UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

Form 10-Q

(MARK ONE)

Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 2017

2018
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

CF Corporation

Commission file number: 001-37779
FGL HOLDINGS
(Exact name of registrant as specified in its charter)

Cayman Islands
 001-37779

Cayman Islands N/A98-1354810
(State or other jurisdiction of incorporation)
incorporation or organization)
Boundary Hall, Cricket Square
4th Floor
Grand Cayman, Cayman Islands
(I.R.S. Employer
Identification No.)
(Address of principal executive offices, including zip code)
 (Commission File Number)(IRS Employer Identification No.)

1701 Village Center Circle, Las Vegas, Nevada 89134


(800) 445-6758
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: 702-323-7331

code)


Not Applicable

(Former name, or former address and former fiscal year, if changed since last report)

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

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

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


Large accelerated filerAccelerated Filer¨xAccelerated filerFiler¨
Non-accelerated filer  (DoFiler¨(Do not check if a smaller reporting company)x
Smaller reporting companyCompany¨
Emerging growth companyx¨

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  x¨   or    No  ¨x

As of November 14, 2017,August 6, 2018, there were 69,000,000 Class A214,370,000 ordinary shares, $0.0001 par value, and 15,000,000 Class B ordinary shares, $0.0001$.0001 par value, issued and outstanding.


CF CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2017

FGL HOLDINGS
TABLE OF CONTENTS


 Page
PART I. FINANCIAL INFORMATION 
Item 1.Financial Statements (Unaudited)
Management’s Management's Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3.Quantitative and Qualitative Disclosures About Market Risk33
PART II. OTHER INFORMATION 
33
PART II. OTHER INFORMATION
Item 1.Legal Proceedings34
Item 1A.Risk Factors34
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
34
Exhibits35


PART I.I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CF CORPORATION

FGL HOLDINGS
CONDENSED CONSOLIDATED BALANCE SHEETS

  September 30, 2017  December 31,2016 
  (unaudited)    
Assets        
Current assets:        
Cash and cash equivalents $479,025  $1,016,157 
Prepaid expenses and other current assets  5,386,594   96,381 
Total current assets  5,865,619   1,112,538 
         
Investments and cash equivalents held in Trust Account  693,802,061   690,887,027 
Total Assets $699,667,680  $691,999,565 
         
Liabilities and Shareholders' Equity        
Current liabilities:        
Accounts payable and accrued expenses $20,294,491  $491,765 
Accounts payable - related party  160,000   70,000 
Accrued commitment fee  5,312,500   70,000 
Due to related parties  975,733   225,733 
Total current liabilities  26,742,724   857,498 
         
Accrued legal and printer costs  -   995,634 
Deferred underwriting commissions and placement agent fees  44,550,000   44,550,000 
Total Liabilities  71,292,724   46,403,132 
         
Commitments        
Class A ordinary shares subject to possible redemption, $0.0001 par value; 62,337,495 and 64,066,643 shares at September 30, 2017 and December 31, 2016, respectively  623,374,950   640,666,430 
         
Shareholders' Equity:        
Preferred shares, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding at September 30, 2017 and December 31, 2016  -   - 
Class A ordinary shares, $0.0001 par value; 400,000,000 shares authorized; 6,662,505 and 4,933,357 issued and outstanding (excluding 62,337,495 and 64,066,643 shares subject to possible redemption) at September 30, 2017 and December 31, 2016, respectively  666   493 
Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 15,000,000 shares issued and outstanding at September 30, 2017 and December 31, 2016  1,500   1,500 
Additional paid-in capital  22,569,539   5,278,232 
Accumulated deficit  (17,571,699)  (280,222)
Total Shareholders' Equity  5,000,006   5,000,003 
Total Liabilities and Shareholders' Equity $699,667,680  $692,069,565 

The

(In millions, except share data)
 June 30,
2018

December 31,
2017
 (Unaudited)  
ASSETS


Investments:


Fixed maturity securities, available-for-sale, at fair value (amortized cost: June 30, 2018 - $21,061; December 31, 2017 - $20,847)$20,326

$20,963
Equity securities, at fair value (cost: June 30, 2018 - $1,378; December 31, 2017 - $1,392)1,344

1,388
Derivative investments312

492
Short term investments

25
Commercial mortgage loans525

548
Other invested assets353

188
Total investments22,860

23,604
Cash and cash equivalents1,710
 1,215
Accrued investment income215
 211
Funds withheld for reinsurance receivables, at fair value769
 756
Reinsurance recoverable2,476
 2,494
Intangibles, net1,084
 856
Deferred tax assets, net286
 176
Goodwill476
 476
Other assets154
 141
Total assets$30,030
 $29,929
 


LIABILITIES AND SHAREHOLDERS' EQUITY


 


Contractholder funds$22,574

$21,844
Future policy benefits, including $737 and $728 at fair value at June 30, 2018 and December 31, 2017, respectively4,710

4,751
Liability for policy and contract claims74

78
Debt540

307
Revolving credit facility

105
Other liabilities794

892
Total liabilities28,692

27,977
 


Commitments and contingencies ("Note 12")


 


 Shareholders' equity:
 
Preferred stock ($.0001 par value, 100,000,000 shares authorized, 384,489 and 375,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively)
 
Common stock ($.0001 par value, 800,000,000 shares authorized, 214,370,000 issued and outstanding at June 30, 2018 and December 31, 2017, respectively)
 
Additional paid-in capital2,047
 2,037
Retained earnings (Accumulated deficit)(106) (160)
Accumulated other comprehensive income (loss)(603) 75
Total shareholders' equity1,338
 1,952
Total liabilities and shareholders' equity$30,030
 $29,929
    

See accompanying unaudited notes are an integral part of theseto unaudited condensed consolidated financial statements.

1


CF CORPORATION


FGL HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

           For the period from 
  For the Three Months Ended September 30,  For the Nine Months Ended  February 26, 2016 (inception) 
  2017  2016  September 30, 2017  through September 30, 2016 
General and administrative expenses $828,436  $289,524  $20,206,511  $972,232 
Loss from operations  (828,436)  (289,524)  (20,206,511)  (972,232)
Interest income  1,445,792   427,153   2,915,034   451,838 
Net income (loss) $617,356  $137,629  $(17,291,477) $(520,394)
                 
Weighted average shares outstanding(1)                
Basic(2)  21,723,569   19,970,987   20,541,255   17,971,321 
Diluted  84,000,000   84,000,000   20,541,255   17,971,321 
                 
Net earnings (loss) per share                
Basic $0.03  $0.01  $(0.84) $(0.03)
Diluted $0.01  $0.00  $(0.84) $(0.03)

(1) Share amounts have been retroactively restated

(In millions, except share data)

 Three Months Ended Six months ended
 June 30, 2018  June 30, 2017 June 30,
2018
 June 30,
2017
    Predecessor   Predecessor
 (Unaudited)  (Unaudited) (Unaudited) (Unaudited)
Revenues:        
Premiums$15
  $12
 $33
 $15
Net investment income282
  257
 545
 504
Net investment gains (losses)(2)  67
 (193) 148
Insurance and investment product fees and other45
  44
 93
 88
Total revenues340
  380
 478
 755
Benefits and expenses:        
Benefits and other changes in policy reserves249
  235
 231
 503
Acquisition and operating expenses, net of deferrals46
  40
 86
 73
Amortization of intangibles10
  51
 33
 84
        Total benefits and expenses305
  326
 350
 660
Operating income35
  54
 128
 95
Interest expense(7)  (6) (13) (12)
Income before income taxes28
  48
 115
 83
Income tax expense(8)  (16) (43) (29)
        Net income$20
  $32
 $72
 $54
Less preferred stock dividend7
  
 14
 
Net income available to common shareholders$13
  $32
 $58
 $54
Net income per common share        
         
Basic$0.06
  $0.54
 $0.27
 $0.92
Diluted$0.06
  $0.54
 $0.27
 $0.92
Weighted average common shares used in computing net income per common share:        
Basic214,370,000
  58,335,216
 214,370,000
 58,330,848
Diluted214,379,114
  58,444,618
 214,376,439
 58,413,852
         
Cash dividend per common share$
  $0.065
 $
 $0.130
         
         
Supplemental disclosures        
Total other-than-temporary impairments$
  $
 $(2) $(21)
Portion of other-than-temporary impairments included in other comprehensive income
  
 
 
Net other-than-temporary impairments
  
 (2) (21)
Gains (losses) on derivatives and embedded derivatives44
  74
 (101) 173
Other investment gains (losses)(46)  (7) (90) (4)
        Total net investment gains (losses)$(2)  $67
 $(193) $148


See accompanying notes to reflect the share capitalization of approximately 4.217 shares for each outstanding Class B ordinary share on April 21, 2016.

(2) This number excludes an aggregate of up to 62,337,495 and 64,042,626 shares subject to possible redemption at September 30, 2017 and 2016, respectively.

The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.

2


CF CORPORATION

FGL HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
 Three months ended Six months ended
 June 30, 2018  June 30, 2017 June 30,
2018
 June 30,
2017
    Predecessor Predecessor Predecessor
 (Unaudited)  (Unaudited) (Unaudited) (Unaudited)
Net income$20
  $32
 $72
 $54
         
Other comprehensive income (loss):        
Unrealized investment gains/losses:        
Change in unrealized investment gains/losses before reclassification adjustment(385)  374
 (911) 672
Net reclassification adjustment for gains/losses included in net income21
  7
 61
 24
Changes in unrealized investment gains/losses after reclassification adjustment(364)  381
 (850) 696
Adjustments to intangible assets and unearned revenue14
  (113) 52
 (214)
Changes in deferred income tax asset/liability25
  (92) 116
 (168)
Net change in unrealized gains/losses on investments(325)  176
 (682) 314
Non-credit related other-than-temporary impairment:        
Changes in non-credit related other than-temporary impairment
  
 
 
Net non-credit related other-than-temporary impairment
  
 
 
Net changes to derive comprehensive income (loss) for the period(325)  176
 (682) 314
Comprehensive income (loss), net of tax$(305)  $208
 $(610) $368

See accompanying notes to unaudited condensed consolidated financial statements.


FGL HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited) (In millions)

  Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity
             
Balance, December 31, 2017 
 
 2,037
 (160) 75
 1,952
Dividends 
 
 9
 (14) 
 (5)
Net income 
 
 
 72
 
 72
Unrealized investment gains (losses), net 
 
 
 
 (682) (682)
Cumulative effect of changes in accounting principles 
 
 
 (4) 4
 
Stock-based compensation 
 
 1
 
 
 1
Balance, June 30, 2018 $
 $
 $2,047
 $(106) $(603) $1,338
             

See accompanying notes to unaudited condensed consolidated financial statements.


FGL HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

     For the period from 
  For the Nine Months Ended  February 26, 2016 (inception) 
  September 30, 2017  through September 30, 2016 
Cash Flows from Operating Activities        
Net loss $(17,291,477) $(520,394)
Adjustments to reconcile net loss to net cash used in operating activities:        
Formation expenses paid by Sponsor  -   5,000 
Interest earned on investments and cash equivalents held in Trust Account  (2,915,034)  (451,838)
Changes in operating assets and liabilities:        
Prepaid expenses  22,287   (89,459)
Accounts payable and accrued expenses  19,802,726   614,654 
Accounts payable - related party  90,000   40,000 
Accrued legal and printer costs  (995,634)  826,556 
Net cash provided by (used in) operating activities  (1,287,132)  424,519 
         
Cash Flows from Investing Activities        
Principal deposited in Trust Account  -   (690,000,000)
Net cash used in investing activities  -   (690,000,000)
         
Cash Flows from Financing Activities        
Proceeds received from loans to related parties  750,000   225,733 
Proceeds received from issuance of Class B ordinary shares to Anchor Investors  -   7,251 
Proceeds received from initial public offering, net of offering costs  -   674,684,405 
Proceeds from private placement  -   15,800,000 
Net cash provided by financing activities  750,000   690,717,389 
         
Net increase (decrease) in cash and cash equivalents  (537,132)  1,141,908 
         
Cash and cash equivalents - beginning of the period  1,016,157   - 
Cash and cash equivalents - ending of the period $479,025  $1,141,908 
         
Supplemental disclosure of noncash investing and financing activities:        
Change in value of Class A ordinary shares subject to possible redemption $(17,291,480) $640,426,260 
Accrued commitment fee $5,312,500  $- 
Formation and offering costs paid by Sponsor in exchange for founder shares $-  $25,000 
Deferred underwriting commissions in connection with the initial public offering $-  $24,150,000 
Deferred placement agent fees in connection with the forward purchase agreement $-  $20,400,000 

The

(In millions)
 Six months ended
 June 30,
2018
  June 30,
2017
    Predecessor
 (Unaudited)  (Unaudited)
Cash flows from operating activities:    
Net income$72
  $54
Adjustments to reconcile net income to net cash provided by operating activities:    
Stock based compensation1
  3
Amortization23
  (15)
Deferred income taxes6
  (90)
Interest credited/index credits to contractholder account balances207
  439
Net recognized losses (gains) on investments and derivatives193
  (148)
Charges assessed to contractholders for mortality and administration(56)  (67)
Deferred policy acquisition costs, net of related amortization(153)  (83)
Gain on extinguishment of debt(2)  
Changes in operating assets and liabilities:    
     Reinsurance recoverable1
  
     Future policy benefits(41)  (30)
  Funds withheld from reinsurers(47)  (50)
  Collateral (returned) posted(133)  19
     Other assets and other liabilities16
  (8)
Net cash provided by (used in) operating activities87
  24
Cash flows from investing activities:    
Proceeds from available-for-sale investments sold, matured or repaid4,870
  1,457
Proceeds from derivatives instruments and other invested assets282
  269
Proceeds from commercial mortgage loans22
  32
Cost of available-for-sale investments(5,183)  (1,885)
Costs of derivatives instruments and other invested assets(273)  (237)
Capital expenditures(7)  (7)
Contingent purchase price payment(57)  
Net cash provided by (used in) investing activities(346)  (371)
Cash flows from financing activities:    
Common stock issued under employee plans
  1
Debt issuance costs(7)  
Proceeds from issuance of new debt547
  
Retirement and paydown on debt and revolving credit facility(440)  
Draw on revolving credit facility30
  5
Dividends paid
  (8)
Contractholder account deposits2,128
  1,574
Contractholder account withdrawals(1,504)  (1,058)
Net cash provided by (used in) financing activities754
  514
Change in cash & cash equivalents495
  167
Cash & cash equivalents, beginning of period1,215
  864
Cash & cash equivalents, end of period$1,710
  $1,031
     
Supplemental disclosures of cash flow information:    
Interest paid$14
  $12
Income taxes (refunded) paid$20
  $114
Deferred sales inducements$60
  $10

See accompanying unaudited notes are an integral part of theseto unaudited condensed consolidated financial statements.

3


FGL HOLDINGS
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (In millions)
CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Note 1 - Description

(1) Basis of Organization and Business Operations

Presentation

FGL Holdings (the “Company”, formerly known as CF Corporation (the “Company”(NASDAQ: CFCO) (“CF Corp”) isand its
related entities (“CF Entities”)), a blank checkCayman Islands exempted company, was originally incorporated in the Cayman Islands on February 26, 2016. The2016 as a Special Purpose Acquisition Company was(“SPAC”). CF Corp formed for the purpose of effecting a merger, sharecapital stock exchange, asset acquisition, sharestock purchase, reorganization, or other similar business combination with one or more businesses (“Business Combination”target businesses. Prior to November 30, 2017, CF Corp. was a shell company with no operations. On November 30, 2017, CF Corp. consummated the acquisition of Fidelity & Guaranty Life ("FGL"), a Delaware corporation, and its subsidiaries, pursuant to the Agreement and Plan of Merger, dated as of May 24, 2017 (the “FGL Merger Agreement”). AlthoughThe transactions contemplated by the Company is not limitedFGL Merger Agreement are referred to herein as the “Business Combination.”
Dollar amounts in the accompanying sections are presented in millions, unless otherwise noted.
Pursuant to the FGL Merger Agreement, except for shares specified in the FGL Merger Agreement, each issued and outstanding share of common stock of FGL was automatically canceled and converted into the right to receive $31.10 in cash, without interest and less any required withholding taxes (the “Merger Consideration”). Accordingly, CF Corp acquired FGL for a particular industry or geographic region for purposestotal of consummating aapproximately $2 billion in cash, plus the assumption of $405 of existing debt.
In addition to the Business Combination, the Company intends to focus on the financial, technology and services industries in the United States or globally.

On April 21, 2016, the Company effected a share capitalization of approximately 4.217 shares for each outstanding Class B ordinary share, resulting in an aggregate of 15,000,000 Class B ordinary shares outstanding (“founder shares”). All share amounts presented in the unaudited condensed financial statements herein have been retroactively restated to reflect the share capitalization.

All activity from February 26, 2016 (Date of Inception) through SeptemberNovember 30, 2017, relates to the Company’s formation, initial public offering (“initial public offering”), forward purchase agreements (as defined below), and, since the closing of the initial public offering, the search for a Business Combination described below. The Company is an early stage and emerging growth company and, as such, the Company is subject toCF Entities bought all of the risks associatedissued and outstanding shares of Front Street Re Cayman Ltd. (“FSRC”) and Front Street Re Ltd. (“FSR”, and, together with early stage and emerging growth companies.

In April 2016,FSRC, the Company entered into forward purchase agreements (the “forward purchase agreements”“FSR Companies”) from Front Street Re (Delaware) Ltd. (“FSRD”), a direct wholly owned subsidiary of HRG Group, Inc. (“HRG”; NYSE: HRG), pursuant to which the Anchor Investors (as defined below) agreedShare Purchase Agreement, for cash consideration of $65, subject to purchase an aggregate of 51,000,000 Class A ordinary shares (“forward purchase shares”), plus one redeemable warrant (“forward purchase warrant(s)”) for every three forward purchase shares purchased (or an aggregate of 19,083,333 redeemable warrants) for $10.00 per Class A ordinary share, for an aggregate purchase price of $510 million, incertain adjustments.

As a private placement to occur concurrently with the closing of the Business Combination. In connection with the forward purchase agreements, the Company agreed to compensate the placement agents an aggregate amount of up to $20.675 million, including deferred placement agent fees of $20.4 million and reimbursement of legal fees of $275,000, payable upon the consummationresult of the Business Combination, (Note 6). Asfor accounting purposes, FGL Holdings is the placement agents already performed services related toacquirer and FGL is the forward purchase agreementsacquired party and accounting predecessor. Our financial statement presentation includes the closingfinancial statements of a Business Combination was deemed probable by the management, the Company accrued a deferred placement agent feeFGL and reimbursement of legal fees in the accompanying condensed balance sheet.

The registration statementits subsidiaries as “Predecessor” for the initial public offering was declared effective on May 19, 2016. The Company consummated the initial public offering of 60,000,000 units (“units” and, with respectperiods prior to the Class A ordinary shares included in the units, the “public shares”) for $10.00 per unit on May 25, 2016, generating gross proceeds of $600 million and, in connection therewith, incurring offering costs of approximately $34.5 million, including $33 million of underwriting commissions in connection with the initial public offering. Each unit consists of one Class A ordinary share, $0.0001 par value per share, and one-half of one redeemable warrant. Each whole warrant entitles the holder thereof to purchase one Class A ordinary share at a purchase price of $11.50 per share, subject to adjustment, terms and limitations (“Public Warrant(s)”). The Company paid $12 million of underwriting commissions upon the closing of the initial public offering and deferred $21 million of underwriting commissions until the consummation of its initial Business Combination (Note 3).

Simultaneously with the closing of the initial public offering, the Company consummated the private placement (“Initial Private Placement”) of 14,000,000 warrants (“Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant with the Company’s Sponsor, CF Capital Growth, LLC (the “Sponsor”), generating gross proceeds of $14 million (Note 4).

On June 29, 2016, the Company consummated the closing of the sale of 9,000,000 additional units pursuant to the exercise in full of the underwriter’s over-allotment option (“Over-allotment”), generating additional gross proceeds of $90 million. In connection therewith, the Company paid additional offering costs of $1.8 million in underwriting commissions and deferred $3.15 million of underwriting commissions until the completion of the Company’s initial Business Combination. Simultaneously with the consummation of the Over-allotment, the Company consummated a private placement of an additional 1,800,000 Private Placement Warrants to the Sponsor (together with the Initial Private Placement, the “Private Placement”), generating gross proceeds of $1.8 million.

4

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Upon the closing of the initial public offering, the Over-allotment, and the Private Placement, $690 million ($10.00 per unit) from the net proceeds thereof was placed in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A, maintained by Continental Stock Transfer & Trust Company, acting as trustee (“Trust Account”), and is invested in a money market fund selected by the Company until the earlier of: (i) the completion of a Business Combination and (ii)FGL Holdings, including the distributionconsolidation of FGL and its subsidiaries and FSR Companies, as "Successor" for periods from and after the Closing Date. FGL Holdings was determined to be the Successor company as it is the surviving company organized and existing under the laws of the funds heldUnited States of America, any State of the United States, the District of Columbia or any territory thereof (and in the Trust Account as described below.

At September 30, 2017,case of the Company, has approximately $479,000 in cash held outsideBermuda or the Cayman Islands). Prior to the acquisition, FGL Holdings reported under a fiscal year end of December 31, and the Predecessor companies reported under a fiscal year end of September 30. Subsequent to the acquisition, the Successor reports under a fiscal year end of December 31.

On December 1, 2017, upon completion of the Trust Account. The Company’s management has broad discretion with respect to the specific application of the net proceeds of its initial public offering, the Over-allotment,acquisitions, FGL Holdings began trading ordinary shares and the Private Placement, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company’s initial Business Combination must be with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on income earnedwarrants on the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, the Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment companyNew York Stock Exchange ("NYSE") under the Investment Company Act 1940, as amended, or the Investment Company Act.

The Company will provide the holders of its public shares (“public shareholders”) with the opportunitysymbols “FG” and “FG WS,” respectively. For additional info related to redeem all or a portion of their public shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. please refer to “Item 1. Business" within FGL Holdings' Annual Report on Form 10-K, for the period ended December 31, 2017 (“2017 Form 10-K”).

The decision as to whetheraccompanying unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the Company will seek shareholder approval of a Business Combination or conduct a tender offer will be made byinstructions for the Company, solely in its discretion. The public shareholders will be entitled to redeem their public shares for a pro rata portion of the amount then in the Trust Account (initially estimated to be $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). As of September 30, 2017, the Company had approximately $694 million in its Trust Account. If a shareholder vote is not required by the law and the Company does not decide to hold a shareholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association (the “charter”), conduct redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”), and file tender offer documents with the SEC prior to completing a Business Combination. If, however, shareholder approval Quarterly Report on Form 10-Q, including Article 10 of the proposed Business Combination is required by law, or the Company decides to obtain shareholder approval for business reasons, the Company will offer to redeem the public shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each public shareholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed Business Combination. The per-share amount to be distributed to public shareholders who redeem their public shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed in Note 6). The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination.

Notwithstanding the foregoing, the Company’s charter provides that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 20% or more of the public shares without the prior consent of the Company.

If the Company is unable to complete a Business Combination by May 25, 2018 (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem 100% of the outstanding public shares which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law.

In connection with the redemption of 100% of the Company’s outstanding public shares if the Company fails to complete a Business Combination prior to the expiration of the Combination Period, each public shareholder will receive a full pro rata portion of the amount then in the Trust Account, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay the Company’s taxes payable (less taxes payable and up to $100,000 of interest to pay dissolution expenses).

5

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

The Company’s Sponsor, officers and directors (the “initial shareholders”) and Anchor Investors have agreed to waive their liquidation rights with respect to the founder shares if the Company fails to complete a Business Combination within the Combination Period and the initial shareholders have also agreed to such waiver with respect to any public shares they may hold. However, if the initial shareholders acquire public shares in or after the initial public offering, they will be entitled to liquidating distributions from the Trust Account with respect to such public shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Company’s public shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be only $10.00 per share. In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by third parties, such as a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into an acquisition agreement, reduce the amount of funds in the Trust Account below $10.00 per share. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (other than the Company’s independent auditors), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. The Sponsor will not be required to indemnify the Trust Account with respect to any claims by a third party who executed such waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust Account or to any claims under the Company’s indemnity of the underwriters of the initial public offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In addition, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.

On May 24, 2017, the Company entered into the Agreement and Plan of Merger (the “Merger Agreement”) with FGL US Holdings Inc., a Delaware corporation and wholly owned indirect subsidiary of the Company (“Parent”), FGL Merger Sub Inc., a Delaware corporation and wholly owned direct subsidiary of Parent (“Merger Sub”), and Fidelity & Guaranty Life, a Delaware corporation (“FGL”), pursuant to which, subject to the satisfaction or waiver of certain conditions set forth therein, Merger Sub will merge with and into FGL, with FGL surviving the merger as a wholly owned indirect subsidiary of the Company (collectively with the other transactions contemplated by the Merger Agreement, the “FGL Business Combination”) (Note 8).

On August 8, 2017, the Company held an extraordinary general meeting in lieu of annual general meeting of shareholders, at which the Company’s shareholders approved the FGL Business Combination. No shareholders elected to have their shares redeemed in connection with the FGL Business Combination.

Going Concern

The accompanying unaudited condensed financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of September 30, 2017, the Company had approximately $479,000 in its operating bank account and working capital deficit of approximately $20.9 million.

In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans will be repaid only out of funds held outside the Trust Account. In the event that the Company does not complete a Business Combination, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account may be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans will either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.00 per warrant. Any such warrants would have identical terms as the Private Placement Warrants. In July 2017, the Sponsor loaned an aggregate of $750,000 of Working Capital Loans to the Company.

6

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Based on the foregoing, the Company may have insufficient funds available to operate its business through the earlier of consummation of a Business Combination or May 25, 2018. Following the initial Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.  The Company cannot be certain that additional funding will be available on acceptable terms, or at all. The Company’s plans to raise capital or to consummate the initial Business Combination may not be successful.  These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying unaudited condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 2 - Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”)Regulation S-X, for interim financial information and pursuant to rules and regulations of the SEC.information. Accordingly, they do not include all of the information and footnotesnotes required by U.S. GAAP. GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Company's 2017 Form 10-K, should be read in connection with the reading of these interim unaudited condensed consolidated financial statements.

The Company markets products through its wholly-owned insurance subsidiaries, Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) and Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”), which together are licensed in all fifty states and the District of Columbia.

In the opinion of management, these statements include all normal recurring adjustments (consisting of normal accruals) considerednecessary for a fair presentation have been included.of the Company’s results.  Operating results for the three and ninesix months ended SeptemberJune 30, 20172018, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017.

2018.  Amounts reclassified out of other comprehensive income are reflected in net investment gains in the unaudited Condensed Consolidated Statements of Operations.


(2) Significant Accounting Policies and Practices
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and all other entities in which the Company has a controlling financial interest and any variable interest entities ("VIEs") in which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
We are involved in certain entities that are considered VIEs as defined under GAAP. Our involvement with VIEs is primarily to invest in assets that allow us to gain exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our relationships to determine if we have the ability to direct the activities, or otherwise exert control, to evaluate if we are the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our condensed consolidated financial statements. The Company has determined that we are not the primary beneficiary of a VIE as of June 30, 2018. See "Note 4. Investments" to the Company’s condensed consolidated financial statements for additional information on the Company’s investments in unconsolidated VIEs.
Adoption of New Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued new guidance on revenue recognition (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), effective for fiscal years beginning after December 15, 2016 and interim periods within those years. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year. The FASB also issued the following ASUs which clarify the guidance in ASU 2014-09:
ASU 2016-08 - Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) issued in March 2016
ASU 2016-10 - Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing issued in April 2016
ASU 2016-11 - Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting issued in May 2016
ASU 2016-12 - Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients issued in May 2016
The guidance in ASU 2014-09 and the related ASUs supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance establishes a five-step process to achieve this core principle.
The Company adopted these standards effective January 1, 2018. The adoption of these standards has had an insignificant impact on its consolidated financial statements as the Company’s primary sources of revenue, insurance contracts and financial instruments, are excluded from the scope of these standards.
Statement of Cash Flows Classification of Certain Cash Receipts and Cash Equivalents

The Company considers all short-term investmentsPayments

In August 2016, the FASB issued new guidance (ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments), effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Notable amendments in this update will change the classification of certain cash receipts and cash payments in the Statement of Cash Flows in the following ways:
cash payments for debt prepayment or debt extinguishment costs will be classified as cash outflows for financing activities

the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing should be classified as follows: the portion of the cash payment attributable to the accreted interest related to the debt discount as cash outflows for operating activities, and the portion of the cash payment attributable to the principal as cash outflows for financing activities
a reporting entity must make an original maturityaccounting policy election to classify distributions received from equity method investees using either:
the cumulative earnings approach, which considers distributions received as returns on the investment and are classified as cash inflows from operating activities (with an exception when cumulative distributions received less distributions received in prior periods that were classified as returns of investment exceeds cumulative equity in earnings, in which case the current period distribution up to this excess amount will be considered a return of investment and classified as cash inflows from investing activities); or
the nature of the distribution approach, which classifies distributions received based on the nature of the activity or activities of the investee that generated the distribution (would be considered either a return on investment and classified as cash inflows from operating activities or a return of investment and classified as cash inflows from investing activities)
in the absence of three monthsspecific GAAP guidance, an entity should classify cash receipts and payments that have aspects of more than one class of cash flows by determining and appropriately classifying each separately identifiable source or less when purchaseduse within the cash receipts and cash payments on the basis of the underlying cash flows. If cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the activity that is likely to be the predominant source or use of cash equivalents.

Investments and Cash Equivalents Heldflows for the item will determine the classification.

The amendments in the Trust Account

The amounts held in the Trust Account represent substantially all of the proceeds of the initial public offering and Private Placement and are classified as restricted assets since such amounts can only be usedthis ASU were adopted by the Company effective January 1, 2018, as required. The Company has elected to use the nature of distribution approach to classify distributions received from equity method investees. The amendments in connectionthe update should be applied using a retrospective transition method to each period presented (except where impracticable to apply retrospectively; those specific amendments would be applied prospectively as of the earliest date practicable). The adoption of this standard had an insignificant impact on the Company's Condensed Consolidated Statements of Cash Flows.

Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued new guidance (ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory), effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Under this update:
an entity should recognize current and deferred income taxes for an intra-entity transfer of an asset other than inventory at the time of the transfer
the entity will no longer delay recognition of the income tax consequences of these types of intra-entity asset transfers until the asset has been sold to an outside party, as is practiced under current guidance
The amendments in this ASU were adopted by the Company effective January 1, 2018, as required. The Company does not have any intra-entity asset transfers, therefore this new accounting guidance is not expected to impact the Company's consolidated financial statements.
Presentation of Changes in Restricted Cash on the Cash Flow Statement
In November 2016, the FASB issued amended guidance regarding the presentation of changes in restricted cash on the cash flow statement (ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash), effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The ASU requires amounts generally described as changes in restricted cash and restricted cash equivalents to be included with cash and cash equivalents on the statement of cash flows. The amendments in this ASU were adopted effective January 1, 2018, as required. The adoption of this guidance had an insignificant impact on the Company's Condensed Consolidated Statements of Cash Flows.

Scope of Modification Accounting for Stock Compensation
In May 2017, the FASB issued new guidance on the scope of modification accounting for stock compensation (ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting), effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2017-09 may be early adopted. The ASU provides guidance on which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting in Topic 718, Stock Compensation. Under the new guidance, an entity would account for the effects of a modification, immediately before the original award is modified, unless the fair value of the modified award is the same as the fair value of the original award, the vesting conditions of the modified award are the same as the vesting conditions of the original award, and the classification of the modified award (equity instrument or liability instrument) is the same as the classification of the original award. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The Company adopted the amendments in this ASU effective January 1, 2018 as required. The adoption of this guidance did not have an impact on the Company's condensed consolidated financial statements.
Amendments to Recognition and Measurement of Financial Assets and Financial Liabilities
In March 2018, February 2018 and January 2016, the FASB issued amended guidance on the measurement of financial assets and financial liabilities (ASU 2018-04, Investments-Debt Securities (Topic 320) and Regulated Operations (Topic 980) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273; ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities; and ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, respectively), effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Notable amendments in these updates:
require all equity securities (other than equity investments accounted for under the equity method of accounting or requiring the consolidation of the investee) to be measured at fair value with changes in fair value recognized through net income. Equity securities that do not have readily determinable fair values may be measured at cost minus impairment
require qualitative assessment for impairment of equity investments without readily determinable fair values at each reporting period and, if the qualitative assessment indicates that impairment exists, to measure the investment at fair value
eliminate the requirement to disclose the methods and significant assumptions used to estimate fair value (which is currently required to be disclosed, for financial instruments measured at amortized cost on the balance sheet)
require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the consummationfair value option for financial instruments
The amendments in these ASUs should be applied by means of a Business Combination. cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, and the amendments related to equity securities without readily determinable fair values should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASUs 2016-01, 2018-03, and 2018-04 effective January 1, 2018, with a cumulative-effect adjustment to decrease retained earnings and increase AOCI by $4.
Future Accounting Pronouncements
Accounting pronouncements that will impact the Company in future periods have been disclosed in the Company's 2017 Form 10-K. There have not been any additional accounting pronouncements expected to impact the Company.
Reclassifications and Retrospective Adjustments

Certain prior year amounts have been reclassified or combined to conform to the current year presentation.
These reclassifications and combinations had no effect on previously reported results of operations.

Revision to Previously Issued Financial Statements

During the quarter ended June 30, 2018, the Company identified an immaterial error related to the classification of certain securities as debt or equity under ASC 320, “Investments - Debt and Equity Securities.” The Company reviewed the impact of this error on the prior periods in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 99, “Materiality,” and determined the error was not material to the prior periods. The Company has recorded an immaterial correction to the Condensed Consolidated Balance Sheet as of December 31, 2017 by decreasing fixed maturity securities, available for sale by $627 and increasing equity securities, at fair value by a corresponding amount. Effective January 1, 2018, the Company adopted guidance under ASU 2016-01 which among other things, requires that the change in fair value of equity securities be reported in income rather than as a direct adjustment to AOCI. As a result, the Company also recorded an immaterial $9 out of period adjustment in the Condensed Consolidated Statement of Operations for the three months ended June 30, 2018 to recognize the Q1 change in fair value associated with the proper classification of equity securities with a corresponding increase in AOCI.



(3) Significant Risks and Uncertainties
Federal Regulation
In April 2016, the Department of Labor (“DOL”) issued the “fiduciary” rule which could have had a material impact on the Company, its products, distribution, and business model. The rule provided that persons who render investment advice for a fee or other compensation with respect to an employer plan or individual retirement account ("IRA") are fiduciaries of that plan or IRA and would have expanded the definition of fiduciary under ERISA to apply to commissioned insurance agents who sell the Company’s IRA products. On June 21, 2018, the United States Court of Appeals for the Fifth Circuit formally vacated the DOL fiduciary rule in total when it issued its mandate following the court’s decision on March 15, 2018, in U.S. Chamber of Commerce v. U.S. Department of Labor, 885 F.3d 360 (5th Cir. 2018). Management will continue to monitor for potential action by state officials or the Securities and Exchange Commission to implement rules similar to the vacated DOL rule.
Use of Estimates and Assumptions
The preparation of the Company's unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at 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 and assumptions used.
Concentrations of Financial Instruments
As of SeptemberJune 30, 2018 and December 31, 2017, therethe Company’s most significant investment in one industry, excluding United States ("U.S.") Government securities, was approximately $3.8 million of interest income heldits investment securities in the Trust Account available to be released tobanking industry with a fair value of $2,381 or 10% and $2,851 or 12%, respectively, of the Company to pay its income tax obligations, if any.

Concentrationinvested assets portfolio and an amortized cost of Credit Risk

Financial instruments that potentially subject$2,477 and $2,850, respectively. As of June 30, 2018, the Company to concentrationCompany’s holdings in this industry include investments in 111 different issuers with the top ten investments accounting for 31% of credit risk consistthe total holdings in this industry. As of cash accounts in a financial institution, which at times may exceed the Federal depository insurance coverage of $250,000. At SeptemberJune 30, 2018 and December 31, 2017, the Company had not experienced lossesno investments in issuers that exceeded 10% of shareholders' equity. The Company's largest concentration in any single issuer as of June 30, 2018 and December 31, 2017 was Verizon Communications Inc. and Wells Fargo & Company, respectively, with a total fair value of $118 or 1% and $155 or 1% of the invested assets portfolio, respectively.

