insurances ability to price and manage risk on
insurance products, to attract and retain customer assets, and to manage expenses. Specific drivers of our profitability include:



| |  |  | our ability to manufacture and distribute products and services and to introduce new products that gain market acceptance on a timely basis;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



23



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| |  |  | our ability to price our insurance products at a level that enables us to earn a margin over the cost of providing benefits and the expense of
acquiring customers and administering those products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our mortality and morbidity experience on individual life insurance and annuity products, including the extent and cost of reinsurance, which can
fluctuate significantly from period to period;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our persistency experience, which affects our ability to recover the cost of acquiring new business over the lives of the contracts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our cost of administering insurance contracts and providing asset management products and services;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | our ability to manage and control our operating expenses, including overhead expenses;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | our returns on invested assets, including the impact of credit losses, net of the amounts we credit to policyholders accounts;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the amount of our assets under management and changes in their fair value, which affect the amount of asset administration fees we receive;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to generate favorable investment results through asset/liability management and strategic and tactical asset allocation
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | our credit and financial strength ratings;
| | - |  | ------------------------------------------



| |  |  | our ability to effectively utilize our tax capacity; and
| | - |  | --------------------------------------------------------



| |  |  | our reinsurance affiliates ability to manage risk and exposures, including the degree to which, and the effectiveness of, hedging these risks
and exposures.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, factors such as credit market conditions, regulation, competition, interest
rates, taxes, market fluctuations and general economic, market and political conditions affect our profitability. In some of our product lines, we share experience on mortality, morbidity, persistency and investment results with our customers, which
can offset the impact of these factors on our profitability from those products.

See Risk Factors for a
discussion of risks that have materially affected and may affect in the future the Companys business, results of operations or financial condition, or cause the Companys actual results to differ materially from those expected or those
expressed in any forward looking statements made by or on behalf of the Company.

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or 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, results of operations and financial position as reported in the 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.

Deferred Policy Acquisition and Other Costs

We capitalize costs that vary with and are related primarily to the acquisition of new and renewal insurance and annuity contracts. These costs include primarily commissions, costs of policy issuance and
underwriting, and variable field office expenses that are incurred in producing new products. In addition, we also defer costs associated with sales inducements related to our variable annuity contracts. Sales inducements are amounts that are
credited to the policyholders account balance as an inducement to purchase the contract. For additional information about our deferred sales inducements, see Note 7 to the Financial Statements. We amortize these deferred policy acquisition
costs, or DAC, and deferred sales inducements (DSI), over the expected lives of the contracts, based on our estimates of the level and timing of gross profits or gross premiums, depending on the type of contract. As described in more
detailed 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 profits or gross premiums. As of
December 31, 2010, DAC for life products was $218 million and DAC for our annuity products was $148 million. As of December 31, 2010, DSI was $51 million, related entirely to our annuity products.

Amortization methodologies

DAC associated with term life policies is amortized in proportion to gross premiums. We evaluate the recoverability of our DAC related to these policies as part of our premium deficiency testing. If a
premium deficiency exists, we reduce DAC by the amount of the deficiency or to zero through a charge to current period earnings. If the deficiency is more than the DAC balance, we then increase the reserve for future policy benefits by the excess,
by means of a charge to current period earnings. Generally, we do not expect significant deterioration in future experience, and therefore do not expect significant writedowns to the related DAC.

DAC and DSI associated with the variable and universal life policies and the variable and fixed annuity contracts is amortized over the
expected life of these policies in proportion to gross profits. DAC and DSI are also subject to recoverability testing which we perform at the end of each reporting period to ensure that each balance does not exceed the present value of estimated
gross profits. In calculating gross profits, we consider mortality, persistency, and other elements as well as rates of return on investments associated with these contracts and the cost related to our guaranteed minimum death and guaranteed minimum
income benefits. In addition, in calculating gross profits, we include the profits and losses related to contracts issued by the Company that are reported in affiliated legal entities other than the Company as a result of, for example, reinsurance
agreements with those affiliated entities. The Company is an indirect subsidiary of Prudential Financial (an SEC registrant) and has extensive



24



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transactions and relationships with other subsidiaries of Prudential Financial, including reinsurance agreements, as discussed in Note 13 to the Consolidated Financial Statements. Incorporating
all product-related profits and losses in gross profits, including those that are reported in affiliated legal entities, produces a DAC amortization pattern representative of the economics of the products. For a further discussion of the
amortization of DAC and DSI, see Results of Operations.

Total gross profits include both actual experience
and estimates of gross profits for future periods. We regularly evaluate and adjust the related DAC and DSI balances with a corresponding charge or credit to current period earnings for the effects of our actual gross profits and changes in our
assumptions regarding estimated future gross profits. Adjustments to the DAC and DSI balances include the impact to our estimate of total gross profits of the annual review of assumptions, quarterly adjustments for current period experience and
quarterly adjustments for market performance related adjustments. Each of these adjustments is further discussed below in - Annual assumptions review and quarterly adjustments.

In addition to the gross profit components mentioned above, we also include the impact of the embedded derivatives associated with
certain of the optional living benefit features of our variable annuity contracts and related hedging activities in actual gross profits used as the basis for calculating current period amortization, including any impacts that are recorded in the
reinsurance affiliate. Historically, we also included the impact of these embedded derivatives and related hedging activities, excluding the impact of the market-perceived risk of our own non-performance, in our total gross profits used to determine
the DAC and DSI amortization rates. In the third quarter of 2010, the hedging strategy of the Company and our reinsurance affiliate was revised, which resulted in a change in how certain gross profit components are used to determine the DAC and DSI
amortization rates. For additional information regarding the change in hedging strategy see Item 1. Business  Products. As of the third quarter of 2010, managements best estimate of the total gross profits associated with
these optional living benefit features and related hedge positions is based on the updated hedge target definition However, total gross profits for these purposes includes the difference between the value of the hedge target liability and asset
value only to the extent this net amount is determined by management to be other than temporary, as well as the impact of assumption updates on the valuation of the hedge target liability. The determination of whether the difference between the
value of the hedge target liability and asset value is other-than-temporary is based on an evaluation of the effectiveness of the hedge program. Management generally expects differences between the value of the hedge target liability and asset value
to be temporary and to reverse over time. Such differences would not be included in total gross profits for purposes of determining the amortization rates. However, based on the effectiveness of the hedge program, management may determine that the
difference between the value of the hedge target liability and the asset value is other-than-temporary and would include that amount in managements best estimate of total gross profits for setting the DAC and DSI amortization rates. Management
may also decide to temporarily hedge to an amount that differs from the target hedge definition, given overall capital considerations of our ultimate parent, Prudential Financial and its subsidiaries, as a whole, and prevailing market conditions.
The impact from temporarily hedging to an amount that differs from the hedge target definition, as well as the results of the capital hedge program we began in the second quarter of 2009 and modified in 2010, are not considered in calculating total
gross profits used to determine amortization rates nor included in actual gross profits used in calculating current period amortization.

Annual assumptions review and quarterly adjustments

Annually, during the third quarter, we perform a comprehensive review of the assumptions used in estimating gross profits for future periods. Although we review these assumptions on an ongoing basis
throughout the year, we generally only update these assumptions and adjust the DAC and DSI balances during the third quarter, unless a material change that we feel is indicative of a long term trend is observed in an interim period. 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. We expect these assumptions to be the ones most likely to cause potential significant changes 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. A significant portion of gross profits for our variable annuity contracts 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 fees we earn and decrease the costs we incur associated with the guaranteed minimum death and guaranteed minimum
income benefit features related to our variable annuity contracts, resulting in higher expected future gross profits and lower DAC and DSI amortization for the period. The opposite occurs when returns are lower than our expectations.

The near-term future rate of return assumptions used in evaluating DAC and DSI are derived using a reversion to the mean approach, a
common industry practice. Under this approach, we consider actual returns over a period of time and initially adjust future projected returns over a four year period so that the assets grow at the long-term expected rate of return for the entire
period. If the projected future rate of return over a four year period is greater than our maximum future rate of return, we use our maximum future rate of return. As of December 31, 2010, our long-term expected blended rates of return across
all asset types for variable annuity products and variable life policies range from is 7.5% to 7.9% per annum, and reflect among other assumptions, an expected rate of return of 9.3% per annum for equity type assets and a 5.7% annual
weighted average rate of return on fixed income investments. Unless there is a sustained interim deviation, our long-term expected rate of return assumptions generally are not impacted by short-term market fluctuations. As of December 31, 2010,
our current maximum blended future rates of return under the reversion to the mean approach for variable annuities products and variable life policies was 9.9% and 9.8% per annum, respectively. Included in this blended maximum future rate are
assumptions for returns on various asset classes, including a 13% per annum maximum rate of return on equity investments and a 5.7% annual weighted average rate of return on fixed income investments.



25



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We update the projected future rate of return and our estimate of total gross profits each
quarter to reflect the result of the reversion to the mean approach. 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. The new required rate of amortization is also applied prospectively to future gross profits in calculating amortization in future periods. For variable annuities contracts and
variable life policies, as of December 31, 2010, our expected blended rate of return for the next four years across all asset types is 7.6% and 8.6% per annum, respectively. These blended rates represent a weighted average of our expected
rates of return across all contract groups. For some contract groups, our expected blended rate of return for the next four years equals our current maximum future rates of return, as the near-term projected future rate of return under the reversion
to the mean approach is greater than our maximum future rate of return. For certain contract groups relating to variable annuities issued in 2009 and 2010, the expected blended rate of return over the next four years is under 7.6% per annum,
reflecting the impact of more favorable markets in 2009 and 2010 and the reversion to the mean approach.

Sensitivity

Annuity Products

For variable annuity contracts, DAC and DSI are more sensitive to changes in our future rate of return assumptions due primarily to the
significant portion of gross profits that is dependent upon the total rate of return on assets held in separate account investment options, and the shorter average life of the contracts.

The following table provides a demonstration of the sensitivity of each of the 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 basis points. The sensitivity includes an increase and decrease of 100 basis points to both the
near-term future rate of return assumptions used over the next four years, and the long-term expected rate of return used thereafter. While the information below is for illustrative purposes only and does not reflect our expectations regarding
future rate of return assumptions, it is a near-term, reasonably likely hypothetical change that illustrates the potential impact of such a change. This information 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, 2010          |     
|                                                      |  | Increase/(Reduction)in
DAC |      |   | Increase/(Reduction)in
DSI |  
|                                                      |  | (in millions)              |     
|Increase in future rate of return by 100 basis points |  | $                          | 1.5  |   |                            | $ | 0.5  |  
|Decrease in future rate of return by 100 basis points |  | $                          | (1.5 | ) |                            | $ | (0.6 | )

Life Products

For the variable and universal life policies, 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 represent our expected claims experience over the life of these policies and are developed based on Company experience. We
review and 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.

The DAC balance associated with the variable and universal life policies as of December 31, 2010 was $117 million. 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%.
While the information below is for illustrative purposes only and does not reflect our expectations regarding future mortality assumptions, it is a near-term, reasonably likely hypothetical change that illustrates the potential impact of such a
change. This information considers only the direct effect of changes in our mortality assumptions on the DAC balance and not changes in any other assumptions such as persistency, future rate of return, or expenses included in our evaluation of DAC,
and does not reflect changes in reserves, such as the unearned revenue reserve, which would partially offset the adjustments to the DAC balance reflected below.



|                                   |  |                            |      |  
|---------------------------------- |  | -------------------------- | ---- | -
|                                   |  | December 31, 2010          |     
|                                   |  | Increase/(Reduction) inDAC |     
|                                   |  | (in millions)              |     
|Decrease in future mortality by 1% |  | $                          | 1.9  |  
|Increase in future mortality by 1% |  | $                          | (2.0 | )



26



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See Results of Operations for a discussion of the impact of DAC and DSI
amortization on our results of the life and annuities products.

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 loans, equity securities, derivative financial instruments, and other long-term investments. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or the
values of securities. Derivative financial instruments we generally use include swaps, options, and futures which are contracted over-the-counter with an affiliate. 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
| | - |  | -----------------------------------------------



| |  |  | Determination of the valuation allowance for losses on commercial mortgage and other loans
| | - |  | ------------------------------------------------------------------------------------------

We present our investments classified as available for sale, including fixed maturity and equity securities, our investments classified
as trading and derivatives, including embedded derivatives at fair value in the statements of financial position. 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 10 to the Financial Statements.

For our investments classified as available for sale, the impact of changes in fair value is recorded as an unrealized gain or loss in Accumulated other comprehensive income (loss), net, a
separate component of equity. In addition, investments classified as available for sale 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 other-than-temporary impairments of fixed maturity and equity securities, see Note 2 to the Financial Statements.

Commercial mortgage loans, consist of commercial mortgage loans and agricultural loans, are carried primarily at unpaid principal
balances, net of 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 Financial Statements.

Policyholder Liabilities

Future Policy Benefit Reserves

The future policy benefit reserves relate primarily to term life products and are determined in accordance with U.S. GAAP 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. The expected future benefits and expenses are determined using assumptions as to mortality, lapse, and maintenance expense. Reserve assumptions are
based on best estimate assumptions as of the date the policy is issued with provisions for the risk of adverse deviation. After our reserves are initially established, we perform premium deficiency tests using best estimate assumptions as of the
testing date without provisions for adverse deviation. If reserves determined based on these best estimate assumptions are greater than the net U.S. GAAP liabilities (i.e., reserves net of any DAC asset), the existing net U.S. GAAP liabilities are
adjusted to the greater amount. Mortality assumptions are generally based on the Companys historical experience or standard industry tables, as applicable; our expense assumptions are based on current levels of maintenance costs, adjusted for
the effects of inflation; and our interest rate assumptions are based on current and expected net investment returns. Unless a material change in mortality experience is observed in an interim period that we feel is indicative of a long term trend,
we generally update our mortality assumptions annually in the third quarter of each year. Generally, we do not expect our mortality 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 establishing reserves for guaranteed minimum death and income benefits related to variable
annuity contracts, we must make estimates and assumptions about the timing of annuitization, contract lapses and contractholder mortality, as well as interest rates and equity market returns. Assumptions relating to contractholder behavior, such as
the timing of annuitization and contract lapses, are based on our experience by contract group, and vary by product type and year of issuance. Our dynamic lapse rate assumption applies a different lapse rate on a contract by contract basis based on
a comparison of the guaranteed minimum death or income benefit and the current policyholder account value as well as other factors such as the applicability of any surrender charges. In-the-money contracts are those with a guaranteed minimum benefit
in excess of the current policyholder account value. Since in-the-money contracts are less likely to lapse, we apply a lower lapse rate assumption to these contracts. As an example, the lapse rate assumptions for contracts that are not in-the-money
and out of their surrender charge period average between 8% and 12% per year, and the lapse rate assumptions for contracts that are in-the-money and out of their surrender charge period average between 0% and 12% per year. Mortality
assumptions are generally based on our historical experience or standard industry tables, and also vary by contract group. Unless a material change in contractholder behavior or mortality experience that we feel is indicative of a long term trend is
observed in an interim period, we



27



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generally update assumptions related to contractholder behavior and mortality in the third quarter of each year by considering the actual results that have occurred during the period from the
most recent update to the expected amounts. Over the last several years, the Companys most significant assumption updates that have resulted in changes to our reserves for guaranteed minimum death and income benefits have been related to lapse
experience and other contractholder behavior assumptions and revisions to expected future rates of returns on investments. The Company expects these assumptions to be the ones most likely to cause significant changes in the future. Changes in these
assumptions can be offsetting and can also impact our DAC and other balances as discussed above. Generally, we do not expect our actual mortality 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.

The future rate of return assumptions used in establishing reserves for
guaranteed minimum death and income benefits related to variable annuities contracts are derived using a reversion to the mean approach, a common industry practice. For additional information regarding our future expected rate of return assumptions
and our reversion to the mean approach see, Deferred Policy Acquisition and Other Costs. The following table provides a demonstration of the sensitivity of the reserves for guaranteed minimum death benefit (GMDB) and
guaranteed minimum income benefit (GMIB) related to variable annuity contracts relative to our future rate of return assumptions by quantifying the adjustments to the reserves that would be required assuming both a 100 basis point
increase and decrease in our future rate of return. The sensitivity includes an increase and decrease of 100 basis points to both the near-term future rate of return assumptions used over the next four years, and the long-term expected rate of
return used thereafter. While the information below is for illustrative purposes only and does not reflect our expectations regarding future rate of return assumptions, it is a near-term, reasonably likely change that illustrates the potential
impact of such a change. This information 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, mortality,
or expenses included in our evaluation of the reserves, or any changes on DAC or other balances, discussed above in Deferred Policy Acquisition and Other Costs.



|                                                      |  |                                           |      |  
|----------------------------------------------------- |  | ----------------------------------------- | ---- | -
|                                                      |  | December 31, 2010                         |     
|                                                      |  | Increase/(Reduction) inGMDB/GMIB Reserves |     
|                                                      |  | (in millions)                             |     
|Decrease in future rate of return by 100 basis points |  | $                                         | 0.6  |  
|Increase in future rate of return by 100 basis points |  | $                                         | (0.8 | )

Unearned revenue reserves for variable
and universal life contracts

Our unearned revenue reserve, or URR, reported as a component of Policyholders
account balances, is $85 million as of December 31, 2010. This reserve primarily relates to variable and universal life products and represents policy charges for services to be provided in future periods. The charges are deferred as
unearned revenue and amortized over the expected lives of the contracts in proportion to the products estimated gross profits, similar to DAC as discussed above.

For the variable and universal life policies, 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 represent our expected claims experience over the life of these policies and are developed based on Company experience or standard industry tables. 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 in the third quarter. Updates to our mortality assumptions in future periods could have a significant
adverse or favorable effect on the results of the Company.

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%. While the information below is for illustrative purposes
only and does not reflect our expectations regarding future mortality assumptions, it is a near-term, reasonably likely hypothetical change that illustrates the potential impact of such a change on the URR balance and does not reflect the offsetting
impact of such a change on the DAC balance as discussed above in Deferred Policy Acquisition Costs and Other Costs. This information 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.



|                                   |  |                            |      |  
|---------------------------------- |  | -------------------------- | ---- | -
|                                   |  | December 31, 2010          |     
|                                   |  | Increase/(Reduction) inURR |     
|                                   |  | (in millions)              |     
|Decrease in future mortality by 1% |  | $                          | 1.0  |  
|Increase in future mortality by 1% |  | $                          | (1.0 | )

The Companys
liability for future policy benefits also includes other net liabilities for guarantee benefits related to certain nontraditional long-duration life and annuity contracts, which are discussed more fully in Note 7 to the Financial Statements.



28



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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.

Tax regulations require items to be included in the tax return at different times from the items reflected in the financial statements. As a result, the effective tax rate reflected in the financial
statements is different than the actual rate applied on the tax return. Some of these differences are permanent such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as valuation of
insurance reserves. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years for which we have already recorded the tax benefit in
our income statement. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred, or expenditures for which we have already taken a deduction in our tax return but have not yet
recognized in our financial statements.

The application of U.S. GAAP requires us to evaluate the recoverability of our
deferred tax assets and establish a valuation allowance if necessary to reduce our deferred tax asset to an amount that is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is
necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance we consider many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or
capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards;
(5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that we would
employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowances, will be realized.

Our accounting represents managements best estimate of future events that can be appropriately reflected in the accounting
estimates. Certain changes or future events, such as changes in tax legislation, geographic mix of earnings and completion of tax audits could have an impact on our estimates and effective tax rate. For example, the dividends received deduction, or
DRD, reduces the amount of dividend income subject to tax and is a significant component of the difference between our actual tax expense and the expected amount determined using the federal statutory tax rate of 35%. The U.S. Treasury Department
and the Internal Revenue Service, or IRS, intend to address through regulations the methodology to be followed in determining the DRD related to variable life insurance and annuity contracts. On February 14, 2011, the Obama Administration
released the General Explanations of the Administrations Revenue Proposals. Although the Administration has not released proposed statutory language, one proposal would change the method used to determine the amount of the DRD. A
change in the DRD, including the possible retroactive or prospective elimination of this deduction through regulation or legislation, could increase our actual tax expense and reduce our consolidated net income.

U.S. GAAP prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements
uncertain tax positions that a company has taken or expects to take on tax returns. The application of this guidance is a two-step process, the first step being recognition. We determine whether it is more likely than not, based on the technical
merits, that the tax position will be sustained upon examination. If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is
measurement. We measure the tax position as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate resolution with a taxing authority that has full knowledge of all relevant information. This measurement
considers the amounts and probabilities of the outcomes that could be realized upon ultimate settlement using the facts, circumstances, and information available at the reporting date.

An increase or decrease in our effective tax rate by one percent would have resulted in an increase or decrease in income from continuing
operations in 2010 of $1.4 million.

Our liability for income taxes includes the liability for unrecognized tax benefits,
interest and penalties which relate to tax years still subject to review by the IRS or other taxing authorities. Audit periods remain open for review until the statute of limitations has passed. Generally, for tax years which produce net operating
losses, capital losses or tax credit carryforwards, or tax attributes, the statute of limitations does not close, to the extent of these tax attributes, until the expiration of the statute of limitations for the tax year in which they are fully
utilized. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to our liability for income taxes. The statute of limitations for the 2002 tax year expired on April 30,
2009. The statute of limitations for the 2003 tax year expired on July 31, 2009. The statute of limitations for the 2004 through 2007 tax years will expire in February 2012, unless extended. Tax years 2008 and 2009 are still open for IRS
examination. See Note 9 to the Financial Statements for a discussion of the impact in 2009 of changes to our total unrecognized tax benefits related to tax years for which the statute of limitations has expired.

Reserves for 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, reserves for contingencies are required
to be established when the future event is probable and its impact can be reasonably estimated. An example is the establishment of a reserve for losses 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

See Note 2 to the Financial
Statements for a discussion of recently adopted accounting pronouncements, including the adoption of revised authoritative guidance for disclosing fair value of financial instruments, the recognition and presentation of other-than-temporary
impairments and fair value measurements and disclosures.



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Future Adoption of New Accounting Pronouncements

See Note 2 to the Financial Statements for a discussion of recently issued accounting pronouncements.

The Companys Changes in Financial Position and Results of Operations are described below.

Changes in Financial Position

2010
to 2009 Annual Comparison

Total assets increased $2.022 billion, from $5.440 billion at December 31, 2009 to $7.462
billion at December 31, 2010. Separate account assets increased $1.776 billion, from $3.262 billion at December 31, 2009 to $5.038 billion at December 31, 2010, primarily driven by both increased annuity deposits that resulted in
positive net flows, and improvements in equity markets.

Fixed maturities increased by $10.2 million from $1.054 billion at
December 31, 2009 to $1.065 billion at December 31, 2010. This increase was primarily driven by investment of cash flows from operations, reinvestment of investment income, and unrealized gains on fixed maturities in the current year
resulting from a narrowing of credit spreads that increased the market value of these securities. Partially offsetting this increase were transfers of account balances to the separate account variable investment options from the fixed investment
options backed by our general account due to an asset transfer feature on certain variable annuity contracts.

Commercial
mortgage loans increased $14.5 million, from $168 million at December 31, 2009, to $182 million at December 31, 2010, during the current period due to continued investment in commercial loans.

Reinsurance recoverables increased by $97.3 million from $322 million at December 31, 2009 to $420 million at December 31, 2010
driven by continued growth in the term life in force covered under Prudential Arizona Reinsurance Captive Company, or PARCC, Prudential Arizona Reinsurance Term Company, or PAR TERM and Prudential Arizona Reinsurance III
Company, or PAR III, agreements. The increase in reinsurance recoverables was partially offset by a decrease in the reinsured liability for variable annuity living benefit embedded derivatives due to a decrease in the present value of
future expected benefit payments primarily driven by the impact of favorable equity markets.

Deferred policy acquisition
costs increased by $60 million from $306 million at December 31, 2009, to $366 million at December 31, 2010, primarily due to the capitalization of acquisition costs from the growth in sales of annuity products due to the implementation of
the aforementioned change in sales strategy.

Total liabilities increased by $1.908 billion, from $4.927 billion at
December 31, 2009 to $6.835 billion at December 31, 2010, primarily due to an increase in separate account liabilities of $1.776 billion, driven mainly by both positive net flows and improvements in equity markets described above.
Policyholder account balances increased $29 million, from $1.025 billion at December 31, 2009 to $1.054 billion at December 31, 2010, primarily driven by continued growth in universal life in force.

1. Results of Operations

2010 to
2009 Annual Comparison



|                                                  |  |                                  |         |  |      |   |         |      |  |   |         |  
|------------------------------------------------- |  | -------------------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                                  |  | Twelve months ended December 31, |        
|                                                  |  | 2010                             |         |  | 2009 |   |         | 2008 | 
|                                                  |  | (in thousands)                   |        
|Operating results:                                |  |                                  |         |  |      |   |         |      |  |   |         |  
|Revenues:                                         |  |                                  |         |  |      |   |         |      |  |   |         |  
|Annuity Products                                  |  | $                                | 103,147 |  |      | $ | 60,957  |      |  | $ | 23,886  |  
|Life Products and Other                           |  |                                  | 115,089 |  |      |   | 120,659 |      |  |   | 120,324 |  
|                                                  |  |                                  |         |  |      |   |         |      |  |   |         |  
|                                                  |  | $                                | 218,236 |  |      | $ | 181,616 |      |  | $ | 144,210 |  
|                                                  |  |                                  |         |  |      |   |         |      |  |   |         |  
|Benefits and expenses:                            |  |                                  |         |  |      |   |         |      |  |   |         |  
|Annuity Products                                  |  | $                                | 32,932  |  |      | $ | 34,852  |      |  | $ | 31,426  |  
|Life Products and Other                           |  |                                  | 43,817  |  |      |   | 70,737  |      |  |   | 86,961  |  
|                                                  |  |                                  |         |  |      |   |         |      |  |   |         |  
|                                                  |  | $                                | 76,749  |  |      | $ | 105,589 |      |  | $ | 118,387 |  
|                                                  |  |                                  |         |  |      |   |         |      |  |   |         |  
|Income/(Loss) from Operations before Income Taxes |  |                                  |         |  |      |   |         |      |  |   |         |  
|Annuity Products                                  |  | $                                | 70,215  |  |      | $ | 26,105  |      |  | $ | (7,540  | )
|Life Products and Other                           |  |                                  | 71,272  |  |      |   | 49,922  |      |  |   | 33,363  |  
|                                                  |  |                                  |         |  |      |   |         |      |  |   |         |  
|                                                  |  | $                                | 141,487 |  |      | $ | 76,027  |      |  | $ | 25,823  |  
|                                                  |  |                                  |         |  |      |   |         |      |  |   |         |  



30



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Annuity Products

Income from Operations before Income Taxes

2010 to 2009 Annual
Comparison.Income from Operations before Income Taxes increased $44 million from $26 million in 2009 to $70 million in 2010. The increase included a $22 million favorable variance in the mark-to-market of embedded derivatives associated with
our non-reinsured living benefit features, including the impact of our market-perceived non-performance risk. This favorable variance was primarily driven by a decrease in the present value of future expected benefit payments resulting from
favorable market conditions. Also contributing to the increase was $18 million of lower amortization of deferred policy acquisition costs (DAC) and deferred sales inducements (DSI) driven by the impact of the mark-to-market
of the reinsured liability for living benefit embedded derivatives, including reinsured living benefits and related hedge positions in the reinsurance affiliate, as discussed below. In addition fee income increased, net of distribution expenses,
driven by higher average variable annuity asset balances invested in separate accounts. The increase in separate account balances was due to positive net flows and net market appreciation. Partially offsetting these items was an unfavorable variance
related to adjustments to the reserves for the guaranteed minimum death and income benefit features of our variable annuity products and to our estimate of total gross profits used as a basis for amortizing DAC/DSI. These adjustments are discussed
in more detail below.

We amortize DAC/DSI over the expected lives of the contracts based on the level and timing of gross
profits on the underlying Annuity products. In calculating gross profits, we consider mortality, persistency, and other elements as well as rates of return on investments associated with these contracts and include profits and losses related to
these contracts that are reported in affiliated legal entities other than the Company as a result of, for example, reinsurance agreements with those affiliated entities. The Company is an indirect subsidiary of Prudential Financial (an SEC
registrant) and has extensive transactions and relationships with other subsidiaries of Prudential Financial, including reinsurance agreements, as discussed in Note 13 to the Consolidated Financial Statements. Incorporating all product-related
profits and losses in gross profits, including those that are reported in affiliated legal entities, produces a DAC amortization pattern representative of the economics of the products.

As mentioned above the increase in income from operations in 2010 included an $18 million favorable variance in the amortization of
DAC/DSI related to the impact of the mark-to-market of living benefit embedded derivatives, including any reinsured liabilities, and related hedge positions. This impact primarily relates to updates to the inputs used in the valuation of the
reinsured liability for living benefit embedded derivatives, primarily due to reductions in the expected lapse rate assumption based on actual experience in 2010. Also contributing to lower DAC/DSI amortization is the impact of a change in our
market-perceived non-performance risk (NPR).

As mentioned above, and as shown in the following table, income from operations
for 2010 included $7.5 million of benefits related to adjustments to the reserves for the guaranteed minimum death and income benefit features of our variable annuity products and to our estimate of total gross profits used as a basis for amortizing
DAC and DSI, compared to $8.4 million of benefits for 2009, resulting in a $1 million unfavorable variance.



|                                                                      |  |                                      |       |  |                                      |   |       |       |  |   |                              |  |  |                           |       |   |       |   |       |   |  |   |        |  
|--------------------------------------------------------------------- |  | ------------------------------------ | ----- |  | ------------------------------------ | - | ----- | ----- |  | - | ---------------------------- |  |  | ------------------------- | ----- | - | ----- | - | ----- | - |  | - | ------ | -
|                                                                      |  | Twelve Months Ended December 31,2010 |       |  | Twelve Months Ended December 31,2009 |  
|                                                                      |  | Amortizationof DAC andDSI(1)         |       |  | ReservesforGMDB /GMIB (2)            |   |       | Total |  |   | Amortizationof DAC andDSI(1) |  |  | ReservesforGMDB /GMIB (2) |       |   | Total |  
|                                                                      |  | (in thousands)                       |      
|Quarterly market performance adjustments                              |  | $                                    | 1,210 |  |                                      | $ | 73    |       |  | $ | 1,283                        |  |  | $                         | 2,926 |   |       | $ | 2,772 |   |  | $ | 5,698  |  
|Annual Review / Assumption updates                                    |  | $                                    | 2,927 |  |                                      | $ | 99    |       |  | $ | 3,026                        |  |  | $                         | (585  | ) |       | $ | (574  | ) |  | $ | (1,159 | )
|Quarterly adjustments for current period experience and other updates |  | $                                    | 1,673 |  |                                      | $ | 1,521 |       |  | $ | 3,194                        |  |  | $                         | 1,694 |   |       | $ | 2,171 |   |  | $ | 3,865  |  
|                                                                      |  |                                      |       |  |                                      |   |       |       |  |   |                              |  |  |                           |       |   |       |   |       |   |  |   |        |  
|Total                                                                 |  | $                                    | 5,810 |  |                                      | $ | 1,693 |       |  | $ | 7,503                        |  |  | $                         | 4,035 |   |       | $ | 4,369 |   |  | $ | 8,404  |  
|                                                                      |  |                                      |       |  |                                      |   |       |       |  |   |                              |  |  |                           |       |   |       |   |       |   |  |   |        |  



|(1) | Amounts reflect (charges) or benefits for (increases) or decreases, respectively, in the amortization of deferred policy acquisition, or DAC, and
other assets.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Amounts reflect (charges) or benefits for reserve (increases) or decreases, respectively, related to the guaranteed minimum death and income
benefit, or GMDB / GMIB, features of our variable annuity products.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As shown in the table above, results
for both periods include the impact of the annual reviews of the assumptions used in the reserve for the guaranteed minimum death and income benefit features of our variable annuity products and in our estimate of total gross profits used as a basis
for amortizing deferred policy acquisition and other costs. Results for 2010 included $3 million of benefits from these annual reviews, primarily related to reductions in lapse rate assumptions and more favorable assumptions relating to fee income.
Results for 2009 included $1 million of charges from these annual reviews, primarily related to reductions in the future rate of return assumptions applied to the underlying assets associated with our variable annuity products. Partially offsetting
the impact of the updated future rate of return assumptions for 2009 were benefits related to the impact of lower mortality and higher investment spread assumptions.

As shown in the table above, results for both periods include quarterly updates for the impact of fund performance on our DAC/DSI amortization and GMDB/GMIB reserves for our variable annuity products.
2010 included $1 million of benefits associated with these quarterly updates due to favorable market performance. The actual rates of return on annuity account values was 3.3% for the first quarter of 2010, negative 6.0% for the second quarter of
2010, 7.7% for the third quarter of 2010 and 5.8% for the fourth quarter of 2010 compared to our expected rates of return of approximately 2.0% for 2010. The updates for 2009 resulted in a benefit of $6 million due to favorable market performance.

We derive our near-term future rate of return assumptions using a reversion to the mean approach, a common industry practice.
Under this approach, we consider actual returns over a period of time and initially adjust future projected returns over a four year period so that the assets grow at the long-term expected rate of return for the entire period. The near-term future
projected return across all contract groups is 7.6% per annum as of December



31



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31, 2010, or 1.9% per quarter. Beginning in the fourth quarter of 2008 and continuing through the third quarter of 2010, the projected near-term future annual rate of return calculated using
the reversion to the mean approach for some contract groups was greater than our maximum future rate of return assumption across all asset types for this business. In those cases, we utilized the near-term maximum future rate of return over the four
year period, thereby limiting the impact of the reversion to the mean on our estimate of total gross profits. The near-term blended maximum future rate of return, for these impacted contract groups, under the reversion to the mean approach is 9.9%
as of December 31, 2010. Included in the blended maximum future rate are assumptions for returns on various asset classes, including a 5.7% annual weighted average rate of return on fixed income investments and a 13% annual maximum rate of
return on equity investments.

The $3 million benefit for 2010 and the $4 million benefit for 2009 for the quarterly
adjustments for current period experience shown in the table above primarily reflect the impact of differences between actual gross profits for the period and the previously estimated expected gross profits for the period, as well as an update for
current and future expected claims costs associated with the guaranteed minimum death and income benefit features of our variable annuity products. The unfavorable variance related to the amortization of DAC/DSI was primarily driven by more
favorable market conditions in 2009 compared to 2010. The unfavorable variance related to the adjustment to the GMDB/GMIB reserves was primarily driven by more favorable differences in actual lapse experience and contract guarantee claim costs in
2009 compared to 2010.

Revenues

2010 to 2009 Annual Comparison. Revenues increased $42 million from $61 million in 2009 to $103 million in 2010.

Net Realized Investment Gains increased $27 million from $22 million in 2009, to $49 million in 2010 driven by embedded derivatives associated with our non-reinsured living benefit features of our
variable annuity products, including the impact of our market-perceived non-performance risk, as discussed above.

Policy
charges and fee income, consisting primarily of mortality and expense and other insurance charges assessed on policyholders fund balances, increased $14 million from $17 million in 2009 to $31 million in 2010. The increase was primarily driven
by higher average variable annuity asset balances invested in separate accounts. The increase in average separate account asset balances was primarily due to positive net flows, net market appreciation, and net transfers of balances from the general
account to the separate accounts during 2010.

Benefits and Expenses

2010 to 2009 Annual Comparison. Benefits and expenses decreased $2 million from $35 million in 2009 to $33 million in 2010.

Amortization of deferred policy acquisition costs (DAC) decreased by $8 million, from $10 million in 2009 to $2
million in 2010. This decrease was primarily driven by lower DAC amortization from the impact of the mark-to-market of the reinsured for living benefit embedded derivatives, including reinsured liabilities, and related hedge positions, as discussed
above.

Interest credited decreased by $4 million, from $15 million in 2009 to $11 million in 2010 primarily due to lower DSI
amortization from the impact of the mark-to-market of the liability for living benefit embedded derivatives, including reinsured liabilities, and related hedge positions, discussed above.

