0000881453us-gaap:OtherAssetsMemberus-gaap:OtherComprehensiveIncomeMember2022-01-012022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2023


☐			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 033-44202

_________________________________________________________________

Fortitude Life Insurance & Annuity Company

(Exact Name of Registrant as Specified in its Charter)


Arizona						06-1241288
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

Ten Exchange Place

Suite 2210

Jersey City, NJ 07302

(615) 981-8801

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Not Applicable	Not Applicable	Not Applicable

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer", "accelerated filer", "smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May 12,~~November 9, 2023, 25,000 shares of the registrant’s Common Stock (par value $100) consisting of 100 voting shares and 24,900 non-voting shares were outstanding. As of such date, Fortitude Group Holdings, LLC, a Delaware limited liability company, owned all of the registrant’s Common Stock.

TABLE OF CONTENTS


			Page
PART I FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Unaudited Interim Consolidated Statements of Financial Position as of ~~March 31,~~September 30, 2023 and December 31, 2022	5
		Unaudited Interim Consolidated Statements of ~~Income~~Operations and Comprehensive ~~Income (Loss)~~Loss for the three and nine months ended ~~March 31,~~September 30, 2023, the three and six months ended September 30, 2022 (Successor Company), and the three months ended March 31, 2022 (Predecessor Company)	6
		Unaudited Interim Consolidated Statements of Equity for the three and nine months ended ~~March 31,~~September 30, 2023, the three and six months ended September 30, 2022 (Successor Company), and the three months ended March 31, 2022 (Predecessor Company)	7
		Unaudited Interim Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2023, the six months ended September 30, 2022 (Successor Company), and the three months ended March 31, 2022 (Predecessor Company)	8
		Notes to Unaudited Interim Consolidated Financial Statements	9
		1. Business and Basis of Presentation	9
		2. Significant Accounting Policies and Pronouncements	1011
		3. Segment Information	11
		4. Investments	1417
		5. Derivatives and Hedging	1722
		6. Fair Value of Assets and Liabilities	2227
		7. Income Taxes	3543
		8. Equity	3543
		9. Commitments and Contingent Liabilities	3745
		10. Related Party Transactions	3947

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4251
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5061
	Item 4.	Controls and Procedures	5162
PART II OTHER INFORMATION			5162
	Item 1.	Legal Proceedings	5162
	Item 1A.	Risk Factors	5162
	Item 6.	Exhibits	5263
SIGNATURES			5364

FORWARD-LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q 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 Fortitude Life Insurance & Annuity Company (FLIAC). There can be no assurance that future developments affecting FLIAC 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) the ongoing impact of the uncertain and evolving economic environment on the global economy, financial markets and our business, (2) losses on investments or financial contracts due to deterioration in credit quality or value, or counterparty default; (3) losses on insurance products due to mortality experience or policyholder behavior experience that differs significantly from our expectations when we ~~price~~priced our products; (4) changes in interest rates and equity prices that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; (5) guarantees within certain of our products which are market sensitive and may decrease our earnings or increase the volatility of our results of operations or financial position; (6) liquidity needs resulting from (a) derivative collateral market exposure, (b) asset/liability mismatches, (c) the lack of available funding in the financial markets or (d) unexpected cash demands due to severe mortality calamity or lapse events; (7) financial or customer losses, or regulatory and legal actions, due to inadequate or failed processes or systems, external events and human error or misconduct such as (a) disruption of our systems and data, (b) an information security breach, (c) a failure to protect the privacy of sensitive data, (d) reliance on third parties or (e) labor and employment matters; (8) changes in the regulatory landscape, including related to (a) financial sector regulatory reform, (b) changes in tax laws, (c) fiduciary rules and other standards of care, (d) state insurance laws and developments regarding group-wide supervision, capital and reserves, (e) privacy and cybersecurity regulation or (f) climate risk and environmental, social, and governance (ESG) regulation; (9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; (10) ratings downgrades; (11) market conditions that may adversely affect the sales or persistency of our products; (12) competition; (13) reputational damage; and (14) risks associated with the integration process related to the Company's recent change in ownership. FLIAC does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2022 for discussion of certain risks relating to our business.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Fortitude Life Insurance & Annuity Company

Unaudited Interim Consolidated Statements of Financial Position

(in millions, except share data)

Successor Company
March 31, 2023 December 31, 2022
(Unaudited)
ASSETS
Fixed maturity securities, at fair value $ 5,239 $ 5,024
Equity securities, at fair value (cost - March 31, 2023 - $201; December 31, 2022 - $201) 182 175
Mortgage and other loans, at fair value 206 196
Short-term investments 62 42
Other invested assets (includes $427 and $430 of assets measured at fair value at March 31, 2023 and December 31, 2022, respectively) 446 450
Total investments 6,135 5,887
Cash and cash equivalents 845 872
Accrued investment income 53 52
Reinsurance recoverables, at fair value 247 235
Net modified coinsurance receivable, at fair value — 18
Deposit asset, at fair value 608 607
Goodwill 93 93
Income tax 45 50
Other assets (Receivables from parent and affiliates: March 31, 2023 - $0; December 31, 2022 - $40) 98 127
Separate account assets, at fair value 23,985 23,601
TOTAL ASSETS $ 32,109 $ 31,542
LIABILITIES AND EQUITY
LIABILITIES
Insurance liabilities, at fair value $ 5,751 $ 5,546
Net modified coinsurance payable, at fair value 45 —
Other liabilities (Payables to parent and affiliates: March 31, 2023 - $54; December 31, 2022 - $3) 762 808
Separate account liabilities, at fair value 23,985 23,601
Total liabilities 30,543 29,955
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)
EQUITY
Common stock, $100 par value; 25,000 shares authorized, issued and outstanding 3 3
Additional paid-in capital 1,714 1,759
Retained deficit (279) (286)
Accumulated other comprehensive income 128 111
Total equity 1,566 1,587
TOTAL LIABILITIES AND EQUITY $ 32,109 $ 31,542


	Successor Company
	September 30, 2023		December 31, 2022

ASSETS
Fixed maturity securities, at fair value	$	4,839	$	5,024
Equity securities, at fair value (cost - September 30, 2023 - $0; December 31, 2022 - $201)	—		175
Mortgage and other loans, at fair value	422		196
Short-term investments	30		42
Other invested assets (includes $599 and $430 of assets measured at fair value at September 30, 2023 and December 31, 2022, respectively)	617		450
Total investments	5,908		5,887

Cash and cash equivalents	592		872
Accrued investment income	57		52
Reinsurance recoverables, at fair value	179		235
Net modified coinsurance receivable, at fair value	—		18
Deposit asset, at fair value	430		607
Goodwill	—		93
Income tax	86		50
Other assets (Receivables from parent and affiliates: September 30, 2023 - $0; December 31, 2022 - $40)	106		127
Separate account assets, at fair value	22,557		23,601
TOTAL ASSETS	$	29,915	$	31,542

LIABILITIES AND EQUITY

LIABILITIES
Insurance liabilities, at fair value	$	4,574	$	5,546
Net modified coinsurance payable, at fair value	68		—
Cash collateral for repurchase agreements and securities lending transactions	1,009		417
Other liabilities (Payables to parent and affiliates: September 30, 2023 - $0; December 31, 2022 - $3)	331		391
Separate account liabilities, at fair value	22,557		23,601
Total liabilities	28,539		29,955
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)
EQUITY
Common stock, $100 par value; 25,000 shares authorized, issued and outstanding	3		3
Additional paid-in capital	1,714		1,759
Retained deficit	(343)		(286)
Accumulated other comprehensive income	2		111
Total equity	1,376		1,587
TOTAL LIABILITIES AND EQUITY	$	29,915	$	31,542

See Notes to Unaudited Interim Consolidated Financial Statements

Fortitude Life Insurance & Annuity Company

Unaudited Interim Consolidated Statements of ~~Income~~Operations and Comprehensive ~~Income (Loss)~~Loss

(in millions)

Successor Company Predecessor Company
Three Months Ended March 31,
2023 2022
REVENUES
Premiums $ 7 $ 8
Policy charges and fee income 117 97
Net investment income 76 99
Asset management and service fees 22 20
Other income (loss) 1 (19)
Investment gains, net 165 481
TOTAL REVENUES 388 686
BENEFITS AND EXPENSES
Policyholder benefits and changes in fair value of insurance liabilities 340 —
Policyholder benefits — 26
Interest credited to policyholders’ account balances — 85
Amortization of deferred policy acquisition costs — 104
Commission expense 23 35
General, administrative and other expenses 18 3
TOTAL BENEFITS AND EXPENSES 381 253
INCOME FROM OPERATIONS BEFORE INCOME TAXES 7 433
Income tax expense — 77
NET INCOME $ 7 $ 356
Other comprehensive income (loss), before tax:
Changes in own-credit risk related to insurance liabilities 22 —
Net unrealized investment losses — (561)
Total 22 (561)
Less: Income tax expense (benefit) related to other comprehensive income (loss) 5 (118)
Other comprehensive income (loss), net of taxes 17 (443)
COMPREHENSIVE INCOME (LOSS) $ 24 $ (87)


	Successor Company								Predecessor Company
	September 30								March 31
	Three Months Ended				Nine Months Ended		Six Months Ended		Three Months Ended
	2023		2022		2023		2022		2022
REVENUES
Premiums	$	8	$	8	$	22	$	11	$	8
Policy charges and fee income	113		131		345		261		97
Net investment income	73		92		227		189		99
Asset management and service fees	23		26		68		48		20
Other income (loss)	1		(16)		5		(15)		(19)
Investment gains (losses), net	(482)		(455)		(604)		(1,753)		481
TOTAL REVENUES	(264)		(214)		63		(1,259)		686

BENEFITS AND EXPENSES
Policyholder benefits and changes in fair value of insurance liabilities	(177)		(104)		(92)		(974)		—
Policyholder benefits	—		—		—		—		26
Interest credited to policyholders account balances	—		—		—		—		85
Amortization of deferred policy acquisition costs	—		—		—		—		104
Commission expense	22		27		68		45		35
Goodwill impairment	93		—		93		—		—
General, administrative and other expenses	21		17		55		55		3
TOTAL BENEFITS AND EXPENSES	(41)		(60)		124		(874)		253

INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	(223)		(154)		(61)		(385)		433
Income tax expense (benefit)	(29)		3		(4)		(48)		77
NET INCOME (LOSS)	$	(194)	$	(157)	$	(57)	$	(337)	$	356
Other comprehensive income (loss), before tax:
Changes in own-credit risk related to insurance liabilities	(45)		149		(138)		394		—
Net unrealized investment losses	—		—		—		—		(561)
Total	(45)		149		(138)		394		(561)
Less: Income tax expense (benefit) related to other comprehensive income (loss)	(9)		32		(29)		83		(118)
Other comprehensive income (loss), net of taxes	(36)		117		(109)		311		(443)
COMPREHENSIVE LOSS	$	(230)	$	(40)	$	(166)	$	(26)	$	(87)

See Notes to Unaudited Interim Consolidated Financial Statements

Fortitude Life Insurance & Annuity Company

Unaudited Interim Consolidated Statements of Equity

(in millions)

Successor Company
  Common
Stock Additional
Paid-in
Capital Retained Deficit Accumulated
Other
Comprehensive
Income Total Equity
Balance, December 31, 2022 $ 3 $ 1,759 $ (286) $ 111 $ 1,587
Distribution payable to parent — (45) — — (45)
Comprehensive income:
Net income — — 7 — 7
Other comprehensive income, net of tax — — — 17 17
Total comprehensive income 24
Balance, March 31, 2023 $ 3 $ 1,714 $ (279) $ 128 $ 1,566


		Predecessor Company											Successor Company
		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity			Common Stock		Additional Paid-in Capital		Retained Deficit		Accumulated Other Comprehensive Income		Total Equity
Balance, December 31, 2021		$	3	$	592	$	917	$	170	$	1,682
Return of capital		—		(306)		—		—		(306)
Balance, December 31, 2022												Balance, December 31, 2022	$	3	$	1,759	$	(286)	$	111	$	1,587
Distribution to parent												Distribution to parent	—		(45)		—		—		(45)
Comprehensive income:												Comprehensive income:
Net income												Net income	—		—		7		—		7
Other comprehensive income, net of tax												Other comprehensive income, net of tax	—		—		—		17		17
Total comprehensive income												Total comprehensive income									24
Balance, March 31, 2023												Balance, March 31, 2023	$	3	$	1,714	$	(279)	$	128	$	1,566
Comprehensive income (loss):	Comprehensive income (loss):											Comprehensive income (loss):
Net income	Net income	—		—		356		—		356		Net income	—		—		130		—		130
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		—		—		(443)		(443)		Other comprehensive loss, net of tax	—		—		—		(90)		(90)
Total comprehensive income												Total comprehensive income									40
Balance, June 30, 2023												Balance, June 30, 2023	$	3	$	1,714	$	(149)	$	38	$	1,606
Comprehensive loss:												Comprehensive loss:
Net loss												Net loss	—		—		(194)		—		(194)
Other comprehensive loss, net of tax												Other comprehensive loss, net of tax	—		—		—		(36)		(36)
Total comprehensive loss	Total comprehensive loss									(87)		Total comprehensive loss									(230)
Balance, March 31, 2022		$	3	$	286	$	1,273	$	(273)	$	1,289
Balance, September 30, 2023												Balance, September 30, 2023	$	3	$	1,714	$	(343)	$	2	$	1,376


	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2021 (Predecessor Company)	$	3	$	592	$	917	$	170	$	1,682
Return of capital	—		(306)		—		—		(306)
Comprehensive income (loss):
Net income	—		—		356		—		356
Other comprehensive loss, net of tax	—		—		—		(443)		(443)
Total comprehensive loss									(87)
Balance, March 31, 2022 (Predecessor Company)	$	3	$	286	$	1,273	$	(273)	$	1,289

Balance, April 1, 2022 (Successor Company)	$	3	$	1,759	$	—	$	—	$	1,762
Comprehensive income (loss):
Net loss	—		—		(180)		—		(180)
Other comprehensive income, net of tax	—		—		—		194		194
Total comprehensive income									14
Balance, June 30, 2022 (Successor Company)	$	3	$	1,759	$	(180)	$	194	$	1,776
Comprehensive income (loss):
Net loss	—		—		(157)		—		(157)
Other comprehensive income, net of tax	—		—		—		117		117
Total comprehensive loss									(40)
Balance, September 30, 2022 (Successor Company)	$	3	$	1,759	$	(337)	$	311	$	1,736

See Notes to Unaudited Interim Consolidated Financial Statements

Fortitude Life Insurance & Annuity Company

Unaudited Interim Consolidated Statements of Cash Flows

(in millions)


		Successor Company		Predecessor Company			Successor Company				Predecessor Company
		Three Months Ended March 31					Nine Months Ended September 30		Six Months Ended September 30		Three Months Ended March 31
		2023		2022			2023		2022		2022
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	7	$	356
Adjustments to reconcile net income to net cash from (used in) operating activities:
Investment gains, net		(165)		(481)
Interest credited to policyholders’ account balances		—		85
Net income (loss)						Net income (loss)	$	(57)	$	(337)	$	356
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:						Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Investment (gains) losses, net						Investment (gains) losses, net	604		1,753		(481)
Goodwill impairment						Goodwill impairment	93		—		—
Interest credited to policyholder account balances						Interest credited to policyholder account balances	—		—		85
Other, net	Other, net	(10)		2		Other, net	(24)		(10)		2
Change in:	Change in:					Change in:
Insurance liabilities, at fair value	Insurance liabilities, at fair value	277		—		Insurance liabilities, at fair value	(957)		(6,888)		—
Deposit asset, at fair value	Deposit asset, at fair value	(1)		—		Deposit asset, at fair value	177		1,748		—
Net modified coinsurance receivable/payable, at fair value	Net modified coinsurance receivable/payable, at fair value	55		—		Net modified coinsurance receivable/payable, at fair value	577		4,114		—
Future policy benefits	Future policy benefits	—		60		Future policy benefits	—		—		60
Accrued investment income	Accrued investment income	(1)		1		Accrued investment income	(9)		(20)		1
Net receivables from/payables to parent and affiliates		—		(37)
Deferred policy acquisition costs	Deferred policy acquisition costs	—		104		Deferred policy acquisition costs	—		—		104
Income taxes	Income taxes	—		142		Income taxes	(7)		262		142
Reinsurance recoverables, net	Reinsurance recoverables, net	(12)		(39)		Reinsurance recoverables, net	56		19		(39)
Derivatives, net	Derivatives, net	(91)		(1,079)		Derivatives, net	(526)		(37)		(1,079)
Other, net	Other, net	35		(3)		Other, net	(6)		(14)		(40)
Cash flows from (used in) operating activities	Cash flows from (used in) operating activities	94		(889)		Cash flows from (used in) operating activities	(79)		590		(889)
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:	Proceeds from the sale/maturity/prepayment of:					Proceeds from the sale/maturity/prepayment of:
Fixed maturity securities, at fair value	Fixed maturity securities, at fair value	149		—		Fixed maturity securities, at fair value	281		3,048		—
Fixed maturity securities, available-for-sale	Fixed maturity securities, available-for-sale	—		422		Fixed maturity securities, available-for-sale	—		—		422
Equity securities	Equity securities	—		95		Equity securities	—		—		95

Secured receivable						Secured receivable	—		60		—
Mortgage and other loans	Mortgage and other loans	18		39		Mortgage and other loans	60		—		39
Other invested assets	Other invested assets	6		1		Other invested assets	39		5		1
Short-term investments	Short-term investments	36		795		Short-term investments	78		289		795
Payments for the purchase/origination of:	Payments for the purchase/origination of:					Payments for the purchase/origination of:
Fixed maturity securities, at fair value	Fixed maturity securities, at fair value	(261)		—		Fixed maturity securities, at fair value	(630)		(4,134)		—
Fixed maturity securities, available-for-sale	Fixed maturity securities, available-for-sale	—		(751)		Fixed maturity securities, available-for-sale	—		—		(751)

Equity securities						Equity securities	—		(10)		—
Secured receivable						Secured receivable	—		(7)		—
Mortgage and other loans	Mortgage and other loans	(28)		(13)		Mortgage and other loans	(332)		—		(13)
Other invested assets	Other invested assets	(9)		—		Other invested assets	(25)		(131)		—
Short-term investments	Short-term investments	(41)		(94)		Short-term investments	(81)		(23)		(94)
Derivatives, net	Derivatives, net	—		3		Derivatives, net	—		—		3
Other, net	Other, net	(1)		—		Other, net	4		(41)		—
Cash flows from (used in) investing activities	Cash flows from (used in) investing activities	(131)		497		Cash flows from (used in) investing activities	(606)		(944)		497
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net policyholder's account deposits (withdrawals)	Net policyholder's account deposits (withdrawals)	(49)		62		Net policyholder's account deposits (withdrawals)	(151)		(109)		62
Cash collateral for loaned securities	Cash collateral for loaned securities	58		205		Cash collateral for loaned securities	(106)		(36)		205

Drafts outstanding	Drafts outstanding	1		(7)		Drafts outstanding	(2)		(3)		(7)
Repurchase agreements						Repurchase agreements	709		200		—
Distribution to parent	Distribution to parent	—		(306)		Distribution to parent	(45)		—		(306)

Cash flows from (used in) financing activities	Cash flows from (used in) financing activities	10		(46)		Cash flows from (used in) financing activities	405		52		(46)
NET DECREASE IN CASH AND CASH EQUIVALENTS	NET DECREASE IN CASH AND CASH EQUIVALENTS	(27)		(438)		NET DECREASE IN CASH AND CASH EQUIVALENTS	(280)		(302)		(438)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	872		2,016		CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	872		1,578		2,016
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	845	1,578		CASH AND CASH EQUIVALENTS, END OF PERIOD	$	592	$	1,276	1,578

•During the nine months ended September 30, 2023 and the six months ended September 30, 2022, we had novations within our Ceded Business related to variable-indexed annuities under the reinsurance agreement with Pruco Life Insurance Company that resulted in non-cash transactions of $491 million and $4,116 million, respectively, of investments with a corresponding offset of $491 million and $4,116 million, respectively, to the modified coinsurance payable.

