Prudential Annuities Life Assurance Corporation meets the conditions set forth in General Instruction H(1)(a) and (b) on Form 10-Q and is therefore filing this form with the reduced disclosure format.

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") addresses the financial condition of Prudential Annuities Life Assurance Corporation ("PALAC" or the "Company"), formerly known as American Skandia Life Assurance Corporation, as of June 30, 2012 compared with December 31, 2011, and its results of operations for the three and six months ended June 30, 2012 and 2011. You should read the following analysis of our financial condition and results of operations in conjunction with the audited Financial Statements, and the "Risk Factors" section included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, the statements under "Forward Looking Statements", and the Unaudited Interim Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

General

The Company was established in 1988 and has been a significant provider of variable annuity contracts for the individual market in the United States. The Company's products have been sold primarily to individuals to provide for long-term savings and retirement needs and to address the economic impact of premature death, estate planning concerns and supplemental retirement income. The investment performance of the registered investment companies supporting the variable annuity contracts, which is principally correlated to equity market performance, can significantly impact the market for the Company's products.

Products

The Company has sold 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 also include (1) fixed interest rate allocation options, subject to a market value adjustment, and registered with the SEC, and (2) fixed-rate allocation options not subject to a market value adjustment and not registered with the SEC. In addition, the Company has a relatively small in force block of variable life insurance policies, but it no longer actively sells such policies.

Beginning in March 2010, the Company ceased offering its existing variable and fixed annuity products (and where offered, the companion market value adjustment option) to new investors upon the launch of a new product line in each of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey (which are affiliates of the Company within the Prudential Annuities business unit of Prudential Financial, Inc. ("Prudential Financial")). However, subject to applicable contractual provisions and administrative rules, the Company continues to accept certain subsequent purchase payments on inforce contracts under existing annuity products.

The Company's variable annuities provide its 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 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 a notional amount that forms the basis for determination of periodic withdrawals for the life of the contractholder, and cannot be accessed 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 investments made in the fixed-rate accounts are credited with interest at rates we determine, subject to certain minimums. We also offered 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 an asset transfer feature, externally purchased hedging instruments and affiliated reinsurance arrangements with Pruco Re and Prudential Insurance. 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 the affiliate, the impact on that portion of our variable annuity contracts that benefit from the asset transfer feature, the impact of risks we have deemed suitable to retain and the impact of risks that are not able to be hedged.

As of June 30, 2012 approximately $39.0 billion or 82% of total variable annuity account values contain a living benefit feature, compared to approximately $38.6 billion or 81% as of December 31, 2011. As of June 30, 2012 approximately $31.0 billion or 80% of variable annuity account values with living benefit features included an asset transfer feature in the product design, compared to approximately $30.6 billion or 79% as of

December 31, 2011. The asset transfer feature, included in the design of certain optional living benefits, transfers assets between certain 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 a separate account. The asset transfer feature associated with the most recently sold products transfers assets between certain variable investments selected by the annuity contractholder and a designated 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 to contractholder-selected variable investments. Overall, the asset transfer feature helps to mitigate our exposure to equity market risk and market volatility. 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 agreements. Primarily in the reinsurance affiliate, interest rate swaps, swaptions, floors and caps as well as equity options and futures are purchased to hedge certain 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 certain capital market sensitivities of the embedded derivative liability as defined by accounting principles generally accepted in the United States ("U.S. GAAP"), excluding the impact of the market's perception of non-performance risk ("NPR"), with capital market derivatives and options. In the third quarter of 2010, the hedging strategy was revised as, in a low interest rate environment, management of the Company and the reinsurance affiliate does not believe that the U.S. GAAP value of the embedded derivative liability is an appropriate measure for determining the hedge target. The hedge target continues to be grounded in a U.S GAAP/capital markets valuation framework but incorporates two modifications to the U.S. GAAP valuation assumptions. A credit spread is added to the U.S GAAP risk-free rate of return assumption used to estimate future growth of bond investments in the customer separate account funds to account for the fact that the underlying customer separate account funds which support these living benefits are invested in assets that contain risk. The volatility assumption is also adjusted to remove certain risk margins embedded in the valuation technique used to fair value the embedded derivative liability under U.S GAAP, as the increase in the liability driven by these margins is temporary and does not reflect the economic value of the liability. In addition, management of the Company and reinsurance affiliate evaluate hedge levels versus the hedge target given overall capital considerations of our ultimate parent Company, Prudential Financial, Inc. and prevailing capital market conditions, and may decide to temporarily hedge to an amount that differs from the hedge target definition.

The hedging strategy also includes a 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. The Company owns a portion of the derivatives related to this program. The program focuses on tail risk in order to protect statutory capital in a 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.

Significant Accounting Policies

For information on the Company's significant accounting policies, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

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 Unaudited Interim Financial Statements could change significantly.

