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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20232024
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-32630
FIDELITY NATIONAL FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 16-1725106 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
601 Riverside Avenue
Jacksonville, Florida, 32204
(Address of principal executive offices, including zip code)
(904) 854-8100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
FNF Common Stock, $0.0001 par value | | FNF | | New York Stock Exchange |
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 ☒ or No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ or No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
Non-accelerated Filer | ☐ | Smaller reporting Company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or No ☒
The number of shares outstanding of the Registrant's common stock as of April 30, 20232024 were:
FNF Common Stock 272,191,238273,238,230
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 20232024
TABLE OF CONTENTS
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| Page |
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PART I. FINANCIAL INFORMATION | |
| 2 |
| 3 |
| 4 |
| 5 |
| 6 |
| 7 |
| 89 |
| 72 |
| 10186 |
| |
| |
| |
PART II. OTHER INFORMATION | |
| 10387 |
| |
| 10489 |
| |
| |
| 10591 |
| 10692 |
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share data)
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
| (Unaudited) |
| (Unaudited) | | | (Unaudited) |
ASSETS | ASSETS | ASSETS |
Investments: | Investments: | |
Fixed maturity securities available for sale, at fair value, at March 31, 2023 and December 31, 2022, at an amortized cost of $40,219 and $37,708, respectively, net of allowance for credit losses of $20 and $39, respectively, and includes pledged fixed maturity securities of $471 and $448, respectively, related to secured trust deposits | $ | 36,110 | | | $ | 33,095 | |
Fixed maturity securities available for sale, at fair value, at March 31, 2024 and December 31, 2023, at an amortized cost of $47,789 and $45,606, respectively, net of allowance for credit losses of $40 and $42, respectively, and includes pledged fixed maturity securities of $492 and $489, respectively, related to secured trust deposits | |
Fixed maturity securities available for sale, at fair value, at March 31, 2024 and December 31, 2023, at an amortized cost of $47,789 and $45,606, respectively, net of allowance for credit losses of $40 and $42, respectively, and includes pledged fixed maturity securities of $492 and $489, respectively, related to secured trust deposits | |
Fixed maturity securities available for sale, at fair value, at March 31, 2024 and December 31, 2023, at an amortized cost of $47,789 and $45,606, respectively, net of allowance for credit losses of $40 and $42, respectively, and includes pledged fixed maturity securities of $492 and $489, respectively, related to secured trust deposits | |
Preferred securities, at fair value | Preferred securities, at fair value | 851 | | | 903 | |
Equity securities, at fair value | Equity securities, at fair value | 734 | | | 678 | |
Derivative investments | Derivative investments | 432 | | | 244 | |
Mortgage loans, net of allowance for credit losses of $60 and $42 at March 31, 2023 and December 31, 2022, respectively | 4,984 | | | 4,554 | |
Mortgage loans, net of allowance for credit losses of $67 and $66 at March 31, 2024 and December 31, 2023, respectively | |
Investments in unconsolidated affiliates | Investments in unconsolidated affiliates | 2,889 | | | 2,642 | |
Other long-term investments | Other long-term investments | 691 | | | 664 | |
Short-term investments, at March 31, 2023 and December 31, 2022 includes pledged short-term investments of $1 and $6, respectively, related to secured trust deposits | 1,346 | | | 2,590 | |
Short-term investments, at March 31, 2024 and December 31, 2023 | |
Total investments | Total investments | 48,037 | | | 45,370 | |
Cash and cash equivalents, at March 31, 2023 and December 31, 2022 includes $343 and $242, respectively, of pledged cash related to secured trust deposits | 2,821 | | | 2,286 | |
Trade and notes receivables, net of allowance for credit losses of $33 and $33 at March 31, 2023 and December 31, 2022, respectively | 428 | | | 467 | |
Cash and cash equivalents, at March 31, 2024 and December 31, 2023 includes $227 and $262, respectively, of pledged cash related to secured trust deposits | |
Trade and notes receivables, net of allowance for credit losses of $31 and $32 at March 31, 2024 and December 31, 2023, respectively | |
| Reinsurance recoverable, net of allowance for credit losses of $9 and $10 at March 31, 2023 and December 31, 2022, respectively | 6,362 | | | 5,418 | |
Reinsurance recoverable, net of allowance for credit losses of $21 and $21 at March 31, 2024 and December 31, 2023, respectively | |
| Reinsurance recoverable, net of allowance for credit losses of $21 and $21 at March 31, 2024 and December 31, 2023, respectively | |
| Reinsurance recoverable, net of allowance for credit losses of $21 and $21 at March 31, 2024 and December 31, 2023, respectively | |
Goodwill | Goodwill | 4,791 | | | 4,635 | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 1,991 | | | 2,068 | |
Market risk benefits asset | Market risk benefits asset | 106 | | | 117 | |
Lease assets | Lease assets | 367 | | | 376 | |
Other intangible assets, net | Other intangible assets, net | 4,158 | | | 3,811 | |
Title plants | Title plants | 416 | | | 416 | |
Property and equipment, net | Property and equipment, net | 177 | | | 179 | |
| | Total assets | |
| Total assets | |
| Total assets | Total assets | $ | 69,654 | | | $ | 65,143 | |
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY |
Liabilities: | Liabilities: | | | | Liabilities: | | | |
Contractholder funds | Contractholder funds | $ | 43,379 | | | $ | 40,843 | |
Future policy benefits | Future policy benefits | 5,371 | | | 5,021 | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 2,343 | | | 2,326 | |
Market risk benefits liability | Market risk benefits liability | 324 | | | 282 | |
Notes payable | Notes payable | 3,696 | | | 3,238 | |
Reserve for title claim losses | Reserve for title claim losses | 1,791 | | | 1,810 | |
Funds withheld for reinsurance liabilities | Funds withheld for reinsurance liabilities | 4,830 | | | 3,703 | |
Secured trust deposits | Secured trust deposits | 801 | | | 862 | |
Lease liabilities | Lease liabilities | 410 | | | 418 | |
| Income taxes payable | |
Deferred tax liability | Deferred tax liability | 61 | | | 71 | |
| Total liabilities | |
Total liabilities | |
Total liabilities | Total liabilities | 63,006 | | | 58,574 | |
| Equity: | Equity: | | | |
| FNF common stock, $0.0001 par value; authorized 600,000,000 shares as of March 31, 2023 and December 31, 2022; outstanding of 272,194,249 and 272,309,890 as of March 31, 2023 and December 31, 2022, respectively, and issued of 327,747,431 and 327,757,349 as of March 31, 2023 and December 31, 2022, respectively | — | | | — | |
Equity: | |
| Equity: | | | | |
| FNF common stock, $0.0001 par value; authorized 600,000,000 shares as of March 31, 2024 and December 31, 2023; outstanding of 273,238,445 and 273,251,449 as of March 31, 2024 and December 31, 2023, respectively, and issued of 329,206,677 and 329,185,916 as of March 31, 2024 and December 31, 2023, respectively | |
FNF common stock, $0.0001 par value; authorized 600,000,000 shares as of March 31, 2024 and December 31, 2023; outstanding of 273,238,445 and 273,251,449 as of March 31, 2024 and December 31, 2023, respectively, and issued of 329,206,677 and 329,185,916 as of March 31, 2024 and December 31, 2023, respectively | |
FNF common stock, $0.0001 par value; authorized 600,000,000 shares as of March 31, 2024 and December 31, 2023; outstanding of 273,238,445 and 273,251,449 as of March 31, 2024 and December 31, 2023, respectively, and issued of 329,206,677 and 329,185,916 as of March 31, 2024 and December 31, 2023, respectively | |
| Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none | |
Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none | |
Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none | Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none | — | | | — | |
Additional paid-in capital | Additional paid-in capital | 5,871 | | | 5,870 | |
Retained earnings | Retained earnings | 5,044 | | | 5,225 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (2,610) | | | (2,870) | |
Less: Treasury stock, 55,553,182 shares and 55,447,459 shares as of March 31, 2023 and December 31, 2022, respectively, at cost | (2,113) | | | (2,109) | |
Less: Treasury stock, 55,968,232 shares and 55,934,467 shares as of March 31, 2024 and December 31, 2023, respectively, at cost | |
Total Fidelity National Financial, Inc. shareholders’ equity | Total Fidelity National Financial, Inc. shareholders’ equity | 6,192 | | | 6,116 | |
Non-controlling interests | Non-controlling interests | 456 | | | 453 | |
Total equity | Total equity | 6,648 | | | 6,569 | |
Total liabilities and equity | Total liabilities and equity | $ | 69,654 | | | $ | 65,143 | |
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data)
| | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | |
| 2023 | | 2022 | | | | | | | | |
| (Unaudited) | | | |
Revenues: | | | | | | | | | | | |
Direct title insurance premiums | $ | 428 | | | $ | 767 | | | | | | | | | |
Agency title insurance premiums | 550 | | | 1,099 | | | | | | | | | |
Escrow, title-related and other fees | 880 | | | 1,292 | | | | | | | | | |
| | | | | | | | | | | |
Interest and investment income | 611 | | | 478 | | | | | | | | | |
Recognized gains and losses, net | 5 | | | (469) | | | | | | | | | |
Total revenues | 2,474 | | | 3,167 | | | | | | | | | |
Expenses: | | | | | | | | | | | |
| | | | | | | | | | | |
Personnel costs | 677 | | | 823 | | | | | | | | | |
Agent commissions | 420 | | | 844 | | | | | | | | | |
| | | | | | | | | | | |
Other operating expenses | 360 | | | 442 | | | | | | | | | |
Benefits and other changes in policy reserves | 812 | | | 203 | | | | | | | | | |
Market risk benefit losses | 59 | | | 70 | | | | | | | | | |
Depreciation and amortization | 134 | | | 115 | | | | | | | | | |
Provision for title claim losses | 44 | | | 84 | | | | | | | | | |
Interest expense | 42 | | | 30 | | | | | | | | | |
Total expenses | 2,548 | | | 2,611 | | | | | | | | | |
(Loss) earnings from continuing operations before income taxes and equity in earnings of unconsolidated affiliates | (74) | | | 556 | | | | | | | | | |
Income tax expense | 14 | | | 156 | | | | | | | | | |
(Loss) earnings before equity in earnings of unconsolidated affiliates | (88) | | | 400 | | | | | | | | | |
Equity in (loss) earnings of unconsolidated affiliates | — | | | 2 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net (loss) earnings | (88) | | | 402 | | | | | | | | | |
Less: Net (loss) earnings attributable to non-controlling interests | (29) | | | 2 | | | | | | | | | |
Net (loss) earnings attributable to Fidelity National Financial, Inc. common shareholders | $ | (59) | | | $ | 400 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Earnings per share | | | | | | | | | | | |
Basic | | | | | | | | | | | |
Net earnings per share from continuing operations attributable to common shareholders | $ | (0.22) | | | $ | 1.42 | | | | | | | | | |
| | | | | | | | | | | |
Net earnings per share attributable to common shareholders, basic | $ | (0.22) | | | $ | 1.42 | | | | | | | | | |
Diluted | | | | | | | | | | | |
Net earnings per share from continuing operations attributable to common shareholders | $ | (0.22) | | | $ | 1.41 | | | | | | | | | |
| | | | | | | | | | | |
Net earnings per share attributable to common shareholders, diluted | $ | (0.22) | | | $ | 1.41 | | | | | | | | | |
| | | | | | | | | | | |
Weighted average common shares outstanding - basic | 270 | | | 281 | | | | | | | | | |
Weighted average common shares outstanding - diluted | 271 | | | 283 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(In millions)
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| |
| 2023 | | 2022 | | | | |
| (Unaudited) | | |
Net (loss) earnings | $ | (88) | | | $ | 402 | | | | | |
| | | | | | | |
Other comprehensive earnings (loss): | | | | | | | |
Unrealized gain (loss) on investments and other financial instruments (excluding investments in unconsolidated affiliates) (1) | 349 | | | (1,904) | | | | | |
Unrealized gain on investments in unconsolidated affiliates (2) | 11 | | | 7 | | | | | |
Unrealized gain (loss) on foreign currency translation (3) | 1 | | | (2) | | | | | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings (4) | 35 | | | 25 | | | | | |
Changes in current discount rate - future policy benefits (5) | (100) | | | 292 | | | | | |
Changes in instrument-specific credit risk - market risk benefits (6) | 7 | | | 33 | | | | | |
| | | | | | | |
Other comprehensive earnings attributable to non-controlling interest (7) | (43) | | | — | | | | | |
Other comprehensive earnings (loss) | 260 | | | (1,549) | | | | | |
Comprehensive earnings (loss) | 172 | | | (1,147) | | | | | |
Less: Comprehensive (loss) earnings attributable to non-controlling interests | (29) | | | 2 | | | | | |
Comprehensive earnings (loss) attributable to Fidelity National Financial, Inc. common shareholders | $ | 201 | | | $ | (1,149) | | | | | |
(1)Net of income tax expense (benefit) of $88 million and $(387) million for the three months ended March 31, 2023 and 2022, respectively.
(2)Net of income tax expense of $3 million and $2 million for the three months ended March 31, 2023 and 2022, respectively.
(3)Net of income tax expense of less than $1 million for the three months ended March 31, 2023 and 2022.
(4)Net of income tax expense of $9 million and $7 million for the three months ended March 31, 2023 and 2022, respectively.
(5)Net of income tax (benefit) expense of $(27) million and $78 million for the three months ended March 31, 2023 and 2022, respectively.
(6)Net of income tax expense of $2 million and $9 million for the three months ended March 31, 2023 and 2022, respectively.
(7)Net of income tax benefit of $11 million for the three months ended March 31, 2023.
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data)
| | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | |
| 2024 | | 2023 | | | | | | | | |
| (Unaudited) | | | |
Revenues: | | | | | | | | | | | |
Direct title insurance premiums | $ | 440 | | | $ | 428 | | | | | | | | | |
Agency title insurance premiums | 593 | | | 550 | | | | | | | | | |
Escrow, title-related and other fees | 1,281 | | | 880 | | | | | | | | | |
| | | | | | | | | | | |
Interest and investment income | 710 | | | 611 | | | | | | | | | |
Recognized gains and losses, net | 275 | | | 5 | | | | | | | | | |
Total revenues | 3,299 | | | 2,474 | | | | | | | | | |
Expenses: | | | | | | | | | | | |
| | | | | | | | | | | |
Personnel costs | 727 | | | 677 | | | | | | | | | |
Agent commissions | 460 | | | 420 | | | | | | | | | |
| | | | | | | | | | | |
Other operating expenses | 369 | | | 360 | | | | | | | | | |
Benefits and other changes in policy reserves | 1,161 | | | 812 | | | | | | | | | |
Market risk benefit (gains) losses | (11) | | | 59 | | | | | | | | | |
Depreciation and amortization | 167 | | | 134 | | | | | | | | | |
Provision for title claim losses | 46 | | | 44 | | | | | | | | | |
Interest expense | 49 | | | 42 | | | | | | | | | |
Total expenses | 2,968 | | | 2,548 | | | | | | | | | |
Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | 331 | | | (74) | | | | | | | | | |
Income tax expense | 63 | | | 14 | | | | | | | | | |
Earnings (loss) before equity in earnings of unconsolidated affiliates | 268 | | | (88) | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | 1 | | | — | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net earnings (loss) | 269 | | | (88) | | | | | | | | | |
Less: Net earnings (loss) attributable to non-controlling interests | 21 | | | (29) | | | | | | | | | |
Net earnings (loss) attributable to Fidelity National Financial, Inc. common shareholders | $ | 248 | | | $ | (59) | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Earnings (loss) per share | | | | | | | | | | | |
Basic | | | | | | | | | | | |
Net earnings (loss) per share attributable to common shareholders | $ | 0.92 | | | $ | (0.22) | | | | | | | | | |
| | | | | | | | | | | |
Net earnings (loss) per share attributable to common shareholders, basic | $ | 0.92 | | | $ | (0.22) | | | | | | | | | |
Diluted | | | | | | | | | | | |
Net earnings (loss) per share attributable to common shareholders | $ | 0.91 | | | $ | (0.22) | | | | | | | | | |
| | | | | | | | | | | |
Net earnings (loss) per share attributable to common shareholders, diluted | $ | 0.91 | | | $ | (0.22) | | | | | | | | | |
| | | | | | | | | | | |
Weighted average common shares outstanding - basic | 271 | | | 270 | | | | | | | | | |
Weighted average common shares outstanding - diluted | 272 | | | 271 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions)
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| |
| 2024 | | 2023 | | | | |
| (Unaudited) | | |
Net earnings (loss) | $ | 269 | | | $ | (88) | | | | | |
| | | | | | | |
Other comprehensive earnings (loss): | | | | | | | |
Unrealized (loss) gain on investments and other financial instruments (excluding investments in unconsolidated affiliates) (1) | (5) | | | 349 | | | | | |
Unrealized gain on investments in unconsolidated affiliates (2) | 13 | | | 11 | | | | | |
Unrealized loss on foreign currency translation (3) | (6) | | | 1 | | | | | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings (4) | 13 | | | 35 | | | | | |
Changes in current discount rate - future policy benefits (5) | 91 | | | (100) | | | | | |
Changes in instrument-specific credit risk - market risk benefits (6) | 1 | | | 7 | | | | | |
| | | | | | | |
Other comprehensive loss attributable to non-controlling interest (7) | (17) | | | (43) | | | | | |
Other comprehensive earnings | 90 | | | 260 | | | | | |
Comprehensive earnings | 359 | | | 172 | | | | | |
Less: Comprehensive earnings (loss) attributable to non-controlling interests | 21 | | | (29) | | | | | |
Comprehensive earnings attributable to Fidelity National Financial, Inc. common shareholders | $ | 338 | | | $ | 201 | | | | | |
(1)Net of income tax expense of $88 million for the three months ended March 31, 2023.
(2)Net of income tax expense of $4 million and $3 million for the three months ended March 31, 2024 and 2023, respectively.
(3)Net of income tax (benefit) expense of $(1) million and less than $1 million for the three months ended March 31, 2024 and 2023, respectively.
(4)Net of income tax expense of $4 million and $9 million for the three months ended March 31, 2024 and 2023, respectively.
(5)Net of income tax expense (benefit) of $24 million and $(27) million for the three months ended March 31, 2024 and 2023, respectively.
(6)Net of income tax expense of less than $1 million and $2 million for the three months ended March 31, 2024 and 2023, respectively.
(7)Net of income tax benefit of $5 million and $11 million for the three months ended March 31, 2024 and 2023, respectively.
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions, except per share data)
| | |
| |
| |
| | | | | | | | | | | Accumulated | |
| | | | | | | | | | | Accumulated | |
| | | | | | | | | | | Accumulated | |
| | | | | Fidelity National Financial, Inc. Common Shareholders | | | | | |
| | | | | | | | Accumulated | | | | |
| | | | FNF | | | | | | | Other | | | | | | | |
| | | | Common | | | Additional | | Comprehensive | | Treasury | | Non- | | | |
| | | | Stock | | | Paid-in | | Retained | | Earnings | | Stock | | controlling | | Total | |
| | | | Shares | | $ | | | Capital | | Earnings | | (Loss) | | Shares | | $ | | Interests | | Equity | |
Balance, January 1, 2022 | | | 325 | | | $ | — | | | | $ | 5,811 | | | $ | 4,818 | | | $ | 879 | | | 42 | | | $ | (1,545) | | | $ | 43 | | | $ | 10,006 | | |
| Exercise of stock options | | | 1 | | | — | | | | 3 | | | — | | | — | | | — | | | — | | | — | | | 3 | | |
| Treasury stock repurchased | | | — | | | — | | | | — | | | — | | | — | | | 3 | | | (134) | | | — | | | (134) | | |
| Other comprehensive earnings - unrealized loss on investments and other financial instruments | | | — | | | — | | | | — | | | — | | | (1,904) | | | — | | | — | | | — | | | (1,904) | | |
Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | | | — | | | — | | | | — | | | — | | | 7 | | | — | | | — | | | — | | | 7 | | |
Other comprehensive earnings - unrealized gain on foreign currency translation | | | — | | | — | | | | — | | | — | | | (2) | | | — | | | — | | | — | | | (2) | | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings | | | — | | | — | | | | — | | | — | | | 25 | | | — | | | — | | | — | | | 25 | | |
Change in instrument-specific credit risk - market risk benefits | | | | | 33 | | | 33 | | |
Change in current discount rate - liability for future policy benefits | | | | | 292 | | | 292 | | |
Stock-based compensation | | | — | | | — | | | | 12 | | | — | | | — | | | — | | | — | | | — | | | 12 | | |
| Dividends declared, $0.44 per common share | | | — | | | — | | | | — | | | (124) | | | — | | | — | | | — | | | — | | | (124) | | |
| Subsidiary dividends declared to non-controlling interests | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | (4) | | | (4) | | |
Net earnings | | | — | | | — | | | | — | | | 400 | | | — | | | — | | | — | | | 2 | | | 402 | | |
Balance, March 31, 2022 | | | 326 | | | $ | — | | | | $ | 5,826 | | | $ | 5,094 | | | $ | (670) | | | 45 | | | $ | (1,679) | | | $ | 41 | | | $ | 8,612 | | |
| |
| Balance, January 1, 2023 | Balance, January 1, 2023 | | | 328 | | | $ | — | | | | $ | 5,870 | | | $ | 5,225 | | | $ | (2,870) | | | 55 | | | $ | (2,109) | | | $ | 453 | | | $ | 6,569 | | |
Balance, January 1, 2023 | |
Balance, January 1, 2023 | |
| | Treasury stock repurchased | Treasury stock repurchased | | | — | | | — | | | | — | | | — | | | — | | | — | | | (4) | | | — | | | (4) | | |
| | Treasury stock repurchased | |
| Treasury stock repurchased | |
Purchase of incremental share in consolidated subs | |
Purchase of incremental share in consolidated subs | |
Purchase of incremental share in consolidated subs | Purchase of incremental share in consolidated subs | | | — | | | — | | | | (12) | | | — | | | — | | | — | | | — | | | (8) | | | (20) | | |
Other comprehensive earnings - unrealized gain on investments and other financial instruments | Other comprehensive earnings - unrealized gain on investments and other financial instruments | | | — | | | — | | | | — | | | — | | | 349 | | | — | | | — | | | — | | | 349 | | |
Other comprehensive earnings - unrealized gain on investments and other financial instruments | |
Other comprehensive earnings - unrealized gain on investments and other financial instruments | |
Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | | | — | | | — | | | | — | | | — | | | 11 | | | — | | | — | | | — | | | 11 | | |
Other comprehensive earnings - unrealized gain on foreign currency translation | | | — | | | — | | | | — | | | — | | | 1 | | | — | | | — | | | — | | | 1 | | |
Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | |
Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | |
Other comprehensive earnings - unrealized loss on foreign currency translation | |
Other comprehensive earnings - unrealized loss on foreign currency translation | |
Other comprehensive earnings - unrealized loss on foreign currency translation | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings | |
Change in instrument-specific credit risk - market risk benefits | |
Change in instrument-specific credit risk - market risk benefits | |
Change in instrument-specific credit risk - market risk benefits | |
Change in current discount rate - liability for future policy benefits | |
Change in current discount rate - liability for future policy benefits | |
Change in current discount rate - liability for future policy benefits | |
Stock-based compensation | |
Stock-based compensation | |
Stock-based compensation | |
| Dividends declared, $0.45 per common share | |
| Dividends declared, $0.45 per common share | |
| Dividends declared, $0.45 per common share | |
Other comprehensive loss associated with noncontrolling interests | |
Other comprehensive loss associated with noncontrolling interests | |
Other comprehensive loss associated with noncontrolling interests | |
| Subsidiary dividends declared to non-controlling interests | |
| Subsidiary dividends declared to non-controlling interests | |
| Subsidiary dividends declared to non-controlling interests | |
Net loss | |
Net loss | |
Net loss | |
Balance, March 31, 2023 | |
Balance, March 31, 2023 | |
Balance, March 31, 2023 | |
| Balance, January 1, 2024 | |
| Balance, January 1, 2024 | |
| Balance, January 1, 2024 | |
Noncontrolling interest associated with current period acquisitions | |
Noncontrolling interest associated with current period acquisitions | |
Noncontrolling interest associated with current period acquisitions | |
Purchase of incremental share in consolidated subsidiaries | |
Purchase of incremental share in consolidated subsidiaries | |
Purchase of incremental share in consolidated subsidiaries | |
Exercise of stock options | |
Exercise of stock options | |
Exercise of stock options | |
| Other comprehensive loss - unrealized loss on investments and other financial instruments | |
| Other comprehensive loss - unrealized loss on investments and other financial instruments | |
| Other comprehensive loss - unrealized loss on investments and other financial instruments | |
Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | |
Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | |
Other comprehensive earnings - unrealized gain on investments in unconsolidated affiliates | |
Other comprehensive loss - unrealized loss on foreign currency translation | |
Other comprehensive loss - unrealized loss on foreign currency translation | |
Other comprehensive loss - unrealized loss on foreign currency translation | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings | |
Reclassification adjustments for change in unrealized gains and losses included in net earnings | Reclassification adjustments for change in unrealized gains and losses included in net earnings | | | — | | | — | | | | — | | | — | | | 35 | | | — | | | — | | | — | | | 35 | | |
Change in current discount rate — liability for future policy benefits | Change in current discount rate — liability for future policy benefits | | | — | | | — | | | | — | | | — | | | (100) | | | — | | | — | | | — | | | (100) | | |
Change in current discount rate — liability for future policy benefits | |
Change in current discount rate — liability for future policy benefits | |
Change in instrument-specific credit risk - market risk benefits | |
Change in instrument-specific credit risk - market risk benefits | |
Change in instrument-specific credit risk - market risk benefits | Change in instrument-specific credit risk - market risk benefits | | | — | | | — | | | | — | | | — | | | 7 | | | — | | | — | | | — | | | 7 | | |
Other comprehensive loss associated with noncontrolling interests | Other comprehensive loss associated with noncontrolling interests | | | — | | | — | | | | — | | | — | | | (43) | | | — | | | — | | | 43 | | | — | | |
Other comprehensive loss associated with noncontrolling interests | |
Other comprehensive loss associated with noncontrolling interests | |
Stock-based compensation | Stock-based compensation | | | — | | | — | | | | 13 | | | — | | | — | | | — | | | — | | | — | | | 13 | | |
Stock-based compensation | |
Stock-based compensation | |
Shares withheld for taxes and in treasury | |
Shares withheld for taxes and in treasury | |
Shares withheld for taxes and in treasury | |
| Dividends declared, $0.48 per common share | |
| Dividends declared, $0.45 per common share | | | — | | | — | | | | — | | | (122) | | | — | | | — | | | — | | | — | | | (122) | | |
Dividends declared, $0.48 per common share | |
| Dividends declared, $0.48 per common share | |
| Subsidiary dividends declared to non-controlling interests | Subsidiary dividends declared to non-controlling interests | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | | |
| Net loss | | | — | | | — | | | | — | | | (59) | | | — | | | — | | | — | | | (29) | | | (88) | | |
Balance, March 31, 2023 | | | 328 | | | $ | — | | | | $ | 5,871 | | | $ | 5,044 | | | $ | (2,610) | | | 55 | | | $ | (2,113) | | | $ | 456 | | | $ | 6,648 | | |
| Subsidiary dividends declared to non-controlling interests | |
| Subsidiary dividends declared to non-controlling interests | |
| Net earnings | |
| Net earnings | |
| Net earnings | |
Balance, March 31, 2024 | |
Balance, March 31, 2024 | |
Balance, March 31, 2024 | |
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| | | For the three months ended March 31, | | For the three months ended March 31, |
| | |
| | 2023 | | 2022 | | 2024 | | 2023 |
| | (Unaudited) | | (Unaudited) |
Cash flows from operating activities: | Cash flows from operating activities: | | | Cash flows from operating activities: | | | |
Net (loss) earnings | $ | (88) | | | $ | 402 | |
Net earnings (loss) | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | Adjustments to reconcile net earnings to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 134 | | | 115 | |
Depreciation and amortization | |
Depreciation and amortization | |
Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | — | | | (2) | |
Loss (gain) on sales of investments and other assets and asset impairments, net | 213 | | | (30) | |
(Gain) loss on sales of investments and other assets and asset impairments, net | |
| Interest credited/index credits to contractholder account balances | |
Interest credited/index credits to contractholder account balances | |
Interest credited/index credits to contractholder account balances | Interest credited/index credits to contractholder account balances | 542 | | | (386) | |
Change in market risk benefits, net | Change in market risk benefits, net | 60 | | | 70 | |
Deferred policy acquisition costs and deferred sales inducements | Deferred policy acquisition costs and deferred sales inducements | (251) | | | (169) | |
Charges assessed to contractholders for mortality and admin | Charges assessed to contractholders for mortality and admin | (58) | | | (52) | |
Non-cash lease costs | Non-cash lease costs | 35 | | | 36 | |
Operating lease payments | Operating lease payments | (39) | | | (37) | |
Distributions from unconsolidated affiliates, return on investment | Distributions from unconsolidated affiliates, return on investment | 36 | | | 25 | |
Stock-based compensation cost | Stock-based compensation cost | 14 | | | 13 | |
Change in NAV of limited partnerships, net | Change in NAV of limited partnerships, net | (57) | | | (112) | |
Change in valuation of derivatives, equity and preferred securities, net | Change in valuation of derivatives, equity and preferred securities, net | (216) | | | 499 | |
Changes in assets and liabilities, net of effects from acquisitions: | Changes in assets and liabilities, net of effects from acquisitions: | |
| Change in reinsurance recoverable | Change in reinsurance recoverable | (79) | | | 47 | |
| Change in reinsurance recoverable | |
| Change in reinsurance recoverable | |
Change in future policy benefits | Change in future policy benefits | 224 | | | 428 | |
Change in funds withheld from reinsurers | Change in funds withheld from reinsurers | 1,124 | | | 181 | |
Net decrease in trade receivables | Net decrease in trade receivables | 45 | | | 27 | |
| Net (decrease) increase in reserve for title claim losses | (19) | | | 30 | |
Net decrease in reserve for title claim losses | |
| Net decrease in reserve for title claim losses | |
| Net decrease in reserve for title claim losses | |
Net change in income taxes | Net change in income taxes | (28) | | | 143 | |
Net change in other assets and other liabilities | Net change in other assets and other liabilities | (174) | | | (561) | |
Net cash provided by operating activities | Net cash provided by operating activities | 1,418 | | | 667 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
| Proceeds from sales, calls and maturities of investment securities | Proceeds from sales, calls and maturities of investment securities | 1,091 | | | 1,984 | |
Proceeds from sales of property and equipment | — | | | 5 | |
Proceeds from sales, calls and maturities of investment securities | |
Proceeds from sales, calls and maturities of investment securities | |
| Additions to property and equipment and capitalized software | (34) | | | (43) | |
| Additions to property and equipment, capitalized software and title plants | |
| Additions to property and equipment, capitalized software and title plants | |
| Additions to property and equipment, capitalized software and title plants | |
Purchases of investment securities | Purchases of investment securities | (4,077) | | | (3,810) | |
Net proceeds from sales and maturities (purchases) of short-term investment securities | 1,249 | | | (1,255) | |
Net proceeds from sales and maturities of short-term investment securities | |
Additions to notes receivable | Additions to notes receivable | (4) | | | (4) | |
| Collections of notes receivable | |
Acquisitions and dispositions | Acquisitions and dispositions | (273) | | | (20) | |
Additional investments in unconsolidated affiliates | Additional investments in unconsolidated affiliates | (327) | | | (309) | |
Distributions from unconsolidated affiliates, return of investment | Distributions from unconsolidated affiliates, return of investment | 90 | | | 34 | |
| Net other investing activities | — | | | 4 | |
| Net cash used in investing activities | Net cash used in investing activities | (2,285) | | | (3,414) | |
Cash flows from financing activities: | | | |
| Debt offering | 500 | | | — | |
Debt costs/equity issuance additions | (10) | | | — | |
F&G Credit Agreement repayments, net | (35) | | | — | |
Dividends paid | (122) | | | (124) | |
Subsidiary dividends paid to non-controlling interest shareholders | (7) | | | (4) | |
Exercise of stock options | — | | | 2 | |
Additional investment in consolidated subsidiary | (20) | | | — | |
Net change in secured trust deposits | (61) | | | 36 | |
| Payment of contingent consideration for prior period acquisitions | (2) | | | (1) | |
Contractholder account deposits | 2,115 | | | 2,123 | |
Contractholder account withdrawals | (950) | | | (723) | |
| Purchases of treasury stock | (6) | | | (129) | |
| Net cash provided by financing activities | 1,402 | | | 1,180 | |
Net increase (decrease) in cash and cash equivalents | 535 | | | (1,567) | |
Cash and cash equivalents at beginning of period | 2,286 | | | 4,360 | |
Cash and cash equivalents at end of period | $ | 2,821 | | | $ | 2,793 | |
| Net cash used in investing activities | |
| Net cash used in investing activities | |
|
| | | | | | | | | | | |
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
(In millions) |
| For the three months ended March 31, |
|
| 2024 | | 2023 |
| (Unaudited) |
Cash flows from financing activities: | | | |
Borrowings | 7 | | | 500 | |
| | | |
Debt costs/equity issuance additions | (5) | | | (10) | |
| | | |
F&G Credit Agreement repayments, net | — | | | (35) | |
Dividends paid | (130) | | | (122) | |
Subsidiary dividends paid to non-controlling interest shareholders | (7) | | | (7) | |
Exercise of stock options | 1 | | | — | |
Additional investment in consolidated subsidiary | (7) | | | (20) | |
Net change in secured trust deposits | (38) | | | (61) | |
| | | |
Payment of contingent consideration for prior period acquisitions | (5) | | | (2) | |
Contractholder account deposits | 1,929 | | | 2,115 | |
Contractholder account withdrawals | (1,483) | | | (950) | |
| | | |
Purchases of treasury stock | — | | | (6) | |
Cash remitted for withholding taxes on share-based compensation | (7) | | | — | |
| | | |
Net cash provided by financing activities | 255 | | | 1,402 | |
Net increase in cash and cash equivalents | 750 | | | 535 | |
Cash and cash equivalents at beginning of period | 2,767 | | | 2,286 | |
Cash and cash equivalents at end of period | $ | 3,517 | | | $ | 2,821 | |
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A — Basis of Financial Statements
The financial information in this report presented for interim periods is unaudited and includes the accounts of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” the "Company" or “FNF”) prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All adjustments made were of a normal, recurring nature. This report should be read in conjunction with our Annual Report on Form 10-K (our "Annual Report") for the year ended December 31, 2022.2023.
Description of the Business
We are a leading provider of (i) title insurance, escrow and other title-related services, including loan sub-servicing, valuations, default services and home warranty products, (ii) technology to the real estate and mortgage industries and (iii) annuity and life insurance products. FNF is one of the nation’s largest title insurance companies operating through its title insurance underwriters - Fidelity National Title Insurance Company ("FNTIC"), Chicago Title Insurance Company ("Chicago Title"), Commonwealth Land Title Insurance Company ("Commonwealth Title"), Alamo Title Insurance and National Title Insurance of New York Inc. - which collectively issue more title insurance policies than any other title company in the United States. Through our subsidiary, ServiceLink Holdings, LLC ("ServiceLink"), we provide mortgage transaction services, including title-related services and facilitation of production and management of mortgage loans. We are also a leading provider of insurance solutions serving retail annuity and life customers and institutional clients through our majority-owned subsidiary, F&G Annuities & Life ("F&G").
For information about our reportable segments refer to Note H Segment Information.
Recent Developments
7.40% F&G Senior NotesSuccessful Completion of Consent Solicitation
On January 13, 2023, F&G completed its issuance and saleApril 23, 2024, we announced the successful completion of $500 million aggregate amountconsent solicitations of its 7.40%the holders of each of our 4.500% Senior Notes due 2028 (the "7.40% F&G Notes"“2028 Notes”), 3.400% Senior Notes due 2030 (the “2030 Notes”), 2.450% Senior Notes due 2031 (the “2031 Notes”) and 3.200% Senior Notes due 2051 (the “2051 Notes” and, collectively with the 2028 Notes, 2030 Notes and the 2031 Notes, the “Notes”; and each a “series of Notes”) to effect a certain amendment (the “Proposed Amendment”) to the indenture governing the Notes (the “Indenture”) with respect to each series of Notes, as described below.
As of 5:00 p.m., New York City time, on April 22, 2024 (the “Expiration Time”), we had received consents from a majority in principal amount of each series of Notes outstanding for the adoption of the proposed amendment to the Indenture. Each of the consent solicitations was made pursuant to Rule 144Athe consent solicitation statement, dated April 16, 2024 (the “Consent Solicitation Statement”). A supplemental indenture giving effect to the Proposed Amendment with respect to each series of Notes was executed promptly. Upon its execution, the supplemental indenture is effective and Regulation Sconstitutes a binding agreement between the Company and the trustee.
Immediately prior to the consummation of our redomestication, by conversion, from a corporation organized under the Securities Actlaws of 1933,the State of Delaware to a corporation organized under the laws of the State of Nevada (the “Redomestication”), we will pay holders of each series of Notes who validly delivered their consents at or prior to the Expiration Time (and did not validly revoke such consents) the Consent Fee described in the Consent Solicitation Statement. No Consent Fee will be paid with respect to a series of Notes if any of the consent solicitations are terminated prior to the proposed amendment becoming effective or if we abandon the Redomestication or if the Redomestication is not completed for any reason whatsoever. We are not required to consummate the Redomestication even if we have received the requisite consents for the Notes and the approval of our shareholders to the Redomestication. If the Redomestication is abandoned prior to consummation or otherwise not completed for any reason whatsoever (including, without limitation, because we determine to effect a redomestication by way of merger or otherwise), or the conditions to the consent solicitations are not satisfied or waived, then no Consent Fee shall be payable and the Proposed Amendment contained in the supplemental indenture described above will not become operative.
Amendment to our Revolving Credit Facility
On February 16, 2024, we entered into a Sixth Amended and Restated Credit Agreement for our $800 million revolving credit facility (the "Amended Revolving Credit Facility") with Bank of America, N.A., as amended. F&G intendsadministrative agent and other agents party thereto (the "Sixth Restated Credit Agreement"). Among other changes, the Sixth Amended and Restated Credit Agreement amends the Revolving Credit Facility to useextend the net proceedsmaturity date from the offering for general corporate purposes, includingOctober 29, 2025, to support the growth of assets under management and for F&G's future liquidity requirements.February 16, 2029. For further information aboutrelated to the 7.40% F&G NotesAmended Revolving Credit Facility and the Sixth Restated Credit Agreement refer to Note OG Notes Payable.in our Annual Report on Form 10-K for the year ended December 31, 2023.
Title Point
Amendment to the F&G Credit Agreement
On February 16, 2024, we entered into a Second Amended and Restated F&G Credit Agreement of our $665 million credit agreement, with the guarantors party thereto, the financial institutions party thereto as lenders, and Bank of America, N.A., as administrative agent, swing line lender and an issuing bank (the "Second Amended and Restated F&G Credit Agreement"). Among other changes, the Second Amended and Restated F&G Credit Agreement amends the Amended F&G Credit Agreement to extend the maturity date and increase the aggregate principal amount of commitments under the revolving credit facility to $750 million. For more information related to the Second Amended and Restated F&G Credit Agreement refer to Note G Notes Payable in our Annual Report on Form 10-K for the year ended December 31, 2023.
Acquisition of Roar
On January 1, 2023, we completed our previously announced acquisition of TitlePoint for $224 million in cash, subject to customary working capital adjustments. TitlePoint enables searches for detailed property information, images of documents and maps from hundreds of counties across the U.S and is2, 2024, F&G acquired a leader70% majority ownership stake in the scienceequity of real estate property research technology.Roar Joint Venture, LLC ("Roar"). Roar wholesales life insurance and annuity products to banks and broker dealers through a network of agents. Total initial consideration is comprised of cash of $269 million and $48 million of contingent consideration. Under the terms of the purchase agreement, the Company has agreed to make cash payments of up to $90 million over a three year period upon the achievement by Roar of certain earnings before interest, taxes, depreciation and amortization ("EBITDA") milestones. For further information aboutrelated to the TitlePoint acquisition of Roar, refer to Note N Acquisitions.
Investment of $250 million in F&G
On January 12, 2024, we completed a $250 million preferred stock investment in F&G. F&G will use the net proceeds from the investment to support growth of its assets under management.
Under the terms of the agreement, we have agreed to invest $250 million in exchange for 5 million shares of F&G's 6.875% Series A Mandatory Convertible Preferred Stock, par value $0.001 per share (the "Mandatory Convertible Preferred Stock"). Each share of Mandatory Convertible Preferred Stock will have a liquidation preference of $50.00 per share. Unless earlier converted at the option of the holder, each outstanding share of the Mandatory Convertible Preferred Stock will automatically convert into shares of common stock of F&G on January 15, 2027 (the "Mandatory Conversion Date"). Upon conversion on the Mandatory Conversion Date, the conversion rate for each share of the Mandatory Convertible Preferred Stock will be no more than 1.1111 shares of common stock and no less than 0.9456 shares of common stock per share of Mandatory Convertible Preferred Stock, depending on the value of F&G's common stock. The preferred stock investment in F&G eliminates upon consolidation.
Income Tax
Income tax expense was $14$63 million and $156$14 million in the three months ended March 31, 20232024 and 2022,2023, respectively. Income tax expense as a percentage of earnings (loss) before income taxes was 19% and (19)% and 28% in the three months ended March 31, 20232024 and 2022,2023, respectively. The changeincrease in income tax expense as a percentage of earnings (loss) earnings before taxes in the three months ended March 31, 20232024 as compared to the corresponding period in 20222023 is primarily attributable to the recording of2023 period having income tax expense, due to a valuation allowance in the 2022 period. The valuation allowance is associated with tax benefits from deferred tax assets related to recognized valuation losses on equity securities that we will more likely than not be able to realize for tax purposes. Additionally, the tax benefit associated with the valuation losses on equity securities in the three months ended March 31,increase, despite there being a 2023 was further reduced by an increase in the valuation allowance in 2023.pre-tax loss.
Earnings Per Share
Basic earnings per share, as presented on the unaudited Condensed Consolidated Statement of Operations, is computed by dividing net earnings available to common shareholders in a given period by the weighted average number of common shares outstanding during such period. In periods when earnings are positive, diluted
earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted loss per share is equal to basic loss per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. We have granted certain stock options and shares of restricted stock, which have been treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which positive earnings have been reported.
Options or other instruments, which provide the ability to purchase shares of our common stock that are antidilutive, are excluded from the computation of diluted earnings per share. There were fewer than 1 million antidilutive instruments outstanding during the three months ended March 31, 2024 and 2023.
Unconsolidated Owned Distribution Investments
For the three months ended March 31, 2024 and 2023, we paid approximately $50 million and $37 million, respectively, in commissions on sales through our unconsolidated funded owned distribution investments and their affiliates, with the acquisition expense deferred and amortized in Depreciation and amortization on the accompanying unaudited Condensed Consolidated Statements of Operations.
Recent Accounting Pronouncements
Adopted Pronouncements
In August 2018,March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-02, Accounting for Investments in Tax Credit Structure Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force). The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. We adopted this standard on January 1, 2024, as required, and there was no material impact to our unaudited Condensed Consolidated Financial Statements.
In June 2022, the FASB issued ASU 2018-12,2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this update affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction and clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as clarifieda separate unit of account, recognize and amendedmeasure a contractual sale restriction. Additionally, the amendments require the following disclosures for equity securities subject to contractual sale restrictions: the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the restriction(s), and the circumstances that could cause a lapse in the restriction(s). The amendments in this update do not change the principles of fair value measurement, rather, they clarify those principles when measuring the fair value of an equity security subject to a contractual sale restriction and improve current GAAP by ASU 2019-09, Financial Services-Insurance: Effective Datereducing diversity in practice, reducing the cost and ASU 2020-11, Financial Services-Insurance: Effective Datecomplexity in measuring fair value, and Early Application,increasing comparability of financial information across reporting entities that hold those investments. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2022 including2023, and interim periods within those fiscal years. This update introduced the following requirements: assumptions used to measure cash flows for traditional and limited-payment contracts must be reviewed at least annually with the effect of changes in those assumptions being recognized in the statement of operations; the discount rate applied to measure the liability for future policy benefits and limited-payment contracts must be updated at each reporting date with the effect of changes in the rate being recognized in accumulated other comprehensive income (loss) (“AOCI”); Market risk benefits (“MRB”) associated with deposit contracts must be measured at fair value, with the effect of the change in the fair value recognized in earnings, except for the change attributable to instrument-specific credit risk, which is recognized in AOCI; deferred acquisition costs are no longer required to be amortized in proportion to premiums, gross profits, or gross margins; instead, those balances must be amortized on a constant level basis over the expected term of the related contracts; deferred acquisition costs must be written off for unexpected contract terminations; and disaggregated roll forwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, MRBs, separate account liabilities and deferred acquisition costs, as well as information about significant inputs, judgments, assumptions, and methods used in measurement are required to be disclosed. We adopted this standard as of January 1, 2024, and it did not have a material impact on our Consolidated Financial Statements and related disclosures upon adoption.
Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker (CODM) and included in each reported measure of a segment’s profit or loss. In addition, the amendments enhance interim disclosure requirements that are currently required annually, clarify circumstances in which requiredan entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. The amendments in this update are incremental to the new guidancecurrent requirements of Topic 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The enhanced segment disclosure requirements apply retrospectively to all prior periods presented in the financial statements. The significant segment expense and other segment item amounts disclosed in prior periods shall be based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this update are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Early adoption is permitted, and the updates must be applied asretrospectively to all periods presented in the financial statements. We do not currently expect to early adopt this standard and are in the process of assessing its impact on our disclosures upon adoption.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update enhance the transparency of the income tax disclosures by expanding on the disclosures required annually. The amendments require entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes, in addition to providing details about the reconciling items in some categories if above a quantitative threshold. Additionally, the amendments require annual disclosure of income taxes paid (net of refunds received) disaggregated by jurisdiction based on a quantitative threshold. The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis, however, retrospective application is permitted. We do not currently expect to early adopt this standard and are in the process of the earliest period presented or January 1, 2021, referred to as the transition date, and elected the full retrospective transition method. As a result of adoption, the Company recorded a cumulative-effect adjustment, which increased opening 2021 retained earnings by $73 million, net of tax.assessing its impact on our disclosures upon adoption.
Note B — Summary of Updated Significant Accounting PoliciesReserve for Title Claim Losses
Since our Annual Report on Form 10-KA summary of the reserve for title claim losses follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2024 | | 2023 |
| (In millions) |
Beginning balance | $ | 1,770 | | | $ | 1,810 | |
| | | |
Change in insurance recoverable | — | | | — | |
Claim loss provision related to: | | | |
Current year | 46 | | | 43 | |
| | | |
Total title claim loss provision | 46 | | | 43 | |
Claims paid, net of recoupments related to: | | | |
Current year | (2) | | | (1) | |
Prior years | (68) | | | (61) | |
Total title claims paid, net of recoupments | (70) | | | (62) | |
Ending balance of claim loss reserve for title insurance | $ | 1,746 | | | $ | 1,791 | |
Provision for title insurance claim losses as a percentage of title insurance premiums | 4.5 | % | | 4.5 | % |
Several lawsuits were filed by various parties against Chicago Title Company and Chicago Title Insurance Company as its principal (collectively, the “Named Companies”) by plaintiffs claiming they were investors who were solicited by Gina Champion-Cain through her former company, ANI Development LLC (“ANI”), or other affiliates to provide funds placed in an escrow account that purportedly were to be used for high-interest, short-term loans to parties seeking to acquire California alcoholic beverage licenses. Plaintiffs further alleged that employees of Chicago Title Company assisted Ms. Champion-Cain and her entities in diverting the funds placed into an escrow account maintained by Chicago Title Company into which some of the plaintiffs’ funds were deposited.
In connection with the alcoholic beverage license scheme, the SEC filed a civil enforcement proceeding asserting claims for securities fraud against Champion-Cain and ANI in a lawsuit styled, Securities and Exchange Commission v. Gina Champion-Cain and ANI Development, LLC, pending in the United States District Court for the year ended December 31, 2022, as a resultSouthern District of California. The receiver, who was appointed by the court to preserve the assets of the adoptiondefendant affiliated entities, then filed a lawsuit in San Diego County Superior Court against the Named Companies seeking damages in a lawsuit styled, Krista Freitag v. Chicago Title Co. and Chicago Title Ins. Co. The Named Companies reached a global settlement with the receiver and several other investor claimants and jointly sought court approval of ASU 2018-12the global settlement and entry of an order barring any claims against the Named Companies related to the alcoholic beverage license scheme. On November 23, 2022, the federal court overruled any objections by non-joining investors and entered an order approving the global settlement barring further claims against the Named Companies (“Settlement and Bar Order”). After her receipt of the settlement funds, the receiver dismissed the lawsuit against the Named Companies. Some of the non-joining investor claimants who objected to entry of the Settlement and Bar Order appealed the decision to the United States Court of Appeals for the Ninth Circuit by (Cases 22-56206, 22-56208, and 23-55083), and appellate oral argument is expected to be held later this year.