Policyholder benefits, including change in reserves, increased $1 million due to differences in the adjustments to the reserves for the
guaranteed minimum death and income benefit features of our variable annuity products discussed above.

General,
administrative and other expenses increased $9 million from $10 million in 2009 to $19 million in 2010, primarily due to higher commission expense and marketing and new business support expenses driven by higher sales due to the implementation of
the aforementioned change in sales strategy.

Life Products and Other

Income (Loss) from Operations before Income Taxes

2010 to 2009 Annual
Comparison.Income (loss) from Operations before Income Taxes increased $21 million from income of $50 million in 2009 to $71 million in 2010. Results for 2010 included a $6 million benefit from lower amortization of net deferred policy
acquisition costs and unearned revenue reserves, as well as a decrease in reserves for the guaranteed minimum death benefit feature in certain contracts, reflecting updates of our actuarial assumptions based on an annual review, compared to a $3
million benefit from the annual review in 2009. The annual reviews cover assumptions used in our estimate of total gross profits which forms the basis for amortizing deferred policy acquisition costs and unearned revenue reserves, as well as the
assumptions utilized in the development of certain actuarial reserve valuations.

Absent the effect of these annual reviews,
Income (loss) from Operations before Income Taxes for the year ended December 31, 2010 increased $24 million, primarily driven by improvements in net realized investment gains of $16 million primarily attributed to gains in 2010 on investments
in derivatives and fixed maturities compared to losses in 2009. Also, contributing was an increase in net investment income of $9 million, due to higher asset balances primarily from growth in universal life and term in force. Partially offsetting
these benefits was $1 million from an increase in amortization of deferred policy acquisition costs net of related amortization of unearned revenue reserves, resulting from changes in our estimates of total gross profits arising from equity market
performance and policyholder experience. The increase in amortization largely reflects the impact of equity markets on separate account fund performance in the respective periods.



32



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Revenues

2010 to 2009 Annual Comparison Revenues decreased $6 million from $121 million in 2009 to $115 million in 2010.

Net realized investment gains/ (losses) increased by $15 million from a loss of $8 million in 2009 to a gain of $7 million in 2010, primarily driven by the impact of gains on investments in derivatives
and fixed maturities compared to losses in 2009.

Net investment income increased $9 million, due to an increase in assets
supporting our term and universal life products and growth in universal life and variable policyholder account balances due to increased policyholder deposits.

These were offset by a decrease in policy charges and fee income of $30 million from $52 million in 2009 to $ 22 million in 2010. The decrease in policy charges and fee income, consisting primarily
of mortality and expense loading and other insurance charges assessed on general and separate account policyholders fund balances, was driven by $5 million decrease in amortization of unearned revenue reserves due to annual reviews of
assumptions and an increase in reinsurance premiums of $25 million due to the amendment of certain of our affiliated reinsurance treaties to change settlement modes from monthly to annual. As a result of these treaty amendments, we were required to
pay our affiliated reinsurers the premium difference that resulted from the mode changes. Absent these items policy charges and fee income remained flat compared to 2009.

Benefits and Expenses

2010 to 2009 Annual Comparison Benefits and
expenses decreased $27 million from $71 million in 2009 to $44 million in 2010. Results include a net $4 million decrease in amortization of deferred acquisition costs from the impacts of the annual reviews conducted in both periods and a $25
million decrease in the change in reserves due to the amendment of certain of our affiliated reinsurance treaties to change settlement modes from monthly to annual resulting in an increase in reserves.

Absent the effect of these items, benefits and expenses increased $3 million, from $79 million in 2009 to $81 million in 2010. On this
basis, amortization of deferred policy acquisition costs increased $2 million primarily due to the less favorable impact of equity markets on separate account fund performance.

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 operation of our businesses, fund business growth, and provide a cushion to withstand adverse circumstances. The 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 through affiliates as described herein.

Management monitors the liquidity of Prudential Financial, Prudential Insurance and the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon through our
quarterly planning process. We believe that cash flows from the sources of funds presently available to us are sufficient to satisfy the current liquidity requirements of Prudential Financial and the Company, including reasonably foreseeable
contingencies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, could
result in the imposition of new capital, liquidity and other requirements on Prudential Financial and the Company. See Other Business Regulation in Part I for information regarding the potential effects of the Dodd-Frank bill on the
Company and its affiliates.

General Liquidity

Liquidity refers to a companys ability to generate sufficient cash flows to meet the needs of its operations. Our liquidity is managed to ensure stable, reliable and cost-effective sources of cash
flows to meet all of our obligations. Liquidity is provided by a variety of sources, as described more fully below, including portfolios of liquid assets. Our investment portfolios are integral to the overall liquidity of those operations. We
segment our investment portfolios and employ an asset/liability management approach specific to the requirements 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. We use a projection process for cash flows from operations to ensure sufficient liquidity to meet projected cash outflows, including
claims. The impact of Prudential Funding, LLCs financing capacity on liquidity (as described below) is considered in the internal liquidity measures of the Company.

Liquidity is measured against internally developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. The results are affected
substantially by the overall asset type and quality of our investments.

Cash Flow

The principal sources of the Companys liquidity are premiums and annuity considerations, investment and fee income, and investment
maturities and sales associated with our insurance and annuity operations, as well as internal borrowings. The principal uses of that liquidity include benefits, claims, dividends paid to policyholders, and payments to policyholders and
contractholders in connection with surrenders, withdrawals and net policy



33



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loan activity. Other uses of liquidity include commissions, general and administrative expenses, purchases of investments, and payments in connection with financing activities. As a result of the
launch of its new annuity product line in March 2010, as discussed above, the Company has seen and expects to continue to see the overall level of these activities to increase.

We believe that the cash flows from our insurance and annuity operations are adequate to satisfy our current liquidity requirements,
including under reasonably foreseeable stress scenarios. The continued adequacy of this liquidity will depend upon factors such as future securities market conditions, changes in interest rate levels, customer behavior, policyholder perceptions of
our financial strength, and the relative safety of competing products each of which could lead to reduced cash inflows or increased cash outflows. In addition, market volatility can impact the level of capital required to support our businesses,
particularly in our annuity products. Our 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. Further, the level of new business sales can also impact liquidity, and additional financing may be required due to the increase in annuity
sales as previously discussed.

In managing our liquidity, we also 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 from annuity contracts and deposit liabilities.

Individual life insurance policies are less susceptible to
withdrawal than our annuity reserves and deposit liabilities because policyholders may incur surrender charges and be subject to a new underwriting process in order to obtain a new insurance policy. Our annuity reserves with guarantee features may
be less susceptible to withdrawal than historical experience indicates, due to the current value of these guarantee features to policyholders as a result of recent market declines.

Gross account withdrawals amounted to approximately $152 million and $972 million for the years ended December 31, 2010 and 2009,
respectively. Because these withdrawals were consistent with our assumptions in asset/liability management, the associated cash outflows did not have a material adverse impact on our overall liquidity.

Liquid Assets

Liquid
assets include cash, cash equivalents, short-term investments, fixed maturities and public equity securities. As of December 31, 2010 and December 31, 2009; our insurance operations had liquid assets of $1.2 billion and $1.1 billion,
respectively. The portion of liquid assets comprised of cash and cash equivalents and short-term investments was $95.4 million and $61.0 million as of December 31, 2010 and December 31, 2009, respectively. As of December 31, 2010,
$973 million, or 91%, of the fixed maturity investments company general account portfolios were rated investment grade. The remaining $91 million, or 9%, of these fixed maturity investments were rated non-investment grade. We consider attributes of
the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures in order to evaluate the adequacy of our insurance operations liquidity under a variety of stress scenarios. We
believe that the liquidity profile of our assets is sufficient to satisfy current liquidity requirements, including under foreseeable stress scenarios.

Given the size and liquidity profile of our investment portfolios, we believe that claim experience 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. Historically, there has been no significant variation between the expected
maturities of our investments and the payment of claims.

Our liquidity is managed through access to substantial investment
portfolios as well as a variety of instruments available for funding and/or managing short-term cash flow mismatches, including from time to time those arising from claim levels in excess of projections. 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 affecting results of operations. We believe that
borrowing temporarily or selling investments earlier than anticipated will not have a material impact on the liquidity of the Company. Payment of claims and sale of investments earlier than anticipated would have an impact on the reported level of
cash flow from operating and investing activities, respectively, in our financial statements.

Prudential Funding, LLC

Prudential Funding, LLC, or Prudential Funding, a wholly owned subsidiary of Prudential Insurance, serves as an additional source of
financing to meet our working capital needs. Prudential Funding operates under a support agreement with Prudential Insurance whereby Prudential Insurance has agreed to maintain Prudential Funding positive tangible net worth at all times. Prudential
Funding borrows funds in the capital markets primarily through the direct issuance of commercial paper.

Capital

The Risk Based Capital, or RBC, ratio is a primary measure by which we evaluate the capital adequacy of the Company. Prudential Financial
manages its domestic insurance subsidiaries RBC ratios to a level that is consistent with the ratings targets for those subsidiaries and in excess of the minimum levels required by applicable insurance regulations. RBC is determined by statutory
formulas that consider risks related to the type and quality of the invested assets, insurance-related risks associated with an insurers products, interest rate risks and general business risks. The RBC ratio calculations are intended to
assist insurance regulators in measuring the adequacy of an insurers statutory capitalization. As of December 31, 2010, the RBC ratio for each of Prudential Insurance and the Company exceeded the minimum levels required by applicable
insurance regulations.



34



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The level of statutory capital of the Company can be materially impacted by interest rate
and equity market fluctuations, changes in the values of derivatives, the level of impairments recorded, credit quality migration of investment portfolio, among other items. Further, the recapture of business subject to reinsurance arrangements due
to defaults by, or credit quality migration affecting, the reinsurers could result in higher required statutory capital levels. The level of statutory capital of the Company is also affected by statutory accounting rules which are subject to change
by insurance regulators.

Prudential Financial recently changed the focus of the capital hedge program from the equity price
risk associated with the annuities business to a broader view of equity market exposure of the statutory capital of Prudential Financial and its subsidiaries, as a whole. In the second quarter of 2010, the capital hedge program was terminated and
equity index-linked derivative transactions were entered into that are designed to mitigate the overall impact on statutory capital of a severe equity market stress event on Prudential Financial and its subsidiaries, as a whole. The program now
focuses on tail risk rather than general equity market declines in order to protect statutory capital in a more cost-effective manner under stress scenarios. Prudential Financial assesses the composition of the hedging program on an ongoing basis
and may change it from time to time based on an evaluation of its risk position or other factors.

In addition to hedging the
equity market exposure as mentioned above, we also manage certain risks associated with our variable annuity products through hedging programs and affiliated reinsurance arrangements. Primarily in the reinsurance affiliate, equity options and
futures as well as interest rate derivatives are purchased to hedge certain optional living benefit features accounted for as embedded derivatives against changes in equity markets, interest rates, and market volatility. Historically, the hedging
strategy sought to generally match the sensitivities of the embedded derivative liability as defined by GAAP, excluding the impact of the market-perceived risk of non-performance, with capital market derivatives and options. In the third quarter of
2010, the hedging strategy was revised as, in the low interest rate environment, management of the company and reinsurance affiliate does not believe the GAAP value of the embedded derivative liability to be an appropriate measure for determining
the hedge target. For additional information regarding the change in hedging strategy see Item 1. BusinessProducts.

Certain of the Companys statutory reserves are ceded to an affiliated offshore captive reinsurance company. A reinsurance trust is established by the affiliated offshore captive reinsurance company
to satisfy reinsurance reserve credit requirements. These reserve credits allow the Company to reduce the level of statutory capital it is required to hold. Reinsurance credit reserve requirements can move materially in either direction due to
changes in equity markets and interest rates, actuarial assumptions and other factors. Higher reinsurance credit reserve requirements would necessitate depositing additional assets in the statutory reserve credit trusts, while lower reinsurance
credit reserve requirements would allow assets to be removed from the statutory reserve credit trusts. We expect Prudential Financial would satisfy those additional needs through a combination of funding the reinsurance credit trusts with available
cash, loans from Prudential Financial and/or affiliates and assets pledged to our affiliated offshore captive reinsurance company as collateral for hedging positions related to our living benefit features. Prudential Financial also continues to
evaluate other options to address reserve credit needs such as obtaining letters of credit. Collateral of $9 million was removed from the captive reinsurance trusts for the third quarter of 2010 due to favorable equity market conditions. Due to
favorable equity market conditions and higher interest rates in the fourth quarter of 2010, the need to fund the captive reinsurance trusts has declined by $3 million.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Risk Management, Market Risk and Derivative Instruments

Risk management
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. We consider risk management an integral part of managing our core business.

Market risk is the risk of change in
the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates or equity or commodity prices. To varying degrees, the investment and trading activities supporting all of our products
and services generate exposure to market risk. The market risk incurred and our strategies for managing this risk vary by product.

With respect to non-variable life insurance products, fixed rate annuities, the fixed rate accounts in our variable life insurance and annuity products, we incur market risk primarily in the form of
interest rate risk. We manage this risk through asset/liability management strategies that seek to closely approximate the interest rate sensitivity, but not necessarily the exact cash flow characteristics, of the assets with the estimated interest
rate sensitivity of the product liabilities. The Company also mitigates this risk through a MVA provision on the Companys fixed investment option. This MVA provision limits interest rate risk when a contractholder withdraws funds or transfers
funds to variable investment options before the end of the guarantee period. Our overall objective in these strategies is to limit the net change in value of assets and liabilities arising from interest rate movements. While it is more difficult to
measure the interest sensitivity of our insurance liabilities than that of the related assets, to the extent that we can measure such sensitivities we believe that interest rate movements will generate asset value changes that substantially offset
changes in the value of the liabilities relating to the underlying products.

For variable annuities and variable life
insurance products excluding the fixed rate accounts associated with these products, and most separate accounts, we are exposed to the risk that asset based fees may decrease as a result of declines in assets under management due to changes in
investment prices. We also run the risk that asset administration fees calculated by reference to performance could be lower. The risk of decreased asset based and asset administration fees could also impact our estimates of total gross profits used
as a basis for amortizing deferred policy acquisition and other costs. While a decrease in our estimates of total gross profits would accelerate amortization and decrease net income in a given period, it would not affect our cash flow or liquidity
position in the current period. See Managements Discussion and Analysis of Financial Condition and Results of OperationsResult of Operations for a discussion of the effects of death and other benefit provisions on the results
of the Company.



35



---

For variable annuity and variable life insurance products with minimum guaranteed death
benefits and variable annuity products with living benefits such as guaranteed minimum income, withdrawal, and accumulation benefits, we also face the risk that declines in the value of underlying investments as a result of interest rate, equity
market, or market volatility changes may increase our net exposure to the guarantees under these contracts. As part of our risk management strategy, we utilize product design elements such as asset allocation requirements, an asset transfer feature
and minimum purchase age requirements, and reinsurance programs. These strategies exclude our guaranteed minimum income benefits and guaranteed minimum death benefits, which include risks we have deemed suitable to retain.

For a discussion of asset-based fees associated with our variable life products and our variable annuity contracts, our estimates of
total gross profits used as a basis for amortizing deferred policy acquisition and other costs, and the impact of our guaranteed minimum death and other benefits on the results of our life and annuities products, see Managements
Discussion and Analysis of Financial Condition and Results of Operations.

In addition, certain products supported by
general account investments expose us to the risk that changes in interest rates will reduce the spread between the amounts that we are required to pay under the contracts and the rate of return we are able to earn on our general account investments
supporting the contracts. Market fluctuations or changes in market conditions could also cause a change in consumer sentiment adversely affecting sales and persistency of our long-term savings, protection and other investment products. 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.

The sources of our exposure to market risk can be divided into two categories, other than trading activities conducted
primarily in our insurance and annuity operations, and trading activities conducted primarily in our derivatives trading operations. As part of our management of both other than trading and trading market risks,
we use a variety of risk management tools and techniques. These include sensitivity and Value-at-Risk, or VaR, measures, position and other limits based on type of risk, and various hedging methods.

Other Than Trading Activities

We hold the majority of our assets for other than trading activities in our insurance and annuities products. We incorporate asset/liability management techniques and other risk management
policies and limits into the process of investing our assets. We use derivatives for hedging purposes in the asset/liability management process.

Insurance and Annuities Products Asset/Liability Management

We seek
to maintain interest rate and equity exposures within established ranges, which we periodically adjust based on market conditions and the design of related products sold to customers. Our risk managers establish investment risk limits for exposures
to any issuer, geographic region, type of security or industry sector and oversee efforts to manage risk within policy constraints set by management and approved by the Investment Committee of Prudential Financial and the Board of Directors.

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 seek 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 target duration mismatch constraints for each entity. As of December 31,
2010 and 2009, the difference between the duration of assets and the target duration of liabilities in our duration-managed portfolios was within our constraint limits. We consider risk-based capital implications in our asset/liability management
strategies.

We also perform portfolio stress testing as part of our regulatory cash flow testing. In this testing, we
evaluate the impact of altering our interest-sensitive assumptions under various adverse interest rate environments. These interest-sensitive assumptions relate to the timing and amount of redemptions and prepayments of fixed-income securities and
lapses and surrenders of insurance products and the potential impact of any guaranteed minimum interest rates. We evaluate any shortfalls that this cash flow testing reveals to determine if we need to increase statutory reserves or adjust portfolio
management strategies.

Market Risk Related to Interest Rates

Our other than trading assets that subject us to interest rate risk include primarily fixed maturity securities, commercial
loans and policy loans. In the aggregate, the carrying value of these assets represented 56% of our assets, other than assets that we held in separate accounts, as of December 31, 2010 and 62% as of December 31, 2009.

With respect to other than trading liabilities, we are exposed to interest rate risk through policyholders account
balances relating to interest-sensitive life insurance, annuity and other investment-type contracts, collectively referred to as investment contracts, and through outstanding short term debt with affiliates.

We assess interest rate sensitivity for other than trading 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. The following tables set forth the net estimated potential loss in fair value from a hypothetical
100 basis point upward shift as of December 31, 2010 and 2009, because 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



36



---

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.



|                                               |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|---------------------------------------------- |  | --------------------------- | -- |  | --------- | - | ----- | -------------------------------------------------------------------- |  | - | ------------------------------- | - |  | - | --- | -
|                                               |  | December 31, 2010           |   
|                                               |  | NotionalValue ofDerivatives |    |  | FairValue |   |       | HypotheticalFair ValueAfter +
100Basis PointParallelYield
CurveShift |  |   | HypotheticalChange inFair Value |  
|                                               |  | (In millions)               |   
|Financial Assets with Interest Rate Risk:      |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Financial Assets:                              |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Fixed maturities, available for sale           |  |                             |    |  |           | $ | 1,065 |                                                                      |  | $ | 1,023                           |   |  | $ | (41 | )
|Policy loans                                   |  |                             |    |  |           |   | 212   |                                                                      |  |   | 194                             |   |  |   | (18 | )
|Commercial loans                               |  |                             |    |  |           |   | 192   |                                                                      |  |   | 186                             |   |  |   | (6  | )
|Financial Assets with Equity Risk:             |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Equity Securities                              |  |                             |    |  |           |   | 2     |                                                                      |  |   | 2                               |   |  |   | (0  | )
|Derivatives: (1)                               |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Futures                                        |  |                             |    |  |           |   |      |                                                                      |  |   |                                |   |  |   |    |  
|Swaps                                          |  |                             | 76 |  |           |   | (2    | )                                                                    |  |   | (5                              | ) |  |   | (3  | )
|Financial Liabilities with Interest Rate Risk: |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Investment Contracts                           |  |                             |    |  |           |   | 102   |                                                                      |  |   | 101                             |   |  |   | (1  | )
|                                               |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Total Estimated Potential Loss                 |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   | (69 | )
|                                               |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  



|(1) | Excludes variable annuity optional living benefits accounted for as embedded derivatives as the Company has generally entered into reinsurance
agreements to transfer the risk related to these optional living benefits to an affiliate as part of its risk management strategy.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                              |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|--------------------------------------------- |  | --------------------------- | -- |  | --------- | - | ----- | -------------------------------------------------------------------- |  | - | ------------------------------- | - |  | - | --- | -
|                                              |  | December 31, 2009           |   
|                                              |  | NotionalValue ofDerivatives |    |  | FairValue |   |       | HypotheticalFair ValueAfter +
100Basis PointParallelYield
CurveShift |  |   | HypotheticalChange inFair Value |  
|                                              |  | (In millions)               |   
|Financial Assets with Interest Rate Risk:     |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Financial Assets:                             |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Fixed maturities, available for sale          |  |                             |    |  |           | $ | 1,054 |                                                                      |  | $ | 1,014                           |   |  | $ | (40 | )
|Policy loans                                  |  |                             |    |  |           |   | 191   |                                                                      |  |   | 178                             |   |  |   | (13 | )
|Commercial loans                              |  |                             |    |  |           |   | 168   |                                                                      |  |   | 163                             |   |  |   | (5  | )
|Financial Assets with Equity Risk:            |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Equity Securities                             |  |                             |    |  |           |   | 4     |                                                                      |  |   | 3                               |   |  |   | 0   |  
|Derivatives: (1)                              |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Futures                                       |  |                             |   |  |           |   |      |                                                                      |  |   |                                |   |  |   |    |  
|Swaps                                         |  |                             | 23 |  |           |   | (5    | )                                                                    |  |   | (5                              | ) |  |   |    |  
|Financial Liabilities with Interest Rate Risk |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  
|Investment Contracts                          |  |                             |    |  |           |   | 85    |                                                                      |  |   | 84                              |   |  |   | (1  | )
|Total Estimated Potential Loss                |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   | (59 | )
|                                              |  |                             |    |  |           |   |       |                                                                      |  |   |                                 |   |  |   |     |  



|(1) | Excludes variable annuity optional living benefits accounted for as embedded derivatives as the Company has generally entered into reinsurance
agreements to transfer the risk related to these optional living benefits to an affiliate as part of its risk management strategy.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The tables above do not include approximately $1.456 billion and $1.427 billion of insurance reserve and deposit liabilities as of December 31, 2010 and 2009, respectively. We believe that the
interest rate sensitivities of these insurance liabilities offset, in large measure, the interest rate risk of the financial assets set forth in these tables.

The estimated changes in fair values of the financial assets shown above relate to assets invested in support of the Companys insurance liabilities, but do not include assets associated with
products for which investment risk is borne primarily by the contractholders rather than the Company.

Market Risk Related to Equity
Prices

We actively manage investment equity price 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.

Market Risk
Related to Foreign Currency Exchange Rates

The Company does not have significant market risk exposure to foreign
exchange rates.



37



---

Financial Derivatives

Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, or the prices of securities or commodities. Derivative financial instruments
may be exchange-traded or contracted in the over-the-counter market and include swaps, futures, options and forward contracts. See Note 11 to the Financial Statements for a description of derivative activities as of December 31, 2010 and 2009.
Under insurance statutes, insurance companies may use derivative financial instruments to hedge actual or anticipated changes in their assets or liabilities, to replicate cash market instruments or for certain income-generating activities. These
statutes generally prohibit the use of derivatives for speculative purposes. The Company uses derivative financial instruments primarily to manage market risk from changes in interest rates.

Limitations of VaR Models

Although VaR models are a recognized tool
for risk management, they have inherent limitations, including reliance on historical data that may not be indicative of future market conditions or trading patterns. Accordingly, VaR models should not be viewed as a predictor of future results. We
may incur losses that could be materially in excess of the amounts indicated by the models on a particular trading day or over a period of time, and there have been instances when results have fallen outside the values generated by our VaR models. A
VaR model does not estimate the greatest possible loss. The results of these models and analysis thereof are subject to the judgment of our risk management personnel.

Item 8. Financial Statements and Supplementary Data

Information required with respect to this Item 8 regarding Financial Statements and Supplementary Data is set forth commencing on page F-3 hereof. See Index to Financial Statements elsewhere in this
Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Independent Accountants on
Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Managements Annual Report on Internal Control Over Financial Reporting on the effectiveness of internal control over financial
reporting as of December 31, 2010 are included in Part IV, Item 15 of this Annual Report on Form 10-K.

In order to
ensure that the information we must disclose in our filings with the SEC, is recorded, processed, summarized, and reported on a timely basis, the Companys management, including our Chief Executive Officer and Chief Financial Officer, have
reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of December 31, 2010. Based on such evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2010, our disclosure controls and procedures were effective. No change in the Companys internal control over financial reporting, as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f), occurred during the quarter ended December 31, 2010 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate
Governance

We have adopted a code of business conduct and ethics, known as Making the Right Choices, which
applies to our Chief Executive Officer, Chief Financial Officer and Accounting Officer, as well as to our directors and all other employees. Making the Right Choices is posted at www.investor.prudential.com.

In addition, we have adopted Corporate Governance Guidelines, which we refer to as our Corporate Governance Principles and
Practices. Our Corporate Governance Principles and Practices are available free of charge at www.investor.prudential.com.

PART III

Item 14. Principal Accountant Fees and Services

The Audit Committee of the Board of Directors of Prudential
Financial has appointed PricewaterhouseCoopers LLP as the independent auditor of Prudential Financial and certain of its domestic and international subsidiaries, including the Company. The Audit Committee has established a policy requiring its
pre-approval of all audit and permissible non-audit services provided by the independent auditor. The specific information called for by this item is hereby incorporated by reference to the section entitled Item 2Ratification of the
Appointment of Independent Registered Public Accounting Firm in Prudential Financials definitive proxy statement for the Annual Meeting of Shareholders to be held on May 10, 2011 to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after December 31, 2010



38



---

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) (1) and (2) Financial Statements of Registrant are listed in the accompanying Index to Financial Statements on page F-1 hereof and are filed as part of this Report.

(a) (3) Exhibits



|        |  |                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.      |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|3(i)(a) |  | The Articles of Incorporation of Pruco Life Insurance Company of New Jersey (as amended through March 11,1983) are incorporated by reference to Post-effective Amendment No. 26 to
the Registration Statement on Form S-6 of Pruco Life of New Jersey Variable Appreciable Account as filed April 28, 1997, Registration No. 2-89780.                                
|        | 
|3(i)(b) |  | Certificate of Amendment to the Articles of Incorporation of Pruco Life Insurance Company of New Jersey dated February 12, 1998 is incorporated by reference to Post-Effective
Amendment No. 12 to the Registration Statement on Form S-1, of Pruco Life of New Jersey Variable Contract Real Property Account as filed on April 16, 1999, Registration No. 33-20018.
|        | 
|3(ii)   |  | By-Laws of Pruco Life Insurance Company of New Jersey (as amended through August 4, 1999) incorporated by reference to Form S-6 of Pruco Life of New Jersey Variable Appreciable
Account filed August 13, 1999, Registration No. 333-85117.                                                                                                                          
|        | 
|4.      |  | Exhibits                                                                                                                                                                                                                                                                                                                                                             
|        | 
|4(a)    |  | Market-Value Adjustment Annuity Contract (Discovery Select variable annuity) is incorporated by reference to Form S-1, Registration No. 333-18053, filed December 17, 1996, on
behalf of the Pruco Life of New Jersey Flexible Premium Variable Annuity Account.                                                                                                     
|        | 
|4(b)    |  | Market-Value Adjustment Annuity Contract (Strategic Partners Select variable annuity) is incorporated by reference to the Registrants Pre-Effective Amendment No. 1 to Form
S-3, Registration No. 333-62246, filed November 27, 2001.                                                                                                                               
|        | 
|4(c)    |  | Market-Value Adjustment Annuity Contract (Strategic Partners Horizon annuity) is incorporated by reference to the Registrants Form S-3, Registration No. 333-100713, filed
October 24, 2002.                                                                                                                                                                        
|        | 
|4(d)    |  | Market-Value Adjustment Annuity Contract Endorsement (Strategic Partners Annuity One variable annuity) is incorporated by reference to the Registrants registration
statement on Form S-3, Registration No. 333-103473, filed February 27, 2003.                                                                                                                    
|        | 
|9.      |  | None.                                                                                                                                                                                                                                                                                                                                                                
|        | 
|10.     |  | None.                                                                                                                                                                                                                                                                                                                                                                
|        | 
|11.     |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|12.     |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|13.     |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|16.     |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|18.     |  | None.                                                                                                                                                                                                                                                                                                                                                                
|        | 
|22.     |  | None.                                                                                                                                                                                                                                                                                                                                                                
|        | 
|23.     |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|24.     |  | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                                  
|        | 
|31.1    |  | Section 302 Certification of the Chief Executive Officer.                                                                                                                                                                                                                                                                                                            
|        | 
|31.2    |  | Section 302 Certification of the Chief Accounting Officer.                                                                                                                                                                                                                                                                                                           
|        | 
|32.1    |  | Section 906 Certification of the Chief Executive Officer.                                                                                                                                                                                                                                                                                                            
|        | 
|32.2    |  | Section 906 Certification of the Chief Accounting Officer.                                                                                                                                                                                                                                                                                                           



39



---

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newark, and State of New Jersey, on the 11th day of March 2011.



|                                                        |  |     |  |                               |  | 
|------------------------------------------------------- |  | --- |  | ----------------------------- |  | 
|PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)
|                                                        |  |     | 
|                                                        |  | By: |  | /s/ Scott D. Kaplan           |  | 
|                                                        |  |     |  | Scott D. Kaplan               |  | 
|                                                        |  |     |  | Chief Executive Officer       |  | 
|                                                        |  |     |  | (Principal Executive Officer) |  | 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities indicated on March 11, 2011.



|                    |  |  |  |                                             
|------------------- |  |  |  | --------------------------------------------
|Signature           |  |  |  | Title                                       
|                    |  | 
|/s/ Scott D. Kaplan |  |  |  | Chief Executive Officer,                    
|Scott D. Kaplan     |  |  |  | President and Director                      
|                    |  | 
|/s/ Steven Weinreb  |  |  |  | Chief Financial and Accounting Officer      
|Steven Weinreb      |  |  |  | (Principal Accounting and Financial Officer)
|                    |  | 
|*James J. Avery     |  |  |  | Director                                    
|James J. Avery      |  |  |  |                                             
|                    |  | 
|*Thomas J. Diemer   |  |  |  | Director                                    
|Thomas J. Diemer    |  |  |  |                                             
|                    |  | 
|*Robert M. Falzon   |  |  |  | Director                                    
|Robert M. Falzon    |  |  |  |                                             
|                    |  | 
|*Bernard J. Jacob   |  |  |  | Director                                    
|Bernard J. Jacob    |  |  |  |                                             
|                    |  | 
|*Stephen Pelletier  |  |  |  | Director                                    
|Stephen Pelletier   |  |  |  |                                             
|                    |  | 
|*Richard F. Vaccaro |  |  |  | Director                                    
|Richard F. Vaccaro  |  |  |  |                                             



| |  |       |  |                       |  | 
| |  | ----- |  | --------------------- |  | 
| |  | * By: |  | /s/ Thomas C. Castano |  | 
| |  |       |  | Thomas C. Castano     |  | 
| |  |       |  | (Attorney-in-Fact)    |  | 



40



---

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Financial Statements and

Report of Independent Registered Public Accounting Firm

December 31, 2010 and 2009



---

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

INDEX TO FINANCIAL STATEMENTS



|                                                                                               |  |            |     | 
|---------------------------------------------------------------------------------------------- |  | ---------- | --- | 
|Financial Statements                                                                           |  | PageNumber |    
|Managements Annual Report on Internal Control Over Financial Reporting                        |  |            | F-2 | 
|                                                                                               | 
|Report of Independent Registered Public Accounting Firm                                        |  |            | F-3 | 
|                                                                                               | 
|Financial Statements:                                                                          |  |            |     | 
|                                                                                               | 
|Statements of Financial Position - December 31, 2010 and 2009                                  |  |            | F-4 | 
|                                                                                               | 
|Statements of Operations and Comprehensive Income
Years ended December 31, 2010, 2009 and 2008 |  |            | F-5 | 
|                                                                                               | 
|Statements of Stockholders Equity
Years ended December 31, 2010, 2009 and 2008                |  |            | F-6 | 
|                                                                                               | 
|Statements of Cash Flows
Years ended December 31, 2010, 2009 and 2008                          |  |            | F-7 | 
|                                                                                               | 
|Notes to Financial Statements                                                                  |  |            | F-8 | 



F-1



---

Managements Annual Report on Internal Control Over
Financial Reporting

Management of Pruco Life Insurance Company of New Jersey (the Company) is responsible for
establishing and maintaining adequate internal control over financial reporting. Management conducted an assessment of the effectiveness, as of December 31, 2010, of the Companys internal control over financial reporting, based on the
framework established in Internal Control  Integrated Framework Issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment under that framework, management concluded that the Companys
internal control over financial reporting was effective as of December 31, 2010.

Our internal control over financial
reporting is a process designed by or under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Companys assets that could have a material effect on our financial statements.

Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This Annual
Report does not include an attestation report of the Companys registered public accounting firm, PricewaterhouseCoopers LLP, regarding internal control over financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to final rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this Annual Report.

March 11, 2011



F-2



---

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of

Pruco Life Insurance Company of New Jersey:

In our opinion, the accompanying
statements of financial position and the related statements of operations and comprehensive income, of stockholders equity and of cash flows present fairly, in all material respects, the financial position of Pruco Life Insurance Company of
New Jersey (an indirect, wholly owned subsidiary of The Prudential Insurance Company of America) at December 31, 2010 and December 31, 2009, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 2 of the financial statements, the Company changed its method of determining and recording other-than-temporary
impairment for debt securities on January 1, 2009.