•There were no significant non-cash transactions for the the three months ended March ~~31, 2023 and 2022.~~

31,2022.

See Notes to Unaudited Interim Consolidated Financial Statements

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

1. BUSINESS AND BASIS OF PRESENTATION

Fortitude Life Insurance & Annuity Company and its wholly-owned subsidiary (collectively, “FLIAC” or the “Company”), with its principal offices in Jersey City, New Jersey, is a wholly-owned subsidiary of Fortitude Group Holdings, LLC (“FGH”). Prior to April 1, 2022, the Company (previously named Prudential Annuities Life Assurance Corporation ("PALAC")) was a wholly-owned subsidiary of Prudential Annuities, Inc ("PAI"), an indirect wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey Corporation. On April 1, 2022, PAI completed the sale of its equity interest in the Company to FGH. As a result, the Company is no longer an affiliate of Prudential Financial or any of its affiliates. See Basis of Presentation below and Note 1 in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further information regarding the acquisition.

Basis of Presentation

The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The accompanying Unaudited Consolidated Financial Statements present the consolidated results of operations, financial condition, and cash flows of the Successor Company and a variable interest entity ("VIE") that meets the requirements for consolidation. All intercompany transactions have been eliminated in consolidation. The financial statements of the Predecessor Company were not consolidated as it was a single entity prior to acquisition.

Following the acquisition of FLIAC, purchase accounting was applied to FGH's financial statements and we ~~have~~ elected to "push down" the basis to FLIAC in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. The application of push-down accounting created a new basis of accounting for all assets and liabilities based on fair value at the date of acquisition. As a result, FLIAC's financial position, results of operations, and cash flows subsequent to the acquisition are not comparable with those prior to April 1, 2022, and therefore have been segregated to indicate pre-acquisition and post-acquisition periods. The pre-acquisition period through March 31, 2022 is referred to as the Predecessor Company. The post-acquisition period, April 1, 2022 and forward, includes the impact of push-down accounting and is referred to as the Successor Company. See Notes 1 and 2 in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further information regarding the acquisition and our application of push-down accounting.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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.

Fair Value of Insurance Liabilities - Actuarial Assumption Update

During the third quarter of 2023, the Company completed its annual review of actuarial assumptions related to its fair value of insurance liabilities. Based on that review, the Company updated certain assumptions associated with its variable annuity contracts with guaranteed benefits, which resulted in an increase in its fair value of insurance liabilities of $116 million. The increase was driven by updates to our assumptions regarding policyholder behavior, primarily to reflect lower observed surrender rates. The impact of the assumption update was included within "Policyholder benefits and changes in fair value of insurance liabilities" on the Consolidated Statement of Operations.

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

and, to the extent these trends may change, the Company expects such changes to be gradual over the long-term. See Note 7 in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion regarding significant assumptions related to our fair value of insurance liabilities.

Goodwill Impairment

As a result of our actuarial assumption update, the Company identified a triggering event in the third quarter of 2023 regarding its goodwill impairment analysis for the Retained Business. Following a qualitative analysis that indicated the fair value of the reporting unit may be lower than its carrying value, the Company performed a quantitative analysis that involved both discounted cash flow techniques and market price comparisons to establish fair values on its underlying assets and liabilities. After performing this quantitative analysis, the Company determined that the goodwill was fully impaired, and accordingly, recorded a non-cash goodwill impairment of $93 million through the Consolidated Statement of Operations. Following this impairment, there was no remaining goodwill as of September 30, 2023.

The goodwill impairment was primarily driven by unfavorable actuarial assumption updates, as compared to its initial projections, related to the determination of the fair value of its insurance liabilities, and lower overall projected future earnings as a result of capital market volatility.

Novation of Ceded Business

In 2022, in accordance with applicable state law, a program was instituted to novate a significant portion of the Ceded Business policies from FLIAC to Pruco Life Insurance Company ("Pruco Life"). The program does not have an impact on ~~net~~total equity or net income but has resulted in the reduction of certain activity/balances associated with these policies. During the three and nine months ended ~~March 31,~~September 30, 2023, approximately $7$172 million and $635 million, respectively, of account value which generally approximates fair values of insurance liabilities, was transferred out of the Company as a result of the novation program. ~~Approximately 66~~As of September 30, 2023, approximately 72 percent of account value in the Ceded Business has been novated since the acquisition of the Company on April 1, 2022.

Reclassifications

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

910

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Accounting Policy Election

Fair Value Option

We have elected to prospectively apply the fair value option to several of FLIAC's assets and liabilities. We have made this election as it improves our operational efficiency and better aligns the recognition and measurement of our investments, insurance liabilities, and associated reinsurance activity with how we expect to manage the business. See Note 6 herein and Notes 2 and 6 in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further information.

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of an Accounting Standards Update ("ASU") to the ASC. We consider the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

Effective ASUs - ~~March 31,~~ 2023

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB. This update became effective January 1, 2023 but is not applicable due to our election to adopt the fair value option on all of our insurance liabilities, which includes our separate account liabilities.

ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt ~~restructurings~~Restructurings and Vintage Disclosures, was issued by the FASB. This update became effective January 1, 2023 but is not applicable due to our election to adopt the fair value option on financial instruments that are within the scope of this update.

~~Table of Contents~~

~~Fortitude Life Insurance & Annuity Company~~

~~Notes to Unaudited Interim Consolidated Financial Statements - (Continued)~~

3. SEGMENT INFORMATION

FLIAC has two reportable segments, which we refer to as the "Retained Business" and the "Ceded Business."

The Retained Business consists of variable annuity products with guaranteed lifetime withdrawal benefit features as well as smaller blocks of variable annuity products with certain other living benefit and death benefit features. The Retained Business also includes variable universal life and fixed payout annuity products. The Retained Business is actively managed by FLIAC management and the Successor Company retains the full economic benefits and risks.

The Ceded Business represents certain business (primarily registered index-linked annuities and fixed annuities, which includes fixed indexed and fixed deferred annuities, and other variable annuities) where 100 percent of the assets and liabilities have been fully ceded to Prudential Insurance and Pruco Life under existing coinsurance and modified coinsurance agreements. At ~~March 31,~~September 30, 2023 and December 31, 2022, we had a modified coinsurance payable of ~~$1,886~~$1,493 million and $1,745 million, respectively, equal to the assets held in the Ceded Business, ~~which is~~and are included in the net modified coinsurance receivable/payable. ~~Historical information~~Information prior to acquisition has not been revised for the segment presentation and is not comparable following the election of push-down accounting as of April 1, 2022.

~~The following is~~During the third quarter of 2023, the Company determined that the goodwill associated with its Retained Business was fully impaired. Accordingly, the Company recorded a non-cash goodwill impairment of $93 million through the Consolidated Statement of ~~Financial Position by segment:~~

March 31, 2023
Retained Business Ceded Business Total
(in millions)
ASSETS
Total investments $ 4,457 $ 1,678 $ 6,135
Cash and cash equivalents 389 456 845
Accrued investment income 42 11 53
Reinsurance recoverables — 247 247
Deposit asset — 608 608
Goodwill 93 — 93
Income tax 45 — 45
Other assets 70 28 98
Separate account assets 21,909 2,076 23,985
TOTAL ASSETS $ 27,005 $ 5,104 $ 32,109
LIABILITIES AND EQUITY
LIABILITIES
Insurance liabilities $ 3,056 $ 2,695 $ 5,751
Net modified coinsurance payable — 45 45
Other liabilities 474 288 762
Separate account liabilities 21,909 2,076 23,985
TOTAL LIABILITIES 25,439 5,104 30,543
EQUITY 1,566 — 1,566
TOTAL LIABILITIES AND EQUITY $ 27,005 $ 5,104 $ 32,109

Operations. Following this impairment, there was no remaining goodwill as of September 30, 2023. See Note 1 contained herein for further information.

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

The following is the Consolidated Statement of Financial Position by segment:


	September 30, 2023
	Retained Business		Ceded Business		Total
	(in millions)
ASSETS
Total investments	$	4,674	$	1,234	$	5,908
Cash and cash equivalents	335		257		592
Accrued investment income	50		7		57
Reinsurance recoverables	—		179		179

Deposit asset	—		430		430
Income tax	86		—		86
Other assets	93		13		106
Separate account assets	20,600		1,957		22,557
TOTAL ASSETS	$	25,838	$	4,077	$	29,915

LIABILITIES AND EQUITY
LIABILITIES
Insurance liabilities	$	2,542	$	2,032	$	4,574

Net modified coinsurance payable	—		68		68
Cash collateral for repurchase agreements and securities lending transactions	1,009		—		1,009
Other liabilities	311		20		331
Separate account liabilities	20,600		1,957		22,557
TOTAL LIABILITIES	24,462		4,077		28,539

EQUITY	1,376		—		1,376
TOTAL LIABILITIES AND EQUITY	$	25,838	$	4,077	$	29,915

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

December 31, 2022
Retained Business Ceded Business Total
(in millions)
ASSETS
Total investments $ 4,257 $ 1,630 $ 5,887
Cash and cash equivalents 433 439 872
Accrued investment income 41 11 52
Reinsurance recoverables — 235 235
Net modified coinsurance receivable — 18 18
Deposit asset — 607 607
Goodwill 93 — 93
Income tax 50 — 50
Other assets 113 14 127
Separate account assets 21,558 2,043 23,601
TOTAL ASSETS $ 26,545 $ 4,997 $ 31,542
LIABILITIES AND EQUITY
LIABILITIES
Insurance liabilities $ 2,941 $ 2,605 $ 5,546
Other liabilities 459 349 808
Separate account liabilities 21,558 2,043 23,601
TOTAL LIABILITIES 24,958 4,997 29,955
EQUITY 1,587 — 1,587
TOTAL LIABILITIES AND EQUITY $ 26,545 $ 4,997 $ 31,542


	December 31, 2022
	Retained Business		Ceded Business		Total
	(in millions)
ASSETS
Total investments	$	4,257	$	1,630	$	5,887
Cash and cash equivalents	433		439		872
Accrued investment income	41		11		52
Reinsurance recoverables	—		235		235
Net modified coinsurance receivable	—		18		18
Deposit asset	—		607		607
Goodwill	93		—		93
Income tax	50		—		50
Other assets	113		14		127
Separate account assets	21,558		2,043		23,601
TOTAL ASSETS	$	26,545	$	4,997	$	31,542

LIABILITIES AND EQUITY
LIABILITIES
Insurance liabilities	$	2,941	$	2,605	$	5,546
Cash collateral for repurchase agreements and securities lending transactions	311		106		417
Other liabilities	148		243		391
Separate account liabilities	21,558		2,043		23,601
TOTAL LIABILITIES	24,958		4,997		29,955

EQUITY	1,587		—		1,587
TOTAL LIABILITIES AND EQUITY	$	26,545	$	4,997	$	31,542

1213

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

The following is comprehensive income by segment:


		Three Months Ended March 31, 2023							Three Months Ended September 30, 2023
		Retained Business		Ceded Business		Total			Retained Business		Ceded Business		Total
		(in millions)							(in millions)
REVENUES	REVENUES							REVENUES
Premiums	Premiums	$	7	$	—	$	7	Premiums	$	8	$	—	$	8
Policy charges and fee income	Policy charges and fee income	117		—		117		Policy charges and fee income	113		—		113
Net investment income	Net investment income	56		20		76		Net investment income	56		17		73
Asset management and service fees	Asset management and service fees	22		—		22		Asset management and service fees	23		—		23
Other income	Other income	1		—		1		Other income	1		—		1
Investment gains, net		30		135		165
Investment losses, net								Investment losses, net	(433)		(49)		(482)
TOTAL REVENUES	TOTAL REVENUES	233		155		388		TOTAL REVENUES	(232)		(32)		(264)

BENEFITS AND EXPENSES	BENEFITS AND EXPENSES							BENEFITS AND EXPENSES
Policyholder benefits and changes in fair value of insurance liabilities	Policyholder benefits and changes in fair value of insurance liabilities	185		155		340		Policyholder benefits and changes in fair value of insurance liabilities	(145)		(32)		(177)
Commission expense	Commission expense	23		—		23		Commission expense	22		—		22
Goodwill impairment								Goodwill impairment	93		—		93
General, administrative and other expenses	General, administrative and other expenses	18		—		18		General, administrative and other expenses	21		—		21
TOTAL BENEFITS AND EXPENSES	TOTAL BENEFITS AND EXPENSES	226		155		381		TOTAL BENEFITS AND EXPENSES	(9)		(32)		(41)
INCOME FROM OPERATIONS BEFORE INCOME TAXES		7		—		7
Income tax expense		—		—		—
NET INCOME		$	7	$	—	$	7
Other comprehensive income, before tax:
LOSS FROM OPERATIONS BEFORE INCOME TAXES								LOSS FROM OPERATIONS BEFORE INCOME TAXES	(223)		—		(223)
Income tax benefit								Income tax benefit	(29)		—		(29)
NET LOSS								NET LOSS	$	(194)	$	—	$	(194)
Other comprehensive loss, before tax:								Other comprehensive loss, before tax:
Changes in own-credit risk related to insurance liabilities	Changes in own-credit risk related to insurance liabilities	22				22		Changes in own-credit risk related to insurance liabilities	(45)		—		(45)
Less: Income tax expense		5				5
Other comprehensive income, net of taxes		17		—		17
COMPREHENSIVE INCOME		$	24	$	—	$	24
Less: Income tax benefit								Less: Income tax benefit	(9)		—		(9)
Other comprehensive loss, net of taxes								Other comprehensive loss, net of taxes	(36)		—		(36)
COMPREHENSIVE LOSS								COMPREHENSIVE LOSS	$	(230)	$	—	$	(230)

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements


	Nine Months Ended September 30, 2023
	Retained Business		Ceded Business		Total
	(in millions)
REVENUES
Premiums	$	22	$	—	$	22
Policy charges and fee income	345		—		345
Net investment income	170		57		227
Asset management and service fees	68		—		68
Other income	4		1		5
Investment gains (losses), net	(806)		202		(604)
TOTAL REVENUES	(197)		260		63

BENEFITS AND EXPENSES
Policyholder benefits and changes in fair value of insurance liabilities	(352)		260		(92)
Commission expense	68		—		68
Goodwill impairment	93		—		93
General, administrative and other expenses	55		—		55
TOTAL BENEFITS AND EXPENSES	(136)		260		124
LOSS FROM OPERATIONS BEFORE INCOME TAXES	(61)		—		(61)
Income tax benefit	(4)		—		(4)
NET LOSS	$	(57)	$	—	$	(57)
Other comprehensive loss, before tax:
Changes in own-credit risk related to insurance liabilities	(138)		—		(138)
Less: Income tax benefit	(29)		—		(29)
Other comprehensive loss, net of taxes	(109)		—		(109)
COMPREHENSIVE LOSS	$	(166)	$	—	$	(166)

1315

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


	Three Months Ended September 30, 2022
	Retained Business		Ceded Business		Total
	(in millions)
REVENUES
Premiums	$	8	$	—	$	8
Policy charges and fee income	131		—		131
Net investment income	47		45		92
Asset management and service fees	26		—		26
Other losses	(4)		(12)		(16)
Investment gains (losses), net	(463)		8		(455)
TOTAL REVENUES	(255)		41		(214)

BENEFITS AND EXPENSES
Policyholder benefits and changes in fair value of insurance liabilities	(145)		41		(104)
Commission expense	27		—		27
General, administrative and other expenses	17		—		17
TOTAL BENEFITS AND EXPENSES	(101)		41		(60)
LOSS FROM OPERATIONS BEFORE INCOME TAXES	(154)		—		(154)
Income tax expense	3		—		3
NET LOSS	$	(157)	$	—	$	(157)
Other comprehensive income, before tax:
Changes in own-credit risk related to insurance liabilities	149		—		149
Less: Income tax expense	32		—		32
Other comprehensive income, net of taxes	117		—		117
COMPREHENSIVE LOSS	$	(40)	$	—	$	(40)

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements


	Six Months Ended September 30, 2022
	Retained Business		Ceded Business		Total
	(in millions)
REVENUES
Premiums	$	11	$	—	$	11
Policy charges and fee income	261		—		261
Net investment income	82		107		189
Asset management and service fees	48		—		48
Other losses	(4)		(11)		(15)
Investment losses, net	(571)		(1,182)		(1,753)
TOTAL REVENUES	(173)		(1,086)		(1,259)

BENEFITS AND EXPENSES
Policyholder benefits and changes in fair value of insurance liabilities	112		(1,086)		(974)
Commission expense	45		—		45
General, administrative and other expenses	55		—		55
TOTAL BENEFITS AND EXPENSES	212		(1,086)		(874)
LOSS FROM OPERATIONS BEFORE INCOME TAXES	(385)		—		(385)
Income tax benefit	(48)		—		(48)
NET LOSS	$	(337)	$	—	$	(337)
Other comprehensive income, before tax:
Changes in own-credit risk related to insurance liabilities	394		—		394
Less: Income tax expense	83		—		83
Other comprehensive income, net of taxes	311		—		311
COMPREHENSIVE LOSS	$	(26)	$	—	$	(26)

4. INVESTMENTS

We have elected to apply the fair value option for FLIAC's entire portfolio of fixed maturity and equity securities and mortgage and other loans. The impact of the election has resulted in the following changes:

•Elimination of the "available-for-sale" designation on all fixed maturity securities, resulting in a change in the recording of unrealized gains and losses through "Investment gains, net" in the consolidated statement of income rather than in "Accumulated other comprehensive income" ("AOCI") as a component of equity in the consolidated statements of financial position;

•Elimination of the required allowance for current expected credit losses on applicable financial assets under ASC 326 - Financial Instruments - Credit Losses, which include fixed maturity securities designated as "available-for-sale" and mortgage and other loans; and

•Elimination of a significant portion of the required disclosures for available-for-sale securities and mortgage and other loans. These disclosures primarily relate to the amortized cost and unrealized gains and losses on available-for-sale securities. Disclosures for historical periods under the Predecessor Company are retained at the end of this note under "Predecessor Company".