Chicago Title Company has also resolved a number of other pre-suit claims and previously-disclosed lawsuits from both individual and groups of alleged investors under confidential terms. Based on the facts and circumstances of the remaining claims, including the settlements already reached, we have updatedrecorded reserves included in our reserve for title claim losses, which we believe are adequate to cover losses related to this matter, and believe that our reserves for title claim losses are adequate.
We continually update loss reserve estimates as new information becomes known, new loss patterns emerge, or as other contributing factors are considered and incorporated into the following significant accounting policies,analysis of reserve for claim losses. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which have been followedclaims are paid, significantly varying dollar amounts of individual claims and other factors.
Due to the uncertainty inherent in preparing the accompanying unaudited Condensed Consolidatedprocess and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that additional reserve adjustments may be required in future periods in order to maintain our recorded reserve within a reasonable range of our actuary's central estimate.
Note C — Fair Value of Financial Statements:Instruments
Investments
Fixed Maturity Securities Available-for-Sale
Fixed maturity securities are purchased to support our investment strategies, which are developedOur measurement of fair value is based on factors including rateassumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of return, maturity,an asset, or non-performance risk, which may include our own credit risk, duration, tax considerations and regulatory requirements. Our investmentsrisk. We estimate an exchange price is the price in fixed maturity securities have been designatedan 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 or liability in the absence of a principal market as available-for-sale ("AFS"opposed to the price that would be paid to acquire the asset or assume a liability (“entry price”) and are. We categorize financial instruments carried at fair value net of allowance for expected credit losses, with unrealized gains and losses included within AOCI, net of deferred income taxes. Fair values for fixed maturity securities are principallyinto a function of current market conditions and are primarily valuedthree-level fair value hierarchy, based on the priority of inputs to the respective valuation technique, along with net asset value. 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 modelother inputs that are observable or unobservable. We recognize investment income on fixed maturitiescan 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 effective interest method, which resultsbest information available in the recognitioncircumstances.
Net Asset Value ("NAV") - Certain equity investments are measured using NAV as a practical expedient in determining fair value. In addition, our unconsolidated affiliates (primarily limited partnerships) are primarily accounted for using the equity method of accounting with fair value determined using NAV as a practical expedient. Our carrying value reflects our pro rata ownership percentage as indicated by NAV in the unconsolidated affiliate's financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. The underlying investments of the unconsolidated affiliates may have significant unobservable inputs, which may include, but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model. Additionally, management inquires quarterly with the general partner to determine whether any credit or other market events have occurred since prior period financial statements to ensure any material events are properly included in current period valuation and investment income
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 lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a constant rate of return on the investment equalparticular input to the prevailing rate atfair value measurement in its entirety requires judgment and considers factors specific to the timeinvestment.
When a determination is made to classify an asset or liability within Level��3 of purchasethe 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 atilliquid markets with limited or no pricing information, the timedetermination of subsequent adjustments of book value. Realized gains and losses on sales of our fixed maturityfair value for these securities are determined onis inherently more difficult. In addition to the first-in first-out cost basis. We generally record security transactions on a trade date basis except for private placements,unobservable inputs, Level 3 fair value investments may include observable components, which are recorded on a settlement date basis. Realized gains and losses on sales of fixed maturity securitiescomponents that are reported within Recognized gains and losses, net in the accompanying Condensed Consolidated Statements of Operations. Fixed maturity securities AFS are subjectactively quoted or can be validated to an allowance for credit loss and changes in the allowance are reported in net earnings as a component of Recognized gains and losses, net. For details on our policy around allowance for expected credit losses on AFS securities, refer to Note D Investments.market-based sources.
The estimated fair values of our 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, portions of other long-term investments and debt, which are disclosed later within this footnote, was summarized according to the hierarchy previously described, as follows:
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| March 31, 2024 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Fair Value | | |
Assets | (In millions) | | |
Cash and cash equivalents | $ | 3,517 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3,517 | | | |
Fixed maturity securities, available-for-sale: | | | | | | | | | | | |
Asset-backed securities | — | | | 7,379 | | | 7,736 | | | — | | | 15,115 | | | |
Commercial mortgage-backed securities | — | | | 4,806 | | | 12 | | | — | | | 4,818 | | | |
Corporates | 25 | | | 16,762 | | | 2,184 | | | — | | | 18,971 | | | |
Hybrids | 99 | | | 534 | | | — | | | — | | | 633 | | | |
Municipals | — | | | 1,529 | | | 18 | | | — | | | 1,547 | | | |
Residential mortgage-backed securities | — | | | 2,460 | | | 4 | | | — | | | 2,464 | | | |
U.S. Government | 682 | | | 16 | | | — | | | — | | | 698 | | | |
Foreign Governments | — | | | 315 | | | 5 | | | — | | | 320 | | | |
Short term investments | 637 | | | — | | | 9 | | | — | | | 646 | | | |
Preferred securities | 192 | | | 342 | | | 8 | | | — | | | 542 | | | |
Equity securities | 720 | | | — | | | 14 | | | 59 | | | 793 | | | |
Derivative investments | — | | | 1,015 | | | 9 | | | — | | | 1,024 | | | |
Investment in unconsolidated affiliates | — | | | — | | | 343 | | | — | | | 343 | | | |
Reinsurance related embedded derivative, included in other assets | — | | | 134 | | | — | | | — | | | 134 | | | |
Market risk benefits asset | — | | | — | | | 95 | | | — | | | 95 | | | |
Other long-term investments | — | | | — | | | 39 | | | — | | | 39 | | | |
| | | | | | | | | | | |
Total financial assets at fair value | $ | 5,872 | | | $ | 35,292 | | | $ | 10,476 | | | $ | 59 | | | $ | 51,699 | | | |
Liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
Derivatives: | | | | | | | | | | | |
Indexed annuities/IUL embedded derivatives, included in contractholder funds | — | | | — | | | 4,679 | | | — | | | 4,679 | | | |
Interest rate swaps | — | | | — | | | 19 | | | — | | | 19 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Call options | 3 | | | — | | | — | | | — | | | 3 | | | |
Contingent consideration obligation | — | | | — | | | 57 | | | — | | | 57 | | | |
Market risk benefits liability | — | | | — | | | 425 | | | — | | | 425 | | | |
Total financial liabilities at fair value | $ | 3 | | | $ | — | | | $ | 5,180 | | | $ | — | | | $ | 5,183 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Fair Value | | |
Assets | (In millions) | | |
Cash and cash equivalents | $ | 2,767 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,767 | | | |
Fixed maturity securities, available-for-sale: | | | | | | | | | | | |
Asset-backed securities | — | | | 7,220 | | | 7,122 | | | — | | | 14,342 | | | |
Commercial mortgage-backed securities | — | | | 4,457 | | | 18 | | | — | | | 4,475 | | | |
Corporates | 25 | | | 15,892 | | | 1,979 | | | — | | | 17,896 | | | |
Hybrids | 95 | | | 523 | | | — | | | — | | | 618 | | | |
Municipals | — | | | 1,562 | | | 49 | | | — | | | 1,611 | | | |
Residential mortgage-backed securities | — | | | 2,426 | | | 3 | | | — | | | 2,429 | | | |
U.S. Government | 662 | | | 16 | | | — | | | — | | | 678 | | | |
Foreign Governments | — | | | 308 | | | 16 | | | — | | | 324 | | | |
Short term investments | 2,111 | | | 8 | | | — | | | — | | | 2,119 | | | |
Preferred securities | 214 | | | 399 | | | 8 | | | — | | | 621 | | | |
Equity securities | 692 | | | — | | | 15 | | | 59 | | | 766 | | | |
| | | | | | | | | | | |
Derivative investments | — | | | 740 | | | 57 | | | — | | | 797 | | | |
Investment in unconsolidated affiliates | — | | | — | | | 285 | | | — | | | 285 | | | |
Reinsurance related embedded derivative, included in other assets | — | | | 152 | | | — | | | — | | | 152 | | | |
Market risk benefits asset | — | | | — | | | 88 | | | — | | | 88 | | | |
Other long-term investments | — | | | — | | | 37 | | | — | | | 37 | | | |
| | | | | | | | | | | |
Total financial assets at fair value | $ | 6,566 | | | $ | 33,703 | | | $ | 9,677 | | | $ | 59 | | | $ | 50,005 | | | |
Liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Derivatives: | | | | | | | | | | | |
Indexed annuities/ IUL embedded derivatives, included in contractholder funds | — | | | — | | | 4,258 | | | — | | | 4,258 | | | |
Market risk benefits liability | — | | | — | | | 403 | | | — | | | 403 | | | |
| | | | | | | | | | | |
Derivative instruments - futures contracts | 1 | | | — | | | — | | | | | 1 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total financial liabilities at fair value | $ | 1 | | | $ | — | | | $ | 4,661 | | | $ | — | | | $ | 4,662 | | | |
Valuation Methodologies
Cash and URLCash Equivalents
Our intangible assets includeThe carrying amounts reported in the value of insuranceunaudited Condensed Consolidated Balance Sheets for these instruments approximate fair value.
Fixed Maturity Preferred and reinsurance contracts acquired (hereafter referred to as VOBA), deferred acquisition costs ("DAC") and deferred sales inducements ("DSI").Equity Securities
VOBA is an intangible asset that reflectsWe measure the amount recorded as insurance contract liabilities less the estimated fair value of in-force contracts (“VIF”)our securities based on assumptions used by market participants in a life insurance company acquisition. It representspricing the portionsecurity. The most appropriate valuation methodology is selected based on the specific characteristics of the purchase price thatfixed maturity, preferred or equity security, and we will then consistently apply the valuation methodology to measure the security’s fair value. Our fair value measurement is allocatedbased on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach include third-party pricing services, independent broker quotations, or pricing matrices. We use observable and unobservable inputs in our valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. In addition, market indicators and industry and economic events are monitored and further market data will be acquired when certain thresholds are met.
For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. The significant input used in the fair value measurement of equity securities for which the market approach valuation technique is employed is yield 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. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices.
We analyze the third-party valuation methodologies and related inputs to perform assessments to determine the appropriate level within the fair value hierarchy. However, we did not adjust prices received from third parties as of March 31, 2024 or December 31, 2023.
Certain equity investments are measured using NAV as a practical expedient in determining fair value.
Derivative Financial Instruments
Our call options, futures contracts, and interest rate swaps can either be exchange traded or over the counter. Exchange traded derivatives typically fall within Level 1 of the fair value hierarchy if there is active trading activity. Two methods are used to value over-the-counter derivatives. When required inputs are available, certain derivatives are valued using valuation pricing models, which represent what we would expect to receive or pay at the balance sheet date if we cancelled or exercised the derivative, or entered into offsetting positions. Valuation models require a variety of inputs, which include the use of market-observable inputs, including interest rate, yield curve volatilities, and other factors. These over-the-counter derivatives are typically classified within Level 2 of the fair value hierarchy as the majority trade in liquid markets, we can verify model inputs and model selection does not involve significant management judgment. When inputs aren’t available for valuation models, certain over-the-counter derivatives are valued using independent broker quotes, which are based on unobservable market data and classified within Level 3.
The fair value of the rights to receive future cash flows fromreinsurance-related embedded derivatives in our funds withheld reinsurance agreements are estimated based upon the business in force at the acquisition date. VOBA is a functionfair value of the VIF, current GAAP reserves, GAAP assets and deferred tax liability.supporting the funds withheld from reinsurance liabilities. The VIF is determined by the presentfair value of statutory distributable earnings less opening required capital. DAC consists principally of commissions and other acquisition costs that are related directly to the successful sale of new or renewal insurance contracts. Indirect or unsuccessful acquisition costs, maintenance, product development and overhead expenses are charged to expense as incurred. DSI represents up front bonus credits and persistency or vesting bonuses credited to policyholder account balances.
VOBA, DAC, and DSI are amortizedassets is based on a constant level basis forquoted market price of similar assets (Level 2), and therefore the grouped contracts over the expected termfair value of the related contracts to approximate straight-line amortization. Contracts are grouped by product typeembedded derivative is based on market-observable inputs and feature and issue year into cohorts consistent withclassified as Level 2.
The fair value measurement of the grouping used in estimating the associated liability, where applicable. The constant level amortization bases of VOBA, DAC and DSI varies by product type. For universal life and indexed annuities/indexed universal life ("IUL") insurance products,embedded derivatives included in contractholder funds is determined through a combination of market observable information and significant unobservable inputs using the constant level basis used is face amount in force. For deferred annuities (fixed indexed annuities ("FIA")option budget method. The market observable inputs are the market value of option and fixed rate annuities)treasury rates. The significant unobservable inputs are the budgeted option cost (i.e., the constant level basis used is initial premium depositexpected cost to purchase call options in future periods to fund the equity indexed linked feature), surrender rates, mortality multiplier and non-performance spread. The mortality multiplier at March 31, 2024 and December 31, 2023 was applied to the 2012 Individual Annuity mortality tables. Increases or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. Increases or decreases in treasury 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.
Investments in Unconsolidated affiliates
We have elected the fair value option (“FVO”) for DACcertain investments in unconsolidated affiliates as we believe this better aligns them with other investments in unconsolidated affiliates that are measured using NAV as a practical expedient in determining fair value. Investments measured using the fair value option are included in Level 3 and DSI and vested accountthe fair value asof these investments are determined using either a multiple of the acquisition date for VOBA. For immediate annuity contracts, the VOBA balanceaffiliates’ EBITDA, which is amortized in alignment with the Company’s accounting policyderived from market analysis of amortizing the deferred profit liability (“DPL”). All amortization bases aretransactions involving comparable companies, or an adjusted by full lapses,transaction value, which includes deaths, full surrenders, annuitizationscontemplates measures such as EBITDA margins, revenue growth over certain time periods, growth opportunities and maturities, where applicable.
marketability. The constant level bases used for amortization are projected using mortality and lapse assumptions thatfair values are based on Company’s experience, industry data, and other factors andthe affiliates’ financial information. The inputs are consistent with those used for the Future Policy Benefits ("FPB"), where applicable. If those projected assumptions change in future periods, they will be reflectedusually considered unobservable, as not all market participants have access to this data.
Short-term Investments
The carrying amounts reported in the cohort level amortization basis at that time. Unexpected contract terminations, due to higher mortality and/or lapse experience than expected, are recognized in the current period as a reduction of the capitalized balances. All balances are reduced for actual experience in excess of expected experience with changes in future estimates recognized prospectively over the remaining expected grouped contract term. The impact of changes in projected assumptions and the impact of actual experience that is different from expectations both impact the amortization of these intangible assets, which is reported within Depreciation and amortization in the accompanying unaudited Condensed Consolidated Statements of Operations.Balance Sheets for these instruments
Some of our IUL policies requireapproximate fair value.
Other Long-term Investments
We hold a fund-linked note, which provides for an additional payment of fees or other policyholder assessments in advance for services that will be rendered over the estimated lives of the policies or contracts. These payments are established as unearned revenue liabilities (“URL”) upon receipt and included in Accounts payable and other accrued liabilities in the Condensed Consolidated Balance Sheets. URL is amortized like DAC over the estimated lives of these policies. As of March 31, 2023 and December 31, 2022, our URL balance was $190 million and $160 million, respectively
Contractholder Funds
Contractholder funds include deferred annuities (FIAs and fixed rate annuities), IULs, funding agreements and non-life contingent (“NLC”) immediate annuities (which includes NLC pension risk transfer ("PRT") annuities). The liabilities for contractholder funds for fixed rate annuities, funding agreements and NLC immediate annuities (which includes NLC PRT annuities) consist of contract account balances that accrue to the benefit of the contractholders. The liabilities for FIA and IUL policies consist ofat maturity based on the value of an embedded derivative based on the host contract plusactual return of a dedicated return fund. Fair value of the embedded derivative is based on an unobservable input, the NAV of the fund at the balance sheet date. The embedded derivative is similar to a call option on the NAV of the fund with a strike price of zero since F&G will not be required to make any additional payments at maturity of the fund-linked note in order to receive the NAV of the fund on the maturity date. A Black-Scholes model determines the NAV of the fund as the fair value of the indexed crediting featurecall option regardless of the policy, whichvalues used for the other inputs to the option pricing model. The NAV of the fund is accounted for asprovided by the fund manager at the end of each calendar month and represents the value an embedded derivative. The embedded derivative liability is carried at fair value in Contractholder fundsinvestor would receive if it withdrew its investment on the balance sheet date. Therefore, the key unobservable input used in the accompanying Condensed Consolidated Balance Sheets with changes in fairBlack-Scholes model is the value reported in Benefits and other changes in policy reserves inof the accompanying Condensed Consolidated Statementsfund. As the value of Operations. See a description ofthe fund increases or decreases, the fair value methodology usedof the embedded derivative will
increase or decrease. See further discussion on the available-for-sale embedded derivative in Note CE Fair Value ofDerivative Financial Instruments.
Future Policy Benefits
The FPB is determined as the presentfair value of future policy benefits and related claims expenses to be paid to or on behalf of the policyholder less the present value of future net premiums to be collected from policyholders. The FPB for traditional life policies and life-contingent immediate annuity policies (which includes life-contingent PRT annuities) are estimated using current assumptions that include discount rate, mortality and surrender/lapse terminations for traditional life insurance policies only, and expenses. The expense assumptioncredit-linked note is locked-in at contract issuance and not subsequently reviewed or updated. The initial assumptions are based on generally accepted actuarial methodsa weighted average of a broker quote and a combination of internal and industry experience. Policies are terminated through surrenders, lapses and maturities, where surrenders represent the voluntary terminations of policies by policyholders, lapses represent cancellations by us due to nonpayment of premiums, and maturities are determined by policy contract terms. Surrender assumptions are based upon policyholder behavior experience adjusted for expected future conditions.
For traditional life policies and life-contingent immediate annuity policies, contracts are grouped into cohorts by product type, legal entity, and issue year, or acquisition year for cohorts established as of the F&G acquisition date, June 1, 2020. Life-contingent PRT annuities are grouped into cohorts by deal and legal entity. At contract inception, a net premium ratio (“NPR”)discounted cash flow analysis. The discounted cash flow approach is determined, which is calculated based on discounted future cash flows projected using best estimate assumptions and is capped at 100%, as net premiums cannot exceed gross premiums. Cohorts with NPRs less than 100% are not used to offset cohorts with NPRs greater than 100%.
The NPR is adjusted for changes in cash flow assumptions and for differences between actual andthe expected experience. We assess the appropriateness of all future cash flow assumptions, excluding the expense assumption, on a quarterly basis and perform an in-depth review of future cash flow assumptions in the third quarter of each year. Updates are made when evidence suggests a revision is necessary. Updates for actual experience, which includes actualportfolio cash flows and insurance in-force, are performedamortization schedule reflecting investment expectations, adjusted for assumptions on the portfolio's default and recovery rates, and the note's discount rate. The fair value of the note is provided by the fund manager at the end of each quarter.
Contingent Consideration
The contingent consideration liability is measured at fair value using a quarterly basis. These updateddiscounted cash flows are usedflow model applied using a Monte Carlo simulation of estimated EBITDA at each measurement period and for each simulated path relative to contractual EBITDA milestones. The Monte Carlo simulation utilizes a risk-adjusted discount rate, volatility assumption, and risk-free rates to assess the probability Roar's EBITDA trajectory reaches required milestones for the earn out payments to be made. The discounted cash flow approach applies a company-specific discount rate based on F&G credit profile to future expected earn out payments to calculate a revised NPR, which is used to derive an updated liability as of the beginning of the current reporting period, discounted at the original contract issuance date. The updated liability is compared with the carrying amount of the liability as of that same date before the revised NPR. The difference between these amounts is the remeasurement gain or loss, presented parenthetically within Benefits and other changes in policy reserves in the accompanying Condensed Consolidated Statements of Operations. In subsequent periods, the revised NPR, which is capped at 100%, is used to measure the FPB, subject to future revisions. If the NPR is greater than 100%, and therefore capped at 100%, the liability is increased and expensed immediately to reflect the amount necessary for net premiums to equal gross premiums. As the liability assumptions are reviewed and updated, if deemed necessary, at least annually, if conditions improve whereby the contracts are no longer expected to have net premiums in excess of gross premiums, the improvements would be captured in the remeasurement process and reflected in the accompanying unaudited Condensed Consolidated Statements of Operations in the period of improvement.
For traditional life policies and life-contingent immediate annuity policies (which includes life-contingent PRT annuities), the discount rate assumption is an equivalent single rate that is derivedestimated fair value based on A-credit-rated fixed-income instruments with similar duration to the liability. We selected fixed-income instruments that have been A-rated by Bloomberg. In order to reflectaverage outcome from the duration characteristics of the liability, we will use an implied forward yield curve and linear interpolation will be used for durations that have limited or no market observable pointssimulation. See further discussion on the curve. The discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflectedcontingent consideration in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Earnings.
Deferred Profit Liability
For life-contingent immediate annuity policies (which includes life-contingent PRT annuities), gross premiums received in excess of net premiums are deferred at initial recognition as a DPL. Gross premiums are measured using assumptions consistent with those used in the measurement of the related liability for FPB, including discount rate, mortality, and expenses.
The DPL is amortized and recognized as premium revenue with the amount of expected future benefit payments, discounted using the same discount rate determined and locked-in at contract issuance that is used in the measurement of the related FPB. Interest is accreted on the balance of the DPL using this same discount rate. We periodically review and update our estimates of using the actual historical experience and updated cash flows for the DPL at the same time as the estimates of cash flows for the FPB. When cash flows are updated,
the updated estimates are used to recalculate the initial DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period, with any differences recognized as a remeasurement gain or loss, presented parenthetically within Benefits and other changes in policy reserves in the accompanying unaudited Condensed Consolidated Statements of Operations. The DPL is recorded as a component of the Future policy benefits in the accompanying Condensed Consolidated Balance Sheets.
Market Risk BenefitsDerivative Financial Instruments
MRBs areOur call options, futures contracts, or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity,and interest rate and foreignswaps can either be exchange risk) and exposetraded or over the Company to other-than-nominal capital market risk. MRBs include certain contract features primarily on FIA products that provide minimum guarantees to policyholders, such as guaranteed minimum death benefit (“GMDB”) and guaranteed minimum withdrawal benefit (“GMWB”) riders.
MRBs are measured atcounter. Exchange traded derivatives typically fall within Level 1 of the fair value using an attributed fee measurement approach where attributed feeshierarchy if there is active trading activity. Two methods are explicit rider charges collectible from the policyholder used to cover the excess benefits,value over-the-counter derivatives. When required inputs are available, certain derivatives are valued using valuation pricing models, which represent expected benefits in excesswhat we would expect to receive or pay at the balance sheet date if we cancelled or exercised the derivative, or entered into offsetting positions. Valuation models require a variety of inputs, which include the use of market-observable inputs, including interest rate, yield curve volatilities, and other factors. These over-the-counter derivatives are typically classified within Level 2 of the policyholder’s account value. At contract inception, an attributed fee ratio is calculated equal to rider charges over benefits paidfair value hierarchy as the majority trade in excessliquid markets, we can verify model inputs and model selection does not involve significant management judgment. When inputs aren’t available for valuation models, certain over-the-counter derivatives are valued using independent broker quotes, which are based on unobservable market data and classified within Level 3.
The fair value of the account value attributable to the MRB.The attributed fee ratio remains static over the life of the MRB and is capped at 100%. Each period subsequent to contract inception, the attributed fee ratio is used to calculatereinsurance-related embedded derivatives in our funds withheld reinsurance agreements are estimated based upon the fair value of the MRB using a risk neutral valuation method andassets supporting the funds withheld from reinsurance liabilities. The fair value of the assets is based on current net amounts at risk,a quoted market data, internalprice of similar assets (Level 2), and industry experience, and other factors. The balances are computed using assumptions including mortality, full and partial surrender, GMWB utilization, risk-free rates including non-performance spread and risk margin, market value of options and economic scenarios. Policyholder behavior assumptions are reviewed at least annually, typically in the third quarter, for any revisions. MRBs can either be in an asset or liability position and are presented separately on the Condensed Consolidated Balance Sheets as the right of setoff criteria are not met. Changes in fair value are recognized in Market risk benefits gain (losses) in the unaudited Condensed Consolidated Statements of Operations, except for the change in fair value due to a change in the instrument-specific credit risk, which is recognized in the Condensed Consolidated Statements of Comprehensive Earnings. See a description of the fair value methodology used in Note C Fair Value of Financial Instruments and Note P Market Risk Benefits.
Benefits and Other Changes in Policy Reserves
Benefit expenses for deferred annuities (FIAs and fixed rate annuities), IUL policies and funding agreements include interest credited, fixed interest and/or indexed (specific to FIA and IUL policies), to contractholder accountbalances. Benefit claims in excess of contract account balances, net of reinsurance recoveries, are charged to expense in the period that they are earned by the policyholder based on their selected strategy or strategies. Other changes in policy reserves include the change intherefore the fair value of the FIA embedded derivative.derivative is based on market-observable inputs and classified as Level 2.
Other changesThe fair value measurement of the indexed annuities/indexed universal life ("IUL") embedded derivatives included in policy reserves also includecontractholder funds is determined through a combination of market observable information and significant unobservable inputs using the option budget method. The market observable inputs are the market value of option and treasury rates. The significant unobservable inputs are the budgeted option cost (i.e., the expected cost to purchase call options in future periods to fund the equity indexed linked feature), surrender rates, mortality multiplier and non-performance spread. The mortality multiplier at March 31, 2024 and December 31, 2023 was applied to the 2012 Individual Annuity mortality tables. Increases or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. Increases or decreases in treasury 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 reserves for life insurance products. For traditional life and life-contingent immediate annuities (which includes PRT annuities with life contingencies), policy benefit claims are charged to expense in the period that the claims are incurred, net of reinsurance recoveries. Remeasurement gains or losses on the related FPB and DPL balances are presented parenthetically within Benefits and other changes in policy reserves in the accompanying unaudited Condensed Consolidated Statements of Operations.
Impacts of adoption of ASU 2018-12 on Financial Statements
The following tables summarize the impacts of the adoption of ASU 2018-12 on our accompanying unaudited Condensed Consolidated Balance Sheet and unaudited Condensed Consolidated Statement of Operations.
Condensed Consolidated Balance Sheet
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| As Previously Reported | | Adjustments | | As adjusted |
| | | (Unaudited) | | (Unaudited) |
| (In millions) |
ASSETS |
Reinsurance recoverable, net of allowance for credit losses | $ | 5,588 | | | $ | (170) | | | $ | 5,418 | |
Goodwill | 4,642 | | | (7) | | | 4,635 | |
Prepaid expenses and other assets | 2,231 | | | (163) | | | 2,068 | |
Market risk benefits asset | — | | | 117 | | | 117 | |
Other intangible assets, net | 4,034 | | | (223) | | | 3,811 | |
Total assets | $ | 16,495 | | | $ | (446) | | | $ | 16,049 | |
LIABILITIES AND EQUITY |
Liabilities: | | | | | |
Contractholder funds | $ | 41,233 | | | $ | (390) | | | $ | 40,843 | |
Future policy benefits | 5,923 | | | (902) | | | 5,021 | |
Accounts payable and accrued liabilities | 2,352 | | | (26) | | | 2,326 | |
Market risk benefits liability | — | | | 282 | | | 282 | |
Total liabilities | $ | 49,508 | | | $ | (1,036) | | | $ | 48,472 | |
Equity: | | | | | |
Additional paid-in capital | $ | 5,876 | | | $ | (6) | | | $ | 5,870 | |
Retained earnings | 4,714 | | | 511 | | | 5,225 | |
Accumulated other comprehensive (loss) earnings | (2,862) | | | (8) | | | (2,870) | |
Non-controlling interests | 360 | | | 93 | | | 453 | |
Total equity | $ | 8,088 | | | $ | 590 | | | $ | 8,678 | |
Condensed Consolidated Statement of Operations
| | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
| As Previously Reported | | Adjustments | | As adjusted |
| (Unaudited) |
Revenues: | (In millions) |
Escrow, title-related and other fees | $ | 1,290 | | | $ | 2 | | | $ | 1,292 | |
Expenses: | | | | | |
Benefits and other changes in policy reserves | $ | 208 | | | $ | (5) | | | $ | 203 | |
Market risk benefit losses | — | | | 70 | | | 70 | |
Depreciation and amortization | 182 | | | (67) | | | 115 | |
Income tax expense | 155 | | | 1 | | | 156 | |
Net earnings attributable to Fidelity National Financial, Inc. common shareholders | $ | 397 | | | $ | 3 | | | $ | 400 | |
Earnings per share | | | | | |
Basic | | | | | |
Net earnings per share attributable to common shareholders, basic | $ | 1.41 | | | $ | 0.01 | | | $ | 1.42 | |
Diluted | | | | | |
Net earnings per share attributable to common shareholders, diluted | $ | 1.40 | | | $ | 0.01 | | | $ | 1.41 | |
Note B — Summary of Reserve for Title Claim Losses
A summary of the reserve for title claim losses follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2023 | | 2022 |
| (In millions) |
Beginning balance | $ | 1,810 | | | $ | 1,883 | |
| | | |
Change in insurance recoverable | — | | | (1) | |
Claim loss provision related to: | | | |
Current year | 43 | | | 84 | |
| | | |
Total title claim loss provision | 43 | | | 84 | |
Claims paid, net of recoupments related to: | | | |
Current year | (1) | | | (1) | |
Prior years | (61) | | | (53) | |
Total title claims paid, net of recoupments | (62) | | | (54) | |
Ending balance of claim loss reserve for title insurance | $ | 1,791 | | | $ | 1,912 | |
Provision for title insurance claim losses as a percentage of title insurance premiums | 4.5 | % | | 4.5 | % |
Several lawsuits have been filed by various parties against Chicago Title Company and Chicago Title Insurance Company as its principal (collectively, the “Named Companies”). Generally, plaintiffs claim they are investors who were solicited by Gina Champion-Cain through her former company, ANI Development LLC (“ANI”), or other affiliates to provide funds that purportedly were to be used for high-interest, short-term loans to parties seeking to acquire California alcoholic beverage licenses. Plaintiffs contend they were told that under California state law, alcoholic beverage license applicants are required to deposit into escrow an amount equal to the license purchase price while their applications remain pending with the State. Plaintiffs further alleged that employees of Chicago Title Company participated with Ms. Champion-Cain and her entitiesany one unobservable input would not directly result in a fraud scheme involving an escrow account maintained by Chicago Title Company into which some ofchange in any other unobservable input.
Investments in Unconsolidated affiliates
We have elected the plaintiffs’ funds were deposited.
In connection with the alcoholic beverage license scheme, a lawsuit styled, Securities and Exchange Commission v. Gina Champion-Cain and ANI Development, LLC, was filed in the United States District Court for the Southern District of California asserting claims for securities fraud against Ms. Champion-Cain and certain of her affiliated entities. A receiver was appointed by the court to preserve the assets of the defendant affiliated entities (the “receivership entities”fair value option (“FVO”), pay their debts, operate the businesses and pursue any claims they may have against third-parties. Pursuant to the authority granted to her by the federal court, on January 7, 2022, a lawsuit styled, Krista Freitag v. Chicago Title Co. and Chicago Title Ins. Co., was filed in San Diego County Superior Court by the receiver on behalf of the receivership entities against the Named Companies. The receiver seeks compensatory, incidental, consequential, and punitive damages, and seeks the recovery of attorneys’ fees. In turn, the Named Companies petitioned the Federal Court to sue ANI, via the receiver, to pursue indemnity and other claims against the receivership entities as joint tortfeasors, which was granted.
On April 26, 2022, the Named Companies reached a global settlement with the receiver and several other investor claimants. As a condition of the settlement, the Named Companies and the receiver jointly sought court approval of the global settlement and entry of an order barring any claims against the Named Companies related to the alcoholic beverage license scheme. On November 23, 2022, the federal court overruled any objections by non-joining investors and entered an order approving the global settlement and barring further claims against the Named Companies (“Settlement and Bar Order”). The receiver is in receipt of the settlement payment from Chicago Title Company and will distribute the amount designated for each non-joining investor at the conclusion of any such investor’s appeal of the Settlement and Bar Order (or back to Chicago Title Company if an appeal is successful). Some of the investor claimants who objected to entry of the Settlement and Bar Order appealed the decision to the United States Court of Appeals for the Ninth Circuit by (Cases 22-56206, 22-56208, and 23-55083). Appellate briefing is expected to take place over the next several months. After filing its appeal, one of the appellants, CalPrivate Bank (Case 23-55083), entered into a settlement with the receiver that was approved by the federal court. This settlement resolves CalPrivate Bank’s objections to the Settlement and Bar Order, and its appeal has been dismissed.
The following lawsuits remain pending in the Superior Court of San Diego County for the State of California, all of which involve investor claimants who have claims against the Named Companies, objected to the settlement with the receiver, and have appealed the Settlement and Bar Order. Since any pending and future claims against the Named Companies are barred, the state court cases where plaintiffs have served a notice of appeal have been stayed pending the outcome of the appeals, and the claims against the Named Companies by non-appealing plaintiffs have been dismissed with prejudice. While they have not been consolidated into one action, they have been deemed by the court to be related and are assigned to the same judge for purposes of judicial economy.
On December 13, 2019, a lawsuit styled, Kim Funding, LLC, Kim H. Peterson, Joseph J. Cohen, and ABC Funding Strategies, LLC v. Chicago Title Co., Chicago Title Ins. Co., Thomas Schwiebert, Adelle Ducharme, and Betty Elixman, was filed in San Diego County Superior Court. Plaintiffs claim losses of more than $250 million as a result of the alleged fraud scheme, and also seek statutory, treble, and punitive damages, as well as the recovery of attorneys' fees. The Named Companies have filed a cross-complaint against Ms. Champion-Cain, and others. The Named Companies have reached a conditional settlement with the members of ABC Funding Strategies, LLCplaintiffs under confidential terms.
On July 7, 2020, a cross-claim styled, Laurie Peterson v. Chicago Title Co., Chicago Title Ins. Co., Thomas Schwiebert, Adelle Ducharme, and Betty Elixman, was filed in an existing lawsuit styled, Banc of California, National Association v. Laurie Peterson, which is pending in San Diego County Superior Court. Cross-complaint plaintiff was sued by a bank to recover in excess of $35 million that she allegedly guaranteed to repay for certain investments made by the Banc of California in the alcoholic beverage license scheme. Cross-complaint plaintiff has, in turn, sued the Named Companies in that action seeking in excess of $250 million in monetary lossesunconsolidated affiliates as well as exemplary damages and attorneys’ fees. The Named Companies have filed a cross-complaint against Ms. Champion-Cain and others, and the Named Companies were substituted in as the Plaintiff following a settlement with the bank.
On September 3, 2020, a cross-claim styled, Kim H. Peterson Trustee of the Peterson Family Trust dated April 14 1992 v. Chicago Title Co., Chicago Title Ins. Co., Thomas Schwiebert, Adelle Ducharme, and Betty Elixman, was filed in an existing lawsuit styled, CalPrivate Bank v. Kim H. Peterson Trustee of the Peterson Family Trust dated April 14 1992, which is pending in Superior Court of San Diego County for the State of California. Cross-complaint plaintiff was sued by a bank to recover in excess of $12 million that the trustee allegedly guaranteed to repay for certain investments made by CalPrivate Bank in the alcoholic beverage license scheme. Cross-complaint plaintiff has, in turn, sued the Named Companies in that action seeking in excess of $250 million in monetary losses as well as exemplary damages and attorneys’ fees.
On November 2, 2020, a lawsuit styled, CalPrivate Bank v. Chicago Title Co. and Chicago Title Ins. Co., was also filed in the Superior Court of San Diego County for the State of California. Plaintiff claims losses in excess of $12 million based upon business loan advances made in the alcoholic beverage license scheme and seeks punitive damages and the recovery of attorneys’ fees. The Named Companies have filed a cross-complaint against Ms. Champion-Cain, and others. Given CalPrivate Bank's settlement with the receiver, this action against the Named Companies will be dismissed.
Chicago Title Company has also resolved a number of other pre-suit claims and previously-disclosed lawsuits from both individual and groups of alleged investors under confidential terms. Based on the facts and circumstances of the remaining claims, including the settlements already reached, we have recorded reserves included in our reserve for title claim losses, which we believe are adequate to cover losses related to this matter, and believebetter aligns them with other investments in unconsolidated affiliates that our reserves for title claim losses are adequate.
We continually update loss reserve estimates as new information becomes known, new loss patterns emerge or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors.
Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that additional reserve adjustments may be required in future periods in order to maintain our recorded reserve within a reasonable range of our actuary's central estimate.
Note C — Fair Value of Financial Instruments
Our 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 our own credit risk. We estimate 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 or liability in the absence of a principal market as opposed to the price that would be paid to acquire the asset or assume a liability (“entry price”). We categorize financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique, along with net asset value. The 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.
Net asset value ("NAV") - Certain equity investments are measured using NAV as a practical expedient in determining fair value. In addition, our unconsolidated affiliates (primarily limited partnerships) are primarily accounted forInvestments measured using the equity method of accounting with fair value determined using NAV as a practical expedient. Our carrying value reflects our pro rata ownership percentage as indicated by NAV in the limited partnership financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. The underlying investments of the limited partnerships may have significant unobservable inputs, which may include, but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model. Additionally, management meets quarterly with the general partner to determine whether any credit or other market events have occurred since prior quarter financial statements to ensure any material events are properly included in current quarter valuation and investment income.
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 withinoption are included in Level 3 and the fair value hierarchyof these investments are determined using either a multiple of the affiliates’ EBITDA, which is derived from market analysis of transactions involving comparable companies, or an adjusted transaction value, which contemplates measures such as EBITDA margins, revenue growth over certain time periods, growth opportunities and marketability. The fair values are based on the lowest level of input that is significantaffiliates’ financial information. The inputs are usually considered unobservable, as not all market participants have access to the fair value measurement. Our 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.this data.
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 our 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, portions of other long-term investments and debt, which are disclosed later within this footnote, was summarized according to the hierarchy previously described, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Fair Value | | |
Assets | (In millions) | | |
Cash and cash equivalents | $ | 2,821 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,821 | | | |
Fixed maturity securities, available-for-sale: | | | | | | | | | | | |
Asset-backed securities | — | | | 5,592 | | | 6,300 | | | — | | | 11,892 | | | |
Commercial mortgage-backed securities | — | | | 3,686 | | | 29 | | | — | | | 3,715 | | | |
Corporates | 25 | | | 14,262 | | | 1,544 | | | — | | | 15,831 | | | |
Hybrids | 97 | | | 683 | | | — | | | — | | | 780 | | | |
Municipals | — | | | 1,597 | | | 32 | | | — | | | 1,629 | | | |
Residential mortgage-backed securities | — | | | 1,657 | | | 12 | | | — | | | 1,669 | | | |
U.S. Government | 318 | | | 11 | | | — | | | — | | | 329 | | | |
Foreign Governments | — | | | 249 | | | 16 | | | — | | | 265 | | | |
Short term investments | 1,315 | | | 8 | | | 23 | | | — | | | 1,346 | | | |
Preferred securities | 285 | | | 565 | | | 1 | | | — | | | 851 | | | |
Equity securities | 681 | | | — | | | 11 | | | 42 | | | 734 | | | |
Derivative investments | — | | | 432 | | | — | | | — | | | 432 | | | |
Investment in unconsolidated affiliates | — | | | — | | | 107 | | | — | | | 107 | | | |
Reinsurance related embedded derivative, included in other assets | — | | | 260 | | | — | | | — | | | 260 | | | |
Market risk benefits asset | — | | | — | | | 106 | | | — | | | 106 | | | |
Other long-term investments | — | | | — | | | 48 | | | — | | | 48 | | | |
| | | | | | | | | | | |
Total financial assets at fair value | $ | 5,542 | | | $ | 29,002 | | | $ | 8,229 | | | $ | 42 | | | $ | 42,815 | | | |
Liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
Derivatives: | | | | | | | | | | | |
FIA/ IUL embedded derivatives, included in contractholder funds | — | | | — | | | 3,569 | | | — | | | 3,569 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Market risk benefits liability | $ | — | | | $ | — | | | $ | 324 | | | $ | — | | | $ | 324 | | | |
Total financial liabilities at fair value | $ | — | | | $ | — | | | $ | 3,893 | | | $ | — | | | $ | 3,893 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Fair Value | | |
Assets | (In millions) | | |
Cash and cash equivalents | $ | 2,286 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,286 | | | |
Fixed maturity securities, available-for-sale: | | | | | | | | | | | |
Asset-backed securities | — | | | 5,204 | | | 6,263 | | | — | | | 11,467 | | | |
Commercial mortgage-backed securities | — | | | 3,026 | | | 37 | | | — | | | 3,063 | | | |
Corporates | 40 | | | 12,857 | | | 1,440 | | | — | | | 14,337 | | | |
Hybrids | 93 | | | 638 | | | — | | | — | | | 731 | | | |
Municipals | — | | | 1,431 | | | 29 | | | — | | | 1,460 | | | |
Residential mortgage-backed securities | — | | | 1,225 | | | 302 | | | — | | | 1,527 | | | |
U.S. Government | 260 | | | 11 | | | — | | | — | | | 271 | | | |
Foreign Governments | — | | | 223 | | | 16 | | | — | | | 239 | | | |
Short term investments | 2,590 | | | — | | | — | | | — | | | 2,590 | | | |
Preferred securities | 320 | | | 582 | | | 1 | | | — | | | 903 | | | |
Equity securities | 621 | | | — | | | 10 | | | 47 | | | 678 | | | |
| | | | | | | | | | | |
Derivative investments | — | | | 244 | | | — | | | — | | | 244 | | | |
Investment in unconsolidated affiliates | — | | | — | | | 23 | | | — | | | 23 | | | |
Reinsurance related embedded derivative, included in other assets | — | | | 279 | | | — | | | — | | | 279 | | | |
Market risk benefits asset | — | | | — | | | 117 | | | — | | | 117 | | | |
Other long-term investments | — | | | — | | | 48 | | | — | | | 48 | | | |
| | | | | | | | | | | |
Total financial assets at fair value | $ | 6,210 | | | $ | 25,720 | | | $ | 8,286 | | | $ | 47 | | | $ | 40,263 | | | |
Liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Derivatives: | | | | | | | | | | | |
FIA/ IUL embedded derivatives, included in contractholder funds | — | | | — | | | 3,115 | | | — | | | 3,115 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Market risk benefits liability | — | | | — | | | 282 | | | — | | | 282 | | | |
Total financial liabilities at fair value | $ | — | | | $ | — | | | $ | 3,397 | | | $ | — | | | $ | 3,397 | | | |
Valuation Methodologies
Cash and Cash EquivalentsShort-term Investments
The carrying amounts reported in the unaudited Condensed Consolidated Balance Sheets for these instruments
approximate fair value.
Fixed Maturity Preferred and Equity SecuritiesOther Long-term Investments
We measurehold a fund-linked note, which provides for an additional payment at maturity based on the value of an embedded derivative based on the actual return of a dedicated return fund. Fair value of the embedded derivative is based on an unobservable input, the NAV of the fund at the balance sheet date. The embedded derivative is similar to a call option on the NAV of the fund with a strike price of zero since F&G will not be required to make any additional payments at maturity of the fund-linked note in order to receive the NAV of the fund on the maturity date. A Black-Scholes model determines the NAV of the fund as the fair value of our securities based on assumptionsthe call option regardless of the values used for the other inputs to the option pricing model. The NAV of the fund is provided by market participants in pricing the security. The most appropriate valuation methodology is selected basedfund manager at the end of each calendar month and represents the value an investor would receive if it withdrew its investment on the specific characteristicsbalance sheet date. Therefore, the key unobservable input used in the Black-Scholes model is the value of the fixed maturity, preferredfund. As the value of the fund increases or equity security, and we will then consistently applydecreases, the valuation methodology to measure the security’s fair value. Our fair value measurementof the embedded derivative will
increase or decrease. See further discussion on the available-for-sale embedded derivative in Note E Derivative Financial Instruments.
The fair value of the credit-linked note is based on a marketweighted average of a broker quote and a discounted cash flow analysis. The discounted cash flow approach which utilizes pricesis based on the expected portfolio cash flows and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs toamortization schedule reflecting investment expectations, adjusted for assumptions on the market approach include third-party pricing services, independent broker quotations, or pricing matrices. We use observableportfolio's default and unobservable inputs in our valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers,recovery rates, and reference data including market research publications. In addition, market indicators and industry and economic events are monitored and further market data will be acquired when certain thresholds are met.
For certain security types, additional inputs may be used, or somethe note's discount rate. The fair value of the inputs described above may not be applicable. note is provided by the fund manager at the end of each quarter.
Contingent Consideration
The significant input used in thecontingent consideration liability is measured at fair value using a discounted cash flow model applied using a Monte Carlo simulation of estimated EBITDA at each measurement of equity securitiesperiod and for whicheach simulated path relative to contractual EBITDA milestones. The Monte Carlo simulation utilizes a risk-adjusted discount rate, volatility assumption, and risk-free rates to assess the marketprobability Roar's EBITDA trajectory reaches required milestones for the earn out payments to be made. The discounted cash flow approach valuation technique is employed is yield for comparable securities. Increases or decreases inapplies a company-specific discount rate based on F&G credit profile to future expected earn out payments to calculate the yields would result in lower or higher, respectively,estimated fair value measurements. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices.
the average outcome from the simulation. See further discussion on the contingent consideration in Note N - Tableof ContentsAcquisitions. We analyze the third-party valuation methodologies and related inputs to perform assessments to determine the appropriate level within the fair value hierarchy. However, we did not adjust prices received from third parties as of March 31, 2023 or December 31, 2022.
Certain equity investments are measured using NAV as a practical expedient in determining fair value.
Derivative Financial Instruments
TheOur call options, futures contracts, and interest rate swaps can either be exchange traded or over the counter. Exchange traded derivatives typically fall within Level 1 of the fair value of call optionshierarchy if there is based uponactive trading activity. Two methods are used to value over-the-counter derivatives. When required inputs are available, certain derivatives are valued using valuation pricing models, which representsrepresent what we would expect to receive or pay at the balance sheet date if we canceledcancelled or exercised the options,derivative, or entered into offsetting positions, or exercisedpositions. Valuation models require a variety of inputs, which include the options. Fair values for these instruments are determined internally, based on industry accepted valuation pricing models, which use of market-observable inputs, including interest rates,rate, yield curve volatilities, and other factors. These over-the-counter derivatives are typically classified within Level 2 of the fair value hierarchy as the majority trade in liquid markets, we can verify model inputs and model selection does not involve significant management judgment. When inputs aren’t available for valuation models, certain over-the-counter derivatives are valued using independent broker quotes, which are based on unobservable market data and classified within Level 3.
The fair value of futures contracts (specifically for FIA contracts) represents the cumulative unsettled variation margin (open trade equity, netreinsurance-related embedded derivatives in our funds withheld reinsurance agreements are estimated based upon the fair value of cash settlements)the assets supporting the funds withheld from reinsurance liabilities. The fair value of the assets is based on a quoted market price of similar assets (Level 2), which represents what we would expect to receive or pay atand therefore the balance sheet date if we canceledfair value of the contracts or entered into offsetting positions. These contracts areembedded derivative is based on market-observable inputs and classified as Level 1.2.
The fair value measurement of the FIA/IULindexed annuities/indexed universal life ("IUL") embedded derivatives included in contractholder funds is determined through a combination of market observable information and significant unobservable inputs using the option budget method. The market observable inputs are the market value of option and treasury rates. The significant unobservable inputs are the budgeted option cost (i.e., the expected cost to purchase call options in future periods to fund the equity indexed linked feature), surrender rates, mortality multiplier and non-performance spread. The mortality multiplier at March 31, 2024 and December 31, 2023 was applied to the 2012 Individual Annuity mortality tables. Increases or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. Increases or decreases in treasury 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.
TheInvestments in Unconsolidated affiliates
We have elected the fair value ofoption (“FVO”) for certain investments in unconsolidated affiliates as we believe this better aligns them with other investments in unconsolidated affiliates that are measured using NAV as a practical expedient in determining fair value. Investments measured using the reinsurance-related embedded derivativesfair value option are included in the funds withheld reinsurance agreements with Kubera Insurance (SAC) Ltd. ("Kubera") (effective October 31, 2021, this agreement was novated from Kubera to Somerset Reinsurance Ltd. ("Somerset"), a certified third-party reinsurer)Level 3 and ASPIDA Life Re Ltd ("Aspida Re") are estimated based upon the fair value of the assets supporting the funds withheld from reinsurance liabilities. The fair value of the assets is based on a quoted market price of similar assets (Level 2), and therefore the fair value of the embedded derivative is based on market-observable inputs and classified as Level 2. See Note L F&GReinsurance for further discussion on F&G reinsurance agreements.