Concentrations of Financial and Capital Markets Risk
The Company is exposed to financial and capital markets risk, including changes in interest rates and credit spreads which can have an adverse effect on these accountsthe Company’s results of operations, financial condition and management believesliquidity. The Company expects to continue to face challenges and uncertainties that could adversely affect its results of operations and financial condition. The Company attempts to mitigate the risk, including changes in interest rates by investing in less rate-sensitive investments, including senior tranches of collateralized loan obligations, non-agency residential mortgage-backed securities, and various types of asset backed securities.
The Company’s exposure to such financial and capital markets risk relates primarily to the market price and cash flow variability associated with changes in interest rates. A rise in interest rates, in the absence of other countervailing changes, will increase the net unrealized loss position of the Company’s investment portfolio and, if long-term interest rates rise dramatically within a six to twelve month time period, certain of the Company’s products may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders surrender their contracts in a rising interest rate environment, requiring the Company to liquidate assets in an unrealized loss position. Management believes this risk is not exposedmitigated to significant risks on such accounts.

Ordinary Shares Subject to Possible Redemption

some extent by surrender charge protection provided by the Company’s products.

Concentration of Reinsurance Risk
The Company accountshas a significant concentration of reinsurance with Wilton Reassurance Company (“Wilton Re”), a third-party reinsurer, that could have a material impact on the Company’s financial position in the event that Wilton Re fails to perform their obligations under the various reinsurance treaties. Wilton Re is a wholly-owned subsidiary of Canada Pension Plan Investment Board ("CPPIB"). CPPIB has an AAA issuer credit rating from Standard & Poor's Ratings Services ("S&P") as of June 30, 2018. As of June 30, 2018, the net amount recoverable from Wilton Re was $1,558. The Company monitors the financial condition of Wilton Re and other individual reinsurers to attempt to reduce the risk of default by such reinsurers. The Company also monitors

concentration risk arising from similar economic characteristics of reinsurers. Wilton Re is current on all amounts due as of June 30, 2018.


(4) Investments
The Company’s fixed maturity securities investments have been designated as available-for-sale and are carried at fair value with unrealized gains and losses included in AOCI, net of associated adjustments for its ordinary shares subjectdeferred acquisition costs ("DAC"), value of business acquired ("VOBA"), deferred sales inducements ("DSI"), unearned revenue ("UREV"), and deferred income taxes. The Company's equity securities investments are carried at fair value with unrealized gains and losses included in net income. The Company’s consolidated investments at June 30, 2018 and December 31, 2017 are summarized as follows:          
 June 30, 2018
  Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value
Available-for sale securities         
Asset-backed securities$3,158
 $7
 $(21) $3,144
 $3,144
Commercial mortgage-backed securities1,257
 2
 (18) 1,241
 1,241
Corporates12,467
 12
 (639) 11,840
 11,840
Hybrids956
 1
 (40) 917
 917
Municipals1,562
 4
 (33) 1,533
 1,533
Residential mortgage-backed securities1,356
 10
 (11) 1,355
 1,355
U.S. Government141
 
 (1) 140
 140
Foreign Governments164
 
 (8) 156
 156
Total available-for-sale securities21,061
 36
 (771) 20,326
 20,326
Equity securities1,378
 2
 (36) 1,344
 1,344
Derivative investments334
 34
 (56) 312
 312
Commercial mortgage loans525
 
 
 522
 525
Other invested assets353
 
 
 349
 353
Total investments$23,651
 $72
 $(863) $22,853
 $22,860
 December 31, 2017
  Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value
Available-for sale securities         
Asset-backed securities$3,061
 $7
 $(3) $3,065
 $3,065
Commercial mortgage-backed securities956
 1
 (1) 956
 956
Corporates12,467
 122
 (19) 12,570
 12,570
Equities1,392
 3
 (7) 1,388
 1,388
Hybrids1,066
 4
 (3) 1,067
 1,067
Municipals1,736
 12
 (1) 1,747
 1,747
Residential mortgage-backed securities1,279
 1
 (3) 1,277
 1,277
U.S. Government84
 
 
 84
 84
Foreign Governments198
 
 (1) 197
 197
Total available-for-sale securities22,239
 150
 (38) 22,351
 22,351
Derivative investments459
 36
 (3) 492
 492
Short term investments25
 
 
 25
 25
Commercial mortgage loans548
 
 
 549
 548
Other invested assets188
 
 
 186
 188
Total investments$23,459
 $186
 $(41) $23,603
 $23,604

The unrealized gains and losses were reset to possible redemptionzero effective November 30, 2017 as a result of the Business Combination and application of acquisition accounting which requires assets and liabilities acquired to be measured at fair value as of the date of the acquisition. Included in AOCI were cumulative gross unrealized gains of $0 and gross unrealized losses of $0 related to the non-credit portion of other-than-temporary-impairments ("OTTI") on non-agency residential mortgage backed securities ("RMBS") for both June 30, 2018 and December 31, 2017.
Securities held on deposit with various state regulatory authorities had a fair value of $20,266 and $20,301 at June 30, 2018 and December 31, 2017, respectively. Under Iowa regulations, insurance companies are required to hold securities on deposit in an amount no less than the Company's legal reserve as prescribed by Iowa regulations.
At June 30, 2018 and December 31, 2017, the Company held no material investments that were non-income producing for a period greater than twelve months.
In accordance with the guidanceCompany's FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities. The collateral investments had a fair value of $908 and $715 at June 30, 2018 and December 31, 2017, respectively.
The amortized cost and fair value of fixed maturity available-for-sale securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.
 June 30, 2018
 Amortized Cost  Fair Value
Corporates, Non-structured Hybrids, Municipal and Government securities:   
Due in one year or less$170
 $170
Due after one year through five years1,071
 1,055
Due after five years through ten years2,545
 2,466
Due after ten years11,184
 10,586
Subtotal14,970
 14,277
Other securities which provide for periodic payments:   
Asset-backed securities3,158
 3,144
Commercial mortgage-backed securities1,257
 1,241
Structured hybrids320
 309
Residential mortgage-backed securities1,356
 1,355
Subtotal6,091
 6,049
Total fixed maturity available-for-sale securities$21,061
 $20,326
The Company's available-for-sale securities with unrealized losses are reviewed for potential OTTI. For factors considered in evaluating whether a decline in value is other-than-temporary, please refer to “Note 2. Significant Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing LiabilitiesPolicies and Practices" to the Company’s 2017 Form 10-K.
The Company analyzes its ability to recover the amortized cost by comparing the net present value of cash flows expected to be collected with the amortized cost of the security. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment terms of the underlying assets backing a particular security, including interest rate and prepayment assumptions, based on data from Equity.” Ordinary shares subjectwidely accepted third-party data sources or internal estimates. In addition to mandatory redemption (if any) are classifiedinterest rate and prepayment assumptions, cash flow estimates also include other assumptions regarding the underlying collateral including default rates and recoveries, which vary based on the asset type and geographic location, as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are eitherwell as the vintage year of the security. For structured securities, the payment priority within the controltranche structure is also considered. For all other fixed maturity securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. If the net present value is less than the amortized cost of the holder or subject to redemption uponinvestment, an OTTI is recognized.
Based on the occurrenceresults of uncertain events not solely within the Company’s control) are classifiedour process for evaluating available-for-sale securities in unrealized loss positions for OTTI as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.

7

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Althoughdiscussed above, the Company diddetermined that the unrealized losses as of June 30, 2018 increased due to higher interest rates during the quarter coupled with an increase in the spreads over Treasuries required by investors for corporate and municipal bonds. Based on an assessment of all securities in the portfolio in unrealized


loss positions, the Company determined that the unrealized losses on the securities presented in the table below were not specify a maximum redemption threshold, its charter provides that in no event will it redeem its public sharesother-than-temporarily impaired as of June 30, 2018.
The fair value and gross unrealized losses of available-for-sale securities, aggregated by investment category and duration of fair value below amortized cost, were as follows:
 June 30, 2018
 Less than 12 months 12 months or longer Total
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
Available-for-sale securities           
Asset-backed securities$2,182
 $(21) $
 $
 $2,182
 $(21)
Commercial mortgage-backed securities908
 (18) 
 
 908
 (18)
Corporates11,104
 (639) 
 
 11,104
 (639)
Hybrids830
 (40) 
 
 830
 (40)
Municipals1,273
 (33) 
 
 1,273
 (33)
Residential mortgage-backed securities841
 (11) 
 
 841
 (11)
U.S. Government140
 (1) 
 
 140
 (1)
Foreign Government149
 (8) 
 
 149
 (8)
Total available-for-sale securities$17,427
 $(771) $
 $
 $17,427
 $(771)
Total number of available-for-sale securities in an unrealized loss position less than twelve months          2,055
Total number of available-for-sale securities in an unrealized loss position twelve months or longer          0
Total number of available-for-sale securities in an unrealized loss position          2,055

 December 31, 2017
 Less than 12 months 12 months or longer Total
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
Available-for-sale securities           
Asset-backed securities$1,944
 $(3) $
 $
 $1,944
 $(3)
Commercial mortgage-backed securities478
 (1) 
 
 478
 (1)
Corporates3,814
 (19) 
 
 3,814
 (19)
Equities798
 (7) 
 
 798
 (7)
Hybrids266
 (3) 
 
 266
 (3)
Municipals285
 (1) 
 
 285
 (1)
Residential mortgage-backed securities939
 (3) 
 
 939
 (3)
U.S. Government74
 
 
 
 74
 
Foreign Government140
 (1) 
 
 140
 (1)
Total available-for-sale securities$8,738
 $(38) $
 $
 $8,738
 $(38)
Total number of available-for-sale securities in an unrealized loss position less than twelve months          1,224
Total number of available-for-sale securities in an unrealized loss position twelve months or longer          0
Total number of available-for-sale securities in an unrealized loss position          1,224
At June 30, 2018 and December 31, 2017, securities in an amount that would cause its net tangible assets (shareholders' equity)unrealized loss position were primarily concentrated in investment grade, corporate debt and hybrid instruments.
At June 30, 2018 and December 31, 2017, securities with a fair value of $2 and $10, respectively, had an unrealized loss greater than 20% of amortized cost (excluding U.S. Government and U.S. Government sponsored agency securities), which were insignificant to be less than $5,000,001. The Company recognizes changes in redemption value immediately as they occur and will adjust the carrying value of all investments, respectively.
The following table provides a reconciliation of the security to equalbeginning and ending balances of the redemptioncredit loss portion of OTTI on fixed maturity available-for-sale securities held by the Company for the three and six months ended June 30, 2018 and 2017 (Predecessor), for which a portion of the OTTI was recognized in AOCI:
  Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
    Predecessor   Predecessor
Beginning balance $
 $3
 $
 $3
Increases attributable to credit losses on securities:        
OTTI was previously recognized 
 
 
 
OTTI was not previously recognized 
 
 
 
Ending balance $
 $3
 $
 $3

The following table breaks out the credit impairment loss type, the associated amortized cost and fair value atof the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares shall be affected by charges against additional paid-in capital. Accordingly,investments at September 30, 2017 and December 31, 2016, 62,337,495 and 64,066,643 Class A ordinary shares were classified outside of permanent equity at their redemption value, respectively.

Offering Costs

Offering costs consisting principally of legal, accounting, underwriting commissions and other costs incurred through the balance sheet date and non-credit losses in relation to fixed maturity securities and other invested assets held by the Company for the three and six months ended June 30, 2018 and 2017 (Predecessor):

  Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
    Predecessor   Predecessor
Credit impairment losses in operations $
 $
 $(2) $(21)
Change-of-intent losses in operations 
 
 
 
Amortized cost 
 13
 
 13
Fair value 
 13
 
 13
Non-credit losses in other comprehensive income for investments which experienced OTTI 
 
 
 
Details of OTTI that were recognized in "Net income (loss)" and included in net realized gains on securities were as follows:
  Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
    Predecessor   Predecessor
OTTI Recognized in Net Income (Loss)        
Asset-backed securities $
 $(1) $
 $(1)
Corporates 
 
 (2) (20)
Other invested assets 
 1
 
 
Total $
 $
 $(2) $(21)
The portion of OTTI recognized in AOCI is disclosed in the Condensed Consolidated Statements of Comprehensive Income (Loss). There was no OTTI recognized in AOCI in the periods presented.


Commercial Mortgage Loans
Commercial mortgage loans ("CMLs") represented approximately 2% of the Company’s total investments as of June 30, 2018 and December 31, 2017. The Company primarily invests in mortgage loans on income producing properties including hotels, industrial properties, retail buildings, multifamily properties and office buildings. The Company diversifies its CML portfolio by geographic region and property type to attempt to reduce concentration risk. The Company continuously evaluates CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt. The distribution of CMLs, gross of valuation allowances, by property type and geographic region is reflected in the following tables:
  June 30, 2018 December 31, 2017
  Gross Carrying Value % of Total Gross Carrying Value % of Total
Property Type:        
Hotel 22
 4% 22
 4%
Industrial - General 45
 9% 46
 9%
Industrial - Warehouse 21
 4% 38
 6%
Multifamily 69
 13% 70
 13%
Office 156
 30% 158
 29%
Retail 212
 40% 214
 39%
Total commercial mortgage loans, gross of valuation allowance $525
 100% $548
 100%
Allowance for loan loss 
 

 
 %
Total commercial mortgage loans $525
 100% $548
 100%
         
U.S. Region:        
East North Central $111
 21% $108
 20%
East South Central 20
 4% 20
 4%
Middle Atlantic 85
 16% 85
 15%
Mountain 66
 13% 67
 12%
New England 14
 3% 14
 3%
Pacific 133
 25% 135
 25%
South Atlantic 58
 11% 65
 12%
West North Central 13
 2% 13
 2%
West South Central 25
 5% 41
 7%
Total commercial mortgage loans, gross of valuation allowance $525
 100% $548
 100%
Allowance for loan loss 
 

 
 %
Total commercial mortgage loans $525
 100% $548
 100%
All of the Company's investments in CMLs had a loan-to-value ("LTV") ratio of less than 75% at June 30, 2018 and December 31, 2017, as measured at inception of the loans unless otherwise updated. As of June 30, 2018, all CMLs are current and have not experienced credit or other events which would require the recording of an impairment loss.
LTV and DSC ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.00 indicates that a property’s operations do not generate sufficient income to cover debt payments. We normalize our DSC ratios to a 25-year amortization period for purposes of our general loan allowance evaluation.

The following table presents the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios at June 30, 2018 and December 31, 2017:
 Debt-Service Coverage Ratios Total Amount % of Total Estimated Fair Value % of Total
 >1.25 1.00 - 1.25 <1.00 N/A(a)    
June 30, 2018               
LTV Ratios:               
Less than 50%$274
 $
 $
 $
 $274
 52% $272
 52%
50% to 60%233
 6
 
 
 239
 46% 238
 46%
60% to 75%12
 
 
 
 12
 2% 12
 2%
Commercial mortgage loans$519
 $6
 $
 $
 $525
 100% $522
 100%
                
December 31, 2017               
LTV Ratios:               
Less than 50%$293
 $
 $
 $
 $293
 54% $294
 54%
50% to 60%236
 7
 
 
 243
 44% 243
 44%
60% to 75%12
 
 
 
 12
 2% 12
 2%
Commercial mortgage loans$541
 $7
 $
 $
 $548
 100% $549
 100%
(a) N/A - Current DSC ratio not available.
The Company establishes a general mortgage loan allowance based upon the underlying risk and quality of the mortgage loan portfolio using DSC ratio and LTV ratio. A higher LTV ratio will result in a higher allowance. A higher DSC ratio will result in a lower allowance. The Company believes that the DSC ratio is an indicator of default risk on loans. The Company believes that the LTV ratio is an indicator of the principal recovery risk for loans that default.
 June 30, 2018 December 31, 2017
Gross balance commercial mortgage loans$525
 $548
Allowance for loan loss
 
Net balance commercial mortgage loans$525
 $548
The Company recognizes a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At June 30, 2018 and December 31, 2017, the Company had no CMLs that were delinquent in principal or interest payments. The following provides the current and past due composition of our CMLs:
 June 30, 2018 December 31, 2017
Current to 30 days$525
 $548
Past due
 
Total carrying value$525
 $548

Mortgage loan workouts, refinances or restructures that are directly related toclassified as troubled debt restructurings ("TDRs") are individually evaluated and measured for impairment. As of June 30, 2018 and December 31, 2017, our CML portfolio had no impairments, modifications or TDR.
Net Investment Income
The major sources of “Net investment income” on the initial public offering totaled approximately $39.5 million, inclusiveaccompanying Condensed Consolidated Statements of $24.15 millionOperations were as follows:
  Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
    Predecessor   Predecessor
Fixed maturity securities, available-for-sale $248
 $242
 $490
 $478
Equity securities 26
 11
 36
 21
Commercial mortgage loans 5
 6
 12
 12
Invested cash and short-term investments 4
 2
 7
 2
Other investments 15
 2
 26
 3
Gross investment income 298
 263
 571
 516
Investment expense (16) (6) (26) (12)
Net investment income $282
 $257
 $545
 $504

Net Investment Gains (Losses)
Details underlying “Net investment gains (losses)” reported on the accompanying Condensed Consolidated Statements of Operations were as follows:
  Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
    Predecessor   Predecessor
Net realized losses on fixed maturity available-for-sale securities $(23) $(8) $(60) $(25)
Realized losses on equity securities (23) 
 (29) 
Change in fair value of other derivatives and embedded derivatives 
 1
 
 2
Realized gains (losses) on other invested assets 
 1
 (3) 
Hedging derivatives and reinsurance-related embedded derivatives: 

 

    
Realized gains (losses) on certain derivative instruments (15) 73
 (4) 148
Unrealized gains (losses) on certain derivative instruments 72
 9
 (63) 43
Change in fair value of reinsurance related embedded derivatives (a) (13) (9) (34) (20)
Realized gains (losses) on hedging derivatives and reinsurance-related embedded derivatives 44
 73
 (101) 171
Net investment gains (losses) $(2) $67
 $(193) $148
(a) Change in deferred underwriting commissions in connection with the initial public offering. Offering costs were charged to shareholders’ equity upon the completion of the initial public offering.

In addition, an aggregate of approximately $20.4 million in deferred placement agent fees incurred through the balance sheet date that are directly related to the forward purchase agreements were also charged to shareholders’ equity upon the issuance of Class B ordinary shares to the Anchor Investors.

Net Income (Loss) per Share

Net income (loss) per share is computed by dividing net loss by the weighted-average number of ordinary shares outstanding during the period. An aggregate of 62,337,495 and 64,042,626 shares of Class A ordinary shares subject to possible redemption at September 30, 2017 and 2016, respectively, have been excluded from the calculation of basic and diluted loss per ordinary share for all periods presented with the exception of the diluted three months September 30, 2017 and 2016 since such shares, if redeemed, only participate in their pro rata share of the trust earnings. The Company has not considered the effect of the warrants sold in the initial public offering (including the consummation of the Over-allotment) and Private Placement to purchase an aggregate of 50,300,000 Class A ordinary shares in the calculation of diluted loss per share, since their inclusion would be anti-dilutive.

Fair Value Measurements

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

·Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
·Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
·Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

ASC 820, Fair Value Measurement and Disclosures, requires all entities to disclose the fair value of financial instruments, both assetsreinsurance related embedded derivatives in the successor period is due to FSRC unaffiliated third party business and liabilities for which itthe predecessor periods activity is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2017 and December 31, 2016, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and accrued expenses approximate the fair values due to the short-term nature of the instruments.

8
FGL and FSRC reinsurance treaty.


CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Income Taxes


The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at September 30, 2017. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s unaudited condensed financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.

Note 3 - Initial Public Offering

On May 25, 2016, the Company consummated the sale of 60,000,000 units at a price of $10.00 per unit in the initial public offering. On June 29, 2016, the Company consummated the sale of 9,000,000 additional units pursuant to the exercise in full of the Over-allotment. Each unit consists of one public share and one-half of one Public Warrant. No fractional Public Warrants will be issued upon separation of the units and only whole Public Warrants will trade.

The Company incurred approximately $39.5 million of offering costs in connection with the initial public offering, inclusive of $24.15 million of deferred underwriting commissions payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes a Business Combination. The underwriters are not entitled to any interest accrued on the deferred discount.

Note 4 - Private Placement

Concurrently with the closing of the initial public offering and the Over-allotment, the Sponsor purchased an aggregate of 15,800,000 Private Placement Warrants at $1.00 per Private Placement Warrant, generating gross proceeds of $15.8 million in the aggregate. Each Private Placement Warrant is exercisable to purchase one Class A ordinary share for $11.50 per share. A portion of the proceeds from the sale of fixed-maturity available for-sale-securities and the Private Placement Warrants was addedgross gains and losses associated with those transactions were as follows:

  Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
    Predecessor   Predecessor
Proceeds $870
 $169
 $3,648
 $432
Gross gains 
 6
 8
 14
Gross losses (22) (11) (65) (13)
In accordance with the Company's adoption of ASU 2016-01, for the three and six months ended June 30, 2018 the Company had the following realized and unrealized gains and losses on equity securities:
 Three months ended Six months ended
 June 30, 2018 June 30, 2018
Net gains (losses) recognized during the period on equity securities$(23) $(29)
Less: Net gains (losses) recognized during the period on equity securities sold during the period(3) (2)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date$(20) $(27)
The Company's adoption of ASU 2016-01 with respect to gains and losses on equity securities had a $20 and $27 impact on pre-tax net income, or $0.09 and $0.13 per common share, for the proceeds fromthree and six months ended June 30, 2018, respectively.
Unconsolidated Variable Interest Entities
FGL Insurance owns investments in VIEs that are not consolidated within the initial public offeringCompany’s financial statements.  VIEs do not have sufficient equity to be heldfinance their own activities without additional financial support and certain of its investors lack certain characteristics of a controlling financial interest.  These VIEs are not consolidated in the Trust Account. IfCompany’s financial statements for the following reasons: 1)  FGL Insurance either does not control or does not have any voting rights or notice rights; 2)  the Company does not complete a Business Combination withinhave any rights to remove the Combination Period, the Private Placement Warrants will expire worthless.

9

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Note 5 - Related Party Transactions

Founder Shares

On March 2, 2016,investment manager; and 3)  the Company issuedwas not involved in the design of the investment.  These characteristics indicate that FGL Insurance lacks the ability to direct the activities, or otherwise exert control, of the VIEs and is not considered the primary beneficiary of them. 

The Company previously executed a commitment of $75 to purchase common shares in an aggregateunaffiliated private business development company ("BDC"). The BDC invests in secured and unsecured fixed maturity and equity securities of 15,000,000 founder sharesmiddle market companies in the United States. Due to the Sponsor in exchange for a capital contribution of $25,000. On April 19, 2016, the Sponsor surrendered 3,750,000 founder shares to the Company for no consideration, which the Company cancelled. The Company then issued 3,750,000 founder shares to the Anchor Investors (as defined below) for an aggregate price of approximately $7,000 in connection with the forward purchase agreements. The Sponsor and the Anchor Investors currently own 11,250,000 and 3,750,000 founder shares, respectively. The founder shares will automatically convert into Class A ordinary shares in connection with the consummation of a Business Combination at a ratio such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, 20%voting structure of the sum of  (i) the total number of Class A ordinary shares outstanding upon completion of the initial public offering (including the Over-allotment), plus (ii) the sum of  (a) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business Combination (including forward purchase shares, but not forward purchase warrants), excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants issued to the Sponsor upon conversion of Working Capital Loans, minus (b) the number of public shares redeemed by public shareholders in connection with the initial Business Combination.

The Sponsor, Chinh E. Chu and William P. Foley, II have agreed not to transfer, assign or sell any of their founder shares until the earliest of  (a) one year after the completion of the initial Business Combination with respect 50% of their founder shares, (b) two years after the completion of the initial Business Combination with respect to the remaining 50% of their founder shares, and (c) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction, after an initial Business Combination that results in all of the Company’s shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property. The Anchor Investors have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of: (i) one year after the completion of the initial Business Combination or (ii) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction after the initial Business Combination that results in all of the Company’s shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property (except to certain permitted transferees). Any permitted transferees will be subject to the same restrictions and other agreements of the initial shareholders or Anchor Investors, as applicable, with respect to any founder shares. Notwithstanding the foregoing, if the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination, the founder shares held by investors other than the Sponsor, Chinh E. Chu and William P. Foley, II will be released from the lock-up.

Private Placement Warrants

On May 25, 2016 and June 29, 2016, the Sponsor purchased from the Company an aggregate of 15,800,000 Private Placement Warrants as described in Note 4. Each Private Placement Warrant entitles the holder to purchase one Class A ordinary share at $11.50 per share. The Private Placement Warrants (including the Class A ordinary shares issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or salable until 30 days after the completion of the initial Business Combination, and they will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants and have no net cash settlement provisions.

If the Company does not complete a Business Combination, then the proceeds of the sale of the Private Placement Warrants will be part of the liquidating distribution to the public shareholders and the Private Placement Warrants will expire worthless.

Forward Purchase Agreements

On April 19, 2016, the Company entered into forward purchase agreements pursuant to which certain investors (“Anchor Investors”) (including two affiliates of the Sponsor) agreed to purchase an aggregate of 51,000,000 Class A ordinary shares plus an aggregate of 19,083,333 redeemable warrants (one redeemable warrant for every three forward purchase shares purchased) at $10.00 per Class A ordinary share for an aggregate purchase price of $510 million, in a private placement to occur concurrentlyhave voting power.  The initial capital call occurred June 30, 2015, with the closingremaining commitment expected to fund June 2019. The Company has funded $42 as of an initial Business Combination. In connection with these agreements,June 30, 2018.

The Company invests in various limited partnerships as a passive investor. These investments are in corporate credit and real estate debt strategies that have a current income bias. Limited partnership interests are accounted for under the Company issued an aggregate of 3,750,000 founder sharesequity method and are included in “Other invested assets” on the Company’s consolidated balance sheet. The Company's maximum exposure to such investors. The founder shares issued to such investors are subject to similar contractual conditions and restrictions as the founder shares issued to the Sponsor. The Anchor Investors will have redemption rightsloss with respect to any public shares they own but have waived redemption rights with respectthese investments is limited to their founder shares. The forward purchase agreements also provide that the investors are entitled to a right of first offer with respectinvestment carrying amounts reported in the Company's consolidated balance sheet in addition to any proposed salerequired unfunded commitments. As of June 30, 2018, the Company's maximum exposure to loss was $218 in recorded carrying value and $655 in unfunded commitments.


(5) Derivative Financial Instruments
The carrying amounts of derivative instruments, including derivative instruments embedded in FIA contracts, is as follows:
 June 30, 2018 December 31, 2017
Assets:   
Derivative investments:   
Call options$294
 $477
Futures contracts1
 
FSRC derivative contracts17
 15
Other invested assets:   
Other derivatives and embedded derivatives16
 17
 $328
 $509
Liabilities:   
Contractholder funds:   
FIA embedded derivative$2,491
 $2,387
Other liabilities:   
Preferred shares reimbursement feature embedded derivative24
 23
 $2,515
 $2,410
The change in fair value of derivative instruments included in the accompanying Condensed Consolidated Statements of Operations is as follows:
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
   Predecessor   Predecessor
Revenues:       
Net investment gains (losses):       
    Call options$51
 $81
 $(69) $186
    Futures contracts2
 1
 
 5
FSRC derivative contracts4
 
 2
 
Other derivatives and embedded derivatives
 1
 
 2
Reinsurance related embedded derivatives (a)(13) (9) (34) (20)
Total net investment gains (losses)$44
 $74
 $(101) $173
        
Benefits and other changes in policy reserves:       
FIA embedded derivatives$158
 $80
 $104
 $192
        
Acquisition and operating expenses, net of deferrals:       
Preferred shares reimbursement feature embedded derivative (b)$
 $
 $(1) $
(a) Change in fair value of reinsurance related embedded derivatives in the successor period is due to FSRC unaffiliated third party business and the predecessor periods activity is due to the FGL and FSRC reinsurance treaty.
(b) Only applicable to Successor periods.


Additional Disclosures
Other Derivatives and Embedded Derivatives
On June 16, 2014, FGL Insurance invested in a $35 fund-linked note issued by Nomura International Funding Pte. Ltd. The note provides for an additional equity or equity-linked securities bypayment at maturity based on the Company for capital raising purposes in connection with the closingvalue of an initial Business Combination (other than sharesembedded derivative in AnchorPath Dedicated Return Fund (the "AnchorPath Fund") of $11 which was based on the actual return of the fund. At June 30, 2018, the fair value of the fund-linked note and warrants pursuant to forward purchase agreements)embedded derivative were $25 and registration rights with respect to$16, respectively. At maturity of the shares, warrants and Class A ordinary shares underlyingfund-linked note, FGL Insurance will receive the forward purchase warrants.

10

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

On April 22, 2016,$35 face value of the Company entered into an agreement in connection withnote plus the forward purchase agreements described above, pursuant to which Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC agreed to act as placement agents (the “Placement Agents”)value of the embedded derivative in the related private placement. In connection therewith,AnchorPath Fund. The additional payment at maturity is an embedded derivative reported in "Other invested assets", while the Placement Agents are entitled to placement agent feeshost is an available-for-sale security reported in an aggregate amount of: (i) up to 3.5% of the aggregate proceeds received from the forward purchase shares (or $17.85 million), contingently payable at the consummation of an initial Business Combination, (ii) an additional placement agent fee of 0.5% of the aggregate proceeds received from the sales of the forward purchase agreements (or $2.55 million) at the Company’s sole discretion as determined at the time of the consummation of an initial Business Combination, and (iii) reimbursement of reasonable legal counsel fees and expenses up to an aggregate amount of $275,000, which will be paid upon the earlier of the consummation of an initial Business Combination and December 1, 2017.

Due to Related Parties

The Company’s Sponsor and other related parties have loaned the Company an aggregate amount of $225,733 to be used for the payment of costs related to the initial public offering. These borrowings are non-interest bearing, unsecured and due on demand. "Fixed maturities, available-for-sale".

Fixed Index Annuity ("FIA") Contracts
The Company has not yet repaid this amount as of September 30, 2017.

In orderFIA Contracts that permit the holder to finance transaction costs in connection with a Business Combination, the Sponsorelect an interest rate return or an affiliateequity index linked component, where interest credited to the contracts is linked to the performance of various equity indices, primarily the S&P 500 Index. This feature represents an embedded derivative under GAAP. The FIA embedded derivative is valued at fair value and included in the liability for contractholder funds in the accompanying Condensed Consolidated Balance Sheets with changes in fair value included as a component of “Benefits and other changes in policy reserves” in the Condensed Consolidated Statements of Operations. See a description of the Sponsor, or certainfair value methodology used in "Note 6. Fair Value of Financial Instruments".

The Company purchases derivatives consisting of a combination of call options and futures contracts on the applicable market indices to fund the index credits due to FIA contractholders. The call options are one, two, three, and five year options purchased to match the funding requirements of the Company’s officersunderlying policies. On the respective anniversary dates of the index policies, the index used to compute the interest credit is reset and directors may, but are not obligated to, loan the Company Working Capital Loans. In July 2017,purchases new one, two, three, or five year call options to fund the Sponsor loaned an aggregatenext index credit. The Company manages the cost of $750,000 to the Company. If the Company completes a Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans will be repaid only out of funds held outside the Trust Account. In the event that the Company does not complete a Business Combination, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account may be used to repay the Working Capital Loans. Except for the foregoing,these purchases through the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respectits FIA contracts, which permit the Company to such loans.change caps, spreads or participation rates, subject to guaranteed minimums, on each contract’s anniversary date. The Working Capital Loans will either be repaid upon consummation of a Business Combination, without interest, or, atchange in the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrantsfair value of the post Business Combination entity at a price of $1.00 per warrant. Any such warrants would have identical terms ascall options and futures contracts is generally designed to offset the Private Placement Warrants.

Administrative Service Fee

The Company has agreed, commencing on May 25, 2016 through the earlierportion of the Company’s consummation of a Business Combination and liquidation, to pay an affiliatechange in the fair value of the SponsorFIA embedded derivative related to index performance. The call options and futures contracts are marked to fair value with the change in fair value included as a monthly feecomponent of $10,000 for office space, and secretarial and administrative services.“Net investment gains (losses).” The Company recorded $30,000 and $0change in expense for the three months ended September 30, 2017 and 2016, respectively, and recorded $90,000 and $40,000 in expense for the nine months ended September 30, 2017 and for the period from February 26, 2016 (Date of Inception) through September 30, 2016, respectively.

Note 6 - Commitments & Contingencies

Registration Rights

The Sponsor is entitled to registration rights pursuant to a registration rights agreement entered into on May 19, 2016 with respect to the founder shares and Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the conversionfair value of the founder shares,call options and futures contracts includes the exercise of the Private Placement Warrantsgains and warrants that may be issued upon conversion of Working Capital Loans). The Sponsor may make up to three demands, excluding short form demands, that the Company register such securities. In addition, the Sponsor has “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

11

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Pursuant to the forward purchase agreements described below, the Company agreed to file within 30 days after the closing of the Business Combination a registration statement for a secondary offering of the forward purchase shares and the forward purchase warrants (and underlying Class A ordinary shares) and to maintain the effectiveness of such registration statement until the earliest of  (A) the date on which the Anchor Investors cease to hold the securities covered thereby, (B) the date all of the securities covered thereby can be sold publicly without restriction or limitation under Rule 144 under the Securities Act and (C) the second anniversary of the date of effectiveness of such registration statement, subject to certain conditions and limitations set forth in the forward purchase agreements.

Underwriting Agreement

The Company granted the underwriters a 45-day option to purchase up to 9,000,000 additional units to cover over-allotmentslosses recognized at the initial public offering price less the underwriting discounts and commissions. The underwriters fully exercised the Over-allotment on June 29, 2016, generating additional gross proceeds of $90 million.

The Company paid $0.20 per unit, or $13.8 million in the aggregate, to the underwriters, upon the closing of the initial public offering. $0.35 per unit, or $24.15 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.

Note 7 - Shareholders’ Equity

Class A ordinary shares - The Company is authorized to issue 400,000,000 Class A ordinary shares with a par value of $0.0001 per share. Holders of the Company’s Class A ordinary shares are entitled to one vote for each share. At September 30, 2017 and December 31, 2016, there were 69,000,000 Class A ordinary shares issued and outstanding, including 62,337,495 and 64,066,643 shares of Class A ordinary shares subject to possible redemption, respectively.

Class B ordinary shares (founder shares) - The Company is authorized to issue 50,000,000 Class B ordinary shares with a par value of $0.0001 per share. Holders of the Company’s Class B ordinary shares are entitled to one vote for each share. The founder shares will automatically convert into Class A ordinary shares on the first business day following the consummation of the initial Business Combination. The ratio at which founder shares will convert into Class A ordinary shares will be such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, 20% of the sum of  (i) the total number of Class A ordinary shares outstanding upon the completion of the initial public offering (including the Over-allotment), plus (ii) the sum of  (a) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business Combination (including forward purchase shares, but not forward purchase warrants), excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants issued to the Sponsor upon conversion of Working Capital Loans, minus (b) the number of public shares redeemed by public shareholders in connection with the initial Business Combination.

As of September 30, 2017 and December 31, 2016, the Company had 15,000,000 founder shares issued and outstanding.

Holders of Class A ordinary shares and Class B ordinary shares will vote together as a single class on all matters submitted to a vote of shareholders except as required by law, except that prior to a Business Combination, only holders of Class B ordinary shares have the right to elect the Company’s directors.

Preferred shares - The Company is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share. At September 30, 2017 and December 31, 2016, there were no preferred shares issued or outstanding.

12

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Warrants - The Public Warrants will become exercisable on the later of  (a) 30 days after the completion of a Business Combination and (b) May 26, 2017; provided in each case that the Company has an effective registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis and such cashless exercise is exempt from registration under the Securities Act). The Company has agreed that as soon as practicable, but in no event later than 15 business days, after the closing of a Business Combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the Public Warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Public Warrantsinstrument term or upon early termination and the changes in accordance withfair value of open positions.