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

SUCCESSOR COMPANY

Other Invested Assets

The following table sets forth the composition of “Other invested assets,” as of the dates indicated.


		March 31, 2023						December 31, 2022							September 30, 2023						December 31, 2022
		Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total			Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total
		(in millions)													(in millions)
LPs/LLCs:	LPs/LLCs:													LPs/LLCs:
Equity method:	Equity method:													Equity method:
Private equity	Private equity	$	—	$	3	$	3	$	—	$	4	$	4	Private equity	$	—	$	4	$	4	$	—	$	4	$	4
Real estate-related	Real estate-related	—		5		5		—		5		5		Real estate-related	—		5		5		—		5		5
Subtotal equity method	Subtotal equity method	—		8		8		—		9		9		Subtotal equity method	—		9		9		—		9		9
Fair value:	Fair value:													Fair value:
Private equity	Private equity	352		1		353		344		1		345		Private equity	346		—		346		344		1		345
Total LPs/LLCs	Total LPs/LLCs	352		9		361		344		10		354		Total LPs/LLCs	346		9		355		344		10		354
Derivative instruments	Derivative instruments	74		—		74		85		—		85		Derivative instruments	180		71		251		85		—		85
Policy loans	Policy loans	11		—		11		11		—		11		Policy loans	11		—		11		11		—		11
Total other invested assets	Total other invested assets	$	437	$	9	$	446	$	440	$	10	$	450	Total other invested assets	$	537	$	80	$	617	$	440	$	10	$	450

Accrued Investment Income

The following table sets forth the composition of “Accrued investment income,” as of the dates indicated:


		March 31, 2023						December 31, 2022							September 30, 2023						December 31, 2022
		Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total			Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total
		(in millions)													(in millions)
Fixed maturity securities	Fixed maturity securities	$	40	$	9	$	49	$	37	$	10	$	47	Fixed maturity securities	$	42	$	6	$	48	$	37	$	10	$	47
Mortgage and other loans	Mortgage and other loans	1		—		1		1		—		1		Mortgage and other loans	3		—		3		1		—		1
Short-term investments and cash equivalents	Short-term investments and cash equivalents	1		2		3		3		1		4		Short-term investments and cash equivalents	5		1		6		3		1		4
Total accrued investment income	Total accrued investment income	$	42	$	11	$	53	$	41	$	11	$	52	Total accrued investment income	$	50	$	7	$	57	$	41	$	11	$	52

~~There~~As of September 30, 2023, the aggregate fair value of mortgage and other loans that were 90 days or more past due and in non-accrual status was $2 million. The aggregate unpaid principal balance for these loans approximated fair value as of September 30, 2023. As of December 31, 2022, there were no ~~write-downs on accrued investment income for the three months ended March 31, 2023.~~mortgage and other loans that were 90 days or more past due or in non-accrual status.

1418

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

Net Investment Income

The following ~~table sets~~tables set forth “Net investment income” by investment type, for the periods indicated:

Three Months Ended March 31, 2023
Retained Business Ceded Business Total
(in millions)
Fixed maturities securities $ 47 $ 14 $ 61
Equity securities — 1 1
Mortgage and other loans 4 — 4
Other invested assets 12 1 13
Short-term investments and cash equivalents 2 6 8
Gross investment income 65 22 87
Less: investment expenses (9) (2) (11)
Net investment income $ 56 $ 20 $ 76


	Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
	Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total
	(in millions)
Fixed maturities securities	$	58	$	13	$	71	$	156	$	40	$	196
Equity securities	—		—		—		—		2		2
Mortgage and other loans	6		—		6		14		—		14
Other invested assets	14		1		15		33		2		35
Short-term investments and cash equivalents	1		4		5		6		16		22
Gross investment income	79		18		97		209		60		269
Less: investment expenses	(23)		(1)		(24)		(39)		(3)		(42)
Net investment income	$	56	$	17	$	73	$	170	$	57	$	227


	Three Months Ended September 30, 2022						Six Months Ended September 30 2022
	Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total
	(in millions)
Fixed maturities securities	$	42	$	34	$	76	$	78	$	78	$	156
Equity securities	—		1		1		—		2		2
Secured receivable	—		7		7		—		18		18
Other invested assets	9		1		10		9		5		14
Short-term investments and cash equivalents	—		3		3		—		5		5
Gross investment income	51		46		97		87		108		195
Less: investment expenses	(4)		(1)		(5)		(5)		(1)		(6)
Net investment income	$	47	$	45	$	92	$	82	$	107	$	189

The activity above includes interest income related to fair value option investments, where applicable.

Investment Gains (Losses), Net

The following ~~table sets~~tables set forth “Investment gains (losses), net” by investment type, for the periods indicated:

Three Months Ended March 31, 2023
Retained Business Ceded Business Total Business
Unrealized Realized Total Unrealized Realized Total Unrealized Realized Total
(in millions)
Fixed maturity securities $ 156 $ (26) $ 130 $ 21 $ — $ 21 $ 177 $ (26) $ 151
Equity securities — — — 7 — 7 7 — 7
Derivatives — (100) (100) — 107 107 — 7 7
Total $ 156 $ (126) $ 30 $ 28 $ 107 $ 135 $ 184 $ (19) $ 165


	Three Months Ended September 30, 2023
	Retained Business						Ceded Business						Total Business
	Unrealized		Realized		Total		Unrealized		Realized		Total		Unrealized		Realized		Total
	(in millions)
Fixed maturity securities	$	(252)	$	(4)	$	(256)	$	(6)	$	(14)	$	(20)	$	(258)	$	(18)	$	(276)


Derivatives	—		(177)		(177)		—		(29)		(29)		—		(206)		(206)
Total	$	(252)	$	(181)	$	(433)	$	(6)	$	(43)	$	(49)	$	(258)	$	(224)	$	(482)


	Nine Months Ended September 30, 2023
	Retained Business						Ceded Business						Total Business
	Unrealized		Realized		Total		Unrealized		Realized		Total		Unrealized		Realized		Total
	(in millions)
Fixed maturity securities	$	(158)	$	(32)	$	(190)	$	3	$	(21)	$	(18)	$	(155)	$	(53)	$	(208)
Equity securities	—		—		—		5		—		5		5		—		5

Derivatives	—		(616)		(616)		—		215		215		—		(401)		(401)
Total	$	(158)	$	(648)	$	(806)	$	8	$	194	$	202	$	(150)	$	(454)	$	(604)

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements


	Three Months Ended September 30, 2022
	Retained Business						Ceded Business						Total Business
	Unrealized		Realized		Total		Unrealized		Realized		Total		Unrealized		Realized		Total
	(in millions)
Fixed maturity securities	$	(312)	$	(26)	$	(338)	$	40	$	(160)	$	(120)	$	(272)	$	(186)	$	(458)
Secured receivable	—		—		—		—		(8)		(8)		—		(8)		(8)
Equity securities	—		—		—		(13)		—		(13)		(13)		—		(13)
Derivatives	—		(125)		(125)		—		149		149		—		24		24
Total	$	(312)	$	(151)	$	(463)	$	27	$	(19)	$	8	$	(285)	$	(170)	$	(455)


	Six Months Ended September 30, 2022
	Retained Business						Ceded Business						Total Business
	Unrealized		Realized		Total		Unrealized		Realized		Total		Unrealized		Realized		Total
	(in millions)
Fixed maturity securities	$	(607)	$	(97)	$	(704)	$	100	$	(498)	$	(398)	$	(507)	$	(595)	$	(1,102)
Secured receivable	—		—		—		—		(59)		(59)		—		(59)		(59)
Equity securities	—		—		—		(32)		—		(32)		(32)		—		(32)
Derivatives	—		133		133		—		(693)		(693)		—		(560)		(560)
Total	$	(607)	$	36	$	(571)	$	68	$	(1,250)	$	(1,182)	$	(539)	$	(1,214)	$	(1,753)

Repurchase Agreements and Securities Lending

In the normal course of business, FLIAC sells securities under agreements to repurchase and enters into securities lending transactions. These balances are recorded within Other liabilities in the unaudited interim consolidated statements of financial position.

The following table sets forth, by type, the securities that we have agreed to repurchase, all of which are contained in the Retained Business. The below amounts represent the cash received under the outstanding repurchase agreements.

March 31, 2023 December 31, 2022
Remaining Contractual Maturities of the Agreements
Overnight & Continuous Up to 30 days 30-90 days Total Overnight & Continuous Up to 30 days 30-90 days Total
(in millions)
U.S. corporate public securities $ — $ 200 $ 101 $ 301 $ — $ 111 $ 200 $ 311


	September 30, 2023								December 31, 2022
	Remaining Contractual Maturities of the Agreements
	Up to 30 days		30-90 days		1-5 Years		Total		Up to 30 days		30-90 days		Total
	(in millions)
U.S. corporate public securities	$	101	$	414	$	494	$	1,009	$	111	$	200	$	311

The market value of the securities posted as collateral under the repurchase agreements was ~~$318~~$1,015 million and $326 million as of ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

~~Table of Contents~~

~~Fortitude Life Insurance & Annuity Company~~

~~Notes to Unaudited Interim Consolidated Financial Statements - (Continued)~~

The following table sets forth the remaining contractual maturities of the Successor Company's securities lending transactions by the security type that was loaned, all of which are contained in the Ceded Business. The amounts below represent the cash collateral received for the loaned securities.

March 31, 2023 December 31, 2022
Remaining Contractual Maturities of the Agreements
Overnight & Continuous Up to 30 days 30-90 days Total Overnight & Continuous Up to 30 days 30-90 days Total
(in millions)
Equity securities $ 164 $ — $ — $ 164 $ 106 $ — $ — $ 106


	September 30, 2023								December 31, 2022
	Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 days		30-90 days		Total			Overnight & Continuous		Up to 30 days		30-90 days		Total
	(in millions)
Equity securities	$	—	$	—	$	—	$	—		$	106	$	—	$	—	$	106

There were no outstanding securities lending agreements at September 30, 2023. The market value of the securities loaned ~~was $162 million and $103 million as of March 31, 2023 and~~at December 31, 2022 ~~respectively.~~was $103 million.

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

PREDECESSOR COMPANY

The following table sets forth the sources of proceeds and related investment losses for available-for-sale fixed maturity securities:


	Three months ended March 31
	2022
	(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	294
Proceeds from maturities/prepayments	108
Gross investment losses on sales and maturities	(21)

(1)Excludes activity from non-cash related proceeds due to the timing of trade settlements of $20 million for three months ended March 31, 2022.

Allowance for credit losses

The activity in the allowance for credit losses for fixed maturity securities, available-for-sale, was de minimis for the three months ended March 31, 2022.

The allowance for credit losses for mortgage and other loans declined by $1 million for the three months ended March 31, 2022. The decrease related to the improving credit environment.

See Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information about the Predecessor Company’s methodology for developing the allowance for credit losses.

~~Table of Contents~~

~~Fortitude Life Insurance & Annuity Company~~

~~Notes to Unaudited Interim Consolidated Financial Statements - (Continued)~~

Net Investment Income

The following table sets forth “Net investment income” by investment type, for the periods indicated:


	Three Months Ended
	March 31, 2022
	(in millions)
Fixed maturities securities (1)	$	61
Equity securities	1
Mortgage and other loans	11
Other invested assets	29
Short-term investments and cash equivalents	1
Gross investment income	103
Less: investment expenses	(4)
Net investment income	$	99

(1)Includes fixed maturity securities classified as available-for-sale and trading.

Investment Gains, Net

The following table sets forth “Investment gains, net” by investment type, for the periods indicated:


	Three Months Ended March 31, 2022
	(in millions)
Fixed maturity securities (1)	$	(21)
Derivatives	502
Total	$	481

(1)Includes fixed maturity securities classified as available-for-sale and excludes fixed maturity securities classified as trading.

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

5. DERIVATIVES AND HEDGING

Types of Derivative Instruments and Derivative Strategies

The Company utilizes various derivative instruments and strategies to manage its risk. Commonly used derivative instruments include but are not necessarily limited to:

•Interest rate contracts: swaps, swaptions, futures, ~~swaps,~~ forwards, options, caps and floors

•Equity contracts: futures, options, and total return swaps

•Foreign exchange contracts: futures, options, forwards and swaps

•Credit contracts: single and index reference credit default swaps

See below for information on these contracts and the related strategies.

Interest Rate Contracts

Interest rate swaps, swaptions, and futures are used by the Company to reduce risks from changes in interest rates, manage interest rate exposures arising from mismatches between assets and liabilities and to hedge against changes in their values it owns or anticipates acquiring or selling.

~~Swaps~~Interest rate swaps may be attributed to specific assets or liabilities or to a portfolio of assets or liabilities. ~~Under interest rate swaps, the~~The Company agrees with counterparties 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.

Swaptions are options that give the holder the right but not obligation to enter into a specified interest rate swap. The Company uses these instruments for protection against the direction of future interest rates. Swaptions are included in the interest rate swaps line item on the subsequent tables within this note.

~~Table of Contents~~

~~Fortitude Life Insurance & Annuity Company~~

~~Notes to Unaudited Interim Consolidated Financial Statements - (Continued)~~

In standardized exchange-traded interest rate futures transactions, the Company purchases or sells a specified number of contracts, the values of which are determined by the daily market values of underlying referenced investments. The Company enters into exchange-traded futures with regulated futures commission's merchants who are members of a trading exchange.

Equity Contracts

Equity options, total return swaps, and futures are used by the Company to manage its exposure to the equity markets which impacts the value of assets and liabilities it owns or anticipates acquiring or selling.

Equity ~~index~~ options are contracts which will settle in cash based on differentials in the underlying indices at the time of exercise and the strike price. The Company uses combinations of purchases and sales of equity index options to hedge the effects of adverse changes in equity indices within a predetermined range.

Total return swaps are contracts whereby the Company agrees with counterparties to exchange, at specified intervals, the difference between the return on an asset (or market index) and Secured Overnight Financing Rate ("SOFR") plus an associated funding spread based on a notional amount. The Company generally uses total return swaps to hedge the effect of adverse changes in equity indices.

In standardized exchange-traded equity futures transactions, the Company purchases or sells a specified number of contracts, the values of which are determined by the daily market values underlying referenced equity indices. The Company enters into exchange-traded futures with regulated futures commission's merchants who are members of a trading exchange.

Foreign Exchange Contracts

Currency derivatives, including currency swaps and forwards, 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.

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

Under currency forwards, the Company agrees with counterparties to deliver a specified amount of an identified currency at a specified future date. Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. The Company executes forward sales of the hedged currency in exchange for U.S. dollars at a specified exchange rate. The maturities of these forwards correspond with the future periods in which the non-U.S. dollar-denominated earnings are expected to be generated.

Under currency swaps, the Company agrees with counterparties 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.

Credit Contracts

The Company, ~~purchases credit protection using credit derivatives in order to hedge specific credit exposures~~primarily in the ~~Company’s investment portfolio. The Company also~~retained business, sells credit protection using credit derivatives in order to generate a credit spread for the benefit of the Company’s investment portfolio. In addition, the Company, primarily in the ceded business, has also purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio.

~~Table of Contents~~

~~Fortitude Life Insurance & Annuity Company~~

~~Notes to Unaudited Interim Consolidated Financial Statements - (Continued)~~

Primary Risks Managed and/or Accessed by Derivatives

The tables below provide a summary, by operating segment, of the gross notional amount and fair value of derivative contracts, by the primary underlying risks. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account the netting effects of master netting agreements and cash collateral.

March 31, 2023 December 31, 2022
Primary Underlying Risk/Instrument Type Gross
Notional Values/Units Fair Value Gross
Notional Values/Units Fair Value
Assets Liabilities Assets Liabilities
(in millions)
Retained Business
Interest Rate
Interest Rate Swaps $ 16,005 $ 237 $ (409) $ 12,131 $ 228 $ (553)
Currency/Interest Rate
Foreign Currency Swaps 102 11 — 100 11 —
Credit
Credit Default Swaps 520 7 — 520 5 —
Equity
Equity Futures (2,086) — (111) (1,737) 46 —
Total Return Swaps 366 16 (14) — 24 (49)
Equity Options 2,949 76 — 3,286 118 —
Total Derivatives, Retained Business 17,856 347 (534) 14,300 432 (602)
Ceded Business
Interest Rate
Interest Rate Swaps 1,300 40 (41) 2,517 48 (117)
Currency/Interest Rate
Foreign Currency Swaps 48 6 — 48 6 —
Credit
Credit Default Swaps 71 1 — 71 1 —
Equity
Total Return Swaps 22 — — — — —
Equity Options 5,357 147 (207) 7,139 180 (356)
Total Derivatives, Ceded Business 6,798 194 (248) 9,775 235 (473)
Total Derivatives (1) $ 24,654 $ 541 $ (782) $ 24,075 $ 667 $ (1,075)

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements



	September 30, 2023						December 31, 2022
Primary Underlying Risk/Instrument Type	Gross Notional Values/Units		Fair Value				Gross Notional Values/Units		Fair Value
			Assets		Liabilities				Assets		Liabilities
	(in millions)
Retained Business
Interest Rate
Interest Rate Swaps	$	18,846	$	481	$	(890)	$	12,131	$	228	$	(553)
Currency/Interest Rate
Foreign Currency Swaps	100		8		—		100		11		—
Credit
Credit Default Swaps	520		7		—		520		5		—
Equity
Equity Futures	(1,657)		72		—		(1,737)		46		—
Total Return Swaps	1,079		65		(139)		—		24		(49)
Equity Options	4,046		167		(34)		3,286		118		—
Total Derivatives, Retained Business	22,934		800		(1,063)		14,300		432		(602)

Ceded Business
Interest Rate
Interest Rate Swaps	840		56		(16)		2,517		48		(117)
Currency/Interest Rate
Foreign Currency Swaps	39		6		—		48		6		—
Credit
Credit Default Swaps	—		—		—		71		1		—
Equity
Total Return Swaps	9		—		—		—		—		—
Equity Options	3,230		99		(74)		7,139		180		(356)
Total Derivatives, Ceded Business	4,118		161		(90)		9,775		235		(473)
Total Derivatives (1)	$	27,052	$	961	$	(1,153)	$	24,075	$	667	$	(1,075)

(1) Recorded in “Other invested assets” and “Other liabilities” in the Consolidated Statements of Financial Position.