Investments in Unconsolidated affiliates
The fair value of ourthese investments in unconsolidated affiliates isare determined using either a multiple of the affiliates’ EBITDA, which is derived from market analysis of transactions involving comparable companies.companies, or an adjusted transaction value, which contemplates measures such as EBITDA margins, revenue growth over certain time periods, growth opportunities and marketability. The EBITDA used in this calculation isfair values are based on the affiliates’ financial information. The inputs are usually considered unobservable, as not all market participants have access to this data.
Short-term investmentsInvestments
The carrying amounts reported in the unaudited Condensed Consolidated Balance Sheets for these instruments
approximate fair value.
Other long-term investmentsLong-term Investments
We hold a fund-linked note, which provides for an additional payment at maturity based on the value of an embedded derivative based on the actual return of a dedicated return fund. Fair value of the embedded derivative is based on an unobservable input, the NAV of the fund at the balance sheet date. The embedded derivative is similar to a call option on the NAV of the fund with a strike price of zero since F&G will not be required to make any additional payments at maturity of the fund-linked note in order to receive the NAV of the fund on the maturity date. A Black-Scholes model determines the NAV of the fund as the fair value of the call option regardless of the values used for the other inputs to the option pricing model. The NAV of the 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 fund. As the value of the fund increases or decreases, the fair value of the embedded derivative will
increase or decrease. See further discussion on the available-for-sale embedded derivative in Note E Derivative Financial Instruments.
The fair value of the credit-linked note is based on a weighted average of a broker quote and a discounted cash flow analysis. The discounted cash flow approach is based on the expected portfolio cash flows and amortization schedule reflecting
investment expectations, adjusted for assumptions on the portfolio's default and recovery rates, and the note's discount rate. The fair value of the note is provided by the fund manager at the end of each quarter.
Contingent Consideration
The contingent consideration liability is measured at fair value using a discounted cash flow model applied using a Monte Carlo simulation of estimated EBITDA at each measurement period and for each simulated path relative to contractual EBITDA milestones. The Monte Carlo simulation utilizes a risk-adjusted discount rate, volatility assumption, and risk-free rates to assess the probability Roar's EBITDA trajectory reaches required milestones for the earn out payments to be made. The discounted cash flow approach applies a company-specific discount rate based on F&G credit profile to future expected earn out payments to calculate the estimated fair value based on the average outcome from the simulation. See further discussion on the contingent consideration in Note N - Acquisitions.
Market Risk Benefits
MRBsMarket Risk Benefits ("MRBs") are measured at fair value using an attributed fee measurement approach where attributed fees are explicit rider charges collectible from the policyholder used to cover the excess benefits. The fair value is calculated using a risk neutral valuation method and is based on current net amounts at risk, market data, internal and industry experience, and other factors. The balances are computed using assumptions including mortality, full and partial surrender, rider benefit utilization, risk-free rates including non-performance spread and risk margin, market value of options and economic scenarios. Policyholder behavior assumptions are reviewed at least annually, typically in the third quarter, for any revisions. See further discussion on MRBs in Note PO - Market Risk Benefits.
Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of March 31, 20232024 and December 31, 20222023, excluding assets and liabilities for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services), are as follows:follow:
| | Fair Value at | | | Fair Value at | | Valuation Technique | | Unobservable Input(s) | | Range (Weighted average) |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | | | | | March 31, 2024 |
Assets | |
| Asset-backed securities | |
| Asset-backed securities | |
| Asset-backed securities | | $ | 89 | | | Third-Party Valuation | | Discount Rate | | 5.27% - 6.54% (6.03%) |
| Commercial mortgage-backed securities | |
Commercial mortgage-backed securities | |
Commercial mortgage-backed securities | | 1 | | | Third-Party Valuation | | Discount Rate | | 6.90% - 7.84% (7.22%) |
| Corporates | |
Corporates | |
Corporates | | 4 | | | Discounted Cash Flow | | Discount Rate | | 43.75% - 100.00% (57.07%) |
Corporates | | Corporates | 760 | | | Third-Party Valuation | | Discount Rate | | 4.16% - 12.87% (7.06%) |
| | | Fair Value at | | Valuation Technique | | Unobservable Input(s) | | Range (Weighted average) |
| | March 31, 2023 | |
| | (In millions) | | March 31, 2023 |
Assets | | | | | | | |
Asset-backed securities | $ | 6,019 | | | Broker-quoted | | Offered quotes | | 54.2% - 187.27% (93.86%) |
Residential mortgage-backed securities | |
| Asset-backed securities | 281 | | | Third-Party Valuation | | Offered quotes | | 39.43% - 102.60% (62.83%) |
Commercial mortgage-backed securities | 12 | | | Broker-quoted | | Offered quotes | | 95.34% - 101.25% (99.34%) |
Commercial mortgage-backed securities | 17 | | | Third-Party Valuation | | Offered quotes | | 73.36% - 88.60% (82.26%) |
Corporates | 682 | | | Broker-quoted | | Offered quotes | | 80.24% - 104.74% (95.90%) |
Corporates | 11 | | | Discounted Cash Flow | | Discount Rate | | 44.00% - 100.00% (75.18%) |
Corporates | 851 | | | Third-Party Valuation | | Offered quotes | | 0.00% - 105.32% (90.85%) |
| Municipals | 32 | | | Third-Party Valuation | | Offered quotes | | 104.38% - 104.38% (104.38%) |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 8 | | | Broker-quoted | | Offered quotes | | 0.00% - 98.38% (98.18%) |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 4 | | | Third-Party Valuation | | Offered quotes | | 94.93% | 3 | | | Third-Party Valuation | | Third-Party Valuation | | Discount Rate | | 5.64% - 5.64% (5.64%) |
Foreign Governments | Foreign Governments | 16 | | | Third-Party Valuation | | Offered quotes | | 99.20% - 99.44% (99.28%) | Foreign Governments | 5 | | | Third-Party Valuation | | Third-Party Valuation | | Discount Rate | | 6.77% - 6.77% (6.77%) |
Investment in unconsolidated affiliates | Investment in unconsolidated affiliates | 107 | | | Market Comparable Company Analysis | | EBITDA multiple | | 5x-14x (12.1x) | Investment in unconsolidated affiliates | 343 | | | Market Comparable Company Analysis | | Market Comparable Company Analysis | | EBITDA Multiple | | 14.1x - 20.2x (16x) |
Short term investments | 23 | | | Broker-quoted | | Offered quotes | | 100.00% - 100.00% (100.00%) |
| | | | | Adjusted Transaction Value | |
| | | | Adjusted Transaction Value | |
| | | | Adjusted Transaction Value | | | N/A | | N/A |
Preferred securities | Preferred securities | 1 | | | Discounted Cash Flow | | Discount rate | | 100.00% - 100.00% (100.00%) | Preferred securities | 1 | | | Discounted Cash Flow | | Discounted Cash Flow | | Discount rate | | 100.00% - 100.00% (100.00%) |
| Equity securities | 7 | | | Broker Quoted | | Offered quotes | | $68.50 - $68.50 ($68.50) |
| Equity securities | Equity securities | 4 | | | Discounted Cash Flow | | Discount rate | | 11.16% - 11.16% (11.16%) |
| | Market Comparable Company Analysis | | EBITDA multiple | | 7.8x - 7.8x (7.8x) |
| Equity securities | |
| Equity securities | | 7 | | | Discounted Cash Flow | | Discount rate | | 10.90% - 10.90% (10.90%) |
| | | Market Comparable Company Analysis | | | | | Market Comparable Company Analysis | | EBITDA multiple | | 6x - 6x (6x) |
Other long-term investments: | Other long-term investments: | |
Available-for-sale embedded derivative | Available-for-sale embedded derivative | 25 | | | Black Scholes model | | Market value of fund | | 100.00% |
Secured borrowing receivable | 10 | | | Broker-quoted | | Offered quotes | | 100.00% - 100.00% (100.00%) |
Credit Linked Note | 13 | | | Broker-quoted | | Offered quotes | | 96.23% |
Available-for-sale embedded derivative | |
Available-for-sale embedded derivative | | 30 | | | Black Scholes Model | | Market Value of AnchorPath Fund | | 100.00% |
| Market risk benefits asset | Market risk benefits asset | 106 | | | Discounted Cash Flow | | Mortality | | 100.00% - 100.00% (100.00%) |
| Market risk benefits asset | |
| | Surrender rates | | 0.25% - 10.00% (5.03%) |
Market risk benefits asset | | 95 | | | Discounted Cash Flow | | Mortality | | 100.00% - 100.00% (100.00%) |
| | | | | | Surrender Rates | |
| | | | | Surrender Rates | |
| | | | | Surrender Rates | | | 0.25% - 10.00% (5.13%) |
| | | | | Partial Withdrawal Rates | | | | | | | Partial Withdrawal Rates | | 2.00% - 20.41% (2.50%) |
| | | | | Non-Performance Spread | | | | | | | Non-Performance Spread | | 0.35% - 1.02% (0.87%) |
| | | | | GMWB Utilization | | | | | | | GMWB Utilization | | 50.00% - 60.00% (50.81%) |
Total financial assets at fair value (a) | |
Liabilities | |
Liabilities | |
Liabilities | |
| Derivative investments: | |
| Derivative investments: | |
| Derivative investments: | |
Indexed annuity/ IUL embedded derivatives, included in contractholder funds | |
Indexed annuity/ IUL embedded derivatives, included in contractholder funds | |
Indexed annuity/ IUL embedded derivatives, included in contractholder funds | | $ | 4,679 | | | Discounted Cash Flow | | Market Value of Option | | 0.00% - 24.11% (3.52%) |
| | | | | | Mortality Multiplier | |
| | | | | Mortality Multiplier | |
| | | | | Mortality Multiplier | | | 100.00% - 100.00% (100.00%) |
| | | | | Surrender Rates | | | | | | | Surrender Rates | | 0.25% - 70.00% (6.80%) |
| | | | | Partial Withdrawals | | | | | | | Partial Withdrawals | | 2.00% - 35.71% (2.74%) |
| | | | | Non-Performance Spread | | | | | | | Non-Performance Spread | | 0.35% - 1.02% (0.87%) |
| | | | | Option Cost | | | | | | | Option Cost | | 0.07% - 5.70% (2.47%) |
Contingent consideration | | Contingent consideration | 57 | | | Discounted Cash Flow | | Risk-Adjusted Discount Rate | | 13.50% - 13.50% (13.50%) |
| | | | | EBITDA Volatility | | | | | | | EBITDA Volatility | | 35.00% - 35.00% (35.00%) |
| | | | | | Counterparty-Discount Rate | |
| | | | | Counterparty-Discount Rate | |
| | | | | Counterparty-Discount Rate | | | 7.00% - 7.00% (7.00%) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Partial withdrawal rates | | 2.00% - 21.74%
(2.49%)
|
| | | | | Non-performance spread | | 0.48% - 1.42%
(1.31%)
|
| | | | | GMWB utilization | | 50.00% - 60.00%
(50.89%)
|
Total financial assets at fair value | $ | 8,229 | | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Derivative investments: | | | | | | | |
FIA/ IUL embedded derivatives, included in contractholder funds | $ | 3,569 | | | Discounted cash flow | | Market value of option | | 0.00% - 28.31% (1.54%) |
| | | | | Swap rates | | 3.48% - 4.97% (4.23%) |
| | | | | Mortality multiplier | | 100.00% - 100.00% (100.00%) |
| | | | | Surrender rates | | 0.25% - 70.00% (6.57%) |
| | | | | Partial withdrawals | | 2.00% - 32.26% (2.74%) |
| | | | | Non-performance spread | | 0.48% - 1.42% (1.31%) |
| | | | | Option cost | | 0.07% - 5.67% (2.11%) |
| | | | | | | |
| | | | | | | |
Market risk benefits liability | 324425 | | | Discounted cash flowCash Flow | | Mortality | | 100.00% - 100.00% (100.00%) |
| | | | | Surrender ratesRates | | 0.25% - 10.00% (5.03%(5.13%)
|
| | | | | Partial withdrawal ratesWithdrawal Rates | | 2.00% - 21.74%20.41% (2.49%(2.50%)
|
| | | | | Non-performance spreadNon-Performance Spread | | 0.48%0.35% - 1.42%1.02%
(1.31%(0.87%)
|
| | | | | GMWB utilizationUtilization | | 0.48%50.00% - 1.42%60.00%
(50.89%(50.81%)
|
Total financial liabilities at fair value (a) | $ | 3,8935,161 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at(a) Assets of $9,138 million and liabilities of $19 million for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are excluded from the respective totals in the table above.
| | | | | | | | | | | | | | | | | | | | | | | | | Fair Value at | | Valuation Technique | | Unobservable Input(s) | | Range (Weighted average) | | December 31, 2023 | | | | | (In millions) | | | | December 31, 2023 | Assets | | | | | | | | | | | | | | | | | | | | | | | | Asset-backed securities | $ | 57 | | | Third-Party Valuation | | Discount Rate | | 5.09% - 6.95% (6.00%) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporates | 787 | | | Third-Party Valuation | | Discount Rate | | 0.00% - 12.87% (6.91%) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporates | 8 | | Discounted Cash Flow | | Discount Rate | | 44.00% - 100.00% (75.20%) | | | | | | | | | | | | | | | | | | | | | | | | | Municipals | 32 | | Third-Party Valuation | | Discount Rate | | 6.25% - 6.25% (6.25%) | | | | | | | | | Residential mortgage-backed securities | 3 | | | Third-Party Valuation | | Discount Rate | | 5.46% - 5.46% (5.46%) | Foreign Governments | 16 | | | Third-Party Valuation | | Discount Rate | | 6.94% - 7.68% (7.45%) | Investment in unconsolidated affiliates | 285 | | | Market Comparable Company Analysis | | EBITDA Multiple | | 4.4x - 31.8x (23.2x) | | | | | | | | | | | | | | | | | | | | | | | | | Preferred securities | 1 | | | Discounted Cash Flow | | Discount rate | | 100.00% | | | | | | | | | | | | | | | | | | | | | | | | | Equity securities | 7 | | | Discounted Cash Flow | | Discount rate | | 11.50% - 11.50% (11.50%) | Other long-term investments: | | | | | | | | Available-for-sale embedded derivative | 28 | | | Black Scholes Model | | Market Value of Fund | | 100.00% | Market risk benefits asset | 88 | | | Discounted Cash Flow | | Mortality | | 100.00% - 100.00% (100.00%) | | | | | | Surrender Rates | | 0.25% - 10.00% (5.22%) | | | | | | Partial Withdrawal Rates | | —% - 23.26% (2.50%) | | | | | | Non-Performance Spread | | 0.38% - 1.10% (0.96%) | | | | | | GMWB Utilization | | 50.00% - 60.00% (50.81%) | Total financial assets at fair value (a) | $ | 1,312 | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | | | | | | | Indexed annuity/ IUL embedded derivatives, included in contractholder funds | 4,258 | | | Discounted Cash Flow | | Market Value of Option | | 0.00% - 18.93% (2.63%) | | | | | | Swap rates | | 3.84% - 5.26% (4.55%) | | | | | | Mortality Multiplier | | 100.00% - 100.00% (100.00%) | | | | | | Surrender Rates | | 0.25% - 70.00% (6.83%) | | | | | | Partial Withdrawals | | 2.00% - 34.48% (2.74%) | | | | | | Non-Performance Spread | | 0.38% - 1.10% (0.96%) | | | | | | Option cost | | 0.07% - 5.48% (2.38%) | | | | | | | | | | | | | | | | | Market risk benefits liability | 403 | | Discounted Cash Flow | | Mortality | | 100.00%- 100.00% (100.00%) | | | | | | Surrender Rates | | 0.25% - 10.00% (5.22%) | | | | | | Partial Withdrawal Rates | | 0.00% - 23.26% (2.50%) | | | | | | Non-Performance Spread | | 0.38% - 1.10% (0.96%) | | | | | | GMWB Utilization | | 50.00% - 60.00% (50.81%) | Total financial liabilities at fair value | $ | 4,661 | | | | | | | | (a) Assets of $8,365 million for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are excluded from the table above.
| | Valuation Technique | | Unobservable Input(s) | | Range (Weighted average) |
| December 31, 2022 | | | |
| (In millions) | | | | December 31, 2022 |
Assets | | | | | | | |
Asset-backed securities | $ | 5,916 | | | Broker-quoted | | Offered quotes | | 52.85% - 117.17%
(94.18%)
|
| | | | | | | |
Asset-backed securities | 347 | | | Third-Party Valuation | | Offered quotes | | 41.43% - 210.50%
(67.99%)
|
| | | | | | | |
Commercial mortgage-backed securities | 20 | | | Broker-quoted | | Offered quotes | | 109.02% - 109.02%
(109.02%)
|
| | | | | | | |
Commercial mortgage-backed securities | 17 | | | Third-Party Valuation | | Offered quotes | | 74.66% - 88.48%
(82.74%)
|
Corporates | 602 | | | Broker-quoted | | Offered quotes | | 79.16% - 102.53%
(94.16%)
|
Corporates | 826 | | | Third-Party Evaluation | | Offered quotes | | —% - 104.96%
(89.69%)
|
Corporates | 12 | | | Discounted Cash Flow | | Discount Rate | | 44.00% - 100.00% (77.02%) |
| | | | | | | |
Municipals | 29 | | | Third-Party Evaluation | | Offered quotes | | 93.95% - 93.95%
(93.95%)
|
| | | | | | | |
| | | | | | | |
Foreign governments | 16 | | Third-Party Evaluation | | Offered quotes | | 99.78% - 102.29%
(100.56%)
|
Investment in unconsolidated affiliates | 23 | | | Market Comparable Company Analysis | | EBITDA multiple | | 5x-5.50x |
| | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage-backed securities | 302 | | Broker-quoted | | Offered quotes | | —% - 91.04% (86.38%) |
| | | | | | | |
| | | | | | | |
Preferred Securities | 1 | | Discounted Cash Flow | | Discount rate | | 100.00% |
Equity securities | 6 | | Broker-quoted | | Offered Quotes | | $64.25 - $64.25 ($64.25) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Equity securities | 4 | | | Discounted Cash Flow | | Discount Rate | | 11.10% - 11.10% (11.10%) |
| | | Market Comparable Company Analysis | | EBITDA multiple | | 5.6x - 5.6x (5.6x) |
Other long-term investments: | | | | | | | |
Available-for-sale embedded derivative | 23 | | | Black Scholes model | | Market value of fund | | 100.00% |
Secured borrowing receivable | 10 | | | Broker-quoted | | Offered quotes | | 100.00% - 100.00% (100.00%) |
Credit Linked Note | 15 | | | Broker-quoted | | Offered quotes | | 96.23% |
| | | | | | | |
Market risk benefits asset | 117 | | | Discounted Cash Flow | | Mortality | | 100.00% - 100.00% (100.00%) |
| | | | | Surrender rates | | 0.25% - 10.00% (4.69%) |
| | | | | Partial withdrawal rates | | 2.00% - 21.74% (2.49%) |
| | | | | Non-performance spread | | 0.48% - 1.44% (1.30%) |
| | | | | GMWB utilization | | 50.00% - 60.00% (50.94%) |
Total financial assets at fair value | $ | 8,286 | | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
| | | | | | | |
Derivative investments: | | | | | | | |
FIA/ IUL embedded derivatives, included in contractholder funds | 3,115 | | | Discounted cash flow | | Market value of option | | —% - 23.90% (87.00%) |
| | | | | Swap rates | | 3.88% - 4.73% (4.31%) |
| | | | | Mortality multiplier | | 100.00% - 100.00% (100.00%) |
| | | | | Surrender rates | | 0.25% - 70.00% (6.57%) |
| | | | | Partial withdrawals | | 2.00% - 29.41% (2.73%) |
| | | | | Non-performance spread | | 0.48% - 1.44% (1.30%) |
| | | | | Option cost | | 0.07% - 4.97% (1.89%) |
Market risk benefits liability | 282 | | | Discounted Cash Flow | | Mortality | | 100.00% - 100.00% (100.00%) |
| | | | | Surrender rates | | 0.25% - 10.00% (4.69%) |
| | | | | Partial withdrawal rates | | 2.00% - 21.74% (2.49%) |
| | | | | Non-performance spread | | 0.48% - 1.44% (1.30%) |
| | | | | GMWB utilization | | 50.00% - 60.00% (50.94%) |
| | | | | | | |
| | | | | | | |
Total financial liabilities at fair value | $ | 3,397 | | | | | | | |
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 months ended March 31, 20232024 and 2022.2023. 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 March 31, 2023 |
| Balance at Beginning of Period | | | Total Gains (Losses) | | Purchases | | Sales | | Settlements | | Net transfer In (Out) of Level 3 (a) | | Balance at End of Period | | Change in Unrealized Gains (Losses) Incl in OCI |
| | | Included in Earnings | | Included in AOCI | | Change in Unrealized Gains (Losses) Incl in OCI |
| Three months ended March 31, 2024 | |
| Three months ended March 31, 2024 | |
| Three months ended March 31, 2024 | |
| Balance at Beginning of Period | |
| Balance at Beginning of Period | |
| Balance at Beginning of Period | |
| | | Included in Earnings | |
| | | Included in Earnings | |
| | | Included in Earnings | |
Assets | |
Assets | |
Assets | Assets | (In millions) |
Fixed maturity securities available-for-sale: | Fixed maturity securities available-for-sale: | | | |
Fixed maturity securities available-for-sale: | |
Fixed maturity securities available-for-sale: | |
Asset-backed securities | |
Asset-backed securities | |
Asset-backed securities | Asset-backed securities | $ | 6,263 | | | | $ | (8) | | | $ | 18 | | | $ | 416 | | | $ | (83) | | | $ | (235) | | | $ | (71) | | | $ | 6,300 | | | $ | 18 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 37 | | | | — | | | 1 | | | 12 | | | — | | | — | | | (21) | | | 29 | | | 1 | |
Commercial mortgage-backed securities | |
Commercial mortgage-backed securities | |
Corporates | |
Corporates | |
Corporates | Corporates | 1,440 | | | | (1) | | | (23) | | | 133 | | | — | | | (5) | | | — | | | 1,544 | | | (23) | |
| Municipals | Municipals | 29 | | | | — | | | 3 | | | — | | | — | | | — | | | — | | | 32 | | | 3 | |
| Municipals | |
| Municipals | |
Residential mortgage-backed securities | |
Residential mortgage-backed securities | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 302 | | | | 1 | | | 8 | | | 8 | | | — | | | (8) | | | (299) | | | 12 | | | 8 | |
Foreign Governments | Foreign Governments | 16 | | | | — | | | — | | | — | | | — | | | — | | | — | | | 16 | | | — | |
Investment in unconsolidated affiliates | 23 | | | | — | | | — | | | 84 | | | — | | | — | | | — | | | 107 | | | — | |
Short term investments | — | | | | — | | | — | | | 23 | | | — | | | — | | | — | | | 23 | | | — | |
Foreign Governments | |
Foreign Governments | |
| Preferred securities | |
| Preferred securities | |
| Preferred securities | Preferred securities | 1 | | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | |
Equity securities | Equity securities | 10 | | | | — | | | — | | | 1 | | | — | | | — | | | — | | | 11 | | | — | |
Equity securities | |
Equity securities | |
Interest Rate Swaps | |
Interest Rate Swaps | |
Interest Rate Swaps | |
Investment in unconsolidated affiliates | |
Investment in unconsolidated affiliates | |
Investment in unconsolidated affiliates | |
Short term investments | |
Short term investments | |
Short term investments | |
Other long-term investments: | |
Other long-term investments: | |
Other long-term investments: | Other long-term investments: | | | |
| Available-for-sale embedded derivative | Available-for-sale embedded derivative | 23 | | | | — | | | 2 | | | — | | | — | | | — | | | — | | | 25 | | | 2 | |
| Available-for-sale embedded derivative | |
| Available-for-sale embedded derivative | |
| Credit linked note | Credit linked note | 15 | | | | — | | | — | | | — | | | — | | | (2) | | | — | | | 13 | | | — | |
Secured borrowing receivable | 10 | | | | — | | | — | | | — | | | — | | | — | | | — | | | 10 | | | — | |
| Credit linked note | |
| Credit linked note | |
| Subtotal Level 3 assets at fair value | Subtotal Level 3 assets at fair value | $ | 8,169 | | | | $ | (8) | | | $ | 9 | | | $ | 677 | | | $ | (83) | | | $ | (250) | | | $ | (391) | | | $ | 8,123 | | $ | 8,123 | | $ | 9 | |
Market risk benefits asset | 117 | | | | | | | | | | | | | | | | 106 | | | |
| Subtotal Level 3 assets at fair value | |
| Subtotal Level 3 assets at fair value | |
Market risk benefits asset (b) | |
Market risk benefits asset (b) | |
Market risk benefits asset (b) | |
Total Level 3 assets at fair value | |
Total Level 3 assets at fair value | |
Total Level 3 assets at fair value | Total Level 3 assets at fair value | $ | 8,286 | | | | $ | 8,229 | | |
Liabilities | Liabilities | | | | | |
Liabilities | |
Liabilities | |
| FIA/ IUL embedded derivatives, included in contractholder funds | 3,115 | | | | 385 | | | — | | | 96 | | | — | | | (27) | | | — | | | 3,569 | | | — | |
Indexed annuity/ IUL embedded derivatives, included in contractholder funds | |
| Indexed annuity/ IUL embedded derivatives, included in contractholder funds | |
| Indexed annuity/ IUL embedded derivatives, included in contractholder funds | |
| Interest rate swaps | |
| Interest rate swaps | |
| Interest rate swaps | |
Contingent consideration (c) | |
Contingent consideration (c) | |
Contingent consideration (c) | |
Subtotal Level 3 liabilities at fair value | Subtotal Level 3 liabilities at fair value | $ | 3,115 | | | | $ | 385 | | | $ | — | | | $ | 96 | | | $ | — | | | $ | (27) | | | $ | — | | | $ | 3,569 | | | $ | — | |
Market risk benefits liability | 282 | | | | | | | | | | | | | | | | 324 | | | |
Subtotal Level 3 liabilities at fair value | |
Subtotal Level 3 liabilities at fair value | |
Market risk benefits liability (b) | |
Market risk benefits liability (b) | |
Market risk benefits liability (b) | |
Total Level 3 liabilities at fair value | Total Level 3 liabilities at fair value | $ | 3,397 | | | | $ | 3,893 | | |
Total Level 3 liabilities at fair value | |
Total Level 3 liabilities at fair value | |
(a) The net transfers out of Level 3 during the three months ended March 31, 20232024 were exclusively to Level 2.
(b) Refer to Note O- Market Risk Benefits for roll forward activity of the net Market Risk Benefits Asset and Liability.
(c) The initial contingent consideration recorded in the Roar transaction is included in purchases in the table above. Refer to Note N - Acquisitions for more information.
| | | Three months ended March 31, 2023 | |
| | Three months ended March 31, 2022 |
| Three months ended March 31, 2023 | |
| | Balance at Beginning of Period | | Total Gains (Losses) | | Purchases | | Sales | | Settlements | | Net transfer In (Out) of Level 3 (a) | | Balance at End of Period | | Change in Unrealized Gains (Losses) Incl in OCI |
| Included in Earnings | | Included in AOCI | |
| Three months ended March 31, 2023 | |
| Balance at Beginning of Period | |
| Balance at Beginning of Period | |
| Balance at Beginning of Period | |
| | Included in Earnings | |
| | Included in Earnings | |
| | Included in Earnings | |
Assets | |
Assets | |
Assets | Assets | (In millions) |
Fixed maturity securities available-for-sale: | Fixed maturity securities available-for-sale: | |
Fixed maturity securities available-for-sale: | |
Fixed maturity securities available-for-sale: | |
Asset-backed securities | |
Asset-backed securities | |
Asset-backed securities | Asset-backed securities | $ | 3,959 | | | $ | — | | | $ | (130) | | | $ | 400 | | | $ | — | | | $ | (152) | | | $ | 84 | | | $ | 4,161 | | | $ | (138) | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 35 | | | — | | | (2) | | | — | | | — | | | — | | | 7 | | | 40 | | | (2) | |
Commercial mortgage-backed securities | |
Commercial mortgage-backed securities | |
Corporates | |
Corporates | |
Corporates | Corporates | 1,135 | | | — | | | (74) | | | 80 | | | — | | | (26) | | | 26 | | | 1,141 | | | (73) | |
| Municipals | Municipals | 43 | | | — | | | (6) | | | — | | | — | | | — | | | — | | | 37 | | | (5) | |
| Municipals | |
| Municipals | |
Residential mortgage-backed securities | |
Residential mortgage-backed securities | |
Residential mortgage-backed securities | |
Foreign Governments | |
Foreign Governments | |
Foreign Governments | Foreign Governments | 18 | | | — | | | (1) | | | — | | | — | | | — | | | — | | | 17 | | | (1) | |
Investment in unconsolidated affiliates | Investment in unconsolidated affiliates | 21 | | | — | | | — | | | — | | | — | | | — | | | — | | | 21 | | | — | |
Investment in unconsolidated affiliates | |
Investment in unconsolidated affiliates | |
Short term investments | |
Short term investments | |
Short term investments | Short term investments | 321 | | | — | | | (1) | | | 20 | | | — | | | — | | | (321) | | | 19 | | | (1) | |
Preferred securities | Preferred securities | 2 | | | — | | | (1) | | | — | | | — | | | — | | | — | | | 1 | | | (1) | |
Preferred securities | |
Preferred securities | |
Equity securities | |
Equity securities | |
Equity securities | Equity securities | 9 | | | — | | | — | | | 1 | | | — | | | — | | | — | | | 10 | | | — | |
Other long-term investments: | Other long-term investments: | |
Other long-term investments: | |
Other long-term investments: | |
| Available-for-sale embedded derivative | |
| Available-for-sale embedded derivative | |
| Available-for-sale embedded derivative | Available-for-sale embedded derivative | 34 | | | (4) | | | — | | | — | | | — | | | — | | | — | | | 30 | | | — | |
| Credit linked note | Credit linked note | 23 | | | — | | | (3) | | | — | | | — | | | (1) | | | — | | | 19 | | | — | |
| | Credit linked note | |
| Credit linked note | |
Secured borrowing receivable | |
Secured borrowing receivable | |
Secured borrowing receivable | |
Subtotal Level 3 assets at fair value | Subtotal Level 3 assets at fair value | $ | 5,600 | | | $ | (4) | | | $ | (218) | | | $ | 501 | | | $ | — | | | $ | (179) | | | $ | (204) | | | $ | 5,496 | | | $ | (221) | |
Market risk benefits asset | 41 | | | | | | | | | | | | | | | 29 | | | |
Subtotal Level 3 assets at fair value | |
Subtotal Level 3 assets at fair value | |
Market risk benefits asset (b) | |
Market risk benefits asset (b) | |
Market risk benefits asset (b) | |
Total Level 3 assets at fair value | |
Total Level 3 assets at fair value | |
Total Level 3 assets at fair value | Total Level 3 assets at fair value | $ | 5,641 | | | $ | 5,525 | | |
Liabilities | Liabilities | | | | |
Liabilities | |
Liabilities | |
| FIA embedded derivatives, included in contractholder funds | 3,883 | | | (584) | | | — | | | 126 | | | — | | | (30) | | | — | | | 3,395 | | | — | |
Indexed annuity/IUL embedded derivatives, included in contractholder funds | |
| Indexed annuity/IUL embedded derivatives, included in contractholder funds | |
| Indexed annuity/IUL embedded derivatives, included in contractholder funds | |
| Subtotal Level 3 liabilities at fair value | Subtotal Level 3 liabilities at fair value | $ | 3,883 | | | $ | (584) | | | $ | — | | | $ | 126 | | | $ | — | | | $ | (30) | | | $ | — | | | $ | 3,395 | | | $ | — | |
Market risk benefits liability | 469 | | | | | | | | | | | | | | | 486 | | | |
| Subtotal Level 3 liabilities at fair value | |
| Subtotal Level 3 liabilities at fair value | |
Market risk benefits liability (b) | |
Market risk benefits liability (b) | |
Market risk benefits liability (b) | |
Total Level 3 liabilities at fair value | Total Level 3 liabilities at fair value | $ | 4,352 | | | $ | 3,881 | | |
Total Level 3 liabilities at fair value | |
Total Level 3 liabilities at fair value | |
(a)The net transfers out of Level 3 during the three months ended March 31, 2023 were to Level 2.
(b)Refer to Note O - Market Risk Benefits for roll forward activity of the net Market Risk Benefits Asset and Liability.
.
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.
Mortgage Loans
The fair value of mortgage loans is established using a discounted cash flow method based on internal credit rating, maturity and future income. This yield-based approach is sourced from our third-party vendor. The internal 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. The inputs used to measure the fair value of our mortgage loans are classified as Level 3 within the fair value hierarchy.
Investments in Unconsolidated affiliates
In our F&G segment, the fair value of Investments in unconsolidated affiliates is primarily determined using NAV as a practical expedient and are included in the NAV column in the table below. In our title segment, Investments in unconsolidated affiliates are accounted for under the equity method of accounting. In our title segment, Investments in unconsolidated affiliates were $220 million and $187 million as of March 31, 2023 and December 31, 2022, respectively.
Policy Loans (included within Other long-term investments)
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.
Company Owned Life Insurance
Company owned life insurance ("COLI") is a life insurance program used to finance certain employee benefit expenses. The fair value of COLI is based on net realizable value, which is generally cash surrender value. COLI is classified as Level 3 within the fair value hierarchy.
Other Invested Assets (included within Other long-term investments)
The fair value of bank loans is estimated using a discounted cash flow method with the discount rate based on weighted average cost of capital ("WACC"). This yield-based approach is sourced from a third-party vendor and the WACC establishes a market participant discount rate by determining the hypothetical capital structure for the asset should it be underwritten as of each period end. Bank loans are classified as Level 3 within the fair value hierarchy. For cost method investments, our carrying value approximates fair value. Cost method investments are classified as Level 1 within the fair value hierarchy.
Investment Contracts
Investment contracts include deferred annuities (FIAs and fixed rate annuities), indexed IULs, funding agreements, PRTs and immediate annuity contracts without life contingencies. The FIA/ IUL embedded derivatives, included in contractholder funds, are excluded as they are carried at fair value. The fair value of the FIA, fixed rate annuity and IUL contracts is based on their cash surrender value (i.e., cost the Company would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value of funding agreements, PRTs and immediate annuity contracts without life contingencies is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. The Company is not required to, and has not, estimated the fair value of the 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.
Other
Federal Home Loan Bank of Atlanta ("FHLB") common stock, Accounts receivable and Notes receivable are carried at cost, which approximates fair value. FHLB common stock is classified as Level 2 within the fair value hierarchy. Accounts receivable and Notes receivable are classified as Level 3 within the fair value hierarchy.
Debt
The fair value of debt, with the exception of the F&G Credit Agreement, as defined in Note O Notes Payable, is based on quoted market prices. The carrying value of the F&G Credit Agreement approximates fair value as the rates are comparable to those at which we could currently borrow under similar terms.The inputs used to measure the fair value of our outstanding debt are classified as Level 2 within the fair value hierarchy.
The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the unaudited Condensed Consolidated Balance Sheets at amounts other than fair value, summarized according to the fair value hierarchy previously described.
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| March 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Total Estimated Fair Value | | Carrying Amount |
Assets | (In millions) |
FHLB common stock | $ | — | | | $ | 106 | | | $ | — | | | $ | — | | | $ | 106 | | | $ | 106 | |
Commercial mortgage loans | — | | | — | | | 2,178 | | | — | | | 2,178 | | | 2,458 | |
Residential mortgage loans | — | | | — | | | 2,323 | | | — | | | 2,323 | | | 2,526 | |
Investments in unconsolidated affiliates | — | | | — | | | 4 | | | 2,558 | | | 2,562 | | | 2,562 | |
Policy loans | — | | | — | | | 55 | | | — | | | 55 | | | 55 | |
Other invested assets | 91 | | | — | | | 11 | | | — | | | 102 | | | 102 | |
Company-owned life insurance | — | | | — | | | 381 | | | — | | | 381 | | | 381 | |
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Trade and notes receivables, net of allowance | — | | | — | | | 428 | | | — | | | 428 | | | 428 | |
Total | $ | 91 | | | $ | 106 | | | $ | 5,380 | | | $ | 2,558 | | | $ | 8,135 | | | $ | 8,618 | |
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Liabilities | | | | | | | | | | | |
Investment contracts, included in contractholder funds | $ | — | | | $ | — | | | $ | 36,117 | | | $ | — | | | $ | 36,117 | | | $ | 39,809 | |
Debt | — | | | 3,308 | | | — | | | — | | | 3,308 | | | 3,696 | |
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Total | $ | — | | | $ | 3,308 | | | $ | 36,117 | | | $ | — | | | $ | 39,425 | | | $ | 43,505 | |
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| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Total Estimated Fair Value | | Carrying Amount |
Assets | (In millions) |
FHLB common stock | $ | — | | | $ | 99 | | | $ | — | | | $ | — | | | $ | 99 | | | $ | 99 | |
Commercial mortgage loans | — | | | — | | | 2,083 | | | — | | | 2,083 | | | 2,406 | |
Residential mortgage loans | — | | | — | | | 1,892 | | | — | | | 1,892 | | | 2,148 | |
Investments in unconsolidated affiliates | — | | | — | | | 5 | | | 2,427 | | | 2,432 | | | 2,432 | |
Policy loans | — | | | — | | | 52 | | | — | | | 52 | | | 52 | |
Other invested assets | 93 | | | — | | | 16 | | | — | | | 109 | | | 109 | |
Company-owned life insurance | — | | | — | | | 363 | | | — | | | 363 | | | 363 | |
Trade and notes receivables, net of allowance | — | | | — | | | 467 | | | — | | | 467 | | | 467 | |
Total | $ | 93 | | | $ | 99 | | | $ | 4,878 | | | $ | 2,427 | | | $ | 7,497 | | | $ | 8,076 | |
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Liabilities | | | | | | | | | | | |
Investment contracts, included in contractholder funds | $ | — | | | $ | — | | | $ | 34,464 | | | $ | — | | | $ | 34,464 | | | $ | 38,412 | |
Debt | — | | | 2,776 | | | — | | | — | | | 2,776 | | | 3,238 | |
Total | $ | — | | | $ | 2,776 | | | $ | 34,464 | | | $ | — | | | $ | 37,240 | | | $ | 41,650 | |
For investments for which NAV is used as a practical expedient for fair value, we do not have any significant restrictions in our ability to liquidate our positions in these investments, other than obtaining general partner approval, nor do we believe it is probable that a price less than NAV would be received in the event of a liquidation.
We review 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.
Note D — Investments
Our fixed maturity securities investments have been designated as AFS, and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included in AOCI, net of deferred income taxes. Our preferred and equity securities investments are carried at fair value with unrealized gains and losses included in net earnings. The Company’s consolidated investments at March 31, 2023 and December 31, 2022 are summarized as follows:
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| March 31, 2023 |
| Amortized Cost | | Allowance for Expected Credit Losses | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | |
Available-for-sale securities | (In millions) | | |
Asset-backed securities | $ | 12,620 | | | $ | (10) | | | $ | 43 | | | $ | (761) | | | $ | 11,892 | | | |
Commercial mortgage-backed securities | 4,048 | | | — | | | 3 | | | (336) | | | 3,715 | | | |
Corporates | 18,426 | | | (3) | | | 64 | | | (2,656) | | | 15,831 | | | |
Hybrids | 853 | | | — | | | 9 | | | (82) | | | 780 | | | |
Municipals | 1,850 | | | — | | | 13 | | | (234) | | | 1,629 | | | |
Residential mortgage-backed securities | 1,770 | | | (7) | | | 13 | | | (107) | | | 1,669 | | | |
U.S. Government | 341 | | | — | | | — | | | (12) | | | 329 | | | |
Foreign Governments | 311 | | | — | | | 1 | | | (47) | | | 265 | | | |
Total available-for-sale securities | $ | 40,219 | | | $ | (20) | | | $ | 146 | | | $ | (4,235) | | | $ | 36,110 | | | |
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| December 31, 2022 |
| Amortized Cost | | Allowance for Expected Credit Losses | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | |
Available-for-sale securities | (In millions) | | |
Asset-backed securities | $ | 12,209 | | | $ | (8) | | | $ | 36 | | | $ | (770) | | | $ | 11,467 | | | |
Commercial mortgage-backed/asset-backed securities | 3,337 | | | (1) | | | 11 | | | (284) | | | 3,063 | | | |
Corporates | 17,396 | | | (22) | | | 32 | | | (3,069) | | | 14,337 | | | |
Hybrids | 806 | | | — | | | 9 | | | (84) | | | 731 | | | |
Municipals | 1,749 | | | — | | | 4 | | | (293) | | | 1,460 | | | |
Residential mortgage-backed securities | 1,638 | | | (8) | | | 6 | | | (109) | | | 1,527 | | | |
U.S. Government | 287 | | | — | | | — | | | (16) | | | 271 | | | |
Foreign Governments | 286 | | | — | | | — | | | (47) | | | 239 | | | |
Total available-for-sale securities | $ | 37,708 | | | $ | (39) | | | $ | 98 | | | $ | (4,672) | | | $ | 33,095 | | | |
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Securities held on deposit with various state regulatory authorities had a fair value of $18,876 million and $17,870 million at March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023 and December 31, 2022, the Company held no material investments that were non-income producing for a period greater than twelve months.
As of March 31, 2023 and December 31, 2022, the Company's accrued interest receivable balance was $413 million and $365 million, respectively. Accrued interest receivable is classified within Prepaid expenses and other assets within the unaudited Condensed Consolidated Balance Sheets.
In accordance with our FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities and are not available to us for general purposes. The collateral investments had a fair value of $3,830 million and $3,387 million as of March 31, 2023 and December 31, 2022, respectively.
The amortized cost and fair value of fixed maturity securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations.
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| March 31, 2023 | | December 31, 2022 |
| (In millions) | | (In millions) |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Corporates, Non-structured Hybrids, Municipal and Government securities: | | | | | | | |
Due in one year or less | $ | 586 | | | $ | 574 | | | $ | 536 | | | $ | 527 | |
Due after one year through five years | 3,921 | | | 3,745 | | | 3,288 | | | 3,089 | |
Due after five years through ten years | 2,265 | | | 2,079 | | | 2,171 | | | 1,939 | |
Due after ten years | 14,983 | | | 12,410 | | | 14,503 | | | 11,457 | |
Subtotal | 21,755 | | | 18,808 | | | 20,498 | | | 17,012 | |
Other securities, which provide for periodic payments: | | | | | | | |
Asset-backed securities | 12,620 | | | 11,892 | | | 12,209 | | | 11,467 | |
Commercial mortgage-backed securities | 4,048 | | | 3,715 | | | 3,337 | | | 3,063 | |
Structured hybrids | 26 | | | 26 | | | 26 | | | 26 | |
Residential mortgage-backed securities | 1,770 | | | 1,669 | | | 1,638 | | | 1,527 | |
Subtotal | 18,464 | | | 17,302 | | | 17,210 | | | 16,083 | |
Total fixed maturity available-for-sale securities | $ | 40,219 | | | $ | 36,110 | | | $ | 37,708 | | | $ | 33,095 | |
Allowance for Expected Credit Loss
We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether our unrealized losses are credit related, and if so, the magnitude of the credit loss:
•The extent to which the fair value is less than the amortized cost basis;
•The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening);
•The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength);
•Current delinquencies and nonperforming assets of underlying collateral;
•Expected future default rates;
•Collateral value by vintage, geographic region, industry concentration or property type;
•Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and
•Contractual and regulatory cash obligations and the issuer's plans to meet such obligations.
We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the total unrealized loss on the security (i.e. the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and losses, net in the unaudited Condensed Consolidated Statements of Operations, with an offset for the amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income as we write-off accrued interest through Interest and investment income when collectability concerns arise.
We consider the following in determining whether write-offs of a security’s amortized cost is necessary:
• We believe amounts related to securities have become uncollectible;
• We intend to sell a security; or
• It is more likely than not that we will be required to sell a security prior to recovery.
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible (generally based on proximity to expected credit loss), an impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. The remainder of unrealized loss is held in AOCI. As of March 31, 2023 and December 31, 2022, our allowance for expected credit losses for AFS securities was $20 million and $39 million, respectively.
Purchased credit deteriorated ("PCD") financial assets are AFS securities purchased at a discount, where part of that discount is attributable to credit. Credit loss allowances are calculated for these securities as of the date of their acquisition, with the initial allowance serving to increase amortized cost. There were no purchases of PCD AFS securities during the three months ended March 31, 2023 or 2022.
The fair value and gross unrealized losses of AFS securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment category and duration of fair value below amortized cost as of March 31, 2023 and December 31, 2022 were as follows:
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| March 31, 2023 |
| 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 | (In millions) |
Asset-backed securities | $ | 5,347 | | | $ | (307) | | | $ | 4,520 | | | $ | (448) | | | $ | 9,867 | | | $ | (755) | |
Commercial mortgage-backed securities | 2,249 | | | (122) | | | 1,236 | | | (214) | | | 3,485 | | | (336) | |
Corporates | 5,501 | | | (392) | | | 8,553 | | | (2,263) | | | 14,054 | | | (2,655) | |
Hybrids | 346 | | | (29) | | | 321 | | | (53) | | | 667 | | | (82) | |
Municipals | 483 | | | (37) | | | 907 | | | (196) | | | 1,390 | | | (233) | |
Residential mortgage-backed securities | 708 | | | (22) | | | 540 | | | (81) | | | 1,248 | | | (103) | |
U.S. Government | 29 | | | — | | | 206 | | | (11) | | | 235 | | | (11) | |
Foreign Government | 23 | | | (2) | | | 183 | | | (44) | | | 206 | | | (46) | |
Total available-for-sale securities | $ | 14,686 | | | $ | (911) | | | $ | 16,466 | | | $ | (3,310) | | | $ | 31,152 | | | $ | (4,221) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 2,402 | |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 2,270 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 4,672 | |
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| December 31, 2022 |
| 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 | (In millions) |
Asset-backed securities | $ | 7,001 | | | $ | (410) | | | $ | 3,727 | | | $ | (360) | | | $ | 10,728 | | | $ | (770) | |
Commercial mortgage-backed securities | 2,079 | | | (169) | | | 475 | | | (116) | | | 2,554 | | | (285) | |
Corporates | 9,913 | | | (1,735) | | | 3,523 | | | (1,330) | | | 13,436 | | | (3,065) | |
Hybrids | 628 | | | (83) | | | 3 | | | (1) | | | 631 | | | (84) | |
Municipals | 998 | | | (180) | | | 352 | | | (113) | | | 1,350 | | | (293) | |
Residential mortgage-backed securities | 992 | | | (51) | | | 184 | | | (22) | | | 1,176 | | | (73) | |
U.S. Government | 130 | | | (7) | | | 140 | | | (8) | | | 270 | | | (15) | |
Foreign Government | 119 | | | (32) | | | 59 | | | (14) | | | 178 | | | (46) | |
Total available-for-sale securities | $ | 21,860 | | | $ | (2,667) | | | $ | 8,463 | | | $ | (1,964) | | | $ | 30,323 | | | $ | (4,631) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 3,114 |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 1,296 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 4,410 | |
We determined the decrease in unrealized losses as of March 31, 2023, compared to December 31, 2022, was caused by lower treasury rates as well as spread compression. For securities in an unrealized loss position as of March 31, 2023, our allowance for expected credit loss was $20 million. We believe the unrealized loss position for which we have not recorded an allowance for expected credit loss as of March 31, 2023 was primarily attributable to interest rate increases, near-term illiquidity, and other macroeconomic uncertainties as opposed to issuer specific credit concerns.
Mortgage Loans
The fair value of mortgage loans is established using a discounted cash flow method based on internal credit rating, maturity and future income. This yield-based approach is sourced from our third-party vendor. The internal 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. The inputs used to measure the fair value of our mortgage loans are classified as Level 3 within the fair value hierarchy.
Investments in Unconsolidated affiliates
In our F&G segment, the carrying value of Investments in unconsolidated affiliates is primarily determined using NAV as a practical expedient and are included in the NAV column in the table below. Recognition of income and adjustments to the carrying amount are delayed due to the availability of the related financial statements, which are obtained from the general partner typically on a one to three-month delay. In our title segment, Investments in unconsolidated affiliates are accounted for under the equity method of accounting. In our title segment, Investments in unconsolidated affiliates were $265 million and $263 million as of March 31, 2024 and December 31, 2023, respectively.