Other market exposures are hedged periodically depending on market conditions and the provisionsCompany’s risk tolerance. The Company’s FIA hedging strategy economically hedges the equity returns and exposes the Company to the risk that unhedged market exposures result in divergence between changes in the fair value of the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the sixtieth (60th) day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.

The Private Placement Warrants are identical to the Public Warrants underlying the units sold in the initial public offering, except that the Private Placement Warrantsliabilities and the Class A ordinary shares issuable upon exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

hedging assets. The Company may calluses a variety of techniques, including direct estimation of market sensitivities and value-at-risk to monitor this risk daily. The Company intends to continue to adjust the Public Warrants for:

·in whole and not in part;
·at a price of $0.01 per warrant;
·upon a minimum of 30 days prior written notice of redemption; and
·if, and only if, the last reported sales price of the ordinary shares equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. In no event will the Company be required to net cash settle its warrants. If the Company is unable to complete a Business Combination within the Combination Periodhedging strategy as market conditions and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.

Note 8 - Merger Agreement

Merger Consideration

Pursuant to the Merger Agreement, at the time of closing (the “Effective Time”), each issued and outstanding share of FGL common stock, par value $0.01 per share (the “FGL Common Stock”), immediately prior to the Effective Time (other than any shares of FGL Common Stock owned by FGL as treasury stock or by any FGL subsidiary or owned by the Company, Parent, Merger Sub or any other subsidiary of the Company, which will be cancelled and no payment will be made with respect thereto), and shares granted pursuant to FGL’s equity plan, will be cancelled and converted automatically into the right to receive $31.10 in cash, without interest (the “Merger Consideration”). The Merger Agreement permits FGL to pay out a regular quarterly cash dividend on FGL Common Stock prior to the closing of the transaction (the “Closing”) in an amount not in excess of $0.065 per share, per quarter (the per share amount of FGL’s most recently declared quarterly dividend).

13
risk tolerance change.

Preferred Equity Remarketing Reimbursement Embedded Derivative Liability

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

At the Effective Time, each (i) option to purchase shares of FGL Common Stock, (ii) restricted share of FGL Common Stock and (iii) performance-based restricted stock unit relating to shares of FGL Common Stock, in each case, whether vested or unvested, will become fully vested and automatically converted into the right to receive a cash payment equal to the product of (1) the number of shares subject to the award (for restricted stock units, determined at the target performance level), multiplied by (2) the Merger Consideration (less the exercise price per share in the case of stock options). Each stock option and restricted stock unit relating to shares of Fidelity & Guaranty Life Holdings, Inc., a subsidiary of FGL (“FGLH”), whether vested or unvested, will become fully vested and automatically converted into the right to receive a cash payment equal to the product of (A) the number of shares of FGLH stock subject to the award, multiplied by (B) $176.32 (less the exercise price in the case of such stock options), and each dividend equivalent held in respect of a share of FGLH stock (a “DER”), whether vested or unvested, will become fully vested and automatically converted into the right to receive a cash payment equal to the amount accrued with respect to such DER.

During the three and nine months ended September

On November 30, 2017 the Company incurred approximately $14.2 million in expenses related to the merger with FGL.

Representations, Warranties and Covenants

The Merger Agreement contains customary representations, warranties and covenants by the Company, Parent, Merger Sub and FGL.

Conditions to Closing

Consummation of the FGL Business Combination is subject to satisfaction or waiver of customary closing conditions, including, among others, approval by the Company’s shareholders of the Merger Agreement and the issuance of the Company’s ordinary shares in connection with the FGL Business Combination, approval by FGL’s stockholders and delivery at least twenty (20) days prior to the Closing of an information statement to be filed with (and cleared by) the SEC.

Following the execution of the Merger Agreement, FS Holdco II Ltd. (“FS Holdco”), a wholly owned subsidiary of HRG Group, Inc. (“HRG”) and FGL’s majority stockholder, executed and delivered to FGL and the Company an irrevocable written consent approving and adopting the Merger Agreement and the transactions contemplated thereby. As a result, the holders of a majority of the outstanding shares of FGL Common Stock have adopted and approved the Merger Agreement.

Termination

The Merger Agreement contains customary termination rights, including, among others, (i) by mutual written consent of the Company and FGL, (ii) by the Company or FGL if the FGL Business Combination is prohibited by law, (iii) by the Company or FGL if the Company does not obtain approval of its shareholders and (iv) by the Company or FGL if the FGL Business Combination is not consummated prior to January 24, 2018, subject to extension under certain circumstances. Upon termination of the Merger Agreement under specified circumstances, FGL may be required to pay a termination fee to the Company in an aggregate amount of $50,000,000.

In addition, Blackstone Tactical Opportunities Fund II L.P. (“BTO Fund”), certain affiliated funds of GSO Capital Partners LP (“GSO”) and Fidelity National Financial, Inc. (“FNF”) have executed limited guaranties in favor of FGL to guarantee, in the event of the termination of the Merger Agreement as a result of the Company’s, Parent’s or Merger Sub’s intentional and material breach or fraud, the payment of a portion of any damages determined in a final judgment by a court or governmental authority or pursuant to a settlement by written agreement of the parties to the Merger Agreement, up to a specified portion of the total transaction value.

Equity Commitment Letters

In connection with the Merger Agreement, the Company obtained the following equity commitment letters for the purpose of funding the FGL Business Combination consideration and related transactions and paying the costs and expenses incurred in connection therewith (the “Equity Commitment Letters”):

14

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

BTO Fund Equity Commitment Letter

Pursuant to equity commitment letters (the “BTO Fund Equity Commitment Letters”) from BTO Fund, dated as of May 24, 2017, BTO Fund has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price of $225 million (the “BTO Fund Commitment”). BTO Fund is an investment fund under common control with CFS Holdings (Cayman) L.P. (“CFS”), a shareholder of the Company and a party to the forward purchase agreements.

The obligation of BTO Fund to fund the BTO Fund Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing, (b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against BTO Fund in connection with the Merger Agreement or the Share Purchase Agreement (as defined below), as applicable, or any of the transactions contemplated by the BTO Fund Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions.

FNF Equity Commitment Letters

Pursuant to equity commitment letters (the “FNF Equity Commitment Letters”) from FNF, dated as of May 24, 2017, FNF has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price equal to (x) $235 million plus (y) up to an aggregate of $195 million to offset any redemptions of the Company’s ordinary shares in connection with the shareholder vote to approve the FGL Business Combination on or after the date of the FNF Equity Commitment Letters and prior to the Closing (the “FNF Commitment”). The Company’s Co-Executive Chairman, William P. Foley, II, is also the non-executive Chairman of the Board of FNF.

The obligation of FNF to fund the FNF Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding), (b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against FNF in connection with the Merger Agreement or the Share Purchase Agreement, as applicable, or any of the transactions contemplated by the FNF Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions.

GSO Equity Commitment Letters

Pursuant to equity commitment letters (the “GSO Equity Commitment Letters”) from GSO, dated as of May 24, 2017, GSO has committed, on the terms and subject to the conditions set forth therein, to purchase, or cause the purchase of, preferred shares of the Company for an aggregate cash purchase price equal to (x) $275 million plus (y) up to an aggregate of $465 million to offset any redemptions of the Company’s ordinary shares in connection with the shareholder vote to approve the FGL Business Combination on or after the date of the GSO Equity Commitment Letters and prior to the Closing (the “GSO Commitment”).

The obligation of GSO to fund the GSO Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding), (b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against GSO in connection with the Merger Agreement or the Share Purchase Agreement, as applicable, or any of the transactions contemplated by the GSO Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions.

Forward Purchase Backstop Equity Commitment Letters

Pursuant to equity commitment letters (the “Forward Purchase Backstop Equity Commitment Letters”) from BTO Fund and FNF, dated as of May 24, 2017, (i) BTO Fund has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price equal to one-third (1/3) of the aggregate amount, if any, not funded by one or more purchasers under the forward purchase agreements at or prior to the closing pursuant to the forward purchase agreements (the “FPA Shortfall”), up to an aggregate amount of $100 million, and (ii) FNF has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price equal to two-thirds (2/3) of the FPA Shortfall, up to an aggregate amount of $200 million (the “Forward Purchase Backstop Commitments”).

15

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

In exchange for providing the Forward Purchase Backstop Commitments, promptly following the closing, the Company will pay to BTO Fund or its designated affiliate the amount of $1.5 million and to FNF the amount of $3.0 million, with such amounts payable whether or not any portion of the Forward Purchase Backstop Commitment is ultimately required to be funded. BTO Fund and FNF have agreed to forego receiving such fees in light of the additional commitments of the Anchor Investors to purchase 20,000,000 ordinary shares in connection with the rights of first offer set forth in the forward purchase agreements.

The obligation of the parties to the Forward Purchase Backstop Equity Commitment Letters (the “Forward Purchase Backstop Parties”) to fund the Forward Purchase Backstop Commitments will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding), (b) the termination of the Merger Agreement in accordance with its terms and (c) FGL or any of its affiliates or representatives asserting any claim against any Forward Purchase Backstop Party in connection with the Merger Agreement or Share Purchase Agreement, as applicable, or any of the transactions contemplated by the Forward Purchase Backstop Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions.

The Equity Commitment Letters include an aggregate of $57 million in commitments that relate to the Company’s purchase of the Acquired Companies (as defined below) pursuant to the Share Purchase Agreement , of which $23 million would be used to offset a portion of net redemptions, if any, by public shareholders of the Company in connection with the shareholder vote to approve the FGL Business Combination and $9 million would be used to fund any FPS Shortfall.

Investor Agreement

On October 6, 2017, the Company entered into a second amended and restated investor agreement (the “Investor Agreement”) with BTO Fund, GSO and FNF (collectively, “the Investor Agreement Parties”), which amended and restated the amended and restated investor agreement, dated as of June 6, 2017, pursuant to which the Company agreed that, without the Investor Agreement Parties’ prior written consent, the Company would not amend, modify, grant any waiver under or seek to terminate any of the transaction agreements relating to the FGL Business Combination, or take any action concerning settlements, stipulations or judgments relating to government authorities or make any regulatory filings contemplated by the Merger Agreement, subject in each case to certain exceptions and qualifications.

Pursuant to the Investor Agreement, the terms of the equity to be issued pursuant to the Equity Commitment Letters will be as follows:

·With respect to the BTO Fund Commitment under the BTO Fund Equity Commitment Letters, BTO Fund will purchase ordinary shares. BTO Fund will receive one ordinary share in exchange for each $10.00 funded pursuant to its equity commitment letters.

·

With respect to the FNF Commitment described in the FNF Equity Commitment Letters, FNF will purchase (i) $135 million of newly issued ordinary shares for $10.00 per share and (ii) $100 million, plus additional amounts, if any, pursuant to FNF’s commitment to offset redemptions of public shares in connection with the FGL Business Combination, of preferred shares of the Company on the terms set forth in the Investor Agreement and warrants of the Company on the terms as set forth in the FNF Fee Letter (as defined below). The terms of the preferred shares to be issued to FNF set forth in the Investor Agreement are identical to those set forth in the GSO Side Letter described below. FNF will also have the right, provided that FNF has first requested the Company to remarket the preferred shares, commencing 10 years after the issuance of the preferred shares, to convert such shares into a number of ordinary shares of the Company as determined by dividing (i) the aggregate par value (including dividends paid in kind and unpaid accrued dividends) of the preferred shares that FNF wishes to convert by (ii) the higher of (a) a 5% discount to the 30-day volume weighted average price (“VWAP”) of the ordinary shares following the conversion notice, and (b) the then-current Floor Price. The “Floor Price” will be $8.00 per share during the 11th year post-funding, $7.00 per share during the 12th year post-funding, and $6.00 during the 13th year post-funding and thereafter.

·With respect to the GSO Commitment under the GSO Equity Commitment Letters, GSO will purchase preferred shares and be issued warrants of the Company on the terms set forth in the GSO Side Letter (as defined below).

·In the event that public shareholders redeem their public shares in connection with the FGL Business Combination, a certain portion of the GSO Commitment and the FNF Commitment, as described in their respective equity commitment letters, shall be allocated pro rata based on their aggregate commitments thereunder.

​ 

·With respect to the Forward Purchase Backstop Equity Commitment Letters, each of FNF and BTO Fund will purchase ordinary shares and one-third (1/3) of one detachable warrant (with such warrants having the same terms as the forward purchase warrants). BTO Fund will receive one ordinary share and one-third (1/3) of a warrant in exchange for each $10.00 funded pursuant to the Forward Purchase Backstop Equity Commitment Letters. In addition, FNF and BTO Fund will together purchase ordinary shares equal to the number of ordinary shares that the purchasers under the forward purchase agreements who fail to fund, if any, would have acquired pursuant to the forward purchase agreements in connection with the FGL Business Combination (including pursuant to the conversion of founder shares into ordinary shares). FNF will purchase two-thirds (2/3) of such ordinary shares, if any, and BTO will purchase one-third (1/3) of such ordinary shares, if any.

16

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

The Investor Agreement further provides that the Investor Agreement Parties will receive registration rights on customary terms with respect to the ordinary shares,275,000 Series A cumulative preferred shares and warrants (and100,000 Series B cumulative preferred shares (together the ordinary shares underlying such warrants) issued pursuant to“Preferred Shares”). The Preferred Shares do not have a maturity date and are non-callable for the Equity Commitment Letters.

GSO Side Letter

On May 24, 2017,first five years.From and after November 30, 2022, the original holders of the Preferred Shares may request and thus require, the Company entered into a side letter agreement, as amended on October 6, 2017, with GSO (the “GSO Side Letter”), which provides that the terms of the preferred shares to be issued to GSO will include: a dividend rate of 7.5% per annum (subject to increase in the period beginning 10 years after issuance based on the then-current LIBOR rate), payable quarterly in cash or additional preferred shares of the Company, at the Company’s option; five year call protection; and the right of holders thereof to request the Company to re-market the preferred shares commencing in the sixth year following issuance, subject to the terms and conditions specified therein. In addition, GSO will also have the right, commencing 10 years after the issuance of the preferred shares, provided that GSO has first requested the Companycustomary blackout provisions) to remarket the Preferred Shares on their existing terms. If the remarketing is successful and the original holders elect to sell their preferred shares as described below, to convert such shares into a number of ordinary shares ofat the Company as determined by dividing (i) the aggregate par value (including dividends paid in kindremarketed price and unpaid accrued dividends) of the preferred shares that GSO wishes to convert by (ii) the higher of (a) a 5% discount to the 30-day VWAP of the ordinary shares following the conversion notice, and (b) the then-current Floor Price.  

From the fifth anniversary of the funding date, upon GSO’s request, the Company is required (subject to customary black-out provisions) to re-market the preferred equity its existing terms.  To the extent market conditions make such re-marketing impracticable, the Company may temporarily delay such re-marketing provided that the preferred equity is re-marketed within six months of the date of GSO’ initial request.  To the extent it is unlikely that remarketing the preferred shares on the then existing terms will receive a valuation by a prospective purchaser of par or greater than par, the Company may, upon GSO’s request, modify the terms of the preferred shares to improve the sale of such shares with the intention of preserving rating agency equity credit. If the proceeds from any sales resulting from such marketingsale are less than the outstanding balance of the applicable shares (including dividends paid in kind and accumulated but unpaid dividends), the Company will be required to reimburse the sellers, up to a maximum of 10% of the par value of the originally issued preferred shares (including dividends paid in kind and accumulated but unpaid accrued dividends), the Company will reimburse GSO up to a maximum of 10% of par (including paid in kind and unpaid accrued dividends) for actual losses incurred by GSO upon the sale of its preferred shares under the terms of the remarketing mechanism, with such amount payable either in cash, ordinary shares, or any combination thereof, at the Company's option (the “Reimbursement Feature”). The Reimbursement Feature represents an embedded derivative that is not clearly and closely related to the preferred stock host and must be bifurcated. The Reimbursement Feature liability is held at fair value within “Other liabilities” in the accompanying Condensed Consolidated Balance Sheets using a Black Derman Toy model incorporating among other things the paid in kind dividend coupon rate and the Company’s call option. IfChanges in fair value of


this derivative are recognized within “Acquisition and operating expenses, net of deferrals” in the accompanying Condensed Consolidated Statements of Operations.
Credit Risk
The Company choosesis exposed to deliver ordinary shares to GSO,credit loss in the numberevent of such sharesnon-performance by its counterparties on the call options and reflects assumptions regarding this non-performance risk in the fair value of the call options. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts less collateral held. The Company maintains a policy of requiring all derivative contracts to be delivered will be determinedgoverned by dividing (i)an International Swaps and Derivatives Association (“ISDA”) Master Agreement.
Information regarding the amount of actual lossesCompany’s exposure to be paid to GSO by (ii)credit loss on the higher of (a) an 8% discount to the 30-day VWAP of the ordinary shares following the remarketing period, and (b) $6.00.

The terms of the preferred equity are expected to include customary covenants for senior preferred equity, including limitations on debt incurrence, equity issuances and payments of dividends, and covenants requiring compliance with a set of financial covenants, affirmative covenants and negative covenants that mirror those containedcall options it holds is presented in the following table:

    June 30, 2018
Counterparty 
Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk
Merrill Lynch  A+/*/A+ $3,037
 $80
 $38
 $42
Deutsche Bank  A-/A3/BBB+ 1,548
 39
 40
 (1)
Morgan Stanley  */A1/A+ 1,666
 36
 38
 (2)
Barclay's Bank  A*+/A2/A 1,745
 67
 50
 17
Canadian Imperial Bank of Commerce  AA-/Aa3/A+ 2,728
 73
 73
 
Wells Fargo  A+/A2/A- 567
 16
 16
 
Total   $11,291
 $311
 $255
 $56
    December 31, 2017
Counterparty Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk
Merrill Lynch  A/*/A+ $2,780
 $150
 $118
 $32
Deutsche Bank  A-/A3/A- 1,345
 51
 55
 (4)
Morgan Stanley  */A1/A+ 1,555
 92
 101
 (9)
Barclay's Bank  A*+/A1/A 2,090
 103
 95
 8
Canadian Imperial Bank of Commerce  AA-/Aa3/A+ 2,807
 96
 98
 (2)
Total 
 $10,577
 $492
 $467
 $25
(a) An * represents credit facility documentation in effectratings that were not available.

Collateral Agreements
The Company is required to maintain minimum ratings as a matter of the funding date. The preferred equity will rank senior in priority to all other existing and future equity securities of the Company with respect to distribution rights and liquidation preference. In addition, holders of preferred equity are expected to have board observation and customary registration rights with respect to such shares.

Pursuant to the GSO Side Letter, for the period from the date of the GSO Side Letter until the earlier of (a) the mutual agreement by the parties thereto not to execute definitive documentation relating to the GSO Commitment, (b) the date of Closing (the “Closing Date”), and (c) the first anniversary of the GSO Side Letter, the Company agreed (i) not to, directly or indirectly solicit, participate in any negotiations or discussion with or provide or afford access to information to any third party with respect to, or otherwise effect, facilitate, encourage or accept any offers for the purchase or provision of the preferred equity to be issued to GSO pursuant to the GSO Commitment Letters (the “GSO Preferred Equity”) or any alternative equity or debt financing arrangements, in each case, to be put in place in connection with the FGL Business Combination in replacement of the GSO Preferred Equity or any portion thereof (other than pursuant to the Equity Commitment Letters, forward purchase agreements or the debt commitment letter), and (ii) if the FGL Business Combination is not consummated and the Company pursues an alternative transaction with FGL within the period ending on the first anniversary of the GSO Side Letter, and another financing source or institution proposes to provide financing in connection with such alternative transaction, the Company will provide GSO a reasonable opportunity to provide such financing in lieu of any other financing source or institution on equivalent terms.

17

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Amendment Fees

 As consideration for amending and restating the Investor Agreement on October 6, 2017 to better align the terms of the preferred shares with the requirements of the rating agencies, the Company agreed to pay $1.1 million to FNF or one or moreroutine practice as part of its designees at the Closing. As consideration for entering into the amendment to the GSO Side Letterover-the-counter derivative agreements on October 6, 2017 to better align the terms of the preferred shares with the requirements of the rating agencies, the Company agreed to pay $2.9 million to GSO or to one or more of its designees at the Closing.

GSO Fee Letter

As consideration for the GSO Commitment (including the backstop commitment) and theISDA forms. Under some ISDA agreements, of GSO under the GSO Commitment Letters, limited guaranty and the GSO Side Letter, the Company also entered into a fee letter agreement with GSO, dated May 24, 2017 (the “GSO Fee Letter”), pursuant to which the Company has agreed to paymaintain certain financial strength ratings. A downgrade below these levels provides the counterparty under the agreement the right to GSOterminate the following feesopen option contracts between the parties, at Closing:

·the original issue discount of $5.5 million in respect of the preferred shares issued to GSO (the “GSO OID”);
·a commitment fee of $6.975 million (the “GSO Commitment Fee”);
·penny warrants convertible, in the aggregate, for 3.3% of the Company’s ordinary shares (on a fully diluted basis) (the “GSO Investment Warrants”); and
·if, and to the extent, any amount of the preferred equity under GSO’s backstop commitment is funded (the “GSO Backstop Equity”), then (x) a funding fee of 0.5% of the amount of the GSO Backstop Equity that is funded (together with the GSO OID and the GSO Commitment Fee, the “GSO Closing Payments”), and (y) penny warrants attached to the GSO Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the GSO Backstop Equity that is funded, and (2) 3.5% of the Company’s ordinary shares (on a fully diluted basis) (together with the GSO Investment Warrants, the “GSO Warrants”).

The GSO Closing Payments willwhich time any amounts payable by the Company or the counterparty would be paid as a reductiondependent on the market value of the purchase price payable by GSO forunderlying option contracts. The Company's current rating doesn't allow any counterparty the preferred equity underright to terminate ISDA agreements. In certain transactions, the GSO Commitment Letters. The Company has also agreed to pay or reimburse GSO for fees and expenses of counsel in connection with GSO’s anticipated purchase of the preferred equity.

18

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

FNF Fee Letter

As consideration for the FNF Commitment (including the backstop commitment) and the agreements of FNF under the FNF Commitment Letters and limited guaranty, the Company alsocounterparty have entered into a fee lettercollateral support agreement requiring either party to post collateral when the net exposures exceed pre-determined thresholds. For all counterparties, except one, this threshold is set to zero. As of June 30, 2018 and December 31, 2017, counterparties posted $255 and $467 of collateral, respectively, of which $217 and $349 is included in "Cash and cash equivalents" with FNF (the “FNF Fee Letter”), dated May 24,an associated payable for this collateral included in "Other liabilities" on the Condensed Consolidated Balance Sheets. The remaining $38 and $118 of non-cash collateral was held by a third-party custodian and may not be sold or re-pledged, except in the event of default, and, therefore, is not included in the Company's Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017 respectively. This collateral generally consists of U.S. treasury bonds and mortgage-backed securities. Accordingly, the maximum amount of loss due to credit risk that the Company would incur if parties to the call options failed completely to perform according to the terms of the contracts was $56 and $25 at June 30, 2018 and December 31, 2017, respectively.

The Company is required to pay counterparties the effective federal funds rate each day for cash collateral posted to FGL for daily mark to market margin changes.  In June 2017, the Company began reinvesting derivative cash collateral to reduce the interest cost. Cash collateral is invested in short term Treasury securities and A1/P1 commercial paper which are included in "Cash and cash equivalents" in the accompanying Condensed Consolidated Balance Sheets.
The Company held 1,414 and 1,754 futures contracts at June 30, 2018 and December 31, 2017, respectively. The fair value of the futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements). The Company provides cash collateral to the counterparties for the initial and variation margin on the futures contracts which is included in "Cash and cash equivalents" in the accompanying Condensed Consolidated Balance Sheets. The amount of cash collateral held by the counterparties for such contracts was $7 and $8 at June 30, 2018 and December 31, 2017, respectively.
Reinsurance Related Embedded Derivatives (Predecessor)
FGL Insurance has a coinsurance arrangement with FSRC, meaning that funds are withheld by FGL Insurance as the legal owner, but the credit risk is borne by FSRC. This arrangement created an obligation for FGL Insurance to pay FSRC at a later date, which resulted in an embedded derivative. This embedded derivative was considered a total return swap with contractual returns that were attributable to the assets and liabilities associated with this reinsurance arrangement. The fair value of the total return swap was based on the change in fair value of the underlying assets held in the funds withheld portfolio. Investment results for the assets that support the coinsurance funds withheld reinsurance arrangement, including gains and losses from sales, were passed directly to the reinsurer pursuant to contractual terms of the reinsurance arrangement. The reinsurance related embedded derivative was reported in “Other assets”, if in a net gain position, or "Other liabilities", if in a net loss position, on the Predecessor's Condensed Consolidated Balance Sheets and the related gains or losses were reported in “Net investment gains” on the Predecessor's Condensed Consolidated Statements of Operations. Due to the acquisition of FSRC, the reinsurance related embedded derivative is eliminated in consolidation in the Successor periods.
Call option payable to FSRC (Predecessor)
Under the terms of the coinsurance arrangement with FSRC, FGL Insurance is required to pay FSRC a portion of the net cost of equity option purchases and the proceeds from expirations related to the equity options which hedged the index credit feature of the reinsured FIA contracts. Accordingly, the payable to FSRC was reflected in "Funds withheld for reinsurance liabilities" as of the balance sheet date with changes in fair value reflected within the “Net investment gains (losses)” in Predecessor's Condensed Consolidated Statements of Operations. Due to the acquisition of FSRC, the call option payable to FSRC is eliminated in consolidation in the Successor periods.

(6) Fair Value of Financial Instruments
The Company’s measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or non-performance risk, which may include the Company’s own credit risk. The Company’s estimate of an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market for that asset of liability in the absence of a principal market as opposed to the price that would be paid to acquire the asset or receive a liability (“entry price”). The Company categorizes financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique. The three-level hierarchy for fair value measurement is defined as follows:
Level 1 - Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date.
Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads, and yield curves.
Level 3 - Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date based on the best information available in the circumstances.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lower level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult. In addition to the unobservable inputs, Level 3 fair value investments may include observable components, which are components that are actively quoted or can be validated to market-based sources.

The carrying amounts and estimated fair values of the Company’s financial instruments for which the disclosure of fair values is required, including financial assets and liabilities measured and carried at fair value on a recurring basis, with the exception of investment contracts, related party loans, portions of other invested assets and debt which are disclosed later within this footnote, was summarized according to the hierarchy previously described, as follows:
 June 30, 2018
 Level 1 Level 2 Level 3 Fair Value Carrying Amount
Assets         
Cash and cash equivalents$1,710
 $
 $
 $1,710
 $1,710
Fixed maturity securities, available-for-sale:         
Asset-backed securities
 2,814
 330
 3,144
 3,144
Commercial mortgage-backed securities
 1,181
 60
 1,241
 1,241
Corporates
 10,650
 1,190
 11,840
 11,840
Hybrids247
 660
 10
 917
 917
Municipals
 1,496
 37
 1,533
 1,533
Residential mortgage-backed securities
 1,113
 242
 1,355
 1,355
U.S. Government113
 27
 
 140
 140
Foreign Governments
 140
 16
 156
 156
Equity securities494
 804
 3
 1,301
 1,301
Derivative investments1
 311
 
 312
 312
Other invested assets
 
 67
 67
 67
Funds withheld for reinsurance receivables, at fair value84
 662
 6
 752
 752
Total financial assets at fair value$2,649
 $19,858
 $1,961
 $24,468
 $24,468
Liabilities         
Derivatives:         
FIA embedded derivatives, included in contractholder funds
 
 2,491
 2,491
 2,491
Preferred shares reimbursement feature embedded derivative
 
 24
 24
 24
Fair value of future policy benefits (FSRC)

 
 737
 737
 737
Total financial liabilities at fair value$
 $
 $3,252
 $3,252
 $3,252

 December 31, 2017
 Level 1 Level 2 Level 3 Fair Value Carrying Amount
Assets         
Cash and cash equivalents$1,215
 $
 $
 $1,215
 $1,215
Fixed maturity securities, available-for-sale:         
Asset-backed securities
 2,653
 412
 3,065
 3,065
Commercial mortgage-backed securities
 907
 49
 956
 956
Corporates
 11,401
 1,169
 12,570
 12,570
Hybrids253
 804
 10
 1,067
 1,067
Municipals
 1,709
 38
 1,747
 1,747
Residential mortgage-backed securities
 1,211
 66
 1,277
 1,277
U.S. Government52
 32
 
 84
 84
Foreign Governments
 180
 17
 197
 197
Equity securities404
 937
 3
 1,344
 1,344
Derivative investments
 492
 
 492
 492
Short term investments25
 
 
 25
 25
Other invested assets
 
 17
 17
 17
Funds withheld for reinsurance receivables, at fair value88
 648
 4
 740
 740
Total financial assets at fair value$2,037
 $20,974
 $1,785
 $24,796
 $24,796
Liabilities         
Derivatives:         
FIA embedded derivatives, included in contractholder funds$
 $
 $2,387
 $2,387
 $2,387
Preferred shares reimbursement feature embedded derivative
 
 23
 23
 23
Fair value of future policy benefits (FSRC)

 
 728
 728
 728
Total financial liabilities at fair value$
 $
 $3,138
 $3,138
 $3,138
Valuation Methodologies
Fixed Maturity Securities & Equity Securities
The Company has agreedmeasures the fair value of its securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity or equity security, and the Company will then consistently apply the valuation methodology to paymeasure the security’s fair value. The Company's fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to FNF the following fees at Closing:

·the original issue discount of $2.0 million in respect of the preferred shares issued to FNF (the “FNF OID”)
·a commitment fee of $2.925 million (the “FNF Commitment Fee”);
·penny warrants convertible, in the aggregate, for 1.2% of the Company’s ordinary shares (on a fully diluted basis) (the “FNF Investment Warrants”); and
·if, and to the extent, any amount of the preferred equity under FNF’s backstop commitment is funded (the “FNF Backstop Equity”), (x) a funding fee of 0.5% of the amount of the FNF Backstop Equity that is funded (together with the FNF OID and the FNF Commitment Fee, the “FNF Closing Payments”), and (y) penny warrants attached to the FNF Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the FNF Backstop Equity that is funded, and (2) 1.5% of the Company’s ordinary shares (on a fully diluted basis) (together with the FNF Investment Warrants, the “FNF Warrants”).

market approach include third-party pricing services, independent broker quotations, or pricing matrices. The FNF Closing PaymentsCompany uses observable and unobservable inputs in its valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. In addition, market indicators and industry and economic events are monitored and further market data will be paid as a reductionacquired when certain thresholds are met.

For certain security types, additional inputs may be used, or some of the purchaseinputs described above may not be applicable. The significant unobservable input used in the fair value measurement of equity securities for which the market approach valuation technique is employed is yields for comparable securities. Increases or decreases in the yields would result in lower or higher, respectively, fair value measurements. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. Management believes the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. The Company also has an equity investment in a private business development company which is not traded on an exchange or valued by other sources such as analytics or brokers. The Company based the fair value of this investment on an estimated net asset value provided by the investee. Management did not make any adjustments to this valuation.

The fair value of the Company's investment in mutual funds is based on the net asset value published by the respective mutual fund and represents the value the Company would have received if it withdrew its investment on the balance sheet date.
The Company did not adjust prices received from third parties as of June 30, 2018 or December 31, 2017. However, the Company does analyze the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy.
Derivative Financial Instruments
The fair value of call option assets is based upon valuation pricing models, which represents what the Company would expect to receive or pay at the balance sheet date if it canceled the options, entered into offsetting positions, or exercised the options. Fair values for these instruments are determined internally, based on valuation pricing models which use market-observable inputs, including interest rates, yield curve volatilities, and other factors.
The fair value of futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements) which represents what the Company would expect to receive or pay at the balance sheet date if it canceled the futures contract or entered into offsetting positions. These contracts are classified as Level 1.
The fair value measurement of the FIA embedded derivatives included in contractholder funds is determined through a combination of market observable information and significant unobservable inputs. The market observable inputs are the market value of option and interest swap rates. The significant unobservable inputs are the mortality multiplier, surrender rates, non-performance spread and option costs. The mortality multiplier at June 30, 2018 and December 31, 2017 was applied to the Annuity 2000 mortality tables. Significant increases or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. Significant increases or decreases in interest swap rates, mortality multiplier, surrender rates, or non-performance spread in isolation would result in a lower or higher fair value measurement, respectively. Generally, a change in any one unobservable input would not directly result in a change in any other unobservable input. Changes in unrealized gains or losses of the Company’s FIA embedded derivatives are included in "Benefits and other changes in policy reserves" in the Condensed Consolidated Statements of Operations.
The fair value of the Reimbursement Feature embedded derivative is determined using a Black Derman Toy model, incorporating the paid in kind dividend coupon, the Company's redemption option and the preferred shareholder's remarketing feature. The remarketing feature allows the shareholder to put the preferred shares to the Company for a value of par after five years if the value would be otherwise less than 90% par. There were $0 and $1 of changes in fair value recognized during the three and six months ended June 30, 2018, respectively, due to changes in the credit spread.
Other Invested Assets
Fair value of the AnchorPath embedded derivative is based on an unobservable input, the net asset value of the AnchorPath fund at the balance sheet date.  The embedded derivative is similar to a call option on the net asset value of the AnchorPath fund with a strike price payable by FNFof zero since FGL Insurance will not be required to make any additional payments at maturity of the fund-linked note in order to receive the net asset value of the AnchorPath fund on the maturity date.  A Black-Scholes model determines the net asset value of the AnchorPath fund as the fair value of the call option regardless of the values used for the preferred equity underother inputs to the FNF Equity Commitment Letters.option pricing model.  The net asset value of the AnchorPath fund is provided by the fund manager at the end of each calendar month and represents the value an investor would receive if it withdrew its investment on the balance sheet date. Therefore, the key unobservable input used in the Black-Scholes model is the value of the AnchorPath fund. As the value of the AnchorPath fund increases or decreases, the fair value of the embedded derivative will increase or decrease.
FSRC Funds Withheld for Reinsurance Receivables and Future Policy Benefits
FSRC elected to apply the Fair Value Option to account for its funds withheld receivables and future policy benefits liability related to its assumed reinsurance. FSRC measures the fair value of the Funds Withheld for Reinsurance Receivables based on the fair values of the securities in the underlying funds withheld portfolio held by the cedant. FSRC uses a discounted cash flows approach to measure the fair value of the Future Policy Benefits Reserve. The cash flows associated with future policy premiums and benefits are generated using best estimate assumptions (plus a risk margin, where applicable) and are consistent with market prices, where available. Risk margins are typically applied to non-observable, non-hedgeable market inputs such as long term volatility, mortality, morbidity, lapse, etc.

The significant unobservable inputs used in the fair value measurement of the FSRC future policy benefit liability are undiscounted cash flows, non-performance risk spread and risk margin to reflect uncertainty.  Undiscounted cash flows used in our June 30, 2018 discounted cash flow model equaled $1,086.  Increases or decreases in non-performance risk spread and risk margin to reflect uncertainty would result in a lower or higher fair value measurement, respectively. 


Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of June 30, 2018 and December 31, 2017, are as follows:
  Fair Value at Valuation Technique Unobservable Input(s) Range (Weighted average)
  June 30, 2018   June 30, 2018
Assets        
Asset-backed securities $324
  Broker-quoted  Offered quotes 96.98% - 102.50%
(99.70%)
Asset-backed securities 6
  Third-Party Valuation  Offered quotes 0.00% - 100.00%
(11.64%)
Commercial mortgage-backed securities
 35
  Broker-quoted  Offered quotes 80.13% - 104.14%
(94.04%)
Commercial mortgage-backed securities 25
  Matrix Pricing  Quoted prices 117.80% - 117.80%
(117.80%)
Corporates 679
  Broker-quoted  Offered quotes 72.06% - 105.50%
(97.79%)
Corporates 511
  Matrix Pricing  Quoted prices 93.94% - 111.19%
(99.73%)
Hybrids 10
 Matrix Pricing Quoted prices 95.86% - 95.86%
(95.86%)
Municipals 37
  Broker-quoted  Offered quotes 110.60% - 110.60%
(110.60%)
Residential mortgage-backed securities 63
  Broker-quoted  Offered quotes 92.28% - 101.38%
(98.23%)
Residential mortgage-backed securities 179
  Matrix Pricing  Quoted prices 100.00% - 101.71%
(101.14%)
Foreign Governments 16
  Broker-quoted  Offered quotes 102.38% - 104.09%
(102.91%)
Equity securities (Salus preferred equity) 3
  Income-Approach  Yield 6.29%
Other invested assets:        
Available-for-sale embedded derivative (AnchorPath) 17
  Black Scholes model  Market value of AnchorPath fund 100.00%
Affiliated Bank Loans 50
  Yield-method  Blended rates 7.00% - 9.00%
Funds withheld for reinsurance receivables at fair value 5
  Matrix pricing  Calculated prices 100.00%
Funds withheld for reinsurance receivables at fair value 1
  Loan recovery value Recovery rate 26.00%
Total $1,961
      
Liabilities        
Future policy benefits (FSRC) $737
 Discounted cash flow Non-Performance risk spread 0.32% - 0.64%
(0.43%)
      Risk margin to reflect uncertainty 0.50% - 0.62%
(0.54%)
Derivatives:        
FIA embedded derivatives included in contractholder funds 2,491
 Discounted cash flow Market value of option 0.00% - 31.67%
(2.61%)
      SWAP rates 2.89% - 2.93%
(2.90%)
      Mortality multiplier 80.00% - 80.00%
(80.00%)
      Surrender rates 0.50% - 75.00%
(6.03%)
      Partial withdrawals 1.00% - 2.50%
(2.00%)
      Non-performance spread 0.25% - 0.25%
(0.25%)
      Option cost 0.10% - 17.33%
(2.10%)
Preferred shares reimbursement feature embedded derivative 24
 Black Derman Toy model Credit Spread 4.74%
      Yield Volatility 20.00%
Total liabilities at fair value $3,252
      

  Fair Value at     Range (Weighted average)
  December 31, 2017 Valuation Technique Unobservable Input(s) December 31, 2017
Assets        
Asset-backed securities $412
  Broker-quoted  Offered quotes 98.00% - 102.56%
(100.27%)
Commercial mortgage-backed securities
 49
  Broker-quoted  Offered quotes 99.50% - 122.78%
(114.09%)
Corporates 763
  Broker-quoted  Offered quotes 73.55% - 109.63% (99.66%)
Corporates 406
  Matrix Pricing  Quoted prices 67.72% - 115.04%
(103.72%)
Hybrids 10
  Broker-quoted  Offered quotes 96.89% - 96.89%
(96.89%)
Municipals 38
  Broker-quoted  Offered quotes 111.84% - 111.84%
(111.84%)
Residential mortgage-backed securities 66
  Broker-quoted  Offered quotes 93.25% - 102.25%
(100.11%)
Foreign Governments 17
 Broker-quotes Offered quotes 104.16% - 106.28%
(104.82%)
Equity securities available-for-sale (Salus preferred equity) 3
  Income-Approach Yield 5.00%
Other invested assets:        
Available-for-sale embedded derivative (AnchorPath) 17
  Black Scholes model  Market value of AnchorPath fund 100.00%
Funds withheld for reinsurance receivables at fair value 3
  Matrix pricing  Calculated prices 100.00%
Funds withheld for reinsurance receivables at fair value 1
  Loan recovery value Recovery rate 26.00%
Total $1,785
      
Liabilities        
Future policy benefits (FSRC) $728
 Discounted cash flow Non-Performance risk spread 0.27%
      Risk margin to reflect uncertainty 0.54%
Derivatives:        
FIA embedded derivatives, included in contractholder funds 2,387
 Discounted cash flow Market value of option 0.00% - 29.93%
(4.11%)
      SWAP rates 2.24% - 2.40%
(2.31%)
      Mortality multiplier 80.00% - 80.00%
(80.00%)
      Surrender rates 0.50% - 75.00%
(6.13%)
      Partial withdrawals 2.00% - 3.50%
(2.75%)
      Non-performance spread 0.25% - 0.25%
(0.25%)
      Option cost 0.06% - 17.33%
(1.99%)
Preferred shares reimbursement feature embedded derivative $23
 Black Derman Toy model Credit Spread 4.13%
      Yield Volatility 20%
Total liabilities at fair value $3,138
      


The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the three and six months ended June 30, 2018 and 2017, respectively. This summary excludes any impact of amortization of VOBA and DAC. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.
 Three months ended June 30, 2018
 Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
  Included in
Earnings
 Included in
AOCI
     
Assets               
Fixed maturity securities available-for-sale:               
Asset-backed securities$301
 $
 $
 $152
 $
 $(1) $(122) $330
Commercial mortgage-backed securities42
 
 (1) 12
 
 
 7
 60
Corporates1,216
 
 (8) 99
 
 (69) (48) 1,190
Hybrids10
 
 
 
 
 
 
 10
Municipals37
 
 
 
 
 
 
 37
Residential mortgage-backed securities65
 
 2
 179
 
 (4) 
 242
Foreign Governments16
 
 
 
 
 
 
 16
Equity securities4
 
 (1) 
 
 
 
 3
Other invested assets:               
Available-for-sale embedded derivative17
 
 
 
 
 
 
 17
Affiliated Bank Loans
 
 
 50
 
 
 
 50
Funds withheld for reinsurance receivables at fair value6
 
 
 
 
 
 
 6
Total assets at Level 3 fair value$1,714
 $
 $(8) $492
 $
 $(74) $(163) $1,961
Liabilities               
FIA embedded derivatives, included in contractholder funds$2,333
 $158
 $
 $
 $
 $
 $
 $2,491
Future policy benefits (FSRC)712
 1
 
 
 
 24
 
 737
Preferred shares reimbursement feature embedded derivative24
 
 
 
 
 
 
 24
Total liabilities at Level 3 fair value$3,069
 $159
 $
 $
 $
 $24
 $
 $3,252
(a) The net transfers out of Level 3 during the three months ended June 30, 2018 were exclusively to Level 2.

 Three months ended June 30, 2017
 Predecessor
 Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
  Included in
Earnings
 Included in
AOCI
     
Assets               
Fixed maturity securities available-for-sale:               
Asset-backed securities$170
 $(1) $1
 $67
 $
 $(8) $(25) $204
Commercial mortgage-backed securities78
 
 1
 
 
 (1) 6
 84
Corporates1,090
 
 6
 5
 
 (6) (39) 1,056
Hybrids10
 
 
 
 
 
 
 10
Municipals38
 
 
 
 
 
 
 38
Residential mortgage-backed securities14
 
 1
 
 
 
 
 15
Foreign Governments16
 
 1
 
 
 
 
 17
Equity securities available-for-sale1
 
 
 
 
 
 
 1
Other invested assets:               
Available-for-sale embedded derivative14
 1
 
 
 
 
 
 15
Loan participations
 
 1
 
 
 (1) 
 
Total assets at Level 3 fair value$1,431
 $
 $11
 $72
 $
 $(16) $(58) $1,440
Liabilities               
FIA embedded derivatives, included in contractholder funds$2,362
 $80
 $
 $
 $
 $
 $
 $2,442
Total liabilities at Level 3 fair value$2,362
 $80
 $
 $
 $
 $
 $
 $2,442
(a) The net transfers out of Level 3 during the Predecessor three months ended June 30, 2017 were exclusively to Level 2.

 Six months ended June 30, 2018
 Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
  Included in
Earnings
 Included in
AOCI
     
Assets               
Fixed maturity securities available-for-sale:               
Asset-backed securities$412
 $
 $(2) $180
 $
 $(7) $(253) $330
Commercial mortgage-backed securities49
 
 (2) 12
 
 (6) 7
 60
Corporates1,169
 
 (28) 199
 
 (102) (48) 1,190
Hybrids10
 
 
 
 
 
 
 10
Municipals38
 
 (1) 
 
 
 
 37
Residential mortgage-backed securities66
 
 2
 179
 
 (5) 
 242
Foreign Governments17
 (1) 
 
 
 
 
 16
Equity securities3
 1
 (1) 
 
 
 
 3
Other invested assets:              
Available-for-sale embedded derivative17
 
 
 
 
 
 
 17
Affiliated Bank Loans
 
 
 50
 
 
 
 50
Funds withheld for reinsurance receivables at fair value4
 
 
 2
 
 
 
 6
Total assets at Level 3 fair value$1,785
 $
 $(32) $622
 $
 $(120) $(294) $1,961
Liabilities               
FIA embedded derivatives, included in contractholder funds$2,387
 $104
 $
 $
 $
 $
 $
 $2,491
Future policy benefits (FSRC)728
 (19) 
 
 
 28
 
 737
Preferred shares reimbursement feature embedded derivative23
 1
 
 
 
 
 
 24
Total liabilities at Level 3 fair value$3,138
 $86
 $
 $
 $
 $28
 $
 $3,252
(a) The net transfers out of Level 3 during the six months ended June 30, 2018 were exclusively to Level 2.

 Six months ended June 30, 2017
 Predecessor
 Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
  Included in
Earnings
 Included in
AOCI
     
Assets               
Fixed maturity securities available-for-sale:               
Asset-backed securities$197
 $(1) $3
 $66
 $
 $(17) $(44) $204
Commercial mortgage-backed securities85
 
 2
 
 
 (1) (2) 84
Corporates1,062
 
 11
 65
 
 (39) (43) 1,056
Hybrids10
 
 
 
 
 
 
 10
Municipals37
 
 1
 
 
 
 
 38
Residential mortgage-backed securities
 
 1
 
 
 
 14
 15
Foreign Governments16
 
 1
 
 
 
 
 17
Equity securities available-for-sale1
 
 
 
 
 
 
 1
Other invested assets:               
Available-for-sale embedded derivative13
 2
 
 
 
 
 
 15
Loan participations6
 (1) 1
 
 
 (6) 
 
Total assets at Level 3 fair value$1,427
 $
 $20
 $131
 $
 $(63) $(75) $1,440
Liabilities               
FIA embedded derivatives, included in contractholder funds$2,250
 $192
 $
 $
 $
 $
 $
 $2,442
Total liabilities at Level 3 fair value$2,250
 $192
 $
 $
 $
 $
 $
 $2,442
(a) The net transfers out of Level 3 during the Predecessor six months ended June 30, 2017 were exclusively to Level 2.

Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value
The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments.

Commercial Mortgage Loans
The fair value of commercial mortgage loans is established using a discounted cash flow method based on credit rating, maturity and future income. This yield-based approach is sourced from our third-party vendor. The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt service coverage, loan-to-value, quality of tenancy, borrower, and payment record. In the event of an impairment, the carrying value is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price, or the fair value of the collateral if the loan is collateral-dependent. The inputs used to measure the fair value of our commercial mortgage loans are classified as Level 3 within the fair value hierarchy.

Policy Loans (included within Other Invested Assets)
Fair values for policy loans are estimated from a discounted cash flow analysis, using interest rates currently being offered for loans with similar credit risk.  Loans with similar characteristics are aggregated for purposes of the calculations.

Investment Contracts
Investment contracts include deferred annuities, FIAs, indexed universal life policies ("IULs") and immediate annuities. The fair value of deferred annuity, FIA, and IUL contracts is based on their cash surrender value (i.e. the cost the Company would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value of immediate annuities contracts is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. At June 30, 2018 and December 31, 2017, this resulted in lower fair value reserves relative to the carrying value. The Company is not required to, and has also agreed to pay or reimburse FNF for fees and expenses of counsel in connection with FNF’s anticipated purchasenot, estimated the fair value of the preferred equity.

liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value.

Debt Commitment Letter

The fair value of debt is based on quoted market prices. The inputs used to measure the fair value of our outstanding debt are classified as Level 2 within the fair value hierarchy. Our revolving credit facility debt is classified as Level 3 within the fair value hierarchy, and the estimated fair value reflects the carrying value as the revolver has no maturity date.
The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the Condensed Consolidated Balance Sheets at amounts other than fair value, summarized according to the fair value hierarchy previously described.
 June 30, 2018
 Level 1 Level 2 Level 3 Total Estimated Fair Value Carrying Amount
Assets         
FHLB common stock, included in other invested assets$
 $49
 $
 $49
 $49
Commercial mortgage loans
 
 522
 522
 525
Policy loans, included in other invested assets
 
 15
 15
 19
Funds withheld for reinsurance receivables, at fair value
 
 17
 17
 17
Total$
 $49
 $554
 $603
 $610
          
Liabilities         
Investment contracts, included in contractholder funds$
 $
 $17,408
 $17,408
 $20,083
Debt
 537
 
 537
 540
Total$
 $537
 $17,408
 $17,945
 $20,623
 December 31, 2017
 Level 1 Level 2 Level 3 Total Estimated Fair Value Carrying Amount
Assets         
Commercial mortgage loans$
 $
 $549
 $549
 $548
Policy loans, included in other invested assets
 
 15
 15
 17
Funds withheld for reinsurance receivables, at fair value
 
 16
 16
 16
Total$
 $
 $580
 $580
 $581
          
Liabilities         
Investment contracts, included in contractholder funds$
 $
 $16,659
 $16,659
 $19,457
Debt
 307
 105
 412
 412
Total$
 $307
 $16,764
 $17,071
 $19,869

The following table includes assets that have not been classified in the fair value hierarchy as the fair value of these investments are measured using the net asset value per share practical expedient. For further discussion about this adoption see “Note 2. Significant Accounting Policies” to the Company's 2017 Form 10-K.
 Carrying Value After Measurement
 June 30, 2018 December 31, 2017
Equity securities$43
 $44
Limited partnership investment, included in other invested assets218
 154
The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3, or between other levels, at the beginning fair value for the reporting period in which the changes occur. The transfers into and out of Level 3 were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value.
The Company’s assessment resulted in gross transfers into and gross transfers out of certain fair value levels by asset class for the three and six months ended June 30, 2018 and 2017, are as follows:
  Transfers Between Fair Value Levels
  Level 1 Level 2 Level 3
  In Out In Out In Out
Three months ended June 30, 2018            
Asset-backed securities $
 $
 $122
 $
 $
 $122
Commercial mortgage-backed securities 
 
 1
 8
 8
 1
Corporates 
 
 51
 3
 3
 51
Hybrids 5
 
 
 5
 
 
Equity securities available-for-sale 25
 
 
 25
 
 
Total transfers $30
 $
 $174
 $41
 $11
 $174
Predecessor            
Three months ended June 30, 2017            
Asset-backed securities $
 $
 $25
 $
 $
 $25
Commercial mortgage-backed securities 
 
 
 6
 6
 
Corporates 
 
 40
 1
 1
 40
Total transfers $
 $
 $65
 $7
 $7
 $65
Six months ended June 30, 2018            
Asset-backed securities $
 $
 $253
 $
 $
 $253
Commercial mortgage-backed securities 
 
 1
 8
 8
 1
Corporates 
 
 51
 3
 3
 51
Hybrids 20
 
 
 20
 
 
Equity securities available-for-sale 25
 
 
 25
 
 
Total transfers $45
 $
 $305
 $56
 $11
 $305
Predecessor            
Six months ended June 30, 2017            
Asset-backed securities $
 $
 $80
 $36
 $36
 $80
Commercial mortgage-backed securities 
 
 8
 6
 6
 8
Corporates 
 
 44
 1
 1
 44
RMBS 
 
 
 14
 14
 
Total transfers $
 $
 $132
 $57
 $57
 $132


(7) Intangibles

A summary of the changes in the carrying amounts of the Company's intangible assets,VOBA, DAC and DSI are as follows:
         
  VOBA DAC DSI Total
Balance at December 31, 2017 $827
 $19
 $10
 $856
Deferrals 
 134
 60
 194
Amortization (40) (2) (3) (45)
Interest 10
 1
 
 11
Unlocking 1
 
 
 1
Adjustment for net unrealized investment (gains) losses 61
 3
 3
 67
Balance at June 30, 2018 $859
 $155
 $70
 $1,084
         
Predecessor VOBA DAC DSI Total
Balance at December 31, 2016 $118
 $1,024
 $86
 $1,228
Deferrals 
 145
 22
 167
Unlocking 7
 (1) (3) 3
Interest 6
 21
 2
 29
Amortization (23) (83) (10) (116)
Adjustment for net unrealized investment (gains) losses (108) (106) 
 (214)
Balance at June 30, 2017 $
 $1,000
 $97
 $1,097
Amortization of VOBA, DAC, DSI, and UREV is based on the historical, current and future expected gross margins or profits recognized, including investment gains and losses. The interest accrual rate utilized to calculate the accretion of interest on VOBA ranged from 0.05% to 4.01%. The adjustment for unrealized net investment losses (gains) represents the amount of VOBA, DAC, DSI, and UREV that would have been amortized if such unrealized gains and losses had been recognized. This is referred to as the “shadow adjustments” as the additional amortization is reflected in AOCI rather than the Consolidated Statement of Operations. As of June 30, 2018, and June 30, 2017, the VOBA balances included cumulative adjustments for net unrealized investment losses (gains) of $43 and $(148), respectively, and the DAC balances included cumulative adjustments for net unrealized investment losses of $2 and $(99), respectively. As of June 30, 2018, the DSI balance included net unrealized investment losses of $3.

Estimated amortization expense for VOBA in future fiscal periods is as follows:
  Estimated Amortization Expense
Fiscal Year  
2018 31
2019 76
2020 85
2021 81
2022 73
Thereafter 468
The Company had an unearned revenue balance of $22 as of June 30, 2018, including deferrals of $(19), amortization of $11, and adjustment for net unrealized investment (gains) losses of $(14).


Definite Lived Intangible Assets
Amortizable intangible assets as of June 30, 2018 consist of the following:
  June 30, 2018 
  Cost Accumulated amortization NetWeighted Average Useful Life (Years)
Trade names 16 1 1510
  Carrying amount Weighted Average Useful Life (Years)
State insurance licenses $6
 Indefinite
Trade marks / trade names 15
 10
Total $21
 

(8) Debt
On May 24, 2017, Parent, an indirect wholly ownedApril 20, 2018, Fidelity & Guaranty Life Holdings, Inc. ("FGLH"), a subsidiary of the Company, entered intocompleted a commitment letter with Royal Bankdebt offering of Canada (“RBC”) and RBC Capital Markets, LLC (the “Debt Commitment Letter”), pursuant to which RBC committed to make available to Parent and a co-borrower to be determined by Parent and BTO Fund (collectively with its affiliates and Parent,$550 aggregate principal amount of 5.50% senior notes due 2025, issued at 99.5% for proceeds of $547. The Company used the “Debt Sponsors”) in accordance with the termsnet proceeds of the Debt Commitment Letter, on the Closing Date,offering (i) to the extent the specified borrowers do not receive $425 millionrepay $135 of gross proceeds from the issuance of senior unsecured notes on the Closing Date, $425 million of senior unsecured increasing rate loans (“Bridge Loans”) for the purpose of, among other things, repaying and terminating the existing indebtedness of FGLH, a wholly owned subsidiary of FGL,borrowings under its revolving credit facility and senior unsecured notes indenture. related expenses and (ii) to redeem in full and satisfy and discharge all of the outstanding $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021. The Company expects to use the remaining proceeds of the offering for general corporate purposes, which may include additional capital contributions to the Company's insurance subsidiaries. This exchange of debt instruments constituted an extinguishment. As a result, the Company recognized a $2 gain on the extinguishment of the 6.375% Senior Notes.
The Company capitalized $7 of debt issuance costs in connection with the 5.50% Senior Notes offering, which are classified as an offset within the "Debt" line on the Company's Condensed Consolidated Balance Sheets, and are being amortized from the date of issue to the redemption date using the straight-line method.
The Company's outstanding debt as of June 30, 2018 and June 30, 2017 is as follows:
 June 30, 2018 December 31, 2017
Debt$550
 $307
Revolving credit facility
 105
The $0 and $105 drawn balances on the revolver carried interest rates equal to 0% and 4.17%, as of June 30, 2018 and December 31, 2017, respectively. As of June 30, 2018 and December 31, 2017, the amount available to be drawn on the revolver was $250 and $145, respectively.
The interest expense and amortization of debt issuance costs of the Company's debt for the three and six months ended June 30, 2018 and 2017, respectively, were as follows:
 Three months ended Six months ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
   Predecessor   Predecessor
 Interest Expense Amortization Interest Expense Amortization Interest Expense Amortization Interest Expense Amortization
Debt8
 
 5
 
 13
 
 9
 
Revolving credit facility1
 
 1
 
 2
 
 2
 1
Gain on extinguishment of debt(2) 
 
 
 (2) 
 
 


(9) Equity
Dividends
The Company did not declare a cash dividend to its common shareholders during the three and six months ended June 30, 2018. The Predecessor declared the following cash dividends to its common shareholders during the three and six months ended June 30, 2017:
Date Declared Date Paid Date Shareholders of record Shareholders of record (in thousands) Cash Dividend declared (per share) Total cash paid
February 2, 2017 March 6, 2017 February 21, 2017 58,308 $0.065 $4
May 1, 2017 June 5, 2017 May 22, 2017 58,315 $0.065 $4
The Company declared the following dividends to its preferred shareholders during the three and six months ended June 30, 2018:
Type of Preferred Share Date Declared Date Paid Date Shareholders of record Shares outstanding at date of record (in thousands) Method of Payment Total cash paidTotal shares paid in kind (in thousands)
Series A Preferred Shares March 29, 2018 April 1, 2018 March 15, 2018 277 Paid in kind $—5
Series B Preferred Shares March 29, 2018 April 1, 2018 March 15, 2018 101 Paid in kind $—1
Series A Preferred Shares June 29, 2018 July 1, 2018 June 15, 2018 282 Paid in kind $—5
Series B Preferred Shares June 29, 2018 July 1, 2018 June 15, 2018 102 Paid in kind $—2

(10) Stock Compensation

On August 8, 2017, the Company adopted a stock-based incentive plan (the “FGL Incentive Plan”) that permits the granting of awards in the form of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, unrestricted stock, performance-based awards, dividend equivalents, cash awards and any combination of the foregoing. The Company’s Compensation Committee is authorized to grant up to 15,006 thousand equity awards under the Incentive Plan. At June 30, 2018, 1,171 thousand equity awards are available for future issuance.

FGL Incentive Plan

On May 15, 2018 FGL granted 13,835 thousand stock options to certain officers of the Company. The following table summarizes the vesting conditions for these options:
Vesting mechanismVest DatesNumber of options subject to these vesting conditions
ServiceEach March 15 from 2019 through 2023; subject to continued service3,937
Service and return on equity performanceMarch 15 2020, 2021 and 2022 subject to continued service and targeted return on equity4,949
Service and stock price performanceEach March 15 from 2019 through 2023; subject to continued service and target stock price goals being achieved4,949

The total fair value of the options granted in the six months ended June 30, 2018 was $29. The fair value of the awards is expensed over the service period, which generally corresponds to the vesting period.
At June 30, 2018, the intrinsic value of stock options outstanding or expected to vest was $0. At June 30, 2018, the weighted average remaining contractual term of stock options outstanding or expected to vest was 7 years. At June 30, 2018 there were no options that were exercisable or vested.
A summary of the Company’s outstanding stock options as of June 30, 2018, and related activity during the six months ended June 30, 2018, is as follows (share amount in thousands):
Stock Option Awards Options 
Weighted Average
Exercise Price
Stock options outstanding at December 31, 2017 
 $
Granted 13,835
 10.00
Exercised 
 
Forfeited or expired 
 
Stock options outstanding at June 30, 2018 13,835
 10.00
Exercisable at June 30, 2018 
 
Vested or projected to vest at June 30, 2018 13,835
 10.00
To value the extentoptions granted with service and return on equity performance vesting conditions, we used a Black Scholes valuation model. To value the options granted with stock price market performance vesting conditions, we used a Monte Carlo simulation. The following inputs and assumptions were used in the determination of the grant date fair values for each.

 Black-Scholes Model Monte Carlo Model  
 Serviced based ROE Performance based Stock Price Performance based Source of input/ assumption
Weighted average fair value per options granted$2.2 $2.35 $1.77 N/A
Risk-free interest rate2.95% 2.98% 3.02% US Treasury Curve
Assumed dividend yield—% —% —% Internal projection
Expected option term5.5 years 6.0 years N/A Internal model
Contractual termN/A N/A 7.0 years N/A
Volatility25.00% 25.00% 25.72% Predecessor and peer group experience
Early exercise multipleN/A N/A  2.8x Hull White model
Cost of equityN/A N/A 10.50% Capital asset pricing model - 20 year risk free rate

The Company granted 112 thousand restricted shares to directors in the six months ended June 30, 2018. These shares vest in equal installments over a period of 1 year. The total fair value of the restricted shares granted in the six months ended June 30, 2018 was $1.
A summary of the Company’s nonvested restricted shares outstanding as of June 30, 2018, and related activity during the six months ended, is as follows (share amount in thousands):
Restricted Stock Awards Shares 
Weighted Average Grant
Date Fair Value
Nonvested restricted shares outstanding at December 31, 2017 
 $
Granted 112
 10.01
Vested 
 
Forfeited 
 
Nonvested restricted shares outstanding at June 30, 2018 112
 10.01
Management Incentive Plan

On May 22, 2018, the Company granted 367 thousand phantom-units to members of management under a management incentive plan (the "Management Incentive Plan"). The phantom units are settled in cash, and therefore the Management Incentive Plan is classified as a liability plan. The value of this plan is classified within "Other liabilities" on the unaudited Condensed Consolidated Balance Sheets and is adjusted each period, with a corresponding adjustment to “Acquisition and operating expenses, net of deferrals”, to reflect changes in the Company’s stock price. The total fair value of the restricted shares granted in the six months ended June 30, 2018 was $3.

One half of the phantom-units vest in three equal installments on each March 15th from 2019 to 2021, subject to awardees continued service with the Company. The other half begin vesting on March 15th 2020 and cliff vest on March 15, 2021 based on continued service and attainment of a performance metric: return on equity.
At June 30, 2018, the liability for phantom units of $0 was based on the number of units granted, the elapsed portion of the service period and the fair value of the Company’s common stock on that date which was $8.39.
A summary of the Management Incentive Plan nonvested phantom units outstanding as of June 30, 2018, and related activity during the six months ended, is as follows (share amount in thousands):
Phantom units Shares 
Weighted Average Grant
Date Fair Value
Phantom units outstanding at December 31, 2017 
 $
Granted 367
 8.96
Vested 
 
Forfeited or expired 
 
Phantom units outstanding at June 30, 2018 367
 8.96

The Company recognized total stock compensation expense related to the FGL Incentive Plan and Management Incentive Plan is as follows:
  Three months endedSix months ended
  June 30, 2018 June 30, 2018
FGL Incentive Plan    
Stock options $1
 $1
Restricted shares 
 
  1
 1
Management Incentive Plan    
Phantom units 
 
  
 
Total stock compensation expense 1
 1
Related tax benefit 
 
Net stock compensation expense $1
 $1
The stock compensation expense is included in "Acquisition and operating expenses, net of deferrals" in the unaudited Condensed Consolidated Statements of Operations.

Total compensation expense related to the FGL Incentive Plan and Management Incentive Plan not yet recognized as of June 30, 2018 and the weighted-average period over which this expense will be recognized are as follows:
  Unrecognized Compensation
Expense
 Weighted Average Recognition
Period in Years
FGL Incentive Plan    
Stock options $28
 4
Restricted shares 1
 1
  29
  
Management Incentive Plan    
Phantom units 3
 3
  3
  
Total unrecognized stock compensation expense $32
 4

(11) Income Taxes
The Company (“FGL Holdings, Cayman”) is a Cayman-domiciled corporation that has operations in Bermuda and the U.S. Neither the Cayman Islands nor Bermuda impose a corporate income tax. The Company’s U.S. non-life subsidiaries file a consolidated non-life U.S. Federal income tax return. For tax years prior to December 1, 2017, the non-life members were included in former parent company HRG’s consolidated U.S. Federal income tax return. The income tax liabilities of the Company as former members of the consolidated HRG return were calculated using the separate return method as prescribed in ASC 740. The Company’s US life insurance subsidiaries file a separate life consolidated U.S. Federal income tax return. The life insurance companies will be eligible to join in a consolidated filing with the U.S. non-life companies in 2022.
The Company’s Bermuda insurance subsidiary, F&G Re Ltd., is party to a ModCo reinsurance agreement with its US Life sister company, FGL Insurance. The Tax Cut and Jobs Act (“TCJA”) enacted on December 22 2017, contained a Base-Erosion and Anti-Abuse Tax (“BEAT”). The BEAT provisions apply a minimum tax (5% in 2018) to certain reinsurance payments settled between FGL Insurance and F&G Re Ltd.. Absent clarifying guidance, the current language in the Act suggests that the Debt Sponsorstax is applied without regard to deduction or Parent electoffset under a typical ModCo reinsurance agreement (i.e. a “Gross application”). Without clarifying guidance from Regulatory authorities in regards to not repay and terminate such existing indebtednessallowing for a “Net application” in the calculation of FGLH on or priorBEAT, the Company

will make an election under IRC Code Section 953(d) for the 2018 tax year, which will result in F&G Re Ltd being treated as if it were a US Tax Payer. The effect of the election would be retroactive to the Closing Date, then the commitments of RBC in respectbeginning of the Bridge LoansTax calendar year. The current period financial statements reflect an assumed 953(d) election with regard to F&G Re Ltd. As a result of the election, which would occur in the event that clarifying language allowing a "net application" is not determined, an opening balance sheet deferred tax liability was set up resulting in a discrete expense being recorded in the first quarter of 2018. The provision for income taxes represents federal income taxes. The effective tax rate for the three and six months ended June 30, 2018 was 29% and 37%, respectively. The effective tax rate for the three and six months ended June 30, 2017 was 33% and 35%, respectively. The effective tax rate on pre-tax income for the current six months ended June 30, 2018 differs from the U.S Federal statutory rate for 2018 of 21% primarily due to the impact of F&G Re Ltd. making an election to be a US taxpayer. As a result of the election, an opening balance sheet deferred tax liability was set up resulting in a discrete expense being recorded in the first quarter. The effective tax rate on pre-tax income for the current three months ended June 30, 2018 differs from the U.S. Federal statutory rate for 2018 of 21% primarily due to the negative impact of losses in zero tax jurisdictions and a valuation allowance placed against a portion of the income tax benefit associated with unrealized losses recorded in the income statement. The effective tax rate on pre-tax income for the three months ended June 30, 2017 differed from the U.S Federal statutory rate for 2017 of 35% primarily due to the impact of favorable permanent adjustments.
The TCJA amended many provisions of the Internal Revenue Code that  effect on the Company.  The SEC’s Staff Accounting Bulletin No. 118 (“SAB 118”) provides guidance on accounting for the effects of U.S. tax reform in circumstances in which an exact calculation cannot be made, but for which a reasonable estimate can be determined. As internal systems are updated and additional guidance becomes available, the estimate will be reducedupdated in accordance with instruction outlined in the standard and within the measurement period, which is not to extend beyond one year from the enactment date.  The only provisional amount utilized in the preparation of the Company’s financial statements was tax reserves.  As of the reporting date, the Company has not yet been able to update its reserving system for the impact of the TCJA.  A reasonable estimate, prepared by the Company's Actuarial department, was calculated at December 31, 2017 and refined in the current period. The refinement had no impact on the Company’s ETR as the book\tax difference on tax reserves is a timing difference.   No other provisions of the U.S. tax reform had a significant impact on our 2018 income tax provisions.
The Company maintains a valuation allowance against most of the deferred tax assets of its non-life insurance company subsidiaries, FSRC, and the unrealized capital losses on F&G Re Ltd.. The Company has also placed a partial valuation allowance on its unrealized capital losses on the US life insurance subsidiaries. The non-life insurance company subsidiaries have a history of losses and insufficient sources of future income that would allow for recognition of all of their deferred tax assets. FSRC is in a cumulative loss position and does not have a sufficient track record of earnings to recognize any portion of its deferred tax assets. F&G Re Ltd. does not have a source of capital gain income needed to recognize its unrealized loss deferred tax assets. The Company’s US life insurance subsidiaries have sources of capital gain income, but not enough to cover all of its unrealized loss deferred tax assets.
All other deferred tax assets are more likely than not to be realized based on expectations as to our future taxable income and considering all other available evidence, both positive and negative.
The valuation allowance is reviewed quarterly and will be maintained until there is sufficient positive evidence to support a release. At each reporting date, management considers new evidence, both positive and negative, that could impact the future realization of deferred tax assets. Management will consider a release of the valuation allowance once there is sufficient positive evidence that it is more likely than not that the deferred tax assets will be realized. Any release of the valuation allowance will be recorded as a tax benefit increasing net income or other comprehensive income.
As of June 30, 2018, the Company had a partial valuation allowance of $83 against its gross deferred tax assets of $369. The valuation allowance is an offset to most of the non-life company deferred tax assets, FSRC deferred tax assets, and F&G Re Ltd. and US Life Insurance Company deferred tax assets on unrealized capital losses that are considered more likely than not to be unrecoverable due to insufficient sources of future income.


(12) Commitments and Contingencies
Commitments
The Company has unfunded investment commitments as of June 30, 2018 based upon the timing of when investments are executed compared to when the actual investments are funded, as some investments require that funding occur over a period of months or years. A summary of unfunded commitments by invested asset class are included below:
  June 30, 2018
Asset Type  
Other invested assets $655
Equity securities 33
Fixed maturity securities, available-for-sale 45
Other assets 10
Total $743
Lease Commitments
The Company leases office space under non-cancelable operating leases that expire in May 2021. Rent expense and minimum rental commitments under non-cancelable leases are immaterial.
Contingencies
Regulatory and Litigation Matters
The Company is involved in various pending or threatened legal proceedings, including purported class actions, arising in the ordinary course of business. In some instances, these proceedings include claims for unspecified or substantial punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief. In the opinion of the Company's management and in light of existing insurance and other potential indemnification, reinsurance and established accruals, such litigation is not expected to have a material adverse effect on the Company's financial position, although it is possible that the results of operations and cash flows could be materially affected by an unfavorable outcome in any one period.
The Company is assessed amounts by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. At June 30, 2018, FGL has accrued $2 for guaranty fund assessments that is expected to be offset by estimated future premium tax deductions of $2.
The Company has received inquiries from a number of state regulatory authorities regarding its use of the U.S. Social Security Administration’s Death Master File (the "Death Master File") and compliance with state claims practices regulation. Legislation requiring insurance companies to use the Death Master File to identify potential claims has been enacted in a number of states. As a result of these legislative and regulatory developments, the Company uses the Death Master File and other publicly available databases to identify persons potentially entitled to benefits under life insurance policies, annuities and retained asset accounts. In addition, the Company has received audit and examination notices from several state agencies responsible for escheatment and unclaimed property regulation in those states and in some cases has challenged the audits including litigation against the Controller for the State of California which is subject to a stay and separate litigation against the Treasurer for the State of Illinois. The Company believes its current accrual will cover the reasonably estimated liability arising out of these developments, however costs that cannot be reasonably estimated as of the date of this filing are possible as a result of ongoing regulatory developments and other future requirements related to these matters.

On June 30, 2017, a putative class action complaint was filed against FGL Insurance, FGL, and FS Holdco II Ltd in the United States District Court for the District of Maryland, captioned Brokerage Insurance Partners v. Fidelity & Guaranty Life Insurance Company, Fidelity & Guaranty Life, FS Holdco II Ltd, and John Doe, No. 17-cv-1815. The complaint alleges that FGL Insurance breached the terms of its agency agreement with Brokerage Insurance Partners (“BIP”) and other agents by changing certain compensation terms. The complaint asserts, among other causes of action, breach of contract, defamation, tortious interference with contract, negligent misrepresentation, and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”).  The complaint seeks to certify a class composed of all persons who entered into an agreement with FGL Insurance to sell life insurance and who sold at least one life insurance policy between January 1, 2015 and January 1, 2017.  The complaint seeks unspecified compensatory, consequential, and punitive damages in an amount not presently determinable, among other forms of relief.
On September 1, 2017, FGL Insurance filed a counterclaim against BIP and John and Jane Does 1-10, asserting, among other causes of action, breach of contract, fraud, civil conspiracy and violations of RICO. On September 22, 2017, Plaintiff filed an Amended Complaint, and on October 16, 2017, FGL Insurance filed an Amended Counterclaim against BIP, Agent Does 1-10, and Other Person Does 1-10. The parties also filed cross-Motions to Dismiss in Part, which are pending before the Court.
As of the date of this report, the Company does not have sufficient information to determine whether it has exposure to any losses that would be either probable or reasonably estimable. 