1924

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

Offsetting Assets and Liabilities

The following table presents recognized derivative instruments that are offset in the Consolidated Statements of Financial Position, and/or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Consolidated Statements of Financial Position.


		March 31, 2023											September 30, 2023
		Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount			Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
		(in millions)											(in millions)
Offsetting of Financial Assets:	Offsetting of Financial Assets:											Offsetting of Financial Assets:
Derivatives	Derivatives											Derivatives
Retained Business	Retained Business	$	78	$	(4)	$	74	$	(74)	$	—	Retained Business	$	247	$	(67)	$	180	$	(180)	$	—
Ceded Business	Ceded Business	194		(194)		—		—		—		Ceded Business	161		(90)		71		—		71
Total	Total	$	272	$	(198)	$	74	$	(74)	$	—	Total	$	408	$	(157)	$	251	$	(180)	$	71
Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives	Derivatives											Derivatives
Retained Business	Retained Business	$	265	$	(265)	$	—	$	—	$	—	Retained Business	$	510	$	(510)	$	—	$	—	$	—
Ceded Business	Ceded Business	248		(194)		54		—		54		Ceded Business	90		(90)		—		—		—
Total	Total	$	513	$	(459)	$	54	$	—	$	54	Total	$	600	$	(600)	$	—	$	—	$	—
Repurchase agreements	Repurchase agreements	$	301	$	—	$	301	$	(301)	$	—	Repurchase agreements	$	1,009	$	—	$	1,009	$	(1,009)	$	—
Securities lending transactions		$	164	$	—	$	164	$	(162)	$	2


		December 31, 2022											December 31, 2022
		Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
`												`	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
		(in millions)											(in millions)
Offsetting of Financial Assets:	Offsetting of Financial Assets:											Offsetting of Financial Assets:
Derivatives	Derivatives											Derivatives
Retained Business	Retained Business	$	183	$	(98)	$	85	$	(85)	$	—	Retained Business	$	183	$	(98)	$	85	$	(85)	$	—
Ceded Business	Ceded Business	235		(235)		—		—		—		Ceded Business	235		(235)		—		—		—
Total	Total	$	418	$	(333)	$	85	$	(85)	$	—	Total	$	418	$	(333)	$	85	$	(85)	$	—

Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives	Derivatives											Derivatives
Retained Business	Retained Business	$	353	$	(353)	$	—	$	—	$	—	Retained Business	$	353	$	(353)	$	—	$	—	$	—
Ceded Business	Ceded Business	473		(272)		201		—		201		Ceded Business	473		(272)		201		—		201
Total	Total	$	826	$	(625)	$	201	$	—	$	201	Total	$	826	$	(625)	$	201	$	—	$	201
Repurchase agreements	Repurchase agreements	311		—		311		(311)		—		Repurchase agreements	$	311	$	—	$	311	$	(311)	$	—
Securities lending transactions	Securities lending transactions	106		—		106		(103)		3		Securities lending transactions	$	106	$	—	$	106	$	(103)	$	3

(1)Amounts exclude the excess of collateral received/pledged from/to the counterparty.

2025

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

The Company is exposed to credit-related losses in the event of non-performance by counterparties to financial derivative transactions with a positive fair value. FLIAC manages credit risk by (i) entering into derivative transactions with highly rated major international financial institutions and other creditworthy counterparties governed by master netting agreement, as applicable; (ii) trading through central clearing and OTC parties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single-party credit exposures which are subject to periodic management review. Substantially all of the Company’s derivative agreements have zero thresholds which require daily full collateralization by the party in a liability position.

For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Classification of Derivatives Activity

As part of our application of push-down accounting in connection with the acquisition of the Company, we have de-designated the Predecessor Company's hedging relationships for all of our derivative instruments, and accordingly, any related accumulated unrealized gains and losses that were previously recorded in AOCI were reset to zero at the acquisition date. Historical information has not been restated under the updated segmentation and is not comparable following the change in ownership on April 1, 2022.

The following tables provide the financial statement classification and impact of derivatives, by segment.

~~Successor Company~~

~~Three Months Ended March 31, 2023~~

~~Investment gains, net~~

~~(in millions)~~

~~Retained Business~~

~~Interest Rate~~

~~115~~

~~Equity~~

~~(215)~~

~~Total, Retained Business~~

~~(100)~~

~~Ceded Business~~

~~Interest Rate~~

~~Equity~~

~~Total, Ceded Business~~

~~107~~

~~Total~~


	Successor Company
	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30, 2023				September 30, 2022
	Investment gains (losses), net
	(in millions)
Retained Business
Interest Rate	$	(206)	$	(168)	$	(259)	$	(704)
Currency/Interest Rate	—		—		12		12
Credit	2		4		(2)		(2)
Equity	27		(452)		124		827
Total, Retained Business	(177)		(616)		(125)		133
Ceded Business
Interest Rate	5		72		(36)		(56)
Currency	—		—		—		2
Currency/Interest Rate	—		—		(36)		94
Credit	2		3		2		(4)
Equity	(36)		140		219		(729)
Total, Ceded Business	(29)		215		149		(693)
Total	$	(206)	$	(401)	$	24	$	(560)

Predecessor Company
Three Months Ended March 31, 2022
Investment
Gains, net Net Investment
Income Other Income Change in AOCI
(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate $ 1 $ 1 $ 2 $ 4
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate (527) — — —
Currency/Interest Rate (6) — — —
Credit (12) — — —
Equity 59 — — —
Embedded Derivatives 986 — — —
Total Derivatives Not Qualifying as Hedge Accounting Instruments 500 — — —
Total $ 501 $ 1 $ 2 $ 4

2126

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


	Predecessor Company
	Three Months Ended March 31, 2022
	Investment Gains, net		Net Investment Income		Other Income		Change in AOCI
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	1	$	1	$	2	$	4

Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(527)		—		—		—
Currency/Interest Rate	(6)		—		—		—
Credit	(12)		—		—		—
Equity	59		—		—		—
Embedded Derivatives	986		—		—		—
Total Derivatives Not Qualifying as Hedge Accounting Instruments	500		—		—		—
Total	$	501	$	1	$	2	$	4

6. FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value Measurement – Fair value represents 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 fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. 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.

Level 2 - Fair value is based on significant inputs, other than quoted prices included in Level 1, 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.

Level 3 - Fair value is based on at least one significant unobservable input for the asset or liability. The assets and liabilities in this category may require significant judgment or estimation in determining the fair value.

For a discussion of the Company's valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Fair Value Option Election

We have elected to adopt the fair value option for several of our financial assets and liabilities. The following are the financial assets and liabilities for which we have elected the fair value option. See Notes 2 and 6 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further information.

•Fixed maturity securities

•Equity securities

•Mortgage and other loans

•Reinsurance recoverable

•Separate account assets and liabilities

•Net modified coinsurance receivable/payable

•Deposit asset

•Insurance liabilities

2227

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

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


		Successor Company											Successor Company
		March 31, 2023											September 30, 2023
		Level 1		Level 2		Level 3		Netting (1)		Total			Level 1		Level 2		Level 3		Netting (1)		Total
		(in millions)											(in millions)
Total Business	Total Business											Total Business
Assets	Assets											Assets
Fixed maturity securities	Fixed maturity securities											Fixed maturity securities
U.S Treasury securities and obligations of U.S. government authorities and agencies	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	587	$	—	$	—	$	587	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	469	$	—	$	—	$	469
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	—		175		—		—		175		Obligations of U.S. states and their political subdivisions	—		113		—		—		113
Foreign government bonds	Foreign government bonds	—		5		—		—		5		Foreign government bonds	—		4		—		—		4
U.S. corporate public securities	U.S. corporate public securities	—		2,903		—		—		2,903		U.S. corporate public securities	—		2,522		—		—		2,522
U.S. corporate private securities	U.S. corporate private securities	—		147		182		—		329		U.S. corporate private securities	—		142		205		—		347
Foreign corporate public securities	Foreign corporate public securities	—		217		—		—		217		Foreign corporate public securities	—		143		—		—		143
Foreign corporate private securities	Foreign corporate private securities	—		33		36		—		69		Foreign corporate private securities	—		30		48		—		78
Asset-backed securities(2)		—		478		191		—		669
Asset-backed securities (2)												Asset-backed securities (2)	—		706		213		—		919
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		42		—		—		42		Commercial mortgage-backed securities	—		16		—		—		16
Residential mortgage-backed securities	Residential mortgage-backed securities	—		243		—		—		243		Residential mortgage-backed securities	—		221		—		—		221
Total fixed maturity securities	Total fixed maturity securities	—		4,830		409		—		5,239		Total fixed maturity securities	—		4,366		466		—		4,832
Equity securities		182		—		—		—		182
Mortgage and other loans (3)	Mortgage and other loans (3)	—		—		206		—		206		Mortgage and other loans (3)	—		—		422		—		422
Short-term investments	Short-term investments	—		62		—		—		62		Short-term investments	—		30		—		—		30
Cash and cash equivalents	Cash and cash equivalents	845		—		—		—		845		Cash and cash equivalents	592		—		—		—		592
Other invested assets(4)		—		272		—		(198)		74
Other invested assets (4)												Other invested assets (4)	72		889		—		(710)		251
Deposit asset	Deposit asset	—		—		608		—		608		Deposit asset	—		—		430		—		430
Reinsurance recoverables	Reinsurance recoverables	—		—		247		—		247		Reinsurance recoverables	—		—		179		—		179

Subtotal excluding separate account assets	Subtotal excluding separate account assets	1,027		5,164		1,470		(198)		7,463		Subtotal excluding separate account assets	664		5,285		1,497		(710)		6,736
Separate account assets	Separate account assets	—		23,985		—		—		23,985		Separate account assets	—		22,557		—		—		22,557
Total assets	Total assets	$	1,027	$	29,149	$	1,470	$	(198)	$	31,448	Total assets	$	664	$	27,842	$	1,497	$	(710)	$	29,293
Liabilities	Liabilities											Liabilities
Insurance liabilities	Insurance liabilities	$	—	$	—	$	5,751	$	—	$	5,751	Insurance liabilities	$	—	$	—	$	4,574	$	—	$	4,574
Other liabilities - derivatives	Other liabilities - derivatives	—		513		—		(459)		54		Other liabilities - derivatives	—		1,153		—		(1,153)		—
Net modified coinsurance payable	Net modified coinsurance payable	—		—		45		—		45		Net modified coinsurance payable	—		—		68		—		68
Separate account liabilities	Separate account liabilities	—		23,985		—		—		23,985		Separate account liabilities	—		22,557		—		—		22,557
Total liabilities	Total liabilities	$	—	$	24,498	$	5,796	$	(459)	$	29,835	Total liabilities	$	—	$	23,710	$	4,642	$	(1,153)	$	27,199

(1)“Netting” amounts represent offsetting considerations as disclosed in Note 5.

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

(3)As of ~~March 31,~~September 30, 2023, the difference between the aggregate fair value and the aggregate unpaid principal of mortgage and other loans was de minimis. ~~There were no mortgage and other loans that were 90 days or more past due or in non-accrual status.~~

(4)Other invested assets within the above chart are comprised of derivatives.

Excluded from the above chart are private equity funds, which are classified as other invested assets on the Consolidated Statements of Financial Position, and certain fixed maturity securities, for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. At ~~March 31,~~September 30, 2023 the fair values of ~~such investments~~private equity funds and fixed maturity securities were ~~$353~~$346 million and $7 million. ~~See Note 4 for further details.~~

2328

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


		Successor Company											Successor Company
		March 31, 2023											September 30, 2023
		Level 1		Level 2		Level 3		Netting (1)		Total			Level 1		Level 2		Level 3		Netting (1)		Total
		(in millions)											(in millions)
Retained Business	Retained Business											Retained Business
Assets	Assets											Assets
Fixed maturity securities	Fixed maturity securities											Fixed maturity securities
U.S Treasury securities and obligations of U.S. government authorities and agencies	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	513	$	—	$	—	$	513	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	395	$	—	$	—	$	395
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	—		145		—		—		145		Obligations of U.S. states and their political subdivisions	—		113		—		—		113

U.S. corporate public securities	U.S. corporate public securities	—		2,090		—		—		2,090		U.S. corporate public securities	—		1,877		—		—		1,877
U.S. corporate private securities	U.S. corporate private securities	—		—		182		—		182		U.S. corporate private securities	—		—		205		—		205
Foreign corporate public securities	Foreign corporate public securities	—		127		—		—		127		Foreign corporate public securities	—		114		—		—		114
Foreign corporate private securities	Foreign corporate private securities	—		—		36		—		36		Foreign corporate private securities	—		—		43		—		43
Asset-backed securities(2)		—		459		191		—		650
Asset-backed securities (2)												Asset-backed securities (2)	—		706		213		—		919
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		42		—		—		42		Commercial mortgage-backed securities	—		16		—		—		16
Residential mortgage-backed securities	Residential mortgage-backed securities	—		29		—		—		29		Residential mortgage-backed securities	—		26		—		—		26
Total fixed maturity securities	Total fixed maturity securities	—		3,405		409		—		3,814		Total fixed maturity securities	—		3,247		461		—		3,708

Mortgage and other loans	Mortgage and other loans	—		—		206		—		206		Mortgage and other loans	—		—		422		—		422
Short-term investments		—		—		—		—		—

Cash and cash equivalents	Cash and cash equivalents	389		—		—		—		389		Cash and cash equivalents	335		—		—		—		335
Other invested assets(3)	Other invested assets(3)	—		78		—		(4)		74		Other invested assets(3)	72		728		—		(620)		180
Subtotal excluding separate account assets	Subtotal excluding separate account assets	389		3,483		615		(4)		4,483		Subtotal excluding separate account assets	407		3,975		883		(620)		4,645
Separate account assets	Separate account assets	—		21,909		—		—		21,909		Separate account assets	—		20,600		—		—		20,600
Total assets	Total assets	$	389	$	25,392	$	615	$	(4)	$	26,392	Total assets	$	407	$	24,575	$	883	$	(620)	$	25,245
Liabilities	Liabilities											Liabilities
Insurance liabilities	Insurance liabilities	$	—	$	—	$	3,056	$	—	$	3,056	Insurance liabilities	$	—	$	—	$	2,542	$	—	$	2,542
Other liabilities - derivatives	Other liabilities - derivatives	—		265		—		(265)		—		Other liabilities - derivatives	—		1,063		—		(1,063)		—
Separate account liabilities	Separate account liabilities	—		21,909		—		—		21,909		Separate account liabilities	—		20,600		—		—		20,600
Total liabilities	Total liabilities	$	—	$	22,174	$	3,056	$	(265)	$	24,965	Total liabilities	$	—	$	21,663	$	2,542	$	(1,063)	$	23,142

(1)“Netting” amounts represent offsetting considerations as disclosed in Note 5.

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

(3)Other invested assets within the above chart are comprised of derivatives.

Excluded from the above chart are private equity funds, ~~for~~which are classified as other invested assets on the Consolidated Statements of Financial Position, and certain fixed maturity securities, both of which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. At ~~March 31,~~September 30, 2023 the fair values of ~~such investments~~private equity funds and fixed maturity securities were ~~$352 million. See Note 4 for further details.~~$346 million and $7 million, respectively.

2429

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


		Successor Company											Successor Company
		March 31, 2023											September 30, 2023
		Level 1		Level 2		Level 3		Netting (1)		Total			Level 1		Level 2		Level 3		Netting (1)		Total
		(in millions)											(in millions)
Ceded Business	Ceded Business											Ceded Business
Assets	Assets											Assets
Fixed maturity securities	Fixed maturity securities											Fixed maturity securities
U.S Treasury securities and obligations of U.S. government authorities and agencies	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	74	$	—	$	—	$	74	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	74	$	—	$	—	$	74
Obligations of U.S. states and their political subdivisions		—		30		—		—		30

Foreign government bonds	Foreign government bonds	—		5		—		—		5		Foreign government bonds	—		4		—		—		4
U.S. corporate public securities	U.S. corporate public securities	—		813		—		—		813		U.S. corporate public securities	—		645		—		—		645
U.S. corporate private securities	U.S. corporate private securities	—		147		—		—		147		U.S. corporate private securities	—		142		—		—		142
Foreign corporate public securities	Foreign corporate public securities	—		90		—		—		90		Foreign corporate public securities	—		29		—		—		29
Foreign corporate private securities	Foreign corporate private securities	—		33		—		—		33		Foreign corporate private securities	—		30		5		—		35
Asset-backed securities(2)		—		19		—		—		19

Residential mortgage-backed securities	Residential mortgage-backed securities	—		214		—		—		214		Residential mortgage-backed securities	—		195		—		—		195
Total fixed maturity securities	Total fixed maturity securities	—		1,425		—		—		1,425		Total fixed maturity securities	—		1,119		5		—		1,124
Equity securities		182		—		—		—		182

Short-term investments	Short-term investments	—		62		—		—		62		Short-term investments	—		30		—		—		30
Cash and cash equivalents	Cash and cash equivalents	456		—		—		—		456		Cash and cash equivalents	257		—		—		—		257
Other invested assets(3)	Other invested assets(3)	—		194		—		(194)		—		Other invested assets(3)	—		161		—		(90)		71
Deposit asset	Deposit asset	—		—		608		—		608		Deposit asset	—		—		430		—		430
Reinsurance recoverables	Reinsurance recoverables	—		—		247		—		247		Reinsurance recoverables	—		—		179		—		179

Subtotal excluding separate account assets	Subtotal excluding separate account assets	638		1,681		855		(194)		2,980		Subtotal excluding separate account assets	257		1,310		614		(90)		2,091
Separate account assets	Separate account assets	—		2,076		—		—		2,076		Separate account assets	—		1,957		—		—		1,957
Total assets	Total assets	$	638	$	3,757	$	855	$	(194)	$	5,056	Total assets	$	257	$	3,267	$	614	$	(90)	$	4,048
Liabilities	Liabilities											Liabilities
Insurance liabilities	Insurance liabilities	$	—	$	—	$	2,695	$	—	$	2,695	Insurance liabilities	$	—	$	—	$	2,032	$	—	$	2,032
Other liabilities - derivatives	Other liabilities - derivatives	—		248		—		(194)		54		Other liabilities - derivatives	—		90		—		(90)		—
Net modified coinsurance payable	Net modified coinsurance payable	—		—		45		—		45		Net modified coinsurance payable	—		—		68		—		68
Separate account liabilities	Separate account liabilities	—		2,076		—		—		2,076		Separate account liabilities	—		1,957		—		—		1,957
Total liabilities	Total liabilities	$	—	$	2,324	$	2,740	$	(194)	$	4,870	Total liabilities	$	—	$	2,047	$	2,100	$	(90)	$	4,057

(1)“Netting” amounts represent offsetting considerations as disclosed in Note 5.