Policy Loans (included within Other long-term investments)
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.
Company Owned Life Insurance
Company owned life insurance ("COLI") is a life insurance program used to finance certain employee benefit expenses. The fair value of COLI is based on net realizable value, which is generally cash surrender value. COLI is classified as Level 3 within the fair value hierarchy.
Other Invested Assets (included within Other long-term investments)
The fair value of bank loans is estimated using a discounted cash flow method with the discount rate based on weighted average cost of capital ("WACC"). This yield-based approach is sourced from a third-party vendor and the WACC establishes a market participant discount rate by determining the hypothetical capital structure for the asset should it be underwritten as of each period end. Bank loans are classified as Level 3 within the fair value hierarchy. For cost method investments, our carrying value approximates fair value. Cost method investments are classified as Level 1 within the fair value hierarchy.
Investment Contracts
Investment contracts include deferred annuities (indexed annuities and fixed rate annuities), IUL policies, funding agreements and pension risk transfers ("PRT") and immediate annuity contracts without life contingencies. The indexed annuities/IUL embedded derivatives, included in contractholder funds, are excluded as they are carried at fair value. The fair value of the deferred annuities (indexed annuities and fixed rate annuities) 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 funding agreements and PRT and immediate annuity contracts without life contingencies is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. The Company is not required to, and has not, estimated the fair value of the 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.
Other
Federal Home Loan Bank of Atlanta (“FHLB”) common stock is carried at cost, which approximates fair value. The carrying amount of FHLB common stock represents the value it can be sold back to the FHLB and is classified as Level 2 within the hierarchy.
Debt
The fair value of debt, with the exception of the F&G Credit Agreement is based on quoted market prices. The carrying value of the F&G Credit Agreement approximates fair value as the rates are comparable to those at which we could currently borrow under similar terms.The inputs used to measure the fair value of our outstanding debt are classified as Level 2 within the fair value hierarchy.
The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the unaudited Condensed Consolidated Balance Sheets at amounts other than fair value, summarized according to the fair value hierarchy previously described.
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| March 31, 2024 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Total Estimated Fair Value | | Carrying Amount |
Assets | (In millions) |
FHLB common stock | $ | — | | | $ | 138 | | | $ | — | | | $ | — | | | $ | 138 | | | $ | 138 | |
Commercial mortgage loans | — | | | — | | | 2,229 | | | — | | | 2,229 | | | 2,550 | |
Residential mortgage loans | — | | | — | | | 2,590 | | | — | | | 2,590 | | | 2,890 | |
Investments in unconsolidated affiliates | — | | | — | | | 6 | | | 3,018 | | | 3,024 | | | 3,024 | |
Policy loans | — | | | — | | | 78 | | | — | | | 78 | | | 78 | |
Other invested assets | 23 | | | — | | | — | | | 42 | | | 65 | | | 65 | |
Company-owned life insurance | — | | | — | | | 415 | | | — | | | 415 | | | 415 | |
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Trade and notes receivables, net of allowance | — | | | — | | | 409 | | | — | | | 409 | | | 409 | |
Total | $ | 23 | | | $ | 138 | | | $ | 5,727 | | | $ | 3,060 | | | $ | 8,948 | | | $ | 9,569 | |
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Liabilities | | | | | | | | | | | |
Investment contracts, included in contractholder funds | $ | — | | | $ | — | | | $ | 41,488 | | | $ | — | | | $ | 41,488 | | | $ | 46,194 | |
Debt | — | | | 3,561 | | | — | | | — | | | 3,561 | | | 3,884 | |
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Total | $ | — | | | $ | 3,561 | | | $ | 41,488 | | | $ | — | | | $ | 45,049 | | | $ | 50,078 | |
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| December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | NAV | | Total Estimated Fair Value | | Carrying Amount |
Assets | (In millions) |
FHLB common stock | $ | — | | | $ | 138 | | | $ | — | | | $ | — | | | $ | 138 | | | $ | 138 | |
Commercial mortgage loans | — | | | — | | | 2,253 | | | — | | | 2,253 | | | 2,538 | |
Residential mortgage loans | — | | | — | | | 2,545 | | | — | | | 2,545 | | | 2,798 | |
Investments in unconsolidated affiliates | — | | | — | | | 7 | | | 2,779 | | | 2,786 | | | 2,786 | |
Policy loans | — | | | — | | | 71 | | | — | | | 71 | | | 71 | |
Other invested assets | 17 | | | — | | | — | | | 42 | | | 59 | | | 59 | |
Company-owned life insurance | — | | | — | | | 397 | | | — | | | 397 | | | 397 | |
Trade and notes receivables, net of allowance | — | | | — | | | 442 | | | — | | | 442 | | | 442 | |
Total | $ | 17 | | | $ | 138 | | | $ | 5,715 | | | $ | 2,821 | | | $ | 8,691 | | | $ | 9,229 | |
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Liabilities | | | | | | | | | | | |
Investment contracts, included in contractholder funds | $ | — | | | $ | — | | | $ | 40,229 | | | $ | — | | | $ | 40,229 | | | $ | 44,540 | |
Debt | — | | | 3,568 | | | — | | | — | | | 3,568 | | | 3,887 | |
Total | $ | — | | | $ | 3,568 | | | $ | 40,229 | | | $ | — | | | $ | 43,797 | | | $ | 48,427 | |
For investments for which NAV is used as a practical expedient for fair value, we do not have any significant restrictions in our ability to liquidate our positions in these investments, other than obtaining general partner approval, nor do we believe it is probable that a price less than NAV would be received in the event of a liquidation.
We review 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.
Note D — Investments
Our fixed maturity securities investments have been designated as available-for-sale ("AFS"), and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included in Accumulated Other Comprehensive Income ("AOCI"), net of deferred income taxes. Our preferred and equity securities investments are carried at fair value with unrealized gains and losses included in net earnings (loss). The Company’s consolidated investments at March 31, 2024 and December 31, 2023 are summarized as follows:
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| March 31, 2024 |
| Amortized Cost | | Allowance for Expected Credit Losses | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | |
Available-for-sale securities | (In millions) | | |
Asset-backed securities | $ | 15,254 | | | $ | (11) | | | $ | 280 | | | $ | (408) | | | $ | 15,115 | | | |
Commercial mortgage-backed securities | 5,040 | | | (21) | | | 38 | | | (239) | | | 4,818 | | | |
Corporates | 21,430 | | | (7) | | | 133 | | | (2,585) | | | 18,971 | | | |
Hybrids | 667 | | | — | | | 4 | | | (38) | | | 633 | | | |
Municipals | 1,773 | | | — | | | 11 | | | (237) | | | 1,547 | | | |
Residential mortgage-backed securities | 2,550 | | | (1) | | | 31 | | | (116) | | | 2,464 | | | |
U.S. Government | 706 | | | — | | | 3 | | | (11) | | | 698 | | | |
Foreign Governments | 369 | | | — | | | — | | | (49) | | | 320 | | | |
Total available-for-sale securities | $ | 47,789 | | | $ | (40) | | | $ | 500 | | | $ | (3,683) | | | $ | 44,566 | | | |
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| December 31, 2023 |
| Amortized Cost | | Allowance for Expected Credit Losses | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | |
Available-for-sale securities | (In millions) | | |
Asset-backed securities | $ | 14,631 | | | $ | (11) | | | $ | 191 | | | $ | (469) | | | $ | 14,342 | | | |
Commercial mortgage-backed/asset-backed securities | 4,797 | | | (22) | | | 23 | | | (323) | | | 4,475 | | | |
Corporates | 20,133 | | | (6) | | | 186 | | | (2,417) | | | 17,896 | | | |
Hybrids | 668 | | | — | | | 3 | | | (53) | | | 618 | | | |
Municipals | 1,826 | | | — | | | 14 | | | (229) | | | 1,611 | | | |
Residential mortgage-backed securities | 2,507 | | | (3) | | | 29 | | | (104) | | | 2,429 | | | |
U.S. Government | 679 | | | — | | | 8 | | | (9) | | | 678 | | | |
Foreign Governments | 365 | | | — | | | 3 | | | (44) | | | 324 | | | |
Total available-for-sale securities | $ | 45,606 | | | $ | (42) | | | $ | 457 | | | $ | (3,648) | | | $ | 42,373 | | | |
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Securities held on deposit with various state regulatory authorities had a fair value of $145 million and $141 million at March 31, 2024 and December 31, 2023, respectively.
As of March 31, 2024 and December 31, 2023, the Company held $69 million and $47 million, respectively, that were non-income producing for a period greater than twelve months.
As of March 31, 2024 and December 31, 2023, the Company's accrued interest receivable balance was $516 million and $481 million, respectively. Accrued interest receivable is classified within Prepaid expenses and other assets within the unaudited Condensed Consolidated Balance Sheets.
In accordance with our FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities and are not available to us for general purposes. The collateral investments had a fair value of $4,518 million and $4,345 million as of March 31, 2024 and December 31, 2023, respectively.
The amortized cost and fair value of fixed maturity 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 prepay obligations.
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| March 31, 2024 | | December 31, 2023 |
| (In millions) | | (In millions) |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Corporates, Non-structured Hybrids, Municipal and Government securities: | | | | | | | |
Due in one year or less | $ | 709 | | | $ | 691 | | | $ | 703 | | | $ | 687 | |
Due after one year through five years | 4,765 | | | 4,643 | | | 4,320 | | | 4,209 | |
Due after five years through ten years | 3,940 | | | 3,770 | | | 3,195 | | | 3,048 | |
Due after ten years | 15,531 | | | 13,065 | | | 15,453 | | | 13,183 | |
Subtotal | 24,945 | | | 22,169 | | | 23,671 | | | 21,127 | |
Other securities, which provide for periodic payments: | | | | | | | |
Asset-backed securities | 15,254 | | | 15,115 | | | 14,631 | | | 14,342 | |
Commercial mortgage-backed securities | 5,040 | | | 4,818 | | | 4,797 | | | 4,475 | |
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Residential mortgage-backed securities | 2,550 | | | 2,464 | | | 2,507 | | | 2,429 | |
Subtotal | 22,844 | | | 22,397 | | | 21,935 | | | 21,246 | |
Total fixed maturity available-for-sale securities | $ | 47,789 | | | $ | 44,566 | | | $ | 45,606 | | | $ | 42,373 | |
Allowance for Expected Credit Loss
We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether our unrealized losses are credit related, and if so, the magnitude of the credit loss:
•The extent to which the fair value is less than the amortized cost basis;
•The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening);
•The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength);
•Current delinquencies and nonperforming assets of underlying collateral;
•Expected future default rates;
•Collateral value by vintage, geographic region, industry concentration or property type;
•Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and
•Contractual and regulatory cash obligations and the issuer's plans to meet such obligations.
We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the total unrealized loss on the security (i.e. the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and losses, net in the unaudited Condensed Consolidated Statements of Operations, with an offset for the amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income because we write-off accrued interest through Interest and investment income when collectability concerns arise.
We consider the following in determining whether write-offs of a security’s amortized cost are necessary:
• We believe amounts related to securities have become uncollectible;
• We intend to sell a security; or
• It is more likely than not that we will be required to sell a security prior to recovery.
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible (generally based on proximity to expected credit loss), an impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. The remainder of unrealized loss is held in AOCI. As of March 31, 2024 and December 31, 2023, our allowance for expected credit losses for AFS securities was $40 million and $42 million, respectively.
The fair value and gross unrealized losses of AFS securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment category and duration of fair value below amortized cost as of March 31, 2024 and December 31, 2023 were as follows:
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| March 31, 2024 |
| 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 | (In millions) |
Asset-backed securities | $ | 1,558 | | | $ | (41) | | | $ | 4,568 | | | $ | (358) | | | $ | 6,126 | | | $ | (399) | |
Commercial mortgage-backed securities | 470 | | | (8) | | | 2,048 | | | (203) | | | 2,518 | | | (211) | |
Corporates | 3,645 | | | (136) | | | 11,062 | | | (2,449) | | | 14,707 | | | (2,585) | |
Hybrids | 71 | | | (2) | | | 464 | | | (36) | | | 535 | | | (38) | |
Municipals | 340 | | | (51) | | | 935 | | | (186) | | | 1,275 | | | (237) | |
Residential mortgage-backed securities | 507 | | | (9) | | | 687 | | | (99) | | | 1,194 | | | (108) | |
U.S. Government | 337 | | | (2) | | | 147 | | | (9) | | | 484 | | | (11) | |
Foreign Government | 42 | | | (2) | | | 187 | | | (46) | | | 229 | | | (48) | |
Total available-for-sale securities | $ | 6,970 | | | $ | (251) | | | $ | 20,098 | | | $ | (3,386) | | | $ | 27,068 | | | $ | (3,637) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 1,371 | |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 2,775 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 4,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| 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 | (In millions) |
Asset-backed securities | $ | 1,707 | | | $ | (56) | | | $ | 5,835 | | | $ | (404) | | | $ | 7,542 | | | $ | (460) | |
Commercial mortgage-backed securities | 819 | | | (53) | | | 1,922 | | | (235) | | | 2,741 | | | (288) | |
Corporates | 2,387 | | | (134) | | | 10,739 | | | (2,283) | | | 13,126 | | | (2,417) | |
Hybrids | 60 | | | (2) | | | 483 | | | (51) | | | 543 | | | (53) | |
Municipals | 399 | | | (49) | | | 920 | | | (179) | | | 1,319 | | | (228) | |
Residential mortgage-backed securities | 336 | | | (5) | | | 662 | | | (89) | | | 998 | | | (94) | |
U.S. Government | 84 | | | — | | | 159 | | | (9) | | | 243 | | | (9) | |
Foreign Government | 49 | | | (3) | | | 188 | | | (41) | | | 237 | | | (44) | |
Total available-for-sale securities | $ | 5,841 | | | $ | (302) | | | $ | 20,908 | | | $ | (3,291) | | | $ | 26,749 | | | $ | (3,593) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 1,035 |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 2,846 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 3,881 | |
The increase in unrealized losses as of March 31, 2024, compared to December 31, 2023, was caused by higher treasury rates compared to those at the time of the F&G acquisition or purchase of the security if later. For securities in an unrealized loss position as of March 31, 2024, our allowance for expected credit loss was $40 million. We believe the unrealized loss position for which we have not recorded an allowance for expected credit loss as of March 31, 2024 was primarily attributable to interest rate increases, near-term illiquidity, and other macroeconomic uncertainties as opposed to issuer specific credit concerns.
Mortgage Loans
Our mortgage loans are collateralized by commercial and residential properties.
Commercial Mortgage Loans
Commercial mortgage loans (“CMLs”) represented approximately 6%5% of our total investments as of March 31, 20232024 and December 31, 2022.2023. The mortgage loans in our investment portfolio are generally comprised of high quality commercial first lien and mezzanine real estate loans. Mortgage loans are primarily on income producing properties including industrial properties, retail buildings, multifamily properties and office buildings. We diversify our CML portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate 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:
| | March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| Gross Carrying Value | | | Gross Carrying Value | | % of Total | | Gross Carrying Value | | % of Total |
Property Type: | |
| | | March 31, 2023 | | December 31, 2022 |
Hotel | |
| | Gross Carrying Value | | % of Total | | Gross Carrying Value | | % of Total |
Property Type: | (Dollars in millions) | | (Dollars in millions) |
| Hotel | |
| Hotel | Hotel | $ | 18 | | | 1 | % | | $ | 18 | | | 1 | % | $ | 18 | | | 1 | | 1 | % | | $ | 18 | | | 1 | | 1 | % |
Industrial | Industrial | 538 | | | 22 | % | | 520 | | | 22 | % | Industrial | 617 | | | 24 | | 24 | % | | 616 | | | 24 | | 24 | % |
Mixed Use | Mixed Use | 12 | | | 1 | % | | 12 | | | 1 | % | Mixed Use | 11 | | | — | | — | % | | 11 | | | — | | — | % |
Multifamily | Multifamily | 1,013 | | | 41 | % | | 1,013 | | | 42 | % | Multifamily | 1,012 | | | 39 | | 39 | % | | 1,012 | | | 40 | | 40 | % |
Office | Office | 329 | | | 13 | % | | 330 | | | 14 | % | Office | 315 | | | 13 | | 13 | % | | 316 | | | 13 | | 13 | % |
Retail | Retail | 104 | | | 4 | % | | 105 | | | 4 | % | Retail | 101 | | | 4 | | 4 | % | | 102 | | | 4 | | 4 | % |
Student Housing | Student Housing | 83 | | | 3 | % | | 83 | | | 3 | % | Student Housing | 83 | | | 3 | | 3 | % | | 83 | | | 3 | | 3 | % |
Other | Other | 373 | | | 15 | % | | 335 | | | 13 | % | Other | 406 | | | 16 | | 16 | % | | 392 | | | 15 | | 15 | % |
Total commercial mortgage loans, gross of valuation allowance | Total commercial mortgage loans, gross of valuation allowance | $ | 2,470 | | | 100 | % | | $ | 2,416 | | | 100 | % | Total commercial mortgage loans, gross of valuation allowance | $ | 2,563 | | | 100 | | 100 | % | | $ | 2,550 | | | 100 | | 100 | % |
Allowance for expected credit loss | Allowance for expected credit loss | (12) | | | | | (10) | | | |
Total commercial mortgage loans, net of valuation allowance | Total commercial mortgage loans, net of valuation allowance | $ | 2,458 | | | $ | 2,406 | | |
Total commercial mortgage loans, net of valuation allowance | |
Total commercial mortgage loans, net of valuation allowance | |
| U.S. Region: | U.S. Region: | |
| U.S. Region: | |
| U.S. Region: | |
East North Central | |
East North Central | |
East North Central | East North Central | $ | 177 | | | 7 | % | | $ | 151 | | | 6 | % | $ | 104 | | | 4 | | 4 | % | | $ | 151 | | | 6 | | 6 | % |
East South Central | East South Central | 76 | | | 3 | % | | 76 | | | 3 | % | East South Central | 75 | | | 3 | | 3 | % | | 75 | | | 3 | | 3 | % |
Middle Atlantic | Middle Atlantic | 325 | | | 13 | % | | 326 | | | 13 | % | Middle Atlantic | 354 | | | 14 | | 14 | % | | 354 | | | 14 | | 14 | % |
Mountain | Mountain | 354 | | | 14 | % | | 355 | | | 15 | % | Mountain | 386 | | | 15 | | 15 | % | | 352 | | | 14 | | 14 | % |
New England | New England | 164 | | | 7 | % | | 158 | | | 7 | % | New England | 92 | | | 3 | | 3 | % | | 168 | | | 6 | | 6 | % |
Pacific | Pacific | 700 | | | 28 | % | | 708 | | | 28 | % | Pacific | 765 | | | 30 | | 30 | % | | 766 | | | 30 | | 30 | % |
South Atlantic | South Atlantic | 553 | | | 22 | % | | 521 | | | 22 | % | South Atlantic | 618 | | | 24 | | 24 | % | | 563 | | | 22 | | 22 | % |
West North Central | West North Central | 4 | | | 1 | % | | 4 | | | 1 | % | West North Central | 21 | | | 1 | | 1 | % | | 4 | | | — | | — | % |
West South Central | West South Central | 117 | | | 5 | % | | 117 | | | 5 | % | West South Central | 148 | | | 6 | | 6 | % | | 117 | | | 5 | | 5 | % |
| Total commercial mortgage loans, gross of valuation allowance | Total commercial mortgage loans, gross of valuation allowance | $ | 2,470 | | | 100 | % | | $ | 2,416 | | | 100 | % |
Total commercial mortgage loans, gross of valuation allowance | |
Total commercial mortgage loans, gross of valuation allowance | | $ | 2,563 | | | 100 | % | | $ | 2,550 | | | 100 | % |
Allowance for expected credit loss | Allowance for expected credit loss | (12) | | | | | (10) | | | |
Total commercial mortgage loans, net of valuation allowance | Total commercial mortgage loans, net of valuation allowance | $ | 2,458 | | | $ | 2,406 | | |
Total commercial mortgage loans, net of valuation allowance | |
Total commercial mortgage loans, net of valuation allowance | |
Commercial mortgage loansCMLs segregated by risk rating exposureaging of the loans and charge offs (by year of origination) as of March 31, 20232024 and December 31, 2022,2023, were as follows, gross of valuation allowances:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| |
| Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Commercial mortgages | (In millions) |
Current (less than 30 days past due) | $ | 53 | | | $ | 354 | | | $ | 1,301 | | | $ | 486 | | | $ | — | | | $ | 267 | | | $ | 2,461 | |
30-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 days or more past due | — | | | — | | | — | | | — | | | — | | | 9 | | | 9 | |
Total commercial mortgages | $ | 53 | | | $ | 354 | | | $ | 1301 | | | $ | 486 | | | $ | — | | | $ | 276 | | | $ | 2,470 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| |
| Amortized Cost by Origination Year |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
Commercial mortgages | (In millions) |
Current (less than 30 days past due) | $ | 350 | | | $ | 1,300 | | | $ | 488 | | | $ | — | | | $ | — | | | $ | 269 | | | $ | 2,407 | |
30-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 days or more past due | — | | | — | | | — | | | — | | | — | | | 9 | | | 9 | |
Total commercial mortgages | $ | 350 | | | $ | 1,300 | | | $ | 488 | | | $ | — | | | $ | — | | | $ | 278 | | | $ | 2,416 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| |
| Amortized Cost by Origination Year |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Commercial mortgages | (In millions) |
Current (less than 30 days past due) | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
30-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 days or more past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
......................................................................................................... | | | | | | | | | | | | | |
Charge offs..................................................................................... | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| |
| Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Commercial mortgages | (In millions) |
Current (less than 30 days past due) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
30-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 days or more past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total CMLs (a) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
......................................................................................................... | | | | | | | | | | | | | |
Charge offs..................................................................................... | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 3 | |
(a) Excludes loans under development with an amortized cost and estimated fair value of $22 million.
Loan-to-value (“LTV”) and debt service coverage (“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 tables present the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios, gross of valuation allowances at March 31, 20232024 and December 31, 20222023:
| | Debt-Service Coverage Ratios | | Total Amount | | % of Total | | Estimated Fair Value | | % of Total |
| >1.25 | | 1.00 - 1.25 | | <1.00 | | |
March 31, 2023 | (In millions) |
| Debt-Service Coverage Ratios | |
| Debt-Service Coverage Ratios | |
| Debt-Service Coverage Ratios | | | Total Amount | | % of Total | | Estimated Fair Value | | % of Total |
| >1.25 | |
March 31, 2024 | |
March 31, 2024 | |
March 31, 2024 | | (In millions) |
LTV Ratios: | LTV Ratios: | | | |
Less than 50.00% | |
Less than 50.00% | |
Less than 50.00% | Less than 50.00% | $ | 511 | | | $ | 4 | | | $ | 11 | | | | $ | 526 | | | 21 | % | | $ | 493 | | | 23 | % | $ | 479 | | | $ | | $ | — | | | $ | | $ | 14 | | | | | $ | | | | $ | 493 | | | 19 | | 19 | % | | $ | 477 | | | 21 | | 21 | % |
50.00% to 59.99% | 50.00% to 59.99% | 732 | | | — | | | — | | | | 732 | | | 30 | % | | 653 | | | 30 | % | 50.00% to 59.99% | 864 | | | — | | — | | | — | | — | | | | | 864 | | | | 864 | | | 34 | | 34 | % | | 754 | | | 34 | | 34 | % |
60.00% to 74.99% | 60.00% to 74.99% | 1,170 | | | 8 | | | — | | | | 1,178 | | | 48 | % | | 1,002 | | | 46 | % | 60.00% to 74.99% | 1,134 | | | 57 | | 57 | | | — | | — | | | | | 1,191 | | | | 1,191 | | | 46 | | 46 | % | | 983 | | | 44 | | 44 | % |
75.00% to 84.99% | 75.00% to 84.99% | — | | | 2 | | | 18 | | | | 20 | | | 1 | % | | 17 | | | 1 | % | 75.00% to 84.99% | — | | | 6 | | 6 | | | 9 | | 9 | | | | | 15 | | | | 15 | | | 1 | | 1 | % | | 15 | | | 1 | | 1 | % |
Commercial mortgage loans (a) | $ | 2,413 | | | $ | 14 | | | $ | 29 | | | | $ | 2,456 | | | 100 | % | | $ | 2,165 | | | 100 | % |
CMLs | | CMLs | $ | 2,477 | | | $ | 63 | | | $ | 23 | | | | | $ | 2,563 | | | 100 | % | | $ | 2,229 | | | 100 | % |
| December 31, 2022 | | | |
December 31, 2023 | |
December 31, 2023 | |
December 31, 2023 | |
LTV Ratios: | LTV Ratios: | | | |
LTV Ratios: | |
LTV Ratios: | |
Less than 50.00% | |
Less than 50.00% | |
Less than 50.00% | Less than 50.00% | $ | 511 | | | $ | 4 | | | $ | 11 | | | | $ | 526 | | | 22 | % | | $ | 490 | | | 24 | % | $ | 519 | | | $ | | $ | 4 | | | $ | | $ | 10 | | | | | $ | | | | $ | 533 | | | 21 | | 21 | % | | $ | 510 | | | 23 | | 23 | % |
50.00% to 59.99% | 50.00% to 59.99% | 706 | | | — | | | — | | | | 706 | | | 29 | % | | 615 | | | 30 | % | 50.00% to 59.99% | 764 | | | — | | — | | | — | | — | | | | | 764 | | | | 764 | | | 30 | | 30 | % | | 679 | | | 30 | | 30 | % |
60.00% to 74.99% | 60.00% to 74.99% | 1,154 | | | 3 | | | — | | | | 1,157 | | | 48 | % | | 955 | | | 45 | % | 60.00% to 74.99% | 1,160 | | | 56 | | 56 | | | — | | — | | | | | 1,216 | | | | 1,216 | | | 48 | | 48 | % | | 1,028 | | | 46 | | 46 | % |
75.00% to 84.99% | 75.00% to 84.99% | — | | | — | | | 18 | | | | 18 | | | 1 | % | | 14 | | | 1 | % | 75.00% to 84.99% | — | | | 6 | | 6 | | | 9 | | 9 | | | | | 15 | | | | 15 | | | 1 | | 1 | % | | 14 | | | 1 | | 1 | % |
Commercial mortgage loans (a) | $ | 2,371 | | | $ | 7 | | | $ | 29 | | | | $ | 2,407 | | | 100 | % | | $ | 2,074 | | | 100 | % |
CMLs (a) | | CMLs (a) | $ | 2,443 | | | $ | 66 | | | $ | 19 | | | | | $ | 2,528 | | | 100 | % | | $ | 2,231 | | | 100 | % |
(a) Excludes loans under development with an amortized cost and estimated fair value of $22 million.
$9 million for March 31, 2023 and an amortized cost and estimated fair value of $9 million for December 31, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| |
| Amortized Cost by Origination Year |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Commercial mortgages | (In millions) |
LTV | | | | | | | | | | | | | |
Less than 50.00% | $ | 35 | | | $ | 86 | | | $ | 17 | | | $ | 77 | | | $ | 156 | | | $ | 122 | | | $ | 493 | |
50.00% to 59.99% | — | | | 53 | | | 149 | | | 292 | | | 235 | | | 135 | | | 864 | |
60.00% to 74.99% | — | | | 69 | | | 113 | | | 887 | | | 122 | | | — | | | 1,191 | |
75.00% to 84.99% | — | | | 6 | | | 9 | | | — | | | — | | | — | | | 15 | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
Commercial mortgages | | | | | | | | | | | | | |
DSCR | | | | | | | | | | | | | |
Greater than 1.25x | $ | 35 | | | $ | 154 | | | $ | 276 | | | $ | 1,256 | | | $ | 513 | | | $ | 243 | | | $ | 2,477 | |
1.00x - 1.25x | — | | | 60 | | | 3 | | | — | | | — | | | — | | | 63 | |
Less than 1.00x | — | | | — | | | 9 | | | — | | | — | | | 14 | | | 23 | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
| | December 31, 2023 | | | December 31, 2023 |
| | March 31, 2023 |
| | Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
| Amortized Cost by Origination Year | |
| Amortized Cost by Origination Year | |
| Amortized Cost by Origination Year | |
| 2023 | | | 2023 | | 2022 | | 2021 | | 2020 | | 2018 | | Prior | | Total |
Commercial mortgages | Commercial mortgages | (In millions) | Commercial mortgages | (In millions) |
LTV | LTV | |
Less than 50.00% | |
Less than 50.00% | |
Less than 50.00% | Less than 50.00% | $ | 4 | | | $ | 69 | | | $ | 120 | | | $ | 206 | | | $ | 127 | | | $ | 526 | |
50.00% to 59.99% | 50.00% to 59.99% | 27 | | | 149 | | | 268 | | | 158 | | | 130 | | | 732 | |
60.00% to 74.99% | 60.00% to 74.99% | 20 | | | 113 | | | 913 | | | 122 | | | 10 | | | 1,178 | |
75.00% to 84.99% | 75.00% to 84.99% | 3 | | | 9 | | | — | | | — | | | 8 | | | 20 | |
Total commercial mortgages (a) | $ | 54 | | | $ | 340 | | | $ | 1301 | | | $ | 486 | | | $ | — | | | $ | 275 | | | $ | 2,456 | |
Total CMLs (a) | |
Commercial mortgages | Commercial mortgages | | | | | | | | | | | | | |
DSCR | DSCR | |
DSCR | |
DSCR | |
Greater than 1.25x | |
Greater than 1.25x | |
Greater than 1.25x | Greater than 1.25x | $ | 47 | | | $ | 328 | | | $ | 1,301 | | | $ | 486 | | | $ | 251 | | | $ | 2,413 | |
1.00x - 1.25x | 1.00x - 1.25x | 7 | | | 3 | | | — | | | — | | | 4 | | | 14 | |
Less than 1.00x | Less than 1.00x | — | | | 9 | | | — | | | — | | | 20 | | | 29 | |
Total commercial mortgages (a) | $ | 54 | | | $ | 340 | | | $ | 1301 | | | $ | 486 | | | $ | — | | | $ | 275 | | | $ | 2,456 | |
Total CMLs (a) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| |
| Amortized Cost by Origination Year |
| 2022 | | 2021 | | 2020 | | 2019 | | 2017 | | Prior | | Total |
Commercial mortgages | (In millions) |
LTV | | | | | | | | | | | | | |
Less than 50.00% | $ | 70 | | | $ | 120 | | | $ | 207 | | | $ | — | | | $ | — | | | $ | 129 | | | $ | 526 | |
50.00% to 59.99% | 149 | | | 268 | | | 158 | | | — | | | — | | | 131 | | | 706 | |
60.00% to 74.99% | 113 | | | 912 | | | 123 | | | — | | | — | | | 9 | | | 1,157 | |
75.00% to 84.99% | 9 | | | — | | | — | | | — | | | — | | | 9 | | | 18 | |
Total commercial mortgages (a) | $ | 341 | | | $ | 1,300 | | | $ | 488 | | | $ | — | | | $ | — | | | $ | 278 | | | $ | 2,407 | |
Commercial mortgages | | | | | | | | | | | | | |
DSCR | | | | | | | | | | | | | |
Greater than 1.25x | $ | 329 | | | $ | 1,300 | | | $ | 488 | | | $ | — | | | $ | — | | | $ | 254 | | | $ | 2,371 | |
1.00x - 1.25x | 3 | | | — | | | — | | | — | | | — | | | 4 | | | 7 | |
Less than 1.00x | 9 | | | — | | | — | | | — | | | — | | | 20 | | | 29 | |
Total commercial mortgages (a) | $ | 341 | | | $ | 1,300 | | | $ | 488 | | | $ | — | | | $ | — | | | $ | 278 | | | $ | 2,407 | |
(a) Excludes loans under development with an amortized cost and estimated fair value of $9 million for March 31, 2023 and an amortized cost and estimated fair value of $9 million for December 31, 2022.$22 million.
We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At March 31, 20232024 and December 31, 2022,2023, we had one CMLno CMLs that waswere delinquent in principal or interest payments as shown in the risk rating exposure table above.
Residential Allowance for Expected Credit Loss
We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether our unrealized losses are credit related, and if so, the magnitude of the credit loss:
•The extent to which the fair value is less than the amortized cost basis;
•The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening);
•The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength);
•Current delinquencies and nonperforming assets of underlying collateral;
•Expected future default rates;
•Collateral value by vintage, geographic region, industry concentration or property type;
•Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and
•Contractual and regulatory cash obligations and the issuer's plans to meet such obligations.
We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the total unrealized loss on the security (i.e. the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and losses, net in the unaudited Condensed Consolidated Statements of Operations, with an offset for the amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income because we write-off accrued interest through Interest and investment income when collectability concerns arise.
We consider the following in determining whether write-offs of a security’s amortized cost are necessary:
• We believe amounts related to securities have become uncollectible;
• We intend to sell a security; or
• It is more likely than not that we will be required to sell a security prior to recovery.
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible (generally based on proximity to expected credit loss), an impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. The remainder of unrealized loss is held in AOCI. As of March 31, 2024 and December 31, 2023, our allowance for expected credit losses for AFS securities was $40 million and $42 million, respectively.
The fair value and gross unrealized losses of AFS securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment category and duration of fair value below amortized cost as of March 31, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| 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 | (In millions) |
Asset-backed securities | $ | 1,558 | | | $ | (41) | | | $ | 4,568 | | | $ | (358) | | | $ | 6,126 | | | $ | (399) | |
Commercial mortgage-backed securities | 470 | | | (8) | | | 2,048 | | | (203) | | | 2,518 | | | (211) | |
Corporates | 3,645 | | | (136) | | | 11,062 | | | (2,449) | | | 14,707 | | | (2,585) | |
Hybrids | 71 | | | (2) | | | 464 | | | (36) | | | 535 | | | (38) | |
Municipals | 340 | | | (51) | | | 935 | | | (186) | | | 1,275 | | | (237) | |
Residential mortgage-backed securities | 507 | | | (9) | | | 687 | | | (99) | | | 1,194 | | | (108) | |
U.S. Government | 337 | | | (2) | | | 147 | | | (9) | | | 484 | | | (11) | |
Foreign Government | 42 | | | (2) | | | 187 | | | (46) | | | 229 | | | (48) | |
Total available-for-sale securities | $ | 6,970 | | | $ | (251) | | | $ | 20,098 | | | $ | (3,386) | | | $ | 27,068 | | | $ | (3,637) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 1,371 | |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 2,775 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 4,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| 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 | (In millions) |
Asset-backed securities | $ | 1,707 | | | $ | (56) | | | $ | 5,835 | | | $ | (404) | | | $ | 7,542 | | | $ | (460) | |
Commercial mortgage-backed securities | 819 | | | (53) | | | 1,922 | | | (235) | | | 2,741 | | | (288) | |
Corporates | 2,387 | | | (134) | | | 10,739 | | | (2,283) | | | 13,126 | | | (2,417) | |
Hybrids | 60 | | | (2) | | | 483 | | | (51) | | | 543 | | | (53) | |
Municipals | 399 | | | (49) | | | 920 | | | (179) | | | 1,319 | | | (228) | |
Residential mortgage-backed securities | 336 | | | (5) | | | 662 | | | (89) | | | 998 | | | (94) | |
U.S. Government | 84 | | | — | | | 159 | | | (9) | | | 243 | | | (9) | |
Foreign Government | 49 | | | (3) | | | 188 | | | (41) | | | 237 | | | (44) | |
Total available-for-sale securities | $ | 5,841 | | | $ | (302) | | | $ | 20,908 | | | $ | (3,291) | | | $ | 26,749 | | | $ | (3,593) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 1,035 |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 2,846 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 3,881 | |
The increase in unrealized losses as of March 31, 2024, compared to December 31, 2023, was caused by higher treasury rates compared to those at the time of the F&G acquisition or purchase of the security if later. For securities in an unrealized loss position as of March 31, 2024, our allowance for expected credit loss was $40 million. We believe the unrealized loss position for which we have not recorded an allowance for expected credit loss as of March 31, 2024 was primarily attributable to interest rate increases, near-term illiquidity, and other macroeconomic uncertainties as opposed to issuer specific credit concerns.
Mortgage Loans
ResidentialOur mortgage loans are collateralized by commercial and residential properties.
Commercial Mortgage Loans
Commercial mortgage loans (“RMLs”CMLs”) represented approximately 6% and 5% of our total investments as of March 31, 20232024 and December 31, 2022, respectively. Our RMLs2023. The mortgage loans in our investment portfolio are closed end, amortizinggenerally comprised of high quality commercial first lien and mezzanine real estate loans. Mortgage loans are primarily on income producing properties including industrial properties, retail buildings, multifamily properties and 100% of the properties are located in the United States.office buildings. We diversify our RMLCML portfolio by stategeographic region and property type to attempt to reduce concentration risk. We continuously evaluate 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 RMLsCMLs, gross of valuation allowances, by state with highest-to-lowest concentration areproperty type and geographic region is reflected in the following tables, grosstables:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Gross Carrying Value | | % of Total | | Gross Carrying Value | | % of Total |
Property Type: | (In millions) | | | | (In millions) | | |
| | | | | | | |
| | | | | | | |
Hotel | $ | 18 | | | 1 | % | | $ | 18 | | | 1 | % |
Industrial | 617 | | | 24 | % | | 616 | | | 24 | % |
Mixed Use | 11 | | | — | % | | 11 | | | — | % |
Multifamily | 1,012 | | | 39 | % | | 1,012 | | | 40 | % |
Office | 315 | | | 13 | % | | 316 | | | 13 | % |
Retail | 101 | | | 4 | % | | 102 | | | 4 | % |
Student Housing | 83 | | | 3 | % | | 83 | | | 3 | % |
Other | 406 | | | 16 | % | | 392 | | | 15 | % |
Total commercial mortgage loans, gross of valuation allowance | $ | 2,563 | | | 100 | % | | $ | 2,550 | | | 100 | % |
Allowance for expected credit loss | (13) | | | | | (12) | | | |
Total commercial mortgage loans, net of valuation allowance | $ | 2,550 | | | | | $ | 2,538 | | | |
| | | | | | | |
U.S. Region: | | | | | | | |
East North Central | $ | 104 | | | 4 | % | | $ | 151 | | | 6 | % |
East South Central | 75 | | | 3 | % | | 75 | | | 3 | % |
Middle Atlantic | 354 | | | 14 | % | | 354 | | | 14 | % |
Mountain | 386 | | | 15 | % | | 352 | | | 14 | % |
New England | 92 | | | 3 | % | | 168 | | | 6 | % |
Pacific | 765 | | | 30 | % | | 766 | | | 30 | % |
South Atlantic | 618 | | | 24 | % | | 563 | | | 22 | % |
West North Central | 21 | | | 1 | % | | 4 | | | — | % |
West South Central | 148 | | | 6 | % | | 117 | | | 5 | % |
| | | | | | | |
Total commercial mortgage loans, gross of valuation allowance | $ | 2,563 | | | 100 | % | | $ | 2,550 | | | 100 | % |
Allowance for expected credit loss | (13) | | | | | (12) | | | |
Total commercial mortgage loans, net of valuation allowance | $ | 2,550 | | | | | $ | 2,538 | | | |
| | | | | | | | | | | |
| March 31, 2023 |
| (Dollars in millions) |
U.S. State: | Amortized Cost | | % of Total |
Florida | $ | 236 | | | 9 | % |
Texas | 181 | | | 7 | % |
New Jersey | 167 | | | 6 | % |
California | 157 | | | 6 | % |
New York | 155 | | | 6 | % |
All other states (a) | 1,678 | | | 66 | % |
Total residential mortgage loans | $ | 2,574 | | | 100 | % |
(a)The individual concentrationCMLs segregated by aging of each state is equal to or less than 5%the loans and charge offs (by year of origination) as of March 31, 2023.
| | | | | | | | | | | |
| December 31, 2022 |
| (Dollars in millions) |
U.S. State: | Amortized Cost | | % of Total |
Florida | $ | 324 | | | 15 | % |
Texas | 215 | | | 10 | % |
New Jersey | 172 | | | 8 | % |
Pennsylvania | 153 | | | 7 | % |
California | 139 | | | 6 | % |
New York | 138 | | | 6 | % |
Georgia | 125 | | | 6 | % |
All other states (a) | 914 | | | 42 | % |
Total residential mortgage loans | $ | 2,180 | | | 100 | % |
(a)The individual concentration of each state is equal to or less than 5% as of December 31, 2022.
RMLs have a primary credit quality indicator of either a performing or nonperforming loan. We define non-performing RMLs as those that are 90 or more days past due or in non-accrual status, which is assessed monthly. The credit quality of RMLs as of March 31, 20232024 and December 31, 2022, was as follows :
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| (Dollars in millions) | | (Dollars in millions) |
Performance indicators: | Amortized Cost | | % of Total | | Amortized Cost | | % of Total |
Performing | $ | 2,511 | | | 98 | % | | $ | 2,118 | | | 97 | % |
Non-performing | 63 | | | 2 | % | | 62 | | | 3 | % |
Total residential mortgage loans, gross of valuation allowance | $ | 2,574 | | | 100 | % | | $ | 2,180 | | | 100 | % |
Allowance for expected loan loss | (48) | | | — | % | | (32) | | | — | % |
Total residential mortgage loans, net of valuation allowance | $ | 2,526 | | | 100 | % | | $ | 2,148 | | | 100 | % |
RMLs segregated by risk rating exposure as of March 31, 2023, and December 31, 2022, were as follows, gross of valuation allowances:
| | March 31, 2024 | | | March 31, 2024 |
| | March 31, 2023 |
| | Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Residential mortgages | (In millions) |
| Amortized Cost by Origination Year | |
| Amortized Cost by Origination Year | |
| Amortized Cost by Origination Year | |
| 2024 | | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Commercial mortgages | | Commercial mortgages | (In millions) |
Current (less than 30 days past due) | Current (less than 30 days past due) | $ | 35 | | | $ | 950 | | | $ | 889 | | | $ | 209 | | | $ | 199 | | | $ | 209 | | | $ | 2,491 | |
30-89 days past due | 30-89 days past due | — | | | 3 | | | 8 | | | 3 | | | 4 | | | 2 | | | 20 | |
90 days or more past due | 90 days or more past due | — | | | 3 | | | 18 | | | 13 | | | 28 | | | 1 | | | 63 | |
Total residential mortgages | $ | 35 | | | $ | 956 | | | $ | 915 | | | $ | 225 | | | $ | 231 | | | $ | 212 | | | $ | 2,574 | |
| Total CMLs | |
......................................................................................................... | |
Charge offs..................................................................................... | |
Charge offs..................................................................................... | |
Charge offs..................................................................................... | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| |
| Amortized Cost by Origination Year |
| (In millions) |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
Residential mortgages | (In millions) |
Current (less than 30 days past due) | $ | 766 | | | $ | 884 | | | $ | 214 | | | $ | 185 | | | $ | 23 | | | $ | 33 | | | $ | 2,105 | |
30-89 days past due | 2 | | | 7 | | | — | | | 4 | | | — | | | — | | | 13 | |
90 days or more past due | 3 | | | 9 | | | 15 | | | 34 | | | 1 | | | — | | | 62 | |
Total residential mortgages | $ | 771 | | | $ | 900 | | | $ | 229 | | | $ | 223 | | | $ | 24 | | | $ | 33 | | | $ | 2,180 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Non-accrual | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| |
| Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Commercial mortgages | (In millions) |
Current (less than 30 days past due) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
30-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 days or more past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total CMLs (a) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
......................................................................................................... | | | | | | | | | | | | | |
Charge offs..................................................................................... | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 3 | |
(a) Excludes loans byunder development with an amortized cost and estimated fair value of $22 million.
Loan-to-value (“LTV”) and debt service coverage (“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 tables present the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios, gross of valuation allowances at March 31, 20232024 and December 31, 2022, were2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt-Service Coverage Ratios | | Total Amount | | % of Total | | Estimated Fair Value | | % of Total |
| >1.25 | | 1.00 - 1.25 | | <1.00 | | | | | | |
March 31, 2024 | (In millions) |
LTV Ratios: | | | | | | | | | | | | | | | |
Less than 50.00% | $ | 479 | | | $ | — | | | $ | 14 | | | | | $ | 493 | | | 19 | % | | $ | 477 | | | 21 | % |
50.00% to 59.99% | 864 | | | — | | | — | | | | | 864 | | | 34 | % | | 754 | | | 34 | % |
60.00% to 74.99% | 1,134 | | | 57 | | | — | | | | | 1,191 | | | 46 | % | | 983 | | | 44 | % |
75.00% to 84.99% | — | | | 6 | | | 9 | | | | | 15 | | | 1 | % | | 15 | | | 1 | % |
CMLs | $ | 2,477 | | | $ | 63 | | | $ | 23 | | | | | $ | 2,563 | | | 100 | % | | $ | 2,229 | | | 100 | % |
| | | | | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | | | | |
LTV Ratios: | | | | | | | | | | | | | | | |
Less than 50.00% | $ | 519 | | | $ | 4 | | | $ | 10 | | | | | $ | 533 | | | 21 | % | | $ | 510 | | | 23 | % |
50.00% to 59.99% | 764 | | | — | | | — | | | | | 764 | | | 30 | % | | 679 | | | 30 | % |
60.00% to 74.99% | 1,160 | | | 56 | | | — | | | | | 1,216 | | | 48 | % | | 1,028 | | | 46 | % |
75.00% to 84.99% | — | | | 6 | | | 9 | | | | | 15 | | | 1 | % | | 14 | | | 1 | % |
CMLs (a) | $ | 2,443 | | | $ | 66 | | | $ | 19 | | | | | $ | 2,528 | | | 100 | % | | $ | 2,231 | | | 100 | % |
(a) Excludes loans under development with an amortized cost and estimated fair value of $22 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| |
| Amortized Cost by Origination Year |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Commercial mortgages | (In millions) |
LTV | | | | | | | | | | | | | |
Less than 50.00% | $ | 35 | | | $ | 86 | | | $ | 17 | | | $ | 77 | | | $ | 156 | | | $ | 122 | | | $ | 493 | |
50.00% to 59.99% | — | | | 53 | | | 149 | | | 292 | | | 235 | | | 135 | | | 864 | |
60.00% to 74.99% | — | | | 69 | | | 113 | | | 887 | | | 122 | | | — | | | 1,191 | |
75.00% to 84.99% | — | | | 6 | | | 9 | | | — | | | — | | | — | | | 15 | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
Commercial mortgages | | | | | | | | | | | | | |
DSCR | | | | | | | | | | | | | |
Greater than 1.25x | $ | 35 | | | $ | 154 | | | $ | 276 | | | $ | 1,256 | | | $ | 513 | | | $ | 243 | | | $ | 2,477 | |
1.00x - 1.25x | — | | | 60 | | | 3 | | | — | | | — | | | — | | | 63 | |
Less than 1.00x | — | | | — | | | 9 | | | — | | | — | | | 14 | | | 23 | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| |
| Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2018 | | Prior | | Total |
Commercial mortgages | (In millions) |
LTV | | | | | | | | | | | | | |
Less than 50.00% | $ | 85 | | | $ | 17 | | | $ | 77 | | | $ | 232 | | | $ | — | | | $ | 122 | | | $ | 533 | |
50.00% to 59.99% | 53 | | | 149 | | | 267 | | | 158 | | | — | | | 137 | | | 764 | |
60.00% to 74.99% | 69 | | | 113 | | | 912 | | | 122 | | | — | | | — | | | 1,216 | |
75.00% to 84.99% | 6 | | | 9 | | | — | | | — | | | — | | | — | | | 15 | |
Total CMLs (a) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
Commercial mortgages | | | | | | | | | | | | | |
DSCR | | | | | | | | | | | | | |
Greater than 1.25x | $ | 154 | | | $ | 276 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 245 | | | $ | 2,443 | |
1.00x - 1.25x | 59 | | | 3 | | | — | | | — | | | — | | | 4 | | | 66 | |
Less than 1.00x | — | | | 9 | | | — | | | — | | | — | | | 10 | | | 19 | |
Total CMLs (a) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
(a) Excludes loans under development with an amortized cost and estimated fair value of $22 million.
We recognize a mortgage loan as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Amortized cost of loans on non-accrual | (In millions) |
Residential mortgage: | $ | 63 | | | $ | 62 | |
Commercial mortgage: | 9 | | | 9 | |
Total non-accrual mortgages | $ | 72 | | | $ | 71 | |
Immaterial interest income was recognizeddelinquent when payments on non-accrual financing receivables for the three months endedloan are greater than 30 days past due. At March 31, 2023 and March 31, 2022.It is our policy to cease to accrue interest on loans that are delinquent for 90 days or more. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes 90 days or more delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of March 31, 20232024 and December 31, 2022,2023, we had $72 million and $71 million, respectively, of RMLsno CMLs that were over 90 days past due, of which $32 million and $38 million weredelinquent in principal or interest payments as shown in the process of foreclosure as of March 31, 2023 and December 31, 2022, respectively.risk rating exposure table above.