(13) Reinsurance
The Company reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding the Company's retention limit is reinsured. The Company primarily seeks reinsurance coverage in order to limit its exposure to mortality losses and enhance capital management. The Company follows reinsurance accounting when there is adequate risk transfer. Otherwise, the deposit method of accounting is followed. The Company also assumes policy risks from other insurance companies.
The effect of reinsurance on net premiums earned and net benefits incurred (benefits incurred and reserve changes) for the three and six months ended June 30, 2018, and the Predecessor three and six months ended June 30, 2017 were as follows:
 Three months ended Six months ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
   Predecessor   Predecessor
 Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred
Direct58
 308
 59
 296
 118
 370
 118
 639
Assumed
 (5) 
 
 
 (26) 
 
Ceded(43) (54) (47) (61) (85) (113) (103) (136)
   Net15
 249
 12
 235
 33
 231
 15
 503
Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. The Company did not write off any significant reinsurance balances during the six months ended June 30, 2018 or the Predecessor six months ended June 30, 2017. The Company did not commute any ceded reinsurance during the six months ended June 30, 2018 or the Predecessor six months ended June 30, 2017.
Effective January 1, 2017, FGL Insurance entered into an indemnity reinsurance agreement with Hannover Re, a third party reinsurer,  to reinsure an inforce block of its FIA and fixed deferred annuity contracts with  GMWB and Guaranteed Minimum Death Benefit (“GMDB”) guarantees. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP, since it is not “reasonably possible” that the reinsurer may realize significant loss from assuming the insurance risk. In accordance with the terms of this agreement, FGL Insurance cedes 70% net retention of guarantee payments in excess of account value for GMWB and GMDB guarantees. Effective July 1, 2017, FGL Insurance extended this agreement to include new

business issued during 2017. Effective January 1, 2018 FGL Insurance extended this agreement to include new business issued during 2018, and extended the Debt Commitment Letter.

As considerationrecapture period from 8 to 12 years. FGL Insurance incurred risk charge fees of $3, and $5 during the three and six months ended June 30, 2018, respectively, in relation to this reinsurance agreement.

No policies issued by the Company have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance.
The Company has not entered into any reinsurance agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than non-payment of premiums or other similar credit issues.
FSRC
FSRC, an affiliate of FGL Insurance, has entered into various reinsurance agreements on a funds withheld basis, meaning that funds are withheld by the ceding company from the coinsurance premium owed to FSRC as collateral for FSRC's payment obligations. Accordingly, the collateral assets remain under the ultimate ownership of the ceding company. FSRC manages the assets supporting reserves in accordance with the internal investment policy of the ceding companies and applicable law.
FSRC has five reinsurance treaties with unaffiliated parties. At June 30, 2018, FSRC had $769 of funds withheld receivables and $737 of insurance reserves related to these reinsurance treaties.
See a description of FSRC’s accounting policy for its assumed reinsurance contracts in "Note 2. Significant Accounting Policies and Practices" within the Company's 2017 Form 10-K.
The Company adopted ASU 2016-01 effective January 1, 2018, which requires FSRC to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The adoption of this new accounting guidance had a $1 and $(2) impact on pre-tax net income, or $0.00 and $(0.01) per common share, for the debt commitment,three and six months ended June 30, 2018, respectively.
(14) Related Party Transactions
Affiliated Investments
The Company entered into investment management agreements with Blackstone ISG-I Advisors LLC ("BISGA"), a wholly-owned subsidiary of The Blackstone Group LP ("Blackstone"), and certain subsidiaries of the Company is requiredon December 1, 2017. The Company paid $23 to make a commitment fee equal to 1.25%BISGA upon the close of the amountmerger for services rendered related to the transaction and BISGA will forego approximately 30% of the Bridge Loans (or approximately $5.3 million), whether or not any Bridge Loans are made. first thirteen months’ management fee to which it is entitled under the investment management agreement. As of June 30, 2018, the Company has a net liability of $9 for the services consumed under this investment management agreement, partially offset by fees received and expense reimbursements from BISGA.
The Company recognized this fee asholds certain fixed income security interests, limited partnerships and bank loans issued by portfolio companies that are affiliates of Blackstone Tactical Opportunities, an affiliate of Blackstone Tactical Opportunities LR Associates-B (Cayman) Ltd. (the “Blackstone Fixed Income Securities”) both on a prepaiddirect and other currentindirect basis.  Indirect investments include an investment made in an affiliates’ asset backed fund while direct investments are an investment in affiliates' equity or debt securities.  As of June 30, 2018 and a corresponding liability in the accompanying Balance Sheet as of September 30, 2017.

The Bridge Loans will accrue interest at a rate of LIBOR plus 5.25% for the first three months following the Closing Date. Thereafter, the interest rate will increase by 0.50% every three months up to an amount agreed between Parent and RBC. The Bridge Loans will mature on the first anniversary of the Closing Date (the “Maturity Date”). On the Maturity Date, any Bridge Loan that has not been previously repaid in full will be automatically converted into a senior unsecured term loan that is due on the date that is eight years after the Closing Date.

On MayDecember 31, 2017, Parent, RBC, RBC Capital Markets, LLC, Bank of America, N.A. (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated entered into an amended and restated Debt Commitment Letter, pursuant to which Bank of America became an Initial Lender (as defined in the Debt Commitment Letter) and has agreed to provide 50% of the Bridge Loans.

19

CF CORPORATION

Notes to Condensed Financial Statements

September 30, 2017

(Unaudited)

Amendments to Forward Purchase Agreements

On May 24, 2017, the Company entered into amendments (the “FPA Amendments”)held $298 and $188 in affiliated investments, respectively.  For the three months ended June 30, 2018 the Company made investment trades in affiliated investments. In addition, as of June 30, 2018, the Company had commitments to invest in 8 other affiliated investments. The unfunded commitments relating to these affiliated investments at June 30, 2018 is $503.

The Company had no gross realized gains or realized impairment losses on related party investments during the three and six months ended June 30, 2018.
The Company had $0 and $2 gross realized losses, inclusive of impairment losses on related party investments during the Predecessor three and six months ended June 30, 2017, respectively.

FSRC (Predecessor)
FGL Insurance reinsures certain liabilities and obligations to FSRC. For the three and six months ended ended June 30, 2017, FGL Insurance ceded $0 and and $1 of premium revenue and $11 and $25 of benefits and other changes is policy reserves, respectively, to FSRC. There are no ceded operating results related to the forward purchase agreements to which itFGL Insurance and BilCar, LLC, CC Capital Management, LLC and CFS (the “Amendment Parties”) are parties, pursuant to which the Amendment Parties agreed, among other things, to add FGL as a third party beneficiary of such forward purchase agreements, to prohibit assignments and amendments of such forward purchase agreements without FGL’s consent and to entitle FGL to specific performance of such forward purchase agreements. Furthermore, the FPA Amendment to the forward purchaseFSRC reinsurance agreement with CFS provides that CFS shall not be excused from its obligation to purchase the Forward Purchase Securities (as definedreported in the forward purchase agreements)unaudited Condensed Consolidated Statement of Operations for the three and six months ended ended June 30, 2018 as such amounts are eliminated on consolidation.

(15) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (share amounts in connection withthousands):
 Three months ended Six months ended
 June 30, 2018  June 30, 2017 June 30, 2018 June 30, 2017
    Predecessor   Predecessor
Net Income$20
  $32
 $72
 $54
Less Preferred stock dividend7
  
 14
 
Net income available to common shares13
  32
 58
 54
         
Weighted-average common shares outstanding - basic214,370
  58,335
 214,370
 58,331
Dilutive effect of unvested restricted stock & PRSU9
  37
 6
 29
Dilutive effect of stock options
  73
 
 54
Weighted-average shares outstanding - diluted214,379
  58,445
 214,376
 58,414
         
Net income per common share:        
Basic$0.06
  $0.54
 $0.27
 $0.92
Diluted$0.06
  $0.54
 $0.27
 $0.92
The number of shares of common stock outstanding used in calculating the FGL Business Combination withoutweighted average thereof reflects the consentactual number of FGL.

FSRD Share Purchase Agreement

On May 24,the Successor and Predecessor shares of common stock outstanding, excluding unvested restricted stock and shares held in treasury.

The calculation of diluted earnings per share for the three and six months ended June 30, 2018 excludes the incremental effect of 1 million weighted average common stock warrants outstanding due to their anti-dilutive effect. This calculation also excludes the potential dilutive effect of the 384 thousand preferred stock shares outstanding as of June 30, 2018 as the contingency that would allow for the preferred shares to be converted to common shares has not yet been met. The calculation of diluted earnings per share for the three and six months ended June 30, 2018 excludes the incremental effect related to certain outstanding stock options and restricted shares due to their anti-dilutive effect. The number of weighted average equivalent shares excluded is 680 thousand and 292 thousand shares for the three and six months ended June 30, 2018, respectively.
The calculation of diluted earnings per share for the Predecessor three and six months ended June 30, 2017 excludes the Companyincremental effect related to certain outstanding stock options and Parent entered into a share purchase agreement (the “Share Purchase Agreement”) with HRG, Front Street Re (Delaware) Ltd. (“FSRD”), a Delaware corporation and a wholly owned indirect subsidiaryrestricted shares due to their anti-dilutive effect. The number of HRG, Front Street Re (Cayman) Ltd., an exempted company incorporatedweighted average equivalent shares excluded in the Cayman Islands with limited liability (“Front Street Cayman”),Predecessor three and Front Street Re Ltd., an exempted company incorporated in Bermuda with limited liability (together with Front Street Cayman, the “Acquired Companies”), pursuant to which, subject to thesix months ended June 30, 2017 are 0 thousand and 1 thousand shares.
The settlement terms and conditions set forth therein, Parent has agreed to purchase from FSRD all of the issuedPRSUs granted in 2017 by the Predecessor required cash settlement upon vesting as opposed to common equity settlement. As a result, these awards were liability classified and outstanding shareswere excluded from EPS calculations.
(16) Insurance Subsidiary Financial Information and Regulatory Matters
The Company’s U.S. insurance subsidiaries file financial statements with state insurance regulatory authorities and the National Association of Insurance Commissioners (“NAIC”) that are prepared in accordance with Statutory Accounting Principles (“SAP”) prescribed or permitted by such authorities, which may vary materially from GAAP. Prescribed SAP includes the Accounting Practices and Procedures Manual of the Acquired Companies. The purchase price will be $65 million, subject to customary adjustments for transaction expenses. The definitive documentation contains customary representations, warranties and indemnification obligations. HRG has further agreed to reduce the purchase price, and to indemnify Parent, for dividends and other value transfers by the Acquired Companies to HRG and its affiliates from December 31, 2016 through the Closing. The Closing of the transaction is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals, NAIC

as well as state laws, regulations and administrative rules. Permitted SAP encompasses all accounting practices not so prescribed. The principal differences between SAP financial statements and financial statements prepared in accordance with GAAP are that SAP financial statements do not reflect DAC and VOBA, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contractholder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. Accordingly, SAP operating results and SAP capital and surplus may differ substantially from amounts reported in the consummationGAAP basis financial statements for comparable items.
The FSR Companies (Cayman and Bermuda) and F&G Re Ltd. (Bermuda) file financial statements with their respective regulators that are based on U.S. GAAP.
FGL Insurance’s statutory carrying value of the FGL Business Combination. As noted above, in connection therewith, the Company entered into equity commitment letters with BTO Fund, GSO and FNF and a forward purchase agreement backstop letter agreement with BTO Fund and FNF for an aggregate amount of $57 million, $23 million of which would be used to offset a portion of net redemptions, if any, by public shareholders of the Company in connection with the shareholder vote to approve the FGL Business Combination and $9 million of which would be used to fund any FPA Shortfall.

In addition, on May 24, 2017, the Company, HRG, FS Holdco and Parent agreed that FS Holdco may, at its option, cause Parent and FS Holdco to make a joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, with respect to the FGL Business Combination and the deemed stock purchases of FGL’s subsidiaries. Such an election is only applicable to HRG and could haveRaven Re reflects the effect of reducingpermitted practices Raven Re received to treat the available amount of taxable gain taken into accounta letter of credit as an admitted asset which increased Raven Re’s statutory capital and surplus by HRG in connection with the FGL Business Combination. In the event FS Holdco elects to make such an election, it will be required to pay Parent $30 million, plus the amount, if any, by which FGL’s$110 and its subsidiaries’ incremental current tax costs that are attributable to such election exceed $6 million, and Parent will be required to pay FS Holdco the amount, if any, by which FGL’s and its subsidiaries’ incremental current tax savings that are attributable to such election exceed $6 million.

ROFO Offering

On$110 at June 21, 2017, the Company entered into equity purchase agreements (the “Purchase Agreements”) with certain accredited investors (the “Equity Purchasers”) in connection with the rights of first offer under the forward purchase agreements. Pursuant to the Purchase Agreements, the Equity Purchasers agreed to purchase, on the terms and subject to the conditions specified therein, an aggregate of 20,000,000 Class A ordinary shares of the Company for a purchase price of $10.00 per share, immediately prior to the Closing. At the Company’s option, such shares may be purchased from the Company in a private placement and/or from the Company’s shareholders who have validly requested for their shares to be redeemed in connection with the FGL Business Combination. Certain of the Equity Purchasers, including Keith W. Abell, Richard N. Massey and James A. Quella, each of whom is an independent director of the Company, are also party to the forward purchase agreements. In connection with the Purchase Agreements, the Company has agreed to pay advisory fees of an aggregate of $8.0 million to certain financial advisors at the Closing.

Note 9 - Fair Value Measurements

The following table presents information about the Company’s assets that are measured on a recurring basis as of September 30, 20172018 and December 31, 20162017, respectively.

Raven Re is also permitted to follow Iowa prescribed statutory accounting practice for its reserves on reinsurance assumed from FGL Insurance which increased Raven Re’s statutory capital and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.

20

CF CORPORATION

Notes to Condensed Financial Statements

Septembersurplus by $4 and $5 at June 30, 2017

(Unaudited)

September 30, 2017

  Quoted Prices  Significant Other  Significant Other 
  in Active Markets  Observable Inputs  Unobservable Inputs 
Description (Level 1)  (Level 2)  (Level 3) 
Investments and cash equivalents held in Trust Account $693,802,061  $-  $- 

December 31, 2016

  Quoted Prices  Significant Other  Significant Other 
  in Active Markets  Observable Inputs  Unobservable Inputs 
Description (Level 1)  (Level 2)  (Level 3) 
Investments and cash equivalents held in Trust Account $690,887,027  $-  $- 
             

Approximately $148,000 and $30,000 of the balance in the Trust Account was held in cash as of September 30, 20172018 and December 31, 2016,2017, respectively.

21
Without such permitted statutory accounting practices Raven Re’s statutory capital and (deficit) surplus would be $(11) and $(18) as of June 30, 2018 and December 31, 2017, respectively, and its risk-based capital would fall below the minimum regulatory requirements. The letter of credit facility is collateralized by NAIC 1 rated debt securities. If the permitted practice was revoked, the letter of credit could be replaced by the collateral assets with Nomura’s consent. FGL Insurance’s statutory carrying value of Raven Re at June 30, 2018 and December 31, 2017 was $103 and $97, respectively.

On November 1, 2013, FGL Insurance re-domesticated from Maryland to Iowa. After re-domestication, FGL Insurance elected to apply Iowa-prescribed accounting practices that permit Iowa-domiciled insurers to report equity call options used to economically hedge FIA index credits at amortized cost for statutory accounting purposes and to calculate FIA statutory reserves such that index credit returns will be included in the reserve only after crediting to the annuity contract. This resulted in a $(30) and $54 (decrease)/increase to statutory capital and surplus at June 30, 2018 and December 31, 2017, respectively.
The prescribed and permitted statutory accounting practices have no impact on the Company’s Condensed Consolidated Financial Statements which are prepared in accordance with GAAP.
As of June 30, 2017, FGL NY Insurance did not follow any prescribed or permitted statutory accounting practices that differ from the NAIC's statutory accounting practices.
On May 14, 2018, Fidelity & Guaranty Life Holdings, Inc. ("FGLH") made a dividend payment of $27 to FGL US Holdings, Inc. ("FGL US Holdings"). On June 28, 2018, FGL US Holdings issued a $65 intercompany note to F&G Life Re Ltd (F&G Life Re); and subsequently approves a $65 capital contribution to its wholly owned subsidiary, FGLH. On June 28, 2018, FGLH made a capital contribution for $125 to FGL Insurance.

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

References to the “Company,” “our,” “us” or “we” refer to CF Corporation. The following discussion and analysisOperations

Special Note Regarding Forward-Looking Statements
This quarterly report includes forward-looking statements. Some of the Company’s financial conditionforward-looking statements can be identified by the use of terms such as “believes”, “expects”, “may”, “will”, “should”, “could”, “seeks”, “intends”, “plans”, “estimates”, “anticipates” or other comparable terms. However, not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, should be read in conjunction with the unaudited condensed financial statementscondition, liquidity, prospects and growth strategies and the notes thereto contained elsewhereindustries in this report. Certain information contained in the discussionwhich we operate and analysis set forth below includes forward-lookingincluding, without limitation, statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements onrelating to our current expectations and projections about future events. These forward-lookingperformance.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our consolidated results of operations, financial condition and liquidity, and industry development

are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”), which can be found at the U.S. Securities & Exchange Commission's ("SEC's") website, www.sec.gov. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:
general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance;
concentration in certain states for distribution of our products;
the impact of interest rate fluctuations;
equity market volatility;
credit market volatility or disruption;
the impact of credit risk of our counterparties;
volatility or decline in the market price of our ordinary shares could impair our ability to raise necessary capital;
changes in our assumptions and estimates regarding the amortization of our deferred acquisition costs, deferred sales inducements and value of business acquired balances;
changes in our methodologies, estimates and assumptions aboutregarding our valuation of investments and the determinations of the amounts of allowances and impairments;
changes in our valuation allowance against our deferred tax assets, and restrictions on our ability to fully utilize such assets;
the accuracy of management’s reserving assumptions;
regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) underwriting of insurance products and regulation of the sale, underwriting and pricing of products and minimum capitalization and statutory reserve requirements for insurance companies, or the ability of our insurance subsidiaries to make cash distributions to us (including dividends or payments on surplus notes those subsidiaries issue to us);
the ability to maintain or obtain approval of Iowa Insurance Division ("IID") and other regulatory authorities as required for our operations and those of our insurance subsidiaries
the impact of the fiduciary rule proposals by the SEC and NAIC on the Company, its products, distribution and business model;
changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products;
changes in tax laws which affect us and/or our shareholders;
potential adverse tax consequences if we are treated as a passive foreign investment company;
the impact on our business of new accounting rules or changes to existing accounting rules;
our potential need and our insurance subsidiaries’ potential need for additional capital to maintain our and their financial strength and credit ratings and meet other requirements and obligations;
our ability to successfully acquire new companies or businesses and integrate such acquisitions into our existing framework;
the impact of potential litigation, including class action litigation;
our ability to protect our intellectual property;
our ability to maintain effective internal controls over financial reporting;
the impact of restrictions in the Company's debt instruments on its ability to operate its business, finance its capital needs or pursue or expand its business strategies;
our ability and our insurance subsidiaries’ ability to maintain or improve financial strength ratings;
the continued availability of capital required for our insurance subsidiaries to grow;
the performance of third parties including third party administrators, independent distributors, underwriters, actuarial consultants and other outsourcing relationships;
the loss of key personnel;
interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems;
our exposure to unidentified or unanticipated risk not adequately addressed by our risk management policies and procedures;

the impact on our business of natural and man-made catastrophes, pandemics, and malicious and terrorist acts;
our ability to compete in a highly competitive industry;
our ability to attract and retain national marketing organizations and independent agents;
our subsidiaries’ ability to pay dividends to us; and
the other factors discussed in “Risk Factors” of our 2017 Form 10-K.
You should read this report completely and with the understanding that may cause our actual future results levels of activity, performance or achievements tomay be materially different from expectations. All forward-looking statements made in this report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this report and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Introduction
Management's discussion and analysis reviews our consolidated financial position at June 30, 2018 (unaudited) and December 31, 2017, and the unaudited consolidated results levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identifyoperations for the three and six months ended June 30, 2018 and 2017 and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Form 10-Q and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of FGL Holdings (“FGL Holdings,” “we,” “us,” “our” and, collectively with its subsidiaries, the “Company”), which was included with our audited consolidated financial statements for the year ended December 31, 2017 included within the Company’s 2017 Form 10-K. Certain statements we make under this Item 2 constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. See "Special Note Regarding Forward-Looking Statements" in this report. You should consider our forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” orin light of our unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this report, and our filings with the negativeSEC, including our 2017 Form 10-K, which can be found at the SEC website, www.sec.gov.
Basis of such terms or other similar expressions. Factors that might cause or contribute to suchPresentation
As a discrepancy include, but are not limited to, those described in our other SEC filings.

Overview

We are a blank check company incorporated on February 26, 2016 as a Cayman Islands exempted company and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination with one or more businesses. We intend to effectuate our initial Business Combination using cash from the proceedsresult of the initial public offering and the Private Placement of the Private Placement Warrants, our shares, debt or a combination of cash, equity and debt.

In April 2016, we entered into forward purchase agreements pursuant to which Anchor Investors agreed to purchase an aggregate of 51,000,000 Class A ordinary shares, plus an aggregate of 19,083,333 redeemable warrants (one redeemable warrant for every three forward purchase shares purchased) for $10.00 per Class A ordinary share, or an aggregate purchase price of $510 million, in a private placement to occur concurrently with the closing of the Business Combination. In connection with the forward purchase agreements, we agreed to compensate the placement agents an aggregate amount of up to $20.675 million, including deferred placement agent fees of $20.4 million and reimbursement of legal fees of $275,000, payable upon the consummationcompletion of the Business Combination oron November 30, 2017, our Condensed Consolidated Financial Statements included elsewhere in the Quarterly Report are presented: (i) as of June 30, 2018 and December 1,31, 2017 ; (ii) for the three and six months ended June 30, 2018 and the Predecessor three and six months ended June 30, 2017.

On May 25, 2016, In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we consummateddiscuss the initial public offeringthree and six months ended June 30, 2018 results compared to the Predecessor three and six months ended June 30, 2017 results. We believe this discussion provides helpful information with respect to performance of 60,000,000 units at $10.00 per unit generating gross proceedsour business during those respective periods. Our financial statement presentation includes the financial statements of $600 millionFGL and incurring offering costs of approximately $34.5 million, inclusive of $33.0 million of underwriting commissions in connection withits subsidiaries as “Predecessor” for the initial public offering. We paid $12 million of underwriting commissions uponperiods prior to the closing of the initial public offering and deferred $21 million of underwriting commissions until the consummationcompletion of the Business Combination.

Simultaneously with the closing of the initial public offering, we consummated the Private Placement of 14,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant with the Sponsor, generating gross proceeds of $14 million.

On June 29, 2016, we consummated the sale of 9,000,000 additional units upon receiving notice of the underwriter’s election to fully exercise the Over-allotment, generating additional gross proceeds of $90 million and, in connection therewith, we incurred additional offering costs of $1.8 million in underwriting commissions. Simultaneously with the exercise of the Over-allotment, we consummated the Private Placement of an additional 1,800,000 Private Placement Warrants to the Sponsor, generating gross proceeds of $1.8 million. Additional underwriting commissions of $3.15 million were deferred until the completion of our initial Business Combination.

Upon the closing of the initial public offering, the Over-allotment, and the Private Placement, $690.0 million ($10.00 per unit) from the net proceeds thereof was placed in the Trust Account, and was invested in a money market fund selected by the Company until the earlier of: (i) the completion of a Business Combination and (ii) our failure to consummate a Business Combination by May 25, 2018. In order to protectFGL Holdings, including the amounts held in the Trust Account, the Sponsor has agreed to indemnify the Trust Account if and to the extent any claims by third parties, such as a vendor for services rendered or products sold to us, or a prospective target business with which we have entered into an acquisition agreement, reduce the amount of funds in the Trust Account below $10.00 per share. This liability will not apply with respect to any claims by a third party who executed a waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust Account or to any claims under the Company’s indemnity of the underwriter of the initial public offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.

22

Our management has broad discretion with respect to the specific application of the net proceeds of the initial public offering, the Over-allotment, and the Private Placement, although substantially all of the net proceeds are intended to be applied toward consummating a Business Combination.

On May 24, 2017, the Company entered into the Merger Agreement with Parent, Merger Sub and FGL, pursuant to which, subject to the satisfaction or waiver of certain conditions set forth therein, Merger Sub will merge with and into FGL, with FGL surviving the merger as a wholly owned indirect subsidiary of the Company. The Company will pay $31.10, in cash, without interest, for each outstanding share of common stockconsolidation of FGL (subject to certain exceptions), plus additional specified amounts in cashand its subsidiaries and FSR Companies, as "Successor" for outstanding equity incentives, for an aggregate purchase price of approximately $1.84 billion, plus approximately $405 million of existing FGL debt which will be assumed or refinanced.

FGL provides itsperiods from and after the Closing Date.

Overview
We provide our principal life and annuity products through itsour insurance subsidiaries - Fidelity & Guaranty Life Insurance Company (“FGLIC”("FGL Insurance") and Fidelity & Guaranty Life Insurance Company of New York. FGL’sYork ("FGL NY Insurance"). Our customers range across a variety of age groups and are concentrated in the middle-income market. FGL’sOur fixed indexed annuities (“FIAs”) provide for pre-retirement wealth accumulation and post-retirement income management. FGL’sOur universal life insurance providesproducts ("IUL") provide wealth protection and transfer opportunities through indexed universal life products.opportunities. Life and annuity products are primarily distributed through independent marketing organizationsIndependent Marketing Organizations ("IMOs") and independent insurance agents.

In setting the features and pricing new FIA products relative to our targeted net margin, we take into account our expectations regarding (1) net investment spread, which is the difference between the net investment income we earn and the sum of the interest credited to policyholders and the cost of hedging our risk on the policies; (2) fees, including surrender charges and rider fees, partly offset by vesting bonuses that we pay our policyholders;

and (3) a number of related expenses, including benefits and changes in reserves, acquisition costs, and general and administrative expenses.
Trends and Uncertainties
The FGL Business Combinationfollowing factors represent some of the key trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and financial performance in the future.
Market Conditions
Market volatility has affected and may continue to affect our business and financial performance in varying ways. Volatility can pressure sales and reduce demand as consumers hesitate to make financial decisions. To enhance the attractiveness and profitability of our products and services, we continually monitor the behavior of our customers, as evidenced by annuitization rates and lapse rates, which vary in response to changes in market conditions.
Interest Rate Environment
Some of our products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of June 30, 2018, the Company's reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $4 billion and 3%, respectively. We are required to pay the guaranteed minimum crediting rates even if earnings on our investment portfolio decline, which would negatively impact earnings. In addition, we expect more policyholders to hold policies with comparatively high guaranteed rates for a longer period in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio would increase earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect that policyholders would be less likely to hold policies with existing guarantees as interest rates rise and the relative value of other new business offerings are increased, which would negatively impact our earnings and cash flows.
See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” for a more detailed discussion of interest rate risk.
Aging of the U.S. Population
We believe that the aging of the U.S. population will increase the demand for our products. As the “baby boomer” generation prepares for retirement, we believe that demand for retirement savings, growth, and income products will grow. The impact of this growth may be offset to some extent by asset outflows as an increasing percentage of the population begins withdrawing assets to convert their savings into income.
Industry Factors and Trends Affecting Our Results of Operations
Demographics and macroeconomic factors are increasing the demand for our FIA and IUL products, for which demand is large and growing. Over 10,000 people will turn 65 each day in the United States over the next 15 years, and according to the U.S. Census Bureau, the proportion of the U.S. population over the age of 65 is expected to be consummatedgrow from 15% in 2015 to 20% in 2030.
We operate in the fourth quarter of 2017, subject to receipt of required regulatory approvals and satisfactionsector of the other closing conditions specifiedinsurance industry that focuses on the needs of middle-income Americans. The underserved middle-income market represents a major growth opportunity for the Company. As a tool for addressing the unmet need for retirement planning, we believe that many middle-income Americans have grown to appreciate the “sleep at night protection” that annuities such as our FIA products afford. Accordingly, the FIA market grew from nearly $12 billion of sales in 2002 to $54 billion of sales in 2017. Additionally, this market demand has positively impacted the Merger Agreement. On August 8, 2017, the Company held an extraordinary general meeting in lieuIUL market as it has expanded from $100 million of annual general meetingpremiums in 2002 to $2 billion of shareholders, at whichannual premiums in 2017.
Competition
Please refer to "Part I-Item 1. Business-Competition" in our 2017 Form 10-K for discussion on our competition.

Annuity and Life Sales
We regularly monitor and report the Company’s shareholders approved the FGL Business Combination. No shareholders elected to have their shares redeemed in connection with the FGL Business Combination.

Critical Accounting Policies

Ordinary Shares Subject to Possible Redemption

We accountproduction volume metric titled “Sales”. Sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for our ordinary shares subject to possible redemptionany financial measure determined in accordance with GAAP. For GAAP purposes annuity and IUL sales are recorded as deposit liabilities (i.e. contract holder funds). Management believes that presentation of sales as measured for management purposes enhances the guidanceunderstanding of our business and helps depict longer term trends that may not be apparent in ASC Topic 480 “Distinguishing Liabilitiesthe results of operations due to the timing of sales and revenue recognition.Sales of annuities and IULs by fiscal quarters for the quarters ended March 31 and June 30 were as follows:

 Annuity Sales IUL Sales
(dollars in millions) 
2018 2017 2018 2017
First Quarter$778
 $732
 $6
 $14
Second Quarter769
 582
 7
 9
Total$1,547
 $1,314
 $13
 $23
Key Components of Our Historical Results of Operations
Under U.S. GAAP, premium collections for fixed indexed annuities, fixed rate annuities, and immediate annuities without life contingency are reported in the financial statements as deposit liabilities (i.e., contractholder funds) instead of as sales or revenues. Similarly, cash payments to customers are reported as decreases in the liability for contractholder funds and not as expenses. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender and other charges deducted from Equity.” Ordinary sharescontractholder funds, and net realized gains (losses) on investments. Components of expenses for products accounted for as deposit liabilities are interest-sensitive and index product benefits (primarily interest credited to account balances or the cost of providing index credits to the policyholder), amortization of deferred acquisition cost (“DAC”), deferred sales inducements (“DSI”), and value of business acquired (“VOBA”), other operating costs and expenses, and income taxes.
Through our insurance subsidiaries, we issue a broad portfolio of deferred annuities (fixed indexed and fixed rate annuities) and immediate annuities. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically makes payments of principal and interest earnings over a period of time.
The Company hedges certain portions of its exposure to product related equity market risk by entering into derivative transactions. We purchase derivatives consisting predominantly of call options and, to a lesser degree, futures contracts on the equity indices underlying the applicable policy. These derivatives are used to offset the statutory reserve impact of the index credits due to policyholders under the FIA contracts. The majority of all such call options are one-year options purchased to match the funding requirements underlying the FIA contracts. We attempt to manage the cost of these purchases through the terms of our FIA contracts, which permit us to change caps, spread, or participation rates, subject to mandatory redemption (if any)certain guaranteed minimums that must be maintained. The call options and futures contracts are classifiedmarked to fair value with the change in fair value included as a liability instrumentcomponent of net investment gains (losses). The change in fair value of the call options and futures contracts includes the gains and losses recognized at the expiration of the instruments’ terms or upon early termination and the changes in fair value of open positions.
Earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on FIA policies, known as the net investment spread. With respect to FIAs, the cost of hedging our risk includes the expenses incurred to fund the index credits, and where applicable, minimum guaranteed interest credited. Proceeds received upon expiration or early termination of call options purchased to fund annual index credits are recorded as part of the change in fair value of derivatives, and are largely offset by an expense for index credits earned on annuity contractholder fund balances.
Our profitability depends in large part upon the amount of assets under management (“AUM”), the net investment spreads earned on our average assets under management ("AAUM"), our ability to manage our operating expenses and the costs of acquiring new business (principally commissions to agents and bonuses credited to

policyholders). As we grow AUM, earnings generally increase. AUM increases when cash inflows, which include sales, exceed cash outflows. Managing net investment spreads involves the ability to manage our investment portfolios to maximize returns and minimize risks on our AUM such as interest rate changes and defaults or impairment of investments, and our ability to manage interest rates credited to policyholders and costs of the options and futures purchased to fund the annual index credits on the FIAs or IULs. We analyze returns on AAUM pre- and post-DAC, DSI and VOBA as well as pre- and post-tax to measure our profitability in terms of growth and improved earnings.
Non-GAAP Measures
Management believes that certain non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do. Reconciliations of such measures to the most comparable GAAP measures are included herein.
Adjusted Operating Income ("AOI") is a non-GAAP economic measure we use to evaluate financial performance each period. AOI is calculated by adjusting net income (loss) to eliminate (i) the impact of net investment gains/losses including other than temporary impairment ("OTTI") losses recognized in operations, but excluding gains and losses on derivatives hedging our indexed annuity policies, (ii) the effect of changes in fair values of FIA related derivatives and embedded derivatives, net of hedging cost, (iii) the tax effect of affiliated reinsurance embedded derivative, (iv) the effect of integration, merger related & other non-operating items, (v) impact of extinguishment of debt, and (vi) net impact from Tax Cuts and Jobs Act. Adjustments to AOI are net of the corresponding impact on amortization of intangibles, as appropriate. The income tax impact related to these adjustments is measured using an effective tax rate of 21%, as appropriate. While these adjustments are an integral part of the overall performance of the Company, market conditions and/or the non-operating nature of these items can overshadow the underlying performance of the core business. Accordingly, Management considers this to be a useful measure internally and to investors and analysts in analyzing the trends of our operations.
Together with net income, we believe AOI provides a meaningful financial metric that helps investors understand our underlying results and profitability. Beginning with the quarter ended March 31, 2018, the Company updated its AOI definition to remove the residual impacts of fair value accounting on its FIA products, including gains and losses on derivatives hedging those policies. Management believes the revised measure enhances the understanding of the business post-merger and is more useful and relevant to investors as compared to the previous definition which eliminated only the effects of changes in the interest rates used to discount the FIA embedded derivative. Periods shown prior to March 31, 2018 have not been adjusted to reflect the new definition.
AOI should not be used as a substitute for net income. However, we believe the adjustments made to net income in order to derive AOI provide an understanding of our overall results of operations. For example, we could have strong operating results in a given period, yet report net income that is materially less, if during such period the fair value of our derivative assets hedging the FIA index credit obligations decreased due to general equity market conditions but the embedded derivative liability related to the index credit obligation did not decrease in the same proportion as the derivative assets because of non-equity market factors such as interest rate movements. Similarly, we could also have poor operating results in a given period yet show net income that is materially greater, if during such period the fair value of the derivative assets increases but the embedded derivative liability did not increase in the same proportion as the derivative assets. We hedge our FIA index credits with a combination of static and dynamic strategies, which can result in earnings volatility, the effects of which are generally likely to reverse over time. Our management and board of directors review AOI and net income as part of their examination of our overall financial results. However, these examples illustrate the significant impact derivative and embedded derivative movements can have on our net income. Accordingly, our management and board of directors perform a review and analysis of these items, as part of their review of our hedging results each period.
The adjustments to net income are net of DAC, DSI, and VOBA amortization. Amounts attributable to the fair value accounting for derivatives hedging the FIA index credits and the related embedded derivative liability fluctuate from period to period based upon changes in the fair values of call options purchased to fund the annual index credits for FIAs, changes in the interest rates used to discount the embedded derivative liability, and the fair value assumptions reflected in the embedded derivative liability. The accounting standards for fair value measurement require the discount rates used in the calculation of the embedded derivative liability to be based on

risk-free interest rates as of the reporting date. The impact of the change in fair values of FIA-related derivatives, embedded derivatives and hedging costs has been removed from net income in calculating AOI.
AAUM is a non-GAAP measure we use to assess the rate of return on assets available for reinvestment. AAUM is calculated as the sum of (i) total invested assets at amortized cost, excluding derivatives; (ii) related party loans and investments; (iii) accrued investment income; (iv) funds withheld at fair value. Conditionally redeemable ordinary shares (including ordinary shares that features redemption rights that are either withinvalue; (v) the controlnet payable/receivable for the purchase/sale of investments and (iv) cash and cash equivalents, excluding derivative collateral, at the beginning of the holder or subjectperiod and the end of each month in the period, divided by the total number of months in the period plus one. Management considers this to redemption uponbe a useful measure internally and to investors and analysts when assessing the occurrencerate of uncertain events not solely withinreturn on assets available for reinvestment.
Critical Accounting Policies and Estimates
The preparation of the Company’s control) are classifiedunaudited Condensed Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the six months ended June 30, 2018, the Company did not make any material changes in its critical accounting policies as temporary equity. At all other times, ordinary shares are classifiedpreviously disclosed in Management’s Discussion and Analysis in the Company’s 2017 Form 10-K as shareholders’ equity. Our ordinary shares feature certain redemption rights that are consideredfiled with the SEC.
Recent Accounting Pronouncements
Please refer to be outside"Note 2. Significant Accounting Policies and Practices" to our unaudited consolidated financial statements for disclosure of recent accounting pronouncements.