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

(3)Other invested assets within the above chart are comprised of derivatives. Excluded from the above chart are private equity funds for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. At March 31, 2023 the fair values of such investments were $1 million. See Note 4 for further details.

2530

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


	Successor Company
	December 31, 2022
	Level 1		Level 2		Level 3		Netting(1)		Total
	(in millions)
Total Business
Assets
Fixed Maturity Securities
U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	696	$	—	$	—	$	696
Obligations of U.S. states and their political subdivisions	—		166		—		—		166
Foreign government bonds	—		5		—		—		5
U.S. corporate public securities	—		2,796		—		—		2,796
U.S. corporate private securities	—		144		146		—		290
Foreign corporate public securities	—		211		—		—		211
Foreign corporate private securities	—		31		36		—		67
Asset-backed securities(2)	—		377		155		—		532
Commercial mortgage-backed securities	—		43		—		—		43
Residential mortgage-backed securities	—		218		—		—		218
Total Fixed Maturity Securities	—		4,687		337		—		5,024

Equity securities	175		—		—				175
Mortgage and other loans (3)	—		—		196		—		196
Short-term investments	—		42		—		—		42
Cash and cash equivalents	872		—		—		—		872
Other invested assets(4)	46		621		—		(582)		85
Deposit asset	—		—		607		—		607
Reinsurance recoverables	—		—		235		—		235
Net modified coinsurance receivable	—		—		18		—		18
Subtotal excluding separate account assets	1,093		5,350		1,393		(582)		7,254
Separate account assets	—		23,601		—		—		23,601
Total assets	$	1,093	$	28,951	$	1,393	$	(582)	$	30,855
Liabilities

Insurance liabilities	—		—		5,546		—		5,546
Other liabilities - derivatives	—		1,076		—		(875)		201
Separate account liabilities	—		23,601		—		—		23,601
Total liabilities	$	—	$	24,677	$	5,546	$	(875)	$	29,348

(1)“Netting” amounts represent offsetting considerations as disclosed in Note 5.

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

(3)As of December 31, 2022, the difference between the aggregate fair value and the aggregate unpaid principal of mortgage and other loans was de minimis. ~~There were no mortgage and other loans that were 90 days or more past due or in non-accrual status.~~

(4)Other invested assets within the above chart are comprised of derivatives. Excluded from the above chart are private equity funds for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. At December 31, 2022 the fair values of such investments were $345 million, respectively. ~~See Note 4 for further details.~~

2631

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


	Successor Company
	December 31, 2022
	Level 1		Level 2		Level 3		Netting(1)		Total
	(in millions)
Retained Business
Assets
Fixed Maturity Securities
U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	582	$	—	$	—	$	582
Obligations of U.S. states and their political subdivisions	—		136		—		—		136

U.S. corporate public securities	—		2,018		—		—		2,018
U.S. corporate private securities	—		—		146		—		146
Foreign corporate public securities	—		122		—		—		122
Foreign corporate private securities	—		—		36		—		36
Asset-backed securities(2)	—		358		155		—		513
Commercial mortgage-backed securities	—		43		—		—		43
Residential mortgage-backed securities	—		20		—		—		20
Total Fixed Maturity Securities	$	—	$	3,279	$	337	$	—	$	3,616
Mortgage and other loans	—		—		196		—		196
Short-term investments	—		3		—		—		3
Cash and cash equivalents	433		—		—		—		433
Other invested assets(3)	46		386		—		(347)		85
Subtotal excluding separate account assets	479		3,668		533		(347)		4,333
Separate account assets	—		21,558		—		—		21,558
Total assets	$	479	$	25,226	$	533	$	(347)	$	25,891
Liabilities
Insurance liabilities	—		—		2,941		—		2,941
Other liabilities - derivatives	—		602		—		(602)		—
Separate account liabilities	—		21,558		—		—		21,558
Total liabilities	$	—	$	22,160	$	2,941	$	(602)	$	24,499

(1)“Netting” amounts represent offsetting considerations as disclosed in Note 5.

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

(3)Other invested assets within the above chart are comprised of derivatives. Excluded from the above chart are private equity funds for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. At December 31, 2022, the fair values of such investments were $344 million. ~~See Note 4 for further details.~~

2732

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


		Successor Company											Successor Company
		December 31, 2022											December 31, 2022
		Level 1		Level 2		Level 3		Netting(1)		Total			Level 1		Level 2		Level 3		Netting(1)		Total
		(in millions)											(in millions)
Ceded Business	Ceded Business											Ceded Business
Assets	Assets											Assets
Fixed maturity securities	Fixed maturity securities											Fixed maturity securities
U.S Treasury securities and obligations of U.S. government authorities and agencies	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	114	$	—	$	—	$	114	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	114	$	—	$	—	$	114
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	—		30		—		—		30		Obligations of U.S. states and their political subdivisions	—		30		—		—		30
Foreign government bonds	Foreign government bonds	—		5		—		—		5		Foreign government bonds	—		5		—		—		5
U.S. corporate public securities	U.S. corporate public securities	—		778		—		—		778		U.S. corporate public securities	—		778		—		—		778
U.S. corporate private securities	U.S. corporate private securities	—		144		—		—		144		U.S. corporate private securities	—		144		—		—		144
Foreign corporate public securities	Foreign corporate public securities	—		89		—		—		89		Foreign corporate public securities	—		89		—		—		89
Foreign corporate private securities	Foreign corporate private securities	—		31		—		—		31		Foreign corporate private securities	—		31		—		—		31
Asset-backed securities(2)	Asset-backed securities(2)	—		19		—		—		19		Asset-backed securities(2)	—		19		—		—		19
Commercial mortgage-backed securities		—		—		—		—		—

Residential mortgage-backed securities	Residential mortgage-backed securities	—		198		—		—		198		Residential mortgage-backed securities	—		198		—		—		198
Total fixed maturity securities	Total fixed maturity securities	$	—	$	1,408	$	—	$	—	$	1,408	Total fixed maturity securities	$	—	$	1,408	$	—	$	—	$	1,408
Equity securities	Equity securities	175		—		—		—		175		Equity securities	175		—		—		—		175
Short-term investments	Short-term investments	—		39		—		—		39		Short-term investments	—		39		—		—		39
Cash and cash equivalents	Cash and cash equivalents	439		—		—		—		439		Cash and cash equivalents	439		—		—		—		439
Other invested assets(3)	Other invested assets(3)	—		235		—		(235)		—		Other invested assets(3)	—		235		—		(235)		—
Deposit asset	Deposit asset	—		—		607		—		607		Deposit asset	—		—		607		—		607
Reinsurance recoverables	Reinsurance recoverables	—		—		235		—		235		Reinsurance recoverables	—		—		235		—		235
Net modified coinsurance receivable	Net modified coinsurance receivable	—		—		18		—		18		Net modified coinsurance receivable	—		—		18		—		18
Subtotal excluding separate account assets	Subtotal excluding separate account assets	614		1,682		860		(235)		2,921		Subtotal excluding separate account assets	614		1,682		860		(235)		2,921
Separate account assets	Separate account assets	—		2,043		—		—		2,043		Separate account assets	—		2,043		—		—		2,043
Total assets	Total assets	$	614	$	3,725	$	860	$	(235)	$	4,964	Total assets	$	614	$	3,725	$	860	$	(235)	$	4,964
Liabilities	Liabilities											Liabilities
Insurance liabilities	Insurance liabilities	—		—		2,605		—		2,605		Insurance liabilities	—		—		2,605		—		2,605
Other liabilities - derivatives	Other liabilities - derivatives	—		473		—		(272)		201		Other liabilities - derivatives	—		473		—		(272)		201
Separate account liabilities	Separate account liabilities	—		2,043		—				2,043		Separate account liabilities	—		2,043		—				2,043
Total liabilities	Total liabilities	$	—	$	2,516	$	2,605	$	(272)	$	4,849	Total liabilities	$	—	$	2,516	$	2,605	$	(272)	$	4,849

(1)“Netting” amounts represent offsetting considerations as disclosed in Note 5.

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

(3)Other invested assets within the above chart are comprised of derivatives. Excluded from the above chart are private equity funds for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. At December 31, 2022, the fair values of such investments were $1 million. ~~See Note 4 for further details.~~

2833

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

Quantitative Information Regarding Internally Priced Level 3 Assets and Liabilities – The tables below present quantitative information on significant internally-priced Level 3 assets and liabilities.


		Successor Company												Successor Company
		March 31, 2023												September 30, 2023
		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)
		(in millions)												(in millions)
Assets:	Assets:												Assets:
Retained business	Retained business												Retained business
Fixed maturity securities	Fixed maturity securities												Fixed maturity securities
U.S. corporate private securities	U.S. corporate private securities	$	154	Discounted cash flow	Discount rate	4.88	%	9.19	%	6.65	%	Decrease	U.S. corporate private securities	$	173	Discounted cash flow	Discount rate	5.01	%	9.24	%	7.22	%	Decrease
		28		Trade price		N/A						Increase		32		Trade price		N/A						Increase
Total U.S. corporate private securities	Total U.S. corporate private securities	182											Total U.S. corporate private securities	205

Foreign corporate private securities	Foreign corporate private securities	36		Discounted cash flow	Discount rate	4.34	%	6.42	%	5.38	%	Decrease	Foreign corporate private securities	34		Discounted cash flow	Discount rate	4.69	%	6.89	%	5.79	%	Decrease
														9		Trade price		N/A						Increase
Total Foreign corporate private securities													Total Foreign corporate private securities	43

Asset-backed securities	Asset-backed securities	79		Discounted cash flow	Discount rate	6.83	%	8.64	%	8.05	%	Decrease	Asset-backed securities	79		Discounted cash flow	Discount rate	7.65	%	8.99	%	8.44	%	Decrease
		112		Trade price		N/A						Increase		134		Trade price		N/A						Increase
Total asset-backed securities	Total asset-backed securities	191											Total asset-backed securities	213

Mortgage and other loans	Mortgage and other loans												Mortgage and other loans
Residential mortgage loans	Residential mortgage loans	158		Level yield	Market yield	6.76	%	10.03	%	8.47	%	Decrease	Residential mortgage loans	237		Level yield	Market yield	6.43	%	10.26	%	8.19	%	Decrease
														107		Trade price		N/A						Increase
Commercial mortgage loans	Commercial mortgage loans	48		Trade price		N/A						Increase	Commercial mortgage loans	78		Trade price		N/A						Increase
Total Mortgage and other loans	Total Mortgage and other loans	206											Total Mortgage and other loans	422

Ceded business	Ceded business												Ceded business
Foreign corporate private securities													Foreign corporate private securities	5		Discounted cash flow	Discount rate	13.58	%	20.00	%	14.45	%	Decrease
Deposit asset	Deposit asset	608		Fair values are determined using the same unobservable inputs as insurance liabilities.									Deposit asset	430		Fair values are determined using the same unobservable inputs as insurance liabilities.
Reinsurance recoverables	Reinsurance recoverables	247		Fair values are determined using the same unobservable inputs as insurance liabilities.									Reinsurance recoverables	179		Fair values are determined using the same unobservable inputs as insurance liabilities.

Liabilities:	Liabilities:												Liabilities:
Insurance liabilities	Insurance liabilities												Insurance liabilities
Retained business	Retained business	$	3,056	Discounted cash flow	Equity volatility curve (2)	19.5	%	26	%			Increase	Retained business	$	2,542	Discounted cash flow	Equity volatility curve (2)	17	%	25	%			Increase
					Lapse rate(3)	1	%	20	%			Decrease					Lapse rate(3)	0.65	%	13	%			Decrease
					Spread over risk free (4)	0.00	%	2.48	%			Decrease					Spread over risk free (4)	0.00	%	2.25	%			Decrease
					Utilization rate(5)	77	%	100	%			Increase					Utilization rate(5)	87.5	%	100	%			Increase
					Withdrawal rate (6)	See table footnote (6) below.											Withdrawal rate (6)	See table footnote (6) below.
					Mortality rate(7)	0	%	16	%			Decrease					Mortality rate(7)	0	%	16	%			Decrease

Ceded business	Ceded business	2,695		Discounted cash flow	Equity volatility curve (2)	19.5	%	26	%			Increase	Ceded business	2,032		Discounted cash flow	Equity volatility curve (2)	17	%	25	%			Increase
					Lapse rate(3)	1	%	20	%			Decrease					Lapse rate(3)	0.65	%	13	%			Decrease
					Spread over risk free (4)	0.00	%	2.07	%			Decrease					Spread over risk free (4)	0.00	%	1.95	%			Decrease
					Utilization rate(5)	77	%	100	%			Increase					Utilization rate(5)	87.5	%	100	%			Increase
					Withdrawal rate (6)	See table footnote (6) below.											Withdrawal rate (6)	See table footnote (6) below.
					Mortality rate(7)	0	%	16	%			Decrease					Mortality rate(7)	0	%	16	%			Decrease

Net modified coinsurance payable	Net modified coinsurance payable	45		Fair values are determined using the same unobservable inputs as insurance liabilities.									Net modified coinsurance payable	68		Fair values are determined using the same unobservable inputs as insurance liabilities.

2934

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


	Successor Company
	December 31, 2022
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)
	(in millions)
Assets:
Retained business
U.S. corporate private securities	$	146	Discounted cash flow	Discount rate	4.75	%	8.03	%	6.56	%	Decrease
Foreign corporate public securities	36		Discounted cash flow	Discount rate	4.33	%	6.38	%	5.36	%	Decrease
Asset-backed securities	155		Discounted cash flow	Discount rate	7.19	%	8.51	%	7.94	%	Decrease
Mortgage and other loans
Residential mortgage loans	161		Level yield	Market yield	5.75	%	9.97	%	8.40	%	Increase
Commercial mortgage loans	35		Trade price	Trade price	N/A		N/A		N/A		Increase
Total Mortgage and other loans	196
Ceded business
Deposit asset	607		Fair values are determined using the same unobservable inputs as insurance liabilities.
Reinsurance recoverables	235		Fair values are determined using the same unobservable inputs as insurance liabilities.
Net modified coinsurance receivable	18		Fair values are determined using the same unobservable inputs as insurance liabilities.
Liabilities:
Retained business
Insurance liabilities	$	2,941	Discounted cash flow	Equity volatility curve (2)	19.5	%	26	%			Increase
				Lapse rate(3)	1	%	20	%			Decrease
				Spread over risk free (4)	0.00	%	2.43	%			Decrease
				Utilization rate(5)	92.5	%	100	%			Increase
				Withdrawal rate (6)	See table footnote (6) below.
				Mortality rate(7)	0	%	16	%			Decrease
Ceded business
Insurance liabilities	$	2,605	Discounted cash flow	Equity volatility curve (2)	19.5	%	26	%			Increase
				Lapse rate(3)	1	%	20	%			Decrease
				Spread over risk free (4)	0.00	%	2.21	%			Decrease
				Utilization rate(5)	92.5	%	100	%			Increase
				Withdrawal rate (6)	See table footnote (6) below.
				Mortality rate(7)	0	%	16	%			Decrease

(1)Conversely, the impact of a decrease in input would have the opposite impact on fair value as that presented in the table.

(2) The equity volatility curve assumption is based on 1 year and 2 year index-specific at-the-money implied volatilities grading to 10 year total variance. Increased volatility increases the fair value of the liability.

(3) Lapse rates for contracts with living benefit guarantees are adjusted at the contract level based on the in-the-moneyness of the living benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates for contracts with index-linked crediting guarantees may be adjusted at the contract level based on the applicability of any surrender charges, product type, and market related factors such as interest rates. Lapse rates are also generally assumed to be lower for the period where surrender charges apply.

(4) The spread over the risk-free rate ~~(SOFR and LIBOR)~~ swap curve represents the premium added to the proxy for the risk-free rate to reflect the Company's estimates of rates that a market participant would use to value the living benefits in both the accumulation and payout phases and index-linked interest crediting guarantees. This spread includes an estimate of NPR, which is the risk that the obligation will not be fulfilled by the Company. NPR is primarily estimated by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium. In order to reflect the financial strength ratings of the Company, credit spreads associated with funding agreements, as opposed to credit spread associated with debt, are utilized in developing this estimate because funding agreements, living benefit guarantees, and index-linked interest crediting guarantees are insurance liabilities and are therefore senior to debt.

(5) The utilization rate assumption estimates the percentage of contracts that will utilize the benefit during the contract duration and begin lifetime withdrawals at various time intervals from contract inception. Utilization assumptions may vary by product type, tax status and age. The impact of changes in these assumptions is highly dependent on the product type, the age of the contractholder at the time of the sale, and the timing of the first lifetime income withdrawal.

(6) The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of ~~March 31,~~September 30, 2023 and December 31, 2022, the minimum withdrawal rate assumption is 77% and the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.

3035

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

(7) The range reflects the mortality rates for the vast majority of business with living benefits, with policyholders ranging from 45 to 90 years old. While the majority of living benefits have a minimum age requirement, certain other contracts do not have an age restriction. This results in contractholders with mortality rates approaching 0% for certain benefits.

Interrelationships Between Unobservable Inputs – In addition to the sensitivities of fair value measurements to changes in each unobservable input in isolation, as reflected in the table above, interrelationships between these inputs may also exist, such that a change in one unobservable input may give rise to a change in another, or multiple, inputs. Examples of such interrelationships for significant internally-priced Level 3 assets and liabilities are as follows:

Corporate Securities – The rate used to discount future cash flows reflects current risk-free rates plus credit and liquidity spread requirements that market participants would use to value an asset. The discount rate may be influenced by many factors, including market cycles, expectations of default, collateral, term and asset complexity. Each of these factors can influence discount rates, either in isolation, or in response to other factors. During weaker economic cycles, as the expectations of default increases, credit spreads widen, which results in a decrease in fair value.

Insurance Liabilities, at fair value – The Company expects efficient benefit utilization and withdrawal rates to generally be correlated with lapse rates. However, behavior is highly dependent on the facts and circumstances surrounding the individual contractholder, such as their liquidity needs or tax situation, which could drive lapse behavior independent of other contractholder behavior assumptions. To the extent that more efficient contractholder behavior results in greater in-the-moneyness at the contract level, lapse rates may decline for those contracts. Similarly, to the extent that increases in equity volatility are correlated with overall declines in the capital markets, lapse rates may decline as contracts become more in-the-money.

Changes in Level 3 Assets and Liabilities – The following tables describe changes in fair values of Level 3 assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods. When a determination is made to classify assets and liabilities within Level 3, the determination is based on significance of the unobservable inputs in the overall fair value measurement. All transfers are based on changes in the observability of the valuation inputs, including the availability of pricing service information that the Company can validate. Transfers into Level 3 are generally the result of unobservable inputs utilized within valuation methodologies and the use of indicative broker quotes for assets that were previously valued using observable inputs. Transfers out of Level 3 are generally due to the use of observable inputs in valuation methodologies as well as the availability of pricing service information for certain assets that the Company can validate.