/s/ PRICEWATERHOUSECOOPERS LLP

New York, New York

March 11, 2011



F-3



---

Pruco Life Insurance Company of New Jersey

Statements of Financial Position

As
of December 31, 2010 and 2009 (in thousands, except share amounts)





|                                                                                                           |  |      |           |  |      |   |           | 
|---------------------------------------------------------------------------------------------------------- |  | ---- | --------- |  | ---- | - | --------- | 
|                                                                                                           |  | 2010 |           |  | 2009 |  
|ASSETS                                                                                                     |  |      |           |  |      |   |           | 
|Fixed maturities available for sale, at fair value (amortized cost, 2010 - $ 1,007,655; 2009 - $1,028,386) |  | $    | 1,064,541 |  |      | $ | 1,054,380 | 
|Equity securities available for sale, at fair value (cost, 2010 - $2,301; 2009 - $4,003)                   |  |      | 2,074     |  |      |   | 3,826     | 
|Policy loans                                                                                               |  |      | 175,514   |  |      |   | 169,835   | 
|Short-term investments                                                                                     |  |      | 7,409     |  |      |   | 27,976    | 
|Commercial mortgage loans                                                                                  |  |      | 182,437   |  |      |   | 167,935   | 
|Other long-term investments                                                                                |  |      | 16,913    |  |      |   | 8,309     | 
|                                                                                                           |  |      |           |  |      |   |           | 
|Total investments                                                                                          |  |      | 1,448,888 |  |      |   | 1,432,261 | 
|Cash and cash equivalents                                                                                  |  |      | 87,961    |  |      |   | 32,601    | 
|Deferred policy acquisition costs                                                                          |  |      | 365,970   |  |      |   | 305,617   | 
|Accrued investment income                                                                                  |  |      | 16,365    |  |      |   | 16,833    | 
|Reinsurance recoverables                                                                                   |  |      | 419,858   |  |      |   | 322,530   | 
|Receivables from parent and affiliates                                                                     |  |      | 25,833    |  |      |   | 33,511    | 
|Deferred sales inducements                                                                                 |  |      | 51,106    |  |      |   | 30,265    | 
|Other assets                                                                                               |  |      | 8,293     |  |      |   | 4,861     | 
|Separate account assets                                                                                    |  |      | 5,038,051 |  |      |   | 3,261,890 | 
|                                                                                                           |  |      |           |  |      |   |           | 
|TOTAL ASSETS                                                                                               |  | $    | 7,462,325 |  |      | $ | 5,440,369 | 
|                                                                                                           |  |      |           |  |      |   |           | 
|LIABILITIES AND EQUITY                                                                                     |  |      |           |  |      |   |           | 
|LIABILITIES                                                                                                |  |      |           |  |      |   |           | 
|Policyholders account balances                                                                            |  | $    | 1,053,807 |  |      | $ | 1,025,018 | 
|Future policy benefits and other policyholder liabilities                                                  |  |      | 503,354   |  |      |   | 460,433   | 
|Cash collateral for loaned securities                                                                      |  |      | 413       |  |      |   | 21,132    | 
|Securities sold under agreement to repurchase                                                              |  |      | 2,957     |  |      |   | 11,540    | 
|Income taxes payable                                                                                       |  |      | 120,248   |  |      |   | 97,284    | 
|Short-term debt to affiliates                                                                              |  |      |          |  |      |   |          | 
|Payables to parent and affiliates                                                                          |  |      | 5,837     |  |      |   | 4,194     | 
|Other liabilities                                                                                          |  |      | 109,969   |  |      |   | 45,226    | 
|Separate account liabilities                                                                               |  |      | 5,038,051 |  |      |   | 3,261,890 | 
|                                                                                                           |  |      |           |  |      |   |           | 
|TOTAL LIABILITIES                                                                                          |  | $    | 6,834,636 |  |      | $ | 4,926,717 | 
|                                                                                                           |  |      |           |  |      |   |           | 
|                                                                                                           |  |     
|COMMITMENTS AND CONTINGENT LIABILITIES (See Note 12)                                                       |  |      |           |  |      |   |           | 
|                                                                                                           |  |     
|EQUITY                                                                                                     |  |      |           |  |      |   |           | 
|Common stock, ($10 par value; 1,000,000 shares, authorized; 250,000 shares, issued and outstanding)        |  |      | 2,000     |  |      |   | 2,000     | 
|Additional paid-in capital                                                                                 |  |      | 169,742   |  |      |   | 168,998   | 
|Retained earnings                                                                                          |  |      | 430,663   |  |      |   | 332,718   | 
|Accumulated other comprehensive income                                                                     |  |      | 25,284    |  |      |   | 9,936     | 
|                                                                                                           |  |      |           |  |      |   |           | 
|TOTAL EQUITY                                                                                               |  |      | 627,689   |  |      |   | 513,652   | 
|                                                                                                           |  |      |           |  |      |   |           | 
|TOTAL LIABILITIES AND EQUITY                                                                               |  | $    | 7,462,325 |  |      | $ | 5,440,369 | 
|                                                                                                           |  |      |           |  |      |   |           | 

See Notes to Financial Statements



F-4



---

Pruco Life Insurance Company of New Jersey

Statements of Operations and Comprehensive Income

Years Ended December 31, 2010, 2009 and 2008 (in thousands)





|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                             |  | 2010 |         |   | 2009 |   |         | 2008 | 
|REVENUES                                                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|Premiums                                                                                                     |  | $    | 14,733  |   |      | $ | 17,031  |      |  | $ | 14,903  |  
|Policy charges and fee income                                                                                |  |      | 53,446  |   |      |   | 69,234  |      |  |   | 75,712  |  
|Net investment income                                                                                        |  |      | 77,044  |   |      |   | 69,944  |      |  |   | 68,001  |  
|Asset administration fees                                                                                    |  |      | 11,084  |   |      |   | 7,114   |      |  |   | 7,395   |  
|Other income                                                                                                 |  |      | 4,915   |   |      |   | 4,779   |      |  |   | 5,154   |  
|Realized investment gains/(losses), net;                                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Other-than-temporary impairments on fixed maturity securities                                                |  |      | (21,166 | ) |      |   | (14,461 | )    |  |   | (9,149  | )
|Other-than-temporary impairments on fixed maturity securities transferred to Other Comprehensive Income      |  |      | 18,612  |   |      |   | 8,391   |      |  |   |        |  
|Other realized investment gains (losses), net                                                                |  |      | 59,567  |   |      |   | 19,584  |      |  |   | (17,806 | )
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Total realized investment gains (losses), net                                                                |  |      | 57,015  |   |      |   | 13,514  |      |  |   | (26,955 | )
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Total revenues                                                                                               |  |      | 218,237 |   |      |   | 181,616 |      |  |   | 144,210 |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|BENEFITS AND EXPENSES                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|Policyholders benefits                                                                                      |  |      | (198    | ) |      |   | 26,062  |      |  |   | 30,454  |  
|Interest credited to policyholders account balances                                                         |  |      | 37,125  |   |      |   | 38,735  |      |  |   | 30,684  |  
|Amortization of deferred policy acquisition costs                                                            |  |      | 12,821  |   |      |   | 22,842  |      |  |   | 21,812  |  
|General, administrative and other expenses                                                                   |  |      | 27,002  |   |      |   | 17,950  |      |  |   | 35,437  |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|Total benefits and expenses                                                                                  |  |      | 76,750  |   |      |   | 105,589 |      |  |   | 118,387 |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|Income from operations before income taxes                                                                   |  |      | 141,487 |   |      |   | 76,027  |      |  |   | 25,823  |  
|                                                                                                             |  |      |        
|Income Taxes:                                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Current                                                                                                      |  |      | 23,841  |   |      |   | 20,362  |      |  |   | 1,033   |  
|Deferred                                                                                                     |  |      | 19,701  |   |      |   | 644     |      |  |   | 3,085   |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Income tax expense                                                                                           |  |      | 43,542  |   |      |   | 21,006  |      |  |   | 4,118   |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|NET INCOME                                                                                                   |  |      | 97,945  |   |      |   | 55,021  |      |  |   | 21,705  |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|Change in net unrealized investment gains/(losses) and changes in foreign currency translation, net of taxes |  |      | 15,348  |   |      |   | 44,313  |      |  |   | (33,826 | )
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                                                             |  |      |        
|COMPREHENSIVE INCOME (LOSS)                                                                                  |  | $    | 113,293 |   |      | $ | 99,334  |      |  | $ | (12,121 | )
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  

See Notes to Financial Statements



F-5



---

Pruco Life Insurance Company of New Jersey

Statements of Stockholders Equity

Years Ended December 31, 2010, 2009 and 2008 (in thousands)



|                                                                                                         |  |             |       |  |                           |   |         |                  |  |   |                                                 |  |  |             |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ----------- | ----- |  | ------------------------- | - | ------- | ---------------- |  | - | ----------------------------------------------- |  |  | ----------- | ------- | - |  | - | ------- | -
|                                                                                                         |  | CommonStock |       |  | AdditionalPaid-in-Capital |   |         | RetainedEarnings |  |   | TotalAccumulatedOtherComprehensiveIncome (Loss) |  |  | TotalEquity |        
|Balance, December 31, 2007                                                                               |  | $           | 2,000 |  |                           | $ | 168,998 |                  |  | $ | 252,259                                         |  |  | $           | 3,182   |   |  | $ | 426,439 |  
|                                                                                                         |  |             |       |  |                          
|Net Income                                                                                               |  |             |      |  |                           |   |        |                  |  |   | 21,705                                          |  |  |             |        |   |  |   | 21,705  |  
|                                                                                                         |  |             |       |  |                          
|Change in foreign currency
translation adjustments, net
of taxes                                         |  |             |      |  |                           |   |        |                  |  |   |                                                |  |  |             | (82     | ) |  |   | (82     | )
|                                                                                                         |  |             |       |  |                          
|Change in net unrealized investment gains/(losses), net of taxes                                         |  |             |      |  |                           |   |        |                  |  |   |                                                |  |  |             | (33,744 | ) |  |   | (33,744 | )
|                                                                                                         |  |             |       |  |                           |   |         |                  |  |   |                                                 |  |  |             |         |   |  |   |         |  
|Balance, December 31, 2008                                                                               |  | $           | 2,000 |  |                           | $ | 168,998 |                  |  | $ | 273,964                                         |  |  | $           | (30,644 | ) |  | $ | 414,318 |  
|                                                                                                         |  |             |       |  |                           |   |         |                  |  |   |                                                 |  |  |             |         |   |  |   |         |  
|                                                                                                         |  |             |       |  |                          
|Net income                                                                                               |  |             |       |  |                           |   |         |                  |  |   | 55,021                                          |  |  |             |         |   |  |   | 55,021  |  
|                                                                                                         |  |             |       |  |                          
|Change in foreign currency
translation adjustments, net
of taxes                                         |  |             |      |  |                           |   |        |                  |  |   |                                                |  |  |             | 40      |   |  |   | 40      |  
|                                                                                                         |  |             |       |  |                          
|Impact of adoption of new guidance for other-than-temporary impairments of debt securities, net of taxes |  |             |      |  |                           |   |        |                  |  |   | 3,733                                           |  |  |             | (3,733  | ) |  |   |        |  
|                                                                                                         |  |             |       |  |                          
|Change in net unrealized investment gains/(losses), net of taxes                                         |  |             |      |  |                           |   |        |                  |  |   |                                                |  |  |             | 44,273  |   |  |   | 44,273  |  
|                                                                                                         |  |             |       |  |                           |   |         |                  |  |   |                                                 |  |  |             |         |   |  |   |         |  
|Balance, December 31, 2009                                                                               |  | $           | 2,000 |  |                           | $ | 168,998 |                  |  | $ | 332,718                                         |  |  | $           | 9,936   |   |  | $ | 513,652 |  
|                                                                                                         |  |             |       |  |                           |   |         |                  |  |   |                                                 |  |  |             |         |   |  |   |         |  
|                                                                                                         |  |             |       |  |                          
|Net income                                                                                               |  |             |       |  |                           |   |         |                  |  |   | 97,945                                          |  |  |             |         |   |  |   | 97,945  |  
|                                                                                                         |  |             |       |  |                          
|Affiliated Asset Transfers                                                                               |  |             |      |  |                           |   | 744     |                  |  |   |                                                |  |  |             |        |   |  |   | 744     |  
|                                                                                                         |  |             |       |  |                          
|Change in foreign currency
translation adjustments, net
of taxes                                         |  |             |      |  |                           |   |        |                  |  |   |                                                |  |  |             | (22     | ) |  |   | (22     | )
|                                                                                                         |  |             |       |  |                          
|Change in net unrealized investment gains/(losses), net of taxes                                         |  |             |      |  |                           |   |        |                  |  |   |                                                |  |  |             | 15,370  |   |  |   | 15,370  |  
|                                                                                                         |  |             |       |  |                           |   |         |                  |  |   |                                                 |  |  |             |         |   |  |   |         |  
|Balance, December 31, 2010                                                                               |  | $           | 2,000 |  |                           | $ | 169,742 |                  |  | $ | 430,663                                         |  |  | $           | 25,284  |   |  | $ | 627,689 |  
|                                                                                                         |  |             |       |  |                           |   |         |                  |  |   |                                                 |  |  |             |         |   |  |   |         |  

See Notes to Financial Statements



F-6



---

Pruco Life Insurance Company of New Jersey

Statements of Cash Flows

Years Ended
December 31, 2010, 2009 and 2008 (in thousands)





|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                      |  | 2010 |          |   | 2009 |   |          | 2008 | 
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:                                                       |  |      |          |   |      |   |          |      |  |   |          |  
|                                                                                                      |  |      |         
|Net income                                                                                            |  | $    | 97,945   |   |      | $ | 55,021   |      |  | $ | 21,705   |  
|Adjustments to reconcile net income to net cash from (used in) operating activities:                  |  |      |          |   |      |   |          |      |  |   |          |  
|Policy charges and fee income                                                                         |  |      | (13,471  | ) |      |   | (15,597  | )    |  |   | (20,623  | )
|Interest credited to policyholders account balances                                                  |  |      | 37,125   |   |      |   | 38,735   |      |  |   | 30,685   |  
|Realized investment losses/(gains), net                                                               |  |      | (57,015  | ) |      |   | (13,514  | )    |  |   | 26,955   |  
|Amortization and other non-cash items                                                                 |  |      | (3,906   | ) |      |   | (271     | )    |  |   | (1,115   | )
|Change in:                                                                                            |  |      |          |   |      |   |          |      |  |   |          |  
|Future policy benefits and other policyholders liabilities                                           |  |      | 90,575   |   |      |   | 71,430   |      |  |   | 85,986   |  
|Reinsurance recoverable                                                                               |  |      | (97,731  | ) |      |   | (65,542  | )    |  |   | (66,008  | )
|Accrued investment income                                                                             |  |      | 468      |   |      |   | (1,809   | )    |  |   | (842     | )
|Receivables from parent and affiliates                                                                |  |      | (6,108   | ) |      |   | 15,115   |      |  |   | (4,125   | )
|Payable to parent and affiliates                                                                      |  |      | 1,643    |   |      |   | (5,628   | )    |  |   | 1,518    |  
|Deferred policy acquisition costs                                                                     |  |      | (72,689  | ) |      |   | (34,550  | )    |  |   | (11,286  | )
|Income taxes payable                                                                                  |  |      | 14,700   |   |      |   | 6,631    |      |  |   | (1,323   | )
|Deferred sales inducements                                                                            |  |      | (21,594  | ) |      |   | (8,689   | )    |  |   | (6,959   | )
|Other, net                                                                                            |  |      | 15,508   |   |      |   | (8,965   | )    |  |   | (7,400   | )
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                                                        |  |      | (14,550  | ) |      |   | 32,367   |      |  |   | 47,168   |  
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|                                                                                                      |  |      |         
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:                                                       |  |      |          |   |      |   |          |      |  |   |          |  
|Proceeds from the sale/maturity/prepayment of:                                                        |  |      |          |   |      |   |          |      |  |   |          |  
|Fixed maturities available for sale                                                                   |  |      | 211,850  |   |      |   | 254,335  |      |  |   | 248,848  |  
|Policy loans                                                                                          |  |      | 17,827   |   |      |   | 20,554   |      |  |   | 18,682   |  
|Commercial mortgage loans                                                                             |  |      | 28,189   |   |      |   | 10,212   |      |  |   | 2,571    |  
|Equity securities                                                                                     |  |      | 2,000    |   |      |   |         |      |  |   |         |  
|Payments for the purchase of:                                                                         |  |      |          |   |      |   |          |      |  |   |          |  
|Fixed maturities available for sale                                                                   |  |      | (190,281 | ) |      |   | (412,550 | )    |  |   | (234,739 | )
|Policy loans                                                                                          |  |      | (15,966  | ) |      |   | (13,030  | )    |  |   | (14,948  | )
|Commercial mortgage loans                                                                             |  |      | (41,700  | ) |      |   | (31,684  | )    |  |   | (44,424  | )
|Equity securities                                                                                     |  |      | (158     | ) |      |   |         |      |  |   |         |  
|Notes receivable from parent and affiliates, net                                                      |  |      | 13,926   |   |      |   | 2,907    |      |  |   | (3,417   | )
|Other long term investments, net                                                                      |  |      | (6,698   | ) |      |   | 850      |      |  |   | (1,870   | )
|Short term investments, net                                                                           |  |      | 20,569   |   |      |   | (19,825  | )    |  |   | 4,227    |  
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                                                        |  |      | 39,558   |   |      |   | (188,231 | )    |  |   | (25,070  | )
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|                                                                                                      |  |      |         
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:                                                       |  |      |          |   |      |   |          |      |  |   |          |  
|                                                                                                      |  |      |         
|Policyholders account deposits                                                                       |  |      | 171,435  |   |      |   | 335,906  |      |  |   | 209,422  |  
|Policyholders account withdrawals                                                                    |  |      | (151,600 | ) |      |   | (213,085 | )    |  |   | (133,752 | )
|Net change in securities sold under agreement to repurchase and cash collateral for loaned securities |  |      | (29,304  | ) |      |   | (5,954   | )    |  |   | (2,054   | )
|Contribution from parent                                                                              |  |      | 10       |   |      |   |         |      |  |   |         |  
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|Net change in financing arrangements (maturities 90 days or less)                                     |  |      | 39,811   |   |      |   | 1,787    |      |  |   | (59,088  | )
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                  |  |      | 30,352   |   |      |   | 118,654  |      |  |   | 14,528   |  
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|                                                                                                      |  |      |         
|Net increase (decrease) in cash and cash equivalents                                                  |  |      | 55,360   |   |      |   | (37,210  | )    |  |   | 36,626   |  
|Cash and cash equivalents, beginning of year                                                          |  |      | 32,601   |   |      |   | 69,811   |      |  |   | 33,185   |  
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                                |  | $    | 87,961   |   |      | $ | 32,601   |      |  | $ | 69,811   |  
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|                                                                                                      |  |      |         
|SUPPLEMENTAL CASH FLOW INFORMATION                                                                    |  |      |          |   |      |   |          |      |  |   |          |  
|Income taxes paid                                                                                     |  | $    | 28,842   |   |      | $ | 14,375   |      |  | $ | 5,441    |  
|                                                                                                      |  |      |          |   |      |   |          |      |  |   |          |  
|Interest paid                                                                                         |  | $    | 4        |   |      | $ | 7        |      |  | $ | 556      |  
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See Notes to Financial Statements



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





1.BUSINESS AND BASIS OF PRESENTATION



Pruco Life Insurance Company of New Jersey, or the Company, is a wholly
owned subsidiary of the Pruco Life Insurance Company, or Pruco Life, which in turn is a wholly owned subsidiary of The Prudential Insurance Company of America, or Prudential Insurance. Prudential Insurance is an indirect
wholly owned subsidiary of Prudential Financial, Inc., or Prudential Financial.

Beginning in March 2010,
Prudential Annuities Life Assurance Corporation (PALAC), an affiliate of the Company, ceased offering its existing variable annuity products (and where offered, the companion market value adjustment option) to new investors upon the
launch of a new product in Pruco Life Insurance Company of New Jersey. In general, the new product line offers the same optional living benefits and optional death benefits as offered by PALACs existing variable annuities. However, subject to
applicable contractual provisions and administrative rules, PALAC will continue to accept subsequent purchase payments on in force contracts under existing annuity products. These initiatives were implemented to create operational and administrative
efficiencies by offering a single product line of annuity products from a more limited group of legal entities. In addition, by limiting its variable annuity offerings to a single product line sold through one insurer the Prudential Annuities
business unit of Prudential Financial expects to convey a more focused, cohesive image in the marketplace.

Basis of Presentation

The Financial Statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP).

The Company has extensive transactions and relationships with Prudential Insurance
and other affiliates, (as more fully described in Note 13 to the 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; amortization
of sales inducements; valuation of investments including derivatives and the recognition of other-than-temporary 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.

Reclassifications

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments in Debt and Equity Securities

The Companys
investments in debt and equity securities include fixed maturities; equity securities; and short-term investments. The accounting policies related to each are as follows:

Fixed maturities are comprised of bonds, notes and redeemable preferred stock. Fixed maturities classified as available for sale are carried at fair value. See Note 10 for additional
information regarding the determination of fair value. 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. In addition to prepayment assumptions, cash flow
estimates vary based on assumptions regarding the underlying collateral, including default rates and changes in value. These assumptions can significantly impact income recognition and the amount of other-than-temporary impairments recognized in
earnings and other comprehensive income. 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 are adjusted as
necessary to reflect historical prepayment experience and changes in estimated future prepayments. The adjustments to amortized cost are recorded as a charge or credit to net investment income in accordance with the retrospective method. For
asset-backed and mortgage-backed securities rated below AA, the effective yield is adjusted prospectively for any changes in estimated cash flows. See the discussion below on realized investment gains and losses for a description of the accounting
for impairments, as well as the impact of the Companys adoption on January 1, 2009 of new authoritative guidance for the recognition and presentation of other-than-temporary impairments for debt securities. Unrealized gains and losses on
fixed maturities classified as available for sale, net of tax, and the effect on deferred policy acquisition costs, deferred sales inducements, future policy benefits that would result from the realization of unrealized gains and losses,
are included in Accumulated other comprehensive income (loss).



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Equity securities, available for sale are comprised of common stock,
non-redeemable preferred stock, and perpetual preferred stock, and are carried at fair value. The associated unrealized gains and losses, net of tax, and the effect on deferred policy acquisition costs, deferred sales inducements and future policy
benefits that would result from the realization of unrealized gains and losses, are included in Accumulated other comprehensive income (loss). The cost of equity securities is written down to fair value when a decline in value is
considered to be other- than- temporary. See the discussion below on realized investment gains and losses for a description of the accounting for impairments. Dividends from these investments are recognized in Net investment income when
declared.

Commercial mortgage loansconsist of commercial mortgage loans and agricultural loans. Commercial mortgage
loans are broken down by class which is based on property type (industrial properties, retail, office, multi-family/apartment, hospitality, and other).

Commercial mortgage loans originated and held for investment are generally carried at unpaid principal balance, net of an allowance for losses.

Interest income, as well as prepayment fees and the amortization of the related premiums or discounts, related to commercial mortgage and
other loans, are included in Net investment income.

Impaired loans include those loans for which it is probable
that amounts due according to the contractual terms of the loan agreement will not all be collected. The Company defines past due as principal or interest not collected at least 30 days past the scheduled contractual due date. Interest
received on impaired loans, including loans that were previously modified in a troubled debt restructuring, is either applied against the principal or reported as net investment income based on the Companys assessment as to the collectability
of the principal. See Note 3 for additional information about the Companys past due loans.

The Company discontinues
accruing interest on impaired loans after the loans become 90 days delinquent as to principal or interest payments, or earlier when the Company has doubts about collectability. When a loan is deemed to be impaired, any accrued but uncollectible
interest on the impaired loan and other loans backed by the same collateral, if any, is charged to interest income in the period the loan is deemed to be impaired. Generally, a loan is restored to accrual status only after all delinquent interest
and principal are brought current and, in the case of loans where the payment of interest has been interrupted for a substantial period, a regular payment performance has been established.

The Company reviews the performance and credit quality of the commercial mortgage loan and agricultural loan portfolios on an on-going
basis. Loans are placed on watch list status based on a predefined set of criteria and are assigned one of three categories. Loans are placed on early warning status in cases where, based on the Companys analysis of the loans
collateral, the financial situation of the borrower or tenants or other market factors, it is believed a loss of principal or interest could occur. Loans are classified as closely monitored when it is determined that 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 the Company has concluded that there is a high probability of loss of principal,
such as when the loan is delinquent or in the process of foreclosure. As described below, in determining our allowance for losses, the Company evaluates 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.

Loan-to-value and debt service coverage ratios are measures
commonly used to assess the quality of commercial mortgage 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. Loan-to-value
ratios greater than 100% indicate that the loan amount exceeds the collateral value. A smaller loan-to-value ratio indicates a greater excess of collateral value over the loan amount. 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 larger debt service coverage ratio
indicates a greater excess of net operating income over the debt service payments. The values utilized in calculating these ratios are developed as part of the Companys periodic review of the commercial mortgage loan and agricultural loan
portfolio, which includes an internal appraisal of the underlying collateral value. The Companys periodic review also includes a quality re-rating process, whereby the internal quality rating originally assigned at underwriting is updated
based on current loan, property and market information using a proprietary quality rating system. The loan-to-value ratio is the most significant of several inputs used to establish the internal credit rating of a loan which in turn drives the
allowance for losses. Other key factors considered in determining the internal credit rating include debt service coverage ratios, amortization, loan term, estimated market value growth rate and volatility for the property type and region. See Note
3 for additional information related to the loan-to-value ratios and debt service coverage ratios related to the Companys commercial mortgage and agricultural loan portfolios.

Loans are reported at carrying value, and the allowance for losses includes a loan specific reserve for each impaired loan that has a
specifically identified loss and a portfolio reserve for probable incurred but not specifically identified losses. For impaired commercial mortgage loans and agricultural loans the allowances for losses are determined based on the present value of
expected future cash flows discounted at the loans effective interest rate, or based upon the fair value of the collateral if the loan is collateral dependent. The portfolio reserves for probable incurred but not specifically identified losses
in the commercial mortgage and agricultural loan portfolio segments considers the current credit composition of the portfolio based on an internal quality rating, (as described above). The portfolio reserves are determined using past loan
experience, including



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



historical credit migration, default probability and loss severity factors by property
type. Historical credit migration, default and loss severity factors are updated each quarter based on the Companys actual loan experience, and are considered together with other relevant qualitative factors in making the final portfolio
reserve calculations.

The allowance for losses on commercial mortgage loans and agricultural loans can increase or decrease
from period to period based on the factors noted above. Realized investment gains (losses), net includes changes in the allowance for losses and changes in value for loans accounted for under the fair value option. Realized
investment gains (losses), net also includes gains and losses on sales, certain restructurings, and foreclosures.

When
a commercial mortgage or other loan is deemed to be uncollectible, any specific valuation allowance associated with the loan is reversed and a direct write down to the carrying amount of the loan is made. The carrying amount of the loan is not
adjusted for subsequent recoveries in value.

Policy loans are carried at unpaid principal balances. Interest income on
policy loans is recognized in Net investment income at the contract interest rate when earned.

Securities
repurchase and resale agreements and securities loaned transactions are used to earn spread income, to borrow funds, or to facilitate trading activity. Securities repurchase and resale agreements are generally short term in nature, and
therefore, the carrying amounts of these instruments approximate fair value. As part of securities repurchase agreements or securities loan transactions the Company transfers U.S. government and government agency securities and receives cash as
collateral. As part of securities resale agreements, the Company transfers cash as collateral and receives U.S. government securities. For securities repurchase agreements and securities loaned transactions used to earn spread income, the cash
received is typically invested in cash equivalents, short term investments or fixed maturities.

Securities repurchase
and resale agreements that satisfy certain criteria are treated as collateralized financing arrangements. These agreements are carried at the amounts at which the securities will be subsequently resold or reacquired, as specified in the respective
agreements. For securities purchased under agreements to resell, the Companys policy is to take possession or control of the securities and to value the securities daily. Securities to be resold are the same, or substantially the same, as the
securities received. For securities sold under agreements to repurchase, the market value of the securities to be repurchased is monitored, and additional collateral is obtained where appropriate, to protect against credit exposure. Securities to be
repurchased are the same, or substantially the same as those sold. Income and expenses related to these transactions executed within the insurance subsidiary used to earn spread income are reported as Net investment income, however, for
transactions used to borrow funds, the associated borrowing cost is reported as interest expense (included in General, administrative and other expenses).

Securities loaned transactions are treated as financing arrangements and are recorded at the amount of cash received. The Company obtains collateral in an amount equal to 102% and 105% of the fair
value of the domestic and foreign securities, respectively. The Company monitors the market value of the securities loaned on a daily basis with additional collateral obtained as necessary. Substantially all of the Companys securities loaned
transactions are with large brokerage firms. Income and expenses associated with securities loaned transactions used to earn spread income are generally reported as Net investment income; however, for securities loaned transactions used
for funding purposes the associated rebate is reported as interest expense (included in General, administrative and other expenses).

Other long term investments consist of derivatives, the Companys investments in joint ventures and limited partnerships in which the Company does not exercise control, as well as investments
in the Companys own separate accounts, which are carried at fair value, and investment real estate. Joint venture and partnership interests are generally accounted for using the equity method of accounting, except in instances in which the
Companys interest is so minor that it exercises virtually no influence over operating and financial policies. In such instances, the Company applies the cost method of accounting. The Companys share of net income from investments in
joint ventures and partnerships is generally included in Net investment income.

Short-term
investments primarily consist of highly liquid debt instruments with a maturity of greater than three months and less than twelve months when purchased. These investments are generally carried at fair value and include certain money market
investments, short-term debt securities issued by government sponsored entities and other highly liquid debt instruments.

Realized investment gains (losses) are computed using the specific identification method. Realized investment gains and losses are
generated from numerous sources, including the sale of fixed maturity securities, equity securities, investments in joint ventures and limited partnerships and other types of investments, as well as adjustments to the cost basis of investments for
net other-than-temporary impairments recognized in earnings.

Realized investment gains and losses are also generated from
prepayment premiums received on private fixed maturity securities, recoveries of principal on previously impaired securities, provisions for losses on commercial mortgage and fair value changes on embedded derivatives and free-standing derivatives
that do not qualify for hedge accounting treatment.



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



The Companys available-for-sale securities with unrealized losses are reviewed
quarterly to identify other-than-temporary impairments in value. In evaluating whether a decline in value is other-than-temporary, the Company considers several factors including, but not limited to the following: (1) the extent and the
duration of the decline; (2) the reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening); and (3) the financial condition of and near-term prospects of the issuer. With
regard to available-for-sale equity securities, the Company also considers the ability and intent to hold the investment for a period of time to allow for a recovery of value. When it is determined that a decline in value of an equity security is
other-than-temporary, the carrying value of the equity security is reduced to its fair value, with a corresponding charge to earnings.

In addition, in April 2009, the Financial Accounting Standards Board (FASB) revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments for debt
securities. The Company early adopted this guidance on January 1, 2009. Prior to the adoption of this guidance the Company was required to record an other-than-temporary impairment for a debt security unless it could assert that it had both the
intent and ability to hold the security for a period of time sufficient to allow for a recovery in its fair value to its amortized cost basis. This revised guidance indicates that an other-than-temporary impairment must be recognized in
earnings for a debt security in an unrealized loss position when an entity either (a) has the intent to sell the debt security or (b) more likely than not will be required to sell the debt security before its anticipated recovery. For all
debt securities in unrealized loss positions that do not meet either of these two criteria, the guidance requires that the Company analyze its ability to recover the amortized cost by comparing the net present value of projected future cash flows
with the amortized cost of the security. The net present value is calculated by discounting the Companys best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment. The Company
may use the estimated fair value of collateral as a proxy for the net present value if it believes that the security is dependent on the liquidation of collateral for recovery of its investment. If the net present value is less than the amortized
cost of the investment, an other-than-temporary impairment is recognized. In addition to the above mentioned circumstances, the Company also recognizes an other-than-temporary impairment in earnings when a foreign currency denominated security in an
unrealized loss position approaches maturity.

Under the authoritative guidance for the recognition and presentation of
other-than-temporary impairments, when an other-than-temporary impairment of a debt security has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or more
likely than not will be required to sell the security before recovery of its amortized cost basis. If the debt security meets either of these two criteria, the other-than-temporary impairment recognized in earnings is equal to the entire difference
between the securitys amortized cost basis and its fair value at the impairment measurement date. For other-than-temporary impairments of debt securities that do not meet these two criteria, the net amount recognized in earnings is equal to
the difference between the amortized cost of the debt security and its net present value calculated as described above. Any difference between the fair value and the net present value of the debt security at the impairment measurement date is
recorded in Other comprehensive income (loss). Unrealized gains or losses on securities for which an other-than-temporary impairment has been recognized in earnings is tracked as a separate component of Accumulated other
comprehensive income (loss). Prior to the adoption of this guidance in 2009, an other-than-temporary impairment recognized in earnings for debt securities was equal to the total difference between amortized cost and fair value at the time of
impairment.

For debt securities, the split between the amount of an other-than-temporary impairment recognized in other
comprehensive income and the net amount recognized in earnings is driven principally by assumptions regarding the amount and timing of projected cash flows. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment
terms of the underlying assets backing a particular security, including prepayment assumptions, and are based on data from widely accepted third-party data sources or internal estimates. In addition to prepayment assumptions, cash flow estimates
include assumptions regarding the underlying collateral including default rates and recoveries which vary based on the asset type and geographic location, as well as the vintage year of the security. For structured securities, the payment priority
within the tranche structure is also considered. For all other debt securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. The
Company has developed these estimates using information based on its historical experience as well as using market observable data, such as industry analyst reports and forecasts, sector credit ratings and other data relevant to the collectability
of a security, such as the general payment terms of the security and the securitys position within the capital structure of the issuer.

The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value. In periods subsequent to the recognition of an other-than-temporary impairment, the impaired
security is accounted for as if it had been purchased on the measurement date of the impairment. For debt securities, the discount (or reduced premium) based on the new cost basis may be accreted into net investment income in future periods,
including increases in cash flow on a prospective basis.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, certain money market investments, and other debt issues with
maturities of three months or less when purchased. The Company also engages in overnight borrowing and lending of funds with Prudential Financial and affiliates which are considered cash and cash equivalents.



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Deferred Policy Acquisition Costs

Costs that vary with and that are related primarily to the production of new insurance and annuity products are deferred to the extent
such costs are deemed recoverable from future profits. Such deferred policy acquisition costs (DAC) include commissions, costs of policy issuance and underwriting, and variable field office expenses that are incurred in producing new
business. In each reporting period, capitalized DAC is amortized. DAC is subject to recoverability testing at the end of each reporting period to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits or
premiums less benefits and maintenance expenses, as applicable. DAC, for applicable products, is adjusted for the impact of unrealized gains or losses on investments as if these gains or losses had been realized, with corresponding credits or
charges included in Accumulated other comprehensive income (loss).

Policy acquisition costs are deferred and
amortized over the expected life of the contracts (approximately 25  99 years) in proportion to gross profits arising principally from investment results, mortality and expense margins, and surrender charges, based on historical and
anticipated future experience, which is updated periodically. The Company uses a reversion to the mean approach to derive the future rate of return assumptions. However, if the projected future rate of return calculated using this approach is
greater than the maximum future rate of return assumption, the maximum future rate of return is utilized. In addition to the gross profit components previously mentioned, we also include the impact of the embedded derivatives associated with certain
optional living benefit features of the Companys variable annuity contracts and related hedging activities in actual gross profits used as the basis for calculating current period amortization, regardless of which affiliated legal entity this
activity occurs. In calculating gross profits, profits and losses related to contracts issued by the Company that are reported in affiliated legal entities other than the Company as a result of, for example, reinsurance agreements with those
affiliated entities are also included. The Company is an indirect subsidiary of Prudential Financial (an SEC registrant) and has extensive transactions and relationships with other subsidiaries of Prudential Financial, including reinsurance
agreements. See Note 13 in the Financial Statements. Incorporating all product-related profits and losses in gross profits, including those that are reported in affiliated legal entities, produces a DAC amortization pattern representative of the
economics of the products. The effect of changes to estimated gross profits on unamortized deferred acquisition costs is reflected in Amortization of deferred policy acquisition costs in the period such estimated gross profits are
revised.

For some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a
contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. If policyholders surrender traditional life
insurance policies in exchange for life insurance policies that do not have fixed and guaranteed terms, the Company immediately charges to expense the remaining unamortized DAC on the surrendered policies. For other internal replacement
transactions, except those that involve the addition of a non-integrated contract feature that does not change the existing base contract, the unamortized DAC is immediately charged to expense if the terms of the new policies are not substantially
similar to those of the former policies. If the new terms are substantially similar to those of the earlier policies, the DAC is retained with respect to the new policies and amortized over the expected life of the new policies.

Reinsurance recoverables

Reinsurance recoverables include corresponding payables and receivables associated with reinsurance arrangements with affiliates. For additional information about these arrangements see Note 13 to the
Financial Statements.

Separate Account Assets and Liabilities

Separate account assets are reported at fair value and represent segregated funds, which are invested for certain policyholders and other
customers. The assets consist primarily of equity securities, fixed maturities, real estate related investments, real estate mortgage loans and short term investments and derivative instruments. The assets of each account are legally segregated and
are generally not subject to claims that arise out of any other business of the Company. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to
certain accounts. Separate account liabilities primarily represent the contractholders account balance in separate account assets and to a lesser extent borrowings of the separate account. See Note 7 to the Financial Statements for additional
information regarding separate account arrangements with contractual guarantees. The investment income and realized investment gains or losses from separate accounts generally accrue to the policyholders and are not included in the Statements of
Operations. Mortality, policy administration and surrender charges assessed against the accounts are included in Policy charges and fee income. Asset administration fees charged to the accounts are included in Asset administration
fees.

Deferred sales inducements

The Company provides sales inducements to contractholders, which primarily reflect an up-front bonus added to the contractholders initial deposit for certain annuity contracts. These costs are
deferred and recognized in Deferred sales inducements. They are amortized using the same methodology and assumptions used to amortize DAC. Sales inducements balances are subject to recoverability testing at the end of each reporting
period to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits. The Company records amortization of deferred sales inducements in Interest credited to policyholders account balances.