Allowance for Expected Credit Loss
We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether our unrealized losses are credit related, and if so, the magnitude of the credit loss:
•The extent to which the fair value is less than the amortized cost basis;
•The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening);
•The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength);
•Current delinquencies and nonperforming assets of underlying collateral;
•Expected future default rates;
•Collateral value by vintage, geographic region, industry concentration or property type;
•Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and
•Contractual and regulatory cash obligations and the issuer's plans to meet such obligations.
We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the total unrealized loss on the security (i.e. the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and losses, net in the unaudited Condensed Consolidated Statements of Operations, with an offset for the amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income because we write-off accrued interest through Interest and investment income when collectability concerns arise.
We consider the following in determining whether write-offs of a security’s amortized cost are necessary:
• We believe amounts related to securities have become uncollectible;
• We intend to sell a security; or
• It is more likely than not that we will be required to sell a security prior to recovery.
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible (generally based on proximity to expected credit loss), an impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Operations. The remainder of unrealized loss is held in AOCI. As of March 31, 2024 and December 31, 2023, our allowance for expected credit losses for AFS securities was $40 million and $42 million, respectively.
The fair value and gross unrealized losses of AFS securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment category and duration of fair value below amortized cost as of March 31, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| 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 | (In millions) |
Asset-backed securities | $ | 1,558 | | | $ | (41) | | | $ | 4,568 | | | $ | (358) | | | $ | 6,126 | | | $ | (399) | |
Commercial mortgage-backed securities | 470 | | | (8) | | | 2,048 | | | (203) | | | 2,518 | | | (211) | |
Corporates | 3,645 | | | (136) | | | 11,062 | | | (2,449) | | | 14,707 | | | (2,585) | |
Hybrids | 71 | | | (2) | | | 464 | | | (36) | | | 535 | | | (38) | |
Municipals | 340 | | | (51) | | | 935 | | | (186) | | | 1,275 | | | (237) | |
Residential mortgage-backed securities | 507 | | | (9) | | | 687 | | | (99) | | | 1,194 | | | (108) | |
U.S. Government | 337 | | | (2) | | | 147 | | | (9) | | | 484 | | | (11) | |
Foreign Government | 42 | | | (2) | | | 187 | | | (46) | | | 229 | | | (48) | |
Total available-for-sale securities | $ | 6,970 | | | $ | (251) | | | $ | 20,098 | | | $ | (3,386) | | | $ | 27,068 | | | $ | (3,637) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 1,371 | |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 2,775 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 4,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| 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 | (In millions) |
Asset-backed securities | $ | 1,707 | | | $ | (56) | | | $ | 5,835 | | | $ | (404) | | | $ | 7,542 | | | $ | (460) | |
Commercial mortgage-backed securities | 819 | | | (53) | | | 1,922 | | | (235) | | | 2,741 | | | (288) | |
Corporates | 2,387 | | | (134) | | | 10,739 | | | (2,283) | | | 13,126 | | | (2,417) | |
Hybrids | 60 | | | (2) | | | 483 | | | (51) | | | 543 | | | (53) | |
Municipals | 399 | | | (49) | | | 920 | | | (179) | | | 1,319 | | | (228) | |
Residential mortgage-backed securities | 336 | | | (5) | | | 662 | | | (89) | | | 998 | | | (94) | |
U.S. Government | 84 | | | — | | | 159 | | | (9) | | | 243 | | | (9) | |
Foreign Government | 49 | | | (3) | | | 188 | | | (41) | | | 237 | | | (44) | |
Total available-for-sale securities | $ | 5,841 | | | $ | (302) | | | $ | 20,908 | | | $ | (3,291) | | | $ | 26,749 | | | $ | (3,593) | |
Total number of available-for-sale securities in an unrealized loss position less than twelve months | | | | | | | | | | | 1,035 |
Total number of available-for-sale securities in an unrealized loss position twelve months or longer | | | | | | | | | | | 2,846 |
Total number of available-for-sale securities in an unrealized loss position | | | | | | | | | | | 3,881 | |
The increase in unrealized losses as of March 31, 2024, compared to December 31, 2023, was caused by higher treasury rates compared to those at the time of the F&G acquisition or purchase of the security if later. For securities in an unrealized loss position as of March 31, 2024, our allowance for expected credit loss was $40 million. We believe the unrealized loss position for which we have not recorded an allowance for expected credit loss as of March 31, 2024 was primarily attributable to interest rate increases, near-term illiquidity, and other macroeconomic uncertainties as opposed to issuer specific credit concerns.
Mortgage Loans
Our mortgage loans are collateralized by commercial and residential properties.
Commercial Mortgage Loans
Commercial mortgage loans (“CMLs”) represented approximately 5% of our total investments as of March 31, 2024 and December 31, 2023. The mortgage loans in our investment portfolio are generally comprised of high quality commercial first lien and mezzanine real estate loans. Mortgage loans are primarily on income producing properties including industrial properties, retail buildings, multifamily properties and office buildings. We diversify our CML portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Gross Carrying Value | | % of Total | | Gross Carrying Value | | % of Total |
Property Type: | (In millions) | | | | (In millions) | | |
| | | | | | | |
| | | | | | | |
Hotel | $ | 18 | | | 1 | % | | $ | 18 | | | 1 | % |
Industrial | 617 | | | 24 | % | | 616 | | | 24 | % |
Mixed Use | 11 | | | — | % | | 11 | | | — | % |
Multifamily | 1,012 | | | 39 | % | | 1,012 | | | 40 | % |
Office | 315 | | | 13 | % | | 316 | | | 13 | % |
Retail | 101 | | | 4 | % | | 102 | | | 4 | % |
Student Housing | 83 | | | 3 | % | | 83 | | | 3 | % |
Other | 406 | | | 16 | % | | 392 | | | 15 | % |
Total commercial mortgage loans, gross of valuation allowance | $ | 2,563 | | | 100 | % | | $ | 2,550 | | | 100 | % |
Allowance for expected credit loss | (13) | | | | | (12) | | | |
Total commercial mortgage loans, net of valuation allowance | $ | 2,550 | | | | | $ | 2,538 | | | |
| | | | | | | |
U.S. Region: | | | | | | | |
East North Central | $ | 104 | | | 4 | % | | $ | 151 | | | 6 | % |
East South Central | 75 | | | 3 | % | | 75 | | | 3 | % |
Middle Atlantic | 354 | | | 14 | % | | 354 | | | 14 | % |
Mountain | 386 | | | 15 | % | | 352 | | | 14 | % |
New England | 92 | | | 3 | % | | 168 | | | 6 | % |
Pacific | 765 | | | 30 | % | | 766 | | | 30 | % |
South Atlantic | 618 | | | 24 | % | | 563 | | | 22 | % |
West North Central | 21 | | | 1 | % | | 4 | | | — | % |
West South Central | 148 | | | 6 | % | | 117 | | | 5 | % |
| | | | | | | |
Total commercial mortgage loans, gross of valuation allowance | $ | 2,563 | | | 100 | % | | $ | 2,550 | | | 100 | % |
Allowance for expected credit loss | (13) | | | | | (12) | | | |
Total commercial mortgage loans, net of valuation allowance | $ | 2,550 | | | | | $ | 2,538 | | | |
CMLs segregated by aging of the loans and charge offs (by year of origination) as of March 31, 2024 and December 31, 2023, were as follows, gross of valuation allowances:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| |
| Amortized Cost by Origination Year |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Commercial mortgages | (In millions) |
Current (less than 30 days past due) | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
30-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 days or more past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
......................................................................................................... | | | | | | | | | | | | | |
Charge offs..................................................................................... | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| |
| Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Commercial mortgages | (In millions) |
Current (less than 30 days past due) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
30-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90 days or more past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total CMLs (a) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
......................................................................................................... | | | | | | | | | | | | | |
Charge offs..................................................................................... | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 3 | |
(a) Excludes loans under development with an amortized cost and estimated fair value of $22 million.
Loan-to-value (“LTV”) and debt service coverage (“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 tables present the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios, gross of valuation allowances at March 31, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt-Service Coverage Ratios | | Total Amount | | % of Total | | Estimated Fair Value | | % of Total |
| >1.25 | | 1.00 - 1.25 | | <1.00 | | | | | | |
March 31, 2024 | (In millions) |
LTV Ratios: | | | | | | | | | | | | | | | |
Less than 50.00% | $ | 479 | | | $ | — | | | $ | 14 | | | | | $ | 493 | | | 19 | % | | $ | 477 | | | 21 | % |
50.00% to 59.99% | 864 | | | — | | | — | | | | | 864 | | | 34 | % | | 754 | | | 34 | % |
60.00% to 74.99% | 1,134 | | | 57 | | | — | | | | | 1,191 | | | 46 | % | | 983 | | | 44 | % |
75.00% to 84.99% | — | | | 6 | | | 9 | | | | | 15 | | | 1 | % | | 15 | | | 1 | % |
CMLs | $ | 2,477 | | | $ | 63 | | | $ | 23 | | | | | $ | 2,563 | | | 100 | % | | $ | 2,229 | | | 100 | % |
| | | | | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | | | | |
LTV Ratios: | | | | | | | | | | | | | | | |
Less than 50.00% | $ | 519 | | | $ | 4 | | | $ | 10 | | | | | $ | 533 | | | 21 | % | | $ | 510 | | | 23 | % |
50.00% to 59.99% | 764 | | | — | | | — | | | | | 764 | | | 30 | % | | 679 | | | 30 | % |
60.00% to 74.99% | 1,160 | | | 56 | | | — | | | | | 1,216 | | | 48 | % | | 1,028 | | | 46 | % |
75.00% to 84.99% | — | | | 6 | | | 9 | | | | | 15 | | | 1 | % | | 14 | | | 1 | % |
CMLs (a) | $ | 2,443 | | | $ | 66 | | | $ | 19 | | | | | $ | 2,528 | | | 100 | % | | $ | 2,231 | | | 100 | % |
(a) Excludes loans under development with an amortized cost and estimated fair value of $22 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| |
| Amortized Cost by Origination Year |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Commercial mortgages | (In millions) |
LTV | | | | | | | | | | | | | |
Less than 50.00% | $ | 35 | | | $ | 86 | | | $ | 17 | | | $ | 77 | | | $ | 156 | | | $ | 122 | | | $ | 493 | |
50.00% to 59.99% | — | | | 53 | | | 149 | | | 292 | | | 235 | | | 135 | | | 864 | |
60.00% to 74.99% | — | | | 69 | | | 113 | | | 887 | | | 122 | | | — | | | 1,191 | |
75.00% to 84.99% | — | | | 6 | | | 9 | | | — | | | — | | | — | | | 15 | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
Commercial mortgages | | | | | | | | | | | | | |
DSCR | | | | | | | | | | | | | |
Greater than 1.25x | $ | 35 | | | $ | 154 | | | $ | 276 | | | $ | 1,256 | | | $ | 513 | | | $ | 243 | | | $ | 2,477 | |
1.00x - 1.25x | — | | | 60 | | | 3 | | | — | | | — | | | — | | | 63 | |
Less than 1.00x | — | | | — | | | 9 | | | — | | | — | | | 14 | | | 23 | |
Total CMLs | $ | 35 | | | $ | 214 | | | $ | 288 | | | $ | 1,256 | | | $ | 513 | | | $ | 257 | | | $ | 2,563 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| |
| Amortized Cost by Origination Year |
| 2023 | | 2022 | | 2021 | | 2020 | | 2018 | | Prior | | Total |
Commercial mortgages | (In millions) |
LTV | | | | | | | | | | | | | |
Less than 50.00% | $ | 85 | | | $ | 17 | | | $ | 77 | | | $ | 232 | | | $ | — | | | $ | 122 | | | $ | 533 | |
50.00% to 59.99% | 53 | | | 149 | | | 267 | | | 158 | | | — | | | 137 | | | 764 | |
60.00% to 74.99% | 69 | | | 113 | | | 912 | | | 122 | | | — | | | — | | | 1,216 | |
75.00% to 84.99% | 6 | | | 9 | | | — | | | — | | | — | | | — | | | 15 | |
Total CMLs (a) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
Commercial mortgages | | | | | | | | | | | | | |
DSCR | | | | | | | | | | | | | |
Greater than 1.25x | $ | 154 | | | $ | 276 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 245 | | | $ | 2,443 | |
1.00x - 1.25x | 59 | | | 3 | | | — | | | — | | | — | | | 4 | | | 66 | |
Less than 1.00x | — | | | 9 | | | — | | | — | | | — | | | 10 | | | 19 | |
Total CMLs (a) | $ | 213 | | | $ | 288 | | | $ | 1,256 | | | $ | 512 | | | $ | — | | | $ | 259 | | | $ | 2,528 | |
(a) Excludes loans under development with an amortized cost and estimated fair value of $22 million.
We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At March 31, 2024 and December 31, 2023, we had no CMLs that were delinquent in principal or interest payments as shown in the risk rating exposure table above.
Residential Mortgage Loans
Residential mortgage loans (“RMLs”) represented approximately 5% of our total investments as of March 31, 2024 and December 31, 2023. Our RMLs are closed end, amortizing loans and 100% of the properties are located in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. The distribution of RMLs by state with highest-to-lowest concentration are reflected in the following tables, gross of valuation allowances:
| | | | | | | | | | | |
| March 31, 2024 |
| Amortized Cost | | % of Total |
U.S. State: | (In millions) | | |
Florida | $ | 164 | | | 5 | % |
California | 142 | | | 5 | % |
| | | |
All other states (a) | 2,638 | | | 90 | % |
Total RMLs, gross of valuation allowance | $ | 2,944 | | | 100 | % |
Allowance for expected credit loss | (54) | | | |
Total RMLs, net of valuation allowance | $ | 2,890 | | | |
(a) The individual concentration of each state is equal to or less than 5% as of March 31, 2024.
| | | | | | | | | | | |
| December 31, 2023 |
| Amortized Cost | | % of Total |
U.S. State: | (In millions) | | |
Florida | $ | 163 | | | 6 | % |
New York | 129 | | | 5 | % |
Texas | 129 | | | 5 | % |
| | | |
| | | |
| | | |
| | | |
All other states (a) | 2,431 | | | 84 | % |
Total RMLs, gross of valuation allowance | $ | 2,852 | | | 100 | % |
Allowance for expected credit loss | (54) | | | |
Total RMLs, net of valuation allowance | $ | 2,798 | | | |
(a) The individual concentration of each state is equal to or less than 5% as of December 31, 2023.
RMLs have a primary credit quality indicator of either a performing or nonperforming loan. We define non-performing RMLs as those that are 90 or more days past due or in non-accrual status, which is assessed monthly. The credit quality of RMLs as of March 31, 2024 and December 31, 2023, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Amortized Cost | | % of Total | | Amortized Cost | | % of Total |
Performance indicators: | (In millions) | | | | (In millions) | | |
Performing | $ | 2,878 | | | 98 | % | | $ | 2,795 | | | 98 | % |
Non-performing | 66 | | | 2 | % | | 57 | | | 2 | % |
Total RMLs, gross of valuation allowance | $ | 2,944 | | | 100 | % | | $ | 2,852 | | | 100 | % |
Allowance for expected loan loss | (54) | | | — | % | | (54) | | | — | % |
Total RMLs, net of valuation allowance | $ | 2,890 | | | 100 | % | | $ | 2,798 | | | 100 | % |
There were no charge offs recorded by RMLs during the three months ended March 31, 2024 or during the year ended December 31, 2023. RMLs segregated by aging of the loans (by year of origination) as of March 31, 2024 and December 31, 2023, were as follows, gross of valuation allowances:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| |
| Amortized Cost by Origination Year |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Residential mortgages | (In millions) |
Current (less than 30 days past due) | $ | 56 | | | $ | 402 | | | $ | 984 | | | $ | 874 | | | $ | 185 | | | $ | 361 | | | $ | 2,862 | |
30-89 days past due | — | | | 1 | | | 2 | | | 3 | | | 6 | | | 4 | | | 16 | |
90 days or more past due | — | | | 1 | | | 11 | | | 18 | | | 12 | | | 24 | | | 66 | |
Total residential mortgages | $ | 56 | | | $ | 404 | | | $ | 997 | | | $ | 895 | | | $ | 203 | | | $ | 389 | | | $ | 2,944 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| |
| Amortized Cost by Origination Year |
| |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Residential mortgages | (In millions) |
Current (less than 30 days past due) | $ | 373 | | | $ | 985 | | | $ | 854 | | | $ | 192 | | | $ | 183 | | | $ | 192 | | | $ | 2,779 | |
30-89 days past due | — | | | 4 | | | 7 | | | 3 | | | — | | | 2 | | | 16 | |
90 days or more past due | — | | | 6 | | | 16 | | | 13 | | | 21 | | | 1 | | | 57 | |
Total residential mortgages | $ | 373 | | | $ | 995 | | | $ | 877 | | | $ | 208 | | | $ | 204 | | | $ | 195 | | | $ | 2,852 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Non-accrual loans by amortized cost as of March 31, 2024 and December 31, 2023, were as follows: | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Amortized cost of loans on non-accrual | (In millions) |
Residential mortgage: | $ | 66 | | | $ | 57 | |
Commercial mortgage: | — | | | — | |
Total non-accrual mortgages | $ | 66 | | | $ | 57 | |
Immaterial interest income was recognized on non-accrual financing receivables for the three months ended March 31, 2024 and March 31, 2023.
It is our policy to cease to accrue interest on loans that are delinquent for 90 days or more. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes 90 days or more delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of March 31, 2024 and December 31, 2023, we had $66 million and $57 million, respectively, of mortgage loans that were over 90 days past due, of which $58 million and $41 million were in the process of foreclosure as of March 31, 2024 and December 31, 2023, respectively.
Allowance for Expected Credit Loss
We estimate expected credit losses for our commercial and residential mortgage loan portfolios using a probability of default/loss given default model. Significant inputs to this model include, where applicable, the loans' current performance, underlying collateral type, location, contractual life, LTV, DSC and Debt to Income or FICO. The model projects losses using a two year reasonable and supportable forecast and then reverts over a three year period to market-wide historical loss experience. Changes in our allowance for expected credit losses on mortgage loans are recognized in Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Earnings.
The allowances for our mortgage loan portfolio are summarized as follows:
| | | | Three months ended March 31, 2024 | |
| | | Three months ended March 31, 2024 | |
| | | Three months ended March 31, 2024 | |
| | | | | | | (In millions) | |
| | | | | | | (In millions) | |
| | | | | | | (In millions) | |
| | | Three months ended March 31, 2023 | |
| | | | | | | Residential Mortgage | |
| | | (In millions) | |
| | | | | | | Residential Mortgage | |
| | | Residential Mortgage | | Commercial Mortgage | | Total | |
| | | | | | | Residential Mortgage | |
Beginning Balance | Beginning Balance | | $ | 32 | | | $ | 10 | | | $ | 42 | | |
Beginning Balance | |
Beginning Balance | |
Provision for loan losses | |
Provision for loan losses | |
Provision for loan losses | Provision for loan losses | | 16 | | | 2 | | | 18 | | |
| Ending Balance | Ending Balance | | $ | 48 | | | $ | 12 | | | $ | 60 | | |
| Ending Balance | |
| Ending Balance | |
| | | | Three months ended March 31, 2023 | |
| | | Three months ended March 31, 2023 | |
| | | Three months ended March 31, 2023 | |
| | | | | | | (In millions) | |
| | | | | | | (In millions) | |
| | | | | | | (In millions) | |
| | | Three months ended March 31, 2022 | |
| | | | | | | Residential Mortgage | |
| | | (In millions) | |
| | | | | | | Residential Mortgage | |
| | | Residential Mortgage | | Commercial Mortgage | | Total | |
| | | | | | | Residential Mortgage | |
Beginning Balance | Beginning Balance | | $ | 25 | | | $ | 6 | | | $ | 31 | | |
Beginning Balance | |
Beginning Balance | |
Provision for loan losses | |
Provision for loan losses | |
Provision for loan losses | Provision for loan losses | | 1 | | | — | | | 1 | | |
| Ending Balance | Ending Balance | | $ | 26 | | | $ | 6 | | | $ | 32 | | |
| Ending Balance | |
| Ending Balance | |
An allowance for expected credit loss is not measured on accrued interest income for CMLs as we have a process to write-off interest on loans that enter into non-accrual status (90 days or more past due). Allowances for expected credit losses are measured on accrued interest income for RMLs and were immaterial as offor the three months ended March 31, 20232024 and March 31, 2022.2023.
Interest and Investment Income
The major sources of Interest and investment income reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:
| | Three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| (In millions) | |
| Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Fixed maturity securities, available-for-sale | |
Fixed maturity securities, available-for-sale | |
Fixed maturity securities, available-for-sale | Fixed maturity securities, available-for-sale | $ | 447 | | | $ | 332 | | |
Equity securities | Equity securities | 8 | | | 8 | | |
Equity securities | |
Equity securities | |
Preferred securities | Preferred securities | 13 | | | 15 | | |
Preferred securities | |
Preferred securities | |
Mortgage loans | |
Mortgage loans | |
Mortgage loans | Mortgage loans | 51 | | | 39 | | |
| Invested cash and short-term investments | Invested cash and short-term investments | 33 | | | 5 | | |
| Invested cash and short-term investments | |
| Invested cash and short-term investments | |
| Limited partnerships | |
| Limited partnerships | |
| Limited partnerships | Limited partnerships | 57 | | | 113 | | |
Tax deferred property exchange income | Tax deferred property exchange income | 45 | | | 3 | | |
Tax deferred property exchange income | |
Tax deferred property exchange income | |
Other investments | |
Other investments | |
Other investments | Other investments | 19 | | | 9 | | |
Gross investment income | Gross investment income | 673 | | | 524 | | |
Gross investment income | |
Gross investment income | |
Investment expense | |
Investment expense | |
Investment expense | Investment expense | (62) | | | (46) | | |
Interest and investment income | Interest and investment income | $ | 611 | | | $ | 478 | | |
Interest and investment income | |
Interest and investment income | |
Recognized GainsInterest and Losses, net
Details underlying Recognized gains and losses, net reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
| (In millions) | | | | |
Net realized losses on fixed maturity available-for-sale securities | $ | (50) | | | $ | (36) | | | | | |
Net realized/unrealized gains (losses) on equity securities (1) | 33 | | | (148) | | | | | |
Net realized/unrealized losses on preferred securities (2) | (10) | | | (91) | | | | | |
Realized losses on other invested assets | (5) | | | (1) | | | | | |
Change in allowance for expected credit losses | (4) | | | (4) | | | | | |
Derivatives and embedded derivatives: | | | | | | | |
Realized (losses) gains on certain derivative instruments | (89) | | | 50 | | | | | |
Unrealized gains (losses) on certain derivative instruments | 147 | | | (358) | | | | | |
Change in fair value of reinsurance related embedded derivatives (3) | (19) | | | 122 | | | | | |
Change in fair value of other derivatives and embedded derivatives | 2 | | | (3) | | | | | |
Realized gains (losses) on derivatives and embedded derivatives | 41 | | | (189) | | | | | |
Recognized gains and losses, net | $ | 5 | | | $ | (469) | | | | | |
(1) Includes net valuation losses of $46 million and $166 million for the three months ended March 31, 2023 and 2022, respectively.
(2) Includes net valuation losses of $35 million and $90 million for the three months ended March 31, 2023 and 2022, respectively.
(3) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties with Kubera (novated from Kubera to Somerset effective October 31, 2021) and Aspida Re.
Recognized gains and losses, netinvestment income is shown net of amounts attributable to certain funds withheld reinsurance agreements, which is passed along to the reinsurer in accordance with the terms of these agreements. Recognized (losses) gainsInterest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $(22)$127 million and $128$58 million for the three months ended March 31, 20232024 and March 31, 2022,2023, respectively.
Recognized Gains and Losses, Net
Details underlying Recognized gains and losses, net reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
| (In millions) | | |
Net realized (losses) on fixed maturity available-for-sale securities | $ | (19) | | | $ | (50) | | | | | |
Net realized/unrealized gains on equity securities (1) | 54 | | | 33 | | | | | |
Net realized/unrealized gains (losses) on preferred securities (2) | 16 | | | (10) | | | | | |
Net realized/unrealized gains (losses) on other invested assets | 60 | | | (5) | | | | | |
Change in allowance for expected credit losses | — | | | (4) | | | | | |
Derivatives and embedded derivatives: | | | | | | | |
Realized gains (losses) on certain derivative instruments | 21 | | | (89) | | | | | |
Unrealized gains on certain derivative instruments | 156 | | | 147 | | | | | |
Change in fair value of reinsurance related embedded derivatives (3) | (18) | | | (19) | | | | | |
Change in fair value of other derivatives and embedded derivatives | 5 | | | 2 | | | | | |
Realized gains on derivatives and embedded derivatives | 164 | | | 41 | | | | | |
Recognized gains and losses, net | $ | 275 | | | $ | 5 | | | | | |
(1) Includes net valuation gains of $22 million and $46 million for the three months ended March 31, 2024 and 2023, respectively.
(2) Includes net valuation gains of $15 million and $35 million for the three months ended March 31, 2024 and 2023, respectively.
(3) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties.
Recognized gains and losses, net is shown net of amounts attributable to certain funds withheld reinsurance agreements, which are passed along to the reinsurer in accordance with the terms of these agreements. Recognized losses attributable to these agreements, and thus excluded from the totals in the table above, was $19 million and $22 million for the three months ended March 31, 2024 and March 31, 2023, respectively.
The proceeds from the sale of fixed-maturity securities and the gross gains and losses associated with those transactions were as follows:
| | Three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| (In millions) | |
| Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Proceeds | Proceeds | $ | 489 | | | $ | 1,052 | | |
Gross gains | Gross gains | 1 | | | 3 | | |
Gross gains | |
Gross gains | |
Gross losses | Gross losses | (51) | | | (39) | | |
Gross losses | |
Gross losses | |
Unconsolidated Variable Interest Entities
We own investments in variable interest entities ("VIEs") that are not consolidated within our financial statements. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. VIEs are consolidated by their ‘primary beneficiary’, a designation given to an entity that receives both the benefits from the VIE as well as the substantive power to make its key economic decisions. While we participate in the benefits from VIEs in which we invest, but do not consolidate, the substantive power to make the key economic decisions for each respective VIE resides with entities not under our common control. It is for this reason that we are not considered the primary beneficiary for the VIE investments that are not consolidated.
We invest in various limited partnerships and limited liability companies primarily as a passive investor. These investments are primarily in credit funds with a bias towards current income, real assets, or private equity. Limited partnership and limited liability company interests are accounted for under the equity method and are included in Investments in unconsolidated affiliates on our unaudited Condensed Consolidated Balance Sheets. In addition, we invest in structured investments, which may be VIEs, but for which we are not the
primary beneficiary. These structured investments typically invest in fixed income investments and are managed by third parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities included in Fixedfixed maturity securities available for sale on our unaudited Condensed Consolidated Balance Sheets.
Our maximum loss exposure to loss with respect to these VIEs is limited to the investment carrying amounts reported in our unaudited Condensed Consolidated Balance Sheets for limited partnerships and the amortized costs of our fixed maturity securities, in addition to any required unfunded commitments (also refer to Note F Commitments and Contingencies).
The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs as of March 31, 20232024 and December 31, 2022:2023:
| | March 31, 2023 | | December 31, 2022 |
| (In millions) | | (In millions) |
| Carrying Value | | Maximum Loss Exposure | | Carrying Value | | Maximum Loss Exposure |
Investment in limited partnerships | $ | 2,558 | | | $ | 4,268 | | | $ | 2,427 | | | $ | 4,030 | |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| (In millions) | | | (In millions) |
| Carrying Value | | | Carrying Value | | Maximum Loss Exposure | | Carrying Value | | Maximum Loss Exposure |
Investment in unconsolidated affiliates | |
Fixed maturity securities | Fixed maturity securities | 16,890 | | | 18,590 | | | 15,680 | | | 17,404 | |
Total unconsolidated VIE investments | Total unconsolidated VIE investments | $ | 19,448 | | | $ | 22,858 | | | $ | 18,107 | | | $ | 21,434 | |
Concentrations
Our underlying investment concentrations that exceed 10% of shareholders equity are as follows:
| | | | | | | |
| March 31, 20232024 | | |
| (In millions) | | |
Blackstone Wave Asset Holdco (1) | $ | 760733 | | | |
| | | |
(1) Represents a special purpose vehicle that holds investments in numerous limited partnership investments whose underlying investments are further diversified by holding interest in multiple individual investments and industries. | | |
Note E — Derivative Financial Instruments
The carrying amounts of derivative instruments, including derivative instruments embedded in FIA/indexed annuities and IUL contracts, and reinsurance is as follows:
| | March 31, 2023 | | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Assets: | Assets: | (In millions) | Assets: | (In millions) |
Derivative investments: | Derivative investments: | | | |
Call options | Call options | $ | 432 | | | | $ | 244 | |
Call options | |
Call options | |
Interest rate swaps | |
| Foreign currency forward | |
Foreign currency forward | |
Foreign currency forward | |
Other long-term investments: | Other long-term investments: | | | |
Other embedded derivatives | |
Other embedded derivatives | |
Other embedded derivatives | Other embedded derivatives | 25 | | | | 23 | |
Prepaid expenses and other assets: | Prepaid expenses and other assets: | | | |
Reinsurance related embedded derivatives | Reinsurance related embedded derivatives | 260 | | | | 279 | |
| $ | 717 | | | | $ | 546 | |
Reinsurance related embedded derivatives | |
Reinsurance related embedded derivatives | |
Total | |
| Liabilities: | Liabilities: | | |
Contractholder funds: | Contractholder funds: | | |
FIA/ IUL embedded derivatives | $ | 3,569 | | | $ | 3,115 | | |
Contractholder funds: | |
Contractholder funds: | |
Indexed annuities/IUL embedded derivatives | |
Indexed annuities/IUL embedded derivatives | |
Indexed annuities/IUL embedded derivatives | |
| Accounts payable and accrued liabilities: | |
| Accounts payable and accrued liabilities: | |
| Accounts payable and accrued liabilities: | |
| Interest rate swaps | |
| Interest rate swaps | |
| | | $ | 3,569 | | | $ | 3,115 | | |
| Interest rate swaps | |
| Total | |
| Total | |
| Total | |
The change in fair value of derivative instruments included within Recognized gains and (losses), net in the accompanying unaudited Condensed Consolidated Statements of Operations is as follows:
| | Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Net investment gains (losses): | |
Net investment gains (losses): | |
Net investment gains (losses): | |
Call options | |
Call options | |
Call options | |
Interest rate swaps | |
Interest rate swaps | |
Interest rate swaps | |
Futures contracts | |
Futures contracts | |
Futures contracts | |
Foreign currency forwards | |
Foreign currency forwards | |
Foreign currency forwards | |
Other derivatives and embedded derivatives | |
Other derivatives and embedded derivatives | |
Other derivatives and embedded derivatives | |
Reinsurance related embedded derivatives | |
Reinsurance related embedded derivatives | |
Reinsurance related embedded derivatives | |
Total net investment gains | |
Total net investment gains | |
Total net investment gains | |
| Benefits and other changes in policy reserves: | |
| Benefits and other changes in policy reserves: | |
| Benefits and other changes in policy reserves: | |
Indexed annuities/IUL embedded derivatives increase | |
Indexed annuities/IUL embedded derivatives increase | |
Indexed annuities/IUL embedded derivatives increase | |
| | | | | Three months ended |
| | | | March 31, 2023 | | March 31, 2022 |
Recognized gains and losses, net | | | (In millions) |
Net investment gains (losses): | | |
Call options | | | $ | 55 | | | $ | (314) | |
Futures contracts | | | 5 | | | 3 | |
Foreign currency forwards | | | (1) | | | 3 | |
Other derivatives and embedded derivatives | | | 1 | | | (3) | |
Reinsurance related embedded derivatives | | | (19) | | | 122 | |
Total net investment gains (losses) | | | $ | 41 | | | $ | (189) | |
| Benefits and other changes in policy reserves: | | |
FIA/ IUL embedded derivatives (decrease) increase | | | $ | 454 | | | $ | (488) | |
|
Additional Disclosures
Additional Disclosures
See descriptions of the fair value methodologies used for derivative financial instruments in Note C - Fair Value of Financial Instruments.
FIA/
Indexed Annuities/IUL Embedded Derivative, Call Options and Futures
We have FIAindexed annuities and IUL contracts that permit the holder to elect an interest rate return or an equity 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/indexed annuities/IUL embedded derivatives are valued at fair value and included in the liability for Contractholdercontractholder funds in the accompanying unaudited Condensed Consolidated Balance Sheets with changes in fair value included as a component of Benefits and other changes in policy reserves in the unaudited Condensed Consolidated Statements of Operations. See a description
We purchase derivatives consisting of a combination of call options and futures contracts (specifically for FIAindexed annuity contracts) on the applicable market indices to fund the index credits due to FIA/indexed annuity/IUL contractholders. The call options are one, two, three, and five year options purchased to match the funding requirements of the underlying policies. On the respective anniversary dates of the indexed policies, the index used to compute the interest credit is reset and we purchase new call options to fund the next index credit. We manage the cost of these purchases through the terms of our FIA/indexed annuities/IUL contracts, which permit us to change caps, spreads or participation rates, subject to guaranteed minimums, on each contract’s anniversary date. The change in the fair
value of the call options and futures contracts is generally designed to offset the portion of the change in the fair value of the FIA/indexed annuities/IUL embedded derivatives related to index performance through the current credit period. The call options and futures contracts are marked to fair value with the change in fair value included as a component of Recognized gains and losses,(losses), net, in the accompanying unaudited Condensed Consolidated Statements of Operations. The change in fair value of the call options and futures contracts includes the gains and losses recognized at the expiration of the instrument term or upon early termination and the changes in fair value of open positions.
Other market exposures are hedged periodically depending on market conditions and our risk tolerance. Our FIA/indexed annuities/IUL 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, to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and our risk tolerance changes.
Interest Rate Swaps
We utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. With an interest rate swap, we agree with another party to exchange the difference between fixed-rate and floating-rate interest amounts tied to an agreed upon notional principal at specified intervals. The interest rate swaps are marked to fair value with the change in fair value, including accrued interest and related periodic cash flows received or paid, included as a component of Recognized gains and (losses), net, in the accompanying unaudited Condensed Consolidated Statements of Operations.
Reinsurance Related Embedded Derivatives
F&G entered into a reinsurance agreement with Kubera effective December 31, 2018, to cedecedes certain fixed rate and deferred annuity business, including MYGA, on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset, a certified third-party reinsurer. Additionally, F&G entered into a reinsurance agreement with Aspida Re effective January 1, 2021, and amended in August 2021 and September 2022, to cede a quota share of MYGA business on a coinsurance funds withheld basis. Fair value movements inInvestment results for the assets that support the coinsurance that are segregated within the funds withheld balances associated with these arrangementsaccount are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance agreement, which creates an obligation for F&G to pay Somerset and Aspida Re at a later date, which results in embedded derivatives. These embedded derivatives are considered to be total return swaps. These total return swaps with contractual returns that are attributablenot clearly and closely related to the assetsunderlying reinsurance contract and liabilities associated with the reinsurance arrangements.thus require bifurcation. The fair value of the total return swapswaps is 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 with funds withheld reinsurance arrangements, including gains and losses from sales, were passed directly to the reinsurers pursuant to contractual terms of the reinsurance arrangements. The reinsurance relatedaccount. These embedded derivatives are reported in Prepaid expenses and other assets if in a net gain position, or Accounts payable and accrued liabilities, if in a net loss position on the unaudited Condensed Consolidated Balance Sheets and the related gains or losses are reported in Recognized gains and losses,(losses), net, on the unaudited Condensed Consolidated Statements of Operations.
Credit Risk
We are exposed to credit loss in the event of non-performance by our counterparties on the call options and interest rate swaps and reflect assumptions regarding this non-performance risk in the fair value of the call options.these derivatives. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts less collateral held. We maintain a policy of requiring all derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement.
Information regarding our exposure to credit loss on the call options and interest rate swaps we hold is presented in the following tables.
| | March 31, 2023 |
| (In millions) |
| | | March 31, 2024 | | | | | March 31, 2024 |
| | | (In millions) | | | | | (In millions) |
Counterparty | Counterparty | Credit Rating (Fitch/Moody's/S&P) (1) | | Notional Amount | | Fair Value | | Collateral | | Net Credit Risk | Counterparty | Credit Rating (Fitch/Moody's/S&P) (a) | | Notional Amount | | Fair Value | | Collateral | | Net Credit Risk |
Merrill Lynch | Merrill Lynch | AA/*/A+ | | $ | 3,834 | | | $ | 44 | | | $ | — | | | $ | 44 | |
| Morgan Stanley | |
Morgan Stanley | |
Morgan Stanley | Morgan Stanley | */Aa3/A+ | | 2,038 | | | 22 | | | 24 | | | — | |
Barclay's Bank | Barclay's Bank | A+/A1/A | | 5,939 | | | 106 | | | 95 | | | 11 | |
Canadian Imperial Bank of Commerce | Canadian Imperial Bank of Commerce | AA/Aa2/A+ | | 6,006 | | | 129 | | | 113 | | | 16 | |
Wells Fargo | Wells Fargo | A+/A1/BBB+ | | 1,270 | | | 31 | | | 29 | | | 2 | |
Goldman Sachs | Goldman Sachs | A/A2/BBB+ | | 1,178 | | | 16 | | | 14 | | | 2 | |
Credit Suisse | Credit Suisse | BBB+/A3/A- | | 672 | | | 7 | | | 7 | | | — | |
Truist | Truist | A+/A2/A | | 2,204 | | | 60 | | | 54 | | | 6 | |
Citibank | Citibank | A+/Aa3/A+ | | 1,207 | | | 17 | | | 15 | | | 2 | |
JP Morgan | |
Total | Total | | $ | 24,348 | | | $ | 432 | | | $ | 351 | | | $ | 83 | |
| | December 31, 2022 |
| (In millions) |
| | | December 31, 2023 | | | | | December 31, 2023 |
| | | (In millions) | | | | | (In millions) |
Counterparty | Counterparty | Credit Rating (Fitch/Moody's/S&P) (1) | | Notional Amount | | Fair Value | | Collateral | | Net Credit Risk | Counterparty | Credit Rating (Fitch/Moody's/S&P) (a) | | Notional Amount | | Fair Value | | Collateral | | Net Credit Risk |
Merrill Lynch | Merrill Lynch | AA/*/A+ | | $ | 3,563 | | | $ | 23 | | | $ | — | | | $ | 23 | |
| Morgan Stanley | |
Morgan Stanley | |
Morgan Stanley | Morgan Stanley | */Aa3/A+ | | 1,699 | | | 14 | | | 19 | | | — | |
Barclay's Bank | Barclay's Bank | A+/A1/A | | 6,049 | | | 65 | | | 59 | | | 6 | |
Canadian Imperial Bank of Commerce | Canadian Imperial Bank of Commerce | AA/Aa2/A+ | | 5,169 | | | 68 | | | 64 | | | 4 | |
Wells Fargo | Wells Fargo | A+/A1/BBB+ | | 1,361 | | | 17 | | | 17 | | | — | |
Goldman Sachs | Goldman Sachs | A/A2/BBB+ | | 1,133 | | | 9 | | | 10 | | | — | |
Credit Suisse | Credit Suisse | BBB+/A3/A- | | 1,039 | | | 5 | | | 5 | | | — | |
Truist | Truist | A+/A2/A | | 2,489 | | | 35 | | | 36 | | | — | |
Citibank | Citibank | A+/Aa3/A+ | | 795 | | | 8 | | | 9 | | | — | |
JP Morgan | |
Total | Total | | $ | 23,297 | | | $ | 244 | | | $ | 219 | | | $ | 33 | |
(a)An * represents credit ratings that were not available.
Collateral Agreements
We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivative agreements on ISDA forms. Under some ISDA agreements, we have agreed to maintain certain financial strength ratings. A downgrade below these levels provides the counterparty under the agreement the right to terminate the open optionderivative contracts between the parties, at which time any amounts payable by us or the counterparty would be dependent on the market value of the underlying option contracts. Our current rating does not allow any counterparty the right to terminate ISDA agreements. In certain transactions, both us and the counterparty have entered into a collateral support agreement requiring either party to post collateral when the net exposures exceed pre-determined thresholds. For all counterparties, except Merrill Lynch, this threshold is set to zero. As of March 31, 20232024 and December 31, 2022,2023, counterparties posted $351$968 million and $219$775 million, respectively, of collateral of which $290$740 million and $178$588 million, respectively, is included in Cash and cash equivalents with an associated payable for this collateral included in Accounts
payable and accrued liabilities on the unaudited Condensed Consolidated Balance Sheets. Accordingly, the maximum amount of loss due to credit risk that we would incur if parties to the call optionsderivatives failed completely to perform according to the terms of the contracts was $83$46 million at March 31, 20232024 and $33$39 million at December 31, 2022.2023.
We are required to pay counterparties the effective federal funds rate each day for cash collateral posted to F&G for daily mark to market margin changes. We reinvest derivative cash collateral to reduce the interest cost. Cash collateral is invested in overnight investment sweep products, which are included in Cash and cash equivalents in the accompanying unaudited Condensed Consolidated Balance Sheets.
We held 404379 and 409439 futures contracts at March 31, 20232024 and December 31, 2022,2023, respectively. The fair value of the futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements). We provide 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 unaudited Condensed Consolidated Balance Sheets. The amount of cash collateral held by the counterparties for such contracts was $4 million and $3 million at both March 31, 20232024 and December 31, 2022, respectively.2023.
Note F — Commitments and Contingencies
Legal and Regulatory Contingencies
In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. With respect to our title insurance operations, this customary litigation includes but is not limited to a wide variety of cases arising out of or related to title and escrow claims, for which we make provisions through our loss reserves. See Note B Summary of Reserve for Title Claim Losses for further discussion. Additionally, like other companies, our ordinary course litigation includes a number of class action and purported class action lawsuits, which make allegations related to aspects of our operations. We believe that no actions, other than the matters discussed below, if any, depart from customary litigation incidental to our business.
We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings in which it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and that represents our best estimate has been recorded. Our accrual for legal and regulatory matters was $8$10 million and $12 millionas of March 31, 20232024 and December 31, 2022, respectively.2023. None of the amounts we have currently recorded are considered to be material to our financial condition individually or in the aggregate. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending legal proceedings is generally not yet determinable. While some of these matters could be material to our operating results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition.
F&G is a defendant in two putative class action lawsuits related to the alleged compromise of certain of F&G’s customers’ personal information resulting from an alleged vulnerability in the MOVEit file transfer software. F&G’s vendor, Pension Benefit Information, LLC (“PBI”), used the MOVEit software in the course of providing audit and address research services to F&G and many other corporate customers. Miller v. F&G, No. 4:23-cv-00326, was filed against F&G in the Southern District of Iowa on August 31, 2023. Miller alleges that he is an F&G customer whose information was impacted in the MOVEit incident and brings common law tort and implied contract claims. F&G has yet to be served in Miller. Plaintiff seeks injunctive relief and damages. Cooper v. Progress Software Corp., No. 1:23-cv-12067, was filed against F&G and five other defendants in the District of Massachusetts on September 7, 2023. F&G was served on September 15, 2023. Cooper also alleges that he is an F&G customer and brings similar common law tort claims and alleges claims as a purported third-party beneficiary of an alleged contract. Plaintiff seeks declaratory and injunctive relief and damages. At this time, F&G does not believe the incident will have a material impact on its business, operations, or financial results.
Well over 150 similar lawsuits have been filed against other entities impacted by the MOVEit incident including a number of such lawsuits related to PBI’s use of MOVEit. On October 4, 2023, the U.S. Judicial Panel on Multidistrict Litigation (JPML) created a multidistrict litigation (MDL) pursuant to 28 U.S.C. § 1407 to handle all litigation brought by individuals whose information was potentially compromised in connection with the alleged MOVEit vulnerability. The JPML assigned the MDL to Judge Allison Burroughs of the U.S. District Court for the District of Massachusetts, and following the creation of the MDL, Miller and Cooper were transferred to Judge Burroughs.On January 19, 2024, Judge Burroughs appointed Plaintiffs’ Leadership Team and issued its First Case Management Order.Following the filing of the parties’ Joint Submission Regarding Initial Proposed Case Schedule on February 16, 2024, and a status conference with the court on March 11, 2024, the parties’ continue to work to find a mutually agreeable way to structure proceedings. The court held a status conference on April 24, 2024, and Judge Burroughs issued the Case Management Order Regarding Brief CAFA, Arbitration, Class Waiver, and Article III Standing Issues setting the deadlines for briefing of all threshold issues to be completed by September 12, 2024.
In August 2020,connection with the cybersecurity incident initially reported on November 21, 2023, the Company and/or its subsidiaries is a lawsuit styledparty to a consolidated putative nationwide class action, In Re: LoanCare Data Security Breach Litigation, InCase No. 3:23cv1508, pending in the MatterU.S. District Court for the Middle District of FGL Holdings, wasFlorida and originating from the consolidation of putative class actions filed in the Grand CourtU.S. District Courts for the Middle District of Florida, the Central District of California, and the Western District of Missouri. On March 19, 2024, plaintiffs filed their consolidated class action complaint on behalf of a nationwide class, along with a California subclass and a Florida subclass, alleging common law tort and contract claims and certain state statutory claims. On April 17, 2024, the Company filed a motion to dismiss the consolidated complaint,
and briefing is ongoing. Because of the Cayman Islands related to FNF's acquisition of F&G where dissenting shareholders, Kingfishers LP, Kingstown 1740 Fund LP, Kingstown Partners II LP, Kingstown Partners Master Ltd.,factual issues involved and Ktown LP, asserted statutory appraisal rights relative to their ownership of 12,000,000 shares of F&G stock. They sought a judicial determinationthe putative nature of the fair valueaction for which a class or subclass has not been certified, the Company has not yet been able to assess the probability of their sharesloss or estimate the possible loss or the range of F&G stock as of the date of valuation under the law of the Cayman Islands, together with interest. On September 5, 2022 the Grand Court of the Cayman Islands decided in favor of F&G. Kingstown Capital Management LP failed to appeal, and its appeal period expired on October 20, 2022. On April 19, 2023 the Grand Court of the Cayman Islands determined that the dissenting shareholders should pay F&G's Cayman Islands legal expenses relating to the lawsuit, by way of interim payment of $4 million with the balance to be determined after assessment. We are attempting to collect reimbursement of these expenses.loss.
From time to time, we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries, and we have responded to or are currently responding to inquiries from multiple governmental agencies. Also, regulators and courts have been dealing with issues arising from foreclosures and related processes and documentation. Various governmental entities are studying the title insurance product, market, pricing, and business practices,
and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities, which may require us to pay fines or claims or take other actions. We do not anticipate such fines and settlements, either individually or in the aggregate, will have a material adverse effect on our financial condition.
F&G Commitments
In our F&G segment, we have unfunded investment commitments as of March 31, 20232024 based upon the timing of when investments and agreements are executed or signed compared to when the actual investments and agreements are funded as someor closed. Some investments require that funding occur over a period of months or years. A summary of unfunded commitments by invested asset classcommitment type as of March 31, 20232024 is included below:
| | | | | | |
| March 31, 20232024 | |
AssetCommitment Type | (In millions) | |
Unconsolidated VIEs: | | |
Limited partnerships | $ | 1,7102,366 | | |
Whole loans | 743678 | | |
Fixed maturity securities, ABS | 212341 | | |
Direct Lending | 1,000530 | | |
Other fixed maturity securities, AFS | 2811 | | |
Commercial mortgage loans | 2982 | | |
| | |
Other assets | 142173 | | |
Residential mortgage loansOther invested assets | 144 | | |
| Committed amounts included in liabilities | 1 | |
Total | $ | 3,8664,225 | | |
Concurrent with the Roar purchase agreement, we executed a separate loan agreement with the sellers of Roar for us to lend up to $40 million. The loan agreement matures 60 days following the third anniversary of the first advance date. There was no balance outstanding as of March 31, 2024 and the unfunded loan commitment is included in the unfunded commitments table above in the “Other assets” line item. Refer to Note N - Acquisitions for more information on the Roar acquisition.
Note G — Dividends
On May 3, 2023,8, 2024, our Board of Directors declared cash dividends of $0.45$0.48 per share, payable on June 30, 2023,28, 2024, to FNF common shareholders of record as of June 16, 2023.14, 2024.