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

• Deferred policy acquisition and other costs, including value of business acquired;

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

• Policyholder liabilities;

• Taxes on income; and

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

In the first quarter of 2012, we revised the treatment of the results of the living benefits hedging program in our best estimate of total gross profits used to calculate the amortization of deferred policy acquisition costs ("DAC") and deferred sales inducements ("DSI") associated with certain of our variable annuity contracts. In 2011, we included certain results of the living benefits hedging program in the reinsurance affiliate, in our best estimate of gross profits used to determine amortization rates only to the extent this net amount was determined by management to be other-than-temporary. Beginning with the first quarter of 2012, we are including certain results of the living benefits hedging program, in our best estimate of total gross profits used for determining amortization rates each quarter without regard to the permanence of the changes. Aside from this change, our policy for amortizing DAC and DSI remains as described in our Annual Report on Form 10-K for the year ended December 31, 2011, under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Accounting Policies & Pronouncements-Application of Critical Accounting Estimates."

A discussion of each of the additional critical accounting estimates listed above may also be found in our Annual Report on Form 10-K for the year ended December 31, 2011, under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Accounting Policies & Pronouncements-Application of Critical Accounting Estimates."

Changes in Financial Position

2012 versus 2011

Total assets decreased by $0.1 billion, from $52.3 billion at December 31, 2011 to $52.2 billion at June 30, 2012. Total investments decreased $624 million primarily related to asset sales associated with policyholder liability surrenders and the asset transfer feature which moved customer account values to the separate account due to favorable markets in 2012. DAC and DSI decreased by $79 million and $48 million, respectively, resulting primarily from expected amortization related to the runoff of the inforce block. Partially offsetting these decreases, separate account assets increased $703 million primarily driven by market appreciation, partially offset by net outflows as a result of the discontinuation of new sales beginning in March 2010, discussed above.

Total liabilities increased by $0.1 billion, from $51.2 billion at December 31, 2011 to $51.3 billion at June 30, 2012. Separate account liabilities increased by $703 million offsetting the increase in separate accounts assets above. Partially offsetting the above increase was a $528 million decrease in Policyholder's account balance driven by account value run off due to the discontinuation of new sales and the asset transfer feature which moved customer account values to the separate account due to favorable markets as discussed above.

Stockholder's equity decreased by $115 million from $1,021 million at December 31, 2011 to $906 million at June 30, 2012. The decrease in stockholder's equity was primarily driven by a $248 million dividend to PFI, partially offset by the Company's net income of $135 million.

Results of Operations

2012 versus 2011 Three Month Comparison

Net Income

Net income decreased $272 million from $35 million for the second quarter of 2011 to a loss of $237 million for the second quarter of 2012. The decrease was driven by a $386 million decrease in income from operations before income taxes, as discussed below, partially offset by a $114 million decrease in income tax expense.

The decrease in income from operations before taxes was primarily driven by higher amortization of DAC and DSI primarily related to the impact of the mark-to-market of the reinsured liability for living benefit embedded derivatives and related hedge positions, as discussed below. Also contributing to the decrease was an unfavorable variance related to adjustments to the amortization of DAC and DSI, and to the reserves for the GMDB and GMIB features of our variable annuity products, primarily driven by the impact to the estimated profitability of the business of quarterly adjustments to reflect current period market performance and experience. Results for both years include the impact of these items which are discussed in more detail below.

Excluding items discussed above, income from operations before taxes decreased $22 million compared to second quarter of 2011 primarily driven by a decline in fees driven by lower average annuity account values invested in the separate account driven by negative net flows as a result of contractholder surrenders. There are limited offsetting inflows due to the discontinuation of new sales discussed above.

We amortize DAC and other costs over the expected lives of the contracts based on the level and timing of gross profits on the underlying product. 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 8 to the Unaudited Interim Financial Statements. Incorporating all product-related profits and losses in gross profits, including those that are reported in affiliated legal entities, produces a DAC and other costs amortization pattern representative of the total economics of the products.

As mentioned above, included in the unfavorable variance from higher amortization of DAC and DSI, was $330 million of higher amortization primarily related to the impact of the mark-to-market of the reinsured liability for living benefit embedded derivatives and related hedge positions. This impact primarily relates to changes in the valuation of the reinsured living benefit liabilities in the second quarter of 2012 related to NPR gains, which we and the reinsurance affiliate believe to be non-economic, and choose not to hedge, as discussed above, partially offset by losses driven by differences between the change in fair value of the hedge target liability and the change in the fair value of the hedge assets in the reinsurance affiliate due to unfavorable market conditions in the second quarter of 2012.

To reflect the NPR of our affiliates in the valuation of the embedded derivative liabilities, we incorporate an additional spread over LIBOR into the discount rate used in the valuation. Positive NPR adjustments in the reinsurance affiliate in 2012 were primarily driven by a higher base of embedded derivative liabilities as well as a widening of NPR spreads. Decreases in risk-free interest rates and the impact of unfavorable account value performance, drove increases in the embedded derivative liability base in the second quarter of 2012. The NPR gains in the reinsurance affiliate were larger in the second quarter of 2012 compared to the second quarter of 2011 resulting in an unfavorable variance from higher amortization of DAC and DSI.