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Other Assets and Other Liabilities

Other assets consist primarily of premiums due, certain restricted assets, and receivables resulting from sales of securities that had not
yet settled at the balance sheet date. Other liabilities consist primarily of accrued expenses, technical overdrafts, derivatives, and payables resulting from purchases of securities that had not yet been settled at the balance sheet date.

Future Policy Benefits

The Companys liability for future policy benefits is primarily comprised of the present value of estimated future payments to or on behalf of policyholders, where the timing and amount of payment
depends on policyholder mortality or morbidity, less the present value of future net premiums. For life insurance and annuity products, expected mortality and morbidity is generally based on the Companys historical experience or standard
industry tables including a provision for the risk of adverse deviation on our term life products. Interest rate assumptions are based on factors such as market conditions and expected investment returns. Although mortality and morbidity and
interest rate assumptions are locked-in upon the issuance of new insurance or annuity products with fixed and guaranteed terms, significant changes in experience or assumptions may require the Company to provide for expected future
losses on a product by establishing premium deficiency reserves. Premium deficiency reserves, if required, are determined based on assumptions at the time the premium deficiency reserve is established and do not include a provision for the risk of
adverse deviation. The Companys liability for future policy benefits also includes net liabilities for guarantee benefits related to certain nontraditional long-duration life and annuity contracts, which are discussed more fully in Note 7, and
certain unearned revenues.

Policyholders Account Balances

The Companys liability for policyholders account balances represents the contract value that has accrued to the benefit of the
policyholder as of the balance sheet date. This liability is generally equal to the accumulated account deposits, plus interest credited, less policyholders withdrawals and other charges assessed against the account balance. These
policyholders account balances also include a provision for benefits under non-life contingent payout annuities and certain unearned revenues.

Contingent Liabilities

Amounts related to contingent liabilities
are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable. Management evaluates whether there are incremental legal or other costs directly associated with the ultimate resolution of the matter that are
reasonably estimable and, if so, they are included in the accrual.

Insurance Revenue and Expense Recognition

Premiums from individual life products, other than interest-sensitive life contracts, are recognized when due. When premiums are due over
a significantly shorter period than the period over which benefits are provided, any gross premium in excess of the net premium (i.e., the portion of the gross premium required to provide for all expected future benefits and expenses) is deferred
and recognized into revenue in a constant relationship to insurance in force. Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are recognized using the net premium method.

Certain individual annuity contracts provide the holder a guarantee that the benefit received upon death or annuitization
will be no less than a minimum prescribed amount. These benefits are accounted for as insurance contracts and are discussed in further detail in Note 7. The Company also provides contracts with certain living benefits which are accounted for as
embedded derivatives. These contracts are discussed in further detail in Note 7.

Amounts received as payment for
interest-sensitive contracts, are reported as deposits to Policyholders account balances. Revenues from these contracts are reflected in Policy charges and fee income consisting primarily of fees assessed during the
period against the policyholders account balances for mortality charges, policy administration charges and surrender charges. In addition to fees, the Company earns investment income from the investment of policyholders deposits in the
Companys general account portfolio. Fees assessed that represent compensation to the Company for services to be provided in future periods and certain other fees are deferred and amortized into revenue over the life of the related contracts in
proportion to estimated gross profits. Benefits and expenses for these products include claims in excess of related account balances, expenses of contract administration, interest credited to policyholders account balances and amortization of
DAC. Premiums, benefits and expenses are stated net of reinsurance ceded to other companies. Estimated reinsurance recoverables and the cost of reinsurance are recognized over the life of the reinsured policies using assumptions consistent with
those used to account for the underlying policies.



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Asset Administration Fees

The Company receives asset administration fee income from policyholders account balances invested in The Prudential Series Funds or,
PSF, which are a portfolio of mutual fund investments related to the Companys separate account products. Also the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series
Trust Funds (see Note 13 to the Financial Statements). In addition, the Company receives fees from policyholders account balances invested in funds managed by companies other than Prudential Insurance. Asset administration fees are recognized
as income when earned.

Derivative Financial Instruments

Derivatives are financial instruments whose values are derived from interest rates, financial indices, or the values of securities.
Derivative financial instruments generally used by the Company include swaps, futures, forwards and options which are contracted in the over-the-counter market with an affiliate. Derivative positions are carried at fair value, generally by obtaining
quoted market prices or through the use of valuation models. Values can be affected by changes in interest rates, financial indices, values of securities, credit spreads, market volatility, expected returns and liquidity. Values can also be affected
by changes in estimates and assumptions, including those related to counterparty behavior and non performance risk, used in valuation models.

Derivatives are used to manage the characteristics of the Companys asset/liability mix to manage the interest rate and currency characteristics of assets or liabilities. Additionally, derivatives
may be used to seek to reduce exposure to interest rate, credit, foreign currency and equity risks associated with assets held or expected to be purchased or sold, and liabilities incurred or expected to be incurred.

Derivatives are recorded either as assets, within Other long-term investments, or as liabilities, within Other
liabilities, except for embedded derivatives, which are recorded with the associated host contract. The Company nets the fair value of all derivative financial instruments with its affiliated counterparty for which a master netting arrangement
has been executed. As discussed below and in Note 11, all realized and unrealized changes in fair value of derivatives, with the exception of the effective portion of cash flow hedges are recorded in current earnings. Cash flows from these
derivatives are reported in the operating and investing activities sections in the Statements of Cash Flows.

The Company
designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or (2) a derivative that does not
qualify for hedge accounting.

To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating
the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of
ineffectiveness of the hedge. Under such circumstances, the ineffective portion is recorded in Realized investment gains (losses), net.

The Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives designated as cash flow hedges to specific assets and liabilities on the balance sheet or to forecasted transactions.

When a derivative is designated as a cash flow hedge and is determined to be highly effective, changes in its fair value are recorded in
Accumulated other comprehensive income (loss) until earnings are affected by the variability of cash flows being hedged (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). At that
time, the related portion of deferred gains or losses on the derivative instrument is reclassified and reported in the income statement line item associated with the hedged item.

If it is determined that a derivative no longer qualifies as an effective cash flow hedge, or management removes the hedge designation,
the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recognized currently in Realized investment gains (losses), net. The asset or liability under a fair value hedge will no longer
be adjusted for changes in fair value and the existing basis adjustment is amortized to the income statement line associated with the asset or liability. The component of Accumulated other comprehensive income (loss) related to
discontinued cash flow hedges is amortized to the income statement line associated with the hedged cash flows consistent with the earnings impact of the original hedged cash flows.

When hedge accounting is discontinued because it is probable that the forecasted transaction will not occur by the end of the specified
time period, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recognized currently in Realized investment gains (losses), net. Gains and losses that were in Accumulated
other comprehensive income (loss) pursuant to the hedge of a forecasted transaction are recognized immediately in Realized investment gains (losses), net.

If a derivative does not qualify for hedge accounting, all changes in its fair value, including net receipts and payments, are included in Realized investment gains (losses), net without
considering changes in the fair value of the economically associated assets or liabilities.



F-14



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Income Taxes

The Company is a member of the consolidated federal income tax return of Prudential Financial and primarily files separate company state and local tax returns. Pursuant to the tax allocation arrangement
with Prudential Financial, total federal income tax expense is determined on a separate company basis. Members with losses record tax benefits to the extent such losses are recognized in the consolidated federal tax provision.

Deferred income taxes are recognized, based on enacted rates, when assets and liabilities have different values for financial statement
and tax reporting purposes. A valuation allowance is recorded to reduce a deferred tax asset to the amount expected to be realized.

The Companys liability for income taxes includes the liability for unrecognized tax benefits and interest and penalties which relate to tax years still subject to review by the Internal Revenue
Service (IRS) or other taxing jurisdictions. Audit periods remain open for review until the statute of limitations has passed. Generally, for tax years which produce net operating losses, capital losses or tax credit carryforwards
(tax attributes), the statute of limitations does not close, to the extent of these tax attributes, until the expiration of the statute of limitations for the tax year in which they are fully utilized. The completion of review or the
expiration of the statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. The Company classifies all interest and penalties related to tax uncertainties as income tax expense. See Note 9 for
additional information regarding income taxes.

Adoption of New Accounting Pronouncements

In July 2010, the FASB issued updated guidance that requires enhanced disclosures related to the allowance for credit losses and the
credit quality of a companys financing receivable portfolio. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The Company adopted this
guidance effective December 31, 2010. The required disclosures are included above and in Note 3. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning after
December 15, 2010. The Company will provide these required disclosures in the interim reporting period ended March 31, 2011. In January 2011, the FASB deferred the disclosures required by this guidance related to troubled debt
restructurings. The disclosures will be effective, and the Company will provide these disclosures, concurrent with the effective date of proposed guidance for determining what constitutes a troubled debt restructuring.

In March 2010, the FASB issued updated guidance that amends and clarifies the accounting for credit derivatives embedded in interests in
securitized financial assets. This new guidance eliminates the scope exception for embedded credit derivatives (except for those that are created solely by subordination) and provides new guidance on how the evaluation of embedded credit derivatives
is to be performed. This new guidance is effective for the first interim reporting period beginning after June 15, 2010. The Companys adoption of this guidance effective with the interim reporting period ending September 30, 2010 did
not have a material effect on the Companys financial position, results of operations, and financial statement disclosures.

In January 2010, the FASB issued updated guidance that requires new fair value disclosures about significant transfers between Level 1 and 2 measurement categories and separate presentation of purchases,
sales, issuances, and settlements within the roll forward of Level 3 activity. Also, this updated fair value guidance clarifies the disclosure requirements about level of disaggregation and valuation techniques and inputs. This new guidance is
effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity, which are effective for interim and
annual reporting periods beginning after December 15, 2010. The Company adopted the effective portions of this guidance on January 1, 2010. The required disclosures are provided in Note 10 and Note 11. The Company will provide the required
disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity in the interim reporting period ending March 31, 2011.

In September 2009, the FASB issued updated guidance for the fair value measurement of investments in certain entities that calculate net asset value per share including certain alternative investments
such as hedge funds, private equity funds, and venture capital funds. This guidance allows companies to determine the fair value of such investments using net asset value (NAV) as a practical expedient if the fair value of the investment
is not readily determinable and the investee entity issues financial statements in accordance with measurement principles for investment companies. Use of this practical expedient is prohibited if it is probable the investment will be sold at
something other than NAV. This guidance also requires new disclosures for each major category of alternative investments. It was effective for the first annual or interim reporting period ending after December 15, 2009. The Companys
adoption of this guidance effective December 31, 2009 did not have a material effect on the Companys financial position, results of operations and financial statement disclosures.

In August 2009, the FASB issued updated guidance for the fair value measurement of liabilities. This guidance provides clarification on
how to measure fair value in circumstances in when a quoted price in an active market for the identical liability is not available. This guidance also clarifies that restrictions preventing the transfer of a liability should not be considered as a
separate input or adjustment in the measurement of fair value. The Company adopted this guidance effective with the annual reporting period ended December 31, 2009, and the adoption did not have a material impact on the Companys financial
position, results of operations, and financial statement disclosures.



F-15



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



In June 2009, the FASB issued authoritative guidance for the
FASBs Accounting Standards CodificationTMas the
source of authoritative U.S. GAAP. The Codification is not intended to change U.S. GAAP but is a new structure which organizes accounting pronouncements by accounting topic. This guidance is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The Companys adoption of this guidance effective with the interim reporting period ending September 30, 2009 impacted the way the Company references U.S. GAAP accounting standards in
the financial statements.

In April 2009, the FASB revised the authoritative guidance for disclosures about fair value of
financial instruments. This new guidance requires disclosures about fair value of financial instruments for interim reporting periods similar to those included in annual financial statements. This guidance is effective for interim reporting periods
ending after June 15, 2009. The Company adopted this guidance effective with the interim period ending June 30, 2009.

In April 2009, the FASB revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments. This
new guidance amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in the financial statements. This
guidance also requires that the required annual disclosures for debt and equity securities be made for interim reporting periods. This guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments
of equity securities. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company early adopted this guidance effective
January 1, 2009, which resulted in a net after-tax increase to retained earnings and decrease to accumulated other comprehensive income (loss) of $19.6 million. The disclosures required by this new guidance are provided in Note 3. See
Investments and Investment-Related Liabilities above for more information.

In April 2009, the FASB revised the
authoritative guidance for fair value measurements and disclosures to provide guidance on (1) estimating the fair value of an asset or liability if there was a significant decrease in the volume and level of trading activity for these assets or
liabilities, and (2) identifying transactions that are not orderly. Further, this new guidance requires additional disclosures about fair value measurements in interim and annual periods. This guidance is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Companys early adoption of this guidance effective January 1, 2009 did
not have a material effect on the Companys financial position or results of operations. The disclosures required by this revised guidance are provided in Note 10.

In October 2008, the FASB revised the authoritative guidance on determining the fair value of a financial asset when the market for that asset is not active. This guidance clarifies the application of
fair value measurements in a market that is not active and applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements. The guidance was effective upon issuance, including prior periods
for which financial statements had not been issued. The Companys adoption of this guidance effective September 30, 2008 did not have a material effect on the Companys financial position or results of operations.

In March 2008, the FASB issued authoritative guidance for derivative instruments and hedging activities which amends and expands the
disclosure requirements for derivative instruments and hedging activities by requiring companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. The Companys adoption of this guidance effective January 1, 2009
did not have a material effect on the Companys financial position or results of operations. The required disclosures are provided in Note 11.

In February 2008, the FASB revised the authoritative guidance for the accounting for transfers of financial assets and repurchase financing transactions. The new guidance provides recognition and
derecognition guidance for a repurchase financing transaction, which is a repurchase agreement that relates to a previously transferred financial asset between the same counterparties that is entered into contemporaneously with or in contemplation
of, the initial transfer. The guidance is effective for fiscal years beginning after November 15, 2008. The Companys adoption of this guidance on a prospective basis effective January 1, 2009 did not have a material effect on the
Companys financial position or results of operations.

In February 2008, the FASB revised the authoritative guidance
which delays the effective date of the authoritative guidance related to fair value measurements and disclosures for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Companys adoption of this guidance effective January 1, 2009 did not have a
material effect on the Companys financial position or results of operations.

In January 2008, the FASB issued
authoritative guidance for application of the shortcut method to hedge accounting with respect to the conditions that must be met to apply the shortcut method for assessing hedge effectiveness. This new guidance was effective for hedging
relationships designated on or after January 1, 2008. The Companys adoption of this guidance effective January 1, 2008 did not have a material effect on the Companys financial position or results of operations.



F-16



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



In February 2007, the FASB issued authoritative guidance on the fair value option for
financial assets and financial liabilities. This guidance provides companies with an option to report selected financial assets and liabilities at fair value, with the associated changes in fair value reflected in the Statements of Operations. The
Company adopted this guidance effective January 1, 2008.

In September 2006, the FASB issued authoritative guidance on
fair value measurements. This guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance does not change which assets and liabilities are required to be
recorded at fair value, but the application of this guidance could change practices in determining fair value. The Company adopted this guidance effective January 1, 2008. See Note 10 for more information on fair value measurements guidance.

Future Adoption of New Accounting Pronouncements

In October 2010, the FASB issued guidance to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for
deferral. Under the new guidance acquisition costs are to include only those costs that are directly related to the acquisition or renewal of insurance contracts by applying a model similar to the accounting for loan origination costs. An entity may
defer incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or employees as well as the portion of employee compensation costs related to underwriting, policy issuance and processing,
medical inspection, and contract selling for successfully negotiated contracts. Additionally, an entity may capitalize as a deferred acquisition cost only those advertising costs meeting the capitalization criteria for direct-response advertising.
This change is effective for fiscal years beginning after December 15, 2011 and interim periods within those years. Early adoption as of the beginning of a fiscal year is permitted. The guidance is to be applied prospectively upon the date of
adoption, with retrospective application permitted, but not required. The Company will adopt this guidance effective January 1, 2012. The Company is currently assessing the impact of the guidance on the Companys financial position,
results of operations, and financial statement disclosures.

In April 2010, the FASB issued guidance clarifying that an
insurance entity should not consider any separate account interests in an investment held for the benefit of policyholders to be the insurers interests, and should not combine those interests with its general account interest in the same
investment when assessing the investment for consolidation, unless the separate account interests are held for a related party policyholder, whereby consolidation of such interests must be considered under applicable variable interest guidance. This
guidance is effective for interim and annual periods beginning after December 15, 2010 and retrospectively to all prior periods upon the date of adoption, with early adoption permitted. The Companys adoption of this guidance effective
January 1, 2011 is not expected to have a material effect on the Companys financial position, results of operations, and financial statement disclosures.



F-17



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS



Fixed Maturities and Equity Securities

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



|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |        |  
|------------------------------------------------------------------------------------ |  | ----------------- | --------- |  | -------------------- | - | ------ | --------------------- |  | - | ---------- |  |  | ------------------------------------------ | --------- |  |  | - | ------ | -
|                                                                                     |  | December 31, 2010 |          
|                                                                                     |  | AmortizedCost     |           |  | GrossUnrealizedGains |   |        | GrossUnrealizedLosses |  |   | Fair Value |  |  | Other-than-temporaryimpairmentsin AOCI (3) |          
|                                                                                     |  | (in thousands)    |          
|Fixed maturities, available for sale                                                 |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |        |  
|U.S. Treasury securities and obligations of U.S. government authorities and agencies |  | $                 | 34,292    |  |                      | $ | 2,199  |                       |  | $ | 41         |  |  | $                                          | 36,450    |  |  | $ |       |  
|Obligations of U.S. states and their political subdivisions                          |  |                   |          |  |                      |   |       |                       |  |   |           |  |  |                                            |          |  |  |   |       |  
|Foreign government bonds                                                             |  |                   | 21,034    |  |                      |   | 1.644  |                       |  |   |           |  |  |                                            | 22,678    |  |  |   |       |  
|Corporate securities                                                                 |  |                   | 707,754   |  |                      |   | 47,472 |                       |  |   | 2,945      |  |  |                                            | 752,281   |  |  |   | (26    | )
|Asset-backed securities(1)                                                           |  |                   | 57,808    |  |                      |   | 1,671  |                       |  |   | 5,446      |  |  |                                            | 54,033    |  |  |   | (8,856 | )
|Commercial mortgage-backed securities                                                |  |                   | 97,467    |  |                      |   | 5,721  |                       |  |   | 87         |  |  |                                            | 103,101   |  |  |   |       |  
|Residential mortgage-backed securities (2)                                           |  |                   | 89,300    |  |                      |   | 6,746  |                       |  |   | 48         |  |  |                                            | 95,998    |  |  |   | (454   | )
|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |        |  
|Total fixed maturities, available for sale                                           |  | $                 | 1,007,655 |  |                      | $ | 65,453 |                       |  | $ | 8,567      |  |  | $                                          | 1,064,541 |  |  | $ | (9,336 | )
|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |        |  
|Equity securities, available for sale                                                |  | $                 | 2,301     |  |                      | $ | 178    |                       |  | $ | 405        |  |  | $                                          | 2,074     |  |  |   |        |  
|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |        |  



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

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

|(3) | Represents the amount of other-than-temporary impairment losses in Accumulated other comprehensive income (loss), or AOCI,
which, from January 1, 2009, were not included in earnings under new authoritative accounting guidance. Amount excludes $5 million of net unrealized gains (losses) on impaired securities relating to changes in the fair value of such securities
subsequent to the impairment measurement date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------- | --------- |  | -------------------- | - | ------ | --------------------- |  | - | ---------- |  |  | ------------------------------------------ | --------- |  |  | - | ------- | -
|                                                                                     |  | December 31, 2009 |          
|                                                                                     |  | AmortizedCost     |           |  | GrossUnrealizedGains |   |        | GrossUnrealizedLosses |  |   | Fair Value |  |  | Other-than-temporaryimpairmentsin AOCI (3) |          
|                                                                                     |  | (in thousands)    |          
|Fixed maturities, available for sale                                                 |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |         |  
|U.S. Treasury securities and obligations of U.S. government authorities and agencies |  | $                 | 69,978    |  |                      | $ | 809    |                       |  | $ | 268        |  |  | $                                          | 70,519    |  |  | $ |        |  
|Obligations of U.S. states and their political subdivisions                          |  |                   |          |  |                      |   |       |                       |  |   |           |  |  |                                            |          |  |  |   |        |  
|Foreign government bonds                                                             |  |                   | 22,188    |  |                      |   | 1,232  |                       |  |   | 272        |  |  |                                            | 23,148    |  |  |   |        |  
|Corporate securities                                                                 |  |                   | 667,718   |  |                      |   | 27,475 |                       |  |   | 5,101      |  |  |                                            | 690,092   |  |  |   | (681    | )
|Asset-backed securities(1)                                                           |  |                   | 62,273    |  |                      |   | 1,132  |                       |  |   | 6,560      |  |  |                                            | 56,845    |  |  |   | (9,940  | )
|Commercial mortgage-backed securities                                                |  |                   | 91,971    |  |                      |   | 2,220  |                       |  |   | 725        |  |  |                                            | 93,466    |  |  |   |        |  
|Residential mortgage-backed securities (2)                                           |  |                   | 114,258   |  |                      |   | 6,465  |                       |  |   | 413        |  |  |                                            | 120,310   |  |  |   | (626    | )
|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |         |  
|Total fixed maturities, available for sale                                           |  | $                 | 1,028,386 |  |                      | $ | 39,333 |                       |  | $ | 13,339     |  |  | $                                          | 1,054,380 |  |  | $ | (11,247 | )
|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |         |  
|Equity securities, available for sale                                                |  | $                 | 4,003     |  |                      | $ | 129    |                       |  | $ | 306        |  |  | $                                          | 3,826     |  |  |   |         |  
|                                                                                     |  |                   |           |  |                      |   |        |                       |  |   |            |  |  |                                            |           |  |  |   |         |  



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

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

|(3) | Represents the amount of other-than-temporary impairment losses in Accumulated other comprehensive income (loss), or AOCI,
which, from January 1, 2009, were not included in earnings under new authoritative accounting guidance. Amount excludes $5 million of net unrealized gains (losses) on impaired securities relating to changes in the fair value of such securities
subsequent to the impairment measurement date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-18



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



The amortized cost and fair value of fixed maturities by contractual maturities at
December 31, 2010, are as follows:



|                                       |  |                    |           |  |           |   |           | 
|-------------------------------------- |  | ------------------ | --------- |  | --------- | - | --------- | 
|                                       |  | Available for Sale |          
|                                       |  | Amortized Cost     |           |  | FairValue |  
|                                       |  | (in thousands)     |          
|Due in one year or less                |  | $                  | 44,597    |  |           | $ | 45,431    | 
|Due after one year through five years  |  |                    | 302,516   |  |           |   | 323,819   | 
|Due after five years through ten years |  |                    | 326,528   |  |           |   | 348,498   | 
|Due after ten years                    |  |                    | 89,439    |  |           |   | 93,660    | 
|Asset-backed securities                |  |                    | 57,808    |  |           |   | 54,034    | 
|Commercial mortgage-backed securities  |  |                    | 97,467    |  |           |   | 103,101   | 
|Residential mortgage-backed securities |  |                    | 89,300    |  |           |   | 95,998    | 
|                                       |  |                    |           |  |           |   |           | 
|Total                                  |  | $                  | 1,007,655 |  |           | $ | 1,064,541 | 
|                                       |  |                    |           |  |           |   |           | 

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

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



|                                                                                                         |  |                |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                         |  | 2010           |         |   | 2009 |   |         | 2008 | 
|                                                                                                         |  | (in thousands) |        
|Fixed maturities, available for sale:                                                                    |  |                |         |   |      |   |         |      |  |   |         |  
|                                                                                                         |  |                |        
|Proceeds from sales                                                                                      |  | $              | 35,017  |   |      | $ | 59,587  |      |  | $ | 206,732 |  
|Proceeds from maturities/repayments                                                                      |  |                | 157,785 |   |      |   | 194,623 |      |  |   | 42,743  |  
|Gross investment gains from sales, prepayments and maturities                                            |  |                | 4,160   |   |      |   | 1,540   |      |  |   | 1,108   |  
|Gross investment losses from sales and maturities                                                        |  |                | (83     | ) |      |   | (3,027  | )    |  |   | (2,539  | )
|                                                                                                         |  |                |        
|Fixed maturity and equity security impairments:                                                          |  |                |         |   |      |   |         |      |  |   |         |  
|                                                                                                         |  |                |        
|Net writedowns for other-than-temporary impairment losses on fixed maturities recognized in earnings (1) |  | $              | (2,554  | ) |      | $ | (6,070  | )    |  | $ | (9,149  | )
|                                                                                                         |  |                |        
|Writedowns for other-than-temporary impairment losses on equity securities                               |  | $              |        |   |      | $ | (139    | )    |  | $ |        |  



|(1) | Effective with the adoption of new authoritative guidance January 1, 2009, excludes the portion of other-than-temporary impairments recorded in
Other comprehensive income (loss), representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As discussed in Note 2, a portion of certain other-than-temporary impairment (OTTI) losses on fixed maturity securities are
recognized in Other comprehensive income (loss) (OCI). The net amount recognized in earnings (credit loss impairments) represents the difference between the amortized cost of the security and the net present value
of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in OCI. The following tables set forth
the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts for the periods
indicated.



F-19



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



|                                                                                                                                                 |  |                            |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ------ | -
|                                                                                                                                                 |  | Year EndedDecember 31,2010 |       
|                                                                                                                                                 |  | (in thousands)             |       
|Credit losses recognized in earnings on fixed maturity securities held by the Company for which a portion of the OTTI loss was
recognized in OCI |  |                            |        |  
|                                                                                                                                                 | 
|Balance, beginning of period, January 1, 2009                                                                                                    |  | $                          |       |  
|Credit losses remaining in retained earnings related to adoption of new authoritative guidance on January 1,
2009                                |  |                            | 2,361  |  
|Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the
period                     |  |                            | (603   | )
|Credit loss impairments previously recognized on securities impaired to fair value during the period (1)                                         |  |                            |       |  
|Credit loss impairment recognized in the current period on securities not previously impaired                                                    |  |                            | 2,557  |  
|Additional credit loss impairments recognized in the current period on securities previously impaired                                            |  |                            | 2,563  |  
|Increases due to the passage of time on previously recorded credit losses                                                                        |  |                            | 546    |  
|Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be
collected                             |  |                            | 7      |  
|Balance, December 31, 2009                                                                                                                       |  | $                          | 7,431  |  
|                                                                                                                                                 |  |                            |        |  
|                                                                                                                                                 | 
|Balance, beginning of period, January 1, 2010                                                                                                    |  | $                          | 7,431  |  
|                                                                                                                                                 |  |                            |        |  
|Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the
period                     |  |                            | (1,059 | )
|Credit loss impairments previously recognized on securities impaired to fair value during the period (1)                                         |  |                            | (992   | )
|Credit loss impairment recognized in the current period on securities not previously impaired                                                    |  |                            |       |  
|Additional credit loss impairments recognized in the current period on securities previously impaired                                            |  |                            | 1,965  |  
|Increases due to the passage of time on previously recorded credit losses                                                                        |  |                            | 530    |  
|Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be
collected                             |  |                            | (1,112 | )
|                                                                                                                                                 |  |                            |        |  
|Balance, December 31, 2010                                                                                                                       |  | $                          | 6,763  |  
|                                                                                                                                                 |  |                            |        |  



|(1) | Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that
it will be required to sell the security before recovery of the securitys amortized cost.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Commercial Mortgage
Loans

The Companys commercial mortgage loans are comprised as follows at December 31:



|                                                 |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 
|------------------------------------------------ |  | -------------------- | ------- | - | --------- |  | ------ | -------------------- |  | - | --------- | - |  |  | ------ | 
|                                                 |  | 2010                 |         |   | 2009      | 
|                                                 |  | Amount(in thousands) |         |   | % ofTotal |  |        | Amount(in thousands) |  |   | % ofTotal |  
|Commercial mortgage loans by property type:      |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 
|Industrial buildings                             |  | $                    | 35,745  |   |           |  | 19.4%  |                      |  | $ | 36,102    |   |  |  | 21.2%  | 
|Retail stores                                    |  |                      | 36,046  |   |           |  | 19.6%  |                      |  |   | 36,941    |   |  |  | 21.7%  | 
|Apartments/Multi-family                          |  |                      | 25,340  |   |           |  | 13.8%  |                      |  |   | 15,886    |   |  |  | 9.3%   | 
|Office buildings                                 |  |                      | 30,468  |   |           |  | 16.6%  |                      |  |   | 19,179    |   |  |  | 11.3%  | 
|Hospitality                                      |  |                      | 10,273  |   |           |  | 5.6%   |                      |  |   | 10,399    |   |  |  | 6.1%   | 
|Other                                            |  |                      | 33,834  |   |           |  | 18.4%  |                      |  |   | 34,902    |   |  |  | 20.4%  | 
|                                                 |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 
|Total collateralized loans                       |  | $                    | 171,706 |   |           |  | 93.4%  |                      |  | $ | 153,409   |   |  |  | 90.0%  | 
|                                                 |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 
|Agricultural property loans                      |  |                      | 12,140  |   |           |  | 6.6%   |                      |  |   | 16,905    |   |  |  | 10.0%  | 
|                                                 |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 
|Total commercial mortgage and agricultural loans |  | $                    | 183,846 |   |           |  | 100.0% |                      |  | $ | 170,314   |   |  |  | 100.0% | 
|                                                 |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 
|Valuation allowance                              |  |                      | (1,409  | ) |           |  |        |                      |  |   | (2,379    | ) |  |  |        | 
|                                                 |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 
|Total net commercial mortgage loans              |  | $                    | 182,437 |   |           |  |        |                      |  | $ | 167,935   |   |  |  |        | 
|                                                 |  |                      |         |   |           |  |        |                      |  |   |           |   |  |  |        | 

The commercial loans are geographically dispersed throughout the United States with the largest
concentrations in New Jersey (12%) and Florida (11%) at December 31, 2010.



F-20



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



Activity in the allowance for losses for all commercial loans, for the years ended
December 31, is as follows:



|                                            |  |                |       |   |      |   |       |      |  |   |       | 
|------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | 
|                                            |  | 2010           |       |   | 2009 |   |       | 2008 | 
|                                            |  | (in thousands) |      
|Allowance for losses, beginning of year     |  | $              | 2,379 |   |      | $ | 1,444 |      |  | $ | 560   | 
|Increase/(Decrease) to allowance for losses |  |                | (970  | ) |      |   | 935   |      |  |   | 884   | 
|                                            |  |                |       |   |      |   |       |      |  |   |       | 
|Allowance for losses, end of year           |  | $              | 1,409 |   |      | $ | 2,379 |      |  | $ | 1,444 | 
|                                            |  |                |       |   |      |   |       |      |  |   |       | 

The following table sets forth the allowance for credit losses and the recorded investment in commercial
mortgage and other loans as of December 31, 2010:



|                                                      |  |                         |         |  |                           |   |        |       |  |   |         | 
|----------------------------------------------------- |  | ----------------------- | ------- |  | ------------------------- | - | ------ | ----- |  | - | ------- | 
|                                                      |  | CommercialMortgageLoans |         |  | AgriculturalPropertyLoans |   |        | Total | 
|                                                      |  | (in thousands)          |        
|Allowance for Credit Losses:                          |  |                         |         |  |                           |   |        |       |  |   |         | 
|Ending Balance: individually evaluated for impairment |  | $                       | 424     |  |                           | $ |       |       |  | $ | 424     | 
|Ending Balance: collectively evaluated for impairment |  |                         | 964     |  |                           |   | 21     |       |  |   | 985     | 
|                                                      |  |                         |         |  |                           |   |        |       |  |   |         | 
|Total Ending Balance                                  |  | $                       | 1,388   |  |                           | $ | 21     |       |  | $ | 1,409   | 
|                                                      |  |                         |         |  |                           |   |        |       |  |   |         | 
|                                                      |  |                         |        
|Recorded Investment:                                  |  |                         |         |  |                           |   |        |       |  |   |         | 
|Ending balance gross of reserves:                     |  |                         |         |  |                           |   |        |       |  |   |         | 
|individually evaluated for impairment                 |  | $                       | 3,847   |  |                           | $ |       |       |  | $ | 3,847   | 
|Ending balance gross of reserves:                     |  |                         |         |  |                           |   |        |       |  |   |         | 
|collectively evaluated for impairment                 |  |                         | 167,859 |  |                           |   | 12,140 |       |  |   | 179,999 | 
|                                                      |  |                         |         |  |                           |   |        |       |  |   |         | 
|Total Ending balance, gross of reserves               |  | $                       | 171,706 |  |                           | $ | 12,140 |       |  | $ | 183,846 | 
|                                                      |  |                         |         |  |                           |   |        |       |  |   |         | 

Impaired loans include those loans for which it is probable that amounts due according to the contractual
terms of the loan agreement will not all be collected.

At December 31, 2010 impaired commercial mortgage loans
identified in managements specific review of probable loan losses consisted of Hospitality commercial mortgage loans with a recorded investment of $3.8 million, an unpaid principal balance of $3.8 million and the related allowance for losses
was $0.4 million. Recorded investment reflects the balance sheet carrying value gross of related allowance.

Non-performing
commercial mortgage and other loans with no allowance for losses are loans in which the fair value of the collateral or the net present value of the loans expected future cash flows equals or exceeds the recorded investment. The average
recorded investment in non-performing loans before allowance for losses was $3.9 million and $2.2 million for the years ended December 31, 2010 and December 31, 2009, repsectively. Net investment income recognized on these loans totaled
less than $0.3 million for the years ended December 31, 2010 and December 31, 2009, respectively. See Note 2 for information regarding the Companys accounting policies for non-performing loans.