Note H — Segment Information
Summarized financial information concerning our reportable segments is shown in the following tables.
As of and for the three months ended March 31, 2023:2024:
| | | Title | | F&G | | Corporate and Other | | Total | | Title | | F&G | | Corporate and Other | | Elimination | | Total |
| | (In millions) | | (In millions) |
Title premiums | Title premiums | $ | 978 | | | $ | — | | | $ | — | | | $ | 978 | |
Other revenues | Other revenues | 471 | | | 365 | | | 44 | | | 880 | |
Revenues from external customers | Revenues from external customers | 1,449 | | | 365 | | | 44 | | | 1,858 | |
Interest and investment income, including recognized gains and losses, net | Interest and investment income, including recognized gains and losses, net | 103 | | | 504 | | | 9 | | | 616 | |
Total revenues | Total revenues | 1,552 | | | 869 | | | 53 | | | 2,474 | |
Depreciation and amortization | Depreciation and amortization | 37 | | | 90 | | | 7 | | | 134 | |
Interest expense | Interest expense | — | | | 22 | | | 20 | | | 42 | |
Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of unconsolidated affiliates | 157 | | | (203) | | | (28) | | | (74) | |
Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated affiliates | |
Income tax expense (benefit) | Income tax expense (benefit) | 27 | | | (8) | | | (5) | | | 14 | |
Earnings (loss) from continuing operations before equity in earnings (loss) of unconsolidated affiliates | 130 | | | (195) | | | (23) | | | (88) | |
Equity in loss of unconsolidated affiliates | — | | | — | | | — | | | — | |
Earnings (loss) from continuing operations before equity in earnings of unconsolidated affiliates | |
Equity in earnings of unconsolidated affiliates | |
Net earnings (loss) from continuing operations | Net earnings (loss) from continuing operations | $ | 130 | | | $ | (195) | | | $ | (23) | | | $ | (88) | |
Assets | Assets | $ | 8,017 | | | $ | 59,395 | | | $ | 2,242 | | | $ | 69,654 | |
Goodwill | Goodwill | 2,766 | | | 1,749 | | | 276 | | | 4,791 | |
As of and for the three months ended March 31, 2022:2023:
| | |
| | | Title | | F&G | | Corporate and Other | | Total | Title | | F&G | | Corporate and Other | | | | Total |
| | (In millions) | | (In millions) |
Title premiums | Title premiums | $ | 1,866 | | | $ | — | | | $ | — | | | $ | 1,866 | |
Other revenues | Other revenues | 665 | | | 596 | | | 31 | | | 1,292 | |
Revenues from external customers | Revenues from external customers | 2,531 | | | 596 | | | 31 | | | 3,158 | |
Interest and investment income, including recognized gains and losses, net | Interest and investment income, including recognized gains and losses, net | (148) | | | 154 | | | 3 | | | 9 | |
Total revenues | Total revenues | 2,383 | | | 750 | | | 34 | | | 3,167 | |
Depreciation and amortization | Depreciation and amortization | 33 | | | 76 | | | 6 | | | 115 | |
Interest expense | Interest expense | — | | | 8 | | | 22 | | | 30 | |
Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated affiliates | Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated affiliates | 249 | | | 345 | | | (38) | | | 556 | |
Income tax expense (benefit) | Income tax expense (benefit) | 57 | | | 106 | | | (7) | | | 156 | |
Earnings (loss) from continuing operations before equity in earnings (loss) of unconsolidated affiliates | 192 | | | 239 | | | (31) | | | 400 | |
Equity in earnings of unconsolidated affiliates | 2 | | | — | | | — | | | 2 | |
Earnings (loss) from continuing operations before equity in earnings of unconsolidated affiliates | |
| Net earnings (loss) from continuing operations | |
Net earnings (loss) from continuing operations | |
Net earnings (loss) from continuing operations | Net earnings (loss) from continuing operations | $ | 194 | | | $ | 239 | | | $ | (31) | | | $ | 402 | |
Assets | Assets | $ | 9,478 | | | $ | 49,277 | | | $ | 2,271 | | | $ | 61,026 | |
Goodwill | Goodwill | 2,517 | | | 1,749 | | | 266 | | | 4,532 | |
The activities in our segments include the following:
•Title. This segment consists of the operations of our title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title-related services including loan sub-servicing, valuations, default services, and home warranty products.warranty.
•F&G. This segment primarily consists of the operations of our annuities and life insurance related businesses. This segment issues a broad portfolio of annuity and life products, including deferred annuities (FIA(indexed annuities and fixed rate annuities), immediate annuities and IUL. This segment also provides funding agreements and PRT solutions.
•Corporate and Other. This segment consists of the operations of the parent holding company, our real estate technology subsidiaries and our remaining real estate brokerage businesses. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment.
•Elimination. This segment consists of the elimination of dividends paid from F&G to FNF, which are included in the Corporate and Other segment.
Note I — Supplemental Cash Flow Information
The following supplemental cash flow information is provided with respect to certain cash payment and non-cash investing and financing activities:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Cash paid for: | | (In millions) |
Interest | | $ | 34 | | | $ | 36 | |
Income taxes | | 6 | | | 9 | |
Deferred sales inducements | | 29 | | | 16 | |
Non-cash investing and financing activities: | | | | |
| | | | |
Change in proceeds of sales of investments available for sale receivable in period | | 41 | | | 81 | |
Change in purchases of investments available for sale payable in period | | 78 | | | 277 | |
| | | | |
Lease liabilities recognized in exchange for lease right-of-use assets | | 9 | | | 15 | |
Remeasurement of lease liabilities | | 19 | | | 15 | |
Liabilities assumed in connection with acquisitions | | | | |
Fair value of assets acquired | | 276 | | | 27 | |
Less: Total Purchase price | | 273 | | | 20 | |
Liabilities and noncontrolling interests assumed | | $ | 3 | | | $ | 7 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2024 | | 2023 |
Cash paid for: | | (In millions) |
Interest | | $ | 57 | | | $ | 34 | |
Income taxes | | 3 | | | 6 | |
Deferred sales inducements | | 54 | | | 29 | |
Non-cash investing and financing activities: | | | | |
| | | | |
Change in proceeds of sales of investments available for sale receivable in period | | (37) | | | 41 | |
Change in purchases of investments available for sale payable in period | | 173 | | | 78 | |
| | | | |
Lease liabilities recognized in exchange for lease right-of-use assets | | 16 | | | 9 | |
Remeasurement of lease liabilities | | 13 | | | 19 | |
Liabilities assumed in connection with acquisitions | | | | |
Fair value of assets acquired | | 474 | | | 276 | |
Less: Total Purchase price | | 284 | | | 273 | |
Liabilities and noncontrolling interests assumed | | $ | 190 | | | $ | 3 | |
| | | | |
| | | | |
| | | | |
| | | | |
Note J — Revenue Recognition
Disaggregation of Revenue
Our revenue consists of:
| | Three months ended March 31, | |
| 2023 | | 2022 | |
| | | | | | Three months ended March 31, | |
| | | | | | Three months ended March 31, | |
| | | | | | Three months ended March 31, | |
| | | | | | 2024 | |
| | | | | | 2024 | |
| | | | | | 2024 | |
Revenue Stream | |
Revenue Stream | |
Revenue Stream | Revenue Stream | | Income Statement Classification | | Segment | | Total Revenue | | Income Statement Classification | | Segment | | Total Revenue |
Revenue from insurance contracts: | Revenue from insurance contracts: | | | | | | (In millions) | Revenue from insurance contracts: | | | | | | (In millions) |
Direct title insurance premiums | Direct title insurance premiums | | Direct title insurance premiums | | Title | | $ | 428 | | | $ | 767 | | |
Agency title insurance premiums | Agency title insurance premiums | | Agency title insurance premiums | | Title | | 550 | | | 1,099 | | |
Agency title insurance premiums | |
Agency title insurance premiums | |
Life insurance premiums, insurance and investment product fees, and other | |
Life insurance premiums, insurance and investment product fees, and other | |
Life insurance premiums, insurance and investment product fees, and other | Life insurance premiums, insurance and investment product fees, and other | | Escrow, title-related and other fees | | F&G | | 365 | | | 596 | | |
Home warranty | Home warranty | | Escrow, title-related and other fees | | Title | | 30 | | | 34 | | |
Home warranty | |
Home warranty | |
Total revenue from insurance contracts | |
Total revenue from insurance contracts | |
Total revenue from insurance contracts | Total revenue from insurance contracts | | 1,373 | | | 2,496 | | |
Revenue from contracts with customers: | Revenue from contracts with customers: | | |
Revenue from contracts with customers: | |
Revenue from contracts with customers: | |
Escrow fees | |
Escrow fees | |
Escrow fees | Escrow fees | | Escrow, title-related and other fees | | Title | | 160 | | | 265 | | |
Other title-related fees and income | Other title-related fees and income | | Escrow, title-related and other fees | | Title | | 146 | | | 196 | | |
Other title-related fees and income | |
Other title-related fees and income | |
ServiceLink, excluding title premiums, escrow fees, and subservicing fees | ServiceLink, excluding title premiums, escrow fees, and subservicing fees | | Escrow, title-related and other fees | | Title | | 75 | | | 94 | | |
ServiceLink, excluding title premiums, escrow fees, and subservicing fees | |
ServiceLink, excluding title premiums, escrow fees, and subservicing fees | |
| Real estate technology | |
| Real estate technology | |
| Real estate technology | Real estate technology | | Escrow, title-related and other fees | | Corporate and other | | 37 | | | 38 | | |
| Total revenue from contracts with customers | Total revenue from contracts with customers | | 418 | | | 593 | | |
| Total revenue from contracts with customers | |
| Total revenue from contracts with customers | |
Other revenue: | |
Other revenue: | |
Other revenue: | Other revenue: | | |
Loan subservicing revenue | Loan subservicing revenue | | Escrow, title-related and other fees | | Title | | 60 | | | 76 | | |
Loan subservicing revenue | |
Loan subservicing revenue | |
Other | |
Other | |
Other | Other | | Escrow, title-related and other fees | | Corporate and other | | 7 | | | (7) | | |
Interest and investment income | Interest and investment income | | Interest and investment income | | Various | | 611 | | | 478 | | |
Interest and investment income | |
Interest and investment income | |
Recognized gains and losses, net | |
Recognized gains and losses, net | |
Recognized gains and losses, net | Recognized gains and losses, net | | Recognized gains and losses, net | | Various | | 5 | | | (469) | | |
Total revenues | Total revenues | | Total revenues | | $ | 2,474 | | | $ | 3,167 | | |
Total revenues | |
Total revenues | |
Our Direct title insurance premiums are recognized as revenue at the time of closing of the underlying transaction as the earnings process is then considered complete. Regulation of title insurance rates varies by state. Premiums are charged to customers based on rates predetermined in coordination with each states' respective Department of Insurance. Cash associated with such revenue is typically collected at closing of the underlying real estate transaction. Premium revenues from agency title operations are recognized when the underlying title order and transaction closing, if applicable, are complete.
Revenues from our home warranty business are generated from contracts with customers to provide warranty for major home appliances. Substantially all of our home warranty contracts are one year in length and revenue is recognized ratably over the term of the contract.
Escrow fees and other title-related fees and income in our Title segment are closely related to Direct title insurance premiums and are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, providing notary and home inspection services, and other real estate or title-related activities. Revenue is primarily recognized upon closing of the underlying real estate transaction or completion of services. Cash associated with such revenue is typically collected at closing.
Revenues from ServiceLink, excluding its title premiums, escrow fees and loan subservicing fees primarily include revenues from real estate appraisal services and foreclosure processing and facilitation services. Revenues from real estate appraisal services are recognized when all appraisal work is complete, a final report is issued to the client and the client is billed. Revenues from foreclosure processing and facilitation services are primarily recognized upon completion of the services and when billing to the client is complete.
Life insurance premiums in our F&G segment reflect premiums for life-contingent PRT, traditional life insurance products and life-contingent immediate annuity products, which are recognized as revenue when due from the policyholder. We have ceded the majority of our traditional life business to unaffiliated third party reinsurers. While the base contract has been reinsured, we continue to retain the return of premium rider. Insurance and investment product fees and other consist primarily of the cost of insurance on IUL policies, URLunearned revenue liabilities ("URL") on IUL policies, policy rider fees primarily on FIAfixed indexed annuity ("FIA") policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts.
Premium and annuity deposit collections for FIA,indexed annuities, fixed rate annuities, immediate annuities and PRT without life contingency, and amounts received for funding agreements 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 include net investment income, surrender, cost of insurance and other charges deducted from contractholder 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 hedging cost of providing index credits to the policyholder), amortization of VOBA, DAC,value of business acquired ("VOBA"), deferred acquisition costs ("DAC"), and DSI,deferred sales inducements ("DSI"), other operating costs and expenses, and income taxes.
Real estate technology revenues are primarily comprised of subscription fees for use of software provided to real estate professionals. Subscriptions are only offered on a month-by-month basis and fees are billed monthly. Revenue is recognized in the month services are provided.
Loan subservicing revenues are generated by certain subsidiaries of ServiceLink and are associated with the servicing of mortgage loans on behalf of its customers. Revenue is recognized when the underlying work is performed and billed. Loan subservicing revenues are subject to the recognition requirements of ASC Topic 860.
Interest and investment income consists primarily of interest payments received on fixed maturity security holdings and dividends received on equity and preferred security holdings along with the investment income of limited partnerships.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, primarily related to revenue from our home warranty business, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Contract Balances
The following table provides information about trade receivables and deferred revenue:
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
| | (In millions) | | (In millions) |
Trade receivables | Trade receivables | $ | 309 | | | $ | 349 | |
Deferred revenue (contract liabilities) | Deferred revenue (contract liabilities) | 285 | | | 271 | |
Deferred revenue is recorded primarily for our home warranty contracts. Revenues from home warranty products are recognized over the life of the policy, which is primarily one year. The unrecognized portion is recorded as deferred revenue in Accounts payable and other accrued liabilities in the unaudited Condensed Consolidated Balance Sheets. During the three months ended March 31, 20232024 and March 31 2022,2023, we recognized $32$34 million and $38$32 million of revenue, respectively, which was included in deferred revenue at the beginning of the respective period.
Note K —Value of Business Acquired, Deferred Acquisition Costs and Deferred Sales Inducements
The following table reconciles to Other intangible assets, net, on the unaudited Condensed Consolidated Balance Sheets as of March 31, 20232024 and December 31, 2022.2023.
| | | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
| | March 31, 2023 | | December 31, 2022 |
| | (In millions) |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
Customer relationships and contracts | |
VOBA | VOBA | | $ | 1,572 | | | $ | 1,615 | |
DAC | DAC | | 1,676 | | | 1,411 | |
DSI | DSI | | 225 | | | 200 | |
Value of distribution asset | Value of distribution asset | | 97 | | | 100 | |
Computer software | Computer software | | 65 | | | 61 | |
Definite lived trademarks, tradenames, and other | | 21 | | | 22 | |
Indefinite lived tradenames and other | | 21 | | | 20 | |
Trademarks, tradenames, and other | |
| Total Other intangible assets, net | Total Other intangible assets, net | | $ | 3,677 | | | $ | 3,429 | |
Total Other intangible assets, net | |
Total Other intangible assets, net | |
The following tables roll forward VOBA by product for the three months ended March 31, 20232024 and March 31, 2022.2023.
| | Indexed Annuities | |
| Indexed Annuities | |
| Indexed Annuities | | | Fixed Rate Annuities | | Immediate Annuities | | Universal Life | | Traditional Life | | | | | | | Total |
| | FIA | | Fixed Rate Annuities | | Immediate Annuities | | Universal Life | | Traditional Life | | | Total |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Balance at January 1, 2024 | |
| Amortization | |
Amortization | |
Amortization | |
| | (In millions) |
Balance at March 31, 2024 | |
Balance at March 31, 2024 | |
Balance at March 31, 2024 | |
| | Indexed Annuities | |
| Indexed Annuities | |
| Indexed Annuities | | | Fixed Rate Annuities | | Immediate Annuities | | Universal Life | | Traditional Life | | | | | | | Total |
| | (In millions) | |
| (In millions) | |
| (In millions) | |
Balance at January 1, 2023 | Balance at January 1, 2023 | $ | 1,166 | | | $ | 32 | | | $ | 201 | | | $ | 143 | | | $ | 73 | | | | $ | 1,615 | |
| Amortization | Amortization | (36) | | | (1) | | | (3) | | | (2) | | | (1) | | | | (43) | |
Amortization | |
Amortization | |
| Balance at March 31, 2023 | Balance at March 31, 2023 | $ | 1,130 | | | $ | 31 | | | $ | 198 | | | $ | 141 | | | $ | 72 | | | | $ | 1,572 | |
| | FIA | | Fixed Rate Annuities | | Immediate Annuities | | Universal Life | | Traditional Life | | | Total |
| | (In millions) |
Balance at January 1, 2022 | $ | 1,314 | | | $ | 39 | | | $ | 212 | | | $ | 153 | | | $ | 25 | | | | $ | 1,743 | |
| Amortization | (38) | | | (2) | | | (3) | | | (3) | | | (1) | | | | (47) | |
Shadow Premium Deficiency Testing (“PDT”) | — | | | — | | | — | | | — | | | 53 | | | | 53 | |
Balance at March 31, 2022 | $ | 1,276 | | | $ | 37 | | | $ | 209 | | | $ | 150 | | | $ | 77 | | | | $ | 1,749 | |
Balance at March 31, 2023 | |
Balance at March 31, 2023 | |
|
The following table presents a reconciliationVOBA amortization expense of VOBA to the table above, which is included$39 million and $43 million was recorded in Other intangible assets, net inDepreciation and amortization on the unaudited Condensed Consolidated Balance Sheets asStatements of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | |
| | (In millions) |
FIA | | $ | 1,130 | | | $ | 1,166 | |
Fixed Rate Annuities | | 31 | | | 32 | |
Immediate Annuities | | 198 | | | 201 | |
Universal Life | | 141 | | | 143 | |
Traditional Life | | 72 | | | 73 | |
| | | | |
Total | | $ | 1,572 | | | $ | 1,615 | |
The following tables roll forward DACOperations for the three months ended March 31, 20232024 and March 31, 2022.2023, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| FIA | | Fixed Rate Annuities | | Universal Life | | Total (a) |
| |
| (In millions) |
Balance at January 1, 2023 | $ | 971 | | | $ | 83 | | | $ | 348 | | | $ | 1,402 | |
Capitalization | 113 | | | 52 | | | 56 | | | 221 | |
Amortization | (22) | | | (5) | | | (8) | | | (35) | |
Reinsurance related adjustments | — | | | 79 | | | — | | | 79 | |
Balance at March 31, 2023 | $ | 1,062 | | | $ | 209 | | | $ | 396 | | | $ | 1,667 | |
| | | | | | | |
| FIA | | Fixed Rate Annuities | | Universal Life | | Total (a) |
| |
| (In millions) |
Balance at January 1, 2022 | $ | 564 | | | $ | 38 | | | $ | 173 | | | $ | 775 | |
Capitalization | 98 | | | 8 | | | 47 | | | 153 | |
Amortization | (13) | | | (2) | | | (4) | | | (19) | |
Balance at March 31, 2022 | $ | 649 | | | $ | 44 | | | $ | 216 | | | $ | 909 | |
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The following tables roll forward DAC by product for the three months ended March 31, 2024 and March 31, 2023.
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| Indexed Annuities | | Fixed Rate Annuities | | Universal Life | | Total (a) |
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| (In millions) |
Balance at January 1, 2024 | $ | 1,378 | | | $ | 288 | | | $ | 545 | | | $ | 2,211 | |
Capitalization | 147 | | | 44 | | | 66 | | | 257 | |
Amortization | (33) | | | (19) | | | (8) | | | (60) | |
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Balance at March 31, 2024 | $ | 1,492 | | | $ | 313 | | | $ | 603 | | | $ | 2,408 | |
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| Indexed Annuities | | Fixed Rate Annuities | | Universal Life | | Total (a) |
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| (In millions) |
Balance at January 1, 2023 | $ | 971 | | | $ | 83 | | | $ | 348 | | | $ | 1,402 | |
Capitalization | 113 | | | 52 | | | 56 | | | 221 | |
Amortization | (22) | | | (5) | | | (8) | | | (35) | |
Reinsurance related adjustments | — | | | 79 | | | — | | | 79 | |
Balance at March 31, 2023 | $ | 1,062 | | | $ | 209 | | | $ | 396 | | | $ | 1,667 | |
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(a) Excludes insignificant amounts of DAC related to Funding Agreement Backed Note (“FABN”)
DAC amortization expense of $60 million and $35 million was recorded in Depreciation and amortization on the unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and March 31, 2023, respectively, excluding insignificant amounts related to FABN.
The following table presents a reconciliation of DAC to the table above, which is included in Other intangible assets, net inreconciled to the unaudited Condensed Consolidated Balance Sheets as of March 31, 20232024 and December 31, 2022 :2023:
| | | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
| | March 31, 2023 | | December 31, 2022 |
| | (In millions) |
FIA | | $ | 1,062 | | | $ | 971 | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
Indexed Annuities | |
Fixed Rate Annuities | Fixed Rate Annuities | | 209 | | | 83 | |
| Universal Life | Universal Life | | 396 | | | 348 | |
Universal Life | |
Universal Life | |
| Funding Agreements | Funding Agreements | | 9 | | | 9 | |
Funding Agreements | |
Funding Agreements | |
Total | Total | | $ | 1,676 | | | $ | 1,411 | |
The following tables rolltable rolls forward DSI for our indexed annuity products for the three months ended March 31, 2024 and March 31, 2023:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| (In millions) |
Balance at January 1, | $ | 346 | | | $ | 200 | |
Capitalization | 54 | | | 29 | |
Amortization | (8) | | | (4) | |
Balance at March 31, | $ | 392 | | | $ | 225 | |
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DSI amortization expense of $8 million and $4 million was recorded in Depreciation and amortization on the unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 20232024 and March 31, 2022:
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| FIA | | Total |
| |
| (In millions) |
Balance at January 1, 2023 | $ | 200 | | | $ | 200 | |
Capitalization | 29 | | | 29 | |
Amortization | (4) | | | (4) | |
Balance at March 31, 2023 | $ | 225 | | | $ | 225 | |
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| FIA | | Total |
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| (In millions) |
Balance at January 1, 2022 | $ | 127 | | | $ | 127 | |
Capitalization | 16 | | | 16 | |
Amortization | (3) | | | (3) | |
Balance at March 31, 2022 | $ | 140 | | | $ | 140 | |
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The following table presents a reconciliation of DSI to the table above, which is included in Other intangible assets, net in the unaudited Condensed Consolidated Balance Sheets as of March 31, 2023, and December 31, 2022:
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| | March 31, 2023 | | December 31, 2022 |
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FIA | | $ | 225 | | | $ | 200 | |
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Total | | $ | 225 | | | $ | 200 | |
The cash flow assumptions used to amortize VOBA and DAC were consistent with the assumptions used to estimate the FPBfuture policy benefits (“FPB”) for life contingent immediate annuity and PRT contracts,annuities, and will be reviewed and unlocked, if applicable, in the same period as those balances. For nonparticipating traditional life contracts, the VOBA amortization is straight-line, without the use of cash flow assumptions. For FIAindexed annuity contracts, the cash flow assumptions used to amortize VOBA, DAC, and DSI were consistent with the assumptions used to estimate the value of the embedded derivative and MRBs, and will be reviewed and unlocked, if applicable, in the same period as those balances. For fixed rate annuities and IUL the cash flow assumptions used to amortize VOBA, DAC and DSI reflect the company’sCompany’s best estimates for policyholder behavior, consistent with the development of assumptions for FIA,indexed annuities and immediate annuity, and PRT.annuities.
We review cash flow assumptions annually, generally in the third quarter. In 2022,2023, F&G undertook a review of all significant assumptions and revised GMWB utilization forseveral assumptions relating to our deferred annuity contracts (FIA(indexed annuity and fixed rate annuities)annuity) and IUL products, including surrender rates, partial withdrawal rates, mortality improvement, premium persistency, and option budgets. All updates to reflect internalthese assumptions brought us more in line with our company and overall industry experience insince the first several contract years.prior assumption update.
For the in-force liabilities as of March 31, 2023,2024, the estimated amortization expense for VOBA in future fiscal periods is as follows:
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| Estimated Amortization Expense |
Fiscal Year | (In millions) |
2023 | $ | 122 | |
2024 | 151 | |
2025 | 139 | |
2026 | 128 | |
2027 | 117 | |
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Thereafter | 915 | |
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| Estimated Amortization Expense |
Fiscal Year | (In millions) |
2024 | $ | 111 | |
2025 | 138 | |
2026 | 126 | |
2027 | 115 | |
2028 | 105 | |
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Thereafter | 812 | |
Total | $ | 1,407 | |
Note L — F&G Reinsurance
F>he 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 exposuremanage loss exposures, to mortality lossesenhance our capital position, to diversify risks and enhance capital management.earnings, and to manage new business volume. The Company follows reinsurance accounting when there is adequate risk transfer orthe treaty adequately transfers insurance risk. Otherwise, the Company follows deposit accounting if there is inadequate transfer of insurance risk transfer. Ifor if the underlying policy for which risk is being reinsuredtransferred is an investment contract the effectsthat does not contain insurance risk.
The effects of reinsurance on net premiums earned and net benefits incurred (benefits paid and reserve changes) for the three months ended March 31, 20232024 and March 31, 20222023 were as follows:
| | Three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| Net Premiums Earned | | Net Benefits Incurred | | Net Premiums Earned | | Net Benefits Incurred | |
| (In millions) | |
| Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| Net Premiums Earned | |
| Net Premiums Earned | |
| Net Premiums Earned | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Direct | Direct | $ | 301 | | | $ | 872 | | | $ | 567 | | | $ | 505 | | |
| Ceded | Ceded | (26) | | | (60) | | | (32) | | | (302) | | |
| Ceded | |
| Ceded | |
Net | Net | $ | 275 | | | $ | 812 | | | $ | 535 | | | $ | 203 | | |
Net | |
Net | |
Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. F&G didNo policies issued by the Company have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not write offprimarily 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. There have been no significant changes to reinsurance balancescontracts for the three months ended March 31, 2024.
The following summarizes our reinsurance recoverable (in millions) as of March 31, 2024 and December 31, 2023:
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Parent Company/ Principal Reinsurers | | Reinsurance Recoverable (a) | | Agreement Type | | Products Covered | | Accounting |
| | March 31, 2024 | | December 31, 2023 | | | | | | |
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Aspida Life Re Ltd | | $ | 6,489 | | | $ | 6,128 | | | Coinsurance Funds Withheld | | Certain MYGA (b) | | Deposit |
Somerset Reinsurance Ltd | | 1,250 | | | 716 | | | Coinsurance Funds Withheld | | Certain MYGA (b) and DA | | Deposit |
Wilton Reassurance Company | | 1,085 | | | 1,092 | | | Coinsurance | | Block of traditional, IUL and UL (c) | | Reinsurance |
Everlake Life Insurance Company | | 791 | | | 509 | | | Coinsurance (d) | | Certain MYGA (b) (d) | | Deposit |
Other (e) | | 518 | | | 536 | | | | | | | |
Reinsurance recoverable, gross of allowance for credit losses | | 10,133 | | | 8,981 | | | | | | | |
Allowance for expected credit loss | | (21) | | | (21) | | | | | | | |
Reinsurance recoverable, net of allowance for credit losses | | $ | 10,112 | | | $ | 8,960 | | | | | | | |
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(a) Reinsurance recoverables do not include unearned ceded premiums that would be recovered in the event of early termination of certain traditional life policies. |
(b) As of March 31, 2024 and December 31, 2023, the combined quota share flow reinsurance amongst all reinsurers was 90% . |
(c) Also includes certain FGL Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX. |
(d) Reinsurance recoverable is collateralized by assets placed in a statutory comfort trust by the reinsurer and maintained for our sole benefit. |
(e) Represents all other reinsurers, with no single reinsurer having a carrying value in excess of 5% of total reinsurance recoverable. |
The Company incurred risk charge fees of $10 million during the three months ended March 31, 2024, and 2023 and March 31, 2022. F&G did not commute any cededin relation to reinsurance treaties during the three months ended March 31, 2023 and March 31, 2022.agreements.
F&GCredit Losses
The Company estimates expected credit losses on reinsurance recoverables using a probability of default/loss given default model. Significant inputs to the model include the reinsurer's credit risk, expected timing of recovery, industry-wide historical default experience, senior unsecured bond recovery rates, and credit enhancement features.
The expected credit loss reserves were as follows:
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| | | Three months ended |
| | | | | March 31, 2023 | | March 31, 2022 |
| | | | | (In millions) |
Balance at Beginning of Period | | | | | $ | (10) | | | $ | (20) | |
Changes in the expected credit loss reserve | | | | | 1 | | | — | |
Balance at End of Period | | | | | $ | (9) | | | $ | (20) | |
No policies issued by F&G 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.
F&G 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. | | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
| (In millions) |
Balance at beginning of period | $ | (21) | | | $ | (10) | | | | | |
Changes in the expected credit loss reserve | — | | | 1 | | | | | |
Balance at end of period | $ | (21) | | | $ | (9) | | | | | |
Aspida Reinsurance Transaction. F&G executed a Funds Withheld Coinsurance Agreement with Aspida Re, a Bermuda reinsurer. In accordance with the terms of this agreement, F&G cedes to the reinsurer, on a fifty percent (50%) funds withheld coinsurance basis, certain multiyear guaranteed annuity business written effective January 1, 2021.The agreement was originally executed January 15, 2021 and amended in August 2021 and September 2022. For reinsured policies issued prior to September 1, 2022, the policies are ceded on a fifty percent (50%) quota share basis. For reinsured policies issued on or after September 1, 2022, the policies are ceded on a seventy-five percent (75%) quota share basis, capped at $350 million cession per month. For the month of March 2023 only, the premiums cap increased to $450 million. As the policies ceded to Aspida are investment contracts, there is no significant insurance risk present and; therefore, the effects of this agreement are accounted for as a separate investment contract.
There have been no other significant changes to reinsurance contracts for the three months ended March 31, 2023.
Concentration of Reinsurance Risk
The Company
As indicated above, F&G has a significant concentration of reinsurance risk with third party reinsurers, ASPIDA Life Re Ltd. (“Aspida Re,Re”), Somerset Reinsurance Ltd. (“Somerset”), Wilton Reassurance CompanyReinsurance (“Wilton Re”), and SomersetEverlake Life Insurance Company (“Everlake”) that could have a material impact on our financial position in the event that any of these reinsurers fails to perform its obligations under the various reinsurance treaties. Aspida Re has an A- issuer credit rating from AM Best as of March 31, 2023, and the risk of non-performance is further mitigated through the funds withheld arrangement. Wilton Re has an A+ issuer credit rating from AM Best and an A issuer credit rating from Fitch as of March 31, 2023. Somerset has an A- issuer credit rating from AM Best and a BBB+ issuer credit rating from S&P as of March 31, 2023, and the risk of non-performance is further mitigated through the funds withheld arrangement. On March 31, 2023, the net amounts recoverable from Aspida Re, Wilton Re, and Somerset were $4,073 million, $1,184 million, and $553 million, respectively. We monitor both the financial condition and financial strength of individual reinsurers using public ratings (refer to table below) and risk concentration arising from similar activities and economic characteristicsratings reports of individual reinsurers to attempt to reduce the risk of default by such reinsurers. In addition, the risk of non-performance is further mitigated with various forms of collateral or collateral arrangements, including secured trusts, funds withheld accounts and irrevocable letters of credit. We believe that all amounts due from Aspida Re, Somerset, Wilton Re and SomersetEverlake for periodic treaty settlements, net of any applicable credit loss reserves, are collectible as of March 31, 2023.2024. The following table presents financial strength ratings as of March 31, 2024:
There have been no other material changes in the reinsurance and the intercompany reinsurance agreements described in our Form 10-K for the year ended December 31, 2022. | | | | | | | | | | | | | | | | | | | | | | | |
Parent Company/Principal Reinsurers | Financial Strength Rating |
| AM Best | | S&P | | Fitch | | Moody's |
Aspida Re | A- | | — | | — | | — |
Somerset | A- | | BBB+ | | — | | — |
Wilton Re | A+ | | — | | A | | — |
Everlake | A+ | | — | | — | | — |
Note M — F&G Insurance Subsidiary Financial Information and Regulatory Matters
Our U.S. insurance subsidiaries, Fidelity & Guaranty LifeFGL Insurance, Company ("FGL Insurance"), Fidelity & Guaranty Life Insurance Company of New York ("FGL NY Insurance"),Insurance, Raven Re and Raven Reinsurance Company ("Raven Re"),Corbeau Re file financial statements with state insurance regulatory authorities and, with the exception of Raven Re, with 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 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 VOBA, DAC, and DSI, 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 GAAP basis financial statements for comparable items.
F&G Cayman Re Ltd andOur non-U.S. insurance subsidiaries, F&G Life Re Ltd (Bermuda) and F&G Cayman Re Ltd (“F&G Cayman Re”), file financial statements with their respective regulators thatregulators.
U.S. Companies
Our principal insurance subsidiaries' statutory financial statements are based on U.S. GAAP.
FGL Insurance applies 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 purposesa December 31 year end. Statutory net income 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 $3 million and $152 million decrease to statutory capital and surplus atof our wholly owned insurance subsidiaries as of March 31, 20232024 and December 31, 2022, respectively.2023, were as follows (in millions):
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| Subsidiary (state of domicile) (a) |
| FGL Insurance (IA) | | FGL NY Insurance (NY) | | Raven Re (VT) | | Corbeau Re (VT) |
Statutory net income (loss): | | | | | | | |
For the three months ended March 31, 2024 | $ | — | | | $ | 2 | | | $ | 15 | | | $ | (134) | |
For the three months ended March 31, 2023 | (3) | | | 1 | | | 14 | | | — | |
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Statutory capital and surplus: | | | | | | | |
March 31, 2024 | $ | 1,940 | | | $ | 89 | | | $ | 155 | | | $ | 156 | |
December 31, 2023 | 2,009 | | | 86 | | | 140 | | | 171 | |
(a) FGL Insurance’s statutory carrying value ofNY Insurance, Raven Re reflectsand Corbeau Re are subsidiaries of FGL Insurance, and the effect of permitted practices Ravencolumns should not be added together. Corbeau Re received to treat the available amount of a letter of credit as an admitted asset, which increased Raven Re’s statutorywas incorporated on September 1, 2023.
Non-U.S. Companies
Net income and capital and surplus by $200 millionof our wholly owned Bermuda and $200 million at March 31, 2023Cayman Islands regulated insurance subsidiaries under U.S. GAAP were as follows (in millions):
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| Subsidiary (country of domicile) |
| F&G Cayman Re (Cayman Islands) | | F&G Life Re (Bermuda) |
Statutory net income (loss): | | | |
For the three months ended March 31, 2024 | $ | (31) | | | $ | 49 | |
For the three months ended March 31, 2023 | 35 | | | 68 | |
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Statutory capital and surplus: | | | |
March 31, 2024 | $ | 143 | | | $ | 61 | |
December 31, 2023 | 114 | | 11 |
There have been no material changes to the prescribed and December 31, 2022, respectively.
Raven Re is also permitted to follow Iowa prescribed statutory accounting practicepractices for its reservesour U.S. insurance subsidiaries, which were detailed in our Annual Report on reinsurance assumed from FGL Insurance. Without such permitted statutory accounting practices, Raven Re’s statutory capitalForm 10-K, and surplus (deficit) and its risk-based capital would fall belowno significant changes in the minimum regulatory requirements. The letterstatus 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 was $93 million and $121 million at March 31, 2023 and December 31, 2022, respectively.
Asour insurance subsidiaries as of March 31, 2023, FGL NY Insurance did not follow any prescribed or permitted statutory accounting practices that differ from the NAIC's statutory accounting practices.2024.
The prescribed and permitted statutory accounting practices have no impact on our unaudited Condensed Consolidated Financial Statements, which are prepared in accordance with GAAP.
Note N — Acquisitions
TitlePointOwned Distribution - Acquisition of Roar
On January 1, 2023, we completed our previously announced acquisition2, 2024, F&G acquired a 70% majority ownership stake in the equity of TitlePoint for $224Roar. Roar wholesales life insurance and annuity products to banks and broker dealers through a network of agents. Total initial consideration is comprised of $269 million inof cash subjectand $48 million of contingent consideration. Under the terms of the purchase agreement, the Company has agreed to make cash payments of up to $90 million over a customary working capital adjustment.three year period upon the achievement of certain EBITDA milestones of Roar.
The acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). Theinitial purchase price has been allocated to TitlePoint'sis as follows (in millions):
| | | | | |
Cash paid for 70% majority interest of Roar shares | $ | 269 | |
Less: Cash acquired net of noncontrolling interests | 1 | |
Net cash paid for 70% majority interest of Roar | 268 | |
Initial fair value of contingent consideration | 48 | |
Total net initial consideration | $ | 316 | |
The following table summarizes the preliminary fair value amounts recognized for the assets acquired based on their fair valuesand liabilities assumed as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. Goodwill consists primarily of intangible assets that do not qualify for separate recognition. The goodwill recorded is expected to be deductible for tax purposes. In connection with the acquisition, we recorded preliminary fair value estimates for goodwill, other intangible assets and other assets of $146 million, $73 million and $5 million, respectively, as of March 31, 2023.date:
| | | | | |
| Fair Value as of January 2, 2024 |
| |
| |
| (In millions) |
Goodwill | $ | 268 | |
Prepaid expenses and other assets | 3 | |
Other intangible assets | 183 | |
Total assets acquired | 454 | |
| |
Accounts payable and accrued liabilities | 2 | |
Total liabilities assumed | 2 | |
| |
Noncontrolling interests (fair value determined using income approach) | 136 | |
Total liabilities assumed and non-controlling interests | 138 | |
| |
Net assets acquired | $ | 316 | |
The preliminary gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the TitlePointRoar acquisition consist of the following:
| | Gross Carrying Value | | Weighted Average Estimated Useful Life (in years) |
| | Gross Carrying Value | | | Gross Carrying Value | | Estimated Useful Life |
Other intangible assets: | Other intangible assets: | (In millions) | | | Other intangible assets: | (In millions) | | (In years) |
| Customer relationships | Customer relationships | $ | 9 | | | 10 | Customer relationships | $ | 179 | | | 12 | | 12 |
Trade name | 4 | | | 10 |
| Software | 60 | | | 7 |
Definite lived trademarks, tradenames, and other | | Definite lived trademarks, tradenames, and other | 4 | | | 10 |
Total Other intangible assets | Total Other intangible assets | $ | 73 | | |
|
AllFirst
On August 9, 2022, we acquired approximately 74% of the outstanding equity of AllFirst Title Insurance Agency ("AllFirst") for approximately $130 million in cash consideration. On December 19, 2022, we purchased an additional 6% of the outstanding equity of AllFirst for approximately $10 million in cash consideration.
The acquisition was accounted for as a business combination under Topic 805. The purchase price has been allocated to AllFirst's assets acquired and liabilities assumed based on their fair values as of acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. Goodwill consists primarily of intangible assets that do not qualify for separate recognition.recognition, such as the assembled workforce and synergies between the entities. The goodwill recorded is not expected to be deductible for tax purposes. We completed our assessment
Roar’s revenues of $23 million and net earnings of $3 million are included in the unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2024.
Contingent Consideration
Under the terms of the purchase agreement for Roar, we have agreed to make cash payments of up to $90 million over a three-year period upon the achievement by Roar of certain EBITDA milestones. The contingent consideration is recorded at fair value in Accounts payable and accrued liabilities. Refer to Note A - Basis of Financial Statements for more information on the Roar purchase and refer to Note C - Fair Value of Financial Instruments for more information regarding the fair value of assets acquired and liabilities assumed within the one-year period from the date of the acquisition. We recorded fair value amounts as of the acquisition date for goodwill, other intangibles, other assets, other liabilities and non-controlling interest of $104 million, $55 million, $40 million, $18 million and $46 million, respectively.contingent consideration.
The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the AllFirst acquisition consist of the following:
| | | | | | | | | | | |
| Gross Carrying Value | | Weighted Average Estimated Useful Life (in years) |
| | | |
Other intangible assets: | (In millions) | | |
| | | |
Customer relationships | $ | 46 | | | 10 |
Trade name | 7 | | | 10 |
Non-compete agreements | 1 | | | 5 |
Software | 1 | | | 2 |
Total Other intangible assets | $ | 55 | | | |
| | | |
Note O — Notes Payable
Notes payable consists of the following:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | (In millions) |
4.50% Notes, net of discount | | $ | 445 | | | $ | 445 | |
3.40% Notes, net of discount | | 644 | | | 644 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
2.45% Notes, net of discount | | 594 | | | 594 | |
3.20% Notes, net of discount | | 444 | | | 444 | |
Revolving Credit Facility | | (3) | | | (3) | |
F&G Credit Agreement | | 511 | | | 547 | |
7.40% F&G Notes | | 494 | | | — | |
5.50% F&G Notes | | 567 | | | 567 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | $ | 3,696 | | | $ | 3,238 | |
On January 13, 2023, F&G completed its issuance and sale of $500 million aggregate amount of its 7.40% F&G Notes, pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 7.40% F&G Notes are the senior unsecured, unsubordinated obligations of F&G and are guaranteed on an unsecured, unsubordinated basis by each of F&G's subsidiaries that are guarantors of its obligations under the F&G Credit Agreement (the “Guarantors”). The interest rate payable on the 7.40% F&G Notes will be subject to adjustment from time to time if either S&P or Fitch (or a substitute rating agency therefor) downgrades (or downgrades and subsequently upgrades) the credit ratings assigned to the 7.40% F&G Notes. F&G intends to use the net proceeds from the offering for general corporate purposes, including to support the growth of assets under management and for F&G's future liquidity requirements.
On November 22, 2022, F&G entered into a Credit Agreement (the "F&G Credit Agreement") with certain lenders (the "Lenders") and Bank of America, N.A. as administrative agent (the "Administrative Agent"), swing line lender and issuing bank, pursuant to which the Lenders have made available to F&G an unsecured revolving credit facility (the "F&G Credit Facility") in an aggregate principal amount of $550 million to be used for working capital and general corporate purposes.
The F&G Credit Agreement matures the earlier to occur of November 22, 2025 or 91 days prior to May 1, 2025, the stated maturity date of the 5.50% F&G Notes, unless the principal amount of the 5.50% F&G Notes is $150 million or less at such time, the 5.50% F&G Notes have been redeemed or defeased in full, and any refinancing Indebtedness incurred in connection therewith matures at least 91 days after the date that is 3 years from the Effective Date, as defined in the F&G Credit Agreement, or certain other conditions are met. Revolving loans under the F&G Credit Agreement generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a) one-half of one percent in excess of the federal funds rate, (b) the Administrative Agent’s “prime rate”, or (c) the sum of one percent plus Term The Secured Overnight Financing Rate (“SOFR”) plus a margin of between 30.0 and 80.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G or (ii) Term SOFR plus a margin of between 130.0 and 180.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G. On February 21, 2023, F&G amended F&G Credit Agreement with the Lenders and the Administrative Agent, swing line lender and issuing bank. The amendment of the F&G Credit Agreement increased the aggregate principal amount of commitments under the F&G Credit Facility by $115 million to $665 million.
On September 17, 2021, we completed our underwritten public offering of $450 million aggregate principal amount of our 3.20% Notes, pursuant to our registration statement on Form S-3 ASR (File No. 333-239002) and the related prospectus supplement. The net proceeds from the registered offering of the 3.20% Notes were approximately $443 million, after deducting underwriting discounts, commissions and offering expenses. We plan to use the net proceeds from the offering for general corporate purposes.
On October 29, 2020, we entered into the Fifth Restated Credit Agreement for our Amended Revolving Credit Facility with Bank of America, N.A., as administrative agent and the other agents party thereto. Among other changes, the Fifth Restated Credit Agreement amends the Fourth Restated Credit Agreement to extend the maturity date from April 27, 2022 to October 29, 2025. The material terms of the Fourth Restated Credit Agreement are set forth in our Annual Report on Form 10-K for the year ended December 31, 2019. As of
March 31, 2023, there was no principal outstanding, $3 million of unamortized debt issuance costs, and $800 million of available borrowing capacity under the Revolving Credit Facility.
On September 15, 2020, we completed our underwritten public offering of $600 million aggregate principal amount of our 2.45% Notes due March 15, 2031 (the "2.45% Notes") pursuant to an effective registration statement filed with the SEC. The net proceeds from the registered offering of the 2.45% Notes were approximately $593 million, after deducting underwriting discounts and commissions and offering expenses. We used the net proceeds from the offering (i) to repay all our $260 million outstanding indebtedness under the Term Loan, and (ii) for general corporate purposes.
On June 12, 2020, we completed our underwritten public offering of $650 million aggregate principal amount of the 3.40% Notes due June 15, 2030 (the “3.40% Notes”) pursuant to an effective registration statement filed with the SEC. The net proceeds from the registered offering of the 3.40% Notes were approximately $642 million, after deducting underwriting discounts, and commissions and offering expenses. We used the net proceeds from the offering (i) to repay $640 million of the outstanding principal amount under the Term Loan, and (ii) for general corporate purposes.
On June 1, 2020, as a result of the F&G acquisition, we assumed $550 million aggregate principal amount of 5.50% senior notes due 2025 (the "5.50% F&G Notes"), originally issued on April 20, 2018 at 99.5% of face value for proceeds of $547 million.
On August 13, 2018, we completed an offering of $450 million in aggregate principal amount of 4.50% notes due August 2028 (the "4.50% Notes"), pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 4.50% Notes were priced at 99.252% of par to yield 4.594% annual interest. We pay interest on the 4.50% Notes semi-annually on the 15th of February and August, beginning February 15, 2019. The 4.50% Notes contain customary covenants and events of default for investment grade public debt, which primarily relate to failure to make principal or interest payments. On May 16, 2019, we completed an offering to exchange the 4.50% Notes for substantially identical notes registered pursuant to Rule 424 under the Securities Act of 1933 (the "4.50% Notes Exchange"). There were no material changes to the terms of the 4.50% Notes as a result of the 4.50% Notes Exchange and all holders of the 4.50% Notes accepted the offer to exchange.