3136

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


	Successor Company
	Three Months Ended September 30, 2023
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Retained Business
Fixed maturity securities
U.S. corporate private securities	$	210	$	(5)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	205	$	(4)
Foreign corporate private securities	34		—		—		—		—		—		—		9		—		43		—
Asset-backed securities	208		—		6		—		—		(1)		—		—		—		213		(1)
Mortgage and other loans
Residential mortgage loans	151		—		246		—		—		(53)		—		—		—		344		—
Commercial mortgage loans	78		—		—		—		—		—		—		—		—		78		—
Ceded Business
Foreign corporate private securities	3		—		5		—		—		(3)		—		—		—		5		—
Deposit asset	476		(13)		—		—		—		—		(33)		—		—		430		—
Reinsurance recoverables	200		(21)		—		—		—		—		—		—		—		179		—
Net modified coinsurance receivable (payable)	(81)		13		—		—		—		—		—		—		—		(68)		—

Successor Company
Three Months Ended March 31, 2023
Fair Value, beginning of period Total realized and unrealized gains (losses) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in millions)
Retained Business
Fixed maturity securities
U.S. corporate private securities $ 146 $ — $ 19 $ — $ — $ (1) $ — $ — $ 18 $ 182 $ —
Foreign corporate private securities 36 — — — — — — — — 36 1
Asset-backed securities 155 (2) 38 — — — — — — 191 (2)
Mortgage and other loans
Residential mortgage loans 161 — 13 — — (16) — — — 158 —
Commercial mortgage loans 35 — 13 — — — — — — 48 —
Ceded Business
Deposit asset 607 1 — — — — — — — 608 —
Reinsurance recoverables 235 12 — — — — — — — 247 —
Net modified coinsurance receivable (payable) 18 (63) — — — — — — — (45) —

Successor Company
Three Months Ended March 31, 2023
Incurred losses
Fair Value, beginning of period Reduction in estimates of ultimate losses Increase in estimates of ultimate losses Change in fair value (discount rate) Paid losses Other Fair Value, end of period
(in millions)
Insurance Liabilities
Retained Business $ 2,941 $ (348) $ 132 $ 235 $ 100 $ (4) $ 3,056
Ceded Business 2,605 (66) 67 76 13 — 2,695

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements


	Successor Company
	Nine Months Ended September 30, 2023
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Retained Business
Fixed maturity securities
U.S. corporate private securities	$	146	$	(4)	$	46	$	—	$	—	$	(1)	$	—	$	18	$	—	$	205	$	(3)
Foreign corporate private securities	36		(2)		—		—		—		—		—		9		—		43		(2)
Asset-backed securities	155		(2)		62		—		—		(2)		—		—		—		213		(2)
Mortgage and other loans
Residential mortgage loans	161		—		290		—		—		(107)		—		—		—		344		—
Commercial mortgage loans	35		—		43		—		—		—		—		—		—		78		—
Ceded Business
Foreign corporate private securities	—		—		10		—		—		(5)		—		—		—		5		—
Deposit asset	607		(21)		—		—		—		—		(156)		—		—		430		—
Reinsurance recoverables	235		(56)		—		—		—		—		—		—		—		179		—
Net modified coinsurance receivable (payable)	18		(86)		—		—		—		—		—		—		—		(68)		—

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements


	Successor Company
	Three Months Ended September 30, 2022
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities

Corporate securities(3)	$	314	$	(22)	$	232	$	—	$	—	$	(44)	$	(114)	$	—	$	—	$	366	$	—
Structured securities(4)	25		(2)		150		—		—		(18)		—		—		—		155		—
Other assets:
Other invested assets	—		—		71		—		—		—		—		—		—		71		—
Secured receivable	1,555		(9)		22		(60)		—		—		(1,508)		—		—		—		—
Deposit asset	2,158		(3)		—		—		—		—		(1,296)		—		—		859		—
Reinsurance recoverables	378		(158)		—		—		—		—		—		—		—		220		—
Net modified coinsurance receivable	215		(145)		—		—		—		—		—		—		—		70		—


	Successor Company
	Six Months Ended September 30, 2022
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturity securities
Corporate securities(3)	$	190	$	(38)	$	439	$	—	$	—	$	(55)	$	(117)	$	—	$	(53)	$	366	$	—
Structured securities(4)	33		(2)		175		(10)		—		(18)		(10)		—		(13)		155		—
Other assets:
Other invested assets	—		—		71		—		—		—		—		—		—		71		—
Secured receivable	1,622		(59)		22		(75)		—		—		(1,510)		—		—		—		—
Deposit asset	2,615		(144)		—		—		—		—		(1,612)		—		—		859		—
Reinsurance recoverables	344		(124)		—		—		—		—		—		—		—		220		—
Net modified coinsurance receivable	5		65		—		—		—		—		—		—		—		70		—

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements


	Successor Company
	Three Months Ended September 30, 2023
			Incurred losses
	Fair Value, beginning of period		Reduction in estimates of ultimate losses		Increase in estimates of ultimate losses		Change in fair value (discount rate)		Paid losses		Other		Fair Value, end of period
	(in millions)
Insurance Liabilities
Retained Business	$	2,711	$	(122)	$	425	$	(570)	$	98	$	—	$	2,542
Ceded Business	2,273		(317)		144		(84)		16		—		2,032


	Successor Company
	Nine Months Ended September 30, 2023
			Incurred losses
	Fair Value, beginning of period		Reduction in estimates of ultimate losses		Increase in estimates of ultimate losses		Change in fair value (discount rate)		Paid losses		Other		Fair Value, end of period
	(in millions)
Insurance Liabilities
Retained Business	$	2,941	$	(824)	$	660	$	(524)	$	294	$	(5)	$	2,542
Ceded Business	2,605		(942)		354		(28)		43		—		2,032


	Successor Company
	Three Months Ended September 30, 2022
			Incurred losses
	Fair Value, beginning of period		Reduction in estimates of ultimate losses		Increase in estimates of ultimate losses		Change in fair value (discount rate)		Paid losses		Other		Fair Value, end of period
	(in millions)
Insurance Liabilities	$	11,257	$	(4,615)	$	393	$	(808)	$	111	$	(34)	$	6,304


	Successor Company
	Six Months Ended September 30, 2022
			Incurred losses
	Fair Value, beginning of period		Reduction in estimates of ultimate losses		Increase in estimates of ultimate losses		Change in fair value (discount rate)		Paid losses		Other		Fair Value, end of period
	(in millions)
Insurance Liabilities	$	13,611	$	(6,269)	$	1,599	$	(2,328)	$	209	$	(518)	$	6,304

"Total realized and unrealized gains (losses)" related to our level 3 assets are included in earnings in Investment gains (losses). Activity related to our level 3 liabilities is primarily recognized in earnings within change in Policyholder benefits and changes in fair value of insurance liabilities with the exception of changes related to the Company's own-credit risk, which are included in "Change in fair value (discount rate)" above and recorded in other comprehensive income (loss). The components of the assumption update are included in "Incurred Losses", see Note 1 for further information.

3240

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~


	Predecessor Company
	Three Months Ended March 31, 2022
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Corporate securities(3)	190		(9)		5		(4)		—		(2)		—		—		—		180		(9)
Structured securities(4)	76		(4)		—		(10)		—		(2)		—		—		(13)		47		(4)
Other assets:

Equity securities	1		—		—		—		—		—		—		—		—		1		—

Short term investments	13		—		—		—		—		(13)		—		—		—		—		—
Cash equivalents	8		—		—		—		—		(8)		—		—		—		—		—
Other assets	400		(21)		13		—		—		(16)		—		—		—		376		(6)
Reinsurance recoverables	1,881		201		4		—		—		19		(239)		—		—		1,866		222

Liabilities:
Future policy benefits	(4,060)		715		—		—		(48)		—		—		—		—		(3,393)		686
Policyholders' account balances(5)	(2,041)		124		—		—		—		(17)		—		—		—		(1,934)		89


	Predecessor Company
	Three Months Ended March 31, 2022
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
	(in millions)
Fixed maturities, available-for-sale	$	—	$	—	$	(12)	$	—	$	—	$	—	$	(12)
Other assets:



Other assets	(21)		—		—		—		(6)		—		—
Reinsurance recoverables	201		—		—		—		222		—		—

Liabilities:
Future policy benefits	715		—		—		—		686		—		—
Policyholders' account balances	124		—		—		—		89		—		—

(1)Realized investment gains (losses) on future policy benefits and reinsurance recoverables primarily represent the change in the fair value of the Company's living benefit guarantees on certain of its variable annuity contracts.

(2)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.

(3)Includes U.S. corporate public, U.S. corporate private, foreign corporate public and foreign corporate private securities.

(4)Includes asset-backed and residential mortgage-backed securities.

(5)Issuances and settlements for Policyholders' account balances are presented net in the rollforward.

3341

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

Change in Fair Value of Insurance Contracts

The components of the change in fair value of our insurance contracts are reported in several line items within Revenues and Benefits and expenses in our consolidated statements of income and comprehensive income (loss). The revenue items include Premiums, Policy charges and fee income, and Asset management and service fees. The Benefits and expenses items include Policyholders' benefits and changes in fair value of insurance liabilities and commission expense. Policyholder benefits and changes in fair value of insurance liabilities includes the following changes in fair value of the assets and liabilities for which we have elected the fair value option:


		Successor Company													Successor Company
		March 31, 2023						December 31, 2022							September 30, 2023						December 31, 2022
		Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total			Retained Business		Ceded Business		Total		Retained Business		Ceded Business		Total
		(in millions)													(in millions)
Assets:	Assets:													Assets:
Reinsurance recoverables	Reinsurance recoverables	$	—	$	12	$	12	$	—	$	(15)	$	(15)	Reinsurance recoverables	$	—	$	(56)	$	(56)	$	—	$	(15)	$	(15)
Modified coinsurance receivable	Modified coinsurance receivable	—		78		78		—		(5,640)		(5,640)		Modified coinsurance receivable	—		(338)		(338)		—		(5,640)		(5,640)
Deposit asset	Deposit asset	—		1		1		—		(1,989)		(1,989)		Deposit asset	—		(177)		(177)		—		(1,989)		(1,989)
Liabilities:	Liabilities:													Liabilities:
Insurance liabilities	Insurance liabilities	$	115	$	90	$	205	$	(421)	$	(7,644)	$	(8,065)	Insurance liabilities	$	(399)	$	(573)	$	(972)	$	(421)	$	(7,644)	$	(8,065)

Changes in insurance liabilities attributable to the Company's own-credit risk are recorded in other comprehensive income (loss). Changes in the modified coinsurance payable are reported in Policyholder benefits and changes in fair value of insurance liabilities, however, they are not included in the above chart as they relate to the investment portfolio within the modified coinsurance agreement.

Fair Value of Financial Instruments

The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Consolidated Statements of Financial Position. In some cases the carrying amount equals or approximates fair value.


		Successor Company											Successor Company
		March 31, 2023											September 30, 2023
		Fair Value								Carrying Amount			Fair Value								Carrying Amount
		Level 1		Level 2		Level 3		Total		Total			Level 1		Level 2		Level 3		Total		Total
		(in millions)											(in millions)
Assets:	Assets:											Assets:
Accrued investment income	Accrued investment income	$	—	$	53	$	—	$	53	$	53	Accrued investment income	$	—	$	57	$	—	$	57	$	57
Other invested assets - Policy loans	Other invested assets - Policy loans	—		—		11		11		11		Other invested assets - Policy loans	—		—		11		11		11
Liabilities:	Liabilities:											Liabilities:
Repurchase agreements	Repurchase agreements	$	—	$	301	$	—	$	301	$	301	Repurchase agreements	$	—	$	1,009	$	—	$	1,009	$	1,009
Cash collateral for loaned securities		—		164		—		164		164


	Successor Company
	December 31, 2022
	Fair Value								Carrying Amount
	Level 1		Level 2		Level 3		Total		Total
	(in millions)
Assets:
Accrued investment income	$	—	$	52	$	—	$	52	$	52
Other invested assets - Policy loans	—		—		11		11		11
Liabilities:
Repurchase agreements	$	—	$	311	$	—	$	311	$	311
Cash collateral for loaned securities	—		106		—		106		106

3442

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

7. INCOME TAXES

The Company uses a full year projected effective tax rate approach to calculate taxes. In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. The projected effective tax rate is the ratio of projected “Income tax expense (benefit)” divided by projected “Income (loss) from operations before income taxes”.

For the three and nine months ended ~~March 31,~~September 30, 2023, the Successor Company's income tax provision amounted to an income tax ~~expense~~benefit of approximately ~~$0.3~~$29 million and $4 million or ~~4.3~~13.0 percent and 6.6 percent of ~~income~~loss from operations before income taxes, respectively. The effective tax rate for the Successor Company differed from the U.S. statutory tax rate of 21 percent in each period due primarily to non-taxable investment income, deductible foreign taxes paid, non-deductible goodwill impairment, transfer pricing adjustments, and an increase to the valuation allowance on deferred tax assets, as discussed further below.

For the three and six months ended September 30, 2022, the Successor Company's income tax provision amounted to an income tax expense (benefit) of $3 million and $(48) million or (1.9) percent and 12.5 percent of loss from operations before income taxes, respectively. The effective tax rate differed from the U.S. statutory tax rate of 21 percent primarily due to non-taxable investment ~~income.~~income and tax credits.

~~The~~For the three months ended March 31, 2022, the Predecessor Company's income tax provision amounted to an income tax expense of $77 million or 17.8 percent of income from operations before income ~~tax, for three months ended March 31, 2022, respectively.~~tax. The effective tax rate ~~for the Predecessor Company~~ differed from the U.S. statutory tax rate of 21 percent primarily due to non-taxable investment income and tax credits.

Valuation Allowance on Deferred Tax Assets

The application of U.S. GAAP requires the evaluation of the recoverability of deferred tax assets and establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not expected to be realized, including an assessment of the character of future income necessary to realize a deferred tax asset. As of ~~both March 31,~~September 30, 2023 and December 31, 2022, the Company had a valuation allowance of $38 million and $37 million, respectively, regarding realized and unrealized capital losses on our fixed maturity securities portfolio. A portion of the deferred tax asset relates to unrealized capital losses for which the carryforward period has not yet begun, and as such, when assessing its recoverability, we consider our ability and intent to hold the underlying securities to recovery. The amount of the deferred tax asset considered realizable may be adjusted if projections of future taxable income, including the character of that taxable income during the requisite carryforward period, are updated or if objective negative evidence exists that outweighs the positive evidence. The increase in the valuation allowance from December 31, 2022 to September 30, 2023 is due to additional unrealized capital losses on our fixed maturity securities portfolio.

8. EQUITY

Additional Paid-in Capital

During the three months ended March 31, 2023, the Company established a $45 million distribution payable to its parent company, FGH, as a result of updated information regarding certain tax assets related to the acquisition of FLIAC, which resulted in an offsetting reduction to "Additional paid-in capital". The distribution payable was settled during the second quarter of 2023.

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Consolidated Statements of ~~Income~~Operations and Comprehensive Income (Loss).

As discussed in Note 1, we have elected to apply push-down accounting to FLIAC at the acquisition date, April 1, 2022. As part of this election, accumulated unrealized gains and losses that were previously recorded in AOCI were reset to zero at the acquisition date. In addition, as discussed in Note 2, we have elected to apply the fair value option on our entire portfolio of fixed maturity securities. As a result, all unrealized gains and losses related to our fixed maturity securities are recorded through earnings rather than AOCI. As discussed in Note 5, we have de-designated the hedging relationship for all of our derivative instruments. Accordingly, all changes in our derivative instruments are recorded through earnings.

The balance of and changes in each component of AOCI are as follows:

3543

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

~~The balance of and changes in each component of AOCI are as follows:~~


	Successor Company
	Changes in Own-Credit Risk Related to Insurance Liabilities
	(in millions)
Balance, December 31, 2022	$	111
Change in OCI	22
Less: Income tax expense	5
Balance, March 31, 2023	$	128
Change in OCI	(115)
Less: Income tax benefit	(25)
Balance, June 30, 2023	$	38
Change in OCI	(45)
Less: Income tax benefit	(9)
Balance, September 30, 2023	$	2


		Predecessor Company							Foreign Currency Translation Adjustment		Changes in Own-Credit Risk Related to Insurance Liabilities		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)
		Accumulated Other Comprehensive Income (Loss)							(in millions)
		Foreign Currency Translation Adjustment		Net Unrealized Investment Losses(1)		Total Accumulated Other Comprehensive Income (Loss)
		(in millions)
Balance, December 31, 2021		$	(1)	$	171	$	170
Balance, December 31, 2021 (Predecessor Company)								Balance, December 31, 2021 (Predecessor Company)	$	(1)	$	—	$	171	$	170
Change in OCI before reclassifications	Change in OCI before reclassifications	—		(576)		(576)		Change in OCI before reclassifications	—		—		(576)		(576)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	—		15		15		Amounts reclassified from AOCI	—		—		15		15
Income tax benefit	Income tax benefit	—		118		118		Income tax benefit	—		—		118		118
Balance, March 31, 2022		$	(1)	$	(272)	$	(273)
Balance, March 31, 2022 (Predecessor Company)								Balance, March 31, 2022 (Predecessor Company)	$	(1)	$	—	$	(272)	$	(273)

Balance, April 1, 2022 (Successor Company)								Balance, April 1, 2022 (Successor Company)	$	—	$	—	$	—	$	—
Change in OCI before reclassifications								Change in OCI before reclassifications	—		245		—		245
Income tax expense								Income tax expense	—		(51)		—		(51)
Balance, June 30, 2022 (Successor Company)								Balance, June 30, 2022 (Successor Company)	$	—	$	194	$	—	$	194
Change in OCI before reclassifications								Change in OCI before reclassifications	—		149		—		149
Income tax expense								Income tax expense	—		(32)		—		(32)
Balance, September 30, 2022 (Successor Company)								Balance, September 30, 2022 (Successor Company)	$	—	$	311	$	—	$	311

(1)Includes cash flow hedges of $29 million as of March 31, ~~2022~~.2022.

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


	Predecessor Company
	Three Months Ended March 31, 2022
	(in millions)
Amounts reclassified from AOCI(1)(2):
Net unrealized investment gains (losses):
Cash flow hedges—Currency/ Interest rate(3)	$	5
Net unrealized investment losses on available-for-sale securities	(20)
Total net unrealized investment gains (losses)(4)	(15)
Total reclassifications for the period	$	(15)

(1)All amounts are shown before tax.

(2)Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.

(3)See Note 5 for additional information on cash flow hedges.