F-21



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



The following tables set forth the credit quality indicators as of December 31, 2010:



|                                |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |               |   |        |             |  |   |       |  |  |   |         | 
|------------------------------- |  | --------------------------- | ------ |  | ------------ | - | ------ | ------------- |  | - | ------------- |  |  | ------------- | ------ |  | ------------- | - | ------ | ----------- |  | - | ----- |  |  | - | ------- | 
|Commercial mortgage loans       |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |               |   |       
|                                |  | Debt Service Coverage Ratio |       
|                                |  | Greater than2.0X            |        |  | 1.8X to 2.0X |   |        | 1.5X to <1.8X |  |   | 1.2X to <1.5X |  |  | 1.0X to <1.2X |        |  | Less than1.0X |   |        | Grand Total | 
|                                |  | (in thousands)              |        |  |              |  
|Loan-to-Value Ratio             |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |               |   |        |             |  |   |       |  |  |   |         | 
|0%-49.99%                       |  | $                           | 21,321 |  |              | $ | 13,638 |               |  | $ | 12,741        |  |  | $             |       |  |               | $ | 4,346  |             |  | $ |      |  |  | $ | 52,046  | 
|50%-59.99%                      |  |                             |       |  |              |   | 11,267 |               |  |   |              |  |  |               |       |  |               |   | 3,647  |             |  |   |      |  |  |   | 14,914  | 
|60%-69.99%                      |  |                             | 5,000  |  |              |   | 14,954 |               |  |   |              |  |  |               | 1,784  |  |               |   | 9,758  |             |  |   |      |  |  |   | 31,496  | 
|70%-79.99%                      |  |                             | 5,000  |  |              |   | 9,463  |               |  |   |              |  |  |               | 29,377 |  |               |   | 9,105  |             |  |   | 2,365 |  |  |   | 55,310  | 
|80%-89.99%                      |  |                             |       |  |              |   |       |               |  |   |              |  |  |               | 12,409 |  |               |   |       |             |  |   |      |  |  |   | 12,409  | 
|90%-100%                        |  |                             |       |  |              |   |       |               |  |   |              |  |  |               |       |  |               |   |       |             |  |   | 1,684 |  |  |   | 1,684   | 
|Greater than 100%               |  |                             |       |  |              |   |       |               |  |   |              |  |  |               | 3,847  |  |               |   |       |             |  |   |      |  |  |   | 3,847   | 
|                                |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |               |   |        |             |  |   |       |  |  |   |         | 
|Total Commercial Mortgage Loans |  | $                           | 31,321 |  |              | $ | 49,322 |               |  | $ | 12,741        |  |  | $             | 47,417 |  |               | $ | 26,856 |             |  | $ | 4,049 |  |  | $ | 171,706 | 
|                                |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |               |   |        |             |  |   |       |  |  |   |         | 



|                                                 |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 
|------------------------------------------------ |  | --------------------------- | ------ |  | ------------ | - | ------ | ------------- |  | - | ------------- |  |  | ------------- | ------ |  | -------------- | - | ------ | ----------- |  | - | ----- |  |  | - | ------- | 
|Agricultural loans                               |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |       
|                                                 |  | Debt Service Coverage Ratio |       
|                                                 |  | Greater than2.0X            |        |  | 1.8X to 2.0X |   |        | 1.5X to <1.8X |  |   | 1.2X to <1.5X |  |  | 1.0X to <1.2X |        |  | Less than1.0X  |   |        | Grand Total | 
|                                                 |  | (in thousands)              |        |  |              |  
|Loan-to-Value Ratio                              |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 
|0%-49.99%                                        |  | $                           | 3,016  |  |              | $ | 960    |               |  | $ | 4,009         |  |  | $             | 2,462  |  |                | $ |       |             |  | $ |      |  |  | $ | 10,447  | 
|50%-59.99%                                       |  |                             |       |  |              |   |       |               |  |   |              |  |  |               |       |  |                |   |       |             |  |   |      |  |  |   |        | 
|60%-69.99%                                       |  |                             | 1,693  |  |              |   |       |               |  |   |              |  |  |               |       |  |                |   |       |             |  |   |      |  |  |   | 1,693   | 
|70%-79.99%                                       |  |                             |       |  |              |   |       |               |  |   |              |  |  |               |       |  |                |   |       |             |  |   |      |  |  |   |        | 
|80%-89.99%                                       |  |                             |       |  |              |   |       |               |  |   |              |  |  |               |       |  |                |   |       |             |  |   |      |  |  |   |        | 
|90%-100%                                         |  |                             |       |  |              |   |       |               |  |   |              |  |  |               |       |  |                |   |       |             |  |   |      |  |  |   |        | 
|Greater than 100%                                |  |                             |       |  |              |   |       |               |  |   |              |  |  |               |       |  |                |   |       |             |  |   |      |  |  |   |        | 
|                                                 |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 
|Total Agricultural Loans                         |  | $                           | 4,709  |  |              | $ | 960    |               |  | $ | 4,009         |  |  | $             | 2,462  |  |                | $ |       |             |  | $ |      |  |  | $ | 12,140  | 
|                                                 |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 
|Commercial mortgage and Agricultural loans       |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 
|                                                 |  | Debt Service Coverage Ratio |       
|                                                 |  | Greater than2.0X            |        |  | 1.8X to 2.0X |   |        | 1.5X to <1.8X |  |   | 1.2X to <1.5X |  |  | 1.0X to <1.2X |        |  | Less 
than1.0X |   |        | Grand Total | 
|                                                 |  | (in thousands)              |        |  |              |  
|Loan-to-Value Ratio                              |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 
|0%-49.99%                                        |  | $                           | 24,337 |  |              | $ | 14,598 |               |  | $ | 16,750        |  |  | $             | 2,462  |  |                | $ | 4,346  |             |  | $ |      |  |  | $ | 62,493  | 
|50%-59.99%                                       |  |                             |       |  |              |   | 11,267 |               |  |   |              |  |  |               |       |  |                |   | 3,647  |             |  |   |      |  |  |   | 14,914  | 
|60%-69.99%                                       |  |                             | 6,693  |  |              |   | 14,954 |               |  |   |              |  |  |               | 1,784  |  |                |   | 9,758  |             |  |   |      |  |  |   | 33,189  | 
|70%-79.99%                                       |  |                             | 5,000  |  |              |   | 9,463  |               |  |   |              |  |  |               | 29,377 |  |                |   | 9,105  |             |  |   | 2,365 |  |  |   | 55,310  | 
|80%-89.99%                                       |  |                             |       |  |              |   |       |               |  |   |              |  |  |               | 12,409 |  |                |   |       |             |  |   |      |  |  |   | 12,409  | 
|90%-100%                                         |  |                             |       |  |              |   |       |               |  |   |              |  |  |               |       |  |                |   |       |             |  |   | 1,684 |  |  |   | 1,684   | 
|Greater than 100%                                |  |                             |       |  |              |   |       |               |  |   |              |  |  |               | 3,847  |  |                |   |       |             |  |   |      |  |  |   | 3,847   | 
|                                                 |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 
|Total Commercial Mortgage and Agricultural Loans |  | $                           | 36,030 |  |              | $ | 50,282 |               |  | $ | 16,750        |  |  | $             | 49,879 |  |                | $ | 26,856 |             |  | $ | 4,049 |  |  | $ | 183,846 | 
|                                                 |  |                             |        |  |              |   |        |               |  |   |               |  |  |               |        |  |                |   |        |             |  |   |       |  |  |   |         | 



F-22



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



All commercial mortgage and agricultural property loans are current as of
December 31, 2010. The Company defines current in its aging of past due commercial mortgage and agricultural loans as less than 30 days past due.

Commercial mortgage and other loans on nonaccrual status as of December 31, 2010 include Hospitality commercial mortgage loans with a gross carrying value of $3.8 million. See Note 2 for further
discussion regarding loans on nonaccrual status.

Other Long term Investments

Other long-term investments are comprised as follows at December 31:



|                                          |  |                |        |  |      |   |       | 
|----------------------------------------- |  | -------------- | ------ |  | ---- | - | ----- | 
|                                          |  | 2010           |        |  | 2009 |  
|                                          |  | (in thousands) |       
|Companys investment in Separate accounts |  | $              | 1,893  |  |      | $ | 2,213 | 
|Joint ventures and limited partnerships   |  |                | 15,020 |  |      |   | 6,096 | 
|Derivatives(1)                            |  |                |       |  |      |   |      | 
|                                          |  |                |        |  |      |   |       | 
|Total other long- term investments        |  | $              | 16,913 |  |      | $ | 8,309 | 
|                                          |  |                |        |  |      |   |       | 



|(1) | Derivative balances of ($0.9) million and ($3.5) million at December 31, 2010 and 2009, respectively, were reclassed to Other Liabilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

Net Investment Income

Net investment income for the years ended December 31, was from the following sources:



|                                            |  |                |        |   |      |   |        |      |  |   |        |  
|------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                            |  | 2010           |        |   | 2009 |   |        | 2008 | 
|                                            |  | (in thousands) |       
|Fixed maturities, available for sale        |  | $              | 57,502 |   |      | $ | 53,615 |      |  | $ | 52,035 |  
|Equity securities, available for sale       |  |                | 148    |   |      |   | 218    |      |  |   | 263    |  
|Commercial mortgage loans                   |  |                | 11,264 |   |      |   | 9,822  |      |  |   | 8,216  |  
|Policy loans                                |  |                | 9,363  |   |      |   | 9,177  |      |  |   | 9,187  |  
|Short-term investments and cash equivalents |  |                | 129    |   |      |   | 434    |      |  |   | 1,455  |  
|Other long-term investments                 |  |                | 1,691  |   |      |   | (666   | )    |  |   | (2     | )
|                                            |  |                |        |   |      |   |        |      |  |   |        |  
|Gross investment income                     |  |                | 80,097 |   |      |   | 72,600 |      |  |   | 71,154 |  
|Less investment expenses                    |  |                | (3,053 | ) |      |   | (2,656 | )    |  |   | (3,153 | )
|                                            |  |                |        |   |      |   |        |      |  |   |        |  
|Net investment income                       |  | $              | 77,044 |   |      | $ | 69,944 |      |  | $ | 68,001 |  
|                                            |  |                |        |   |      |   |        |      |  |   |        |  

Carrying value for non-income producing assets included in fixed maturities totaled $0 million and $2
million as of December 31, 2010 and December 31, 2009, respectively. Non-income producing assets represent investments that have not produced income for the twelve months preceding December 31, 2010.

Realized Investment Gains (Losses), Net

Realized investment gains (losses), net, for the years ended December 31, were from the following sources:



|                                            |  |                |        |  |      |   |        |      |  |   |         |  
|------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | -
|                                            |  | 2010           |        |  | 2009 |   |        | 2008 | 
|                                            |  | (in thousands) |       
|Fixed maturities                            |  | $              | 1,523  |  |      | $ | (7,557 | )    |  | $ | (10,575 | )
|Equity securities                           |  |                | 139    |  |      |   | (138   | )    |  |   |        |  
|Commercial mortgage loans                   |  |                | 970    |  |      |   | (935   | )    |  |   | (884    | )
|Short-term investments and cash equivalents |  |                | 5      |  |      |   |       |      |  |   |        |  
|Joint ventures and limited partnerships     |  |                |       |  |      |   | (124   | )    |  |   |        |  
|Derivatives                                 |  |                | 54,378 |  |      |   | 22,268 |      |  |   | (15,496 | )
|                                            |  |                |        |  |      |   |        |      |  |   |         |  
|Realized investment gains/(losses), net     |  | $              | 57,015 |  |      | $ | 13,514 |      |  | $ | (26,955 | )
|                                            |  |                |        |  |      |   |        |      |  |   |         |  



F-23



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



Net Unrealized Investment Gains (Losses)

Net unrealized investment gains and losses on securities classified as available for sale and certain other long-term
investments and other assets are included in the Statements of Financial Position as a component of Accumulated other comprehensive income (loss), or AOCI. Changes in these amounts include reclassification adjustments to
exclude from Other comprehensive income (loss) those items that are included as part of Net income for a period that had been part of Other comprehensive income (loss) in earlier periods. The amounts for the
periods indicated below, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other net unrealized investment gains and losses, are as follows:3

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



|                                                                                                  |  |                                          |         |   |                                               |   |        |                             |  |   |                                      |   |  |                                                                                            |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------------------------------------- | - | ------ | --------------------------- |  | - | ------------------------------------ | - |  | ------------------------------------------------------------------------------------------ | ------ | - |  | - | ------ | -
|                                                                                                  |  | NetUnrealizedGains(Losses) OnInvestments |         |   | DeferredPolicyAcquisitionCosts andOther Costs |   |        | PolicyHoldersAccountBalance |  |   | DeferredIncome Tax(Liability)Benefit |   |  | AccumulatedOtherComprehensiveIncome (Loss)Related To
NetUnrealizedInvestmentGains (Losses) |       
|                                                                                                  |  | (in thousands)                           |        
|Balance, December 31, 2008                                                                        |  | $                                        |        |   |                                               | $ |       |                             |  | $ |                                     |   |  | $                                                                                          |       |   |  | $ |       |  
|Cumulative impact of the adoption of new authoritative guidance on January 1, 2009                |  |                                          | (4,049  | ) |                                               |   | 290    |                             |  |   |                                     |   |  |                                                                                            | 1,316  |   |  |   | (2,443 | )
|Net investment gains (losses) on investments arising during the period                            |  |                                          | 4,471   |   |                                               |   |       |                             |  |   |                                     |   |  |                                                                                            | (1,565 | ) |  |   | 2,906  |  
|Reclassification adjustment for OTTI losses included in net income                                |  |                                          | 5,080   |   |                                               |   |       |                             |  |   |                                     |   |  |                                                                                            | (1,778 | ) |  |   | 3,302  |  
|Reclassification adjustment for OTTI losses excluded from net income (1)                          |  |                                          | (11,483 | ) |                                               |   |       |                             |  |   |                                     |   |  |                                                                                            | 4,019  |   |  |   | (7,464 | )
|Impact of net unrealized investment (gains) losses on deferred policy acquisition costs           |  |                                          |        |   |                                               |   | 3,363  |                             |  |   |                                     |   |  |                                                                                            | (1,177 | ) |  |   | 2,186  |  
|Impact of net unrealized investment (gains) losses on Policyholder account balance                |  |                                          |        |   |                                               |   |       |                             |  |   | (1,383                               | ) |  |                                                                                            | 484    |   |  |   | (899   | )
|                                                                                                  |  |                                          |         |   |                                               |   |        |                             |  |   |                                      |   |  |                                                                                            |        |   |  |   |        |  
|Balance, December 31, 2009                                                                        |  | $                                        | (5,981  | ) |                                               | $ | 3,653  |                             |  | $ | (1,383                               | ) |  | $                                                                                          | 1,299  |   |  | $ | (2,412 | )
|                                                                                                  |  |                                          |         |   |                                               |   |        |                             |  |   |                                      |   |  |                                                                                            |        |   |  |   |        |  
|                                                                                                  |  |                                          |         |   |                                              
|Net investment gains (losses) on investments arising during the period                            |  |                                          | (821    | ) |                                               |   |       |                             |  |   |                                     |   |  |                                                                                            | 287    |   |  |   | (534   | )
|Reclassification adjustment for OTTI losses included in net income                                |  |                                          | 2,504   |   |                                               |   |       |                             |  |   |                                     |   |  |                                                                                            | (877   | ) |  |   | 1,627  |  
|Reclassification adjustment for OTTI losses excluded from net income (1)                          |  |                                          | (11     | ) |                                               |   |       |                             |  |   |                                     |   |  |                                                                                            | 4      |   |  |   | (7     | )
|Impact of net unrealized investment (gains) losses on deferred policy acquisition and other costs |  |                                          |        |   |                                               |   | (1,382 | )                           |  |   |                                     |   |  |                                                                                            | 484    |   |  |   | (898   | )
|Impact of net unrealized investment (gains) losses on policyholders account balances             |  |                                          |        |   |                                               |   |       |                             |  |   | 597                                  |   |  |                                                                                            | (209   | ) |  |   | 388    |  
|                                                                                                  |  |                                          |         |   |                                               |   |        |                             |  |   |                                      |   |  |                                                                                            |        |   |  |   |        |  
|Balance, December 31, 2010                                                                        |  | $                                        | (4,309  | ) |                                               | $ | 2,271  |                             |  | $ | (786                                 | ) |  | $                                                                                          | 988    |   |  | $ | (1,836 | )
|                                                                                                  |  |                                          |         |   |                                               |   |        |                             |  |   |                                      |   |  |                                                                                            |        |   |  |   |        |  



|(1) | Represents transfers in related to the portion of OTTI losses recognized during the period that were not recognized in earnings for
securities with no prior OTTI loss.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-24



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



All Other Net Unrealized Investment Gains and Losses in AOCI



|                                                                                                   |  |                                               |         |   |                                               |   |         |                              |  |   |                                      |   |  |                                                                                            |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | --------------------------------------------- | - | ------- | ---------------------------- |  | - | ------------------------------------ | - |  | ------------------------------------------------------------------------------------------ | ------- | - |  | - | ------- | -
|                                                                                                   |  | Net UnrealizedGains (Losses)OnInvestments (1) |         |   | DeferredPolicyAcquisitionCosts andOther Costs |   |         | PolicyHoldersAccountBalances |  |   | DeferredIncome Tax(Liability)Benefit |   |  | AccumulatedOtherComprehensiveIncome (Loss)Related To
NetUnrealizedInvestment Gains(Losses) |        
|                                                                                                   |  | (in thousands)                                |        
|Balance, December 31, 2007                                                                         |  | $                                             | 5,827   |   |                                               | $ | (1,183  | )                            |  | $ | 85                                   |   |  | $                                                                                          | (1,655  | ) |  | $ | 3,074   |  
|Net investment (losses) on investments arising during the period                                   |  |                                               | (87,322 | ) |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | 30,563  |   |  |   | (56,759 | )
|Reclassification adjustment for (losses) included in net income                                    |  |                                               | 10,575  |   |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | (3,702  | ) |  |   | 6,873   |  
|Impact of net unrealized investment gains on deferred policy acquisition and other costs           |  |                                               |        |   |                                               |   | 42,376  |                              |  |   |                                     |   |  |                                                                                            | (14,832 | ) |  |   | 27,544  |  
|Impact of net unrealized investment gains on policyholders account balances                       |  |                                               |        |   |                                               |   |        |                              |  |   | (17,542                              | ) |  |                                                                                            | 6,140   |   |  |   | (11,402 | )
|                                                                                                   |  |                                               |         |   |                                               |   |         |                              |  |   |                                      |   |  |                                                                                            |         |   |  |   |         |  
|Balance, December 31, 2008                                                                         |  | $                                             | (70,920 | ) |                                               | $ | 41,193  |                              |  | $ | (17,457                              | ) |  | $                                                                                          | 16,514  |   |  | $ | (30,670 | )
|Cumulative impact of the adoption of new authoritative guidance on January 1, 2009                 |  |                                               | (2,016  | ) |                                               |   | 33      |                              |  |   |                                     |   |  |                                                                                            | 694     |   |  |   | (1,289  | )
|Net investment gains (losses) on investments arising during the period                             |  |                                               | 91,116  |   |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | (31,891 | ) |  |   | 59,225  |  
|Reclassification adjustment for gains (losses) included in net income                              |  |                                               | 2,616   |   |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | (916    | ) |  |   | 1,700   |  
|Reclassification adjustment for OTTI losses excluded from net income (2)                           |  |                                               | 11,483  |   |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | (4,019  | ) |  |   | 7,464   |  
|Impact of net unrealized investment (gains) losses on deferred policy acquisition and other costs  |  |                                               |        |   |                                               |   | (60,878 | )                            |  |   |                                     |   |  |                                                                                            | 21,307  |   |  |   | (39,571 | )
|Impact of net unrealized investment (gains) losses on policyholders account balances              |  |                                               |        |   |                                               |   |        |                              |  |   | 23,727                               |   |  |                                                                                            | (8,304  | ) |  |   | 15,423  |  
|                                                                                                   |  |                                               |         |   |                                               |   |         |                              |  |   |                                      |   |  |                                                                                            |         |   |  |   |         |  
|Balance, December 31, 2009                                                                         |  | $                                             | 32,279  |   |                                               | $ | (19,652 | )                            |  | $ | 6,270                                |   |  | $                                                                                          | (6,615  | ) |  | $ | 12,282  |  
|Net investment gains (losses) on investments arising during the period                             |  |                                               | 24,868  |   |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | (8,703  | ) |  |   | 16,165  |  
|Reclassification adjustment for (gains) losses included in net income                              |  |                                               | 4,166   |   |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | (1,458  | ) |  |   | 2,708   |  
|Reclassification adjustment for OTTI losses excluded from net income (2)                           |  |                                               | 11      |   |                                               |   |        |                              |  |   |                                     |   |  |                                                                                            | (4      | ) |  |   | 7       |  
|Impact of net unrealized investment gains ( losses) on deferred policy acquisition and other costs |  |                                               |        |   |                                               |   | (11,002 | )                            |  |   |                                     |   |  |                                                                                            | 3,851   |   |  |   | (7,151  | )
|Impact of net unrealized investment (gains) losses on policyholders account balances              |  |                                               |        |   |                                               |   |        |                              |  |   | 4,716                                |   |  |                                                                                            | (1,651  | ) |  |   | 3,065   |  
|                                                                                                   |  |                                               |         |   |                                               |   |         |                              |  |   |                                      |   |  |                                                                                            |         |   |  |   |         |  
|Balance, December 31, 2010                                                                         |  | $                                             | 61,324  |   |                                               | $ | (30,654 | )                            |  | $ | 10,986                               |   |  | $                                                                                          | (14,580 | ) |  | $ | 27,076  |  
|                                                                                                   |  |                                               |         |   |                                               |   |         |                              |  |   |                                      |   |  |                                                                                            |         |   |  |   |         |  



|(1) | Include cash flow hedges. See Note 11 for information on cash flow hedges.
|--- | --------------------------------------------------------------------------

|(2) | Represents transfers out related to the portion of OTTI losses recognized during the period that were not recognized in earnings for
securities with no prior OTTI loss.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-25



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



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



|                                                                    |  |                  |        |   |                  |   |        |  
|------------------------------------------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------ | -
|                                                                    |  | December 31,2010 |        |   | December 31,2009 |  
|                                                                    |  | ( in thousands)  |       
|Fixed maturity securities on which an OTTI loss has been recognized |  | $                | (4,309 | ) |                  | $ | (5,981 | )
|Fixed maturity securities, available for sale  all other           |  | $                | 61,195 |   |                  | $ | 31,975 |  
|Equity securities, available for sale                               |  |                  | (227   | ) |                  |   | (177   | )
|Derivatives designated as cash flow hedges(1)                       |  |                  | (1,100 | ) |                  |   | (675   | )
|Other investments                                                   |  |                  | 1,456  |   |                  |   | 1,156  |  
|                                                                    |  |                  |        |   |                  |   |        |  
|Net unrealized gain/(losses) on investments                         |  | $                | 57,015 |   |                  | $ | 26,298 |  
|                                                                    |  |                  |        |   |                  |   |        |  



|(1) | See Note 11 for more information on cash flow hedges.
|--- | -----------------------------------------------------

Duration of Gross Unrealized Loss Positions for Fixed Maturities

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



|                                                                                     |  |                         |        |  |                       |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |       | 
|------------------------------------------------------------------------------------ |  | ----------------------- | ------ |  | --------------------- | - | ----- | ---------- |  | - | ---------------- |  |  | ---------- | ----- |  | ---------------- | - | ------- |  |  | - | ----- | 
|                                                                                     |  | December 31, 2010       |       
|                                                                                     |  | Less than twelve months |        |  | Twelve months or more |   |       | Total      | 
|                                                                                     |  | Fair Value              |        |  | UnrealizedLosses      |   |       | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |       |  | UnrealizedLosses |  
|                                                                                     |  | (in thousands)          |       
|Fixed maturities available for sale                                                  |  |                         |        |  |                       |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |       | 
|                                                                                     |  |                         |        |  |                       |  
|U.S. Treasury securities and obligations of U.S. government authorities and agencies |  | $                       | 2,078  |  |                       | $ | 41    |            |  | $ |                 |  |  | $          |      |  |                  | $ | 2,078   |  |  | $ | 41    | 
|Obligations of U.S. states and their political subdivisions                          |  |                         |       |  |                       |   |      |            |  |   |                 |  |  |            |      |  |                  |   |        |  |  |   |      | 
|Foreign government bonds                                                             |  |                         |       |  |                       |   |      |            |  |   |                 |  |  |            |      |  |                  |   |        |  |  |   |      | 
|Corporate securities                                                                 |  |                         | 73,679 |  |                       |   | 2,524 |            |  |   | 6,545            |  |  |            | 421   |  |                  |   | 80,224  |  |  |   | 2,945 | 
|Commercial mortgage-backed securities.                                               |  |                         | 7,148  |  |                       |   | 87    |            |  |   |                 |  |  |            |      |  |                  |   | 7,148   |  |  |   | 87    | 
|Asset-backed securities                                                              |  |                         | 10,608 |  |                       |   | 169   |            |  |   | 16,442           |  |  |            | 5,277 |  |                  |   | 27,050  |  |  |   | 5,446 | 
|Residential mortgage-backed securities                                               |  |                         | 3,219  |  |                       |   | 48    |            |  |   |                 |  |  |            |      |  |                  |   | 3,219   |  |  |   | 48    | 
|                                                                                     |  |                         |        |  |                       |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |       | 
|Total                                                                                |  | $                       | 96,732 |  |                       | $ | 2,869 |            |  | $ | 22,987           |  |  | $          | 5,698 |  |                  | $ | 119,719 |  |  | $ | 8,567 | 
|                                                                                     |  |                         |        |  |                       |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |       | 



|                                                                                     |  |                         |         |  |                          |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |        | 
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- |  | ------------------------ | - | ----- | ---------- |  | - | ---------------- |  |  | ---------- | ----- |  | ---------------- | - | ------- |  |  | - | ------ | 
|                                                                                     |  | December 31, 2009       |        
|                                                                                     |  | Less than twelve months |         |  | Twelve months or more(1) |   |       | Total      | 
|                                                                                     |  | Fair Value              |         |  | UnrealizedLosses         |   |       | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |       |  | UnrealizedLosses |  
|                                                                                     |  | (in thousands)          |        
|Fixed maturities available for sale                                                  |  |                         |         |  |                          |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |        | 
|                                                                                     |  |                         |         |  |                          |  
|U.S. Treasury securities and obligations of U.S. government authorities and agencies |  | $                       | 9,622   |  |                          | $ | 268   |            |  | $ |                 |  |  | $          |      |  |                  | $ | 9,622   |  |  | $ | 268    | 
|Obligations of U.S. states and their political subdivisions                          |  |                         |        |  |                          |   |      |            |  |   |                 |  |  |            |      |  |                  |   |        |  |  |   |       | 
|Foreign government bonds                                                             |  |                         | 6,719   |  |                          |   | 272   |            |  |   |                 |  |  |            |      |  |                  |   | 6,719   |  |  |   | 272    | 
|Corporate securities                                                                 |  |                         | 135,989 |  |                          |   | 2,372 |            |  |   | 49,634           |  |  |            | 2,729 |  |                  |   | 185,623 |  |  |   | 5,101  | 
|Commercial mortgage-backed securities.                                               |  |                         | 27,213  |  |                          |   | 337   |            |  |   | 9,031            |  |  |            | 388   |  |                  |   | 36,244  |  |  |   | 725    | 
|Asset-backed securities                                                              |  |                         | 4,966   |  |                          |   | 2,012 |            |  |   | 20,868           |  |  |            | 4,548 |  |                  |   | 25,834  |  |  |   | 6,560  | 
|Residential mortgage-backed securities                                               |  |                         | 5,786   |  |                          |   | 413   |            |  |   |                 |  |  |            |      |  |                  |   | 5,786   |  |  |   | 413    | 
|                                                                                     |  |                         |         |  |                          |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |        | 
|Total                                                                                |  | $                       | 190,295 |  |                          | $ | 5,674 |            |  | $ | 79,533           |  |  | $          | 7,665 |  |                  | $ | 269,828 |  |  | $ | 13,339 | 
|                                                                                     |  |                         |         |  |                          |   |       |            |  |   |                  |  |  |            |       |  |                  |   |         |  |  |   |        | 



|(1) | The month count for aging of unrealized losses was reset back to historical unrealized loss month counts for securities impacted by the adoption of
new authoritative guidance related to other-than-temporary impairments of debt securities on January 1, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-26



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



The gross unrealized losses at December 31, 2010 and 2009 are composed of $6
million and $7 million related to high or highest quality securities based on NAIC or equivalent rating and $3 million and $6 million related to other than high or highest quality securities based on NAIC or equivalent rating, respectively. At
December 31, 2010, $5 million of the gross unrealized losses represented declines in value of greater than 20%, none of which had been in that position for less than six months, as compared to $6 million at December 31, 2009 that
represented declines in value of greater than 20%, $0.5 million of which had been in that position for less than six months. At December 31, 2010, the $6 million of gross unrealized losses of twelve months or more were concentrated in asset
backed securities, and in the utilities and transportation sectors of the Companys corporate securities. At December 31, 2009, the $8 million of gross unrealized losses of twelve months or more were concentrated in asset backed
securities, and in the manufacturing and utilities sectors of the Companys corporate securities. In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for other-than-temporary impairments for
these securities was not warranted at December 31, 2010 or 2009. These conclusions are based on a detailed analysis of the underlying credit and cash flows on each security. The gross unrealized losses are primarily attributable to credit
spread widening and increased liquidity discounts. At December 31, 2010, the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before the anticipated
recovery of its remaining amortized cost basis.

Duration of Gross Unrealized Loss Positions for Equity Securities

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



|                                      |  |                         |       |  |                       |   |     |            |  |   |                  |  |  |            |     |  |                  |   |       |  |  |   |     | 
|------------------------------------- |  | ----------------------- | ----- |  | --------------------- | - | --- | ---------- |  | - | ---------------- |  |  | ---------- | --- |  | ---------------- | - | ----- |  |  | - | --- | 
|                                      |  | December 31 30, 2010    |      
|                                      |  | Less than twelve months |       |  | Twelve months or more |   |     | Total      | 
|                                      |  | Fair Value              |       |  | UnrealizedLosses      |   |     | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |     |  | UnrealizedLosses |  
|                                      |  | (in thousands)          |      
|Equity Securities, available for sale |  | $                       | 255   |  |                       | $ | 245 |            |  | $ | 1,536            |  |  | $          | 160 |  |                  | $ | 1,791 |  |  | $ | 405 | 
|                                      |  |                         |       |  |                       |   |     |            |  |   |                  |  |  |            |     |  |                  |   |       |  |  |   |     | 
|                                      | 
|                                      |  | December 31, 2009       |      
|                                      |  | Less than twelve months |       |  | Twelve months or more |   |     | Total      | 
|                                      |  | Fair Value              |       |  | UnrealizedLosses      |   |     | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |     |  | UnrealizedLosses |  
|                                      |  | (in thousands)          |      
|Equity Securities, available for sale |  | $                       | 1,861 |  |                       | $ |    |            |  | $ | 1,389            |  |  | $          | 306 |  |                  | $ | 3,250 |  |  | $ | 306 | 
|                                      |  |                         |       |  |                       |   |     |            |  |   |                  |  |  |            |     |  |                  |   |       |  |  |   |     | 

At December 31, 2010, $245 thousand of the gross unrealized losses represented declines of greater than
20%, all of which have been in that position for less than six months. Perpetual preferred securities have characteristics of both debt and equity securities. Since an impairment model similar to fixed maturity securities is applied to these
securities, an other-than-temporary impairment has not been recognized on certain perpetual preferred securities that have been in a continuous unrealized loss position for twelve months or more as of September 30, 2010 and December 31,
2009. In accordance with its policy described in Note 2, the Company concluded that an adjustment for other-than-temporary impairments for these equity securities was not warranted at December 31, 2010 or December 31, 2009.

Securities Pledged and Special Deposits

The Company pledges as collateral investment securities it owns to unaffiliated parties through certain transactions, including securities lending, securities sold under agreements to repurchase and
futures contracts. At December 31, the carrying value of investments pledged to third parties as reported in the Statements of Financial Position included the following:



|                                                          |  |                 |       |  |      |   |        | 
|--------------------------------------------------------- |  | --------------- | ----- |  | ---- | - | ------ | 
|                                                          |  | 2010            |       |  | 2009 |  
|                                                          |  | ( in thousands) |      
|Fixed maturity securities, available for sale  all other |  |                 | 3,314 |  |      |   | 31,727 | 
|                                                          |  |                 |       |  |      |   |        | 
|Total securities pledged                                  |  | $               | 3,314 |  |      | $ | 31,727 | 
|                                                          |  |                 |       |  |      |   |        | 



F-27



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



As of December 31, 2010, the carrying amount of the associated liabilities
supported by the pledged collateral was $3.4 million. Of this amount, $3.0 million was Securities sold under agreements to repurchase and $0.4 million was Cash collateral for loaned securities. As of December 31, 2009, the
carrying amount of the associated liabilities supported by the pledged collateral was $33 million. Of this amount, $12 million was Securities sold under agreements to repurchase and $21 million was Cash collateral for loaned
securities.

Fixed maturities of $0.5 million at December 31, 2010 and 2009 were on deposit with governmental
authorities or trustees as required by certain insurance laws.

4. DEFERRED POLICY ACQUISITION COSTS

The balances of and changes in deferred policy acquisition costs for the year ended December 31, are as follows:



|                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                        |  | 2010           |         |   | 2009 |   |         | 2008 | 
|                                                        |  | (in thousands) |        
|Balance, beginning of year                              |  | $              | 305,617 |   |      | $ | 326,806 |      |  | $ | 273,144 |  
|Capitalization of commissions, sales and issue expenses |  |                | 85,510  |   |      |   | 57,391  |      |  |   | 49,675  |  
|Amortization                                            |  |                | (12,821 | ) |      |   | (22,842 | )    |  |   | (38,389 | )
|Change in unrealized investment gains/(losses)          |  |                | (12,336 | ) |      |   | (55,738 | )    |  |   | 42,376  |  
|                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Balance, end of year                                    |  | $              | 365,970 |   |      | $ | 305,617 |      |  | $ | 326,806 |  
|                                                        |  |                |         |   |      |   |         |      |  |   |         |  

Deferred acquisition costs include reductions in capitalization and amortization related to reinsurance
expense allowances resulting from the coinsurance treaties with Prudential Arizona Reinsurance Captive Company, or PARCC, Prudential Arizona Reinsurance Term Company, or PAR TERM as discussed in Note 13 to the Consolidated
Financial Statements.

Ceded capitalization was $29 million, $15 million and $20 million in 2010, 2009 and 2008, respectively.
Ceded amortization relating to this treaty included amounted to $9 million, $8 million and $4 million in 2010, 2009 and 2008, respectively.

5. POLICYHOLDERS LIABILITIES

Future policy benefits at December 31 are as follows:



|                                    |  |                |         |   |      |   |         | 
|----------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | 
|                                    |  | 2010           |         |   | 2009 |  
|                                    |  | (in thousands) |        
|Life insurance                      |  | $              | 534,286 |   |      | $ | 451,254 | 
|Individual and group annuities      |  |                | 6,149   |   |      |   | 6,140   | 
|Policy claims and other liabilities |  |                | (37,081 | ) |      |   | 3,039   | 
|                                    |  |                |         |   |      |   |         | 
|Total future policy benefits        |  | $              | 503,354 |   |      | $ | 460,433 | 
|                                    |  |                |         |   |      |   |         | 

Life insurance liabilities include reserves for death benefits and other policy benefits. Individual annuity
liabilities include reserves for annuities that are in payout status.

Future policy benefits for life insurance are generally
equal to the aggregate of (1) the present value of future benefit payments and related expenses, less the present value of future net premiums, and (2) any premium deficiency reserves. Assumptions as to mortality and persistency are based
on the Companys experience, and in certain instances, industry experience, when the basis of the reserve is established. Interest rates range from 2.50% to 7.50 %.

Future policy benefits for individual and group annuities and supplementary contracts are generally equal to the aggregate of (1) the present value of expected future payments, and (2) any
premium deficiency reserves. Assumptions as to mortality are based on the Companys experience, and in certain instances, industry experience, when the basis of the reserve is established. The interest rates used in the determination of the
present value range from 1.32% to 8.75%, with 5.6% of the reserves based on an interest rate in excess of 8%. Future policy benefits for other contract liabilities are generally equal to the present value of expected future payments based on the
Companys experience. The interest rates used in the determination of the present values range from 0.77% to 6.21%.



F-28



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





5. POLICYHOLDERS LIABILITIES (continued)



Policyholders account balances at December 31 are as follows:



|                                      |  |                |           |  |      |   |           | 
|------------------------------------- |  | -------------- | --------- |  | ---- | - | --------- | 
|                                      |  | 2010           |           |  | 2009 |  
|                                      |  | (in thousands) |          
|Interest-sensitive life contracts     |  | $              | 723,533   |  |      | $ | 677,220   | 
|Individual annuities                  |  |                | 210,671   |  |      |   | 247,076   | 
|Guaranteed interest accounts          |  |                | 38,713    |  |      |   | 37,418    | 
|Other                                 |  |                | 80,890    |  |      |   | 63,304    | 
|                                      |  |                |           |  |      |   |           | 
|Total policyholders account balances |  |                | 1,053,807 |  |      | $ | 1,025,018 | 
|                                      |  |                |           |  |      |   |           | 

Policyholders account balances represent an accumulation of account deposits plus credited interest
less withdrawals, expenses and mortality charges, if applicable. Interest crediting rates for interest-sensitive contracts range from 3.00% to 4.90%. Interest crediting rates for individual annuities range from 1.00% to 4.93%. Interest crediting
rates for guaranteed interest accounts range from 1.25% to 5.25%. Interest crediting rates range from 1.00% to 3.50% for other.

6.
REINSURANCE

The Company participates in reinsurance with its affiliates Prudential Insurance, Prudential Arizona
Reinsurance Captive Company, or PARCC, Pruco Life, Pruco Reinsurance, Ltd., or Pruco Re, and Prudential Arizona Reinsurance Term Company, or PAR TERM, in order to provide risk diversification, additional capacity
for future growth and limit the maximum net loss potential. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. Reinsurance ceded arrangements do not discharge the Company as the
primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. The likelihood of a material reinsurance
liability resulting from such inability of reinsurers to meet their obligation is considered to be remote.