Gross principal maturities of notes payable at March 31, 2023 are as follows:
| | | | | |
| (In millions) |
2023 (remaining) | $ | 515 | |
2024 | — | |
2025 | 550 | |
2026 | — | |
2027 | — | |
Thereafter | 2,650 | |
| $ | 3,715 | |
Note P — Market Risk Benefits
The following table presents the balances of and changes in MRBs associated with FIAsindexed annuities and fixed rate annuities for the three months ended March 31, 20232024 and the yearsyear ended December 31, 2022 and December 31, 2021:2023:
| | March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| Indexed annuities | |
| Indexed annuities | |
| Indexed annuities | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Balance, beginning of period, net liability | |
| | March 31, 2023 | | December 31, 2022 | | December 31, 2021 |
Balance, beginning of period, before effect of changes in the instrument-specific credit risk | |
| | FIA | | Fixed rate annuities | | FIA | | Fixed rate annuities | | FIA | | Fixed rate annuities |
| (Dollars in millions) |
Balance, beginning of period | $ | 164 | | | $ | 1 | | | $ | 426 | | | $ | 2 | | | $ | 478 | | | $ | 1 | |
Balance, beginning of period, before effect of changes in the instrument-specific credit risk | |
| Balance, beginning of period, before effect of changes in the instrument-specific credit risk | Balance, beginning of period, before effect of changes in the instrument-specific credit risk | $ | 104 | | | $ | 1 | | | $ | 280 | | | $ | 1 | | | $ | 320 | | | $ | 1 | |
Issuances and benefit payments | Issuances and benefit payments | (4) | | | — | | | (21) | | | — | | | (9) | | | — | |
Issuances and benefit payments | |
Issuances and benefit payments | |
Attributed fees collected and interest accrual | |
Attributed fees collected and interest accrual | |
Attributed fees collected and interest accrual | Attributed fees collected and interest accrual | 30 | | | — | | | 107 | | | 1 | | | 99 | | | 1 | |
Actual policyholder behavior different from expected | Actual policyholder behavior different from expected | 7 | | | — | | | 43 | | | — | | | (22) | | | — | |
Actual policyholder behavior different from expected | |
Actual policyholder behavior different from expected | |
Changes in assumptions and other | |
Changes in assumptions and other | |
Changes in assumptions and other | Changes in assumptions and other | 1 | | | — | | | (76) | | | — | | | — | | | — | |
| Effects of market related movements | Effects of market related movements | 26 | | | — | | | (231) | | | (1) | | | (108) | | | — | |
| Effects of market related movements | |
| Effects of market related movements | |
Balance, end of period, before effect of changes in the instrument-specific credit risk | |
Balance, end of period, before effect of changes in the instrument-specific credit risk | |
Balance, end of period, before effect of changes in the instrument-specific credit risk | Balance, end of period, before effect of changes in the instrument-specific credit risk | $ | 164 | | | $ | 1 | | | $ | 102 | | | $ | 1 | | | $ | 280 | | | $ | 2 | |
Effect of changes in the instrument-specific credit risk | Effect of changes in the instrument-specific credit risk | 53 | | | — | | | 62 | | | — | | | 146 | | | — | |
Balance, end of period | $ | 217 | | | $ | 1 | | | $ | 164 | | | $ | 1 | | | $ | 426 | | | $ | 2 | |
Effect of changes in the instrument-specific credit risk | |
Effect of changes in the instrument-specific credit risk | |
Balance, end of period, net liability | |
Balance, end of period, net liability | |
Balance, end of period, net liability | |
| | Weighted-average attained age of policyholders weighted by total AV (years) | Weighted-average attained age of policyholders weighted by total AV (years) | 68.49 | | 72.64 | | 68.59 | | 72.88 | | 68.95 | | 73.10 |
Weighted-average attained age of policyholders weighted by Unlocked MRB (years) | 78.33 | | 77.73 | | 80.84 | | 77.56 | | 68.77 | | 73.72 |
| Weighted-average attained age of policyholders weighted by total AV (years) | |
| Weighted-average attained age of policyholders weighted by total AV (years) | |
Net amount at risk | Net amount at risk | $ | 1,031 | | | $ | 3 | | | $ | 952 | | | $ | 3 | | | $ | 1,304 | | | $ | 4 | |
Net amount at risk | |
Net amount at risk | |
The following table reconciles MRBs by amounts in an asset position and amounts in a liability position to the MRBMRBs amounts in the accompanying unaudited Condensed Consolidated Balance Sheets:
| | March 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| Asset | | Liability | | Net | | Asset | | Liability | | Net | | Asset | | Liability | | Net |
| (In millions) |
FIA | $ | 106 | | | $ | 323 | | | $ | 217 | | | $ | 117 | | | $ | 281 | | | $ | 164 | | | $ | 41 | | | $ | 467 | | | $ | 426 | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| Asset | |
| Asset | |
| Asset | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Fixed rate annuities | Fixed rate annuities | — | | | 1 | | | 1 | | | — | | | 1 | | | 1 | | | — | | | 2 | | | 2 | |
Indexed annuities | |
Indexed annuities | |
Indexed annuities | |
Total | Total | $ | 106 | | | $ | 324 | | | $ | 218 | | | $ | 117 | | | $ | 282 | | | $ | 165 | | | $ | 41 | | | $ | 469 | | | $ | 428 | |
Total | |
Total | |
InThe net MRB liability increased for the first quarterthree months ended March 31, 2024, primarily as a result of 2023,collection of attributed fees and interest accrual as well as new MRB reserves for contracts issued within the followingperiod. These increases were partially offset by the effects of market related movements, including the impacts of higher risk-free rates and increases in the equity market related projections.
For the three months ended March 31, 2024, notable changes were made to the inputs to the fair value estimates of MRB calculations:
•Risk-free rates decreased slightly, leading toMRBs calculations included an increase in risk-free rates leading to a favorable change in the MRBMRBs associated with FIAindexed annuities and fixed rate annuities.
•Decreasesannuities; increases in the equity market related projections resulted in an increase in the net amount of risk associated with FIAs, leading to an increase in the value of the associated MRBs.
•F&G’s credit spread increased, leading to a corresponding decrease in the MRBs associated with both FIA and fixed rate annuities.
In 2022, the following notable changes were made to the inputs to the fair value estimates of MRB calculations:
•Risk-free rates increased moderately, leading to a decrease in the MRBs associated with both FIA and fixed rate annuities.
•Increases in the equity markets resulted in a decrease in the net amount at risk associated with FIA and fixed rateindexed annuities, leading to a decreasefavorable change in the value of the associated MRBs.
•Volatility indices decreased, leadingIn addition, the cash flow assumptions used to a decreasecalculate MRBs reflect the Company’s best estimates for policyholder behavior. We review cash flow assumptions annually, generally in the MRBs associated with both FIAthird quarter.
The net MRB liability increased for the year ended December 31, 2023, primarily as a result of collection of attributed fees and fixed rate annuities.
•Cash flowinterest accrual as well actual policyholder behavior different than expected and changes in assumptions for mortality and fullother as discussed below. These increases were partially offset by the effects of market related movements, including the impacts of higher risk-free rates and partial surrenders were unchanged during the annual third quarter review. The GMWB utilization assumption was revisedincreases in the second quarterequity market related projections.
•F&G’s credit spread increased duringFor the year leading to a corresponding decrease in the MRBs value. Credit spreads on the block of business remain lower than the at-issue or at-purchase credit spreads, but the level has decreased since the beginning of 2022.
In 2021, the followingended December 31, 2023, notable changes were made to the inputs to the fair value estimates of MRB calculations:
• Risk-freeMRBs calculations included a significant increase in risk-free rates increased moderately, leading to a decreasefavorable change in the MRBs associated with both FIAindexed annuities and fixed rate annuities.
•Increasesannuities; increases in the equity marketsmarket related projections resulted in a decrease in the net amount at risk associated with FIA and fixed rateindexed annuities, leading to a decreasefavorable change in the value of the associated MRBs.MRBs; and F&G’s credit spread decreased, lead to a corresponding unfavorable change in the MRBs associated with both indexed annuities and fixed rate annuities.
In addition, the cash flow assumptions used to calculate MRBs reflect the Company’s best estimates for policyholder behavior. We review cash flow assumptions annually, generally in the third quarter. In 2023, F&G undertook a review of all significant assumptions and revised several assumptions relating to our deferred annuities (indexed annuities and fixed rate annuities) with MRBs including surrender rates, partial withdrawal rates, mortality improvement, and option budgets. All updates to these assumptions brought us more in line with our Company and overall industry experience since the prior assumption update. These updates, in total, led to an increase in the net MRB liability during the year ended December 31, 2023.
Note QP — Contractholder Funds
The following tables summarize balances of and changes in contractholder funds’ account balances:
| | March 31, 2023 |
| FIA | | Fixed rate annuities | | Universal Life | | FABN (b) | | FHLB (b) |
| (Dollars in millions) |
| March 31, 2024 | | | March 31, 2024 |
| Indexed annuities | | | Indexed annuities | | Fixed rate annuities | | Universal Life | | FABN (b) | | FHLB (b) |
| (Dollars in millions) | | | (Dollars in millions) |
Balance, beginning of year | Balance, beginning of year | $ | 24,766 | | | $ | 9,358 | | | $ | 2,112 | | | $ | 2,613 | | | $ | 1,982 | |
Issuances | Issuances | 1,186 | | | 1,522 | | | 49 | | | — | | | 256 | |
Premiums received | Premiums received | 25 | | | 1 | | | 87 | | | — | | | — | |
Policy charges (a) | Policy charges (a) | (42) | | | — | | | (60) | | | — | | | — | |
Surrenders and withdrawals | Surrenders and withdrawals | (403) | | | (257) | | | (21) | | | — | | | — | |
Benefit payments | Benefit payments | (121) | | | (59) | | | (10) | | | (15) | | | (110) | |
| Interest credited | |
Interest credited | |
Interest credited | Interest credited | 21 | | | 81 | | | 5 | | | 13 | | | 11 | |
Other | Other | 23 | | | (1) | | | — | | | — | | | — | |
Balance, end of year | Balance, end of year | $ | 25,455 | | | $ | 10,645 | | | $ | 2,162 | | | $ | 2,611 | | | $ | 2,139 | |
Embedded derivative adjustment (c) | Embedded derivative adjustment (c) | (12) | | | — | | | 45 | | | — | | | — | |
Gross Liability, end of period | Gross Liability, end of period | $ | 25,443 | | | $ | 10,645 | | | $ | 2,207 | | | $ | 2,611 | | | $ | 2,139 | |
Less: Reinsurance | Less: Reinsurance | (17) | | | (4,691) | | | (933) | | | — | | | — | |
Net Liability, after Reinsurance | Net Liability, after Reinsurance | $ | 25,426 | | | $ | 5,954 | | | $ | 1,274 | | | $ | 2,611 | | | $ | 2,139 | |
| Weighted-average crediting rate | Weighted-average crediting rate | 0.33 | % | | — | % | | 1.00 | % | | N/A | | N/A |
Weighted-average crediting rate | |
Weighted-average crediting rate | | 2.04 | % | | 4.15 | % | | 5.54 | % | | N/A |
Net amount at risk (d) | Net amount at risk (d) | N/A | | N/A | | 49,426 | | | N/A | | N/A | Net amount at risk (d) | N/A | | N/A | | $ | 63,968 | | | N/A | | N/A |
Cash surrender value | 23,726 | | | 9,929 | | | 1,724 | | | N/A | | N/A |
Cash surrender value (e) | | Cash surrender value (e) | $ | 25,724 | | | $ | 13,502 | | | $ | 1,938 | | | N/A |
(a) Contracts included in the contractholder funds are generally charged a premium and/or monthly assessments on the basis of the account balance.
(b) FABN and FHLB are considered funding agreements that are investment contracts, which follow the interest method of accounting, and therefore are not subject to ASU 2018-12 disclosure requirements. However, the Company has elected to present the liability for these agreements within the disaggregated roll forward as we believe it will provide meaningful information for users of the financials.
(c) The embedded derivative adjustment reconciles the account balance to the gross GAAP liability and represents the combination of the host contract and the fair value of the embedded derivatives.
(d) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| FIA | | Fixed rate annuities | | Universal Life | | FABN (b) | | FHLB (b) |
| (Dollars in millions) |
Balance, beginning of year | 21,997 | | | 6,367 | | | 1,907 | | | 1,904 | | | 1,543 | |
Issuances | 4,462 | | | 3,758 | | | 167 | | | 700 | | | 1,192 | |
Premiums received | 106 | | | 3 | | | 295 | | | — | | | — | |
Policy charges (a) | (166) | | | (1) | | | (209) | | | — | | | — | |
Surrenders and withdrawals | (1,322) | | | (797) | | | (74) | | | — | | | — | |
Benefit payments | (485) | | | (192) | | | (22) | | | (35) | | | (789) | |
| | | | | | | | | |
Interest credited | 198 | | | 220 | | | 48 | | | 45 | | | 36 | |
Other | (24) | | | — | | | — | | | (1) | | | — | |
Balance, end of year | $ | 24,766 | | | $ | 9,358 | | | $ | 2,112 | | | $ | 2,613 | | | $ | 1,982 | |
Embedded derivative adjustment (c) | (343) | | | — | | | 15 | | | — | | | — | |
Gross Liability, end of period | $ | 24,423 | | | $ | 9,358 | | | $ | 2,127 | | | $ | 2,613 | | | $ | 1,982 | |
Less: Reinsurance | (17) | | | (3,723) | | | (947) | | | — | | | — | |
Net Liability, after Reinsurance | $ | 24,406 | | | $ | 5,635 | | | $ | 1,180 | | | $ | 2,613 | | | $ | 1,982 | |
| | | | | | | | | |
Weighted-average crediting rate | 0.85 | % | | — | | | 2.39 | % | | N/A | | N/A |
Net amount at risk (d) | N/A | | N/A | | 53,348 | | | N/A | | N/A |
Cash surrender value | 188 | | | 5,992 | | | 1,698 | | | N/A | | N/A |
(e) These amounts are gross of reinsurance.(a) Contracts included in the contractholder funds are generally charged a premium and/or monthly assessments on the basis of the account balance.
(b) FABN and FHLB are considered funding agreements that are investment contracts which follow the interest method of accounting, and therefore are not subject to ASU 2018-12 disclosure requirements. However, the Company has elected to present the liability for these agreements within the disaggregated roll forward as we believe it will provide meaningful information for users of the financials.
(c) The embedded derivative adjustment reconciles the account balance to the gross GAAP liability and represents the combination of the host contract and the fair value of the embedded derivatives.
(d) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. | | December 31, 2021 |
| FIA | | Fixed rate annuities | | Universal Life | | FABN (b) | | FHLB (b) |
| (In millions) |
| December 31, 2023 | | | December 31, 2023 |
| Indexed annuities | | | Indexed annuities | | Fixed rate annuities | | Universal Life | | FABN (b) | | FHLB (b) |
| (Dollars in millions) | | | (Dollars in millions) |
Balance, beginning of year | Balance, beginning of year | $ | 18,703 | | | $ | 5,142 | | | $ | 1,696 | | | $ | — | | | $ | 1,203 | |
Issuances | Issuances | 4,400 | | | 1,743 | | | 114 | | | 1,899 | | | 759 | |
Premiums received | Premiums received | 103 | | | 3 | | | 233 | | | — | | | — | |
Policy charges (a) | Policy charges (a) | (148) | | | (1) | | | (167) | | | — | | | — | |
Surrenders and withdrawals | Surrenders and withdrawals | (1,303) | | | (543) | | | (68) | | | — | | | — | |
Benefit payments | Benefit payments | (440) | | | (145) | | | (19) | | | (7) | | | (447) | |
| Interest credited | |
Interest credited | |
Interest credited | Interest credited | 686 | | | 167 | | | 118 | | | 12 | | | 30 | |
Other | Other | (4) | | | 1 | | | — | | | — | | | (2) | |
Balance, end of year | Balance, end of year | $ | 21,997 | | | $ | 6,367 | | | $ | 1,907 | | | $ | 1,904 | | | $ | 1,543 | |
Embedded derivative adjustment (c) | Embedded derivative adjustment (c) | 603 | | | — | | | 74 | | | — | | | — | |
Gross Liability, end of period | Gross Liability, end of period | $ | 22,600 | | | $ | 6,367 | | | $ | 1,981 | | | $ | 1,904 | | | $ | 1,543 | |
Less: Reinsurance | Less: Reinsurance | (17) | | | (1,692) | | | (984) | | | — | | | — | |
Net Liability, after Reinsurance | Net Liability, after Reinsurance | $ | 22,583 | | | $ | 4,675 | | | $ | 997 | | | $ | 1,904 | | | $ | 1,543 | |
| Weighted-average crediting rate | Weighted-average crediting rate | 3.43 | % | | — | | | 6.77 | % | | N/A | | N/A |
Weighted-average crediting rate | |
Weighted-average crediting rate | | 1.40 | % | | 4.85 | % | | 3.44 | % | | N/A |
Net amount at risk (d) | Net amount at risk (d) | N/A | | N/A | | 41,326 | | | N/A | | N/A | Net amount at risk (d) | N/A | | N/A | | $ | 60,389 | | | N/A | | N/A |
Cash surrender value | 20,455 | | | 5,992 | | | 1,572 | | | N/A | | N/A |
Cash surrender value (e) | | Cash surrender value (e) | $ | 25,099 | | | $ | 12,505 | | | $ | 1,872 | | | N/A |
(a) Contracts included in the contractholder funds are generally charged a premium and/or monthly assessments on the basis of the account balance.
(b) FABN and FHLB are considered funding agreements that are investment contracts, which follow the interest method of accounting, and therefore are not subject to ASU 2018-12 disclosure requirements. However, the Company has elected to present the liability for these agreements within the disaggregated roll forward as we believe it will provide meaningful information for users of the financials.
(c) The embedded derivative adjustment reconciles the account balance to the gross GAAP liability and represents the combination of the host contract and the fair value of the embedded derivatives.
(d) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date.
(e) These amounts are gross of reinsurance.
The following table reconciles contractholder funds’ account balances to the contractholder funds liability in the accompanying unaudited Condensed Consolidated Balance Sheets:
| | March 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| (In millions) |
FIA | $ | 25,443 | | | $ | 24,423 | | | $ | 22,600 | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Indexed annuities | |
Fixed rate annuities | |
Fixed rate annuities | |
Fixed rate annuities | Fixed rate annuities | 10,645 | | | 9,358 | | | 6,367 | |
Immediate annuities | Immediate annuities | 326 | | | 332 | | | 352 | |
Immediate annuities | |
Immediate annuities | |
Universal life | |
Universal life | |
Universal life | Universal life | 2,207 | | | 2,127 | | | 1,981 | |
Traditional life | Traditional life | 5 | | | 5 | | | 5 | |
Traditional life | |
Traditional life | |
Funding Agreement-FABN | |
Funding Agreement-FABN | |
Funding Agreement-FABN | Funding Agreement-FABN | 2,611 | | | 2,613 | | | 1,904 | |
FHLB | FHLB | 2,139 | | | 1,982 | | | 1,543 | |
FHLB | |
FHLB | |
PRT | |
PRT | |
PRT | PRT | 3 | | | 3 | | | 1 | |
Total | Total | $ | 43,379 | | | $ | 40,843 | | | $ | 34,753 | |
Total | |
Total | |
Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. For the three months ended March 31, 2024, based on increases in interest rates and pricing changes, we updated certain indexed annuity assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and also aligned reserves to actual policyholder behavior. These changes resulted in an increase in total benefits and other changes in policy reserves of approximately $57 million for the three months ended March 31, 2024.
The following tables present the account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| At Guaranteed Minimum | | 1 Basis Point-50 Basis Points Above | | 51 Basis Points-150 Basis Points Above | | Greater Than 150 Basis Points Above | | Total |
FIA | (In millions) |
0.00%-1.50% | $ | 23,348 | | | $ | 806 | | | $ | 406 | | | $ | 370 | | | $ | 24,930 | |
1.51%-2.50% | 149 | | | — | | | 1 | | | — | | | 150 | |
Greater than 2.50% | 373 | | | — | | | 2 | | | — | | | 375 | |
Total | $ | 23,870 | | | $ | 806 | | | $ | 409 | | | $ | 370 | | | $ | 25,455 | |
| | | | | | | | | |
Fixed Rate Annuities | | | | | | | | | |
0.00%-1.50% | $ | 12 | | | $ | 31 | | | $ | 1,867 | | | $ | 7,522 | | | $ | 9,432 | |
1.51%-2.50% | 8 | | | 13 | | | 28 | | | 187 | | | 236 | |
Greater than 2.50% | 962 | | | 3 | | | 4 | | | 8 | | | 977 | |
Total | $ | 982 | | | $ | 47 | | | $ | 1,899 | | | $ | 7,717 | | | $ | 10,645 | |
| | | | | | | | | |
Universal Life | | | | | | | | | |
0.00%-1.50% | $ | 1,752 | | | $ | 4 | | | $ | — | | | $ | 18 | | | $ | 1,774 | |
1.51%-2.50% | — | | | — | | | — | | | — | | | — | |
Greater than 2.50% | 344 | | | 43 | | | 1 | | | — | | | 388 | |
Total | $ | 2,096 | | | $ | 47 | | | $ | 1 | | | $ | 18 | | | $ | 2,162 | |
| | December 31, 2022 |
| At Guaranteed Minimum | | 1 Basis Point-50 Basis Points Above | | 51 Basis Points-150 Basis Points Above | | Greater Than 150 Basis Points Above | | Total |
FIA | (In millions) |
| March 31, 2024 | | | March 31, 2024 |
Range of guaranteed minimum crediting rate | | Range of guaranteed minimum crediting rate | At Guaranteed Minimum | | 1 Basis Point-50 Basis Points Above | | 51 Basis Points-150 Basis Points Above | | Greater Than 150 Basis Points Above | | Total |
Indexed Annuities | | Indexed Annuities | (In millions) |
0.00%-1.50% | 0.00%-1.50% | $ | 22,848 | | | $ | 801 | | | $ | 410 | | | $ | 151 | | | $ | 24,210 | |
1.51%-2.50% | 1.51%-2.50% | 162 | | | — | | | 1 | | | — | | | 163 | |
Greater than 2.50% | Greater than 2.50% | 390 | | | — | | | 3 | | | — | | | 393 | |
Total | Total | $ | 23,400 | | | $ | 801 | | | $ | 414 | | | $ | 151 | | | $ | 24,766 | |
| Fixed Rate Annuities | Fixed Rate Annuities | |
Fixed Rate Annuities | |
Fixed Rate Annuities | |
0.00%-1.50% | |
0.00%-1.50% | |
0.00%-1.50% | 0.00%-1.50% | $ | 10 | | | $ | 32 | | | $ | 1,871 | | | $ | 6,379 | | | $ | 8,292 | |
1.51%-2.50% | 1.51%-2.50% | 9 | | | 14 | | | 30 | | | 1 | | | 54 | |
Greater than 2.50% | Greater than 2.50% | 997 | | | 4 | | | 4 | | | 7 | | | 1,012 | |
Total | Total | $ | 1,016 | | | $ | 50 | | | $ | 1,905 | | | $ | 6,387 | | | $ | 9,358 | |
| Universal Life | Universal Life | |
Universal Life | |
Universal Life | |
0.00%-1.50% | |
0.00%-1.50% | |
0.00%-1.50% | 0.00%-1.50% | $ | 1,701 | | | $ | 3 | | | $ | — | | | $ | 17 | | | $ | 1,721 | |
1.51%-2.50% | 1.51%-2.50% | — | | | — | | | — | | | — | | | — | |
Greater than 2.50% | Greater than 2.50% | 346 | | | 44 | | | 1 | | | — | | | 391 | |
Total | Total | $ | 2,047 | | | $ | 47 | | | $ | 1 | | | $ | 17 | | | $ | 2,112 | |
| | December 31, 2021 |
| At Guaranteed Minimum | | 1 Basis Point-50 Basis Points Above | | 51 Basis Points-150 Basis Points Above | | Greater Than 150 Basis Points Above | | Total |
FIA | (In millions) |
| December 31, 2023 | | | December 31, 2023 |
Range of guaranteed minimum crediting rate | | Range of guaranteed minimum crediting rate | At Guaranteed Minimum | | 1 Basis Point-50 Basis Points Above | | 51 Basis Points-150 Basis Points Above | | Greater Than 150 Basis Points Above | | Total |
Indexed Annuities | | Indexed Annuities | (In millions) |
0.00%-1.50% | 0.00%-1.50% | $ | 20,162 | | | $ | 803 | | | $ | 388 | | | $ | — | | | $ | 21,353 | |
1.51%-2.50% | 1.51%-2.50% | 171 | | | 11 | | | 25 | | | — | | | 207 | |
Greater than 2.50% | Greater than 2.50% | 431 | | | 3 | | | 3 | | | — | | | 437 | |
Total | Total | $ | 20,764 | | | $ | 817 | | | $ | 416 | | | $ | — | | | $ | 21,997 | |
| Fixed Rate Annuities | Fixed Rate Annuities | |
Fixed Rate Annuities | |
Fixed Rate Annuities | |
0.00%-1.50% | |
0.00%-1.50% | |
0.00%-1.50% | 0.00%-1.50% | $ | 2 | | | $ | 28 | | | $ | 1,928 | | | $ | 3,219 | | | $ | 5,177 | |
1.51%-2.50% | 1.51%-2.50% | 9 | | | 15 | | | 37 | | | 1 | | | 62 | |
Greater than 2.50% | Greater than 2.50% | 954 | | | 142 | | | 25 | | | 7 | | | 1,128 | |
Total | Total | $ | 965 | | | $ | 185 | | | $ | 1,990 | | | $ | 3,227 | | | $ | 6,367 | |
| Universal Life | Universal Life | |
Universal Life | |
Universal Life | |
0.00%-1.50% | |
0.00%-1.50% | |
0.00%-1.50% | 0.00%-1.50% | $ | 1,486 | | | $ | 2 | | | $ | — | | | $ | 13 | | | $ | 1,501 | |
1.51%-2.50% | 1.51%-2.50% | — | | | — | | | — | | | — | | | — | |
Greater than 2.50% | Greater than 2.50% | 359 | | | 46 | | | 1 | | | — | | | 406 | |
Total | Total | $ | 1,845 | | | $ | 48 | | | $ | 1 | | | $ | 13 | | | $ | 1,907 | |
Note RQ — Future Policy Benefits
The following table summarizes balances and changes in the present value of expected net premiums and the present value of the expected FPB for nonparticipating traditional contracts:
| | March 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| | Traditional Life | |
| | Traditional Life | |
| | Traditional Life | |
| | March 31, 2024 | |
| | March 31, 2024 | |
| | March 31, 2024 | |
Expected net premiums | |
Expected net premiums | |
Expected net premiums | Expected net premiums | | (Dollars in millions) | | (Dollars in millions) |
Balance, beginning of year | Balance, beginning of year | | $ | 797 | | | $ | 1,020 | | | $ | 1,152 | |
Beginning balance of original discount rate | | 974 | | | 1,045 | | | 1,131 | |
Beginning balance at original discount rate | |
Beginning balance at original discount rate | |
Beginning balance at original discount rate | |
| Effect of actual variances from expected experience | |
| Effect of actual variances from expected experience | |
| Effect of actual variances from expected experience | Effect of actual variances from expected experience | | 3 | | | 33 | | | 25 | |
Balance adjusted for variances from expectation | Balance adjusted for variances from expectation | | 977 | | | 1,078 | | | 1,156 | |
Balance adjusted for variances from expectation | |
Balance adjusted for variances from expectation | |
| Interest accrual | |
| Interest accrual | |
| Interest accrual | Interest accrual | | 5 | | | 20 | | | 22 | |
Net premiums collected | Net premiums collected | | (30) | | | (124) | | | (133) | |
Net premiums collected | |
Net premiums collected | |
| Ending Balance at original discount rate | |
| Ending Balance at original discount rate | |
| Ending Balance at original discount rate | Ending Balance at original discount rate | | 952 | | | 974 | | | 1,045 | |
Effect of changes in discount rate assumptions | Effect of changes in discount rate assumptions | | (158) | | | (177) | | | (25) | |
Effect of changes in discount rate assumptions | |
Effect of changes in discount rate assumptions | |
Balance, end of year | |
Balance, end of year | |
Balance, end of year | Balance, end of year | | $ | 794 | | | $ | 797 | | | $ | 1,020 | |
| Expected FPB | Expected FPB | |
| Expected FPB | |
| Expected FPB | |
Balance, beginning of year | Balance, beginning of year | | $ | 2,151 | | | $ | 2,772 | | | $ | 3,105 | |
Beginning balance of original discount rate | | 2,665 | | | 2,806 | | | 2,995 | |
Balance, beginning of year | |
Balance, beginning of year | |
Beginning balance at original discount rate | |
Beginning balance at original discount rate | |
Beginning balance at original discount rate | |
| Effect of actual variances from expected experience | |
| Effect of actual variances from expected experience | |
| Effect of actual variances from expected experience | Effect of actual variances from expected experience | | (7) | | | 13 | | | (14) | |
Balance adjusted for variances from expectation | Balance adjusted for variances from expectation | | 2,658 | | | $ | 2,819 | | | $ | 2,981 | |
Balance adjusted for variances from expectation | |
Balance adjusted for variances from expectation | |
| Interest accrual | |
| Interest accrual | |
| Interest accrual | Interest accrual | | 14 | | | 59 | | | 62 | |
Benefits payments | Benefits payments | | (48) | | | (213) | | | (237) | |
Benefits payments | |
Benefits payments | |
| Ending Balance at original discount rate | |
| Ending Balance at original discount rate | |
| Ending Balance at original discount rate | Ending Balance at original discount rate | | 2,624 | | | $ | 2,665 | | | $ | 2,806 | |
Effect of changes in discount rate assumptions | Effect of changes in discount rate assumptions | | (448) | | | (514) | | | (34) | |
Effect of changes in discount rate assumptions | |
Effect of changes in discount rate assumptions | |
Balance, end of year | |
Balance, end of year | |
Balance, end of year | Balance, end of year | | $ | 2,176 | | | $ | 2,151 | | | $ | 2,772 | |
| Net liability for future policy benefits | Net liability for future policy benefits | | $ | 1,382 | | | $ | 1,354 | | | $ | 1,752 | |
| Net liability for future policy benefits | |
| Net liability for future policy benefits | |
Less: Reinsurance recoverable | Less: Reinsurance recoverable | | 510 | | | 515 | | | 670 | |
Less: Reinsurance recoverable | |
Less: Reinsurance recoverable | |
Net liability for future policy benefits, after reinsurance recoverable | |
Net liability for future policy benefits, after reinsurance recoverable | |
Net liability for future policy benefits, after reinsurance recoverable | Net liability for future policy benefits, after reinsurance recoverable | | $ | 872 | | | $ | 839 | | | $ | 1,082 | |
| Weighted-average duration of liability for future policyholder benefits (years) | Weighted-average duration of liability for future policyholder benefits (years) | | 7.53 | | 7.58 | | 8.54 |
| Weighted-average duration of liability for future policyholder benefits (years) | |
| Weighted-average duration of liability for future policyholder benefits (years) | |
The following tables summarize balances and changes in the present value of the expected FPB for limited-payment contracts:
| | March 31, 2023 |
| Immediate annuities | | PRT |
| (Dollars in millions) |
| | March 31, 2024 | | | | March 31, 2024 |
| | Immediate annuities | | | | Immediate annuities | | PRT |
| | (Dollars in millions) | | | | (Dollars in millions) |
Balance, beginning of year | Balance, beginning of year | | $ | 1,429 | | | $ | 2,165 | |
Beginning balance of original discount rate | | 1,858 | | | 2,475 | |
Beginning balance at original discount rate | |
Effect of changes in cash flow assumptions | Effect of changes in cash flow assumptions | | — | | | (1) | |
Effect of actual variances from expected experience | Effect of actual variances from expected experience | | (7) | | | (3) | |
Balance adjusted for variances from expectation | Balance adjusted for variances from expectation | | 1,851 | | | 2,471 | |
Issuances | Issuances | | 5 | | | 268 | |
Interest accrual | Interest accrual | | 16 | | | 23 | |
Benefits payments | Benefits payments | | (31) | | | (55) | |
| Ending Balance at original discount rate | Ending Balance at original discount rate | | 1,841 | | | 2,707 | |
Ending Balance at original discount rate | |
Ending Balance at original discount rate | |
Effect of changes in discount rate assumptions | Effect of changes in discount rate assumptions | | (389) | | | (251) | |
Balance, end of year | Balance, end of year | | $ | 1,452 | | | $ | 2,456 | |
| Net liability for future policy benefits | |
Net liability for future policy benefits | |
Net liability for future policy benefits | Net liability for future policy benefits | | $ | 1,452 | | | $ | 2,456 | |
Less: Reinsurance recoverable | Less: Reinsurance recoverable | | 204 | | | — | |
Net liability for future policy benefits, after reinsurance recoverable | Net liability for future policy benefits, after reinsurance recoverable | | $ | 1,248 | | | $ | 2,456 | |
| Weighted-average duration of liability for future policyholder benefits (years) | Weighted-average duration of liability for future policyholder benefits (years) | | 12.18 | | 8.07 |
Weighted-average duration of liability for future policyholder benefits (years) | |
Weighted-average duration of liability for future policyholder benefits (years) | | | 12.03 | | 7.96 |
| | December 31, 2022 |
| Immediate annuities | | PRT |
| (Dollars in millions) |
| | December 31, 2023 | | | | December 31, 2023 |
| | Immediate annuities | | | | Immediate annuities | | PRT |
| | (Dollars in millions) | | | | (Dollars in millions) |
Balance, beginning of year | Balance, beginning of year | | $ | 1,954 | | | $ | 1,148 | |
Beginning balance of original discount rate | | 1,935 | | | 1,151 | |
Beginning balance at original discount rate | |
Effect of changes in cash flow assumptions | Effect of changes in cash flow assumptions | | — | | | (20) | |
Effect of actual variances from expected experience | Effect of actual variances from expected experience | | (26) | | | 2 | |
Balance adjusted for variances from expectation | Balance adjusted for variances from expectation | | $ | 1,909 | | | $ | 1,133 | |
Issuances | Issuances | | 26 | | | 1,418 | |
Interest accrual | Interest accrual | | 60 | | | 50 | |
Benefits payments | Benefits payments | | (137) | | | (126) | |
| Ending Balance at original discount rate | Ending Balance at original discount rate | | $ | 1,858 | | | $ | 2,475 | |
Ending Balance at original discount rate | |
Ending Balance at original discount rate | |
Effect of changes in discount rate assumptions | Effect of changes in discount rate assumptions | | (429) | | | (310) | |
Balance, end of year | Balance, end of year | | $ | 1,429 | | | $ | 2,165 | |
| Net liability for future policy benefits | |
Net liability for future policy benefits | |
Net liability for future policy benefits | Net liability for future policy benefits | | $ | 1,429 | | | $ | 2,165 | |
Less: Reinsurance recoverable | Less: Reinsurance recoverable | | 218 | | | — | |
Net liability for future policy benefits, after reinsurance recoverable | Net liability for future policy benefits, after reinsurance recoverable | | $ | 1,211 | | | $ | 2,165 | |
| Weighted-average duration of liability for future policyholder benefits (years) | Weighted-average duration of liability for future policyholder benefits (years) | | 11.76 | | 8.09 |
Weighted-average duration of liability for future policyholder benefits (years) | |
Weighted-average duration of liability for future policyholder benefits (years) | | | 12.47 | | 8.23 |
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Immediate annuities | | PRT |
| | (Dollars in millions) |
Balance, beginning of year | | $ | 2,153 | | | $ | — | |
Beginning balance of original discount rate | | 2,040 | | | — | |
| | | | |
Effect of actual variances from expected experience | | (47) | | | — | |
Balance adjusted for variances from expectation | | $ | 1,993 | | | $ | — | |
Issuances | | 18 | | | 1,155 | |
Interest accrual | | 60 | | | 2 | |
Benefits payments | | (136) | | | (6) | |
| | | | |
Ending Balance at original discount rate | | $ | 1,935 | | | $ | 1,151 | |
Effect of changes in discount rate assumptions | | 19 | | | (3) | |
Balance, end of year | | $ | 1,954 | | | $ | 1,148 | |
| | | | |
Net liability for future policy benefits | | $ | 1,954 | | | $ | 1,148 | |
Less: Reinsurance recoverable | | 293 | | | — | |
Net liability for future policy benefits, after reinsurance recoverable | | $ | 1,661 | | | $ | 1,148 | |
| | | | |
Weighted-average duration of liability for future policyholder benefits (years) | | 13.61 | | 8.75 |
The following tables summarize balances and changes in the liability for DPL for limited-payment contracts:
| | March 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| Immediate annuities | | PRT | | Immediate annuities | | PRT | | Immediate annuities | | PRT |
| | | (In millions) | | |
| | March 31, 2024 | |
| | March 31, 2024 | |
| | March 31, 2024 | |
| | Immediate annuities | |
| | Immediate annuities | |
| | Immediate annuities | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
Balance, beginning of year | |
Balance, beginning of year | |
Balance, beginning of year | Balance, beginning of year | | $ | 69 | | | $ | 4 | | | $ | 57 | | | $ | 7 | | | $ | 22 | | | $ | — | |
Effect of modeling changes | Effect of modeling changes | | 4 | | | — | | | — | | | — | | | — | | | — | |
Effect of modeling changes | |
Effect of modeling changes | |
Effect of changes in cash flow assumptions | |
Effect of changes in cash flow assumptions | |
Effect of changes in cash flow assumptions | Effect of changes in cash flow assumptions | | — | | | — | | | — | | | (2) | | | — | | | — | |
Effect of actual variances from expected experience | Effect of actual variances from expected experience | | 4 | | | — | | | 16 | | | — | | | 39 | | | — | |
Effect of actual variances from expected experience | |
Effect of actual variances from expected experience | |
Balance adjusted for variances from expectation | |
Balance adjusted for variances from expectation | |
Balance adjusted for variances from expectation | Balance adjusted for variances from expectation | | 77 | | | 4 | | | 73 | | | 5 | | | 61 | | | — | |
Issuances | Issuances | | 1 | | | — | | | 1 | | | — | | | $ | — | | | $ | 7 | |
Issuances | |
Issuances | |
Interest accrual | |
Interest accrual | |
Interest accrual | Interest accrual | | 1 | | | — | | | 2 | | | — | | | 2 | | | — | |
Amortization | Amortization | | (2) | | | — | | | (7) | | | (1) | | | (6) | | | — | |
Amortization | |
Amortization | |
Balance, end of year | Balance, end of year | | $ | 77 | | | $ | 4 | | | $ | 69 | | | $ | 4 | | | $ | 57 | | | $ | 7 | |
Balance, end of year | |
Balance, end of year | |
The following table reconciles the net FPB to the FPB in the unaudited Condensed Consolidated Balance Sheets. The DPL for Immediate Annuities and PRT is presented together with the FPB in the unaudited Condensed Consolidated Balance Sheets and has been included as a reconciling item in the table below:
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| | (In millions) |
Traditional Life | | $ | 1,382 | | | $ | 1,354 | | | $ | 1,752 | |
Immediate annuities | | 1,452 | | | 1,429 | | | 1,954 | |
PRT | | 2,456 | | | 2,165 | | | 1,148 | |
Immediate annuities DPL | | 77 | | | 69 | | | 57 | |
PRT DPL | | 4 | | | 4 | | | 7 | |
Total | | $ | 5,371 | | | $ | 5,021 | | | $ | 4,918 | |
| | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 | | |
| | (In millions) |
Traditional Life | | $ | 1,318 | | | $ | 1,349 | | | |
Immediate annuities | | 1,372 | | | 1,415 | | | |
PRT | | 4,655 | | | 4,189 | | | |
Immediate annuities DPL | | 88 | | | 87 | | | |
PRT DPL | | 8 | | | 10 | | | |
Total | | $ | 7,441 | | | $ | 7,050 | | | |
The following table provides the amount of undiscounted and discounted expected gross premiums and expected future benefits and expenses for nonparticipating traditional and limited-payment contracts:
| | Undiscounted | | Discounted |
| March 31, 2023 | | March 31, 2022 | | March 31, 2023 | | March 31, 2022 |
| | Undiscounted | | | | Undiscounted | | Discounted |
| | March 31, 2024 | | | | March 31, 2024 | | March 31, 2023 | | March 31, 2024 | | March 31, 2023 |
Traditional Life | Traditional Life | | (In millions) | Traditional Life | | (In millions) |
Expected future benefit payments | Expected future benefit payments | | $ | 3,073 | | | $ | 3,265 | | | $ | 2,155 | | | $ | 2,734 | |
Expected future gross premiums | Expected future gross premiums | | 1,142 | | | 1,289 | | | 839 | | | 1,129 | |
Immediate annuities | Immediate annuities | |
Expected future benefit payments | Expected future benefit payments | | $ | 3,402 | | | $ | 3,545 | | | $ | 1,452 | | | $ | 1,923 | |
Expected future benefit payments | |
Expected future benefit payments | |
Expected future gross premiums | Expected future gross premiums | | — | | | — | | | — | | | — | |
PRT | PRT | |
Expected future benefit payments | Expected future benefit payments | | $ | 3,916 | | | $ | 2,289 | | | $ | 2,708 | | | $ | 1,665 | |
Expected future benefit payments | |
Expected future benefit payments | |
Expected future gross premiums | Expected future gross premiums | | — | | | — | | | — | | | — | |
The following table summarizes the amount of revenue and interest related to nonparticipating traditional and limited-payment contracts recognized in the unaudited Condensed Consolidated Statements of Operations:
| | Gross Premiums (a) | | Interest Expense (b) |
| March 31, 2023 | | March 31, 2022 | | March 31, 2023 | | March 31, 2022 |
| (In millions) |
| | Gross Premiums (a) | | | | Gross Premiums (a) | | Interest Expense (b) |
| | March 31, 2024 | | | | March 31, 2024 | | March 31, 2023 | | March 31, 2024 | | March 31, 2023 |
| | (In millions) | | | | (In millions) |
Traditional Life | Traditional Life | | $ | 32 | | | $ | 36 | | | $ | 9 | | | $ | 10 | |
Immediate annuities | Immediate annuities | | 6 | | | 7 | | | 16 | | | 15 | |
PRT | PRT | | 263 | | | 525 | | | 23 | | | 7 | |
Total | Total | | $ | 301 | | | $ | 568 | | | $ | 48 | | | $ | 32 | |
(a) Included in Life insurance premiums and other fees on the unaudited Condensed Consolidated Statements of Operations.
(b(b) Included in Benefits and other changes in policy reserves (Remeasurement(remeasurement gains (losses) (a)) on the unaudited Condensed Consolidated Statements of Operations.
The following table presents the weighted-average interest rate:
| | March 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| | March 31, 2024 | |
| | March 31, 2024 | |
| | March 31, 2024 | |
Traditional Life | |
Traditional Life | |
Traditional Life | Traditional Life | | | | | | |
Interest accretion rate | Interest accretion rate | | 2.33 | % | | 2.32 | % | | 2.29 | % |
Interest accretion rate | |
Interest accretion rate | |
Current discount rate | |
Current discount rate | |
Current discount rate | Current discount rate | | 4.96 | % | | 5.37 | % | | 2.41 | % |
Immediate annuities | Immediate annuities | |
Immediate annuities | |
Immediate annuities | |
Interest accretion rate | |
Interest accretion rate | |
Interest accretion rate | Interest accretion rate | | 3.11 | % | | 3.07 | % | | 3.04 | % |
Current discount rate | Current discount rate | | 5.02 | % | | 5.21 | % | | 3.07 | % |
Current discount rate | |
Current discount rate | |
PRT | |
PRT | |
PRT | PRT | |
Interest accretion rate | Interest accretion rate | | 3.82 | % | | 3.20 | % | | 1.20 | % |
Interest accretion rate | |
Interest accretion rate | |
Current discount rate | Current discount rate | | 5.08 | % | | 5.40 | % | | 2.79 | % |
Current discount rate | |
Current discount rate | |
The following tables summarize the actual experience and expected experience for mortality and lapses of the FPB:
| | March 31, 2023 |
| Traditional Life | | Immediate annuities | | PRT |
| | March 31, 2024 | | | | March 31, 2024 |
| | Traditional Life | | | | Traditional Life | | Immediate annuities | | PRT |
Mortality | Mortality | | | | | | |
Actual experience | |
Actual experience | |
Actual experience | Actual experience | | 1.4 | % | | 3.2 | % | | 2.7 | % | | 1.2 | % | | 3.2 | % | | 4.2 | % |
Expected experience | Expected experience | | 1.4 | % | | 1.7 | % | | 2.1 | % | Expected experience | | 1.4 | % | | 2.3 | % | | 2.8 | % |
Lapses | Lapses | |
Actual experience | Actual experience | | 0.1 | % | | — | % | | — | % |
Actual experience | |
Actual experience | | | — | % | | — | % | | — | % |
Expected experience | Expected experience | | 0.2 | % | | — | % | | — | % | Expected experience | | 0.4 | % | | — | % | | — | % |
66 | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Traditional Life | | Immediate annuities | | PRT |
Mortality | | | | | | |
Actual experience | | 1.7 | % | | 3.2 | % | | 3.2 | % |
Expected experience | | 1.4 | % | | 1.8 | % | | 2.3 | % |
Lapses | | | | | | |
Actual experience | | — | % | | — | % | | — | % |
Expected experience | | 0.3 | % | | — | % | | — | % |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Traditional Life | | Immediate annuities | | PRT |
Mortality | | | | | | |
Actual experience | | 1.5 | % | | 3.0 | % | | 1.9 | % |
Expected experience | | 1.3 | % | | 1.9 | % | | 2.5 | % |
Lapses | | | | | | |
Actual experience | | — | % | | — | % | | — | % |
Expected experience | | 0.3 | % | | — | % | | — | % |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Traditional Life | | Immediate annuities | | PRT |
Mortality | | | | | | |
Actual experience | | 1.7 | % | | 4.2 | % | | — | % |
Expected experience | | 1.3 | % | | 2.0 | % | | — | % |
Lapses | | | | | | |
Actual experience | | 0.1 | % | | — | % | | — | % |
Expected experience | | 0.3 | % | | — | % | | — | % |
The following table provides additional information for periods in which a cohort has an NPR > 100% (and; therefore, capped at 100%) (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Cohort X | | Description | | Cohort X | | Description |
Net Premium Ratio before capping | | 101 | % | | Term with ROP Non-NY Cohort | | 100 | % | | Term with ROP Non-NY Cohort |
Reserves before NP Ratio capping | | $ | 1,208 | | | Term with ROP Non-NY Cohort | | $ | 1,172 | | | Term with ROP Non-NY Cohort |
Reserves after NP Ratio capping | | $ | 1,211 | | | Term with ROP Non-NY Cohort | | $ | 1,173 | | | Term with ROP Non-NY Cohort |
Loss Expense | | $ | 2 | | | Term with ROP Non-NY Cohort | | $ | — | | | Term with ROP Non-NY Cohort |
F&G realized actual-to-expected experience variances and made changes to assumptions during the three months ended March 31, 2023 and the year ended December 31, 2022 as follows:
Traditional life
Significant assumption inputs to the calculation of the FPB for traditional life include mortality, lapses (including lapses due to nonpayment of premium and surrenders for cash surrender value), and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the third quarter. Market data that underlies current discount rates was updated in the first quarter of 2023 from that utilized in 2022 resulting in decreased discount rates that drove a material increase to the FPB.
In 2022, F&G similarly undertook a review in the third quarter of the significant cash flow assumptions and did not make any changes to mortality or lapses.
Market data that underlies current discount rates was updated from 2021 and increased significantly year-over-year, resulting in a material decrease to the FPB. Impacts to expected net premiums and expected future policy benefits due to discount rate changes in 2022 can be observed in the FPB roll forward tables at December 31, 2022.
Immediate annuities (life contingent)
Significant assumption inputs to the calculation of the FPB for immediate annuities (life contingent) include mortality and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the third quarter. Market data that underlies current discount rates was updated in the first quarter of 2023 from that utilized in 2022, resulting in decreased discount rates that drove a material increase to the FPB.
In 2022, F&G similarly undertook a review of the significant cash flow assumptions and did not make any changes to mortality. Market data that underlies current discount rates was updated from 2021 and increased significantly year-over-year, resulting in a material decrease to the FPB. Impacts to expected future policy
benefits due to assumption changes in 2022 can be observed in the FPB roll forward tables at December 31, 2022.
PRT (life contingent)
Significant assumption inputs to the calculation of the FPB for PRT (life contingent) include mortality and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the third quarter. Market data that underlies current discount rates was updated in the first quarter of 2023 from 2022 resulting in decreased discount rates that drove a material increase to the FPB.
In 2022, F&G similarly undertook a review of the significant cash flow assumption and did not make any changes to mortality. Market data that underlies current discount rates was updated from 2021 and increased significantly year-over-year, resulting in a material decrease to the FPB. Impacts to expected future policy benefits due to assumption changes in 2022 can be observed in the FPB roll forward tables at December 31, 2022.
Premium deficiency testing
F&G conducts annual premium deficiency testing for its long-duration contracts except for the FPB for nonparticipating traditional and limited-payment contracts. F&G also conducts annual premium deficiency testing for the VOBA of all long-duration contracts. Premium deficiency testing is performed by reviewing assumptions used to calculate the insurance liabilities and determining whether the sum of the existing contract liabilities and the present value of future gross premiums is sufficient to cover the present value of future benefits to be paid to or on behalf of policyholders and settlement costs and recover unamortized present value of future profits. Anticipated investment income, based on F&G’s experience, is considered when performing premium deficiency testing for long-duration contracts. During 2023 and 2022,2024, F&G was not required to establish any additional liabilities as a result of premium deficiency testing.
F&G made changes to assumptions during the three months ended March 31, 2024 and the year ended December 31, 2023. Significant assumption inputs used in the calculation of our FPB are described below. Refer to the tables above for further details on changes to our FPB.
Note S — ASU 2018-12 Transition
We adopted ASU 2018-12 on January 1, 2023 with a transition date of January 1, 2021, orTraditional life
Significant assumption inputs to the beginningcalculation of the earliest period that will be presentedFPB for traditional life include mortality, lapses (including lapses due to nonpayment of premium and surrenders for cash surrender value), and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the annual December 31,third quarter. In 2023, Consolidated Financial Statements. We electedF&G undertook a review of all significant assumptions and revised the lapse assumption, resulting in a slight decrease to adopt ASU 2018-12 using the full retrospective transition method and balances for FPB, DAC and balances amortized on a basis consistent with DAC (VOBA, DSI, and URL), and MRBs were adjusted to conform to ASU 2018-12 starting as of the F&G acquisition date, June 1, 2020. No hindsight was used for the full retrospective adoption of MRBs. As a result of adoption, the Company recorded a cumulative-effect adjustment, which increased opening 2021 retained earnings by $73 million, net of tax.FPB. There have been no other significant changes.