(4)See table below for additional information on unrealized investment gains (losses), including the impact on DAC and other costs and future policy benefits and other liabilities.

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

Net Unrealized Investment Losses

Net unrealized investment losses on available-for-sale fixed maturity securities and certain other invested assets and other assets were included in the Predecessor Company’s Statements of Financial Position as a component of AOCI. Changes in these amounts included reclassification adjustments to exclude from OCI those items that were included as part of “Net income” for a period that had been part of OCI in earlier periods. The amounts indicated below, split between amounts related to net unrealized investment losses on available-for-sale fixed maturity securities on which an allowance for credit losses has been recognized, and all other net unrealized investment gains (losses), are as follows:

~~Table of Contents~~

~~Fortitude Life Insurance & Annuity Company~~

~~Notes to Unaudited Interim Consolidated Financial Statements - (Continued)~~


	Predecessor Company
	Net Unrealized Gains (Losses) on All Other Investments(1)		DAC and Other Costs(2)		Future Policy Benefits and Other Liabilities(3)		Income Tax Benefit (Expense)		Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in millions)
Balance, December 31, 2021	$	240	$	(15)	$	(7)	$	(47)	$	171
Net investment gains (losses) on investments arising during the period	(591)		—		—		125		(466)
Reclassification adjustment for (gains) losses included in net income	15		—		—		(4)		11
Impact of net unrealized investment (gains) losses	—		9		6		(3)		12
Balance, March 31, 2022	$	(336)	$	(6)	$	(1)	$	71	$	(272)

(1)Includes cash flow hedges. See Note 5 for information on cash flow hedges.

(2)"Other costs" primarily includes reinsurance recoverables, DSI and VOBA.

(3)"Other liabilities" primarily includes reinsurance payables and deferred reinsurance gains.

9. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments

As of ~~March 31,~~September 30, 2023, the ~~outstanding balance on~~Company had commitments ~~for mortgage and other loans was $128 million. These amounts include unfunded commitments that are not unconditionally cancellable. The Company also made commitments~~totaling $377 million to purchase or fund investments ~~mostly~~related to private fixed maturity securities, alternative investments, and ~~alternative investments. As of March 31, 2023, $478 million of these commitments were outstanding.~~mortgage loans. These amounts include unfunded commitments that are not unconditionally cancellable. See Note 10 for further information regarding certain commitments to related parties.

Contingent Liabilities

On an ongoing basis, the Company and its regulators review its operations including, but not limited to, sales and other customer interface procedures and practices, and procedures for meeting obligations to its customers and other parties. These reviews may result in the modification or enhancement of processes or the imposition of other action plans, including concerning management oversight, sales and other customer interface procedures and practices, and the timing or computation of payments to customers and other parties. In certain cases, if appropriate, the Company may offer customers or other parties remediation and may incur charges, including the cost of such remediation, administrative costs and regulatory fines.

The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements. For additional discussion of these matters, see “Litigation and Regulatory Matters” below.

It is possible that the results of operations or the cash flows 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 flows 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.

3745

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

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 specific to the Company and proceedings generally applicable to business practices in the industry in which it operates. The Company is subject to class action lawsuits and other litigation involving a variety of issues and allegations involving sales practices, claims payments and procedures, premium charges, policy servicing and breach of fiduciary duty to customers. The Company is also subject to litigation arising out of its general business activities, such as its 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. In addition, the Company, along with other participants in the businesses in which it engages, 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 the Company’s pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of litigation or a regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain.

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but the matter, if material, is disclosed. The Company estimates that as of ~~March 31,~~September 30, 2023, the aggregate range of reasonably possible losses in excess of accruals and recoveries from unaffiliated indemnitors established for those litigation and regulatory matters for which such an estimate currently can be made is not considered to be material. This estimate is not an indication of expected loss, if any, or the Company’s maximum possible loss exposure on such matters. The Company reviews relevant information with respect to its litigation and regulatory matters on a quarterly and annual basis and updates its accruals, disclosures and estimates of reasonably possible loss based on such reviews.

Regulatory

Variable Products

Prior to its acquisition by FGH on April 1, 2022, the Company has received regulatory inquiries and requests for information from state and federal regulators, including a subpoena from the U.S. Securities and Exchange Commission, concerning the appropriateness of variable product sales and replacement activity. The Company is cooperating with regulators and may become subject to additional regulatory inquiries and other actions related to this matter.

Summary

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 flows 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 flows 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 statements. 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 statements.

3846

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

10. RELATED PARTY TRANSACTIONS

Successor Company

The Successor Company has transactions and relationships with 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 unrelated parties.

Expense Charges and Allocations

The majority of the Successor Company’s expenses are allocations or charges from FGH. These expenses primarily relate to general and administrative expenses which include accounting, actuarial, risk management, and data processing services. FGH also provides the Company with personnel and certain other services. The allocation of costs for other services are based on estimated level of usage, transactions or time incurred in providing the respective services. During the three ~~month~~and nine months ended ~~March 31,~~September 30, 2023, FLIAC was allocated $8 million and $25 million of costs for these services. During the three and six months ended September 30, 2022, FLIAC was allocated $8 million and $15 million, respectively, of costs for these services.

Intercompany Liquidity Agreement

FLIAC entered into an intercompany liquidity agreement with FGH that allows the Successor Company to borrow funds of up to $300 million to meet its short-term liquidity and other capital needs. During the three months ended ~~March 31,~~September 30, 2023, the Company borrowed ~~$120~~and repaid $82 million of funds under the agreement. In October 2023, the Successor Company borrowed an additional $75 million of funds under the agreement, all of which was also repaid in ~~full, plus interest during~~October 2023. Including the ~~same period. As~~activity in October 2023, the Company has borrowed a total of ~~March 31, 2023, there were no outstanding borrowings~~$357 million of funds under the ~~agreement.~~agreement during 2023, all of which has been repaid with interest.

Affiliated Investment and Advisory Activities

As of April 1, 2022, FLIAC became affiliated with The Carlyle Group Inc. (“Carlyle”), whereby Carlyle, through an affiliated investment fund has a 71.3% equity investment in its parent, FGH. In addition, FLIAC entered into an investment management and consulting services agreement with an affiliate of Carlyle. During the three months ended June 30, 2022, FLIAC incurred $10 million of costs from this Carlyle affiliate for services provided to the Successor Company in connection with FGH's purchase of the Company from Prudential Financial.

Certain of Carlyle's affiliates also provide investment management services for FLIAC pursuant to investment management agreements. Investment management fees are charged based on a percentage of assets under management. As of ~~March 31,~~September 30, 2023 and December 31, 2022, assets under management had a market value of ~~$754~~$773 million and $732 million, respectively, and were comprised primarily of private credit fixed income assets and limited partnership interests or investments in limited partnerships. FLIAC recognized $5$12 million and $23 million of investment income on such assets during the three and nine months ended ~~March 31, 2023.~~September 30, 2023, respectively. FLIAC recognized $2 million and $3 million of investment income on such assets during the three and six months ended September 30, 2022, respectively.

In connection with the investment management agreements, as of ~~March 31,~~September 30, 2023, FLIAC has unfunded commitments of ~~$249~~$162 million to fund private investments where one or more Carlyle entities serves as general partner to the fund.

Affiliated Asset Transfers

The Successor Company may participate in affiliated asset transfers with its parent and affiliates. Book and market value differences for trades with its parent and affiliates are recognized within "Investment gains (losses), net". The table below shows affiliated asset trades for the nine months ended September 30, 2023.

Affiliate

Date

Transaction

Security Type

Fair Value

Book Value

Investment Gains (Losses), Net

(in millions)

Fortitude Re Investments, LLC

May 2023

Sale

Limited Partnership

—

Fortitude Re Investments, LLC

May 2023

Sale

Limited Partnership

—

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

Distribution to Parent

Predecessor Company

The Predecessor Company had extensive transactions and relationships with Prudential Insurance and other former affiliates. Although the Predecessor Company sought to ensure that these transactions and relationships were fair and reasonable, it is possible that the terms of these transactions were not the same as those that would result from transactions among unrelated parties.

Expense Charges and Allocations

The Predecessor Company’s expenses were allocations or charges from Prudential Insurance or other affiliates. These expenses were grouped into general and administrative expenses and agency distribution expenses.

The Predecessor Company’s general and administrative expenses were charged using allocation methodologies based on business production processes. The Predecessor Company operated under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space were provided by Prudential Insurance. The Predecessor Company reviewed its allocation methodology periodically and made adjustments accordingly.

~~Table of Contents~~

~~Fortitude Life Insurance & Annuity Company~~

~~Notes to Unaudited Interim Consolidated Financial Statements - (Continued)~~

The Predecessor Company paid commissions and certain other fees to Prudential Annuities Distributors, Inc ("PAD"), an affiliate of the Predecessor Company, in consideration for PAD’s marketing and underwriting of the Company’s products. Commissions and fees were paid by PAD to broker-dealers who sold the Predecessor Company’s products. Commissions and fees paid by the Predecessor Company to PAD were $29 million for the three months ended March 31, 2022.

The Predecessor Company was charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Predecessor Company’s share of corporate expenses was $9 million for three months ended March 31, 2022.

Affiliated Investment Management Expenses

The Predecessor Company paid investments management expenses in accordance with an agreement with PGIM, Inc. (“PGIM”), an affiliate of the Predecessor Company and investment manager to certain Predecessor Company general account and separate account assets. Investment management expenses paid to PGIM related to this agreement were $4 million for the three months ended March 31, 2022. These expenses were recorded as “Net investment income” in the Company's Unaudited Consolidated Interim Statements of Operations and Comprehensive Income (Loss).

Affiliated Asset Management and Service Fees

The Predecessor Company had a revenue sharing agreement with AST Investment Services, Inc. (“ASTISI”) and PGIM Investments LLC (“PGIM Investments”) whereby the Predecessor Company received fee income based on policyholders' separate account balances invested in the Advanced Series Trust and The Prudential Series Fund. Income received from ASTISI and PGIM Investments related to this agreement was $22 million for the three months ended March 31, 2022. These revenues were recorded as “Asset management and service fees” in the Company's Unaudited Consolidated Interim Statements of Operations and Comprehensive Income (Loss).

Derivative Trades

In its ordinary course of business, the Predecessor Company entered into OTC derivative contracts with an affiliate, Provident Global Funding, LLC (“PGF”). For these OTC derivative contracts, PGF had a substantially equal and offsetting position with an external counterparty. See Note 5 for additional information.

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements

Affiliated Asset Transfers

The Predecessor Company participated in affiliated asset trades with former parent and sister companies. Book and market value differences for trades with a parent and sister were recognized within "Investment gains (losses), net". The table below shows affiliated asset trades for the three months ended March 31, 2022.

Affiliate

Date

Transaction

Security Type

Fair Value

Book Value

Realized
Investment
Gain (Loss)

(in millions)

Pruco Life

January 2022

Sale

Fixed Maturity Securities

(1)

Prudential Financial

January 2022

Sale

Commercial Mortgage Loan

(1)

Pruco Life

January 2022

Sale

Derivatives

—

Pruco Life

February 2022

Sale

Fixed Maturity Securities

129

138

(9)

Prudential Financial

March 2022

Sale

Fixed Maturity Securities

—

Contributed Capital and Dividends

Through March 31, 2022, the Predecessor Company did not receive any capital contributions.

In March 2022, the Predecessor Company had a return of capital in the amount of $306 million to PAI.

4049

Table of Contents

Fortitude Life Insurance & Annuity Company

Notes to Unaudited Interim Consolidated Financial Statements ~~- (Continued)~~

Reinsurance with Affiliates of Predecessor Company

Reinsurance amounts, included in the Predecessor Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss), were as follows:


	Three Months Ended March 31
	2022
	(in millions)
Premiums:
Direct	$	9
Ceded	(1)
Net premiums	8
Policy charges and fee income:
Direct	102
Ceded	(5)
Net policy charges and fee income	97
Asset management and service fees:
Direct	22
Ceded	(2)
Net asset management and service fees	20
Realized investment gains (losses), net:
Direct	312
Ceded	169
Realized investment gains (losses), net	481
Policyholders' benefits (including change in reserves):
Direct	31
Ceded	(5)
Net policyholders' benefits (including change in reserves)	26
Interest credited to policyholders’ account balances:
Direct	91
Ceded	(6)
Net interest credited to policyholders’ account balances	85
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	(41)

4150

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Prior to April 1, 2022, Fortitude Life Insurance & Annuity Company ("FLIAC" or the "Company"), which was previously named Prudential Annuities Life Assurance Corporation ("PALAC"), was a wholly-owned subsidiary of Prudential Annuities, Inc ("PAI"), an indirect wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey Corporation. On April 1, 2022 PAI completed the sale of its equity interest in the Company to Fortitude Group Holdings, LLC ("FGH"). As a result, the Company is no longer an affiliate of Prudential Financial or any of its affiliates.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of FLIAC as of ~~March 31,~~September 30, 2023 and its results of operations for the three months ended ~~March 31,~~September 30, 2023. The MD&A also addresses the results of operations of PALAC for the three months ended March 31, 2022 compared to the same prior year period. ~~Other periods presented in the consolidated statement of financial condition or consolidated statement~~The Company's results of operations for the nine months ended September 30, 2023 are not comparable with the same period of 2022 due to the election to apply push-down accounting to the Company following its acquisition by FGH. See "Accounting Policies & Pronouncements" for further information. You should read the following analysis of our financial condition and results of operations in conjunction with the MD&A, the “Risk Factors” section, and the audited Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as well as the statements under “Forward-Looking Statements”, and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

4251

Table of Contents

Overview

The Company was established in 1969 and has been a provider of 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 Company has sold a wide array of annuities, including deferred and immediate variable annuities with (1) fixed interest rate allocation options, subject to a market value adjustment, that are registered with the United States Securities and Exchange Commission (the “SEC”), and (2) fixed-rate allocation options subject to a limited market value adjustment or no market value adjustment and not registered with the SEC. The Company ceased offering these products.

Fair Value of Insurance Liabilities - Assumption Update

The assumptions used in establishing our insurance liabilities are generally based on the Company’s experience, industry experience, market observable data, and/or other factors, as applicable. The Company evaluates its actuarial assumptions at least annually and updates them as appropriate, unless a material change that the Company feels is indicative of a long-term trend is observed in an interim period. Generally, the Company does not expect trends to change significantly in the short-term and, to the extent these trends may change, the Company expects such changes to be gradual over the long-term. See Note 7 in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion regarding significant assumptions related to our fair value of insurance liabilities.

Goodwill Impairment

Novation of Ceded Business

Table of Contents

Banking Receiverships

~~Since March~~In 2023, multiple banks (such as Silicon Valley Bank, Signature Bank, and First Republic Bank) ~~were~~have been placed into receivership or acquired by another bank pursuant to the Federal Deposit Insurance Corporation’s regulatory authority. As of ~~March 31,~~September 30, 2023, we did not have cash deposits or direct equity or fixed income general account investments in these banks.

Impact of a Changing Interest Rate Environment

As a financial services company, market interest rates are a key driver of our results of operations and financial condition. Changes in interest rates can affect our results of operations and/or our financial condition in several ways, including favorable or adverse impacts to:

•investment-related activity, including: investment income returns, net interest margins, net investment spread results, new money rates, mortgage loan prepayments and bond redemptions;

•the recoverability of deferred tax assets related to losses on our fixed maturity securities portfolio;

•hedging costs and other risk mitigation activities;

•insurance reserve levels and market experience true-ups;

•customer account values, including their impact on fee income;

•product design features, crediting rates and sales mix; and

•policyholder behavior, including surrender or withdrawal activity.

For more information on interest rate risks, see “Risk Factors—Market Risk” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Revenues and Expenses

The Company earns revenues principally from contract fees, mortality and expense fees, and asset administration fees from annuity and investment products, all of which primarily result from the sale and servicing of annuity products. The Company also earns net investment income from the investment of general account and other funds. The Company’s operating expenses principally consist of annuity benefit guarantees provided, reserves established for anticipated future annuity benefit guarantees, and costs of managing risk related to these products. The Company's operating expenses also include interest credited to policyholders' account balances, general business expenses, reinsurance premiums, and commissions and other costs of selling and servicing the various products it sold.

4353

Table of Contents

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

Following the acquisition of FLIAC, purchase accounting was applied to FGH's financial statements and we have elected to "push down" the basis to FLIAC in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. The application of push-down accounting created a new basis of accounting for all assets and liabilities based on fair value at the date of acquisition. As a result, FLIAC's financial position, results of operations, and cash flows subsequent to the acquisition are not comparable with those prior to April 1, 2022, and therefore have been segregated to indicate pre-acquisition and post-acquisition periods. The pre-acquisition period through March 31, 2022 is referred to as the Predecessor Company. The post-acquisition period, April 1, 2022 and forward, includes the impact of push-down accounting and is referred to as the Successor Company.

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:

•Insurance liabilities;

•Valuation of investments, including derivatives; and

•Taxes on income, including valuation allowances

Recent Accounting Pronouncements

Effective ASUs - ~~March 31,~~September 30, 2023

4454

Table of Contents

Segment and Product Overview

Our business is comprised of two major blocks of in-force policies, which we refer to as the “Retained Business” and the “Ceded Business”. The Retained Business consists of variable annuity products with guaranteed lifetime withdrawal benefit features as well as smaller blocks of variable annuity products with certain other living benefit and death benefit features. The Retained Business also includes variable universal life and fixed payout annuity products. The Retained Business is actively managed by FLIAC management and the Successor Company retains the full economic benefits and risks. The Retained Business consists of variable annuity contracts originated between 1993 – 2010. These products allow the holder to direct investments into certain separate account funds to receive tax deferred build-up within the contract. Most of the contracts have optional living benefit riders, commonly known as guaranteed minimum withdrawal benefits, which entitle the holder to elect to withdraw a guaranteed amount from the contract while alive, irrespective of the balance in their separate account. Almost all of the contracts also offer a guaranteed amount payable to a beneficiary upon the death of the holder, which is commonly known as a guaranteed minimum death benefit.

The Ceded Business represents certain business (primarily registered index linked-annuities and fixed annuities, which includes fixed indexed and fixed deferred annuities, and other variable annuities) where 100 percent of the assets and liabilities have been fully ceded to Prudential Insurance and Pruco Life under existing coinsurance and modified coinsurance agreements. The Ceded Business will continue to impact certain line items within the Company’s financial statements but will not have a material impact to stockholders’ equity or net income and will represent the economic impact ofassumed by Prudential Insurance and Pruco Life.

4555

Table of Contents

Changes in Financial Position

The following is a discussion regarding changes in the financial position of the Successor Company by reportable segment.