Results of Operations
(All amounts presented in millions unless otherwise noted)
The following tables set forth the consolidated results of operations for the three and six months ended June 30, 2018 and the Predecessor three and six months ended June 30, 2017:
 Three Months Ended    Six Months Ended
 June 30,
2018
  June 30,
2017
 
Increase/
(Decrease)
  June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
    Predecessor       Predecessor  
Revenues:              
Premiums$15
  $12
 $3
  $33
  $15
 $18
Net investment income282
  257
 25
  545
  504
 41
Net investment gains (losses)(2)  67
 (69)  (193)  148
 (341)
Insurance and investment product fees and other45
  44
 1
  93
  88
 5
Total revenues340
  380
 (40)  478
  755
 (277)
Benefits and expenses:              
Benefits and other changes in policy reserves249
  235
 14
  231
  503
 (272)
Acquisition and operating expenses, net of deferrals46
  40
 6
  86
  73
 13
Amortization of intangibles10
  51
 (41)  33
  84
 (51)
        Total benefits and expenses305
  326
 (21)  350
  660
 (310)
Operating income35
  54
 (19)  128
  95
 33
Interest expense(7)  (6) (1)  (13)  (12) (1)
Income before income taxes28
  48
 (20)  115
  83
��32
Income tax expense(8)  (16) 8
  (43)  (29) (14)
        Net income$20
  $32
 $(12)  $72
  $54
 18
Less preferred stock dividend7
  
 7
  14
  
 14
Net income available to common shareholders$13
  $32
 $(19)  $58
  $54
 $4
Annuity sales for the quarter ended June 30, 2018 and Predecessor quarter ended June 30, 2017 were $769 and $582, respectively, including FIA sales of $549 and $455, respectively. Annuity sales for the six months ended June 30, 2018 and Predecessor six months ended June 30, 2017 were $1,547 and $1,314, respectively, including FIA sales of $985 and $893, respectively. FIA sales during the three and six months ended June 30, 2018 reflect continued strong and productive collaboration with our controldistribution partners, primarily Independent Marketing Organizations. Sales of MYGA were $220 in the quarter ended June 30, 2018 and subject to occurrence$127 in the Predecessor quarter ended June 30, 2017. Sales of uncertain future events. Accordingly, ordinary shares subject to possible redemptionMYGA were $362 in the six months ended June 30, 2018 and $285 in the Predecessor six months ended June 30, 2017. There were no funding agreements in the three months ended June 30, 2018 or the Predecessor three months ended June 30, 2017. The six months ended June 30, 2018 reflects a $200 funding agreement with Federal Home Loan Bank, under an investment spread strategy, while the Predecessor six months ended June 30, 2017 reflects a $136 funding agreement with Federal Home Loan Bank. These funding agreements are presented as temporary equity, outsidean institutional spread based products and we view this volume as subject to fluctuation period to period. Indexed universal life sales during the quarter ended June 30, 2018 and the Predecessor quarter ended June 30, 2017 were $7 and $9, respectively. Indexed universal life sales during the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017 were $13 and $23, respectively. The decline in IUL sales during the quarter and six months ended June 30, 2018 reflects our focus on quality of new business and pricing discipline to achieve profitability and capital targets.

Revenues

Premiums

Premiums primarily reflect insurance premiums for traditional life insurance products which are recognized as revenue when due from the policyholder. FGL Insurance has ceded the majority of its traditional life business to unaffiliated third party reinsurers. The traditional life business is primarily related to the return of premium riders on traditional life contracts. While the base contract has been reinsured, we continue to retain the return of premium rider.

Premiums were $15 and $12 for the quarter ended June 30, 2018 and Predecessor quarter ended June 30, 2017, respectively. Premiums were $33 and $15 for the six months ended June 30, 2018 and Predecessor six months ended June 30, 2017, respectively. The primary drivers of these results were $8 premiums earned on traditional life insurance products as well as $7 in life-contingent immediate annuity annuitizations during the quarter ended June 30, 2018, compared to $7 premiums earned on traditional life insurance products as well as $5 life-contingent immediate annuity annuitzations during the Predecessor quarter ended June 30, 2017. The primary driver for the results in the six months ended June 30, 2018 and the Predecessor June 30, 2017 were $17 premiums earned on traditional life insurance products as well as $16 in life-contingent immediate annuity annuitizations during the six months ended June 30, 2018, compared to $7 premiums earned on traditional life insurance products as well as $8 life-contingent immediate annuity annuitzations during the Predecessor six months ended June 30, 2017.

Net investment income
Below is a summary of the shareholders’major components included in net investment income ("NII") for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017:
  Three Months Ended   Six Months Ended
  June 30, 2018  June 30, 2017 
Increase/
(Decrease)
 June 30, 2018 June 30, 2017 Increase/
(Decrease)
     Predecessor     Predecessor  
Fixed maturity securities, available-for-sale $248
  $242
 $6
 $490
 $478
 $12
Equity securities 26
  11
 15
 36
 21
 15
Commercial mortgage loans, invested cash, short term investments, and other investments 24
  10
 14
 45
 17
 28
Gross investment income 298
  263
 35
 571
 516
 55
Investment expense (16)  (6) (10) (26) (12) (14)
Net investment income $282
  $257
 $25
 $545
 $504
 $41
Our net investment spread and AAUM for the period is summarized as follows (annualized):
  Three Months Ended   Six Months Ended
  June 30, 2018  June 30, 2017 
Increase/
(Decrease)
 June 30, 2018 June 30, 2017 Increase/
(Decrease)
     Predecessor     Predecessor  
Yield on AAUM (at amortized cost) 4.42 %  5.01 % (0.59)% 4.32 % 4.95 % (0.63)%
Less: Interest credited and option cost (2.34)%  (2.47)% 0.13 % (2.34)% (2.48)% 0.14 %
Net investment spread 2.08 %  2.54 % (0.46)% 1.98 % 2.47 % (0.49)%
AAUM $25,491
  $20,569
 $4,922
 $25,224
 $20,365
 $4,859
The $4.9 billion increases in AAUM quarter over quarter and year over year, respectively, were primarily influenced by the acquisition of the FSR Companies as well as by the effects of purchase accounting on the investments of FGL and sales.
The increase in NII of $25, or 10%, from the Predecessor quarter ended June 30, 2017 to the quarter ended June 30, 2018 was primarily due an increase in AAUM (volume).  The volume increase period over period resulted in net investment income growth of $62. This increase was offset by $37 driven by a decline in earned yields (rate) as the result of purchase accounting impacts.
The increase in NII of $41, or 8%, from the Predecessor six months ended June 30, 2017 to the six months ended June 30, 2018 was primarily due an increase in AAUM (volume).  The volume increase period over period resulted in net investment income growth of $120. This increase was offset by $79 driven by a decline in earned yields (rate) as the result of purchase accounting impacts.

Net investment gains (losses)
Below is a summary of the major components included in net investment gains (losses) for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 
Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
     Predecessor      Predecessor
  
Net realized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets $(46)  $(7) $(39) $(92)  $(23) $(69)
Net realized and unrealized gains (losses) on hedging derivatives and reinsurance-related embedded derivatives 57
  82
 (25) (67)  191
 (258)
Change in fair value of reinsurance related embedded derivatives (13)  (9) (4) (34)  (20) (14)
Net investment gains (losses) $(2)  $67
 $(69) $(193)  $148
 $(341)

For the quarter ended June 30, 2018, net realized losses on available-for-sale securities of $46 includes $20 trading loss as part of a planned portfolio re-positioning strategy following the completion of the merger, $20 change in the unrealized losses on equity sectionsecurities reflecting the post adoption impact of our balance sheet.

Although we did not specifyASU 2016-01 and $0 of impairment losses.

Net realized and unrealized gains on certain derivatives were $57 for the quarter ended June 30, 2018 as compared to net realized and unrealized gains of $82 for the Predecessor quarter ended June 30, 2017. Net realized and unrealized losses on certain derivatives were $67 for the six months ended June 30, 2018 as compared to net realized and unrealized gains of $191 for the Predecessor six months ended June 30, 2017. See the table below for primary drivers of these gains (losses).
For the six months ended June 30, 2018, net realized losses on available-for-sale securities of $92 includes $36 trading loss on the block trade completed in February 2018 and $20 as part of a maximum redemption threshold, our charter provides thatplanned portfolio re-positioning strategy following the completion of the merger, $29 change in no event will we redeem our public sharesthe unrealized losses on equity securities reflecting the post adoption impact of ASU 2016-01 and $2 of impairment losses. In the Predecessor six months ended June 30, 2017 net realized losses on available-for-sale securities of $23, inclusive of $21 of impairments related to corporates, other invested assets and asset backed securities, comprised primarily of $20 credit-related impairment losses on available-for-sale debt securities related to investments in an amount that would cause our net tangible assets (shareholder’ equity) to be less than $5,000,001. We recognize changesFirst National Bank Holding Co.
The fair value of reinsurance related embedded derivative, is based on the change in redemption value immediately as they occur and will adjust the carryingfair value of the securityunderlying assets held in the funds withheld ("FWH") portfolio. The majority of the movement in the value of this derivative was driven by the Predecessor's coinsurance agreement with FSRC. As part of the Business Combination, FSRC is now a subsidiary of the Company which eliminated the impact of this component of net investment gains (losses) for the three and six months June 30, 2018. In the current period the change in fair value of the underlying assets held in FWH portfolio relates to equalFSRC's unaffiliated reinsurance agreements.
We utilize a combination of static (call options) and dynamic (long futures contracts) instruments in our hedging strategy. A substantial portion of the redemptioncall options and futures contracts are based upon the S&P 500 Index with the remainder based upon other equity, bond and gold market indices.

The components of the realized and unrealized gains on certain derivative instruments hedging our indexed annuity and universal life products for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 
Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
     Predecessor      Predecessor  
Call Options:              
Gains (losses) on option expiration $(13)  $72
 $(85) $(9)  $144
 $(153)
Change in unrealized gains (losses) 64
  9
 55
 (60)  42
 (102)
Change in unrealized gain (loss) (FSRC) 4
  
 $4
 $2
  $
 $2
Futures contracts:              
Gains (losses) on futures contracts expiration (2)  1
 (3) 5
  4
 1
Change in unrealized gains (losses) 4
  
 4
 (5)  1
 (6)
Total net change in fair value $57
  $82
 $(25)
$(67)

$191

$(258)
               
Change in S&P 500 Index during the period 3%  3% % 2%  8% (6)%
Realized gains and losses on certain derivative instruments are directly correlated to the performances of the indices upon which the call options and futures contracts are based and the value of the derivatives at the time of expiration compared to the value at the time of purchase. Additionally, the fair value of call options are primarily driven by the underlying performance of the S&P 500 index relative to the S&P index on the policyholder buy dates during each respective year.
The net change in fair value of certain derivative instruments for the quarter ended and six months ended June 30, 2018 and the Predecessor quarter ended and six months ended June 30, 2017 were primarily driven by movements in the S&P 500 Index relative to the buy dates during each respective year.
The average index credits to policyholders for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
     Predecessor      Predecessor  
Average Crediting Rate 4%  5% (1)% 4%  4%  %
S&P 500 Index:              
Point-to-point strategy 4%  4%  % 4%  4%  %
Monthly average strategy 4%  4%  % 4%  3% 1 %
Monthly point-to-point strategy 3%  6% (3)% 5%  5%  %
3 year high water mark 14%  13% 1 % 11%  12% (1)%
Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the FIA contracts (caps, spreads and participation rates) which allow the Company to manage the cost of the options purchased to fund the annual index credits.
The credits for the quarter ended June 30, 2018 and the Predecessor quarter ended June 30, 2017 were based on comparing the S&P 500 Index on each issue date in these respective periods to the same issue date in the respective prior year periods. Index performance resulted in comparable crediting rates in the periods disclosed above.

Insurance and investment product fees and other
Below is a summary of the major components included in Insurance and investment product fees and other for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
     Predecessor      Predecessor  
Insurance and investment product fees and other:              
Surrender charges $12
  $9
 $3
 $26
  $18
 $8
Cost of insurance fees and other income 33
  35
 (2) 67
  70
 (3)
Total insurance and investment product fees and other $45
  $44
 $1
 $93
  $88
 $5
Insurance and investment product fees and other consists primarily of the cost of insurance, policy rider fees and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts (up to 10% of the prior year's value, subject to certain limitations).
Total insurance and investment product fees and other was $45, and $44 for the quarter ended June 30, 2018 and the Predecessor quarter ended June 30, 2017, respectively. Total insurance and investment product fees and other was $93 and $88 for the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017, respectively. These fees are primarily related to rider fees on FIA policies as well as cost of insurance ("COI") charges on IUL policies. Guaranteed minimum withdrawal benefit ("GMWB") rider fees were $21 and $17 for the quarter ended June 30, 2018 and the Predecessor quarter ended June 30, 2017, respectively. Guaranteed minimum withdrawal benefit ("GMWB") rider fees were $42 and $34 for the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017, respectively. This increase in fees is a result of growth in benefit base, which is partially offset by a corresponding increase in income rider reserves (included in Benefits and other changes in policy reserves). GMWB rider fees are based on the policyholder's benefit base and are collected at the end of each reporting period. Increases or decreasesthe policy year.


Benefits and expenses
Benefits and other changes in policy reserves
Below is a summary of the major components included in Benefits and other changes in policy reserves for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
     Predecessor      Predecessor  
FIA FAS 133 impact 29
  1
 28
 (213)  51
 (264)
Index credits, interest credited & bonuses 170
  182
 (12) 377
  363
 14
Annuity payments 38
  37
 1
 76
  75
 1
Other policy benefits and reserve movements (12)  15
 (27) (18)  14
 (32)
Change in fair value of reserve liabilities held at fair value 24
  
 24
 9
  
 9
     Total benefits and other changes in policy reserves $249
  $235
 $14
 $231
  $503
 $(272)
               
Quarter over Quarter
FIA FAS 133 Impact - The FIA market value option liability increased $14 during the quarter ended June 30, 2018 and increased $17 in the carrying amount of redeemable ordinary shares shall be affected by charges against additional paid-in capital. Accordingly, at SeptemberPredecessor quarter ended June 30, 2017, 62,337,495 Class A ordinary sharesrespectively, and were classified outsidedriven by the changes in the equity markets and risk free rates during the current quarter. The favorable movement in equity markets resulted in a $62 increase in the FAS 133 liability during Q2 2018 as compared to $17 increase during Q2 2017. The rise in risk free rates reduced the FAS 133 reserves by approximately $27 during Q2 2018 as compared to $10 for the corresponding period in 2017. The change in equity market also impacts the market value of permanent equity at their redemption value.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effectthe derivative assets hedging our FIA policies. See table in the net investment gains/losses discussion above for summary and discussion of net unrealized gains (losses) on certain derivative instruments.

Index credits, interest credited & bonuses were $170 and $182 for the quarter ended June 30, 2018 and the Predecessor quarter ended June 30, 2017, respectively. The quarter over quarter decrease of $12 was primarily due to lower index credits on FIA policies reflecting the less favorable performance of the S&P 500 Index relative to the S&P 500 Index level on the accompanying unaudited condensed financial statements.

23
policyholder buy dates and related increases in proceeds from options and futures which fund FIA index credits.

Results

The change in the fair value of Operations

We have not generated any revenuesreserve liabilities held at fair value increased $24 for the quarter ended June 30, 2018. Reserves held at fair value represents FSRC's third-party business and impacts the quarter ended and six months ended June 30, 2018 due to date, and we will not be generating any operating revenues until the closing and completion of our initial Business Combination. Our entire activity from inception to SeptemberNovember 30, 2017 relatesacquisition of FSR.

Six Months Period over Period
FIA FAS 133 Impact - The FIA market value option liability decreased $209 during the six months ended June 30, 2018 and increased $55 in the Predecessor quarter ended June 30, 2017, respectively, and were driven by the changes in the equity markets and risk free rates during the current period. The decline in equity markets resulted in a $89 reduction in the FAS 133 liability during the six months ended June 30, 2018 as compared to our formation, consummation$55 increase during the corresponding period in 2017. The rise in risk free rates reduced the FAS 133 reserves by approximately $124 during the six months ended June 30, 2018 as compared to $12 for the corresponding period in 2017. The change in equity market also impacts the market value of the initial public offering,derivative assets hedging our FIA policies. See table in the forward purchase agreements,net investment gains/losses discussion above for summary and sincediscussion of net unrealized gains (losses) on certain derivative instruments.
Index credits, interest credited & bonuses were $377 and $363 for the closingsix months ended June 30, 2018 and the Predecessor six months ended June 30, 2017, respectively. The period over period increase of $14 was primarily due to high index credits on FIA policies reflecting the favorable performance of the initial public offering, the search for a Business Combination candidate. Going forward, we expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. We expect our expenses to increase substantially after this period.

For the three months ended September 30, 2017, we had net income of approximately $617,000, which was derived from interest income from our Trust Account of approximately $1.4 million, and offset mostly by costs relatedS&P 500 Index relative to the merger with Fidelity & Guaranty Life, a Delaware corporation (“FGL”).

ForS&P 500 Index level on the three months ended September 30, 2016, we had net income of approximately $138,000,policyholder buy dates and related increases in proceeds from options and futures which consisted solely of operating expenses of approximately $290,000 and offset by interest income from our Trust Account of $427,000.

For the nine months ended September 30, 2017, we had net losses of approximately $17.3 million, which consisted approximately $15.2 million in costs related to the merger with FGLfund FIA index credits.


Acquisition and operating expenses, net of approximately $5.0 million,deferrals
Below is a summary of the major components included in acquisition and operating expenses, net of deferrals for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
     Predecessor      Predecessor  
Acquisition and operating expenses, net of deferrals:              
General expenses $37
  $35
 $2
 $72
  $65
 $7
Acquisition expenses 94
  72
 22
 148
  153
 (5)
Deferred acquisition costs (85)  (67) (18) (134)  (145) 11
Total acquisition and operating expenses, net of deferrals $46
  $40
 $6
 $86
  $73
 $13
The increase in acquisition and operating expenses, net of deferrals, during the quarter ended June 30, 2018 compared to the Predecessor quarter ended June 30, 2017 and the six months ended June 30, 2018 compared to the Predecessor June 30, 2017 reflects an increase in general expenses related to planned employee headcount growth, higher professional fees related to post-merger year-end audit and project related costs. Gross acquisition expenses increased $22 quarter over quarter due to higher commissions.
Amortization of intangibles
Below is a summary of the major components included in amortization of intangibles for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
Amortization of intangibles related to:    Predecessor      Predecessor  
Unlocking $(1)  $
 $(1) $(1)  $(3) $2
Interest (6)  (14) 8
 (11)  (29) 18
Amortization 17
  65
 (48) 45
  116
 (71)
Total amortization of intangibles $10
  $51
 $(41) $33
  $84
 $(51)
Amortization of intangibles is based on historical, current and future expected gross margins (pre-tax operating income before amortization). The quarter over quarter and year over year decreases in total net amortization of $41 and $51, respectively were primarily due to lower actual gross profits ("AGPs") on the lines of business with DAC and VOBA. AGPs were driven primarily by lower net investment gains during the quarter and net investment losses during the six months ended June 30, 2018 compared to net investment gains in the Predecessor quarter and six months ended June 30, 2017. This was partially offset by an increase in interest income fromperiod-over-period due to continued growth in our Trust Accountin force book of approximately $2.9 million.

Forbusiness.




Other items affecting net income
Interest expense
The interest expense and amortization of debt issuance costs of the period from February 26, 2016 (inception) to SeptemberCompany's debt for the quarter ended June 30, 2016, we had net losses of approximately $520,000, which consisted solely of operating expenses of approximately $972,000 and offset by interest income from our Trust Account of $452,000.

Liquidity and Capital Resources

As indicated in2018, the accompanying unaudited condensed financial statements, at SeptemberPredecessor quarter ended June 30, 2017, we had approximately $479,000 in our operating bank account, approximately $694 million in cashthe six months ended June 30, 2018 and cash equivalents held in the Trust Account, interest income of approximately $3.8 million available from the Company’s investments in the Trust Account to pay for our income tax obligations, if any, and working capital deficit of approximately $20.9 million.

Through SeptemberPredecessor June 30, 2017, our liquidity needs also have been satisfied through receipt of a $25,000 capital contribution from the Sponsor in exchange2017:

  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
Interest expense and amortization related to:    Predecessor      Predecessor  
Debt $8
  $5
 $3
 $13
  $9
 $4
Revolving credit facility 1
  1
 
 2
  3
 (1)
Gain on extinguishment of debt (2)  
 (2) (2)  
 (2)
Total interest expense 7
  6
 1
 13
  12
 3
Interest expense was $7 for the issuancequarter ended June 30, 2018 and $6 for the Predecessor quarter ended March 31, 2017, and reflects interest incurred on the debt and revolving credit facility for those periods. On April 20, 2018, the Company completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025. The Company used the founder shares to the Sponsor, $225,733 in loans from the Sponsor, and the proceeds not held in the Trust Account resulted from the consummation of the Private Placement.

In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, loan us Working Capital Loans. In July 2017, the Sponsor loaned an aggregate of $750,000 of Working Capital Loans to us. If we complete a Business Combination, we would repay the Working Capital Loans out of thenet proceeds of the Trust Account released to us. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, we may use a portion of proceeds held outside the Trust Accountoffering (i) to repay $135 of borrowings under its revolving credit facility and related expenses and (ii) to redeem in full and satisfy and discharge all of the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans, other thanoutstanding $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021. The current period reflects the interest expense incurred on such proceeds that may be releasedthe 5.50% senior notes due 2025    . Refer to pay"Note 8. Debt" of our unaudited Condensed Consolidated Financial Statements for additional details.


Income tax obligations. Exceptexpense
Below is a summary of the major components included in Income tax expense for the foregoing,quarter ended June 30, 2018, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, atPredecessor quarter ended June 30, 2017, the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.00 per warrant. Such warrants would be identical to the Private Placement Warrants.

Based on the foregoing, we believe that we will have insufficient funds available to operate our business through the earlier of consummation of a Business Combination or May 25, 2018. Following the initial Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our plans to raise capital or to consummate the initial Business Combination may not be successful. These matters, among others, raise substantial doubt about our ability to continue as a going concern.

The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

24

Related Party Transactions

Founder Shares

On March 2, 2016, we issued an aggregate of 15,000,000 founder shares to the Sponsor in exchange for a capital contribution of $25,000. On April 19, 2016, the Sponsor surrendered 3,750,000 founder shares to us for no consideration, which we cancelled. We then issued 3,750,000 founder shares to the Anchor Investors for an aggregate price of approximately $7,000 in connection with the forward purchase agreements. The Sponsorsix months ended June 30, 2018 and the Anchor Investors currently own 11,250,000 and 3,750,000 founder shares, respectively. The founder shares will automatically convert into Class A ordinary shares in connection with the consummation of a Business Combination at a ratio such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, 20% of the sum of  (i) the total number of Class A ordinary shares outstanding upon completion of the initial public offering (including the Over-allotment), plus (ii) the sum of  (a) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by us in connection with or in relation to the consummation of the initial Business Combination (including forward purchase shares, but not forward purchase warrants), excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants issued to the Sponsor upon conversion of Working Capital Loans, minus (b) the number of public shares redeemed by public shareholders in connection with the initial Business Combination.

The Sponsor, Chinh E. Chu and William P. Foley, II have agreed not to transfer, assign or sell any of their founder shares until the earliest of  (a) one year after the completion of the initial Business Combination with respect to 50% of their founder shares, (b) two years after the completion of the initial Business Combination with respect to the remaining 50% of their founder shares, and (c) the date on which we complete a liquidation, merger, share exchange or other similar transaction after an initial Business Combination that results in all of our shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property. Subject to certain exceptions, the Anchor Investors have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of: (i) one year after the completion of the initial Business Combination or (ii) the date on which we complete a liquidation, merger, share exchange or other similar transaction after the initial Business Combination that results in all of our shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property. Any permitted transferees will be subject to the same restrictions and other agreements of the initial shareholders or Anchor Investors, as applicable, with respect to any founder shares. Notwithstanding the foregoing, if the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination, the founder shares held by investors other than the Sponsor, Chinh E. Chu and William P. Foley, II will be released from the lock-up.

Private Placement Warrants

On May 25, 2016 andPredecessor June 29, 2016, the Sponsor purchased from us an aggregate of 15,800,000 Private Placement Warrants. Each Private Placement Warrant entitles the holder to purchase one Class A ordinary share at $11.50 per share. The Private Placement Warrants (including the Class A ordinary shares issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or salable until 30, days after the completion of the initial Business Combination, and they will be non-redeemable so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers of the Private Placement Warrants or their permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by such holders on the same basis as the Public Warrants. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants and have no net cash settlement provisions.

If we do not complete a Business Combination, then the proceeds of the sale of the Private Placement Warrants will be part of the liquidating distribution to the public shareholders and the Private Placement Warrants will expire worthless.

Forward Purchase Agreements

On April 19, 2016, we entered into forward purchase agreements pursuant to which the Anchor Investors (including two affiliates of the Sponsor) agreed to purchase an aggregate of 51,000,000 Class A ordinary shares plus an aggregate of 19,083,333 redeemable warrants (one redeemable warrant for every three forward purchase shares purchased) at $10.00 per Class A ordinary share for an aggregate purchase price of $510 million, in a private placement to occur concurrently with the closing of the Business Combination. In connection with these agreements, we issued an aggregate of 3,750,000 founder shares to such investors. The founder shares issued to such investors are subject to similar contractual conditions and restrictions as the founder shares issued to the Sponsor. The Anchor Investors will have redemption rights with respect to any public shares they own but have waived redemption rights with respect to their founder shares. The forward purchase agreements also provide that the investors are entitled to a right of first offer to with respect to any proposed sale of additional equity or equity-linked securities by us for capital raising purposes in connection with the closing of the Business Combination (other than shares and warrants pursuant to forward purchase agreements) and registration rights with respect to the shares, warrants and Class A ordinary shares underlying the forward purchase warrants.

25
2017:

On April 22, 2016, we entered into an agreement with Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC in connection with the forward purchase agreements described above, to act as placement agents (the “Placement Agents”) in the related private placement. In connection therewith, the Placement Agents are entitled to placement agent fees in an aggregate amount of: (i) up to 3.5% of the aggregate proceeds received from the forward purchase shares (or $17.85 million), contingently payable at the consummation of the an initial Business Combination, (ii) an additional placement agent fee of 0.5% of the aggregate proceeds received from the sales of the forward purchase agreements (or $2.55 million) at our sole discretion as determined at the time of the consummation of an initial Business Combination, and (iii) reimbursement of reasonable legal counsel fees and expenses up to an aggregate amount of $275,000, which will be paid upon the earlier of the consummation of an initial Business Combination and December 1, 2017.

Rights of First Offer Purchase Agreements

On June 21, 2017, the Company entered into the Purchase Agreements with certain accredited investors, including Keith W. Abell, Richard N. Massey and James A. Quella, each of whom is an independent director of the Company, in connection with the rights of first offer under the forward purchase agreements. Messrs. Abell, Massey and Quella have subscribed for an aggregate of 969,697 shares under the equity purchase agreements for a purchase price of $10.00 per share, to occur at the Closing. At the Company’s option, such shares may be purchased from the Company in a private placement and/or from public shareholders who have validly requested for their public shares to be redeemed in connection with the FGL Business Combination. In addition, these individuals will be entitled to receive an aggregate of  $240,000, which represents their pro rata portion of the $4.95 million the Company agreed to pay to certain anchor investors in connection with the waivers provided under the rights of first offer under the forward purchase agreements.

Due to Related Parties

The Sponsor and other related parties have loaned us an aggregate amount of $225,733 to be used for the payment of costs related to the initial public offering. These borrowings are non-interest bearing, unsecured and due upon the closing of the initial public offering. We have not yet repaid this amount as of September 30, 2017.

In July 2017, the Sponsor loaned an aggregate of $750,000 to us as a Working Capital Loan. The Working Capital Loans will either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.00 per warrant. Any such warrants would have identical terms as the Private Placement Warrants.

Administrative Service Fee

We have agreed, commencing on May 25, 2016 through the earlier of our consummation of a Business Combination and liquidation, to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, and secretarial and administrative services. We recorded $30,000 and $0 in

  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
     Predecessor      Predecessor  
Income before taxes $28
  $48
 $(20) $115
  $83
 $32
       
       
Income tax before valuation allowance 5
  16
 (11) 35
  29
 6
Change in valuation allowance 3
  
 3
 8
  
 8
Income tax $8
  $16
 $(8) $43
  $29
 $14
Effective rate 29%  33% (4)% 37%  35% 2%

Income tax expense for the three months ended SeptemberJune 30, 2018 was $8, inclusive of a valuation allowance expense of $3, compared to income tax expense of $16 for the Predecessor three months ended June 30, 2017, and 2016 and $90,000 and $40,000inclusive of a valuation allowance expense of $0. The decrease in income tax expense of $8 quarter over quarter was primarily due to the lower U.S. Federal statutory tax rate of 21% in 2018 compared with 35% in 2017, partially offset by a valuation allowance expense of $3 in the 2018 quarter.

Income tax expense for the ninesix months ended SeptemberJune 30, 2018 was $43, inclusive of a valuation allowance expense of $8, compared to income tax expense of $29 for the Predecessor six months ended June 30, 2017, and the period from February 26, 2016 (Dateinclusive of Inception) through September 30, 2016, respectively.

Equity Commitment Letters and Related Agreements

In connection with the FGL Business Combination and related transactions, the Company has entered into the following:

·The BTO Fund Equity Commitment Letters, pursuant to which BTO Fund has committed to purchase ordinary shares of the Company at the Closing in a private placement for $10.00 per share, or an aggregate cash purchase price of  $225 million. BTO Fund is an investment fund managed by an indirect subsidiary of The Blackstone Group L.P. (“Blackstone”). CFS, a shareholder of the Company and a party to one of the forward purchase agreements, is an investment vehicle owned by certain investment funds (including BTO Fund) managed by indirect subsidiaries of Blackstone.

·The FNF Equity Commitment Letters, pursuant to which FNF has committed to purchase newly issued ordinary shares and preferred shares of the Company in a private placement for an aggregate cash purchase price equal to (x) $235 million plus (y) up to an aggregate of  $195 million to offset redemptions of public shares, if any, in connection with the FGL Business Combination. The Company’s Co-Executive Chairman, William P. Foley, II, is also the non-executive Chairman of the Board of FNF. The Investor Agreement provides that FNF’s commitment to purchase equity of the Company will be allocated as follows: (i) $135 million to newly issued ordinary shares for $10.00 per share and (ii) $100 million, plus any amounts funded to backstop redemptions of public shares, to preferred shares. The preferred shares will not have a maturity date. The dividend rate of the preferred shares will be 7.5% per annum (subject to increase in the period beginning 10 years after issuance based on the then-current LIBOR rate), payable quarterly in cash or additional preferred shares of the Company, at the Company’s option. FNF and GSO will also have the right to convert their preferred shares into ordinary shares of the Company commencing 10 years after issuance as described herein. In addition, in exchange for the commitment with respect to preferred shares, FNF will be entitled to fees of  (i) the original issue discount on the issuance of the preferred shares, equal to $2.0 million, plus (ii) $2.925 million, plus (iii) penny warrants that are exercisable, in the aggregate, for 1.2% of the Company’s issued and outstanding ordinary shares (on a fully diluted basis) plus (iv) if, and to the extent, any amount of the preferred shares are issued with respect to the backstop commitment, (x) a funding fee of 0.5% of the amount of the equity that is funded and (y) penny warrants that are exercisable, in the aggregate, for the product of  (1) the proportion of such backstop equity that is funded, multiplied by (2) 1.5% of the Company’s issued and outstanding ordinary shares (on a fully diluted basis).

26

·The GSO Equity Commitment Letters, pursuant to which GSO, the credit platform of Blackstone, has committed to purchase, or cause the purchase of, newly issued preferred shares of the Company at the Closing for an aggregate cash purchase price equal to (x) $275 million plus (y) up to an aggregate of  $465 million to offset redemptions of public shares, if any, in connection with the FGL Business Combination. In addition, in exchange for the commitment with respect to preferred shares, GSO will be entitled to fees of  (i) the original issue discount on the issuance of the preferred shares, equal to $5.5 million, plus (ii) $6.975 million, plus (iii) penny warrants that are exercisable, in the aggregate, for 3.3% of the Company’s issued and outstanding ordinary shares (on a fully diluted basis) plus (iv) if, and to the extent, any amount of the preferred shares are issued with respect to the backstop commitment, (x) a funding fee of 0.5% of the amount of the equity that is funded and (y) penny warrants that are exercisable, in the aggregate, for the product of (1) the proportion of such backstop equity that is funded, multiplied by (2) 3.5% of the Company’s issued and outstanding ordinary shares (on a fully diluted basis).

·The Forward Purchase Backstop Equity Commitment Letters, pursuant to which, on the terms and subject to the conditions set forth therein, (i) BTO Fund has committed to purchase, or cause the purchase of, newly issued ordinary shares of the Company at the Closing for an aggregate cash purchase price equal to one-third (1/3) of the FPA Shortfall, up to an aggregate amount of  $100 million and (ii) FNF has committed to purchase, or cause the purchase of, newly issued ordinary shares of the Company at the Closing for an aggregate cash purchase price equal to two-thirds (2/3) of the FPA Shortfall, up to an aggregate amount of  $200 million. Pursuant to the Forward Purchase Backstop Equity Commitment Letters and the Investor Agreement, FNF and BTO Fund will together purchase ordinary shares and warrants of the Company equal to the number of ordinary shares and warrants that the purchasers under the forward purchase agreements who fail to fund, if any, would have acquired pursuant to the forward purchase agreements in connection with the business combination (including pursuant to the conversion of founder shares previously issued to such purchasers into ordinary shares). In exchange for providing the Forward Purchase Backstop Commitments, the Company agreed to pay to BTO Fund or its designated affiliate the amount of  $1.5 million and to FNF the amount of  $3.0 million promptly following the Closing, with such amounts payable whether or not any portion of the Forward Purchase Backstop Commitment is ultimately required to be funded. BTO Fund and FNF have agreed to forego receiving such fees in light of the additional commitments of certain accredited investors to purchase 20,000,000 ordinary shares in connection with the rights of first offer set forth in the forward purchase agreements.

Investor Agreement

As an inducement for eacha valuation allowance expense of BTO Fund, GSO and FNF to enter into certain limited guaranties in connection with the FGL Business Combination, the Company entered into the Investor Agreement with such Investor Agreement Parties, pursuant to which the Company agreed that, without the Investor Agreement Parties’ prior written consent, the Company would not amend, modify, grant any waiver under or seek to terminate any of the transaction agreements relating to the FGL Business Combination, or take any action concerning settlements, stipulations or judgments relating to government authorities or make any regulatory filings contemplated by the Merger Agreement, subject in each case to certain exceptions and qualifications.

Pursuant to the Investor Agreement, the terms of the equity to be issued pursuant to the Equity Commitment Letters will be as follows:

·With respect to the BTO Fund Commitment under the BTO Fund Equity Commitment Letters, BTO Fund will purchase ordinary shares. BTO Fund will receive one ordinary share in exchange for each $10.00 funded pursuant to its equity commitment letters.