Reinsurance
premiums, commissions, expense reimbursements, benefits and reserves related to reinsured long-duration contracts are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to account for the
underlying contracts. Amounts recoverable from reinsurers for long duration contracts are estimated in a manner consistent with the claim liabilities and policy benefits associated with the reinsured policies. The affiliated reinsurance agreements
are described further in Note 13 of the Financial Statements.

Effective April 1, 2008, the Company entered into an
agreement to reinsure certain variable Corporate Owned Life Insurance COLI policies with Pruco Life.

Reinsurance
amounts included in the Statement of Operations and Comprehensive Income for the years ended December 31 are below.



|                                                 |  |                |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------ |  | -------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                 |  | 2010           |          |   | 2009 |   |          | 2008 | 
|                                                 |  | (in thousands) |         
|Gross premiums and policy charges and fee income |  | $              | 283,990  |   |      | $ | 267,109  |      |  | $ | 256,765  |  
|Reinsurance ceded                                |  |                | (215,811 | ) |      |   | (180,844 | )    |  |   | (166,150 | )
|                                                 |  |                |          |   |      |   |          |      |  |   |          |  
|Net premiums and policy charges and fee income   |  | $              | 68,179   |   |      | $ | 86,265   |      |  | $ | 90,615   |  
|                                                 |  |                |          |   |      |   |          |      |  |   |          |  
|Policyholders benefits ceded                    |  | $              | 95,634   |   |      | $ | 81,364   |      |  | $ | 85,156   |  
|                                                 |  |                |          |   |      |   |          |      |  |   |          |  
|Realized capital gains (losses) ceded, net       |  | $              | (407     | ) |      | $ | (44,367  | )    |  | $ | 48,774   |  
|                                                 |  |                |          |   |      |   |          |      |  |   |          |  

Realized investment gains and losses include the reinsurance of certain of the Companys embedded
derivatives. Changes in the fair value of the embedded derivatives are recognized through Realized investment gains. The Company has entered into reinsurance agreements to transfer the risk related to certain living benefit options to
Pruco Re. The reinsurance agreements contain derivatives and have been accounted for in the same manner as an embedded derivative.

Reinsurance premiums ceded for interest-sensitive products is accounted for as a reduction of policy charges and fee income. Reinsurance ceded for term insurance products is accounted for as a reduction
of premiums.

Reinsurance recoverables, included in the Companys Statements of Financial Position, at December 31,
2010 and 2009 were $420 million and $323 million, respectively.



F-29



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





6. REINSURANCE (continued)



The gross and net amounts of life insurance in force at December 31, were as
follows:



|                              |  |                |             |   |      |   |             |      |  |   |             |  
|----------------------------- |  | -------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                              |  | 2010           |             |   | 2009 |   |             | 2008 | 
|                              |  | (in thousands) |            
|Gross life insurance in force |  | $              | 96,896,483  |   |      | $ | 95,400,464  |      |  | $ | 89,008,979  |  
|Reinsurance ceded             |  |                | (86,500,898 | ) |      |   | (86,036,509 | )    |  |   | (80,943,597 | )
|                              |  |                |             |   |      |   |             |      |  |   |             |  
|Net life insurance in force   |  | $              | 10,395,585  |   |      | $ | 9,363,955   |      |  | $ | 8,065,382   |  
|                              |  |                |             |   |      |   |             |      |  |   |             |  

7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

The Company issues traditional variable annuity contracts through its separate accounts for which investment income and investment gains
and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also issues variable annuity contracts with general and separate account options where the Company contractually guarantees to the contractholder a
return of no less than (1) total deposits made to the contract less any partial withdrawals (return of net deposits), (2) total deposits made to the contract less any partial withdrawals plus a minimum return (minimum
return), or (3) the highest contract value on a specified date minus any withdrawals (contract value). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the
accumulation period and withdrawal and income benefits payable during specified periods.

The Company also issues annuity
contracts with market value adjusted investment options (MVAs), which provide for a return of principal plus a fixed rate of return if held to maturity, or, alternatively, a market adjusted value if surrendered prior to
maturity or if funds are allocated to other investment options. The market value adjustment may result in a gain or loss to the Company, depending on crediting rates or an indexed rate at surrender, as applicable.

In addition, the Company issues variable life, variable universal life and universal life contracts where the Company contractually
guarantees to the contractholder a death benefit even when there is insufficient value to cover monthly mortality and expense charges, whereas otherwise the contract would typically lapse (no lapse guarantee). Variable life and variable
universal life contracts are offered with general and separate account options similar to variable annuities.

The assets
supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are carried at fair value and reported as Separate account assets with an equivalent amount reported as Separate
account liabilities. Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in Policy charges and fee income and changes in liabilities for minimum guarantees are
generally included in Policyholders benefits. In 2010 and 2009 there were no gains or losses on transfers of assets from the general account to a separate account.

For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the
minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. The Companys primary risk exposures for these contracts relates to actual
deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, timing of annuitization, contract lapses and contractholder mortality.

For guarantees of benefits that are payable at withdrawal, the net amount at risk is generally defined as the present value of the
minimum guaranteed withdrawal payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally
defined as the guaranteed minimum accumulation balance minus the current account balance. The Companys primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of
these products, including equity market returns, interest rates, market volatility or contractholder behavior used in the original pricing of these products.

The Companys contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed may not be mutually exclusive. The liabilities related to the net
amount at risk are reflected within Future policy benefits. As of December 31, 2010 and 2009, the Company had the following guarantees associated with these contracts, by product and guarantee type:



F-30



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)



The Companys contracts with guarantees may offer more than one type of guarantee
in each contract; therefore, the amounts listed may not be mutually exclusive. The liabilities related to the net amount at risk are reflected within Future policy benefits. As of December 31, 2010 and 2009, the Company had the
following guarantees associated with these contracts, by product and guarantee type:



|                                                               |  |                       |           |  |                                    |   |            |                      |  |   |                                    |  |  |   |           | 
|-------------------------------------------------------------- |  | --------------------- | --------- |  | ---------------------------------- | - | ---------- | -------------------- |  | - | ---------------------------------- |  |  | - | --------- | 
|                                                               |  | December 31, 2010     |           |  | December 31, 2009                  |  
|                                                               |  | In the Event of Death |           |  | At Annuitization /Accumulation (1) |   |            | In the Event ofDeath |  |   | At Annuitization /Accumulation (1) | 
|                                                               |  | (in thousands)        |           |  | (in thousands)                     |  
|Variable Annuity Contracts                                     |  |                       |           |  |                                    |   |            |                      |  |   |                                    |  |  |   |           | 
|                                                               |  |                       |           | 
|Return of Net Deposits                                         |  |                       |           |  |                                    |   |            |                      |  |   |                                    |  |  |   |           | 
|Account value                                                  |  | $                     | 1,973,903 |  |                                    |   | N/A        |                      |  | $ | 843,318                            |  |  |   | N/A       | 
|Net amount at risk                                             |  | $                     | 8,252     |  |                                    |   | N/A        |                      |  | $ | 24,037                             |  |  |   | N/A       | 
|                                                               |  |                       |           | 
|Average attained age of contractholders                        |  |                       | 60 years  |  |                                    |   | N/A        |                      |  |   | 61 years                           |  |  |   | N/A       | 
|                                                               |  |                       |           | 
|Minimum return or contract value                               |  |                       |           |  |                                    |   |            |                      |  |   |                                    |  |  |   |           | 
|Account value                                                  |  | $                     | 1,036,830 |  |                                    | $ | 2,392,669  |                      |  | $ | 688,296                            |  |  | $ | 930,306   | 
|Net amount at risk                                             |  | $                     | 36,926    |  |                                    | $ | 65,120     |                      |  | $ | 79,173                             |  |  | $ | 58,517    | 
|Average attained age of contractholders                        |  |                       | 64 years  |  |                                    |   | 59 years   |                      |  |   | 65 years                           |  |  |   | 60 years  | 
|Average period remaining until earliest expected annuitization |  |                       | N/A       |  |                                    |   | 1.58 years |                      |  |   | N/A                                |  |  |   | 2.58years | 
|(1)    Includes income and withdrawal as described herein      | 
|                                                               |  |                       |           | 
|                                                               |  | Unadjusted Value      |           |  | Adjusted Value                     |   |            | Unadjusted Value     |  |   | Adjusted Value                     | 
|Market value adjusted annuities                                |  |                       |           |  |                                    |   |            |                      |  |   |                                    |  |  |   |           | 
|                                                               |  |                       |           | 
|Account value                                                  |  | $                     | 15,104    |  |                                    | $ | 15,827     |                      |  | $ | 16,135                             |  |  | $ | 17,049    | 



|                                                                    |  |                       |           |  |                   |   |           | 
|------------------------------------------------------------------- |  | --------------------- | --------- |  | ----------------- | - | --------- | 
|                                                                    |  | December 31, 2010     |           |  | December 31, 2009 |  
|                                                                    |  | In the Event of Death |          
|                                                                    |  | (in thousands)        |          
|Variable Life, Variable Universal Life and Universal Life Contracts |  |                       |           |  |                   |   |           | 
|                                                                    |  |                      
|No Lapse Guarantees                                                 |  |                       |           |  |                   |   |           | 
|Separate account value                                              |  | $                     | 569,060   |  |                   | $ | 508,351   | 
|General account value                                               |  | $                     | 194,596   |  |                   | $ | 171,525   | 
|Net amount at risk                                                  |  | $                     | 6,039,086 |  |                   | $ | 6,080,255 | 
|Average attained age of contractholders                             |  |                       | 49 years  |  |                   |   | 48 years  | 

Account balances of
variable annuity contracts with guarantees were invested in separate account investment options as follows:



|                   |  |                   |           |  |                   |   |           | 
|------------------ |  | ----------------- | --------- |  | ----------------- | - | --------- | 
|                   |  | December 31, 2010 |           |  | December 31, 2009 |  
|                   |  | (in thousands)    |          
|Equity funds       |  | $                 | 1,677,692 |  |                   | $ | 812,314   | 
|Bond funds         |  |                   | 968,140   |  |                   |   | 301,614   | 
|Money market funds |  |                   | 165,075   |  |                   |   | 181,001   | 
|                   |  |                   |           |  |                   |   |           | 
|Total              |  | $                 | 2,810,907 |  |                   | $ | 1,294,929 | 
|                   |  |                   |           |  |                   |   |           | 

In addition to the above mentioned amounts invested in separate account investment options, $199.8 million
and $236.7 million of account balances of variable annuity contracts with guarantees (inclusive of contracts with MVA features) were invested in general account investment options in 2010 and 2009, respectively.



F-31



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)



Liabilities for Guaranteed Benefits

The table below summarizes the changes in general account liabilities for guarantees on variable contracts. The liabilities for guaranteed
minimum death benefits (GMDB) and guaranteed minimum income benefits (GMIB) are included in Future policy benefits and the related changes in the liabilities are included in Policyholders
benefits. Guaranteed minimum income and withdrawal benefits (GMIWB), guaranteed minimum withdrawal benefits (GMWB) and guaranteed minimum accumulation benefits (GMAB) features are considered to be bifurcated
embedded derivatives and are recorded at fair value. Changes in the fair value of these derivatives, including changes in the Companys own risk of non-performance, along with any fees attributed or payments made relating to the derivative, are
recorded in Realized investment gains (losses), net. See Note 10 for additional information regarding the methodology used in determining the fair value of these embedded derivatives. The liabilities for GMAB, GMWB and GMIWB are included
in Future policy benefits.



|                                |  |                 |        |   |                                                       |   |        |                  |  |   |       |   |  |   |         |   |  |   |         |  
|------------------------------- |  | --------------- | ------ | - | ----------------------------------------------------- | - | ------ | ---------------- |  | - | ----- | - |  | - | ------- | - |  | - | ------- | -
|                                |  | GMDB            |        |   | GMIB                                                  |   |        | GMIWB -GMAB      |  |   | Total |  
|                                |  | VariableAnnuity |        |   | Variable Life, VariableUniversal Life &Universal Life |   |        | Variable Annuity |  |   |       |  
|                                |  | (in thousands)  |       
|Balance as of January 1, 2008   |  | $               | 846    |   |                                                       | $ | 6,599  |                  |  | $ | 416   |   |  | $ | 3,087   |   |  | $ | 10,948  |  
|Incurred guarantee benefits(1)  |  |                 | 5,636  |   |                                                       |   | 4,677  |                  |  |   | 1,386 |   |  |   | 60,816  |   |  |   | 72,515  |  
|Paid guarantee benefits         |  |                 | (889   | ) |                                                       |   |       |                  |  |   |      |   |  |   |        |   |  |   | (889    | )
|                                |  |                 |        |   |                                                       |   |        |                  |  |   |       |   |  |   |         |   |  |   |         |  
|Balance as of December 31, 2008 |  | $               | 5,593  |   |                                                       | $ | 11,276 |                  |  | $ | 1,802 |   |  | $ | 63,903  |   |  | $ | 82,574  |  
|Incurred guarantee benefits(1)  |  |                 | (1,821 | ) |                                                       |   | 6,217  |                  |  |   | (489  | ) |  |   | (66,315 | ) |  |   | (62,408 | )
|Paid guarantee benefits         |  |                 | (2,288 | ) |                                                       |   | (250   | )                |  |   |      |   |  |   |        |   |  |   | (2,538  | )
|                                |  |                 |        |   |                                                       |   |        |                  |  |   |       |   |  |   |         |   |  |   |         |  
|Balance as of December 31, 2009 |  | $               | 1,484  |   |                                                       | $ | 17,243 |                  |  | $ | 1,313 |   |  | $ | (2,412  | ) |  | $ | 17,628  |  
|Incurred guarantee benefits(1)  |  |                 | 217    |   |                                                       |   | 1,143  |                  |  |   | (77   | ) |  |   | (38,904 | ) |  |   | (37,621 | )
|Paid guarantee benefits         |  |                 | (861   | ) |                                                       |   |       |                  |  |   |      |   |  |   |        |   |  |   | (861    | )
|                                |  |                 |        |   |                                                       |   |        |                  |  |   |       |   |  |   |         |   |  |   |         |  
|Balance as of December 31, 2010 |  | $               | 840    |   |                                                       | $ | 18,386 |                  |  | $ | 1,236 |   |  |   | (41,316 | ) |  |   | (20,854 | )
|                                |  |                 |        |   |                                                       |   |        |                  |  |   |       |   |  |   |         |   |  |   |         |  



|(1) | Incurred guarantee benefits include the portion of assessments established as additions to reserves as well as changes in estimates affecting the
reserves. Also includes changes in the fair value of features considered to be embedded derivatives.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
GMDB liability is determined each period end by estimating the accumulated value of a portion of the total assessments to date less the accumulated value of the death benefits in excess of the account balance. The GMIB liability is determined each
period by estimating the accumulated value of a portion of the total assessments to date less the accumulated value of the projected income benefits in excess of the account balance. The portion of assessments used is chosen such that, at issue (or,
in the case of acquired contracts, at the acquisition date), the present value of expected death benefits or expected income benefits in excess of the projected account balance and the portion of the present value of total expected assessments over
the lifetime of the contracts are equal. The Company regularly evaluates the estimates used and adjusts the GMDB and GMIB liability balances, with an associated charge or credit to earnings, if actual experience or other evidence suggests that
earlier assumptions should be revised.

The GMAB features provide the contractholder with a guaranteed return of initial
account value or an enhanced value if applicable. The most significant of the Companys GMAB features are the guaranteed return option (GRO) features, which includes an asset transfer feature that reduces the Companys exposure
to these guarantees. The GMAB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature.

The GMWB features provide the contractholder with a guaranteed remaining balance if the account value is reduced to zero through a
combination of market declines and withdrawals. The guaranteed remaining balance is generally equal to the protected value under the contract, which is initially established as the greater of the account value or cumulative deposits when withdrawals
commence, less cumulative withdrawals. The contractholder also has the option, after a specified time period, to reset the guaranteed remaining balance to the then-current account value, if greater. The GMWB liability is calculated as the present
value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature.

The GMIWB features, taken collectively, provides a contractholder two optional methods to receive guaranteed minimum payments over time, a withdrawal option or an income option.
The withdrawal option (which is available under only one of the Companys GMIWBs) guarantees that a contract holder can withdraw an amount each year until the cumulative withdrawals reach a total guaranteed balance. The income option (which
varies among the Companys GMIWBs) in general guarantees the contract holder the ability to withdraw an amount each year for life (or for joint lives, in the case of any spousal version of the benefit) where such amount is equal to a percentage
of a protected value under the benefit. The contractholder also has the potential to increase this annual amount, based on certain subsequent increases in account value that may occur. Certain GMIWB features include an asset transfer feature that
reduces the Companys exposure to these guarantees. The GMIWB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature.



F-32



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)



As part of its risk management strategy, the Company limits its exposure to these risks
through a combination of product design elements, such as an asset transfer feature, and affiliated reinsurance agreements. The asset transfer feature included in the design of certain optional living benefits transfers assets between the variable
investments selected by the annuity contractholder and, depending on the benefit feature, a fixed rate account in the general account or a bond portfolio within the separate account. The transfers are based on the static mathematical formula, used
with the particular optional benefit, which considers a number of factors, including the impact of investment performance of the contractholder total account value. In general, negative investment performance may result in transfers to a fixed-rate
account in the general account or a bond portfolio within the separate account, and positive investment performance may result in transfers back to contractholder-selected investments. Other product design elements utilized for certain products to
manage these risks include asset allocation restrictions and minimum purchase age requirements. For risk management purposes the Company segregates the variable annuity living benefit features into those that include the asset transfer feature
including certain GMIWB riders and certain GMAB riders that feature the GRO policyholder benefits; and those that do not include the asset transfer feature, including certain legacy GMIWB, GMWB, GMAB and GMIB riders. Living benefit riders that
include the asset transfer feature also include GMDB riders, and as such the GMDB risk in these riders also benefits from the asset transfer feature

Sales Inducements

These inducements include: (1) a bonus
whereby the policyholders initial account balance is increased by an amount equal to a specified percentage of the customers initial deposit and (2) additional credits after a certain number of years a contract is held. Changes in
deferred sales inducements, reported as Interest credited to policyholders account balances, are as follows:

The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to
amortize deferred policy acquisition costs. These deferred sales inducements are included in Other Assets in the Companys Statements of Financial Position. The Company offers various types of sales inducements. These inducements
include: (1) a bonus whereby the policyholders initial account balance is increased by an amount equal to a specified percentage of the customers initial deposit and (2) additional credits after a certain number of years a
contract is held. Changes in deferred sales inducements, reported as Interest credited to policyholders account balances, are as follows:



|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                   |  | 2010           |        |   | 2009 |   |        | 2008 | 
|                                                   |  | (in thousands) |       
|Balance, beginning of year                         |  | $              | 30,265 |   |      | $ | 28,015 |      |  | $ | 21,957 |  
|Capitalization                                     |  |                | 21,594 |   |      |   | 8,689  |      |  |   | 6,959  |  
|Amortization                                       |  |                | (705   | ) |      |   | (4,663 | )    |  |   | (901   | )
|Change in unrealized investment gains and (losses) |  |                | (48    | ) |      |   | (1,776 | )    |  |   |       |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|Balance, end of year                               |  |                | 51,106 |   |      |   | 30,265 |      |  |   | 28,015 |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  

8. STATUTORY NET INCOME AND SURPLUS AND DIVIDEND RESTRICTIONS

The Company is required to prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the
New Jersey Department of Banking and Insurance. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial
assumptions and valuing investments, deferred taxes, and certain assets on a different basis.

Statutory net income (loss) of
the Company amounted to $52 million, $4 million, and $(22) million for the years ended December 31, 2010, 2009 and 2008, respectively. Statutory surplus of the Company amounted to $216 million and $160 million at December 31, 2010 and
2009, respectively.

The Company prepares its statutory financial statements in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Banking and Insurance. Prescribed statutory accounting practices include publications of the NAIC, state laws, regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.

The Company is subject to New Jersey law, which limits the
amount of dividends that insurance companies can pay to stockholders without approval of the New Jersey Department of Banking and Insurance. The maximum dividend, which may be paid in any twelve-month period without notification or approval, is
limited to the greater of 10% of statutory surplus as of December 31 of the preceding year or the net gain from operations of the preceding calendar year. Cash dividends may only be paid out of surplus derived from realized net profits. Based
on these limitations, there is $49 million capacity to pay a dividend in 2011 without prior approval. The Company did not pay any dividends in 2010.



F-33



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





9. INCOME TAXES



The components of income tax expense (benefit) for the years ended December 31, were as follows:



|                                                                        |  |                |        |  |      |   |        |      |  |   |         |  
|----------------------------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                        |  | 2010           |        |  | 2009 |   |        | 2008 | 
|                                                                        |  | (in thousands) |       
|Current tax expense (benefit):                                          |  |                |        |  |      |   |        |      |  |   |         |  
|U.S.                                                                    |  | $              | 23,841 |  |      | $ | 20,362 |      |  | $ | 1,033   |  
|                                                                        |  |                |        |  |      |   |        |      |  |   |         |  
|Total                                                                   |  |                | 23,841 |  |      |   | 20,362 |      |  |   | 1,033   |  
|                                                                        |  |                |        |  |      |   |        |      |  |   |         |  
|                                                                        |  |                |       
|Deferred tax expense (benefit):                                         |  |                |        |  |      |   |        |      |  |   |         |  
|U.S.                                                                    |  |                | 19,701 |  |      |   | 644    |      |  |   | 3,085   |  
|                                                                        |  |                |        |  |      |   |        |      |  |   |         |  
|Total                                                                   |  |                | 19,701 |  |      |   | 644    |      |  |   | 3,085   |  
|                                                                        |  |                |        |  |      |   |        |      |  |   |         |  
|                                                                        |  |                |       
|Total income tax expense (benefit) on income from continuing operations |  | $              | 43,542 |  |      | $ | 21,006 |      |  | $ | 4,118   |  
|Other comprehensive income (loss)                                       |  |                | 8,264  |  |      |   | 21,850 |      |  |   | (18,213 | )
|Cumulative effect of changes in accounting policy                       |  |                |       |  |      |   | 2,010  |      |  |   |        |  
|                                                                        |  |                |        |  |      |   |        |      |  |   |         |  
|Total income tax expense (benefit) on continuing operations             |  | $              | 51,806 |  |      | $ | 44,866 |      |  | $ | 14,095  |  
|                                                                        |  |                |        |  |      |   |        |      |  |   |         |  

The Companys income (loss) from continuing operations before income taxes includes income (loss) from
domestic operations of $141.5 million, $76.0 million and $25.8 million, and no income from foreign operations for the years ended December 31, 2010, 2009 and 2008, respectively.

The Companys actual income tax expense for the years ended December 31, differs from the expected amount computed by applying
the statutory federal income tax rate of 35% to income from continuing operations before income taxes and cumulative effect of accounting change for the following reasons:



|                                                                        |  |                |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                        |  | 2010           |        |   | 2009 |   |        | 2008 | 
|                                                                        |  | (in thousands) |       
|Expected federal income tax expense (benefit)                           |  | $              | 49,520 |   |      | $ | 26,610 |      |  | $ | 9,038  |  
|Non-taxable investment income                                           |  |                | (4,449 | ) |      |   | (3,240 | )    |  |   | (4,573 | )
|Tax Credits                                                             |  |                | (362   | ) |      |   | (195   | )    |  |   |       |  
|Expiration of statute of limitations and related interest               |  |                |       |   |      |   | (2,695 | )    |  |   |       |  
|Other                                                                   |  |                | (1,167 | ) |      |   | 526    |      |  |   | (347   | )
|                                                                        |  |                |        |   |      |   |        |      |  |   |        |  
|Total income tax expense (benefit) on income from continuing operations |  | $              | 43,542 |   |      | $ | 21,006 |      |  | $ | 4,118  |  
|                                                                        |  |                |        |   |      |   |        |      |  |   |        |  

Deferred tax assets and liabilities at December 31, resulted from the items listed in the following
table:



|                                   |  |                |          |   |      |   |         |  
|---------------------------------- |  | -------------- | -------- | - | ---- | - | ------- | -
|                                   |  | 2010           |          |   | 2009 |  
|                                   |  | (in thousands) |         
|Deferred tax assets                |  |                |          |   |      |   |         |  
|Investments                        |  | $              |         |   |      | $ | 5,219   |  
|Other                              |  |                | 7,252    |   |      |   | 7,222   |  
|                                   |  |                |          |   |      |   |         |  
|Deferred tax assets                |  | $              | 7,252    |   |      | $ | 12,441  |  
|                                   |  |                |          |   |      |   |         |  
|                                   |  |               
|Deferred tax liabilities           |  |                |          |   |      |   |         |  
|Insurance reserves                 |  | $              | 14,489   |   |      | $ | 21,398  |  
|Deferred acquisition costs         |  |                | 85,442   |   |      |   | 67,816  |  
|Investments                        |  |                | 1,159    |   |      |   |        |  
|Net Unrealized gains on securities |  |                | 20,341   |   |      |   | 9,441   |  
|                                   |  |                |          |   |      |   |         |  
|Deferred tax liabilities           |  | $              | 121,431  |   |      |   | 98,655  |  
|                                   |  |                |          |   |      |   |         |  
|                                   |  |               
|Net deferred tax asset (liability) |  | $              | (114,179 | ) |      | $ | (86,214 | )
|                                   |  |                |          |   |      |   |         |  

The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and
establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so,
the amount of such valuation allowance. In evaluating the need for a valuation allowance the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital;
(3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards;
(5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning



F-34



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





9. INCOME TAXES (continued)



strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax
assets, net of valuation allowances, will be realized. The company had no valuation allowance as of December 31, 2010, 2009 and 2008.

Management believes that based on its historical pattern of taxable income, the Company will produce sufficient income in the future to realize its deferred tax assets. Adjustments to the valuation
allowance will be made if there is a change in managements assessment of the amount of deferred tax asset that is realizable.

The Companys unrecognized tax benefits for the periods indicated are as follows:



|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | --------------------------------------- | - | ------ | -------------------------------------- |  | - | ------ | -
|                                                                                                                 |  | Unrecognizedtax benefitsprior to 2002 |        |   | Unrecognizedtax benefits2002 andforward |   |        | Totalunrecognizedtax benefitsall years | 
|                                                                                                                 |  | (in thousands)                        |       
|Amounts as of December 31, 2007                                                                                  |  | $                                     | 3,596  |   |                                         | $ | 1,470  |                                        |  | $ | 5,066  |  
|Increases in unrecognized tax benefits taken in prior period                                                     |  |                                       |       |   |                                         |   | 47     |                                        |  |   | 47     |  
|(Decreases) in unrecognized tax benefits taken in prior period                                                   |  |                                       |       |   |                                         |   |       |                                        |  |   |       |  
|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  
|Amounts as of December 31, 2008                                                                                  |  | $                                     | 3,596  |   |                                         | $ | 1,517  |                                        |  | $ | 5,113  |  
|Increases in unrecognized tax benefits taken in prior period                                                     |  |                                       |       |   |                                         |   |       |                                        |  |   |       |  
|(Decreases) in unrecognized tax benefits taken in prior period                                                   |  |                                       |       |   |                                         |   | (210   | )                                      |  |   | (210   | )
|Settlements with taxing authorities                                                                              |  |                                       |       |   |                                         |   |       |                                        |  |   |       |  
|(Decreases) in unrecognized tax benefits as a result of lapse of the applicable statute of limitations           |  |                                       | (2,107 | ) |                                         |   |       |                                        |  |   | (2,107 | )
|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  
|Amounts as of December 31, 2009                                                                                  |  | $                                     | 1,489  |   |                                         |   | 1,307  |                                        |  |   | 2,796  |  
|Increases in unrecognized tax benefits taken in prior period                                                     |  |                                       |       |   |                                         |   |       |                                        |  |   |        |  
|(Decreases) in unrecognized tax benefits taken in prior period                                                   |  |                                       |       |   |                                         |   | (1,177 | )                                      |  |   | (1,177 | )
|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  
|Amounts as of December 31, 2010                                                                                  |  | $                                     | 1,489  |   |                                         |   | 130    |                                        |  | $ | 1,619  |  
|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  
|                                                                                                                 |  |                                       |       
|Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31,
2008 |  | $                                     | 3,596  |   |                                         | $ |       |                                        |  | $ | 3,596  |  
|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  
|Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31,
2009 |  | $                                     | 1,489  |   |                                         | $ |       |                                        |  | $ | 1,489  |  
|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  
|Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31,
2010 |  | $                                     | 1,489  |   |                                         | $ |       |                                        |  | $ | 1,489  |  
|                                                                                                                 |  |                                       |        |   |                                         |   |        |                                        |  |   |        |  

The Company classifies all interest and penalties related to tax uncertainties as income tax expense
(benefit). The amounts recognized in the financial statements for tax-related interest and penalties for the years ended December 31, are as follows:



|                                                                                         |  |                |        |   |      |   |       |      |  |   |     | 
|---------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ----- | ---- |  | - | --- | 
|                                                                                         |  | 2010           |        |   | 2009 |   |       | 2008 | 
|                                                                                         |  | (in thousands) |       
|Interest and penalties recognized in the statements of operations                        |  | $              | (1,100 | ) |      | $ | 400   |      |  | $ | 100 | 
|Interest and penalties recognized in liabilities in the statements of financial position |  | $              |       |   |      | $ | 1,100 |      |  | $ | 700 | 

The Companys
liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by the Internal Revenue Service (IRS) or other taxing authorities. Audit periods
remain open for review until the statute of limitations has passed. Generally, for tax years which produce net operating losses, capital losses or tax credit carryforwards (tax attributes), the statute of limitations does not close, to
the extent of these tax attributes, until the expiration of the statute of limitations for the tax year in which they are fully utilized. The completion of review or the expiration of the statute of limitations for a given audit period could result
in an adjustment to the liability for income taxes. The statute of limitations for the 2002 tax year expired on April 30, 2009. The statute of limitations for the 2003 tax year expired on July 31, 2009. The statute of limitations for the
2004 through 2007 tax years will expire in February 2012, unless extended. Tax years 2008 and 2009 are still open for IRS examination. The Company does not anticipate any significant changes within the next 12 months to its total unrecognized tax
benefits related to tax years for which the statute of limitations has not expired.



F-35



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





9. INCOME TAXES (continued)



As discussed above, the completion of review or the expiration of the statute of
limitations for a given audit period could result in an adjustment to the liability for income taxes. As such, 2009 benefited from a reduction to the liability for unrecognized tax benefits and related interest of $3 million, primarily related to
tax years prior to 2002 as a result of the expiration of the statute of limitations for the 2002 and 2003 tax years.

The
dividends received deduction (DRD) reduces the amount of dividend income subject to U.S. tax and is the primary component of the non-taxable investment income shown in the table above, and, as such, is a significant component of the
difference between the Companys effective tax rate and the federal statutory tax rate of 35%. The DRD for the current period was estimated using information from 2009, current year results, and was adjusted to take into account the current
years equity market performance. The actual current year DRD can vary from the estimate based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of
distributions received from mutual fund investments, changes in the account balances of variable life and annuity contracts, and the Companys taxable income before the DRD.

In August 2007, the IRS released Revenue Ruling 2007-54, which included, among other items, guidance on the methodology to be followed in
calculating the DRD related to variable life insurance and annuity contracts. In September 2007, the IRS released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54 and informed taxpayers that the U.S. Treasury
Department and the IRS intend to address through new regulations the issues considered in Revenue Ruling 2007-54, including the methodology to be followed in determining the DRD related to variable life insurance and annuity contracts. On
February 14, 2011, the Obama Administration released the General Explanations of the Administrations Revenue Proposals. Although the Administration has not released proposed statutory language, one proposal would change the
method used to determine the amount of the DRD. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through regulation or legislation, could increase actual tax expense and reduce the Companys
consolidated net income. These activities had no impact on the Companys 2008, 2009 or 2010 results.

In December 2006,
the IRS completed all fieldwork with respect to its examination of the consolidated federal income tax returns for tax years 2002 and 2003. The final report was initially submitted to the Joint Committee on Taxation for their review in April 2007.
The final report was resubmitted in March 2008 and again in April 2008. The Joint Committee returned the report to the IRS for additional review of an industry issue regarding the methodology for calculating the DRD related to variable life
insurance and annuity contracts. The IRS completed its review of the issue and proposed an adjustment with respect to the calculation of the DRD. In order to expedite receipt of an income tax refund related to the 2002 and 2003 tax years, the
Company agreed to such adjustment. The report, with the adjustment to the DRD, was submitted to the Joint Committee on Taxation in October 2008. The Company was advised on January 2, 2009 that the Joint Committee completed its consideration of
the report and took no exception to the conclusions reached by the IRS. Accordingly, the final report was processed and a $157 million refund was received in February 2009. The Company believed that its return position with respect to the
calculation of the DRD was technically correct. Therefore, the Company filed protective refund claims on October 1, 2009 to recover the taxes associated with the agreed upon adjustment. The IRS recently issued an Industry Director Directive
(IDD) stating that the methodology for calculating the DRD set forth in Revenue Ruling 2007-54 should not be followed. The IDD also confirmed that the IRS guidance issued before Revenue Ruling 2007-54, which guidance the Company relied
upon in calculating its DRD, should be used to determine the DRD. The Company is working with its IRS audit team to bring the DRD issue to a close in accordance with the IDD. These activities had no impact on the Companys 2008, 2009 or 2010
results.

In January 2007, the IRS began an examination of tax years 2004 through 2006. For tax years 2007 through 2010, the
Company is participating in the IRSs Compliance Assurance Program (CAP). Under CAP, the IRS assigns an examination team to review completed transactions contemporaneously during these tax years in order to reach agreement with the
Company on how they should be reported in the tax returns. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner before the tax returns are filed. It is managements expectation
this program will shorten the time period between the filing of the Companys federal income tax returns and the IRSs completion of its examination of the returns.

10. FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value Measurement
- Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance around fair value
established a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques into three levels. The level in the fair value
hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 - Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical
assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following characteristics for the measured asset/liability: (i) many
transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available. The Companys Level 1 assets and liabilities
primarily include certain cash equivalents and short term investments, equity securities and derivative contracts that are traded in an active exchange market. Prices are obtained from readily available sources for market transactions involving
identical assets or liabilities.



F-36



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



Level 2 - Fair value is based on significant inputs, other than Level 1 inputs,
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets
for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, and other market observable inputs. The Companys Level 2 assets and liabilities include: fixed maturities
(corporate public and private bonds, most government securities, certain asset-backed and mortgage-backed securities, etc.), certain equity securities (mutual funds, which do not actively trade and are priced based on a net asset value), short-term
investments and certain cash equivalents (primarily commercial paper), and certain over-the-counter derivatives. Valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities or through the use
of valuation methodologies using observable market inputs. Prices from services are validated through comparison to trade data and internal estimates of current fair value, generally developed using market observable inputs and economic indicators.

Level 3 - Fair value is based on at least one or more significant unobservable inputs for the asset or liability.
These inputs reflect the Companys assumptions about the inputs market participants would use in pricing the asset or liability. The Companys Level 3 assets and liabilities primarily include: certain private fixed maturities and equity
securities, certain manually priced public equity securities and fixed maturities, certain highly structured over-the-counter derivative contracts, certain consolidated real estate funds for which the Company is the general partner, and embedded
derivatives resulting from certain products with guaranteed benefits. Prices are determined using valuation methodologies such as option pricing models, discounted cash flow models and other similar techniques. Non-binding broker quotes, which are
utilized when pricing service information is not available, are reviewed for reasonableness based on the Companys understanding of the market, and are generally considered Level 3. Under certain conditions, based on its observations of
transactions in active markets, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity. In those instances, the Company may choose to over-ride the
third-party pricing information or quotes received and apply internally developed values to the related assets or liabilities. To the extent the internally developed valuations use significant unobservable inputs, they are classified as Level 3. As
of December 31, 2010 and 2009 these over-rides on a net basis were not material.