Retained Business

Assets ~~increased~~declined approximately ~~$0.5 billion~~$707 million to $25,838 million at September 30, 2023 from ~~$26.5 billion~~$26,545 million at December 31, ~~2022 to $27.0 billion at March 31, 2023.~~2022. The ~~increase~~decrease was primarily driven by a ~~$0.4 billion increase~~decline in separate account assets, due primarily to equity market ~~appreciation and~~movements. Also impacting the decline in assets was the impairment of goodwill. Partially offsetting the decline was a ~~$0.2 billion~~ net increase in ~~fixed maturity securities and~~ cash and ~~cash equivalents.~~invested assets driven by purchases of mortgage loans and higher other invested assets related to derivatives. See "Goodwill Impairment" within the "Overview" section herein Item 2 for further information.

Liabilities ~~increased~~decreased approximately ~~$0.4 billion~~$496 million to $24,462 million at September 30, 2023 from ~~$25.0 billion~~$24,958 million at December 31, ~~2022 to $25.4 billion at March 31, 2023.~~2022. The ~~increase~~decrease was primarily driven by ~~a $0.4 billion increase in~~lower separate account liabilities, corresponding to the ~~increase~~decrease in separate account assets, as discussed above. Also contributing to the decline in liabilities was a decrease in the fair value of insurance liabilities due to favorable interest rate and equity market movements, partially offset by the impact of the actuarial assumption update. Partially offsetting the decrease in overall liabilities was an increase in our repurchase agreement liability. See "Actuarial Assumption Update" within the "Overview" section herein Item 2 for further information.

Equity ~~was~~decreased approximately ~~$1.6 billion~~$211 million to $1,376 million at ~~both~~September 30, 2023 from $1,587 million at December 31, 2022, ~~and March 31, 2023,~~ with a net ~~income~~loss of $7$57 million and an increase in our own-credit risk (OCR) impact on the fair value of insurance liabilities, net of tax, of ~~$17~~$109 million reflected in accumulated other comprehensive ~~income (loss). Offsetting these increases~~income. Also contributing to the decline in equity was a reduction in additional paid-in capital related to a $45 million distribution ~~payable~~ to FGH as a result of updated information regarding certain tax assets related to the acquisition of FLIAC. See "Capital" within the "Liquidity and Capital Resources" herein Item 2 for further information regarding the distribution to FGH.

Ceded Business

Assets ~~were generally consistent between March 31,~~decreased $920 million to $4,077 million at September 30, 2023 ~~and December 31, 2022 with an increase of $0.1 billion~~ from ~~$5.0 billion~~$4,997 million at December 31, 2022 due primarily to ~~$5.1 billion at March 31,~~novation activity during 2023. See "Novation of Ceded Business" within the "Overview" section herein Item 2 for further information.

Liabilities ~~were generally consistent between March 31,~~decreased $920 million to $4,077 million at September 30, 2023 ~~and December 31, 2022, with an increase of $0.1 billion~~ from ~~$5.0 billion~~$4,997 million at December 31, 2022 due primarily to ~~$5.1 billion at March 31,~~the above-mentioned novation activity during 2023.

There was no equity within our Ceded Business at both September 30, 2023 and December 31, 2022 ~~and March 31, 2023~~ as the assets are fully offset by the liabilities.

Results of Operations

As noted under Accounting Policies and Pronouncements, the Company's results of operations ~~subsequent to~~for the ~~acquisition~~nine months ended September 30, 2023 are not comparable with ~~those prior to April 1,~~the same period of 2022. As a result, the following discussion regarding the results of operations of the Successor Company for this specific period will not be compared to previous ~~periods~~period and will be based solely on activity for the ~~periods~~period subsequent to the acquisition. ~~Also included below is discussion regarding the results of operations as previously disclosed in the Predecessor Company's first quarter of 2022 10-Q.~~

SUCCESSOR COMPANY

~~INCOME~~LOSS FROM OPERATIONS BEFORE INCOME TAXES

Three Months Comparison to Prior Period

Retained Business

Loss from operations before income taxes was $223 million for the three months ended September 30, 2023 compared to a loss from operations before income taxes of $154 million for the three months ended September 30, 2022. The increase in the loss from operations was driven primarily by the actuarial assumption update and the impairment of goodwill, partially offset by lower investment losses in the fixed maturity securities portfolio.

Table of Contents

Ceded Business

There was no impact to the income from operations before income taxes as all revenues and expenses are ceded to Prudential Insurance or Pruco Life.

Nine Months Ended ~~March 31,~~September 30, 2023

Retained Business

The ~~income~~loss from operations before income taxes of $7$61 million was driven ~~primarily~~ by investment losses, the actuarial assumption update, and the goodwill impairment. Partially offsetting this activity were policy charges and fee income, ~~and~~ net investment ~~income. Also contributing to the~~ income, from operations before income taxes were investment gains in the fixed maturity securities portfolio, which were partially offset by losses related to derivatives. Partially offsetting the income from operations before income tax were increasesand an favorable movements in the fair value of insurance liabilities, excluding changes in OCR, due primarily to favorable interest rate and equity market movements.

Ceded Business

There was no impact to the income from operations before income taxes as all revenues and expenses are ceded to Prudential Insurance or Pruco Life.

REVENUES, BENEFITS, AND EXPENSES

Three Months Comparison to Prior Period

Retained Business

Revenues were $(232) million for the three months ended September 30, 2023 compared to $(255) million during the three months ended September 30, 2022. The change was primarily driven by lower investment losses in the fixed maturity securities portfolio, partially offset by lower policy charges and fee income driven by lower assets under management due to the run off of the business.

Benefits and expenses were $(9) million in the three months ended September 30, 2023 compared to $(101) million during the three months ended September 30, 2022. The change was driven primarily by ~~unfavorable~~the actuarial assumption update and the impairment of goodwill.

Ceded Business

There was no impact to the income from operations before income taxes as all revenues and expenses are ceded to Prudential Insurance or Pruco Life.

Nine Months Ended September 30, 2023

Retained Business

Revenues were $(197) million, driven primarily by investment losses in both fixed maturity securities and derivatives, partially offset by policy charges and fee income and net investment income.

Benefits and expenses were $(136) million, driven primarily by decreases in the fair value of insurance liabilities, excluding changes in OCR, due to favorable interest rate and equity market movements, partially offset by ~~favorable equity market movements.~~the actuarial assumption update.

Ceded Business

There was no impact to the income from operations before income taxes as all revenues and expenses are ceded back to Prudential Insurance or Pruco Life.

4657

Table of Contents

~~REVENUES, BENEFITS, AND EXPENSES~~

~~Three Months Ended March 31, 2023~~

~~Retained Business~~

Revenues were $233 million for the three months ended March 31, 2023, driven primarily by policy charges and fee income and net investment income. Also contributing to the income from operations before income taxes were investment gains in the fixed maturity securities portfolio, which were partially offset by losses related to derivatives.

Benefits and expenses were $226 million for the three months ended March 31, 2023, driven primarily by increases in the fair value of insurance liabilities, excluding changes in OCR, due primarily to unfavorable interest rate movements, partially offset by favorable equity market movements.

~~Ceded Business~~

~~There was no impact to the income from operations before income taxes as all revenues and expenses are ceded back to Prudential Insurance or Pruco Life.~~

PREDECESSOR COMPANY

LOSS FROM OPERATIONS BEFORE INCOME TAXES

Three Months ~~Ended March 31, 2022~~Comparison to Prior Period

Income (loss) from operations before income taxes decreased $2 billion from a gain of $2.4 million for the three months ended March 31, 2021 to a gain of $0.4 billion for the three months ended March 31, 2022, primarily driven by:

•Realized investment gains (losses), net decrease reflecting prior year's favorable impact related to the portions of our U.S. GAAP liability before NPR, that are excluded from our hedge targets driven by rising interest rates and favorable prior year equity market performance.

The following table provides the net impact to the Unaudited Interim Statements of Operations for the Predecessor Company, which is primarily driven by the changes in the U.S. GAAP embedded derivative liability and hedge positions under the Asset Liability Management ("ALM") strategy, and the related amortization of DAC and other costs.


	Three Months Ended March 31
	2022
	(in millions) (1)
U.S. GAAP embedded derivative and hedging positions
Change in value of U.S.GAAP liability, pre-NPR(2)	$	459
Change in the NPR adjustment	156
Change in fair value of hedge assets, excluding capital hedges(3)	(392)
Change in fair value of capital hedges(4)	39
Other	218
Realized investment gains (losses), net, and related adjustments	480
Market experience updates(5)	(57)
Charges related to realized investments gains (losses), net	(97)
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs(6)	$	326

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

~~Table of Contents~~

(2) Represents the change in the liability (excluding NPR) for our variable annuities which is measured utilizing a valuation methodology that is required under U.S. GAAP. This liability includes such items as risk margins which are required by U.S. GAAP but not included in our best estimate of the liability.

(3) Represents the changes in fair value of the derivatives utilized to hedge potential claims associated with our variable annuity living benefit guarantees.

(4) Represents the changes in fair value of equity derivatives of the capital hedge program intended to protect a portion of the overall capital position of our business against exposure to the equity markets.

(5) Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability.

(6) Excludes amounts from the changes in unrealized gains and losses from fixed income instruments recorded in OCI (versus net income) of $(70) million for the three months ended March 31, 2022.

For the three months ended March 31, 2022, the gain of $326 million was driven by a favorable impact related to the U.S. GAAP liability before NPR, net of change in fair value of hedge assets (excluding capital hedge) largely due to rising interest rates.

Table of Contents

REVENUES, BENEFITS, AND EXPENSES

Three Months Ended March 31, 2022

Revenues decreased $2.4 billion from a gain of $3.1 billion for the three months ended March 31, 2021 to a gain of $0.7 billion for the three months ended March 31, 2022 primarily driven by:

Income Taxes

For information regarding income taxes, see Note 7 to the Consolidated Unaudited Interim Financial Statements.

Liquidity and Capital Resources

This section supplements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Overview

Liquidity is a measure of a company’s ability to generate cash flows sufficient to meet the short-term and long-term cash requirements of the Company. Capital refers to the long-term financial resources available to support the operations of our business, fund business growth, and provide a cushion to withstand adverse circumstances. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our business, general economic conditions, our ability to borrow and our access to capital markets.

Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon. We use a Risk Appetite Framework ("RAF") to ensure that all risks taken by the Company aligns with our capacity and willingness to take those risks. The RAF provides a dynamic assessment of capital and liquidity stress impacts, including scenarios similar to, and more severe than, those occurring due to COVID-19, and is intended to ensure that sufficient resources are available to absorb those impacts. We believe that our capital and liquidity resources are sufficient to satisfy the capital and liquidity requirements of the Company.

Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital, leverage, liquidity, stress-testing, overall risk management, credit exposure reporting and credit concentration. For information on these regulatory initiatives and their potential impact on us, see “Business - Regulation" and “Risk Factors” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

~~Table of Contents~~

Capital

We manage FLIAC to regulatory capital levels and utilize the risk-based capital (“RBC”) ratio as a primary measure of capital adequacy. RBC is calculated based on statutory financial statements and risk formulas consistent with the practices of the National Association of Insurance Commissioners ("NAIC"). RBC considers, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer’s products and liabilities, equity market and interest rate risks and general business risks. RBC determines the minimum amount of capital required of an insurer to support its operations and underwriting coverage. The ratio of a company’s Total Adjusted Capital (TAC) to RBC is the corresponding RBC ratio. RBC ratio calculations are intended to assist insurance regulators in measuring an insurer’s solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public. The Company’s capital levels substantially exceed the minimum level required by applicable insurance regulations. Our regulatory capital levels may be affected in the future by changes to the applicable regulations, proposals for which are currently under consideration by both domestic and international insurance regulators.

Table of Contents

The regulatory capital level 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, and credit quality migration of the investment portfolio, among other items. In addition, the reinsurance of business or the recapture of business subject to reinsurance arrangements due to defaults by, or credit quality migration affecting, the reinsurers or for other reasons could negatively impact regulatory capital levels. The Company’s regulatory capital level is also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator.

The Successor Company made a distribution of $45 million to its parent, FGH, during the nine months ended September 30, 2023 after receiving updated information regarding certain tax assets related to the acquisition of FLIAC.

The Predecessor Company made distributions of $306 million to its parent, PAI, for the three months ended March 31, 2022. ~~The Successor Company made no distributions to FGH during the three months ended March 31, 2023.~~

Liquidity

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 the Company. We use a projection process for cash flows from operations to ensure sufficient liquidity to meet projected cash outflows, including claims.

Liquidity is measured against internally-developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. We consider attributes of the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our liquidity under various stress scenarios, including company-specific and market-wide events. We continue to believe that cash generated by ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios.

The principal sources of the Company’s liquidity are premiums and certain annuity considerations, investment and fee income, investment maturities, sales of investments, borrowings from its parent and ~~internal borrowings.~~affiliates, and banking relationships through secured or unsecured agreements. The principal uses of that liquidity include benefits, claims, and payments to policyholders and contractholders in connection with surrenders, withdrawals and net policy loan activity. Other uses of liquidity include commissions, general and administrative expenses, purchases of investments, the payment of dividends and returns of capital to the parent company, hedging and reinsurance activity and payments in connection with financing activities.

In managing liquidity, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions when selecting assets to support these contractual obligations. We also consider the risk of future collateral requirements under stressed market conditions in respect of the derivatives we utilize.

Liquid Assets

Liquid assets include cash and cash equivalents, short-term investments, fixed maturity securities, and public equity securities. As of ~~both March 31,~~September 30, 2023 and December 31, 2022, the Company had liquid assets of ~~approximately $6~~$5.5 billion and $6.1 billion, respectively, which includes ~~approximately $2~~$1.4 billion and $2.1 billion of modified coinsurance assets incontained within the Ceded business, for each respective period. ~~The~~As of September 30, 2023 and December 31, 2022, the portion of liquid assets comprised of cash and cash equivalents and short-term investments was ~~approximately $1~~$0.6 billion asand $0.9 billion, respectively. The decline between periods for each of ~~both March 31, 2023 and December 31, 2022.~~these balances was driven by novation activity in the Ceded business. See "Novation of Ceded Business" within the "Overview" section herein Item 2 for further information.

~~Table of Contents~~

Table of Contents

Liquidity Regarding Hedging Activities

The hedging portion of our risk management strategy for the Retained Business is being managed within the Company. We enter into a range of exchange-traded, cleared, and other OTC derivatives in order to hedge market sensitive exposures against changes in certain capital market risks. The portion of the risk management strategy comprising the hedging portion requires access to liquidity to meet the Company's payment obligations relating to these derivatives, such as payments for periodic settlements, purchases, maturities and terminations. These liquidity needs can vary materially due to, among other items, changes in interest rates, equity markets, mortality, and policyholder behavior.

The hedging portion of the risk management strategy may also result in derivative-related collateral postings to (when we are in a net pay position) or from (when we are in a net receive position) counterparties. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Depending on market conditions, the collateral posting requirements can result in material liquidity needs when we are in a net pay position.

Repurchase Agreements and Securities Lending

In the normal course of business, we may enter into repurchase agreements and securities lending agreements with unaffiliated financial institutions, which are typically large or highly rated, to earn spread income and facilitate trading activity. Under these agreements, the Company transfers securities to the counterparty and receives cash as collateral. The cash received is generally invested in short-term investments, or fixed maturity ~~securities.~~securities, or mortgage and other loans.

For repurchase agreements, a liability representing the amount that the securities will be repurchased is recorded in "Other liabilities" in our consolidated statement of financial position. For securities lending agreements, a liability representing the return of cash collateral is recorded in "Other liabilities" in our consolidated statement of financial position. As of ~~March 31,~~September 30, 2023, the liabilities associated with our outstanding repurchase ~~and~~agreements were $1,009 million. There were no outstanding securities lending agreements ~~were $301 million and $164 million, respectively.~~as of September 30, 2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of ~~March 31,~~September 30, 2023, there have been no material changes in our economic exposure to market risk from December 31, 2022, a description of which may be found in our Annual Report on Form 10-K for the year ended December 31, 2022, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the SEC. See Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.

5061

Table of Contents

Item 4. Controls and Procedures

In order to provide reasonable assurance 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, has reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Securities Exchange Act of 1934, as amended (“Exchange Act”) Rule 15d-15(e), as of ~~March 31,~~September 30, 2023. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~March 31,~~September 30, 2023 our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~September 30, 2023 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Note 9 to the Unaudited Interim Financial Statements under “Litigation and Regulatory Matters” for a description of certain pending litigation and regulatory matters affecting us, and certain risks to our business presented by such matters, which is incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. 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” and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q.

5162

Table of Contents

Item 6. Exhibits


EXHIBIT INDEX

~~3(i)(e) Copy of the Amended and Restated Articles of Incorporation of Fortitude Life Insurance & Annuity Company, effective May 24, 2022~~

~~3(ii)(d) Copy of the Second Amended and Restated Bylaws of Fortitude Life Insurance & Annuity Company, effective April 1, 2022~~

31.1 Section 302 Certification of the Chief Executive Officer

31.2 Section 302 Certification of the Chief Financial Officer

32.1 Section 906 Certification of the Chief Executive Officer

32.2 Section 906 Certification of the Chief Financial Officer

101.INS - XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH - XBRL Taxonomy Extension Schema Document.

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

104.Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

5263

Table of Contents

SIGNATURES

Pursuant to the requirements 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.


FORTITUDE LIFE INSURANCE & ANNUITY COMPANY

By:						/s/ Kai Talarek
Name						Kai Talarek
						~~Senior~~Executive Vice President and Chief Financial Officer
						(Authorized Signatory and Principal Financial Officer)

Date: ~~May 12,~~November 9, 2023

5364


	Successor Company		Predecessor Company
	Three Months Ended March 31,
	2023		2022
REVENUES
Premiums	$	7	$	8
Policy charges and fee income	117		97
Net investment income	76		99
Asset management and service fees	22		20
Other income (loss)	1		(19)
Investment gains, net	165		481
TOTAL REVENUES	388		686

BENEFITS AND EXPENSES
Policyholder benefits and changes in fair value of insurance liabilities	340		—
Policyholder benefits	—		26
Interest credited to policyholders’ account balances	—		85
Amortization of deferred policy acquisition costs	—		104
Commission expense	23		35
General, administrative and other expenses	18		3
TOTAL BENEFITS AND EXPENSES	381		253

INCOME FROM OPERATIONS BEFORE INCOME TAXES	7		433
Income tax expense	—		77
NET INCOME	$	7	$	356
Other comprehensive income (loss), before tax:
Changes in own-credit risk related to insurance liabilities	22		—
Net unrealized investment losses	—		(561)
Total	22		(561)
Less: Income tax expense (benefit) related to other comprehensive income (loss)	5		(118)
Other comprehensive income (loss), net of taxes	17		(443)
COMPREHENSIVE INCOME (LOSS)	$	24	$	(87)