·With respect to the FNF Commitment described in the FNF Equity Commitment Letters, FNF will purchase (i) $135 million of newly issued ordinary shares for $10.00 per share and (ii) $100 million, plus additional amounts, if any, pursuant to FNF’s commitment to offset redemptions of public shares in connection with the FGL Business Combination, of preferred shares of the Company on the terms set forth in the Investor Agreement and warrants of the Company on the terms as set forth in the FNF Fee Letter.$0. The terms of the preferred shares to be issued to FNF set forth in the Investor Agreement are identical to those set forth in the GSO Side Letter described below. FNF will also have the right, provided that FNF has first requested the Company to remarket the preferred shares, commencing 10 years after the issuance of the preferred shares, to convert such shares into a number of ordinary shares of the Company as determined by dividing (i) the aggregate par value (including dividends paid in kind and unpaid accrued dividends) of the preferred shares that FNF wishes to convert by (ii) the higher of (a) a 5% discount to the 30-day VWAP of the ordinary shares following the conversion notice, and (b) the then-current Floor Price.

·With respect to the GSO Commitment under the GSO Equity Commitment Letters, GSO will purchase preferred shares and be issued warrants of the Company on the terms set forth in the GSO Side Letter.

·In the event that public shareholders redeem their public shares in connection with the business combination, a certain portion of the GSO Commitment and the FNF Commitment, as described in their respective equity commitment letters, shall be allocated pro rata based on their aggregate commitments thereunder.

·With respect to the Forward Purchase Backstop Equity Commitment Letters, each of FNF and BTO Fund will purchase ordinary shares and one-third (1/3) of one detachable warrant (with such warrants having the same terms as the Forward Purchase Warrants). BTO Fund will receive one ordinary share and one-third (1/3) of a warrant in exchange for each $10.00 funded pursuant to the Forward Purchase Backstop Equity Commitment Letters. In addition, FNF and BTO Fund will together purchase ordinary shares equal to the number of ordinary shares that the purchasers under the forward purchase agreements who fail to fund, if any, would have acquired pursuant to the forward purchase agreements in connection with the FGL Business Combination (including pursuant to the conversion of founder shares into ordinary shares). FNF will purchase two-thirds (2/3) of such ordinary shares, if any, and BTO Fund will purchase one-third (1/3) of such ordinary shares, if any.

27

The Investor Agreement further provides that the Investor Agreement Parties will receive registration rights on customary terms with respect to the ordinary shares, preferred shares and warrants (and the ordinary shares underlying such warrants) issued pursuant to the Equity Commitment Letters.

FNF Fee Letter

As consideration for the FNF Commitment (including the backstop commitment) and the agreements of FNF under the FNF Commitment Letters and limited guaranties, the Company also entered into the FNF Fee Letter, pursuant to which the Company has agreed to pay or issue to FNF the following at Closing:

·the original issue discount of $2.0 million in respect of the preferred shares issued to FNF (the “FNF OID”)
·a commitment fee of $2.925 million (the “FNF Commitment Fee”);
·penny warrants convertible, in the aggregate, for 1.2% of our ordinary shares (on a fully diluted basis) (the “FNF Investment Warrants”); and
·if, and to the extent, any amount of the preferred equity under FNF’s backstop commitment is funded (the “FNF Backstop Equity”), (x) a funding fee of 0.5% of the amount of the FNF Backstop Equity that is funded (together with the FNF OID and the FNF Commitment Fee, the “FNF Closing Payments”), and (y) penny warrants attached to the FNF Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the FNF Backstop Equity that is funded, and (2) 1.5% of our ordinary shares (on a fully diluted basis) (together with the FNF Investment Warrants, the “FNF Warrants”).

The FNF Closing Payments will be paid as a reduction of the purchase price payable by FNF for the preferred shares under the FNF Equity Commitment Letters. The Company has also agreed to pay or reimburse FNF for fees and expenses of counsel in connection with FNF’s anticipated purchase of the preferred shares.

GSO Side Letter

The Company entered into the GSO Side Letter, which provides that that the terms of the preferred shares to be issued to GSO will include: a dividend rate of 7.5% per annum (subject to increase in theincome tax expense of $14 period beginning 10 years after issuance based on the then-current LIBOR rate), payable quarterly in cash or additional preferred sharesover period was primarily due to an expense of the Company, at the Company’s option; five year call protection; and the right of holders thereof$15 to request the Company to re-market the preferred shares commencing in the sixth year following issuance, subject to the terms and conditions specified therein. In addition, GSO will also have the right, commencing 10 years after the issuance of the preferred shares, provided that GSO has first requested the Company to remarket the preferred shares as described below, to convert such shares into a number of ordinary shares of the Company as determined by dividing (i) the aggregate par value (including dividends paid in kind and unpaid accrued dividends) of the preferred shares that GSO wishes to convert by (ii) the higher of (a) a 5% discount to the 30-day VWAP of the ordinary shares following the conversion notice, and (b) the then-current Floor Price. 

From the fifth anniversary of the funding date, upon GSO’s request, the Company is required (subject to customary black-out provisions) to re-market the preferred equity its existing terms.  To the extent market conditions make such re-marketing impracticable, the Company may temporarily delay such re-marketing provided that the preferred equity is re-marketed within six months of the date of GSO’ initial request.  To the extent it is unlikely that remarketing the preferred shares on the then existing terms will receive a valuation by a prospective purchaser of par or greater than par, the Company may, upon GSO’s request, modify the terms of the preferred shares to improve the sale of such shares with the intention of preserving rating agency equity credit. If the proceeds from any sales resulting from such marketing are less than the outstandingestablish an opening tax balance of the applicable preferred shares (including dividends paid in kind and unpaid accrued dividends), the Company will reimburse GSO up to a maximum of 10% of par (including paid in kind and unpaid accrued dividends) for actual losses incurred by GSO upon the sale of its preferred shares under the terms of the remarketing mechanism, with such amount payable either in cash, ordinary shares, or any combination thereof, at the Company’s option. If the Company chooses to deliver ordinary shares to GSO, the number of such shares to be delivered will be determined by dividing (i) the amount of actual losses to be paid to GSO by (ii) the higher of (a) an 8% discount to the 30-day VWAP of the ordinary shares following the remarketing period, and (b) $6.00. 

The terms of the preferred equity are expected to include customary covenants for senior preferred equity, including limitations on debt incurrence, equity issuances and payments of dividends, and covenants requiring compliance with a set of financial covenants, affirmative covenants and negative covenants that mirror those contained in the credit facility documentation in effect as of the funding date. The preferred equity will rank senior in priority to all other existing and future equity securities of the Company with respect to distribution rights and liquidation preference. In addition, holders of preferred equity are expected to have board observation and customary registration rights with respect to such shares.

28

Pursuant to the GSO Side Letter, for the period from the date of the GSO Side Letter until the earlier of  (a) the mutual agreement by the parties thereto not to execute definitive documentation relating to the GSO Commitment, (b) the Closing Date and (c) the first anniversary of the GSO Side Letter, the Company agreed (i) not to, directly or indirectly solicit, participate in any negotiations or discussion with or provide or afford access to information to any third party with respect to, or otherwise effect, facilitate, encourage or accept any offers for the purchase or provision of the GSO Preferred Shares or any alternative equity or debt financing arrangements, in each case, to be put in place in connection with the FGL Business Combination in replacement of the GSO Preferred Shares or any portion thereof  (other than pursuant to the Equity Commitment Letters, forward purchase agreements or the debt commitment letter) and (ii) if the FGL Business Combination is not consummated and the Company pursues an alternative transaction with FGL within the period ending on the first anniversary of the GSO Side Letter, and another financing source or institution proposes to provide financing in connection with such alternative transaction, the Company will provide GSO a reasonable opportunity to provide such financing in lieu of any other financing source or institution on equivalent terms.

Amendment Fees

As consideration for the amending and restating the Investor Agreement on October 6, 2017 to better align the terms of the preferred shares with the requirements of the rating agencies, we agreed to pay $1.1 million to FNF or one or more of its designees at the Closing. As consideration for entering into the amendment to the GSO Side Letter on October 6, 2017 to better align the terms of the preferred shares with the requirements of the rating agencies, we agreed to pay $2.9 million to GSO or to one or more of its designees at the Closing.

GSO Fee Letter

As consideration for the GSO Commitment (including the backstop commitment) and the agreements of GSO under the GSO Commitment Letters, the limited guaranties and the GSO Side Letter, the Company also entered into the GSO Fee Letter, pursuant to which the Company agreed to pay or issue to GSO the following at Closing:

29

·the GSO OID of  $5.5 million in respect of the preferred shares issued to GSO;
·the GSO Commitment Fee of  $6.975 million;
·GSO Investment Warrants exercisable, in the aggregate, for 3.3% of the Company’s ordinary shares (on a fully diluted basis); and
·

if, and to the extent, any amount of the GSO Backstop Equity is funded, then (x) a funding fee of 0.5% of the amount of the GSO Backstop Equity that is funded (collectively with the GSO OID and the GSO Commitment Fee, the “GSO Closing Payments”) and (y) penny warrants that are exercisable, in the aggregate, for the product of  (1) the proportion of the GSO Backstop Equity that is funded, multiplied by (2) 3.5% of the Company’s issued and outstanding ordinary shares (on a fully diluted basis).

The GSO Closing Payments will be paid as a reduction of the purchase price payable by GSO for the preferred shares under the GSO Commitment Letters. The Company has also agreed to pay or reimburse GSO for fees and expenses of counsel in connection with GSO’s anticipated purchase of the preferred shares.

Merger BTO Fund Limited Guaranty

In connection with the Merger Agreement, BTO Fund has agreed to provide a limited guaranty in favor of FGL (the “Merger BTO Fund Limited Guaranty”), pursuant to which, in the event (a) of the termination of the Merger Agreement in accordance with its terms and (b)(i) FGL has obtained a final, non-appealable order of damages owing by the Company, Parent or Merger Sub as a result of such party’s intentional and material breach of the Merger Agreement or fraud or (ii) there is a settlement (by written agreement of the parties to the Merger Agreement) resolving any action broughtsheet as a result of the Company’s, Parent’s or Merger Sub’s intentionalintended election by F&G Re to be treated as a US taxpayer, higher pre-tax earnings, and material breachvaluation allowance expense of $8, partially offset by the Merger Agreement or fraud, BTO Fund has guaranteedlower U.S. Federal statutory tax rate of 21% in 2018 compared with 35% in 2017.


AOI
The table below shows the adjustments made to reconcile net income to our AOI for the quarter ended June 30, 2018, the Predecessor quarter ended June 30, 2017, the six months ended June 30, 2018 and the Predecessor June 30, 2017:
  Three Months Ended   Six Months Ended  
  June 30, 2018  June 30, 2017 Increase/
(Decrease)
 June 30,
2018
  June 30,
2017
 Increase/
(Decrease)
Reconciliation from Net Income to AOI:    Predecessor      Predecessor  
Net income $20
  $32
 $(12) $72
  $54
 $18
Adjustments to arrive at AOI:              
Effect of investment losses (gains), net of offsets (a) 37
  4
 33
 76
  19
 57
Effect of changes in fair values of FIA related derivatives, net of hedging costs (a) (b)

 16
  (4) 20
 (30)  (6) (24)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a) (c) 
  8
 (8) 
  16
 (16)
Effects of integration, merger related & other non-operating items 3
  5
 (2) 11
  7
 4
Effects of extinguishment of debt (2)  
 (2) (2)  
 (2)
Tax effect of affiliated reinsurance embedded derivative 
  
 
 15
  
 15
Tax impact of adjusting items (9)  (3) (6) (9)  (10) 1
AOI $65
  $42
 $23
 $133
  $80
 $53
(a) Amounts are net of offsets related to value of business acquired ("VOBA"), deferred acquisition cost ("DAC") and deferred sale inducement ("DSI") amortization.
(b) The updated definition of AOI removes the impact of fair value accounting on FIA products for periods after December 31, 2017.
(c) Adjustment is not applicable subsequent to the Business Combination as the reinsurance agreement and related activity are eliminated via consolidation for U.S. GAAP reporting.

AOI increased $23 from $42 in the Predecessor quarter ended June 30, 2017 to $65 for the quarter ended June 30, 2018. The current quarter results included $5 net favorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line and other annuity reserve movements, $4 favorable net investment income from bond prepayment income; offset by $3 higher project related expenses. Comparatively, the Predecessor quarter ended June 30, 2017 AOI included approximately $2 of net favorable actual to expected mortality within the SPIA product line; offset by $1 of expenses related to the Company's legacy incentive compensation plan.
AOI increased $53 from the Predecessor six months ended June 30, 2017 to $133 in the six months ended June 30, 2018. The current period results included $13 net favorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line and other annuity reserve movements, $4 favorable net investment income from bond prepayment income; offset by $3 higher project related expenses. Comparatively, the Predecessor six months ended June 30, 2017 AOI included approximately $5 of net favorable actual to expected mortality within the SPIA product line; offset by $2 of expenses related to the Company's legacy incentive compensation plan as well as $3 of unfavorable DAC amortization, primarily due to equity market fluctuations.


Investment Portfolio
(All dollar amounts presented in millions unless otherwise noted)
The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. Within the parameters of these laws, we invest in assets giving consideration to four primary investment objectives: (i) maintain robust absolute returns; (ii) provide reliable yield and punctual payment when dueinvestment income; (iii) preserve capital and (iv) provide liquidity to meet policyholder and other corporate obligations.
Our investment portfolio is designed to contribute stable earnings and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities.
As of twenty percent (20%)June 30, 2018 and December 31, 2017, the fair value of our investment portfolio was approximately $23 billion and $24 billion, respectively, and was divided among the following asset class and sectors:

 June 30, 2018  December 31, 2017
  Fair Value Percent  Fair Value Percent
          
Fixed maturity securities, available for sale:        
    United States Government full faith and credit$140
 1%  $84
 1%
    United States Government sponsored entities113
 %  122
 1%
    United States municipalities, states and territories1,533
 7%  1,747
 7%
    Foreign Governments156
 1%  197
 1%
Corporate securities:       

    Finance, insurance and real estate4,551
 20%  5,500
 23%
    Manufacturing, construction and mining917
 4%  1,002
 4%
    Utilities, energy and related sectors2,272
 10%  2,281
 10%
    Wholesale/retail trade1,461
 6%  1,428
 6%
    Services, media and other2,639
 12%  2,359
 10%
Hybrid securities917
 4%  1,067
 4%
Non-agency residential mortgage-backed securities1,242
 5%  1,155
 5%
Commercial mortgage-backed securities1,241
 5%  956
 4%
Asset-backed securities3,144
 14%  3,065
 13%
Total fixed maturity available for sale securities20,326
 89%  20,963
 89%
Equity securities (a)1,344
 6%  1,388
 6%
Commercial mortgage loans522
 2%  549
 2%
Other (primarily derivatives, limited partnerships and FHLB common stock)661
 3%  678
 3%
Short term investments
 %  25
 %
Total investments$22,853
 100%  $23,603
 100%
(a) Includes investment grade non-redeemable preferred stocks ($1,178 and $1,194, respectively) and Federal Home Loan Bank of Atlanta common stock ( $42 December 31, 2017). Federal Home Loan Bank of Atlanta common stock was reclassed on January 1, 2018 from "Equity securities" to "Other invested assets".
Insurance statutes regulate the type of investments that our life insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and our business and investment strategy, we generally seek to invest in (i) corporate securities rated investment grade by established nationally recognized statistical rating organizations (each, an “NRSRO”), (ii) U.S. Government and government-sponsored agency securities, or (iii) securities of comparable investment quality, if not rated.

As of June 30, 2018 and December 31, 2017, our fixed maturity available-for-sale ("AFS") securities portfolio was approximately $20 billion and $21 billion, respectively. The following table summarizes the credit quality, by Nationally Recognized Statistical Ratings Organization ("NRSRO") rating, of our fixed income portfolio:

 June 30, 2018  December 31, 2017
Rating Fair Value Percent  Fair Value Percent
AAA $2,061
 10%  $1,784
 8%
AA 1,657
 8%  2,036
 10%
A 5,014
 25%  5,834
 28%
BBB 9,466
 46%  9,256
 44%
BB (a) 1,154
 6%  975
 5%
B and below (b) 974
 5%  1,078
 5%
Total $20,326
 100%  $20,963
 100%
(a) Includes $52 and $47 at June 30, 2018 and December 31, 2017, respectively, of non-agency residential mortgage-backed securities ("RMBS") that carry a National Association of Insurance Commissioners ("NAIC") 1 designation.
(b) Includes $775 and $853 at June 30, 2018 and December 31, 2017, respectively, of non-agency RMBS that carry a NAIC 1 designation.
The NAIC’s Securities Valuation Office ("SVO") is responsible for the day-to-day credit quality assessment and valuation of securities owned by state regulated insurance companies. Insurance companies report ownership of securities to the SVO when such Ordersecurities are eligible for regulatory filings. The SVO conducts credit analysis on these securities for the purpose of assigning an NAIC designation or settlement.

unit price. Typically, if a security has been rated by an NRSRO, the SVO utilizes that rating and assigns an NAIC designation based upon the following system:

NAIC DesignationNRSRO Equivalent Rating
1AAA/AA/A
2BBB
3BB
4B
5CCC and lower
6In or near default
The NAIC has adopted revised designation methodologies for non-agency RMBS, including RMBS backed by subprime mortgage loans and for commercial mortgage-backed securities ("CMBS"). The NAIC’s objective with the revised designation methodologies for these structured securities was to increase accuracy in assessing expected losses and to use the improved assessment to determine a more appropriate capital requirement for such structured securities. The NAIC designations for structured securities, including subprime and Alternative A-paper ("Alt-A") RMBS, are based upon a comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security. Securities where modeling does not generate an expected loss in all scenarios are given the highest designation of NAIC 1. A large percentage of our RMBS securities carry a NAIC 1 designation while the NRSRO rating indicates below investment grade. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from such structured securities. In the tables below, we present the rating of structured securities based on ratings from the revised NAIC rating methodologies described above (which in some cases do not correspond to rating agency designations). All NAIC designations (e.g., NAIC 1-6) are based on the revised NAIC methodologies.

The tables below present our fixed maturity securities by NAIC designation as of June 30, 2018 and December 31, 2017:
  June 30, 2018
NAIC Designation Amortized Cost Fair Value Percent of Total Fair Value
1 $10,417
 $10,142
 50%
2 9,357
 8,936
 44%
3 1,095
 1,061
 5%
4 154
 149
 1%
5 38
 38
 %
6 
 
 %
Total $21,061
 $20,326
 100%
       
  December 31, 2017
NAIC Designation Amortized Cost Fair Value Percent of Total Fair Value
1 $11,046
 $11,109
 53%
2 8,563
 8,619
 41%
3 1,036
 1,037
 5%
4 136
 136
 1%
5 65
 61
 %
6 1
 1
 %
Total $20,847
 $20,963
 100%
       

Investment Industry Concentration
The tables below present the top ten industry categories of our fixed maturity and equity securities and FHLB common stock, including the fair value and percent of total fixed maturity and equity securities and FHLB common stock fair value as of June 30, 2018 and December 31, 2017:
  June 30, 2018
Top 10 Industry Concentration Fair Value Percent of Total Fair Value
Banking $2,381
 11%
ABS collateralized loan obligation ("CLO") 1,868
 9%
Municipal 1,701
 8%
Life insurance 1,471
 7%
Whole loan collateralized mortgage obligation ("CMO") 1,379
 6%
ABS Other 1,269
 6%
Electric 912
 4%
Technology 727
 3%
Pipelines 700
 3%
CMBS 697
 3%
Total $13,105
 60%
  December 31, 2017
Top 10 Industry Concentration Fair Value Percent of Total Fair Value
Banking $2,851
 13%
ABS CLO 2,078
 9%
Municipal 1,977
 9%
Life insurance 1,514
 7%
Electric 1,097
 5%
Property and casualty insurance 1,006
 5%
ABS Other 980
 4%
Whole loan CMO 834
 4%
CMBS 791
 3%
Other financial institutions 781
 3%
Total $13,909
 62%





The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of June 30, 2018 and December 31, 2017, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
  June 30, 2018  December 31, 2017
  Amortized Cost Fair Value  Amortized Cost Fair Value
Corporate, Non-structured Hybrids, Municipal and Government securities:         
Due in one year or less $170
 $170
  $268
 $268
Due after one year through five years 1,071
 1,055
  2,087
 2,086
Due after five years through ten years 2,545
 2,466
  3,127
 3,126
Due after ten years 11,184
 10,586
  9,736
 9,854
Subtotal $14,970
 $14,277
  $15,218
 $15,334
Other securities which provide for periodic payments:         
Asset-backed securities $3,158
 $3,144
  $3,061
 $3,065
Commercial-mortgage-backed securities 1,257
 1,241
  956
 956
Structured hybrids 320
 309
  333
 331
Residential mortgage-backed securities 1,356
 1,355
  1,279
 1,277
Subtotal $6,091
 $6,049
  $5,629
 $5,629
Total fixed maturity available-for-sale securities $21,061
 $20,326
  $20,847
 $20,963
Non-Agency RMBS Exposure
Our investment in non-agency RMBS securities is predicated on the conservative and adequate cushion between purchase price and NAIC 1 rating, general lack of sensitivity to interest rates, positive convexity to prepayment rates and correlation between the price of the securities and the unfolding recovery of the housing market.
The fair value of our investments in subprime and Alt-A RMBS securities was $239 and $641 as of June 30, 2018, respectively, and $267 and $689 as of December 31, 2017, respectively.

The following tables summarize our exposure to subprime and Alt-A RMBS by credit quality using NAIC designations, NRSRO ratings and vintage year as of June 30, 2018 and December 31, 2017:
  June 30, 2018  December 31, 2017
NAIC Designation: Fair Value Percent of Total  Fair Value Percent of Total
1 $853
 97%  $929
 96%
2 23
 3%  17
 2%
3 3
 %  5
 1%
4 
 %  
 %
5 1
 %  5
 1%
6 
 %  
 %
Total $880
 100%  $956
 100%
          
NRSRO:         
AAA $28
 3%  $43
 4%
AA 11
 1%  11
 1%
A 52
 6%  36
 4%
BBB 45
 5%  67
 7%
BB and below 744
 85%  799
 84%
Total $880
 100%  $956
 100%
          
Vintage:         
2017 $12
 1%  $12
 1%
2016 15
 2%  15
 2%
2007 184
 21%  199
 21%
2006 322
 37%  346
 36%
2005 and prior 347
 39%  384
 40%
Total $880
 100%  $956
 100%
ABS Exposure
As of June 30, 2018, our ABS exposure was largely composed of CLOs, which comprised 59% of all ABS holdings. These exposures are generally senior tranches of CLOs which have leveraged loans as their underlying collateral. The remainder of our ABS exposure was largely diversified by underlying collateral and issuer type, including automobile and home equity receivables.
The following tables summarize our ABS exposure. The non-CLO exposure represents 41% of total ABS assets, or 6% of total invested assets. As of June 30, 2018, the CLO and non-CLO positions were trading at a net unrealized loss position of $10 and $4, respectively.
The non-CLO exposure as of December 31, 2017 represented 32% of total ABS assets, or 4% of total invested assets, respectively. As of December 31, 2017 the CLO and non-CLO positions were trading at a net unrealized gain position of $4 and $0, respectively.
  June 30, 2018  December 31, 2017
Asset Class Fair Value Percent  Fair Value Percent
ABS CLO $1,868
 59%  $2,078
 68%
ABS auto 4
 %  4
 %
ABS credit card 3
 %  3
 %
ABS other 1,269
 41%  980
 32%
Total ABS $3,144
 100%  $3,065
 100%

Commercial Mortgage Loans
We rate all CMLs to quantify the level of risk. We place those loans with higher risk on a watch list and closely monitor them for collateral deficiency or other credit events that may lead to a potential loss of principal and/or interest. If we determine the value of any CML to be impaired (i.e., when it is probable that we will be unable to collect on amounts due according to the contractual terms of the loan agreement), the carrying value of the CML is reduced to either the present value of expected cash flows from the loan, discounted at the loan’s effective interest rate, or fair value of the collateral. For those mortgage loans that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. The carrying value of the impaired loans is reduced by establishing a specific write-down recorded in "Net realized capital gains (losses)" in the Condensed Consolidated Statements of Operations.
Loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios are utilized as part of the review process described above. See "Note 4. Investments" to our condensed consolidated financial statements for additional information regarding our LTV and DSC CML balances.
As of June 30, 2018, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times, and a weighted average LTV ratio of 48%.


Unrealized Losses
The amortized cost and fair value of the fixed maturity securities and the equity securities that were in an unrealized loss position as of June 30, 2018 and December 31, 2017 were as follows:
 June 30, 2018
 Number of securities Amortized Cost Unrealized Losses Fair Value
Fixed maturity securities, available for sale:       
 United States Government full faith and credit15
 $141
 $(1) $140
 United States Government sponsored agencies75
 96
 (2) 94
 United States municipalities, states and territories136
 1,306
 (33) 1,273
    Foreign Governments16
 157
 (8) 149
Corporate securities:       
 Finance, insurance and real estate339
 4,313
 (208) 4,105
 Manufacturing, construction and mining116
 933
 (52) 881
 Utilities, energy and related sectors230
 2,350
 (137) 2,213
 Wholesale/retail trade202
 1,485
 (91) 1,394
 Services, media and other293
 2,662
 (151) 2,511
Hybrid securities57
 870
 (40) 830
Non-agency residential mortgage backed securities182
 756
 (9) 747
Commercial mortgage backed securities119
 926
 (18) 908
Asset backed securities275
 2,203
 (21) 2,182
Total fixed maturity available for sale securities2,055
 18,198
 (771) 17,427
Equity securities75
 1,211
 (36) 1,175
Total2,130
 $19,409
 $(807) $18,602
 December 31, 2017
 Number of securities Amortized Cost Unrealized Losses Fair Value
Fixed maturity securities, available for sale:       
    United States Government full faith and credit9
 $74
 $
 $74
    United States Government sponsored agencies54
 58
 (1) 57
    United States municipalities, states and territories46
 286
 (1) 285
    Foreign Governments9
 141
 (1) 140
Corporate securities:      

    Finance, insurance and real estate183
 1,914
 (5) 1,909
    Manufacturing, construction and mining50
 290
 (2) 288
    Utilities, energy and related sectors70
 506
 (6) 500
    Wholesale/retail trade115
 610
 (2) 608
    Services, media and other98
 513
 (4) 509
Hybrid securities27
 269
 (3) 266
Non-agency residential mortgage backed securities205
 884
 (2) 882
Commercial mortgage backed securities64
 479
 (1) 478
Asset backed securities236
 1,947
 (3) 1,944
Total fixed maturity available for sale securities1,166
 7,971
 (31) 7,940
Equity securities58
 805
 (7) 798
Total1,224
 $8,776
 $(38) $8,738

The gross unrealized loss position on the available-for-sale fixed and equity portfolio as of June 30, 2018 and December 31, 2017 was $807 and $38, respectively. The gross unrealized loss position increased $769 from December 31, 2017 to June 30, 2018. Most components of the portfolio exhibited price declines as interest rates rose and credit spreads widened during the period. The total book value of all securities in an unrealized loss position was $19,409 and $8,776 as of June 30, 2018 and December 31, 2017, respectively. The total book value

of all securities in an unrealized loss position increased 121% from December 31, 2017 to June 30, 2018. The average market value/book value of corporate bonds in an unrealized loss position was 95% and 100% as of June 30, 2018 and December 31, 2017, respectively. In aggregate, corporate bonds represented 79% and 50% of the total unrealized loss position of the fixed and equity securities as of June 30, 2018 and December 31, 2017, respectively.
Our municipal bond exposure is a combination of general obligation bonds (fair value of $272 and an amortized cost of $278 as of June 30, 2018) and special revenue bonds (fair value of $1,261 and amortized cost of $1,284 as of June 30, 2018).
Across all municipal bonds, the largest issuer represented 8% of the category, less than 1% of the entire portfolio and is rated NAIC 1. Our focus within municipal bonds is on NAIC 1 rated instruments, and 92% of our municipal bond exposure is rated NAIC 1.
The amortized cost and fair value of fixed maturity securities and equity securities (excluding U.S. Government and U.S. Government-sponsored agency securities) in an unrealized loss position greater than 20% and the number of months in an unrealized loss position with fixed maturity investment grade securities (NRSRO rating of BBB/Baa or higher) as of June 30, 2018 and December 31, 2017, were as follows:
 June 30, 2018
 Number of securities Amortized Cost Fair Value Gross Unrealized Losses
Investment grade:       
Less than six months
 $
 $
 $
Six months or more and less than twelve months
 
 
 
Twelve months or greater
 
 
 
Total investment grade
 
 
 
        
Below investment grade:       
Less than six months3
 3
 2
 (1)
Six months or more and less than twelve months
 
 
 
Twelve months or greater
 
 
 
Total below investment grade3
 3
 2
 (1)
Total3
 $3
 $2
 $(1)
 December 31, 2017
 Number of securities Amortized Cost Fair Value Gross Unrealized Losses
Investment grade:       
Less than six months
 $
 $
 $
Six months or more and less than twelve months
 
 
 
Twelve months or greater
 
 
 
Total investment grade
 
 
 
        
Below investment grade:       
Less than six months1
 13
 10
 (3)
Six months or more and less than twelve months
 
 
 
Twelve months or greater
 
 
 
Total below investment grade1
 13
 10
 (3)
Total1
 $13
 $10
 $(3)
OTTI and Watch List
At June 30, 2018 and December 31, 2017, our watch list included 4 and 1 securities, respectively, in an unrealized loss position with an amortized cost of $3 and $13, unrealized losses of $1 and $3, and a fair value of $2 and $10, respectively. As part of the cash flow testing analysis, we evaluated each of these securities to assess the following:
whether the issuer is currently meeting its financial obligations

its ability to continue to meet these obligations
its existing cash available
its access to additional available capital
any expense management actions the issuer has taken; and
whether the issuer has the ability and willingness to sell non-core assets to generate liquidity
Based on our analysis, these securities demonstrated that the June 30, 2018 and December 31, 2017 carrying values were fully recoverable.
There were 2 and 0 structured securities with a fair value of $0 and $0 on the watch list to which we had potential credit exposure as of June 30, 2018 and December 31, 2017, respectively. Our analysis of these structured securities, which included cash flow testing results, demonstrated the June 30, 2018 and December 31, 2017 values were fully recoverable.
Exposure to Sovereign Debt
Our investment portfolio had no direct exposure to European sovereign debt as of June 30, 2018, and December 31, 2017.
As of June 30, 2018 and December 31, 2017 the Company also had no material exposure risk related to financial investments in Puerto Rico.
Available-For-Sale Securities
For additional information regarding our AFS securities, including the amortized cost, gross unrealized gains (losses), and fair value of AFS securities as well as the amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of June 30, 2018, refer to "Note 4. Investments", to our condensed unaudited consolidated financial statements.
Concentrations of Financial Instruments
For detail regarding our concentration of financial instruments refer to "Note 3. Significant Risks and Uncertainties" to our condensed unaudited consolidated financial statements.
Derivatives
We are exposed to credit loss in the event will BTO Fund’s aggregate liabilityof nonperformance by our counterparties on call options. We attempt to reduce this credit risk by purchasing such options from large, well-established financial institutions.
We also hold cash and cash equivalents received from counterparties for call option collateral, as well as U.S. Government securities pledged as call option collateral, if our counterparty’s net exposures exceed pre-determined thresholds.
In June 2017, the Company began a program to reduce the negative interest cost associated with cash collateral posted from counterparties under various ISDA agreements by reinvesting derivative cash collateral.  The Company is required to pay counterparties the Merger BTO Limited Guarantyeffective federal funds rate each day for cash collateral posted to FGL exceed (x) $217 million less (y) anyfor daily mark to market margin changes.  The new program permits collateral cash received to be invested in short term Treasury securities and commercial paper rated A1/P1 which are included in "Cash and cash equivalents" in the accompanying Condensed Consolidated Balance Sheets.
See "Note 5. Derivative Financial Instruments" to our unaudited condensed consolidated financial statements for additional information regarding our derivatives and our exposure to credit loss on call options.

Liquidity and Capital Resources
Liquidity and Cash Flow

Liquidity refers to the ability of an enterprise to generate adequate amounts paidof cash from its normal operations to meet cash requirements with a prudent margin of safety. Our principal sources of cash flow from operating activities are insurance premiums, and fees and investment income, however, sources of cash flows from investing activities also result from maturities and sales of invested assets. Our operating activities provided (used) cash of$87 in the six months ended June 30, 2018 and $24 in the Predecessor six months ended June 30, 2017, respectively. When considering our liquidity and cash flow, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, FGL Holdings. As a holding company with no operations of its own, FGL Holdings derives its cash primarily from its insurance subsidiaries and CF Bermuda Holdings Limited, a Bermuda exempted limited liability company and a wholly owned direct subsidiary of the Company ("CF Bermuda"), a downstream holding company that provides additional sources of liquidity.  Dividends from our insurance subsidiaries flow through CF Bermuda to FGL Holdings.

The sources of liquidity of the holding company are principally comprised of dividends from subsidiaries, bank lines of credit (at FGLH level) and the ability to raise long-term public financing under an SEC-filed registration statement or private placement offering. These sources of liquidity and cash flow support the general corporate needs of the holding company, interest and debt service, funding acquisitions and investment in core businesses.

Our cash flows associated with collateral received from and posted with counterparties change as the market value of the underlying derivative contract changes. As the value of a derivative asset declines (or increases), the collateral required to be posted by BTO Fundour counterparties would also decline (or increase). Likewise, when the value of a derivative liability declines (or increases), the collateral we are required to post to our counterparties would also decline (or increase).
Discussion of Consolidated Cash Flows
Presented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided or used from those activities for the six months ended June 30, 2018, the Predecessor six months ended June 30, 2017:
(dollars in millions)Six months ended
 June 30,
2018
  June 30,
2017
Cash provided by (used in):   Predecessor
Operating activities$87
  $24
Investing activities(346)  (371)
Financing activities754
  514
Net increase (decrease) in cash and cash equivalents$495
  $167
Operating Activities
Cash provided by operating activities totaled $87 and $24 for the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017, respectively, which were principally due to a $69 increase of investment income receipts period over period, offset by an $8 increase in deferred acquisition costs period over period.
Investing Activities
Cash used in investing activities was $346 and $371 for the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017, respectively, which were principally due to the purchases of fixed maturity securities and other investments, net of cash proceeds from sales, maturities and repayments.


Financing Activities
Cash provided by financing activities was $754 and $514 for the Company in the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017, respectively, which were related to the issuance of investment contracts and pending new production, including annuity and universal life insurance contracts, net of redemptions and benefit payments.
On April 20, 2018, the FGLH completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025 (the “5.50% Senior Notes”). The Company used the net proceeds of the offering (i) to repay $135 of borrowings under its revolving credit facility and related expenses and (ii) to redeem in full and satisfy and discharge all of the outstanding $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021. The Company also expects to use the remaining proceeds for general corporate purposes, which may include additional capital contributions to the Company's insurance subsidiaries. See "Note 8. Debt" to our consolidated financial statements for additional details.
The 5.50% Senior Notes were issued pursuant to an orderindenture, dated as of April 20, 2018 (the “Base Indenture”), among FGLH, the guarantors from time to time party thereto and Wells Fargo Bank, National Association, as trustee (the “Trustee”), and a supplemental indenture thereto (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). FGLH will pay interest on the 5.50% Senior Notes in cash on May 1 and November 1 of each year at a rate of 5.50% per annum. Interest on the 5.50% Senior Notes will accrue from and including April 20, 2018 and the first interest payment date is November 1, 2018. The 5.50% Senior Notes will mature on May 1, 2025. The 5.50% Senior Notes are fully and unconditionally guaranteed by FGLH’s direct parent, FGL US Holdings Inc., a Delaware corporation, FGL’s indirect parent, CF Bermuda, and certain existing and future wholly-owned domestic restricted subsidiaries of the CF Bermuda, other than its insurance subsidiaries.
The Indenture contains covenants that restrict the CF Bermuda’s and its restricted subsidiaries’ ability to, among other things, pay dividends on or settlementmake other distributions in connectionrespect of equity interests or make other restricted payments, make certain investments, incur or guarantee additional indebtedness, create liens on certain assets to secure debt, sell certain assets, consummate certain mergers or consolidations or sell all or substantially all assets, or enter into transactions with BTO Fund’s information commitment letteraffiliates.
Off-Balance Sheet Arrangements
Throughout our history, we have entered into indemnifications in the ordinary course of business with our customers, suppliers, service providers, business partners and in certain instances, when we sold businesses. Additionally, we have indemnified our directors and officers who are, or were, serving at our request in such capacities. Although the specific terms or number of such arrangements is not precisely known due to the extensive history of our past operations, costs incurred to settle claims related to these indemnifications have not been material to our financial statements. We have no reason to believe that future costs to settle claims related to our former operations will have a material impact on our financial position, results of operations or cash flows.
On November 30, 2017, FGLH and CF Bermuda, together as borrowers and each as a borrower, entered into the Merger Agreement.