Inactive Markets -During 2009
and continuing through the first quarter of 2010, the Company observed that the volume and level of activity in the market for asset-backed securities collateralized by sub-prime mortgages remained at historically low levels. This stood in
particular contrast to the markets for other structured products with similar cash flow and credit profiles. The Company also observed significant implied relative liquidity risk premiums, yields, and weighting of worst case cash flows
for asset-backed securities collateralized by sub-prime mortgages in comparison with its own estimates for such securities. In contrast, the liquidity of other spread-based asset classes, such as corporate bonds, high yield and consumer asset-backed
securities, such as those collateralized by credit cards or auto loans, which were previously more correlated with sub-prime securities, improved beginning in the second quarter of 2009. Based on this information, the Company concluded as of
June 30, 2009, and continuing through March 31, 2010 that the market for asset-backed securities collateralized by sub-prime mortgages was inactive and also determined the pricing quotes it received were based on limited market
transactions, calling into question their representation of observable fair value. As a result, the Company considered both third-party pricing information and an internally developed price based on a discounted cash flow model in determining the
fair value of certain of these securities as of June 30, 2009 through March 31, 2010. Based on the unobservable inputs used in the discounted cash flow model and the limited observable market activity, the Company classified these
securities within Level 3 as of June 30, 2009 through March 31, 2010.

Beginning in the second quarter of 2010, the
Company observed an increasingly active market, as evidence of orderly transactions in asset-backed securities collateralized by sub-prime mortgages became more apparent. Additionally, the valuation based on the pricing the Company received from
independent pricing services was not materially different from its internal estimates of current market value for these securities. As a result, where third party pricing information based on observable inputs was used to fair value the security,
and based on the assessment that the market has been becoming increasingly active, the Company reported fair values for these asset-backed securities collateralized by sub-prime mortgages in Level 2 since June 30, 2010. As of December 31,
2010, the fair value of these securities included in Level 2 was $14.2 million included in Fixed Maturities Available for Sale  Asset-Backed Securities.



F-37



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



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



|                                                                                     |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- |  | ------- | - | --------- | ------- |  | - | ------- | - |  | - | --------- | -
|                                                                                     |  | As of December 31, 2010 |        
|                                                                                     |  | Level 1                 |         |  | Level 2 |   |           | Level 3 |  |   | Total   |  
|                                                                                     |  | (in thousands)          |        
|Fixed maturities, available for sale:                                                |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  
|U.S. Treasury securities and obligations of U.S. government authorities and agencies |  | $                       |        |  |         | $ | 36,450    |         |  | $ |        |   |  | $ | 36,450    |  
|Foreign government bonds                                                             |  |                         |        |  |         |   | 22,678    |         |  |   |        |   |  |   | 22,678    |  
|Corporate securities                                                                 |  |                         |        |  |         |   | 748,645   |         |  |   | 3,636   |   |  |   | 752,281   |  
|Asset-backed securities                                                              |  |                         |        |  |         |   | 37,414    |         |  |   | 16,619  |   |  |   | 54,033    |  
|Commercial mortgage-backed securities                                                |  |                         |        |  |         |   | 103,101   |         |  |   |        |   |  |   | 103,101   |  
|Residential mortgage-backed securities                                               |  |                         |        |  |         |   | 95,998    |         |  |   |        |   |  |   | 95,998    |  
|                                                                                     |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  
|Sub-total                                                                            |  |                         |        |  |         |   | 1,044,286 |         |  |   | 20,254  |   |  |   | 1,064,541 |  
|Equity securities, available for sale                                                |  |                         | 283     |  |         |   | 1,536     |         |  |   | 255     |   |  |   | 2,074     |  
|Short-term investments                                                               |  |                         | 359     |  |         |   | 7,050     |         |  |   |        |   |  |   | 7,409     |  
|Cash equivalents                                                                     |  |                         | 5,000   |  |         |   | 23,383    |         |  |   |        |   |  |   | 28,383    |  
|Other long-term investments                                                          |  |                         |        |  |         |   |          |         |  |   |        |   |  |   |          |  
|Other assets                                                                         |  |                         |        |  |         |   | 2,792     |         |  |   | 16,996  |   |  |   | 19,788    |  
|                                                                                     |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  
|Sub-total excluding separate account assets                                          |  |                         | 642     |  |         |   | 1,079,047 |         |  |   | 37,505  |   |  |   | 1,122,125 |  
|Separate account assets (1)                                                          |  |                         | 132,005 |  |         |   | 4,900,653 |         |  |   | 5,393   |   |  |   | 5,038,051 |  
|                                                                                     |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  
|Total assets                                                                         |  | $                       | 132,647 |  |         | $ | 5,979,700 |         |  | $ | 42,898  |   |  | $ | 6,160,176 |  
|                                                                                     |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  
|Other liabilities                                                                    |  |                         |        |  |         |   | 898       |         |  |   |        |   |  |   | 898       |  
|Future policy benefits                                                               |  |                         |        |  |         |   |          |         |  |   | (41,316 | ) |  |   | (41,316   | )
|                                                                                     |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  
|Total liabilities                                                                    |  | $                       |        |  |         | $ | 898       |         |  | $ | (41,316 | ) |  | $ | (40,418   | )
|                                                                                     |  |                         |         |  |         |   |           |         |  |   |         |   |  |   |           |  



|                                                                                     |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  
|------------------------------------------------------------------------------------ |  | --------------------------- | ------ |  | ------- | - | --------- | ------- |  | - | ------ | - |  | - | --------- | -
|                                                                                     |  | As of December 31, 2009 (2) |       
|                                                                                     |  | Level 1                     |        |  | Level 2 |   |           | Level 3 |  |   | Total  |  
|                                                                                     |  | (in thousands)              |       
|Fixed maturities, available for sale:                                                |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  
|U.S. Treasury securities and obligations of U.S. government authorities and agencies |  | $                           |       |  |         | $ | 70,519    |         |  | $ |       |   |  | $ | 70,519    |  
|Foreign government bonds                                                             |  |                             |       |  |         |   | 23,148    |         |  |   |       |   |  |   | 23,148    |  
|Corporate securities                                                                 |  |                             |       |  |         |   | 687,694   |         |  |   | 2,398  |   |  |   | 690,092   |  
|Asset-backed securities                                                              |  |                             |       |  |         |   | 31,586    |         |  |   | 25,259 |   |  |   | 56,845    |  
|Commercial mortgage-backed securities                                                |  |                             |       |  |         |   | 93,466    |         |  |   |       |   |  |   | 93,466    |  
|Residential mortgage-backed securities                                               |  |                             |       |  |         |   | 120,310   |         |  |   |       |   |  |   | 120,310   |  
|                                                                                     |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  
|Sub-total                                                                            |  |                             |       |  |         |   | 1,026,723 |         |  |   | 27,657 |   |  |   | 1,054,380 |  
|Equity securities, available for sale                                                |  |                             |       |  |         |   | 3,250     |         |  |   | 576    |   |  |   | 3,826     |  
|Short-term investments                                                               |  |                             | 17     |  |         |   | 27,959    |         |  |   |       |   |  |   | 27,976    |  
|Cash equivalents                                                                     |  |                             |       |  |         |   | 30,483    |         |  |   |       |   |  |   | 30,483    |  
|Other assets                                                                         |  |                             |       |  |         |   | 3,019     |         |  |   | 16,039 |   |  |   | 19,058    |  
|                                                                                     |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  
|Sub-total excluding separate account assets                                          |  |                             | 17     |  |         |   | 1,091,434 |         |  |   | 44,272 |   |  |   | 1,135,723 |  
|Separate account assets (1)                                                          |  |                             | 48,582 |  |         |   | 3,208,204 |         |  |   | 5,104  |   |  |   | 3,261,890 |  
|                                                                                     |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  
|Total assets                                                                         |  | $                           | 48,599 |  |         | $ | 4,299,638 |         |  | $ | 49,376 |   |  | $ | 4,397,613 |  
|                                                                                     |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  
|Future policy benefits                                                               |  |                             |       |  |         |   |          |         |  |   | (2,412 | ) |  |   | (2,412    | )
|Other liabilities                                                                    |  |                             |       |  |         |   | 3,442     |         |  |   | 67     |   |  |   | 3,509     |  
|                                                                                     |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  
|Total liabilities                                                                    |  | $                           |       |  |         | $ | 3,442     |         |  | $ | (2,345 | ) |  | $ | 1,097     |  
|                                                                                     |  |                             |        |  |         |   |           |         |  |   |        |   |  |   |           |  



F-38



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



|(1) | Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes
are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account assets classified as Level 3 consist primarily of real estate and real estate investment funds. Separate
account liabilities are not included in the above table as they are reported at contract value and not fair value in the Companys Statement of Financial Position.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes reclassifications to conform to current period presentation.
|--- | ---------------------------------------------------------------------

The methods and assumptions the Company uses to estimate fair value of assets and liabilities measured at fair value on a recurring basis
are summarized below. Information regarding Separate Account Assets is excluded as the risk of assets for these categories is primarily borne by our customers and policyholders.

Fixed Maturity Securities - The fair values of the Companys public fixed maturity securities are generally based on
prices obtained from independent pricing services. Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company generally
receives prices from multiple pricing services for each security, but ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. To validate reasonability, prices are reviewed by internal
asset managers through comparison with directly observed recent market trades and internal estimates of current fair value, developed using market observable inputs and economic indicators. Consistent with the fair value hierarchy described above,
securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from third
party pricing services is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service. If the pricing service updates the price to be more
consistent in comparison to the presented market observations, the security remains within Level 2.

If the Company
ultimately concludes that pricing information received from the independent pricing service is not reflective of market activity, non-binding broker quotes are used, if available. If the Company concludes the values from both pricing services and
brokers are not reflective of market activity, it may over-ride the information from the pricing service or broker with an internally developed valuation. As of December 31, 2010 and 2009 over-rides on a net basis were not material. Internally
developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available. These estimates may use significant unobservable inputs, which reflect our own assumptions about the
inputs market participants would use in pricing the asset. Circumstances where observable market data are not available may include events such as market illiquidity and credit events related to the security. Pricing service over-rides, internally
developed valuations and non-binding broker quotes are generally included in Level 3 in our fair value hierarchy.

The fair
value of private fixed maturities, which are primarily comprised of investments in private placement securities, originated by internal private asset managers, are primarily determined using a discounted cash flow model. In certain cases these
models primarily use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors,
the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model
may also incorporate significant unobservable inputs, which reflect the Companys own assumptions about the inputs market participants would use in pricing the asset. To the extent management determines that such inputs are not significant to
the price of a security, a Level 2 classification is made. Otherwise, a Level 3 classification is used.

Private fixed
maturities also include debt investments in funds that, in addition to a stated coupon, pay a return based upon the results of the underlying portfolios. The fair values of these securities are determined by reference to the funds net asset
value (NAV). Since the NAV at which the funds trade can be observed by redemption and subscription transactions between third parties, the fair values of these investments have been reflected within Level 2 in the fair value hierarchy.

Equity Securities -Equity securities consist principally of investments in common and preferred stock of publicly traded
companies, privately traded securities as well as common stock mutual fund shares. The fair values of most publicly traded equity securities are based on quoted market prices in active markets for identical assets and are classified within Level 1
in the fair value hierarchy. The fair values of preferred equity securities are based on prices obtained from independent pricing services and, in order to validate reasonability, are compared with directly observed recent market trades.
Accordingly, these securities are generally classified within Level 2 in the fair value hierarchy.

Derivative
Instruments - Derivatives are recorded at fair value either as assets, within Other long-term investments, or as liabilities, within Other liabilities, except for embedded derivatives which are recorded with the
associated host contract. The fair values of derivative contracts are determined based on quoted prices in active exchanges or through the use of valuation models. The fair values of derivative contracts can be affected by changes in interest rates,
foreign exchange rates, credit spreads, market volatility, expected returns, non-performance risk and liquidity as well as other factors. Liquidity valuation adjustments are made to reflect the cost of exiting significant risk positions, and
consider the bid-ask spread, maturity, complexity, and other specific attributes of the underlying derivative position. Fair values can also be affected by changes in estimates and assumptions including those related to counterparty behavior used in
valuation models.



F-39



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



All of the Companys derivative positions are traded in the over-the-counter (OTC)
derivative market and is classified within Level 2 in the fair value hierarchy. OTC derivatives classified within Level 2 are valued using models generally accepted in the financial services industry that use actively quoted or observable market
input values from external market data providers, third-party pricing vendors and/or recent trading activity. The fair values of most OTC derivatives, including interest rate and cross currency swaps, are determined using discounted cash flow
models. These models key assumptions include the contractual terms of the respective contract, along with significant observable inputs, including interest rates, currency rates, credit spreads, equity prices, index dividend yields,
non-performance risk and volatility and are classified as Level 2.

To reflect the markets perception of its own and the
counterpartys non-performance risk, the Company incorporates an additional spread over London Interbank Offered Rate (LIBOR) into the discount rate used in determining the fair value of OTC derivative assets and liabilities which
are uncollateralized. Most OTC derivative contracts inputs have bid and ask prices that are actively quoted or can be readily obtained from external market data providers. The Companys policy is to use mid-market pricing in determining its
best estimate of fair value and classify these derivative contracts as Level 2.

Derivatives classified as Level 3 include
first-to-default credit basket swaps and other structured products. These derivatives are valued based upon models with some significant unobservable market inputs or inputs from less actively traded markets. The fair values of first to default
credit basket swaps are derived from relevant observable inputs such as: individual credit default spreads, interest rates, recovery rates and unobservable model-specific input values such as correlation between different credits within the same
basket. Level 3 methodologies are validated through periodic comparison of the Companys fair values to broker-dealer values.

Cash Equivalents and Short-Term Investments - Include money market instruments, commercial paper and other highly liquid debt instruments. Money market instruments are generally valued using
unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The remaining instruments in the Cash Equivalents and Short-term Investments category are typically not traded in active
markets; however, their fair values are based on market observable inputs and, accordingly, these investments have been classified within Level 2 in the fair value hierarchy.

Other Assets -Other assets carried at fair value include reinsurance recoverables related to the reinsurance of our living benefit guarantees on certain of our variable annuities. These guarantees
are described further below in Future Policy Benefits. The reinsurance agreements covering these guarantees are derivatives and are accounted for in the same manner as an embedded derivative.

Future Policy Benefits -The liability for future policy benefits includes general account liabilities for guarantees on variable
annuity contracts, including guaranteed minimum accumulation benefits (GMAB) and guaranteed minimum income and withdrawal benefits (GMIWB), accounted for as embedded derivatives. The fair values of the GMAB and GMIWB
liabilities are calculated as the present value of future expected benefit payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. Since there is no observable active market for the
transfer of these obligations, the valuations are calculated using internally developed models with option pricing techniques. The models are based on a risk neutral valuation framework and incorporate premiums for risks inherent in valuation
techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. The determination of these risk premiums requires the use of management judgment.

The Company is also required to incorporate the market perceived risk of its own non-performance in the valuation of the embedded
derivatives associated with its optional living benefit features and no-lapse feature on certain universal life products. Since insurance liabilities are senior to debt, the Company believes that reflecting the financial strength ratings of the
Company in the valuation of the liability appropriately takes into consideration the Companys own risk of non-performance. To reflect the markets perception of its non-performance risk the Company incorporates an additional spread over
LIBOR into the discount rate used in the valuations of the embedded derivatives associated with its optional living benefit features. The additional spread over LIBOR is determined taking into consideration publicly available information relating to
the financial strength of the Company, as indicated by the credit spreads associated with funding agreements issued by these affiliated companies. The Company adjusts these credit spreads to remove any liquidity risk premium. The additional spread
over LIBOR incorporated into the discount rate as of December 31, 2010 generally ranged from 50 to 150 basis points for the portion of the interest rate curve most relevant to these liabilities.

Other significant inputs to the valuation models for the embedded derivatives associated with the optional living benefit features of the
Companys variable annuity products include capital market assumptions, such as interest rate and implied volatility assumptions, as well as various policyholder behavior assumptions that are actuarially determined, including lapse rates,
benefit utilization rates, mortality rates and withdrawal rates. These assumptions are reviewed at least annually, and updated based upon historical experience and give consideration to any observable market data, including market transactions such
as acquisitions and reinsurance transactions. Since many of the assumptions utilized in the valuation of the embedded derivatives associated with the Companys optional living benefit features are unobservable and are considered to be
significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level 3 in the fair value hierarchy.

Transfers between Levels 1 and 2 - During the year ended December 31, 2010, there were no material transfers between Level 1 and Level 2.



F-40



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



Changes in Level 3 assets and liabilities - The following tables provide a
summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2010, as well as the portion of gains or losses included in income for the year ended December 31, 2010 attributable to unrealized gains
or losses related to those assets and liabilities still held at December 31, 2010.



|                                                                                                                             |  |                                                        |       |   |                                                           |   |         |                                    |  |   |             |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | ----- | - | --------------------------------------------------------- | - | ------- | ---------------------------------- |  | - | ----------- | - |  | - | ------ | -
|                                                                                                                             |  | Year Ended December 31, 2010                           |      
|                                                                                                                             |  | FixedMaturities,AvailableFor Sale CorporateSecurities |       |   | FixedMaturities,AvailableFor Sale Asset-BackedSecurities |   |         | EquitySecurities,Availablefor Sale |  |   | OtherAssets |  
|                                                                                                                             |  |                                                        |       |   | (in thousands)                                            |  
|Fair value, beginning of period                                                                                              |  | $                                                      | 2,398 |   |                                                           | $ | 25,259  |                                    |  | $ | 576         |   |  | $ | 16,039 |  
|Total gains or (losses) (realized/unrealized):                                                                               |  |                                                        |       |   |                                                           |   |         |                                    |  |   |             |   |  |   |        |  
|Included in earnings:                                                                                                        |  |                                                        |       |   |                                                           |   |         |                                    |  |   |             |   |  |   |        |  
|Realized investment gains (losses), net                                                                                      |  |                                                        | 8     |   |                                                           |   | (139    | )                                  |  |   |            |   |  |   | (443   | )
|Asset management fees and other income                                                                                       |  |                                                        |      |   |                                                           |   |        |                                    |  |   |            |   |  |   |       |  
|Included in other comprehensive income (loss)                                                                                |  |                                                        | 514   |   |                                                           |   | (1,258  | )                                  |  |   | (374        | ) |  |   | 263    |  
|Net investment income                                                                                                        |  |                                                        | 34    |   |                                                           |   | 164     |                                    |  |   |            |   |  |   |       |  
|Purchases, sales, issuances, and settlements                                                                                 |  |                                                        | (149  | ) |                                                           |   | 9,049   |                                    |  |   | 53          |   |  |   | 1,137  |  
|Foreign currency translation                                                                                                 |  |                                                        |      |   |                                                           |   |        |                                    |  |   |            |   |  |   |       |  
|Transfers into Level 3 (2)                                                                                                   |  |                                                        | 957   |   |                                                           |   |        |                                    |  |   |            |   |  |   |       |  
|Transfers out of Level 3 (2)                                                                                                 |  |                                                        | (127  | ) |                                                           |   | (16,456 | )                                  |  |   |            |   |  |   |       |  
|                                                                                                                             |  |                                                        |       |   |                                                           |   |         |                                    |  |   |             |   |  |   |        |  
|Fair value, end of period                                                                                                    |  | $                                                      | 3,636 |   |                                                           | $ | 16,619  |                                    |  | $ | 255         |   |  | $ | 16,996 |  
|                                                                                                                             |  |                                                        |       |   |                                                           |   |         |                                    |  |   |             |   |  |   |        |  
|Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period
(3): |  |                                                        |       |   |                                                           |   |         |                                    |  |   |             |   |  |   |        |  
|Included in earnings:                                                                                                        |  |                                                        |       |   |                                                           |   |         |                                    |  |   |             |   |  |   |        |  
|Realized investment gains (losses), net:                                                                                     |  | $                                                      | 10    |   |                                                           | $ | (41     | )                                  |  | $ |            |   |  | $ | (303   | )
|Asset management fees and other income                                                                                       |  | $                                                      |      |   |                                                           | $ |        |                                    |  | $ |            |   |  | $ |       |  
|Interest credited to policyholder account balances                                                                           |  | $                                                      |      |   |                                                           | $ |        |                                    |  | $ |            |   |  | $ |       |  
|Included in other comprehensive income (loss)                                                                                |  | $                                                      | 514   |   |                                                           | $ | (1,258  | )                                  |  | $ | (374        | ) |  | $ | 263    |  



|                                                                                                                            |  |                            |       |  |                      |   |        |                  |  |  |     |  
|--------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----- |  | -------------------- | - | ------ | ---------------- |  |  | --- | -
|                                                                                                                            |  | SeparateAccount Assets (1) |       |  | FuturePolicyBenefits |   |        | OtherLiabilities | 
|                                                                                                                            |  | (in thousands)             |       |  |                      |  
|Fair value, beginning of period                                                                                             |  | $                          | 5,104 |  |                      | $ | 2,412  |                  |  |  | (67 | )
|Total gains or (losses) (realized/unrealized):                                                                              |  |                            |       |  |                      |   |        |                  |  |  |     |  
|Included in earnings:                                                                                                       |  |                            |       |  |                      |   |        |                  |  |  |     |  
|Realized investment gains (losses), net                                                                                     |  |                            |      |  |                      |   | 47,655 |                  |  |  | 67  |  
|Asset management fees and other income                                                                                      |  |                            |      |  |                      |   |       |                  |  |  |    |  
|Interest credited to policyholder account balances                                                                          |  |                            | 289   |  |                      |   |       |                  |  |  |    |  
|Included in other comprehensive income                                                                                      |  |                            |      |  |                      |   |       |                  |  |  |    |  
|Net investment income                                                                                                       |  |                            |      |  |                      |   |       |                  |  |  |    |  
|Purchases, sales, issuances, and settlements                                                                                |  |                            |      |  |                      |   | (8,751 | )                |  |  |    |  
|Foreign Currency Translation                                                                                                |  |                            |      |  |                      |   |       |                  |  |  |    |  
|Transfers into Level 3 (2)                                                                                                  |  |                            |      |  |                      |   |       |                  |  |  |    |  
|Transfers out of Level 3 (2)                                                                                                |  |                            |      |  |                      |   |       |                  |  |  |    |  
|                                                                                                                            |  |                            |       |  |                      |   |        |                  |  |  |     |  
|Fair value, end of period                                                                                                   |  | $                          | 5,393 |  |                      | $ | 41,316 |                  |  |  | (67 | )
|                                                                                                                            |  |                            |       |  |                      |   |        |                  |  |  |     |  
|Unrealized gains(losses) for the period relating to those level 3 assets that were still held at the end of the period
(3): |  |                            |       |  |                      |   |        |                  |  |  |     |  
|Included in earnings:                                                                                                       |  |                            |       |  |                      |   |        |                  |  |  |     |  
|Realized investment gains (losses), net                                                                                     |  | $                          |      |  |                      | $ | 8,290  |                  |  |  | 70  |  
|Asset management fees and other income                                                                                      |  | $                          |      |  |                      | $ |       |                  |  |  |    |  
|Interest credited to policyholder account balances                                                                          |  | $                          | 289   |  |                      | $ |       |                  |  |  |    |  
|Included in other comprehensive income                                                                                      |  | $                          |      |  |                      | $ |       |                  |  |  |    |  



|(1) | Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes
are borne by the customers, except to the extent minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in
the Companys Statement of Financial Position.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Transfers into or out of Level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(3) | Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



F-41



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



Transfers -Transfers out of Level 3 for Fixed Maturities Available for Sale
 Asset-Backed Securities totaled $15.3 million for the year ended December 31, 2010 resulting from the Companys conclusion that the market for asset-backed securities collateralized by sub-prime mortgages has been becoming
increasingly active, as evidenced by orderly transactions. The pricing received from independent pricing services could be validated by the Company, as discussed in detail above. Other transfers out of Level 3 were typically due to the use of
observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company was able to validate. Transfers into Level 3 were primarily the result of significant unobservable inputs
utilized within valuation methodologies and the use of broker quotes (that could not be validated) when previously, information from third party pricing services (that could be validated) was utilized.

Changes in Level 3 assets and liabilities - The following tables provide a summary of the changes in fair value of Level 3 assets
and liabilities for the year ended December 31, 2009, as well as the portion of gains or losses included in income for the year ended December 31, 2009 attributable to unrealized gains or losses related to those assets and liabilities
still held at December 31, 2009.



|                                                                                                                             |  |                                                        |       |   |                                                           |   |        |                                    |  |   |             |  |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | ----- | - | --------------------------------------------------------- | - | ------ | ---------------------------------- |  | - | ----------- |  |  | - | ------- | -
|                                                                                                                             |  | Year Ended December 31, 2009                           |      
|                                                                                                                             |  | FixedMaturities,AvailableFor Sale CorporateSecurities |       |   | FixedMaturities,AvailableFor Sale Asset-BackedSecurities |   |        | EquitySecurities,Availablefor Sale |  |   | OtherAssets | 
|                                                                                                                             |  |                                                        |       |   | (in thousands)                                            |  
|Fair value, beginning of period                                                                                              |  | $                                                      | 266   |   |                                                           | $ | 5,732  |                                    |  | $ | 121         |  |  | $ | 58,880  |  
|Total gains or (losses) (realized/unrealized):                                                                               |  |                                                        |       |   |                                                           |   |        |                                    |  |   |             |  |  |   |         |  
|Included in earnings:                                                                                                        |  |                                                        |       |   |                                                           |   |        |                                    |  |   |             |  |  |   |         |  
|Realized investment gains (losses), net                                                                                      |  |                                                        | (506  | ) |                                                           |   | (1,634 | )                                  |  |   |            |  |  |   | (44,396 | )
|Asset management fees and other income                                                                                       |  |                                                        |      |   |                                                           |   |       |                                    |  |   |            |  |  |   |        |  
|Included in other comprehensive income (loss)                                                                                |  |                                                        | 449   |   |                                                           |   | 9,708  |                                    |  |   | 455         |  |  |   | 590     |  
|Net investment income                                                                                                        |  |                                                        | (1    | ) |                                                           |   | 121    |                                    |  |   |            |  |  |   |        |  
|Purchases, sales, issuances, and settlements                                                                                 |  |                                                        | (169  | ) |                                                           |   | (1,780 | )                                  |  |   |            |  |  |   | 965     |  
|Foreign currency translation                                                                                                 |  |                                                        |      |   |                                                           |   |       |                                    |  |   |            |  |  |   |        |  
|Transfers into Level 3 (2)                                                                                                   |  |                                                        | 2,413 |   |                                                           |   | 13,858 |                                    |  |   |            |  |  |   |        |  
|Transfers out of Level 3 (2)                                                                                                 |  |                                                        | (54   | ) |                                                           |   | (746   | )                                  |  |   |            |  |  |   |        |  
|                                                                                                                             |  |                                                        |       |   |                                                           |   |        |                                    |  |   |             |  |  |   |         |  
|Fair value, end of period                                                                                                    |  | $                                                      | 2,398 |   |                                                           | $ | 25,259 |                                    |  | $ | 576         |  |  | $ | 16,039  |  
|                                                                                                                             |  |                                                        |       |   |                                                           |   |        |                                    |  |   |             |  |  |   |         |  
|Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period
(3): |  |                                                        |       |   |                                                           |   |        |                                    |  |   |             |  |  |   |         |  
|Included in earnings:                                                                                                        |  |                                                        |       |   |                                                           |   |        |                                    |  |   |             |  |  |   |         |  
|Realized investment gains (losses), net:                                                                                     |  | $                                                      | (506  | ) |                                                           | $ | (1,383 | )                                  |  | $ |            |  |  | $ | (43,833 | )
|Asset management fees and other income                                                                                       |  | $                                                      |      |   |                                                           | $ |       |                                    |  | $ |            |  |  | $ |        |  
|Interest credited to policyholder account                                                                                    |  | $                                                      |      |   |                                                           | $ |       |                                    |  | $ |            |  |  | $ |        |  
|Included in other comprehensive income (loss)                                                                                |  | $                                                      | 447   |   |                                                           | $ | 9,605  |                                    |  | $ | 455         |  |  | $ | 590     |  



F-42



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



|                                                                                                                            |  |                              |        |   |                       |   |         |                  |  |  |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | --------------------- | - | ------- | ---------------- |  |  | ------ | -
|                                                                                                                            |  | Year Ended December 31, 2009 |       
|                                                                                                                            |  | Separate AccountAssets (1)   |        |   | Future PolicyBenefits |   |         | OtherLiabilities | 
|                                                                                                                            |  | (in thousands)               |        |   |                       |  
|Fair value, beginning of period                                                                                             |  | $                            | 6,494  |   |                       | $ | (63,903 | )                |  |  | (4,272 | )
|Total gains or (losses) (realized/unrealized):                                                                              |  |                              |        |   |                       |   |         |                  |  |  |        |  
|Included in earnings:                                                                                                       |  |                              |        |   |                       |   |         |                  |  |  |        |  
|Realized investment gains (losses), net                                                                                     |  |                              |       |   |                       |   | 69,126  |                  |  |  | 4,205  |  
|Interest credited to policyholder account                                                                                   |  |                              | (1,335 | ) |                       |   |        |                  |  |  |       |  
|Included in other comprehensive income                                                                                      |  |                              |       |   |                       |   |        |                  |  |  |       |  
|Net investment income                                                                                                       |  |                              |       |   |                       |   |        |                  |  |  |       |  
|Purchases, sales, issuances, and settlements                                                                                |  |                              | 38     |   |                       |   | (2,811  | )                |  |  |       |  
|Transfers into Level 3 (2)                                                                                                  |  |                              |       |   |                       |   |        |                  |  |  |       |  
|Transfers out of Level 3 (2)                                                                                                |  |                              | (93    | ) |                       |   |        |                  |  |  |       |  
|                                                                                                                            |  |                              |        |   |                       |   |         |                  |  |  |        |  
|Fair value, end of period                                                                                                   |  | $                            | 5,104  |   |                       | $ | 2,412   |                  |  |  | (67    | )
|                                                                                                                            |  |                              |        |   |                       |   |         |                  |  |  |        |  
|                                                                                                                            |  |                              |       
|Unrealized gains(losses) for the period relating to those level 3 assets that were still held at the end of the period
(3): |  |                              |        |   |                       |   |         |                  |  |  |        |  
|Included in earnings:                                                                                                       |  |                              |        |   |                       |   |         |                  |  |  |        |  
|Realized investment gains (losses), net                                                                                     |  | $                            |       |   |                       | $ | 68,705  |                  |  |  | 4,208  |  
|Interest credited to policyholder account                                                                                   |  | $                            | (1,335 | ) |                       | $ |        |                  |  |  |       |  
|Included in other comprehensive income                                                                                      |  | $                            |       |   |                       | $ |        |                  |  |  |       |  



|(1) | Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes
are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value
in the Companys Statement of Financial Position.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Transfers into or out of Level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(3) | Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

Transfers - Transfers into Level 3 for Fixed Maturities Available for Sale totaled $16 million
during 2009. Transfers into Level 3 for these investments were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes (that could not be validated) when information from third party pricing
services or models with observable inputs were utilized. Transfers out of Level 3 for Fixed Maturities Available for Sale were primarily due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service
information for certain assets that the Company was able to validate.

The following tables provide a summary of the changes
in fair value of Level 3 assets and liabilities for the year ended December 31, 2008, as well as the portion of gains or losses included in income for the year ended December 31, 2008, attributable to unrealized gains or losses related to
those assets and liabilities still held at December 31, 2008.



|                                                                                                                                    |  |                                     |         |   |                                      |   |        |             |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ------------------------------------ | - | ------ | ----------- |  | - | ------ | -
|                                                                                                                                    |  | Year Ended December 31, 2008        |        
|                                                                                                                                    |  | Fixed Maturities,Available For Sale |         |   | Equity Securities,Available for Sale |   |        | OtherAssets | 
|                                                                                                                                    |  | (in thousands)                      |        
|Fair value, beginning of period                                                                                                     |  | $                                   | 23,659  |   |                                      | $ | 2,271  |             |  | $ | 3,079  |  
|Total gains or (losses) (realized/unrealized):                                                                                      |  |                                     |        |   |                                      |   |       |             |  |   |       |  
|Included in earnings:                                                                                                               |  |                                     |        |   |                                      |   |       |             |  |   |       |  
|Realized investment gains (losses), net                                                                                             |  |                                     | (55     | ) |                                      |   |       |             |  |   | 48,957 |  
|Interest credited to policyholder account                                                                                           |  |                                     |        |   |                                      |   |       |             |  |   |       |  
|Included in other comprehensive income (loss)                                                                                       |  |                                     | (3,365  | ) |                                      |   | (422   | )           |  |   | (338   | )
|Net investment income                                                                                                               |  |                                     | 9       |   |                                      |   |       |             |  |   |       |  
|Purchases, sales, issuances, and settlements                                                                                        |  |                                     | 2,143   |   |                                      |   |       |             |  |   | 758    |  
|Foreign currency translation                                                                                                        |  |                                     |        |   |                                      |   |       |             |  |   |       |  
|Transfers into (out of) Level 3 (2)                                                                                                 |  |                                     | (16,393 | ) |                                      |   | (1,728 | )           |  |   | 6,424  |  
|                                                                                                                                    |  |                                     |         |   |                                      |   |        |             |  |   |        |  
|Fair value, end of period                                                                                                           |  | $                                   | 5,998   |   |                                      | $ | 121    |             |  | $ | 58,880 |  
|                                                                                                                                    |  |                                     |         |   |                                      |   |        |             |  |   |        |  
|                                                                                                                                    |  |                                     |        
|Unrealized gains (losses) for period relating to those Level 3 assets that were still held by the Company at the end of the
period: |  |                                     |         |   |                                      |   |        |             |  |   |        |  
|Included in earnings:                                                                                                               |  |                                     |         |   |                                      |   |        |             |  |   |        |  
|Realized investment gains (losses), net                                                                                             |  | $                                   | (32     | ) |                                      | $ |       |             |  | $ | 49,013 |  
|Interest credited to policyholder account                                                                                           |  | $                                   |        |   |                                      | $ |       |             |  | $ |       |  
|Included in other comprehensive income (loss)                                                                                       |  | $                                   | (1,591  | ) |                                      | $ | (327   | )           |  | $ | (338   | )



F-43



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



|                                                                                                                             |  |                              |        |   |                       |   |         |                           |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | --------------------- | - | ------- | ------------------------- |  | - | ------ | -
|                                                                                                                             |  | Year Ended December 31, 2008 |       
|                                                                                                                             |  | Separate AccountAssets (1)   |        |   | Future PolicyBenefits |   |         | OtherLong-termInvestments | 
|                                                                                                                             |  | (in thousands)               |        |   |                       |  
|Fair value, beginning of period                                                                                              |  | $                            | 7,716  |   |                       | $ | (3,087  | )                         |  | $ | (279   | )
|Total gains or (losses) (realized/unrealized):                                                                               |  |                              |       |   |                       |   |        |                           |  |   |       |  
|Included in earnings:                                                                                                        |  |                              |       |   |                       |   |        |                           |  |   |       |  
|Realized investment gains (losses), net                                                                                      |  |                              |       |   |                       |   | (59,506 | )                         |  |   | (3,993 | )
|Interest credited to policyholder account                                                                                    |  |                              | (1,222 | ) |                       |   |        |                           |  |   |       |  
|Included in other comprehensive income                                                                                       |  |                              |       |   |                       |   |        |                           |  |   |       |  
|Net investment income                                                                                                        |  |                              |       |   |                       |   |        |                           |  |   |       |  
|Purchases, sales, issuances, and settlements                                                                                 |  |                              |       |   |                       |   | (1,309  | )                         |  |   |       |  
|Transfers into (out of) Level 3 (2)                                                                                          |  |                              |       |   |                       |   |        |                           |  |   |       |  
|                                                                                                                             |  |                              |        |   |                       |   |         |                           |  |   |        |  
|Fair value, end of period                                                                                                    |  | $                            | 6,494  |   |                       | $ | (63,903 | )                         |  | $ | (4,272 | )
|                                                                                                                             |  |                              |        |   |                       |   |         |                           |  |   |        |  
|                                                                                                                             |  |                              |       
|Unrealized gains (losses) for the period relating to those level 3 assets that
were still held at the end of the period (3): |  |                              |        |   |                       |   |         |                           |  |   |        |  
|Included in earnings:                                                                                                        |  |                              |        |   |                       |   |         |                           |  |   |        |  
|Realized investment gains (losses), net                                                                                      |  | $                            |       |   |                       | $ | (59,565 | )                         |  | $ | (3,992 | )
|Interest credited to policyholder account                                                                                    |  | $                            | (1,222 | ) |                       | $ |        |                           |  | $ |       |  
|Included in other comprehensive income                                                                                       |  | $                            |       |   |                       | $ |        |                           |  | $ |       |  



|(1) | Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes
are borne by the customers, except to the extent minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in
the Companys Statement of Financial Position.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Transfers into or out of Level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(3) | Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

Transfers - Transfers out of Level 3 for Fixed Maturities Available for Sale totaled $16.4 million
for the year ended December 31, 2008. Transfers into Level 3 for these investments were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes when information from third party pricing
services was utilized. Partially offsetting these transfers into Level 3 were transfers out of Level 3 due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that
the Company was able to validate.