As shown in the following table, the loss from operations for the second quarter 2012 included $58 million of charges from adjustments to the amortization of DAC/DSI and the reserves for the GMDB and GMIB features of our variable annuity products compared to $18 million of charges in the second quarter of 2011.

                                                 Three Months Ended June 30, 2012                               Three Months Ended June 30, 2011
                                       Amortization of          Reserves for                         Amortization of           Reserves for
                                        DAC and Other              GMDB /                             DAC and Other               GMDB /
                                          Costs (1)               GMIB (2)            Total             Costs (1)                GMIB (2)            Total
                                                                                          (in thousands)
Quarterly market performance
adjustment                            $          (24,905 )     $      (17,996 )     $ (42,901 )     $           (7,059 )      $       (2,387 )     $  (9,446 )
Quarterly adjustment for current
period experience (3)                            (13,939 )             (1,143 )       (15,082 )                 (8,711 )                (231 )        (8,942 )

Total                                 $          (38,844 )     $      (19,139 )     $ (57,983 )     $          (15,770 )      $       (2,618 )     $ (18,388 )

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

(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.

(3) Represents the impact of differences between actual gross profits for the period and the previously estimated expected gross profits for the period, as well as updates for current and future expected claims costs associated with the GMDB/GMIB features of our variable annuity products.

The $43 million and $9 million of net charges in the second quarter of 2012 and 2011, respectively, shown in the table above, relating to the quarterly market performance adjustments are attributable to changes to our estimate of total gross profits to reflect actual fund performance.

                                          2012                   2011
                                     Second Quarter         Second Quarter
          Actual rate of return                 (1.7 )%                 0.8 %
          Expected rate of return                1.6 %                  1.5 %

Lower than expected returns in the second quarter of 2012 decreased our estimate of total gross profits used as a basis for amortizing DAC and other costs and increased our estimate of future expected claims costs associated with the GMDB and GMIB features of our variable annuity products, by establishing a new, lower starting point for the variable annuity account values used in estimating those items for future periods. This change results in a higher required rate of amortization and higher required reserve provisions, which are applied to all prior periods. The resulting cumulative adjustment to prior amortization and reserve provisions are recognized in the current period. Lower than expected returns in the second quarter of 2011 had similar, but less significant impacts due to a lesser variance between actual and expected returns.

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 projected returns over the next four years (the "near-term") so that the assets are projected to grow at the long-term expected rate of return for the entire period. The near-term future projected blended rate of return across all contract groups is 7.2% per annum as of June 30, 2012, or approximately 1.8% per quarter.

The $15 million and $9 million of net charges in the second quarter of 2012 and 2011, respectively, shown in the table above, reflect the quarterly adjustments for current period experience and other updates, also referred to as experience true-up adjustments. The unfavorable variance related to the amortization of DAC and other costs was primarily driven by the difference in the change of the fair value of the hedge target liability and the change in the fair value of the hedge assets in the reinsurance affiliate, as discussed above.

As noted previously, the quarterly adjustments to reflect current period market performance and experience impact the estimated profitability of our business. Therefore, in addition to the current period impacts discussed above, these items will also drive changes in our GMDB and GMIB reserves and the amortization of DAC/DSI in future periods.

Revenues

Revenues decreased $28 million, from $403 million for the second quarter of 2011 to $375 million for the second quarter of 2012.

Policy charges and fee income and Asset management fees and other income decreased by $24 million from $290 million for the second quarter of 2011 to $266 million for the second quarter of 2012. The decrease was primarily driven by a lower fees and asset management income due to lower average variable annuity asset balances in the second quarter of 2012 invested in the separate accounts due to negative net flows as a result of contractholder surrenders. There are limited offsetting inflows due to the discontinuation of new sales. Partially offsetting these decreases, were lower market value adjustments paid to contractholders related to the Company's market value adjusted investments option ("MVA") driven by differences in market conditions and transfers of assets due to the asset transfer feature.

Net investment income decreased $8 million from $77 million for the second quarter of 2011 to $69 million for the second quarter of 2012 as a result of lower reinvestment yields over the past year due to the lower interest rate environment.

Realized investment gains/losses, net, increased by $5 million from $30 million for second quarter of 2011 to $35 million for the second quarter of 2012. This increase was primarily driven by a favorable variance related to higher than prior year quarter NPR gains due to the mark-to-market of the non-reinsured living benefit embedded derivative liabilities, partially offset by higher realized losses due to increased trading activity due to market conditions and transfers of assets due to the asset transfer feature.

Benefits and Expenses

Benefits and expenses increased $358 million from $358 million for the second quarter of 2011 to $716 million for the second quarter of 2012.

Amortization of deferred policy acquisition costs increased by $224 million, from $117 million for the second quarter of 2011 to $341 million for second quarter of 2012, primarily due to higher DAC amortization related to the impact of the mark-to-market of the reinsured liability for living benefit embedded derivatives and related hedge positions and the impact of our quarterly adjustments to reflect current period experience and market performance, as discussed above.

Interest credited to policyholders' account balances increased $123 million, from $104 million for the second quarter of 2011 to $227 million for second quarter of 2012, due to higher DSI amortization primarily related to the impact . . .