Share Purchase BTO Fund Limited Guaranty

In connectionCredit Agreement with certain financial institutions party thereto, as lenders, and Royal Bank of Canada, as administrative agent and letter of credit issuer, which provides for a $250 senior unsecured revolving credit facility with a maturity of three years. The Credit Agreement provides a letter of credit sub-facility in a maximum amount of $20. The borrowers are permitted to use the Share Purchase Agreement, BTO Fund has agreed to provide a limited guaranty in favorproceeds of FSRDthe loans under the Share PurchaseCredit Agreement (the “Share Purchase BTO Fund Limited Guaranty”), pursuantfor working capital, growth initiatives and general corporate purposes, as well as to which, in the event (a) of the termination of the Share Purchase Agreement in accordance with its termspay fees, commissions and (b)(i) FSRD under the Share Purchase Agreement has obtained a final, non-appealable order of damages owing by the Company or Parent as a result of such party’s intentional and material breach of the Share Purchase Agreement or fraud or (ii) there is a settlement (by written agreement of the parties to the Share Purchase Agreement) resolving any action brought as a result of the Company’s or Parent’s intentional and material breach of the Share Purchase Agreement or fraud, BTO Fund has guaranteed the due and punctual payment when due of twenty percent (20%) of the amount of such order or settlement.

In no event will BTO Fund’s aggregate liability under the Share Purchase BTO Fund Limited Guaranty to FSRD under the Share Purchase Agreement exceed (x) $8 million less (y) any amounts paid by BTO Fund pursuant to an order or settlement in connection with BTO Fund’s information commitment letter related to the Share Purchase Agreement.

Merger FNF Limited Guaranty

In connection with the Merger Agreement, FNF has agreed to provide a limited guaranty in favor of FGL (the “Merger FNF Limited Guaranty”), pursuant to which, in the event (a) of the termination of the Merger Agreement in accordance with its terms and (b)(i) FGL has obtained a final, non-appealable order of damages owing by the Company, Parent or Merger Sub as a result of such party’s intentional and material breach of the Merger Agreement or fraud or (ii) there is a settlement (by written agreement of the parties to the Merger Agreement) resolving any action brought as a result of the Company’s, Parent’s or Merger Sub’s intentional and material breach of the Merger Agreement or fraud, FNF has guaranteed the due and punctual payment when due of 2.63% of the amount of such order or settlement.

30

In no event will FNF’s aggregate liability under the Merger FNF Limited Guaranty to FGL exceed (x) $48,300,000 less (y) any amounts paid by FNF pursuant to an order or settlementexpenses incurred in connection with the FNF’s information commitment letter related toCredit Agreement and the Merger Agreement.

Share Purchase FNF Limited Guaranty

In connection with the Share Purchase Agreement, FNF has agreed to provide a limited guaranty in favor of FSRDtransactions contemplated thereby. Amounts borrowed under the Share PurchaseCredit Agreement (the “Share Purchase FNF Limited Guaranty”), pursuant to which, inmay be reborrowed until the event (a) of thematurity date or termination of the Share Purchase Agreement in accordance with its terms and (b)(i) the sellercommitments under the Share Purchase Agreement has obtained a final, non-appealable order of damages owing byCredit Agreement. The borrowers may increase the Company or Parent as a result of such party’s intentional and material breach of the Share Purchase Agreement or fraud or (ii) there is a settlement (by written agreement of the parties to the Merger Agreement) resolving any action brought as a result of the Company’s or Parent’s intentional and material breach of the Share Purchase Agreement or fraud, FNF has guaranteed the due and punctual payment when due of 2.63% of themaximum amount of such order or settlement.

In no event will FNF’s aggregate liabilityavailability under the Share Purchase FNF Limited GuarantyCredit Agreement from time to FSRD under the Share Purchase Agreement exceed (x) $1,700,000 less (y) any amounts paidtime by FNF pursuantup to an Order or settlement in connection with the FNF’s information commitment letter related to the Share Purchase Agreement.

Merger GSO Limited Guaranty

In connection with the Merger Agreement, certain GSO funds (the “GSO Guarantors”) have agreed to provide a limited guaranty in favor of FGL (the “Merger GSO Limited Guaranty”), pursuant to which, in the event (a) of the termination of the Merger Agreement in accordance with its terms and (b)(i) FGL has obtained a final, non-appealable order of damages owing by the Company, Parent or Merger Sub as a result of such party’s intentional and material breach of the Merger Agreement or fraud in an amount in excess of  $1.085 billion or (ii) there is a settlement (by written agreement of the parties to the Merger Agreement) resolving any action brought as a result of the Company’s, Parent’s or Merger Sub’s intentional and material breach of the Merger Agreement or fraud in an amount in excess of  $1.085 billion, each GSO Guarantor has guaranteed the due and punctual payment when due of its pro rata percentage (20% in the aggregate) of the amount by which the amount of such Order or settlement exceeds $1.085 billion.

In no event will a GSO Guarantor’s aggregate liability under the Merger GSO Limited Guaranty to FGL exceed its pro rata percentage of 20% of $750 million.

Share Purchase GSO Limited Guaranty

In connection with the Share Purchase Agreement, the GSO Guarantors have agreed to provide a limited guaranty in favor of FSRD under the Share Purchase Agreement (the “Share Purchase GSO Limited Guaranty”), pursuant to which, in the event (a) of the termination of the Share Purchase Agreement in accordance with its terms and (b)(i) the seller under the Share Purchase Agreement has obtained a final, non-appealable order of damages owing by the Company or Parent as a result of such party’s intentional and material breach of the Share Purchase Agreement or fraud in an amount in excess of $40 million or (ii) there is a settlement (by written agreement of the parties to the Share Purchase Agreement) resolving any action brought as a result of the Company or Parent’s intentional and material breach of the Share Purchase Agreement or fraud in an amount in excess of  $40 million, each GSO Guarantor has guaranteed the due and punctual payment when due of its pro rata percentage (20% in the aggregate) of the amount by which the amount of such order or settlement exceeds $40 million.

In no event will a GSO Guarantor’s aggregate liability under the Share Purchase GSO Limited Guaranty to the seller under the Share Purchase Agreement exceed its pro rata percentage of 20% of $25 million.

Merger Fee Reimbursement Letter

In connection with the Merger Agreement, Chinh E. Chu and William P. Foley, II have agreed, on the terms and subject to the conditions described in a letter agreement with FGL dated May 24, 2017 (the “Merger Fee Reimbursement Letter”), in the event of the termination of the Merger Agreement in accordance with its terms, to jointly and severally promptly reimburse, or cause to be reimbursed, FGL for all of its reasonable out-of-pocket legal fees and expenses in connection with litigation giving rise to:

31

·a final, non-appealable order of damages owing by the Company, Parent or Merger Sub as a result of such parties’ intentional and material breach of the Merger Agreement or fraud; or
·damages owing to FGL from a settlement (by written agreement of the parties to the Merger Agreement) resolving any action brought as a result of the Company’s, Parent’s or Merger Sub’s intentional and material breach of the Merger Agreement or fraud.

Share Purchase Fee Reimbursement Letter

In connection with the Share Purchase Agreement, Messrs. Chu and Foley have agreed, on the terms and subject to the conditions described in a letter agreement with FSRD dated May 24, 2017 (the “Share Purchase Fee Reimbursement Letter”), in the event of the termination of the Share Purchase Agreement in accordance with its terms, to jointly and severally promptly reimburse, or cause to be reimbursed, FSRD for all of its reasonable out-of-pocket legal fees and expenses in connection with litigation giving rise to:

·a final, non-appealable order of damages owing by the Company or Parent as a result of such parties’ intentional and material breach of the Share Purchase Agreement or fraud; or
·damages owing to FSRD from a settlement (by written agreement of the parties to the Share Purchase Agreement) resolving any action brought as a result of the Company’s or Parent’s intentional and material breach of the Share Purchase Agreement or fraud.

Investment Management Agreement

Subject to regulatory approval, FGLIC will enter into an investment management agreement (the “Investment Management Agreement”) with an affiliate of Blackstone (the “Investment Manager”), pursuant to which the Investment Manager will manage a portion of the investment assets held by FGL’s general account (the assets in such account, including any assets held in the modified coinsurance account or other collateral arrangements established pursuant to a Modified Coinsurance Agreement between FGLIC and a reinsurance company to be organized under the laws of Bermuda, and together with all additions, substitutions and alterations thereto, are collectively referred to as the “FGL Account”) following the Closing. Under the Investment Management Agreement, it is expected that FGLIC will pay, from the assets of the FGL Account, the Investment Manager or its designee a management fee equal to 0.30% per annum of the Average Month-End Net Asset Value of the assets of the FGL Account being managed by the Investment Manager calculated and paid quarterly in arrears. The “Average Month-End Net Asset Value” is the average of the month-end net asset values of the FGL Account during the calendar quarter with adjustments for contributions to, or withdrawals from, the FGL Account during the quarter. FGLIC will also bear the cost of any fees of sub-managers engaged by the Investment Manager with the consent of FGLIC. In the event any sub-manager fees are paid by the Investment Manager with respect to the FGL Account, FGLIC will reimburse the Investment Manager, from the assets of the FGL Account, for such sub-manager fees.

Sub-Advisory Agreement

The Investment Manager will appoint a newly-formed entity owned by affiliates of the Company’s Co-Executive Chairmen as sub-adviser (the “Sub-Adviser”) with respect to the FGL Account. The Investment Manager will pay the Sub-Adviser, pursuant to a subadvisory agreement, a subadvisory fee of approximately 15% of certain fees paid by FGLIC to the Investment Manager and its affiliates. FGLIC is not responsible for payment or reimbursement of the subadvisory fee to the Sub-Adviser, which is solely the obligation of the Investment Manager.

Right of First Offer Purchase Agreements

On June 21, 2017, the Company entered into the Purchase Agreements with certain accredited investors, including Keith W. Abell, Richard N. Massey and James A. Quella, each of whom is an independent director of the Company, in connection with the rights of first offer under the forward purchase agreements. Messrs. Abell, Massey and Quella have subscribed for an aggregate of 969,697 shares under the equity purchase agreements for a purchase price of $10.00 per share, to occur at the Closing. At the Company’s option, such shares may be purchased from the Company in a private placement and/or from public shareholders who have validly requested for their public shares to be redeemed in connection with the FGL Business Combination. In addition, these individuals will be entitled to receive an aggregate of  $240,000, which represents their pro rata portion of the $4.95 million the Company agreed to pay to certain anchor investors in connection with the waivers provided under the rights of first offer under the forward purchase agreements.

32

Blackstone Services

The Company anticipates that it will engage one or more affiliates of Blackstone, at or following the Closing, to provide strategic planning and/or other services, including access to a group purchasing organization and other cost savings resources.

Off-Balance Sheet Arrangements

As of September 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Contractual Obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an administrative agreement to reimburse the Sponsor for office space, secretarial and administrative services provided to the Company in an amount not to exceed $10,000 per month. Upon completion of a Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees.

The underwriters are entitled to deferred underwriting discounts and commissions of $24,150,000. The deferred underwriting discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes an initial Business Combination,$50, subject to certain conditions, including the termsconsent of the underwriting agreement. The underwriters are not entitled to any interest accruedlenders participating in each such increase. As of June 30, 2018, the total drawn on the deferred underwriting discount.

JOBS Act

revolver was $0.


The JOBS Act contains provisionsCompany has unfunded investment commitments as of June 30, 2018 based upon the timing of when investments are executed compared to when the actual investments are funded, as some investments require that among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Actfunding occur over a period of months or years. A summary of unfunded commitments by invested asset class are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates.

included below:
  June 30, 2018
Asset Type  
Other invested assets $655
Equity securities 33
Fixed maturity securities, available-for-sale 45
Other assets 10
Total $743

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Market Risk Factors
Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. We have significant holdings in financial instruments and are naturally exposed to a variety of market risks. We are primarily exposed to interest rate risk, credit risk and equity price risk and have some exposure to counterparty risk, which affect the fair value of financial instruments subject to market risk.
Enterprise Risk Management
For information about our enterprise risk management see "Part II - Item 7a Quantitative and Qualitative Disclosures Aboutabout Market Risk" included in our 2017 Form 10-K.
Interest Rate Risk

As

Interest rate risk is our primary market risk exposure. We define interest rate risk as the risk of September 30, 2017, we were notan economic loss due to adverse changes in interest rates. This risk arises from our holdings in interest sensitive assets and liabilities, primarily as a result of investing life insurance premiums and fixed annuity deposits received in interest-sensitive assets and carrying these funds as interest-sensitive liabilities. Substantial and sustained increases or decreases in market interest rates can affect the profitability of the insurance products and the fair value of our investments, as the majority of our insurance liabilities are backed by fixed maturity securities.
The profitability of most of our products depends on the spreads between interest yield on investments and rates credited on insurance liabilities. We have the ability to adjust the rates credited, primarily caps and credit rates, on the majority of the annuity liabilities at least annually, subject to anyminimum guaranteed values. In addition, the majority of the annuity products have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. However, competitive factors, including the impact of the level of surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at the levels necessary to avoid a narrowing of spreads under certain market orconditions.
In order to meet our policy and contractual obligations, we must earn a sufficient return on our invested assets. Significant changes in interest rates exposes us to the risk of not earning the anticipated spreads between the interest rate risk.  Followingearned on our investments and the consummationcredited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect interest earnings, spread income and the attractiveness of certain of our Initial Public Offering,products.
During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as IUL insurance and fixed annuities, and we may increase crediting rates on in-force products to keep these products competitive. A rise in interest rates, in the net proceedsabsence of other countervailing changes, will result in a decline in the market value of our Initial Public Offering, including amountsinvestment portfolio.

As part of our asset liability management (“ALM”) program, we have made a significant effort to identify the assets appropriate to different product lines and ensure investing strategies match the profile of these liabilities. Our ALM strategy is designed to align the expected cash flows from the investment portfolio with the expected liability cash flows. As such, a major component of our effort to manage interest rate risk has been to structure the investment portfolio with cash flow characteristics that are consistent with the cash flow characteristics of the insurance liabilities. We use actuarial models to simulate the cash flows expected from the existing business under various interest rate scenarios. These simulations enable us to measure the potential gain or loss in the Trust Account, were investedfair value of interest rate-sensitive financial instruments, to evaluate the adequacy of expected cash flows from assets to meet the expected cash requirements of the liabilities and to determine if it is necessary to lengthen or shorten the average life and duration of our investment portfolio. Duration measures the price sensitivity of a security to a small change in U.S. government treasury bills, notes or bonds with a maturityinterest rates. When the durations of 180 days or less or in certain money market funds that invest solely in US treasuries. Due to the short-term nature of these investments, we believe there will be no associated materialassets and liabilities are similar, exposure to interest rate risk is minimized because a change in the value of assets could be expected to be largely offset by a change in the value of liabilities.
The duration of the investment portfolio, excluding cash and cash equivalents, derivatives, policy loans, and common stocks as of June 30, 2018, is summarized as follows:
(dollars in millions)    
Duration  Amortized Cost
 % of Total
0-4 $7,504
 32%
5-9 6,287
 27%
10-14 7,252
 31%
15-19 2,233
 10%
20-25 13
 %
Total $23,289
 100%
Credit Risk and Counterparty Risk
We are exposed to the risk that a counterparty will default on its contractual obligation resulting in financial loss. The major source of credit risk arises predominantly in our insurance operations’ portfolios of debt and similar securities and FSRC’s funds withheld receivables portfolio that consists primarily of debt and equity securities. The fair value of our fixed maturity portfolio totaled $20 billion and $21 billion at June 30, 2018 and December 31, 2017, respectively. Our credit risk materializes primarily as impairment losses. We are exposed to occasional cyclical economic downturns, during which impairment losses may be significantly higher than the long-term historical average. This is offset by years where we expect the actual impairment losses to be substantially lower than the long-term average. Credit risk in the portfolio can also materialize as increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on our capital requirements is also dependent on the economic cycle and increased asset impairment levels may go hand in hand with increased asset related capital requirements.
We attempt to manage the risk of default and rating migration by applying disciplined credit evaluation and underwriting standards and limiting allocations to lower quality, higher risk investments. In addition, we diversify our exposure by issuer and country, using rating based issuer and country limits. We also set investment constraints that limit our exposure by industry segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, we have portfolio-level credit risk constraints in place. Limit compliance is monitored on a monthly or, in some cases, daily basis.
In connection with the use of call options, we are exposed to counterparty credit risk-the risk that a counterparty fails to perform under the terms of the derivative contract. We have adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of attempting to mitigate the financial loss from defaults. The exposure and credit rating of the counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst different approved counterparties to limit the concentration in one counterparty. Our policy allows for the purchase of derivative instruments from counterparties and/or clearinghouses that meet the required qualifications under the Iowa Code. The Company reviews the ratings of all the counterparties periodically. Collateral support documents are negotiated to further reduce the exposure when deemed necessary. See "Note 5. Derivative Financial Instruments" to our unaudited condensed consolidated financial statements for additional information regarding our exposure to credit loss.

Information regarding the Company's exposure to credit loss on the call options it holds is presented in the following table:
(dollars in millions)   June 30, 2018 December 31, 2017
Counterparty Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk Notional
Amount
 Fair Value Collateral Net Credit Risk
Merrill Lynch  A+/*/A+ $3,037
 $80
 $38
 $42
 $2,780
 $150
 $118
 $32
Deutsche Bank  A-/A3/BBB+ 1,548
 39
 40
 (1) 1,345
 51
 55
 (4)
Morgan Stanley  */A1/A+ 1,666
 36
 38
 (2) 1,555
 92
 101
 (9)
Barclay's Bank  A*+/A2/A 1,745
 67
 50
 17
 2,090
 103
 95
 8
Canadian Imperial Bank of Commerce  AA-/Aa3/A+ 2,728
 73
 73
 
 2,807
 96
 98
 (2)
Wells Fargo  A+/A2/A- 567
 16
 16
 
 
 
 
 
 Total   $11,291
 $311
 $255
 $56
 $10,577
 $492
 $467
 $25
(a) An * represents credit ratings that were not available.
We also have credit risk related to the ability of reinsurance counterparties to honor their obligations to pay the contract amounts under various agreements. To minimize the risk of credit loss on such contracts, we diversify our exposures among many reinsurers and limit the amount of exposure to each based on credit rating. We also generally limit our selection of counterparties with which we do new transactions to those with an “A-” credit rating or above and/or that are appropriately collateralized and provide credit for reinsurance. When exceptions are made to that principle, we ensure that we obtain collateral to mitigate our risk of loss. The following table presents our reinsurance recoverable balances and financial strength ratings for our five largest reinsurance recoverable balances as of June 30, 2018:
(in millions)Financial Strength Rating
Parent Company/Principal ReinsurersReinsurance RecoverableAM BestS&PMoody's
Wilton Re.$1,558 A+ Not RatedNot Rated
Scottish Re184Not RatedNot RatedNot Rated
Security Life of Denver169AAA2
London Life111 A Not RatedNot Rated
Swiss Re Life and Health105A+AA-Aa3
In the normal course of business, certain reinsurance recoverables are subject to reviews by the reinsurers. We are not aware of any material disputes arising from these reviews or other communications with the counterparties as of June 30, 2018 that would require an allowance for uncollectible amounts.
Through FSRC, the Company is exposed to insurance counterparty risk, which is the potential for FSRC to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk and collection risk.

The run-on-the-bank risk is that a client’s in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Substantially higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs. The collection risk for clients and retrocessionaires includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to FSRC. To limit the impact that credit risk can have on earnings and capital adequacy levels, FSRC has portfolio-level credit risk constraints in place. Limit compliance is monitored on a daily or, in some cases, monthly basis.

Equity Price Risk
We are primarily exposed to equity price risk through certain insurance products, specifically those products with GMWB. We offer a variety of FIA contracts with crediting strategies linked to the performance of indices such as the S&P 500 Index, Dow Jones Industrials or the NASDAQ 100 Index. The estimated cost of providing GMWB incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity markets, increased equity volatility or reduced interest rates could result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with such products, resulting in a reduction in our net income. The rate of amortization of intangibles related to FIA products and the cost of providing GMWB could also increase if equity market performance is worse than assumed.
To economically hedge the equity returns on these products, we purchase derivatives to hedge the FIA equity exposure. The primary way we hedge FIA equity exposure is to purchase over the counter equity index call options from broker-dealer derivative counterparties approved by the Company. The second way to hedge FIA equity exposure is by purchasing exchange traded equity index futures contracts. Our hedging strategy enables us to reduce our overall hedging costs and achieve a high correlation of returns on the call options purchased relative to the index credits earned by the FIA contractholders. The majority of the call options are one-year options purchased to match the funding requirements underlying the FIA contracts. These hedge programs are limited to the current policy term of the FIA contracts, based on current participation rates. Future returns, which may be reflected in FIA contracts’ credited rates beyond the current policy term, are not hedged. We attempt to manage the costs of these purchases through the terms of our FIA contracts, which permit us to change caps or participation rates, subject to certain guaranteed minimums that must be maintained.
The derivatives are used to fund the FIA contract index credits and the cost of the call options purchased is treated as a component of spread earnings. While the FIA hedging program does not explicitly hedge GAAP income volatility, the FIA hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the equity market and risk-free rates. This is due to the fact that a key component in the calculation of GAAP reserves is the market valuation of the current term embedded derivative. Due to the alignment of the embedded derivative reserve component with hedging of this same embedded derivative, there should be a reasonable match between changes in this component of the reserve and changes in the assets backing this component of the reserve. However, there may be an interim mismatch due to the fact that the hedges which are put in place are only intended to cover exposures expected to remain until the end of an indexing term. To the extent index credits earned by the contractholder exceed the proceeds from option expirations and futures income, we incur a raw hedging loss.
See "Note 5. Derivative Financial Instruments" to our unaudited consolidated financial statements for additional details on the derivatives portfolio.
Fair value changes associated with these investments are intended to, but do not always, substantially offset the increase or decrease in the amounts added to policyholder account balances for index products. When index credits to policyholders exceed option proceeds received at expiration related to such credits, any shortfall is funded by our net investment spread earnings and futures income. For the six months ended June 30, 2018 and the Predecessor six months ended June 30, 2017, the annual index credits to policyholders on their anniversaries were $228 and $232, respectively. Proceeds received at expiration on options related to such credits were $230 and $232, respectively.
Other market exposures are hedged periodically depending on market conditions and our risk tolerance. The FIA hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. We use a variety of techniques including direct estimation of market sensitivities and value-at-risk to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and risk tolerance change.

Sensitivity Analysis
The analysis below is hypothetical and should not be considered a projection of future risks. Earnings projections are before tax and non-controlling interest.
Interest Rate Risk
We assess interest rate exposures for financial assets, liabilities and derivatives using hypothetical test scenarios that assume either increasing or decreasing 100 basis point parallel shifts in the yield curve, reflecting changes in either credit spreads or risk-free rates.
If interest rates were to increase 100 basis points from levels at June 30, 2018, the estimated fair value of our fixed maturity securities would decrease by approximately $1,583. The impact on shareholders’ equity of such decrease, net of income taxes (assumes a 21% tax rate) and intangibles adjustments, and the change in reinsurance related derivative would be a decrease of $1,247 in AOCI and a decrease of $1,205 in total shareholders’ equity. If interest rates were to decrease by 100 basis points from levels at June 30, 2018, the estimated impact on the FIA embedded derivative liability of such a decrease would be an increase of $250.
The actuarial models used to estimate the impact of a one percentage point change in market interest rates incorporate numerous assumptions, require significant estimates and assume an immediate and parallel change in interest rates without any management of the investment portfolio in reaction to such change. Consequently, potential changes in value of financial instruments indicated by these simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our investments and liabilities, the net exposure to interest rates can vary over time. However, any such decreases in the fair value of fixed maturity securities, unless related to credit concerns of the issuer requiring recognition of an OTTI, would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet liquidity needs. Our liquidity needs are managed using the surrender and withdrawal provisions of the annuity contracts and through other means.
Equity Price Risk
Assuming all other factors are constant, we estimate that a decline in equity market prices of 10% would cause the market value of our equity investments to decrease by approximately $134, our call option investments to decrease by approximately $16 based on equity positions and our FIA embedded derivative liability to decrease by approximately $29 as of June 30, 2018. Due to the adoption of ASU 2016-01, the 10% decline in market value of our equity securities would affect current earnings. These scenarios consider only the direct effect on fair value of declines in equity market levels and not changes in asset-based fees recognized as revenue, or changes in our estimates of total gross profits used as a basis for amortizing DAC and VOBA.

Item 4. Controls and Procedures

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under

An evaluation was performed under the supervision and with the participation of ourthe Company’s management, including our principal executive officerthe Chief Executive Officer ("CEO") and principal financial and accounting officer, we conducted an evaluationChief Financial Officer ("CFO"), of the effectiveness of ourthe design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the fiscal quarter ended September 30, 2017, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that during the period covered by this report, ourreport. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of June 30, 2018, the Company’s disclosure controls and procedures were effective.

Disclosure controls and procedures are designedeffective to ensure that information we are required to be disclosed by usdisclose in ourreports that we file or submit under the Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to ourthe Company’s management, including our principal executive officerthe Company’s CEO and principal financial officer or persons performing similar functions,CFO, as appropriate to allow timely decisions regarding required disclosure.

33

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.


Changes in Internal Control overOver Financial Reporting

There was no change


During the quarter ended June 30, 2018, the Company’s management identified a deficiency in the design of a control over the completeness of the population of securities to be evaluated for the appropriate classification as debt or equity securities under ASC 320. The control deficiency did not result in a material misstatement of our previously issued financial statements, however, we have made immaterial corrections of the classification of certain amounts in the consolidated balance sheet as of December 31, 2017, as well as including an out of period amount in the condensed consolidated statement of operations for the three months ended June 30, 2018 as disclosed in note XX to the interim financial statements as of and for the three month and six month periods ended June 30, 2018.  Management has concluded the deficiency constituted a material weakness in internal control over financial reporting that occurredbased upon the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) (COSO 2013 Framework) during the fiscal quarterquarters ended March 31, 2018 and June 30, 2018 and the period ended December 31, 2017. See "Note 2. Significant Accounting Policies and Practices" to our unaudited condensed consolidated financial statements for additional information.

We evaluated the controls associated with the identification of 2017 covered by this Quarterly Reportsecurities requiring analysis as to debt and equity classification under ASC 320, and will design a remediation plan to strengthen the control to support the completeness of our analysis.

Limitations on Form 10-Qthe Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that has materially affected, or is reasonably likely to materially affect, our internalthe objectives of the control over financial reporting.

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

None.

See "Note 12. Commitments and Contingencies" to our unaudited consolidated financial statements.

Item 1A. Risk Factors

As

A detailed discussion of our risk factors can be found in our 2017 Form 10-K, which can be found at the date of this Report, other than the below, thereSEC's website www.sec.gov. There have been no material changes to the risk factors disclosed in our Annual Report on2017 Form 10-K, filed withexcept for the SEC on March 17, 2017inclusion of the following risk factor regarding our growth strategy and the amendment and restatement of the risk factor regarding fiduciary rule proposals.
Our growth strategy includes selectively acquiring business through acquisitions of other insurance companies and reinsurance of insurance obligations written by unaffiliated insurance companies, and our definitive proxy statement filed withability to consummate these acquisitions on economically advantageous terms acceptable to us in the SEC on July 26, 2017. Such risk factors are incorporated hereinfuture is unknown.
We intend to grow our business in the future in part by reference.

Changes in U.S. tax law might adversely affect us or our shareholders.

The tax treatmentacquisitions of non-U.S.other insurance companies and their U.S.businesses, and non-U.S. insurance subsidiaries has beenthrough block reinsurance, which could materially increase the subjectsize of Congressional discussionour business and legislative proposals. Legislative proposals relating tocould require additional capital, systems development and skilled personnel. Any such acquisitions could be funded through cash from operations, the tax treatmentissuance of non-U.S. companies have been introducedequity and/or the incurrence of additional indebtedness, which amount may be material, or a combination thereof. We actively monitor the market for merger and acquisition opportunities; however the timing, structure and size of any such acquisitions are uncertain and any such acquisitions could be material.

Moreover, we may experience challenges identifying, financing, consummating and integrating such acquisitions and block reinsurance transactions. Competition exists in the pastmarket for profitable blocks of business and such competition is likely to intensify as insurance businesses become more attractive targets.
It is also possible that merger and acquisition transactions will become less frequent, or be difficult to consummate due to financing or other factors, which could if enacted, materially affect us. Bothalso make it more difficult for us to implement this

aspect of our growth strategy. Our acquisition and block reinsurance transaction activities may also divert the U.S. Congressattention of our management from our business, which may have an adverse effect on our business and President Trump’s administrationresults of operations.
Occasionally we may acquire or seek to acquire an insurance company or business that writes businesses that are not core to our business. The ability of our management to transfer or source sufficient reasonably priced reinsurance for non-core businesses that we may acquire and want to dispose of may be limited. In the event that we were unable to find buyers or purchase adequate reinsurance, we would have indicated a desire to reform the U.S. Internal Revenue Codeaccept an increase in our net risk exposures, revise our pricing to reflect higher reinsurance premiums, or otherwise modify our acquisitions and product offerings, each of 1986, as amended. In November, Chairman Brady (R-TX) of the House Committee on Ways and Means released proposed legislation entitled the Tax Cuts and Jobs Act of 2017 (the “Proposed Bill”). The Proposed Bill would, if enacted, reduce corporate tax rates to 20%, impose a 20% excise tax on payments made from U.S. corporations to foreign affiliates, and significantly accelerate taxable income and therefore cash tax expense by the imposition of other changes which would impact life insurance companies, among others. If enacted, the Proposed Bill could reduce the benefits we anticipate from lower tax rates as a non-U.S. company. In addition, the imposition of the proposed 20% excise tax and other components of the Proposed Bill could, if enacted, add significant expense and have a material adverse effect on our business, financial condition, results of operations.

The Proposed Bill also includes proposals that could, if enacted, affect whether we or anyoperations and cash flows.

In furtherance of our non-U.S. subsidiariesstrategy of growth through acquisitions, we may review and conduct investigations of potential acquisitions or block reinsurance transactions, some of which may be material. When we believe a favorable opportunity exists, we may seek to enter into discussions with target companies or sellers regarding the possibility of such transactions. At any given time, we may be in discussions with one or more counterparties. There can be no assurance that any such negotiations will lead to definitive agreements, or if such agreements are treated asreached, that any transactions would be consummated.

“Fiduciary” Rule Proposals

A significant portion of our annuity sales are to IRAs. Prior to being vacated, the DOL “fiduciary” rule applied to insurance agents who advise and sell products to IRA owners. As a “passive foreign investment company” (“PFIC”) or a “controlled foreign corporation” (“CFC”). Whether or notresult, commissioned insurance agents selling the Proposed Bill is enacted, interpretations of U.S. federal income tax law, including those regarding whether a company is engaged in a trade or business (or has a permanent establishment) within the United States or is a PFIC, or whether U.S. persons areCompany’s IRA products would have been required to includequalify for a prohibited transaction exemption. Although the DOL rule has been vacated in their gross income “subpart F income”total, similar rules proposed by state officials or related person insurance income (RPII) of a CFC, are subject to change, possibly on a retroactive basis. Regulations regarding the application of the PFIC rules to insurance companiesSecurities and regarding RPII are only in proposed form. Whether or not the Proposed Bill is enacted, new regulations or pronouncements interpreting or clarifying the existing proposed regulationsExchange Commission may be forthcoming.

It is possible that the Proposed Bill will be amended significantly before passage, that other legislative proposals could emerge in the future or that no tax legislation is enacted in the near future. Such amendments or future proposals could also have an adverse effect on sales of annuity products to IRA owners particularly in the independent agent distribution channel. Compliance with such rules may require additional supervision of agents, cause changes to compensation practices and product offerings, and increase litigation risk, all of which could have adversely impact on us. No prediction can be made asour business, results of operations and/or financial condition. Management will continue to whether any particular proposed legislation will be enacted or, if enacted, what the specific provisionsmonitor for potential action by state officials or the effective date of any such legislation would be, or whether it would have any effect on us. As such, we cannot assure you that future legislative, administrative or judicial developments will not result in an increase inSecurities and Exchange Commission to implement rules similar to the amount of U.S. tax payable by us or by an investor in our ordinary shares or reduce the attractiveness of our products. If any such developments occur, our business, financial condition and results of operation could be materially and adversely affected and could have a material and adverse effect on your investment in our ordinary shares.

vacated DOL rule.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

On March 2, 2016, we issued an aggregate of 15,000,000 founder shares to the Sponsor in exchange for a capital contribution of $25,000, or approximately $0.002 per share. On April 19, 2016, the Sponsor surrendered 3,750,000 founder shares to the Company for no consideration. On April 19, 2016, the Company issued 3,750,000 founder shares to the Anchor Investors in connection with the forward purchase agreements. The Sponsor and the Anchor Investors (including two affiliates of the Sponsor) currently own 11,250,000 and 3,750,000 Class B ordinary shares, respectively. In addition, the Sponsor purchased an aggregate of 15,800,000 Private Placement Warrants, each exercisable to purchase one ordinary share at $11.50 per share, at a price of $1.00 per Private Placement Warrant, in a private placement that closed simultaneously with the closing of our initial public offering. Each Private Placement Warrant entitles the holder to purchase one ordinary share at $11.50 per share. The sales of the above securities by the Company were deemed to be exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.

On May 25, 2016, the Company consummated the initial public offering of 60,000,000 units, with each unit consisting of one Class A ordinary share of the Company, par value $0.0001 per share, and one-half of one warrant to purchase one Class A Ordinary Share. Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith and Credit Suisse Securities (USA) LLC acted as joint book-runners for the offering. The units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $600,000,000. On June 29, 2017, the underwriters exercised in full option to purchase an additional 9,000,000 units to cover overallotments, generating gross proceeds of $90.0 million. Following the closing of the initial public offering and the Over-allotment, an aggregate of $690 million was placed in the Trust Account.

The Company incurred approximately $39.5 million of offering costs in connection with the initial public offering, inclusive of $24.15 million of deferred underwriting commissions payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes a Business Combination. There has been no material change in the planned use of proceeds from the initial public offering as described in our final prospectus dated May 19, 2016 which was filed with the SEC.

None.

Item 3. Defaults Upon Senior Securities

None.


Item 4. Mine Safety Disclosures

None.

Not applicable.

Item 5. Other Information

None.

34

None.


Item 6. Exhibits.

Exhibits
The following is a list of exhibits filed or incorporated by reference as a part of this Quarterly Report on Form 10-Q.
Exhibit
Number
No. 
 Description of Exhibits
   
10.13.1 
4.1 
10.24.2 
4.3 
10.331.1 * Fee Letter, dated as of October 6, 2017, by and between CF Corporation and GSO Capital Partners LP.
10.4Fee Letter, dated as of October 6, 2017, by and between CF Corporation and Fidelity National Financial, Inc.
31.1 
31.2 * 
31.2
32.1 * 
32.1
32.2 * 
32.2
101.INS * XBRL Instance Document
Document.
101.SCH * XBRL Taxonomy Extension Schema Document
Schema.
101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document
Linkbase.
101.DEF * XBRL Taxonomy Extension Definition Linkbase Document
Linkbase.
101.LAB * XBRL Taxonomy Extension Label Linkbase Document
Linkbase.
101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document

35Linkbase.
*Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 14th day of November, 2017.

authorized.
CF CORPORATION
  
By:/s/ Douglas B. NewtonFGL HOLDINGS (Registrant)
   Douglas B. Newton
Date:August 9, 2018By:/s/ Dennis R. Vigneau
   Chief Financial Officer
   (principal financial officer, principal accounting
officeron behalf of the Registrant and duly authorized officer)

36as Principal Financial Officer)


-89