Derivative Fair Value Information - The following tables presents information
regarding derivative assets and liabilities measured at fair value on a recurring basis. The derivative assets are reflected within either Other long-term investments on the balance sheet. Derivative liabilities are reflected within
Other liabilities. These tables exclude embedded derivatives which are recorded with the associated host contract.



|                             |  |                         |   |  |         |   |       |         |  |   |             |  |  |       |        |   |  |   |        |  
|---------------------------- |  | ----------------------- | - |  | ------- | - | ----- | ------- |  | - | ----------- |  |  | ----- | ------ | - |  | - | ------ | -
|                             |  | As of December 31, 2010 |  
|                             |  | Level 1                 |   |  | Level 2 |   |       | Level 3 |  |   | Netting (1) |  |  | Total |       
|                             |  | (in thousands)          |  
|Derivative assets:           |  |                         |   |  |         |   |       |         |  |   |             |  |  |       |        |   |  |   |        |  
|Interest Rate                |  | $                       |  |  |         | $ | 1,738 |         |  | $ |             |  |  | $     |        |   |  | $ | 1,738  |  
|Currency                     |  |                         |   |  |         |   |      |         |  |   |             |  |  |       |        |   |  |   |       |  
|Credit                       |  |                         |   |  |         |   | 1,206 |         |  |   |            |  |  |       |        |   |  |   | 1,206  |  
|Currency/Interest Rate       |  |                         |   |  |         |   |      |         |  |   |             |  |  |       |        |   |  |   |       |  
|Equity                       |  |                         |   |  |         |   |      |         |  |   |             |  |  |       |        |   |  |   |       |  
|Netting                      |  |                         |   |  |         |   |      |         |  |   |             |  |  |       | (2,943 | ) |  |   | (2,943 | )
|                             |  |                         |   |  |         |   |       |         |  |   |             |  |  |       |        |   |  |   |        |  
|Total derivative assets      |  | $                       |  |  |         | $ | 2,943 |         |  | $ |            |  |  | $     | (2,943 | ) |  | $ |       |  
|                             |  |                         |   |  |         |   |       |         |  |   |             |  |  |       |        |   |  |   |        |  
|Derivative liabilities:      |  |                         |   |  |         |   |       |         |  |   |             |  |  |       |        |   |  |   |        |  
|Interest Rate                |  | $                       |  |  |         | $ | 1,006 |         |  | $ |             |  |  | $     |        |   |  | $ | 1,006  |  
|Currency                     |  |                         |   |  |         |   |      |         |  |   |             |  |  |       |        |   |  |   |       |  
|Credit                       |  |                         |   |  |         |   | 878   |         |  |   |            |  |  |       |        |   |  |   | 878    |  
|Currency/Interest Rate       |  |                         |   |  |         |   | 1,957 |         |  |   |             |  |  |       |        |   |  |   | 1,957  |  
|Equity                       |  |                         |   |  |         |   |      |         |  |   |             |  |  |       |        |   |  |   |       |  
|Netting                      |  |                         |   |  |         |   |       |         |  |   |             |  |  |       | (2,943 | ) |  |   | (3,841 | )
|                             |  |                         |   |  |         |   |       |         |  |   |             |  |  |       |        |   |  |   |        |  
|Total derivative liabilities |  | $                       |  |  |         |   | 3,841 |         |  |   |            |  |  |       | (2,943 | ) |  |   | (898   | )
|                             |  |                         |   |  |         |   |       |         |  |   |             |  |  |       |        |   |  |   |        |  



|(1) | Netting amounts represent cash collateral and the impact of offsetting asset and liability positions held with the same counterparty.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



F-44



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)



Changes in Level 3 derivative assets and liabilities - The following tables
provide a summary of the changes in fair value of Level 3 derivative assets and liabilities for the year ended December 31, 2010, as well as the portion of gains or losses included in income for the year ended December 31, 2010,
attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2010.



|                                                                                                                         |  |                               |     |  
|------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------- | --- | -
|                                                                                                                         |  | Year ended December 31, 2010  |    
|                                                                                                                         |  | Other Liabilities             |    
|                                                                                                                         |  | Derivative Liability - Credit |    
|                                                                                                                         |  | (in thousands)                |    
|Fair Value, beginning of period                                                                                          |  | $                             | (67 | )
|Total gains or (losses) (realized/unrealized):                                                                           |  |                               |     |  
|Included in earnings:                                                                                                    |  |                               |     |  
|Realized investment gains (losses), net                                                                                  |  |                               | 67  |  
|Asset management fees and other income                                                                                   |  |                               |     |  
|Purchases, sales, issuances and settlements                                                                              |  |                               |     |  
|Transfers into Level 3                                                                                                   |  |                               |     |  
|Transfers out of Level 3                                                                                                 |  |                               |     |  
|                                                                                                                         |  |                               |     |  
|Fair Value, end of period                                                                                                |  | $                             |    |  
|                                                                                                                         |  |                               |     |  
|                                                                                                                         | 
|Unrealized gains (losses) for the period relating to those level 3 assets that were still held at the end of the
period: |  |                               |     |  
|Included in earnings:                                                                                                    |  |                               |     |  
|Realized investment gains (losses), net                                                                                  |  |                               | 70  |  
|Asset management fees and other income                                                                                   |  |                               |    |  

Fair Value of
Financial Instruments - The Company is required by U.S. GAAP to disclose the fair value of certain financial instruments including those that are not carried at fair value. For the following financial instruments the carrying amount
equals or approximates fair value: fixed maturities classified as available for sale, trading account assets, equity securities, securities purchased under agreements to resell, short-term investments, cash and cash equivalents, accrued investment
income, separate account assets, securities sold under agreements to repurchase, and cash collateral for loaned securities, as well as certain items recorded within other assets and other liabilities such as broker-dealer related receivables and
payables. See Note 5 for a discussion of derivative instruments.

The following table discloses the Companys financial
instruments where the carrying amounts and fair values may differ:



|                                                     |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|---------------------------------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | -------------- |  | - | ---------- |  |  | - | ------- | 
|                                                     |  | December 31, 2010 |         |  | December 31, 2009 |  
|                                                     |  | CarryingAmount    |         |  | Fair Value        |   |         | CarryingAmount |  |   | Fair Value | 
|                                                     |  | (in thousands)    |        
|Assets:                                              |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|Commercial mortgage loans                            |  | $                 | 182,437 |  |                   | $ | 192,102 |                |  | $ | 167,935    |  |  | $ | 167,883 | 
|Policy loans                                         |  |                   | 175,514 |  |                   |   | 211,513 |                |  |   | 169,835    |  |  |   | 191,499 | 
|Liabilities:                                         |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|Policyholder account balances  Investment contracts |  |                   | 102,593 |  |                   |   | 101,551 |                |  |   | 85,661     |  |  |   | 84,336  | 

Commercial Mortgage Loans

The fair value of commercial mortgage loans are primarily based upon the present value of the expected future cash
flows discounted at the appropriate U.S. Treasury rate adjusted for the current market spread for similar quality loans.

Policy Loans

The fair value of policy loans is calculated using a discounted cash flow model based upon current U.S. Treasury rates
and historical loan repayment patterns.

Investment Contracts - Policyholders Account Balances

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



F-45



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





11. DERIVATIVE INSTRUMENTS



Types of Derivative Instruments and Derivative Strategies

Interest rate swaps are used by the Company to manage interest rate exposures arising from mismatches between assets and liabilities
(including duration mismatches) and to hedge against changes in the value of assets it anticipates acquiring and other anticipated transactions and commitments. Swaps may be attributed to specific assets or liabilities or may be used on a portfolio
basis. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed upon notional principal amount.
Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty
at each due date.

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

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

Credit derivatives are
used by the Company to enhance the return on the Companys investment portfolio by creating credit exposure similar to an investment in public fixed maturity cash instruments. With credit derivatives the Company can sell credit protection on an
identified name, or a basket of names in a first to default structure, and in return receive a quarterly premium. With first to default baskets, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in
the basket. If there is an event of default by the referenced name or one of the referenced names in a basket, as defined by the agreement, then the Company is obligated to pay the counterparty the referenced amount of the contract and receive in
return the referenced defaulted security or similar security. In addition to selling credit protection, the Company may purchase credit protection using credit derivatives in order to hedge specific credit exposures in the Companys investment
portfolio.

The table below provides a summary of the gross notional amount and fair value of derivatives contracts, excluding
embedded derivatives which are recorded with the associated host, by the primary underlying. Many derivative instruments contain multiple underlyings.



|                                         |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  
|---------------------------------------- |  | ----------------- | ------ |  | ----------------- | ----------- | ----- | -------------- |  | ------ | ---------- | - | ----------- | - | ------- |  |  | - | ----- |  |  | - | ------- | -
|                                         |  | December 31, 2010 |        |  | December 31, 2009 |            
|                                         |  | NotionalAmount    |        |  | Fair Value        |             |       | NotionalAmount |  |        | Fair Value |  
|                                         |  |                   | Assets |  |                   | Liabilities |       |                |  | Assets |            |   | Liabilities |  
|                                         |  | (in thousands)    |        |  | (in thousands)    |            
|Qualifying Hedge Relationships           |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  
|Currency/Interest Rate                   |  | $                 | 11,018 |  |                   | $           |      |                |  |        | (1,104     | ) |             | $ | 5,366   |  |  | $ |      |  |  | $ | (678)   |  
|                                         |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  
|Total Qualifying Hedge Relationships     |  | $                 | 11,018 |  |                   | $           |      |                |  | $      | (1,104     | ) |             | $ | 5,366   |  |  | $ |      |  |  | $ | (678    | )
|                                         |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  
|Non-qualifying Hedge Relationships       |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  
|Interest Rate                            |  | $                 | 47,000 |  |                   | $           | 1,737 |                |  | $      | (1,006     | ) |             | $ | 94,000  |  |  | $ | 191   |  |  | $ | (4,766) |  
|Credit                                   |  | $                 | 8,900  |  |                   | $           | 1,206 |                |  | $      | (878       | ) |             | $ | 21,950  |  |  | $ | 3,730 |  |  | $ | (1,065) |  
|Currency/Interest Rate                   |  | $                 | 9,115  |  |                   | $           |      |                |  | $      | (853       | ) |             | $ | 20,015  |  |  | $ |      |  |  | $ | (921)   |  
|                                         |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  
|Total Non-qualifying Hedge Relationships |  | $                 | 65,015 |  |                   | $           | 2,943 |                |  | $      | (2,737     | ) |             | $ | 135,965 |  |  | $ | 3,921 |  |  | $ | (6,752) |  
|                                         |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  
|Total Derivatives                        |  | $                 | 76,033 |  |                   | $           | 2,943 |                |  | $      | (3,841     | ) |             | $ | 141,331 |  |  | $ | 3,921 |  |  | $ | (7,430) |  
|                                         |  |                   |        |  |                   |             |       |                |  |        |            |   |             |   |         |  |  |   |       |  |  |   |         |  

Embedded Derivatives

The Company holds certain externally managed investments in the European market which contain embedded derivatives whose fair value are primarily driven by changes in credit spreads. These investments are
medium term notes that are collateralized by investment portfolios primarily consisting of investment grade European fixed income securities, including corporate bonds and asset-backed securities, and derivatives, as well as varying degrees of
leverage. The notes have a stated coupon and provide a return based on the performance of the underlying portfolios and the level of leverage. The Company invests in these notes to earn a coupon through maturity, consistent with its investment
purpose for other debt securities. The notes are accounted for under U.S. GAAP as available for sale fixed maturity securities with bifurcated embedded derivatives (total return swaps). Changes in the value of the fixed maturity securities are
reported in Equity under the heading Accumulated Other Comprehensive Income and changes in the market value of the embedded total return swaps are included in current period earnings in Realized investment gains (losses),
net. The Companys maximum exposure to loss from these interests was $7 million at December 31, 2010 and December 31, 2009. The fair value of the embedded derivatives included in Fixed maturities, available for sale was a
liability of $3 million at December 31, 2010 and December 31, 2009.



F-46



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





11. DERIVATIVE INSTRUMENTS (continued)



The fair value of the embedded derivatives included in Future policy benefits was an
asset of $41 million as of December 31, 2010 and an asset of $2 million as of December 31, 2009 included in Future policy benefits.

The Company also incorporates risk of non-performance of its affiliates in the valuation of the embedded derivatives associated with our living benefit features on our variable annuity contracts and the
no lapse feature of our universal life contracts. We include an additional spread over LIBOR into the discount rate used in the valuation of the embedded derivative liabilities to reflect an increase in market perceived non-performance risk, thereby
reducing the value of the embedded derivative assets. The non-performance cannot reduce the value of the liability to a point that the value would go below zero. In that case the value of the liability is floored at zero.

Some of the Companys variable annuity products contain a living benefit feature which is reinsured with an affiliate, Pruco Re. The
reinsurance contract contains an embedded derivative related to market performance risk. These embedded derivatives are mark-to-market through Realized investment gains (losses), net based on the change in value of the underlying
contractual guarantees, which are determined using valuation models. The affiliates maintain a portfolio of derivative instruments that are intended to economically hedge the risks related to the reinsured products features. The derivatives
may include, but are not limited to equity options, total return swaps, interest rate swap options, caps, floors, and other instruments. Also, some variable annuity products include an asset transfer feature, to minimize risks inherent in the
Companys guarantees which reduce the need for hedges. In addition to the hedging of guaranteed risks by Pruco Re. the Company started hedging a portion of the market exposure related to the overall capital position of its variable annuity
products.

Cash Flow Hedges

The Company uses currency swaps in its cash flow hedge accounting relationships. This instrument is only designated for hedge accounting in instances where the appropriate criteria are met. The Company
does not use futures, credit, and equity or embedded derivatives in any of its cash flow hedge accounting relationships.

The
following table provides the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships, excluding the offset of the hedged item in an effective hedge relationship:



|                                                  |  |                         |        |   |      |   |        |      |  |   |          | 
|------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | -------- | 
|                                                  |  | Year Ended December 31, |       
|                                                  |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|                                                  |  | (in thousands)          |       
|Cash flow hedges                                  |  |                         |        |   |      |   |        |      |  |   |          | 
|Currency/ Interest Rate                           |  |                         |        |   |      |   |        |      |  |   |          | 
|Net investment income                             |  | $                       | 45     |   |      | $ | 3      |      |  | $ |         | 
|Other Income                                      |  |                         | 2      |   |      |   | (12    | )    |  |   | (5)      | 
|Accumulated Other Comprehensive Income (Loss) (1) |  | $                       | (426   | ) |      | $ | (711   | )    |  | $ |         | 
|                                                  |  |                         |        |   |      |   |        |      |  |   |          | 
|Total cash flow hedges                            |  | $                       | (379   | ) |      | $ | (720   | )    |  | $ | (5)      | 
|                                                  |  |                         |        |   |      |   |        |      |  |   |          | 
|Non- qualifying hedges                            |  |                         |        |   |      |   |        |      |  |   |          | 
|Realized investment gains (losses)                |  |                         |        |   |      |   |        |      |  |   |          | 
|Interest Rate                                     |  | $                       | 6,717  |   |      | $ | (6,086 | )    |  | $ | (261)    | 
|Currency/Interest Rate                            |  |                         | 617    |   |      |   | (880   | )    |  |   | 156      | 
|Credit                                            |  |                         | (762   | ) |      |   | 2,763  |      |  |   | (1,193)  | 
|Embedded Derivatives                              |  |                         | 47,806 |   |      |   | 26,471 |      |  |   | (14,198) | 
|                                                  |  |                         |        |   |      |   |        |      |  |   |          | 
|Total non-qualifying hedges                       |  | $                       | 54,378 |   |      | $ | 22,268 |      |  | $ | (15,496) | 
|                                                  |  |                         |        |   |      |   |        |      |  |   |          | 
|Total Derivative Impact                           |  | $                       | 53,999 |   |      | $ | 21,548 |      |  | $ | (15,501) | 
|                                                  |  |                         |        |   |      |   |        |      |  |   |          | 

For the year ended December 31, 2010, the ineffective portion of derivatives accounted for using hedge
accounting was not material to the Companys results of operations and there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted
transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.



F-47



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





11. DERIVATIVE INSTRUMENTS (continued)



Presented below is a roll forward of current period cash flow hedges in
Accumulated other comprehensive income (loss) before taxes:



|                                                                            |  |                |        |  
|--------------------------------------------------------------------------- |  | -------------- | ------ | -
|                                                                            |  | (in thousands) |       
|Balance, December 31, 2009                                                  |  | $              | (675   | )
|Net deferred losses on cash flow hedges from January 1 to December 31, 2010 |  |                | (373   | )
|Amount reclassified into current period earnings                            |  |                | (52    | )
|                                                                            |  |                |        |  
|Balance, December 31, 2010                                                  |  | $              | (1,100 | )
|                                                                            |  |                |        |  

As of December 31, 2010, the Company does not have any qualifying cash flow hedges of forecasted
transactions other than those related to the variability of the payment or receipt of interest or foreign currency amounts on existing financial instruments. The maximum length of time for which these variable cash flows are hedged is 7 years.
Income amounts deferred in Accumulated other comprehensive income (loss) as a result of cash flow hedges are included in Net unrealized investment gains (losses) in the Statements of Stockholders Equity.

Credit Derivatives Written

The following tables set forth exposure from credit derivatives where the Company has written credit protection excluding embedded derivatives contained in externally-managed investments in the European
market, by NAIC rating of the underlying credits as of the dates indicated.



|                     |  |                             |   |  |            |   |   | 
|-------------------- |  | --------------------------- | - |  | ---------- | - | - | 
|                     |  | December 31, 2010           |  
|                     |  | First to default Basket (1) |  
|                     |  |                            
|NAIC
Designation (1) |  | Notional                    |   |  | Fair Value |  
|                     |  | (in millions)               |  
|1                    |  | $                           |  |  |            | $ |  | 
|2                    |  |                             |  |  |            |   |  | 
|                     |  |                             |   |  |            |   |   | 
|                     |  |                             |   |  |            |   |  | 
|3                    |  |                             |  |  |            |   |  | 
|4                    |  |                             |  |  |            |   |   | 
|5                    |  |                             |  |  |            |   |   | 
|6                    |  |                             |  |  |            |   |   | 
|                     |  |                             |   |  |            |   |   | 
|Total                |  | $                           |  |  |            | $ |  | 
|                     |  |                             |   |  |            |   |   | 
|                     |  | December 31, 2009           |  
|                     |  | First to Default Basket (1) |  
|NAIC
Designation (1) |  | Notional                    |   |  | Fair Value |  
|                     |  | (in millions)               |  
|1                    |  | $                           |  |  |            | $ |  | 
|2                    |  |                             | 9 |  |            |   |  | 
|                     |  |                             |   |  |            |   |   | 
|                     |  |                             | 9 |  |            |   |  | 
|3                    |  |                             |  |  |            |   |  | 
|4                    |  |                             |  |  |            |   |  | 
|5                    |  |                             |  |  |            |   |  | 
|6                    |  |                             |  |  |            |   |  | 
|                     |  |                             |   |  |            |   |   | 
|Total                |  | $                           | 9 |  |            | $ |  | 
|                     |  |                             |   |  |            |   |   | 



|(1) | First-to-default credit swap baskets, which may include credits of varying qualities, are grouped above based on the lowest credit in the basket.
However, such basket swaps may entail greater credit risk than the rating level of the lowest credit.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-48



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





11. DERIVATIVE INSTRUMENTS (continued)



The following table sets forth the composition of credit derivatives where the Company
has written credit protection excluding embedded derivatives contained in externally-managed investments in European markets, by industry category as of the dates indicated.



|                            |  |                   |   |  |                   |   |   |          |  |   |            |  |  |   |   | 
|--------------------------- |  | ----------------- | - |  | ----------------- | - | - | -------- |  | - | ---------- |  |  | - | - | 
|                            |  | December 31, 2010 |   |  | December 31, 2009 |  
|Industry                    |  | Notional          |   |  | Fair Value        |   |   | Notional |  |   | Fair Value | 
|                            |  | (in millions)     |  
|Corporate Securities:       |  |                   |   |  |                   |   |   |          |  |   |            |  |  |   |   | 
|First to Default Baskets(1) |  | $                 |  |  |                   | $ |  |          |  | $ | 9          |  |  | $ |  | 
|                            |  |                   |   |  |                   |   |   |          |  |   |            |  |  |   |   | 
|Total Credit Derivatives    |  | $                 |  |  |                   | $ |  |          |  | $ | 9          |  |  | $ |  | 
|                            |  |                   |   |  |                   |   |   |          |  |   |            |  |  |   |   | 



|(1) | Credit default baskets may include various industry categories.
|--- | ---------------------------------------------------------------

The Company writes credit derivatives under which the Company is obligated to pay the counterparty the referenced amount of the contract
and receive in return the defaulted security or similar security. The Companys maximum amount at risk under these credit derivatives, assuming the value of the underlying referenced securities become worthless, is $0 million and $9 million
notional of credit default swap (CDS) selling protection at December 31, 2010 and December 31, 2009, respectively. These credit derivatives generally have maturities of five years or less.

In addition to writing credit protection, the Company has purchased credit protection using credit derivatives in order to hedge specific
credit exposures in the Companys investment portfolio. As of December 31, 2010 the Company had $9 million of outstanding notional amounts, reported at fair value as an asset of $0.3 million. At December 31, 2009, the Company had $13
million of outstanding notional amounts, reported at fair value as an asset of $3 million.

Credit Risk

The Company is exposed to credit-related losses in the event of non-performance by our counterparty to financial derivative transactions.
Generally, the credit exposure of the Companys over-the-counter (OTC) derivative transactions is represented by the contracts with a positive fair value (market value) at the reporting date after taking into consideration the existence of
netting agreements.

12. COMMITMENTS, CONTINGENT LIABILITIES AND LITIGATION AND REGULATORY MATTERS

Commitments

The
Company has made commitments to fund $8 million of commercial loans as of December 31, 2010 The Company also made commitments to purchase or fund investments, mostly private fixed maturities, of $15 million as of December 31, 2010.

Contingent Liabilities

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

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

Litigation and Regulatory Matters

The Company is subject to legal
and regulatory actions in the ordinary course of its business. Pending legal and regulatory actions include proceedings relating to aspects of the Companys business and operations that are specific to it and proceedings that are typical of the
business in which it operates. In certain of these matters, the plaintiffs may seek large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential
loss at any particular time, is often inherently uncertain.



F-49



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





12. COMMITMENTS, CONTINGENT LIABILITIES AND LITIGATION AND REGULATORY MATTERS (continued)



In July 2010, the Company and certain affiliates, as well as other life insurance
industry participants, received a formal request for information from the State of New York Attorney Generals Office in connection with its investigation into industry practices relating to life insurance policies for which death benefits,
unless the beneficiary elects another settlement method, are placed in retained asset accounts, which earn interest and are subject to withdrawal in whole or in part at any time by the beneficiary. The Company is cooperating with this investigation.
The Company has also been contacted by state insurance regulators and other governmental entities regarding retained asset accounts. In April 2010, a purported state-wide class action was filed against Prudential Insurance in Nevada state court
alleging that Prudential Insurance delayed payment of death benefits and improperly retained undisclosed profits by placing death benefits in retained asset accounts. In January 2011, this action was dismissed. In February 2011, the plaintiff
appealed the dismissal. An earlier case by the same plaintiff making substantially the same allegations was dismissed in federal court. In December 2010, a purported state-wide class action was filed in state court against Prudential Insurance and
Prudential Financial and removed to federal court in Illinois. The complaint makes allegations under Illinois law substantially similar to the other retained asset account cases on behalf of a class of Illinois residents.

In July 2010, a purported nationwide class action was filed in Massachusetts federal court against Prudential Insurance relating to
retained asset accounts associated with life insurance covering U.S. service members and veterans. The Company has moved to dismiss the complaint. In November and December 2010, three additional purported class actions making substantially the same
allegations on behalf of the same purported class of beneficiaries were filed against Prudential Insurance and Prudential Financial in New Jersey federal court and were transferred to the Massachusetts federal court by the Judicial Panel on
Multi-District Litigation. In October 2010, a purported nationwide class action was filed in Pennsylvania federal court on behalf of beneficiaries of ERISA-governed welfare benefit plans claiming that the use of retained asset accounts violates
ERISA. Additional investigations, information requests, hearings, claims, litigation and adverse publicity may arise with respect to the retained asset accounts.

The Companys litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcome cannot be predicted. It is possible that the Companys
results of operations or cash flow in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash
flow for such period. In light of the unpredictability of the Companys litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters
could have a material adverse effect on the Companys financial position. Management believes, however, that, based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration
of applicable reserves and rights to indemnification, is not likely to have a material adverse effect on the Companys financial position.

13. RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential Insurance and other affiliates. Although we seek to ensure that these transactions and relationships are fair and reasonable, it is
possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

Expense Charges and Allocations

Many of the Companys expenses are allocations or charges from Prudential Insurance or other affiliates. These expenses can be grouped into general and administrative expenses and agency distribution
expenses.

The Companys general and administrative expenses are charged to the Company using allocation methodologies
based on business processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby
services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses
include allocations of stock compensation expenses related to a stock option program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock option program was less than $0.1 million for
the twelve months ended December 31, 2010, 2009 and 2008. The expense charged to the Company for the deferred compensation program was $0.5 million, $0.3 million and $0.2 million for the twelve months ended December 31, 2010, 2009 and
2008, respectively.

The Company receives a charge to cover its share of employee benefits expenses. These expenses include
costs for funded and non-funded contributory and non-contributory defined benefit pension plans. Some of these benefits are based on final group earning and length of service. While others are based on an account balance, which takes into
consideration age, service and earnings during career.

Prudential Insurance sponsors voluntary savings plans for the
Companys expenses for its share of the voluntary savings plan (401(k) plans). The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Companys
expense for its share of the voluntary savings plan was $0.7 million in 2010 and $0.5 million in 2009 and 2008, respectively. The Companys share of net expense for the pension plans was $1.3 million in 2010 and $1 million in 2009 and 2008,
respectively.

The Company is charged distribution expenses from Prudential Insurances agency network for both its
domestic life and annuity products through a transfer pricing agreement, which is intended to reflect a market based pricing arrangement.



F-50



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





13. RELATED PARTY TRANSACTIONS (continued)



Affiliated Asset Administration Fee Income

Effective April 15, 2009, the Company amended an existing agreement to add AST Investment Services, Inc., formerly known as American
Skandia Investment Services, Inc, as a party whereas the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust, formerly known as American Skandia Trust. Income received from AST
Investment Services, Inc. related to this agreement was $3.7 million and $1.1 million for the years ended December 31, 2010 and 2009, respectively. These revenues are recorded as Asset administration fees in the Statements of
Operations and Comprehensive Income.

Beginning October 1, 2002, in accordance with a servicing agreement with Prudential
Investments LLC, the Company receives fee income from policyholder account balances invested in the Prudential Series Fund (PSF). Income received from Prudential Investments LLC, related to this agreement was $6 million and $5 million
for the years ended December 31, 2010 and 2009, respectively. These revenues are recorded as Asset administration fees in the Statements of Operations and Comprehensive Income.

Corporate Owned Life Insurance

The Company has sold two Corporate Owned Life Insurance, or COLI, policies to Prudential Insurance and one to Prudential Financial. The cash surrender value included in separate accounts for
these COLI policies was $1 billion and $853 million at December 31, 2010 and December 31, 2009, respectively. Fees collected related to these COLI policies were $25 million, $23 million and $19 million for the years ending
December 31, 2010, 2009 and 2008, respectively.

Reinsurance with Affiliates

Pruco Life

Effective
April 1, 2008, the Company entered into an agreement to reinsure certain variable COLI policies with Pruco Life. Reinsurance recoverables related to this agreement were $5 million as of December 31, 2010, and $2 million as of
December 31, 2009. Fees ceded to Pruco Life were $11 million, $6 million, and $3 million for the years ended December 31, 2010, 2009 and 2008, respectively. Benefits ceded were $1 million, $2 million and $3 million for the years ended
December 31, 2010, 2009 and 2008, respectively. The Company is not relieved of its primary obligation to the policyholder as a result of this agreement.

PARCC

The Company reinsures 90% of the risks under its term life insurance
policies, written prior to January 1, 2010, through an automatic coinsurance agreement with PARCC. The Company is not relieved of its primary obligation to the policyholder as a result of this agreement. Reinsurance recoverables related to this
agreement were $360 million and $303 million as of December 31, 2010 and December 31, 2009, respectively. Premiums ceded to PARCC in 2010, 2009 and 2008 were $134 million, $140 million and $127 million, respectively. Benefits ceded in
2010, 2009 and 2008 were $53 million each year, respectively. Reinsurance expense allowances, net of capitalization and amortization were $29 million, $31 million and $26 million for the years ended December 31, 2010, 2009 and 2008,
respectively. The Company is not relieved of its primary obligation to the policyholder as a result of this agreement.

PAR TERM

The Company reinsures 95% of the risks under its term life insurance policies issued on or after January 1, 2010,
through an automatic coinsurance agreement with PAR TERM. The Company is not relieved of its primary obligation to the policyholder as a result of this agreement. Reinsurance recoverables related to this agreement were $10 million as of
December 31, 2010. Premiums ceded to PAR TERM in 2010 were $11 million. Benefits ceded in 2010 were $656 million.

Reinsurance expense allowances, net of capitalization and amortization were $2 million for the year ended December 31, 2010

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. The reinsurance recoverables related to
this agreement were $32 million and $7 million as of December 31, 2010 and December 31, 2009, respectively. Premiums and fees ceded to Prudential Insurance in 2010, 2009 and 2008 were $58 million, $33 million and $35 million, respectively.
Benefits ceded in 2010, 2009 and 2008 were $40 million and $29 million and $28 million, respectively. The Company is not relieved of its primary obligation to the policyholder as a result of this agreement.



F-51



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





13. RELATED PARTY TRANSACTIONS (continued)



Pruco Re

The Company has entered into reinsurance agreements with Pruco Re as part of its risk management and capital management strategies.

Since 2005 the Company reinsures 100% of the risk on its Lifetime Five benefit feature sold on certain of its annuities through an
automatic coinsurance agreement with Pruco Re. Fees ceded on this agreement, included in Realized investment gains/(losses), net on the financial statements, were $1 million and $1 million for December 31, 2010 and December 31,
2009, respectively.

Since 2005 the Company reinsures 100% of the risk on its Spousal Lifetime Five benefit feature. Fees
ceded on this agreement, included in Realized investment gains/(losses), net on the financial statements, were $0.2 million and $0.1 million December 31, 2010 and December 31, 2009, respectively.

The Companys reinsurance recoverables related to the above product reinsurance agreements were $11 million and $10 million as of
December 31, 2010 and December 31, 2009, respectively. Realized losses ceded were ($0.4) million and ($44.4) million for the years ended December 31, 2010 and December 31, 2009, respectively.

Affiliated Asset Transfers

The Company buys and sells assets to and from affiliated companies. These transactions are recorded in according with the Companys policy, which results in the difference between fair market value
and book value of these transfers being accounted for in additional paid-in capital.

In December 2010, the Company amended
certain of its affiliated reinsurance treaties to change the settlement mode from monthly to annual. As a result of these treaty amendments, we were required to pay our reinsurers, Prudential Insurance and UPARC, the premium difference that
resulted. Settlement of this premium difference was made by transfers of securities of $20 million to Prudential Insurance, and $3 million to Pruco Life Insurance Company of Arizona. The difference between fair market value and book value of these
transfers was accounted for in additional paid-in capital.

Debt Agreements

The Company and its parent, Pruco Life, have an agreement with Prudential Funding, LLC, which allows it to borrow funds for working
capital and liquidity needs. The borrowings under this agreement are limited to $200 million. The Company had no debt outstanding to Prudential Funding, LLC as of December 31, 2010 and 2009. Interest expense related to this debt was less than
$1 million as of December 31, 2010 and December 31, 2009. Interest expense was charged at a variable rate ranging from 2.85% to 4.15% for 2010 and 3.55% to 7.05% for 2009.

Derivative Trades

In the ordinary course of business, the Company
enters into over-the-counter (OTC) derivative contracts with an affiliate, Prudential Global Funding, LLC. For these OTC derivative contracts, Prudential Global Funding, LLC has a substantially equal and offsetting position with an
external counterpart.

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The unaudited quarterly results of operations for the years ended December 31, 2010 and 2009 are summarized in the table below:



|                                                  |  |                    |         |   |         |   |         |              |  |   |             |   |  |   |        |  
|------------------------------------------------- |  | ------------------ | ------- | - | ------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------ | -
|                                                  |  | Three months ended |        
|                                                  |  | March 31           |         |   | June 30 |   |         | September 30 |  |   | December 31 |  
|                                                  |  | (in thousands)     |        
|2010                                              |  |                    |         |   |         |   |         |              |  |   |             |   |  |   |        |  
|Total revenues                                    |  | $                  | 53,550  |   |         | $ | 39,035  |              |  | $ | 51,665      |   |  | $ | 73,986 |  
|Total benefits and expenses                       |  |                    | 30,833  |   |         |   | 55,987  |              |  |   | (1,355      | ) |  |   | (8,715 | )
|Income/(Loss) from operations before income taxes |  |                    | 22,717  |   |         |   | (16,952 | )            |  |   | 53,020      |   |  |   | 82,701 |  
|                                                  |  |                    |         |   |         |   |         |              |  |   |             |   |  |   |        |  
|Net income (loss)                                 |  | $                  | 16,552  |   |         | $ | (11,901 | )            |  | $ | 39,119      |   |  |   | 54,174 |  
|                                                  |  |                    |         |   |         |   |         |              |  |   |             |   |  |   |        |  
|2009                                              |  |                    |         |   |         |   |         |              |  |   |             |   |  |   |        |  
|Total revenues                                    |  | $                  | 44,450  |   |         | $ | 36,244  |              |  | $ | 41,742      |   |  | $ | 59,181 |  
|Total benefits and expenses                       |  |                    | 58,750  |   |         |   | 6,029   |              |  |   | 11,762      |   |  |   | 29,047 |  
|Income/(Loss) from operations before income taxes |  |                    | (14,300 | ) |         |   | 30,215  |              |  |   | 29,980      |   |  |   | 30,134 |  
|                                                  |  |                    |         |   |         |   |         |              |  |   |             |   |  |   |        |  
|Net income (loss)                                 |  |                    | (11,367 | ) |         | $ | 23,617  |              |  |   | 26,754      |   |  | $ | 16,019 |  
|                                                  |  |                    |         |   |         |   |         |              |  |   |             |   |  |   |        |  



F-52