The following table summarizes the balance of and changes in the FPB on January 1, 2021 due to adoption of ASU 2018-12
:
| | | | | | | | | | | | | | | | | |
| Immediate annuities | | Traditional Life | | Total (3) |
| (In millions) |
Balance, December 31, 2020 | $ | 1,861 | | | $ | 2,144 | | | $ | 4,005 | |
| | | | | |
| | | | | |
Cumulative effect of retrospective adoption (1) | 201 | | | (279) | | | (78) | |
Effect of remeasurement of liability at current discount rate (2) | 113 | | | 88 | | | 201 | |
Balance, January 1, 2021 | $ | 2,175 | | | $ | 1,953 | | | $ | 4,128 | |
Less: Reinsurance Recoverable | 322 | | | 793 | | | 1,115 | |
Balance, January 1, 2021, net of reinsurance | $ | 1,853 | | | $ | 1,160 | | | $ | 3,013 | |
| | | | | |
(1) Adjustments for the cumulative effect of adoption of the new measurement guidance under the full retrospective method for contract issue years from the FNF Acquisition Date through December 31, 2020, net of the effects of any change in the DPL. |
(2) The remeasurement of the liability at the current discount rate is reflected as an adjustment to opening AOCI upon the adoption of ASU 2018-12. |
(3) PRT was not written as of the transition date, January 1, 2021, and as a result is not presented in the transition adjustment roll forward. |
The following table summarizes the balance of and changesMarket data that underlies current discount rates was updated in VOBA on January 1, 2021 due to adoption of ASU 2018-12:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FIA | | Fixed rate annuities | | Immediate annuities | | Universal Life | | Traditional Life | | Total |
| (In millions) |
Balance, December 31, 2020 | $ | 1,208 | | | $ | 15 | | | $ | 86 | | | $ | 139 | | | $ | 18 | | | $ | 1,466 | |
Adjustment for reversal of AOCI adjustments (1) | 208 | | | 24 | | | — | | | 29 | | | 22 | | | 283 | |
Cumulative effect of retrospective adoption (2) | (14) | | | 7 | | | (5) | | | (9) | | | (1) | | | (22) | |
Transition opening balance adjustment | 69 | | | 2 | | | 144 | | | 5 | | | 43 | | | 263 | |
Balance, January 1, 2021 | $ | 1,471 | | | $ | 48 | | | $ | 225 | | | $ | 164 | | | $ | 82 | | | $ | 1,990 | |
| | | | | | | | | | | |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI. |
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020 |
(3) Adjustments for the change in VOBA due to the full retrospective adjustment of carrying amounts of acquired contracts as of the FNF Acquisition Date due to the adoption of ASU 2018-12. |
The following table summarizes the balance of and changes2024 from that utilized in DAC on January 1, 2021 due to adoption of ASU 2018-12:
| | | | | | | | | | | | | | | | | | | | | | | |
| FIA | | Fixed rate annuities | | Universal Life | | Total |
| (In millions) |
Balance, December 31, 2020 | $ | 167 | | | $ | 14 | | | $ | 41 | | | $ | 222 | |
Adjustment for reversal of AOCI adjustments (1) | 15 | | | 2 | | | 8 | | | 25 | |
Cumulative effect of retrospective adoption (2) | (1) | | | — | | | (1) | | | (2) | |
Balance, January 1, 2021 | $ | 181 | | | $ | 16 | | | $ | 48 | | | $ | 245 | |
| | | | | | | |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI. |
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020. |
The following table summarizes the balance of and changes2023 resulting in DSI on January 1, 2021 due to adoption of ASU 2018-12:
| | | | | | | | | | | | | | | |
| FIA | | | | | | Total |
| (In millions) |
Balance, December 31, 2020 | $ | 36 | | | | | | | $ | 36 | |
Adjustment for reversal of AOCI adjustments (1) | 5 | | | | | | | 5 | |
Cumulative effect of retrospective adoption (2) | 4 | | | | | | | 4 | |
Balance, January 1, 2021 | $ | 45 | | | | | | | $ | 45 | |
| | | | | | | |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI. |
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020. |
The following table summarizes the balance of and changes in URL on January 1, 2021 due to adoption of ASU 2018-12:
| | | | | | | | | | | | | | | | | |
| | | | | Universal Life | | Total |
| | | | | (In millions) |
Balance, December 31, 2020 | | | | | $ | 2 | | | $ | 2 | |
Adjustment for reversal of AOCI adjustments (1) | | | | | 25 | | | 25 | |
Cumulative effect of retrospective adoption (2) | | | | | 2 | | | 2 | |
Balance, January 1, 2021 | | | | | $ | 29 | | | $ | 29 | |
| | | | | | | |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI. |
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020. |
The following table summarizes the balance of and changes in the asset and liability position of MRBs on January 1, 2021 due to adoption of ASU 2018-12:
| | | | | | | | | | | | | | | | | |
| FIA | | Fixed rate annuities | | Total |
| (In millions) |
Balance, December 31, 2020 - Carrying amount of MRBs under prior guidance (1) | $ | 531 | | | $ | — | | | $ | 531 | |
Adjustment for reversal of AOCI adjustments (2) | (116) | | | — | | | (116) | |
Cumulative effect of the changes in the instrument-specific credit risk between the original contract issuance date and the transition date (3) | 159 | | | — | | | 159 | |
Remaining cumulative difference (exclusive of the instrument specific credit risk change) between June 1, 2020 carrying amount and fair value measurement for the MRBs (4) | (96) | | | 1 | | | (95) | |
Balance, January 1, 2021 - Market risk benefits at fair value | $ | 478 | | | $ | 1 | | | $ | 479 | |
Less: Reinsurance Recoverable | — | | | — | | | — | |
Balance, January 1, 2021, net of reinsurance | $ | 478 | | | $ | 1 | | | $ | 479 | |
| | | | | |
(1) The pre-adoption balance as of December 31, 2020 balance for MRBs represents the contract features that meet the definition of an MRB under ASU 2018-12 and the related carrying amount of those features prior to the ASU. Those contract features were previously accounted for at fair value as a derivative or embedded derivative under ASC 815 or as an additional liability for annuitization benefits or death or other insurance benefits under ASC 944. |
(2) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI. |
(3) The cumulative effective of the change in instrument-specific credit risk between the FNF Acquisition Date or, if later, the original contract issuance date and the transition date to ASU 2018-12, which is recorded as an adjustment to opening AOCI. |
(4) The cumulative difference (exclusive of instrument-specific credit risk change) between the pre-adoption carrying amount and the fair value measurement for MRBs is recorded as an adjustment to opening retained earnings. |
The following table presents the effect of transition adjustments on Equity on January 1, 2021 dueincreased discount rates that drove a moderate decrease to the adoption of ASU 2018-12:FPB.
Immediate annuities (life contingent)
| | | | | | | | | | | |
| January 1, 2021 |
| Retained Earnings | | AOCI |
| (In millions) |
Contractholder funds | $ | 100 | | | $ | 115 | |
MRB | 29 | | | (159) | |
FPB | (15) | | | (159) | |
VOBA | (21) | | | 233 | |
DAC | (1) | | | 5 | |
Increase to Equity, gross of tax | $ | 92 | | | $ | 35 | |
Tax impact | 19 | | 9 |
Increase to Equity, net of tax | $ | 73 | | | $ | 26 | |
For MRBs, the transition adjustment reflected within the unaudited Condensed Consolidated Statements of Comprehensive Earnings relatesSignificant assumption inputs to the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date. The remaining difference between the fair value and carrying amountcalculation of the MRBs at transition, excluding the amounts recorded in the unaudited Condensed Consolidated Statements of Comprehensive Earnings, was recorded as an adjustment to Retained Earnings as of the transition date.
For the FPB the net transition adjustment is primarily related to the difference in thefor immediate annuities (life contingent) include mortality and discount rate used pre-transitionrates (both accretion and the discount rate at January 1, 2021, partially offset by the removal of provisions for adverse deviation fromcurrent). We review the cash flow assumptions usedannually, typically in the FPB calculation. At transition, wethird quarter. In 2023, F&G undertook a review of the significant cash flow assumptions and did not identifymake any instances, atchanges to mortality. Market data that underlies current discount rates was updated in 2024 from that utilized in 2023, resulting in increased discount rates that drove a material decrease to the cohort level, where net premiums exceeded gross premiums.FPB.
Before
PRT (life contingent)
Significant assumption inputs to the adoption of ASU 2018-12, VOBA was amortized consistent with DAC, which was amortized over the livescalculation of the policiesFPB for PRT (life contingent) include mortality and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in relationthe third quarter. In 2023, F&G undertook a review of the significant cash flow assumptions and did not make any changes to mortality. Market data that underlies current discount rates was updated in 2024 from 2023 resulting in increased discount rates that drove a material decrease to the expected emergence of estimated gross profits (“EGPs”). Based on our historical practice of using consistent amortization methods for VOBA and DAC, we elected to change the amortization method for VOBA associated with fixed rate annuities, FIAs, and IUL/Universal Life products to maintain consistency with the amortization method for DAC. At transition, VOBA associated with these product types is amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Additionally, at transition, shadow adjustments previously recorded in the unaudited Condensed Consolidated Statements of Comprehensive Earnings, consistent with the historic amortization of DAC, have been removed.FPB.
For DAC, DSI and URL, we removed shadow adjustments previously recorded in the unaudited Condensed Consolidated Statements of Comprehensive Earnings for the impact of unrealized gains and losses that were included in the pre-transition expected gross profits amortization calculation as of the transition date.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are 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, including statements regarding our expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could vary materially from those forward-looking statements contained herein due to many factors, including, but not limited to: the potential impact of the F&G Distribution on relationships, including employees, suppliers, customers and competitors; changes in general economic, business and political conditions, including changes in the financial markets;markets and geopolitical uncertainties associated with international conflict; weakness or adverse changes in the level of real estate activity, which may be caused by, among other things, high or increasing interest rates, a limited supply of mortgage funding, or a weak U.S. economy; our potential inability to find suitable acquisition candidates, acquisitions in lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties in consummating and integrating acquisitions; our dependence on distributions from our title insurance underwriters as our main source of cash flow; significant competition that our operating subsidiaries face; compliance with extensive government regulation of our operating subsidiaries; and other risks detailed in the “Statement Regarding Forward-Looking Information,” “Risk Factors” and other sections of our Annual Report on Form 10-K (our "Annual Report") for the year ended December 31, 20222023 and other filings with the SEC.Securities Exchange Commission ("SEC").
Unless the context indicates otherwise, as used herein, the terms “we,” “us,” “our,” the “Company” or “FNF” refer collectively to Fidelity National Financial, Inc., and its subsidiaries.
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
Overview
For a description of our business, including descriptions of segments and recent business developments, see the discussion in Note A Basis of Financial Statements in the accompanying unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Report, which is incorporated by reference into this Part I, Item 2.
Business Trends and Conditions
Title
Our Title segment revenue is closely related to the level of real estate activity that includes sales, mortgage financing and mortgage refinancing. Declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues.
We have found that residential real estate activity is generally dependent on the following factors:
•mortgage interest rates;
•mortgage funding supply;
•housing inventory and home prices;
•supply and demand for commercial real estate; and
•the strength of the United States economy, including employment levels.
The most recent forecast of the Mortgage Bankers Association ("MBA"), as of April 17, 2023,18, 2024, estimates (actual for fiscal year 2022)2023) the size of the U.S. residential mortgage originations market as shown in the following table for 20222023 - 20252026 in its "Mortgage Finance Forecast" (in trillions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2025 | | 2024 | | 2023 | | 2022 |
Purchase transactions | | | | $ | 1.8 | | | $ | 1.6 | | | $ | 1.4 | | | $ | 1.6 | |
Refinance transactions | | | | $ | 0.7 | | | $ | 0.6 | | | $ | 0.4 | | | $ | 0.6 | |
Total U.S. mortgage originations forecast | | | | $ | 2.5 | | | $ | 2.2 | | | $ | 1.8 | | | $ | 2.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2026 | | 2025 | | 2024 | | 2023 |
Purchase originations | | | | $ | 1.7 | | | $ | 1.5 | | | $ | 1.4 | | | $ | 1.3 | |
Refinance originations | | | | $ | 0.6 | | | $ | 0.6 | | | $ | 0.4 | | | $ | 0.3 | |
Total U.S. mortgage originations forecast | | | | $ | 2.3 | | | $ | 2.1 | | | $ | 1.8 | | | $ | 1.6 | |
As of April 17, 2023,18, 2024, the MBA expects residential purchase transactions, to decrease in 2023 before increasing in 2024 and 2025. Additionally, the MBA expects residential refinance transactions and overall mortgage originations to decrease in 2023 before increasingincrease in 2024, 2025 and 2025.2026.
The Federal Reserve raised the benchmark interest rate from near zero as of March 2022 to a range between 4.75% and 5.0% as of March 2023. Average interest rates for a 30-year fixed rate mortgage increased to 6.4%
6.8% for the three months ended March 31, 2023,2024, as compared to 3.9%6.4% for the corresponding period of 2022.2023. On May 3, 2023,1, 2024, the Federal Reserve raisedheld the benchmark interest rate by an additional 25 basis points.steady at 5.25% to 5.50% .
A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, disrupted labor markets and geopolitical uncertainties associated with the war in Ukraineinternational conflicts created some volatility in the residential real estate market in 2022,2023, which has continued into 2023.2024. Existing-home sales decreased 22%4% in March 20232024 as compared to the corresponding period in 20222023 while median existing-home sales prices decreasedincreased to $393,500, or approximately 5%, from $379,500 to $375,700 in March 2023, a 1% decrease compared with the corresponding period in 2022.2023.
Other economic indicators used to measure the health of the U.S. economy, including the unemployment rate, have remained strong. The unemployment rate was 3.8% and 3.5% in March 2024 and 2023, which equals the record low setrespectively.
We issue commercial title insurance policies in February 2020,sectors including office, industrial, energy, hospitality, retail and multi-family, among others. The demand for commercial title insurance varies based on a variety of factors such as compared to 3.6%investor appetite, financing availability, and supply and demand in March 2022.
a particular area. Because commercial real estate transactions tend to be generally driven by supply and demand for commercial space and occupancy rates in a particular area rather than by interest rate fluctuations, we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business. Commercial real estate transaction volume is also often linked to the availability of financing. Factors including U.S. tax reform and a shift in U.S. monetary policy have had, or are expected to have, varying effects on availability of financing in the U.S. Lower corporate and individual tax rates and corporate tax-deductibility of capital expenditures have provided increased capacity and incentive for investments in commercial real estate. In recent years, we experienced fluctuating demand in commercial real estate markets. Commercial volumes and commercial fee-per-file were depressed in the three months ended March 31, 2022, we experienced strong demand in commercial real estate markets2024 and therefore, experienced relatively high volumes and fee-per-file in our commercial business2023 when compared to historical results. In the three months ended March 31, 2023, order volumes and fee per file decreased when compared with therecent prior year period.periods.
We continually monitor mortgage origination trends and believe that, based on our ability to produce industry leading operating margins through all economic cycles, we are well positioned to adjust our operations for adverse changes in real estate activity and to take advantage of increased volume when demand increases.
Seasonality. Historically, real estate transactions have produced seasonal revenue fluctuations in the real estate industry. The first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during January and February. The second and third calendar quarters are typically the strongest quarters in terms of revenue, primarily due to a higher volume of residential transactions in the spring and summer months. The fourth quarter is typically strong due to the desire of commercial entities to complete transactions by year-end. We have noted short-term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates. In 2022, theThe rapid rise in mortgage rates and resulting decline in housing affordability has resulted in deviations in seasonality from historical patterns.patterns in 2023, which has continued into 2024.
F&G
The following factors represent some of the key trends and uncertainties that have influenced the development of our F&G segment and its historical financial performance, and we believe these key trends and uncertainties will continue to influence the business and financial performance of our F&G segment 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 in our F&G segment, which vary in response to changes in market conditions. See Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 20222023 for further discussion of risk factors that could affect market conditions.
Interest Rate Environment
Some of our F&G products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of March 31, 2024 and December 31, 2023, our reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $11.0$6.0 billion and 3%, respectively.4%. 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 7A of Part II of our Annual Report on Form 10-K for the year ended December 31, 20222023 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 fixed indexed annuity ("FIA") and indexed universal life ("IUL") products. As the “baby boomer” generation prepares for retirement, we believe that demand for retirement savings, growth, and income products will grow. 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 grow from 18%19% in 20222024 to 21% in 2035. 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
We operate in the sector of the insurance industry that focuses on the needs of middle-income Americans. The underserved middle-income market represents a major growth opportunity for us. As a tool for addressing the unmet need for retirement planning, we believe that many middle-income Americans have grown to appreciate the financial certainty that we believe annuities such as our FIAindexed annuity products afford. Accordingly,For example, the FIAfixed index annuity market grew from nearly $12 billion of sales in 2002 to $79$97 billion of sales in 2022.2023 and the registered index-linked annuities ("RILA") market grew from $11 billion of sales in 2018 to $44 billion of sales in 2023. Additionally, this market demand has positively impacted the IUL market as it has expanded from $100 million of annual premiums in 2002 to $3 billion of annual premiums in 2022.2023.
See Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 20222023 for a more detailed discussion of industry factors and trends affecting our Results of Operations.
Critical Accounting Policies and Estimates
As a result of the adoption of ASU 2018-12, we have applied the following additional critical accounting policies and estimates in preparing our Condensed Consolidated Financial Statements included in Item 1 of Part I of this Report. Other than the following additional critical accounting policies and estimates, which are further described in the Notes to our Condensed Consolidated Financial Statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Item 2 of Part I, there have been no material changes to our critical accounting policies described in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022. See Note A Basis of Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional description of certain significant accounting policies that have been followed in preparing our Condensed Consolidated Financial Statements.
Reserves for Future Policy Benefits and Certain Information on Contractholder Funds
The determination of future policy benefit ("FPB") reserves is dependent on actuarial assumptions. The principal assumptions used to establish liabilities for FPBs are established at issue of the contract and include discount rates, mortality, and cash surrender or policy lapse for our traditional life insurance products. The assumptions used require considerable judgment. We review policyholder behavior experience at least annually and update these assumptions when deemed necessary based on additional information that becomes available. Discount rate assumptions are updated at each reporting period and also incorporate changes in risk free rates and option market values. Changes in, or deviations from, the assumptions previously used can significantly affect our reserve levels and related results of operations in a positive or negative direction.
Mortality refers to the incidence of death on covered lives, which triggers contractual death benefit provisions. On our deferred annuities and life insurance products, these provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. On our life-contingent immediate annuities, the death of a named annuitant or pension risk transfer (“PRT”) certificate holder may trigger the cessation or reduction of future life-contingent payments due, depending on the presence of a joint annuitant/certificate holder and any remaining guaranteed non-life contingent payment periods. We utilize a combination of internal and industry experience when setting our mortality assumptions.
A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. A lapse rate is the percentage of account value canceled by us due to nonpayment of premiums required to maintain coverage on our life insurance products. We make estimates of expected full and partial surrenders of our deferred annuity products, based on a combination of internal and industry experience. Management’s best estimate of surrender behavior generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our reserve levels and related results of operations.
Discount rates refers to the interest rates used to discount future cash flows to the current period to determine a present value. For liability for FPB reserves the discount rate used is based on the yield curve for A-rated corporate bonds as of the valuation date. Changes in the discount rates from the at-issue or at-purchase discount rates flow through other comprehensive income (“OCI”).
Our aggregate reserves for contractholder funds, FPBs and market risk benefits ("MRBs") on a direct and net basis as of March 31, 2023 and December 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | |
| As of March 31, 2023 |
| Direct | | Deposit Asset/ Reinsurance Recoverable | | Net |
| (In millions) |
Fixed indexed annuities (“FIA”) | $ | 25,765 | | | $ | (16) | | | $ | 25,749 | |
Fixed rate annuities | 10,646 | | | (4,691) | | | 5,955 | |
Single premium immediate annuities (“SPIA”) and other | 1,854 | | | (86) | | | 1,768 | |
IUL and other life | 3,595 | | | (1,568) | | | 2,027 | |
Funding agreement backed notes ("FABN") | 4,751 | | | — | | | 4,751 | |
PRT | 2,463 | | | — | | | 2,463 | |
Total | $ | 49,074 | | | $ | (6,361) | | | $ | 42,713 | |
| | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| Direct | | Deposit Asset/ Reinsurance Recoverable | | Net |
| (In millions) |
FIA | $ | 24,704 | | | $ | (16) | | | $ | 24,688 | |
Fixed rate annuities | 9,360 | | | (3,723) | | | 5,637 | |
SPIA and other | 1,829 | | | (118) | | | 1,711 | |
IUL and other life | 3,486 | | | (1,560) | | | 1,926 | |
FABN | 4,595 | | | — | | | 4,595 | |
PRT | 2,172 | | | — | | | 2,172 | |
Total | $ | 46,146 | | | $ | (5,417) | | | $ | 40,729 | |
FIA and IUL products contain an embedded derivative; a feature that permits the holder to elect an interest rate return or an equity-index linked component, where interest credited to the contract is linked to the performance of various equity indices. The FIA/IUL embedded derivatives are valued at fair value and included in the liability for contractholder funds in our accompanying unaudited Condensed Consolidated Balance Sheets with changes in fair value included as a component of Benefits and other changes in policy reserves in our accompanying unaudited Condensed Consolidated Statements of Operations.
For life-contingent immediate annuity policies (which includes life-contingent PRT annuities), gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). Gross premiums are measured using assumptions consistent with those used in the measurement of the related liability for future policy benefits.
Valuation of Fixed Maturity, Preferred and Equity Securities, and Derivatives and Reinsurance Recoverable
Our investments in fixed maturity securities have been designated as available-for-sale ("AFS") and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included within accumulated other comprehensive income (loss) ("AOCI"), net of deferred income taxes. Our equity securities are carried at fair value with unrealized gains and losses included in net income (loss). Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold and are credited or charged to income on a trade date basis.
Management’s assessment of all available data when determining fair value of the AFS securities is necessary to appropriately apply fair value accounting. Management utilizes information from independent pricing services, who take into account perceived market movements and sector news, as well as a security’s terms and conditions, including any features specific to that issue that may influence risk and marketability. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. We generally obtain one value from our primary external pricing service. In situations where a price is not available from the independent pricing service, we may obtain broker quotes or prices from additional parties recognized to be market participants. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flows, matrix pricing, or other similar techniques.
We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, comparisons to valuations from other independent pricing services, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. See Note C Fair Value of Financial Instruments and Note D Investments to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
The fair value of derivative assets and liabilities is based upon valuation pricing models and represents what we would expect to receive or pay at the balance sheet date if we canceled the options, entered into offsetting positions, or exercised the options. Fair values for these instruments are determined internally using a conventional model and market observable inputs, including interest rates, yield curve volatilities and other factors. Credit risk related to the counterparty is considered when estimating the fair values of these derivatives. However, we are largely protected by collateral arrangements with counterparties when individual counterparty exposures exceed certain thresholds. The fair value of futures contracts (specifically for FIA contracts) at the balance sheet date represents the cumulative unsettled variation margin (open trade equity net of cash settlements). The fair values of the embedded derivatives in our FIA and IUL contracts are derived using market
value of options, use of current and budgeted option cost, swap rates, mortality rates, surrender rates, partial withdrawals, and non-performance spread and are classified as Level 3. The discount rate used to determine the fair value of our FIA/IUL embedded derivative liabilities includes an adjustment to reflect the risk that these obligations will not be fulfilled (“non-performance risk”). For the quarter ended March 31, 2023 and the year ended December 31, 2022, our non-performance risk adjustment was based on the expected loss due to default in debt obligations for similarly rated financial companies. See Note C Fair Value of Financial Instruments and Note E Derivative Financial Instruments to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
As discussed in Note L Reinsurance of our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, FGL Insurance entered into a reinsurance agreement with Kubera effective December 31, 2018, to cede certain MYGAs and other fixed rate annuity GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset. Additionally, FGL Insurance entered into a reinsurance agreement with Aspida Re effective January 1, 2021, and amended in August 2021 and September 2022, to cede a quota share of MYGA business on a funds withheld basis. Fair value movements in the funds withheld balances associated with these arrangements create an obligation for FGL Insurance to pay Somerset and Aspida Re at a later date, which results in embedded derivatives. These embedded derivatives are considered total return swaps with contractual returns that are attributable to the assets and liabilities associated with the reinsurance arrangements. The fair value of the total return swaps are 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 with funds withheld reinsurance arrangement, including gains and losses from sales, are passed directly to the reinsurer pursuant to contractual terms of the reinsurance arrangement. The reinsurance related embedded derivatives are reported in Prepaid expenses and other assets if in a net gain position, or Accounts payable and accrued liabilities, if in a net loss position on the accompanying unaudited Condensed Consolidated Balance Sheets. The related gains or losses are reported in Recognized gains and losses, net on the accompanying unaudited Condensed Consolidated Statements of Operations.
Market Risk Benefits
MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs include certain contract features primarily on FIA contracts that provide minimum guarantees to policyholders, such as Guaranteed Minimum Death Benefit (“GMDBs”) and Guaranteed Minimum Withdrawal Benefits (“GMWBs”) riders. MRBs are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and industry experience, and other factors.
The principal policyholder behavior assumptions used to calculate MRBs are established at issue of the contract and include mortality, contract full and partial surrenders, and utilization of the GMWB rider benefits. The assumptions used reflect a combination of internal experience, industry experience, and judgment. We review overall policyholder behavior experience at least annually and update these assumptions when deemed necessary based on additional information that becomes available. Changes in, or deviations from, the assumptions previously used can significantly affect our MRBs and related results of operations in a positive or negative direction.
Mortality refers to the incidence of death amongst policyholders on covered lives, which triggers contractual death benefit provisions. These provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. We utilize a combination of actual internal and industry experience when setting our mortality assumptions.
A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. We make estimates of expected full and partial surrenders of our deferred annuity products based on a combination of internal and industry experience. Management’s best estimate of surrender generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our MRBs and related results of operations.
We have been issuing GMWB products since 2008. We make assumptions for policyholder behavior as it relates to GMWB utilization using a higher degree of industry experience and judgment than our other behavioral assumptions because internal experience, which we review annually, is still emerging. If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on MRBs and related results of operations.
Results of Operations
Consolidated Results of Operations
Net Earnings.Earnings (loss). The following table presents certain financial data for the periods indicated:
| | | | | Three months ended March 31, | |
| | 2023 | | 2022 | |
| | (In millions) |
| |
| | |
| 2024 | |
| 2024 | |
| 2024 | |
| |
| |
| | (In millions) |
Revenues: | Revenues: | | | | |
Direct title insurance premiums | Direct title insurance premiums | $ | 428 | | | $ | 767 | | |
Direct title insurance premiums | |
Direct title insurance premiums | |
Agency title insurance premiums | Agency title insurance premiums | 550 | | | 1,099 | | |
Agency title insurance premiums | |
Agency title insurance premiums | |
Escrow, title-related and other fees | |
Escrow, title-related and other fees | |
Escrow, title-related and other fees | Escrow, title-related and other fees | 880 | | | 1,292 | | |
| Interest and investment income | Interest and investment income | 611 | | | 478 | | |
| Interest and investment income | |
| Interest and investment income | |
Recognized gains and losses, net | |
Recognized gains and losses, net | |
Recognized gains and losses, net | Recognized gains and losses, net | 5 | | | (469) | | |
Total revenues | Total revenues | 2,474 | | | 3,167 | | |
Total revenues | |
Total revenues | |
Expenses: | |
Expenses: | |
Expenses: | Expenses: | | | | |
Benefits and other changes in policy reserves | Benefits and other changes in policy reserves | 812 | | | 203 | | |
Benefits and other changes in policy reserves | |
Benefits and other changes in policy reserves | |
Personnel costs | Personnel costs | 677 | | | 823 | | |
Personnel costs | |
Personnel costs | |
Agent commissions | |
Agent commissions | |
Agent commissions | Agent commissions | 420 | | | 844 | | |
| Other operating expenses | Other operating expenses | 360 | | | 442 | | |
| Market risk benefit losses | 59 | | | 70 | | |
Other operating expenses | |
| Other operating expenses | |
| Market risk benefit (gains) losses | |
| Market risk benefit (gains) losses | |
| Market risk benefit (gains) losses | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 134 | | | 115 | | |
Provision for title claim losses | Provision for title claim losses | 44 | | | 84 | | |
Provision for title claim losses | |
Provision for title claim losses | |
Interest expense | |
Interest expense | |
Interest expense | Interest expense | 42 | | | 30 | | |
Total expenses | Total expenses | 2,548 | | | 2,611 | | |
(Loss) Earnings before income taxes and equity in (losses) earnings of unconsolidated affiliates | (74) | | | 556 | | |
Total expenses | |
Total expenses | |
Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | |
Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | |
Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | |
Income tax expense | |
Income tax expense | |
Income tax expense | Income tax expense | 14 | | | 156 | | |
Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | — | | | 2 | | |
Net (loss) earnings from continuing operations | $ | (88) | | | $ | 402 | | |
Equity in earnings of unconsolidated affiliates | |
Equity in earnings of unconsolidated affiliates | |
Net earnings (loss) | |
Net earnings (loss) | |
Net earnings (loss) | |
Revenues.
Total revenues decreasedincreased by $693$825 million in the three months ended March 31, 20232024 compared to the corresponding period in 2022.2023.
Net earnings from continuing operations decreasedincreased by $490$357 million in the three months ended March 31, 20232024 compared to the corresponding period in 2022.2023.
The change in revenue and net earnings from our reportable segments is discussed in further detail at the segment level below.
Expenses.
Our operating expenses consist primarily of Personnel costs; Other operating expenses, which in our title business are incurred as orders are received and processed; Agent commissions, which are incurred as title agency revenue is recognized; and Benefits and other changes in policy reserves, which in our F&G segment are charged to earnings in the period they are earned by the policyholder based on their selected strategy. For traditional life and immediate annuities, policy benefit claims are charged to expense in the period that the claims are incurred, net of reinsurance recoveries. Title insurance premiums, escrow and title-related fees are generally recognized as income at the time the underlying transaction closes or other service is provided. Direct title operations revenue often lags approximately 45-60 days behind expenses and therefore gross margins may fluctuate. The changes in the market environment, mix of business between direct and agency operations and the contributions from our various business units have historically impacted margins and net earnings. We have
implemented programs and have taken necessary actions to maintain expense levels consistent with revenue streams. However, a short-term lag exists in reducing controllable fixed costs and certain fixed costs are incurred regardless of revenue levels.
Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses.
Agent commissions represent the portion of premiums retained by our third-party agents pursuant to the terms of their respective agency contracts.
Benefit expenses for deferred annuity, FIAindexed annuity and IUL policies include index credits and interest credited to contractholder account balances and benefit claims in excess of contract account balances, net of reinsurance recoveries. Other changes in policy reserves include the change in the fair value of the FIAindexed annuity embedded derivative and the change in the reserve for secondary guarantee benefit payments. Other changes in policy reserves also include the change in reserves for life insurance products.
Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), appraisal fees and other cost of sales on ServiceLink product offerings and other title-related products, postage and courier services, computer services, professional services, travel expenses, general insurance and bad debt expense on our trade and notes receivable.
The provision for title claim losses includes an estimate of anticipated title and title-related claims, and escrow losses.
The change in expenses attributable to our reportable segments is discussed in further detail at the segment level below.
Income tax expense was $14$63 million and $156$14 million in the three months ended March 31, 20232024 and 2022,2023, respectively. Income tax expense as a percentage of earnings before income taxes was 19% and (19)% and 28% in the three months ended March 31, 20232024 and 2022, respectively.2023. The changeincrease in income tax expense as a percentage of earnings (loss) earnings before taxes in the three months ended March 31, 20232024 as compared to the corresponding period in 20222023 is primarily attributable to the recording of2023 period having income tax expense, due to a valuation allowance in the 2022 period. The valuation allowance is associated with tax benefits from deferred tax assets related to recognized valuation losses on equity securities that we will more likely than not be able to realize for tax purposes. Additionally, the tax benefit associated with the valuation losses on equity securities in the three months ended March 31,increase, despite there being a 2023 was further reduced by an increase in the valuation allowance in 2023.pre-tax loss.
The Inflation Reduction Act of 2022 (the "IRA") was signed into law on August 16, 2022. Among other changes,Organization for Economic Cooperation and Development (OECD) has developed guidance known as the IRA introduced a 15% corporate alternativeGlobal Anti-Base Erosion Pillar Two minimum tax on adjusted financial statement incomerules, or Pillar Two, which generally provide for a minimum effective tax rate of 15% and a 1% exciseare intended to apply to tax on treasury stock repurchases.years beginning in 2024. The effective date ofCompany does not expect these provisions was January 1, 2023. We do not anticipate that the IRA willrules to have a material effectimpact on our current or future financial condition or results from operations.income tax provision in 2024.
Title
The following table presents the results from operations of our Title segment:
| | |
| |
| |
| | | Three months ended March 31, | |
| | 2023 | | 2022 | |
Revenues: | Revenues: | (In millions) |
Revenues: | |
Revenues: | | (In millions) |
Direct title insurance premiums | Direct title insurance premiums | $ | 428 | | | $ | 767 | | |
Agency title insurance premiums | Agency title insurance premiums | 550 | | | 1,099 | | |
Agency title insurance premiums | |
Agency title insurance premiums | |
Escrow, title-related and other fees | |
Escrow, title-related and other fees | |
Escrow, title-related and other fees | Escrow, title-related and other fees | 471 | | | 665 | | |
Interest and investment income | Interest and investment income | 81 | | | 27 | | |
Interest and investment income | |
Interest and investment income | |
Recognized gains and losses, net | |
Recognized gains and losses, net | |
Recognized gains and losses, net | Recognized gains and losses, net | 22 | | | (175) | | |
Total revenues | Total revenues | 1,552 | | | 2,383 | | |
Total revenues | |
Total revenues | |
Expenses: | |
Expenses: | |
Expenses: | Expenses: | | | | |
Personnel costs | Personnel costs | 598 | | | 776 | | |
Personnel costs | |
Personnel costs | |
Agent commissions | |
Agent commissions | |
Agent commissions | Agent commissions | 420 | | | 844 | | |
Other operating expenses | Other operating expenses | 296 | | | 397 | | |
Other operating expenses | |
Other operating expenses | |
Depreciation and amortization | Depreciation and amortization | 37 | | | 33 | | |
Depreciation and amortization | |
Depreciation and amortization | |
Provision for title claim losses | |
Provision for title claim losses | |
Provision for title claim losses | Provision for title claim losses | 44 | | | 84 | | |
| Total expenses | Total expenses | 1,395 | | | 2,134 | | |
Earnings from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | $ | 157 | | | $ | 249 | | |
| Total expenses | |
| Total expenses | |
Earnings before income taxes and equity in earnings of unconsolidated affiliates | |
Earnings before income taxes and equity in earnings of unconsolidated affiliates | |
Earnings before income taxes and equity in earnings of unconsolidated affiliates | |
| Orders opened by direct title operations (in thousands) | |
| Orders opened by direct title operations (in thousands) | |
| Orders opened by direct title operations (in thousands) | Orders opened by direct title operations (in thousands) | 308 | | | 522 | | |
Orders closed by direct title operations (in thousands) | Orders closed by direct title operations (in thousands) | 188 | | | 380 | | |
Orders closed by direct title operations (in thousands) | |
Orders closed by direct title operations (in thousands) | |
Fee per file (in dollars) | Fee per file (in dollars) | $ | 3,446 | | | $ | 2,891 | | |
Fee per file (in dollars) | |
Fee per file (in dollars) | |
Total revenues for the Title segment decreasedincreased by $831$111 million, or 35%7%, in the three months ended March 31, 20232024 from the corresponding period in 2022.2023.
The following table presents the percentages of title insurance premiums generated by our direct and agency operations:
| | |
| |
| |
| |
| |
| |
| |
| | | Three months ended March 31, | |
| | | | % of | | | | % of | |
| | 2023 | | Total | | 2022 | | Total | |
| | (Dollars in millions) | (Dollars in millions) |
Title premiums from direct operations | Title premiums from direct operations | $ | 428 | | | 44 | % | | $ | 767 | | | 41 | % | |
Title premiums from agency operations | Title premiums from agency operations | 550 | | | 56 | | | 1,099 | | | 59 | | |
Title premiums from agency operations | |
Title premiums from agency operations | |
Total title premiums | Total title premiums | $ | 978 | | | 100 | % | | $ | 1,866 | | | 100 | % | |
Total title premiums | |
Total title premiums | |
Title premiums decreasedincreased by $888$55 million, or 48%6% in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The decreaseincrease was comprised of a decreasean increase in Title premiums from direct operations of $339$12 million, or 44%3%, and a decreasean increase in Title premiums from agency operations of $549$43 million, or 50%8%.
The following table presents the percentages of opened and closed title insurance orders generated by purchase and refinance transactions by our direct operations:
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2023 | | 2022 | | | | |
Opened title insurance orders from purchase transactions (1) | 78 | % | | 62 | % | | | | |
Opened title insurance orders from refinance transactions (1) | 22 | | | 38 | | | | | |
| 100 | % | | 100 | % | | | | |
| | | | | | | |
Closed title insurance orders from purchase transactions (1) | 78 | % | | 55 | % | | | | |
Closed title insurance orders from refinance transactions (1) | 22 | | | 45 | | | | | |
| 100 | % | | 100 | % | | | | |
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
Opened title insurance orders from purchase transactions (1) | 79 | % | | 78 | % | | | | |
Opened title insurance orders from refinance transactions (1) | 21 | | | 22 | | | | | |
| 100 | % | | 100 | % | | | | |
| | | | | | | |
Closed title insurance orders from purchase transactions (1) | 79 | % | | 78 | % | | | | |
Closed title insurance orders from refinance transactions (1) | 21 | | | 22 | | | | | |
| 100 | % | | 100 | % | | | | |
(1) Percentages exclude consideration of an immaterial number of non-purchase and non-refinance orders.
Title premiums from direct operations decreasedincreased in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The decreaseincrease was primarily attributable to decreased closed order volume, partially offset by increasesan increase in the average fee per file, which were drivenpartially offset by increases in the proportion of purchase transactions versus refinance transactions.decreased closed order volume.
We experienced a significantslight decrease in closed title insurance order volumevolumes from both purchase and refinance transactions in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. Total closed order volume was 186,000 in the three months ended March 31, 2024 compared to 188,000 in the three months ended March 31, 2023 compared to 380,0002023. This represented an overall decrease of 1% in the three months ended March 31, 2022. This represented an overall decrease of 51% in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The decrease was primarily attributable to higher average mortgage interest rates in the three months ended March 31, 20232024 when compared to the corresponding period in 2022.2023.
Total opened title insurance order volume decreased in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The decrease was attributable to decreased opened title orders from both purchase and refinance transactions.
The average fee per file in our direct operations was $3,555 in the three months ended March 31, 2024 compared to $3,446 in the three months ended March 31, 2023, respectively, compared to $2,891 in the three months ended March 31, 2022.2023. The increase in average fee per file in the three months ended March 31, 20232024 reflects home price appreciation and an increased proportion of purchase transactions relative to total closed orders compared to the corresponding period in 2022.2023. The fee per file tends to change as the mix of refinance and purchase transactions changes, because purchase transactions involve the issuance of both a lender’s policy and an owner’s policy, resulting in higher fees, whereas refinance transactions only require a lender’s policy, resulting in lower fees.
Title premiums from agency operations decreased $549increased $43 million, or 50%8%, in the three months ended March 31, 20232024 from the corresponding period in 2022. The current trends in the agency business reflect a softening residential purchase environment in many markets throughout the country and a dramatic decline in residential refinance transactions, consistent with recent trends in our direct business.2023.
Escrow, title-related and other fees decreasedincreased by $194$13 million, or 29%3%, in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. Escrow fees decreasedincreased by $105$7 million, or 39%4%, in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The decreasesincrease in the three month periods were primarily attributableperiod ended March 31, 2024 as compared to the decreasecorresponding period in residential refinance transactions, which have2023 is relatively higher escrow fees per transaction than residential purchase and commercial transactions.consistent with the increase in direct premiums. Other fees, excluding escrow fees, decreasedincreased by $89$6 million, or 22%2%, in the three months ended March 31, 2023 from the corresponding period in 2022.2024. The decreasesincrease in Other fees werewas attributable to various immaterial items.
Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. Interest and investment income increased $54$2 million, or 200%2%, in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The increase was primarily attributable to increased income from our tax-deferred property exchange business and higher yields on our short-term investments when compared to the corresponding period in 2022.
various immaterial items. Net recognized gains were $63 million and $22 million in the three months ended March 31, 2023. Net recognized losses were $175 million in the three months ended March 31, 2022.2024 and 2023, respectively. The variationsincrease in recognized gains and losses, net in the three months ended March 31, 20232024 as compared to the corresponding periodsperiod in 2022 are2023 is primarily attributable to fluctuations in non-cash valuation changes on our equity and preferred security holdings in addition to various other immaterial items.
Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. Personnel costs decreased $178increased $20 million, or 23%3%, in the three months ended March 31, 20232024 compared to the corresponding period in 2022.2023. The decreaseincrease is due to inflationary salary increases, partially offset by lower average head count in the 2023 period in response to the decline in title orders.count. Personnel costs as a percentage of total revenues from direct title premiums and escrow, title-related and other fees were 67% and 54% for the three months ended March 31, 20232024 and 2022, respectively.2023. Average employee count in the Title segment was 21,51620,516 and 26,97421,516 in the three months ended March 31, 20232024 and 2022,2023, respectively.
Other operating expenses decreased by $101$11 million, or 25%4%, in the three months ended March 31, 2023,2024, from the corresponding period in 2022.2023. Other operating expenses as a percentage of total revenue excluding agency premiums, interest and investment income, and recognized gains and losses were 33%31% and 28%33% in the three months ended March 31, 20232024 and 2022,2023, respectively.
Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions and the resulting percentage of agent premiums that we retain vary according to regional differences in real estate closing practices and state regulations.
The following table illustrates the relationship of agent premiums and agent commissions, which has remained relatively consistent since 2022:2023:
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| |
| |
| |
| |
| | | Three months ended March 31, | |
| | 2023 | | % | | 2022 | | % | |
| | (Dollars in millions) | (Dollars in millions) |
Agent premiums | Agent premiums | $ | 550 | | | 100 | % | | $ | 1,099 | | | 100 | % | |
Agent commissions | Agent commissions | 420 | | | 76 | % | | 844 | | | 77 | % | |
Agent commissions | |
Agent commissions | |
Net retained agent premiums | Net retained agent premiums | $ | 130 | | | 24 | % | | $ | 255 | | | 23 | % | |
Net retained agent premiums | |
Net retained agent premiums | |
The claim loss provision for title insurance was $44$46 million and $84$44 million for the three months ended March 31, 20232024 and 2022,2023, respectively. The provision reflects an average provision rate of 4.5% of title premiums in all periods. We continually monitor and evaluate our loss provision level, actual claims paid, and the loss reserve position each quarter. This loss provision rate is set to provide for losses on current year policies, but due to development of prior years and our long claim duration, it periodically includes amounts of estimated adverse or positive development on prior years' policies.
F&G
Segment Overview
Through our majority-owned F&G subsidiary, we have five distribution channels across retail and institutional markets. Our three retail channels include agent-based Independent Marketing Organizations ("IMOs"), banks and broker dealers. We have deep, long-tenured relationships with our network of leading IMOs and their agents to serve the needs of the middle-income market and develop competitive annuity and life products to align with their evolving needs. Upon FNF’s ownership and F&G’s subsequent rating upgrades in mid-2020, we launched into banks and broker dealers. Further, in 2021, we launched into two institutional channelsmarkets to originate Funding Agreement Backed NoteNotes ("FABN") and PRTpension risk transfer ("PRT") transactions. The FABN Program offers funding agreements to institutional clients by means of capital markets transactions through investment banks. The funding agreements issued under the FABN Program are in addition to those issued to the Federal Home Loan Bank of Atlanta ("FHLB"). The PRT solutions business was launched by building an experienced team and then working with brokers and institutional consultants for distribution. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone.
In setting the features and pricing of our flagship FIAindexed annuity products relative to our targeted net margin, we take into account our expectations regarding (1) 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.
Key Components of Our Historical Results of Operations
Through our insurance subsidiaries, we issue a broad portfolio of deferred annuities (FIA(indexed annuities and fixed rate annuities), IUL insurance, immediate annuities, funding agreements and PRT solutions. 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. IUL insurance is a complementary type of contract that accumulates value in a cash value account and provides a payment to designated beneficiaries upon the policyholder’s death. 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. As defined by the Iowa Insurance Division, a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers issue fixed maturity contracts with fixed or floating interest rates in exchange for a single upfront premium. Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments, which are typically fixed in nature but may vary in duration based on participant mortality experience.
Under U.S. GAAP, premium collections for deferred annuities FIAs,(indexed annuities and fixed rate annuities,annuities), immediate annuities and PRT without life contingency, and deposits received for funding agreements 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 charges, cost of insurance and other charges deducted from contractholder funds (i.e., amortization of unearned revenue liabilities ("URL")), 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 hedging cost of providing index credits to the policyholder), amortization
of value of insurance and reinsurance contractsbusiness acquired ("VOBA"), deferred acquisition costs ("DAC"), and deferred sales inducements ("DSI"), and unearned revenue liability ("URL"), other operating costs and expenses, and income taxes.expenses.
We hedge
F&G hedges certain portions of ourits 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 (specifically for FIAindexed annuity contracts) on the equity indices underlying the applicable policy. These derivatives are used to offset the reserve impact of the index credits due to policyholders under the FIAindexed annuity and IUL contracts. The majority of all such call options are one-year options purchased to match the funding requirements underlying the FIA/indexed annuity/IUL contracts. We attempt to manage the cost of these purchases through the terms of our FIA/indexed annuity/IUL contracts, which permit us to change caps, spread, or participation rates on each policy's annual anniversary, subject to certain guaranteed minimums that must be maintained. The call options and futures contracts are marked to fair value with the change in fair value included as a component 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. In addition, to reduce market risks from interest rate changes on our earnings associated with our floating rate investments, during 2023 we began to execute pay-float and receive-fixed interest rate swaps.
As noted above, MRBs
Market Risk Benefits ("MRBs") are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and industry experience, and other factors. The change in fair value of MRBs generally reflects impacts from actual policyholder behavior (including surrenders of the benefit), changes in interest rates, and changes in equity market returns. Generally higher interest rates and equity returns result in gains whereas lower interest rates and equity returns result in losses.
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/indexed annuity/IUL policies. With respect to FIAs/indexed annuities/IULs, the cost of hedging our riskwhich includes the expenses incurred to fund the index credits. 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.
F&G Results of Operations
The results of operations of our F&G segment for the three months ended March 31, 20232024 and 20222023 were as follows:
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
| (In millions) | | |
Revenues: | | | | | | | |
Life insurance premiums and other fees (a) | $ | 365 | | | $ | 596 | | | | | |
Interest and investment income | 519 | | | 451 | | | | | |
Recognized gains and (losses), net | (15) | | | (297) | | | | | |
Total revenues | 869 | | | 750 | | | | | |
Benefits and expenses: | | | | | | | |
Benefits and other changes in policy reserves | 812 | | | 203 | | | | | |
Market risk benefit losses | 59 | | | 70 | | | | | |
Depreciation and amortization | 90 | | | 76 | | | | | |
Personnel costs | 53 | | | 30 | | | | | |
Other operating expenses | 36 | | | 18 | | | | | |
Interest expense | 22 | | | 8 | | | | | |
Total benefits and expenses | 1,072 | | | 405 | | | | | |
| | | | | | | |
Earnings (loss) before income taxes | (203) | | | 345 | | | | | |
Income tax expense (benefit) | $ | (8) | | | $ | 106 | | | | | |
Earnings (loss) from continuing operations | $ | (195) | | | $ | 345 | | | | | |
| | | | | | | |
| | | | | | | |
(a) Included within Escrow, title-related and other fees in Condensed Consolidated Statements of Operations |
| | | | | | | | | | | | | | | | |
| Three months ended | | | |
| March 31, 2024 | | March 31, 2023 | | | | | |
Revenues | (In millions) | | | | | |
Life insurance premiums and other fees | $ | 718 | | | $ | 365 | | | | | | |
Interest and investment income | 616 | | | 519 | | | | | | |
Owned distribution revenues | 23 | | | — | | | | | | |
Recognized gains and (losses), net | 212 | | | (15) | | | | | | |
Total revenues | 1,569 | | | 869 | | | | | | |
Benefits and expenses | | | | | | | | |
Benefits and other changes in policy reserves | 1,161 | | | 812 | | | | | | |
Market risk benefit (gains) losses | (11) | | | 59 | | | | | | |
Depreciation and amortization | 123 | | | 90 | | | | | | |
Personnel costs | 66 | | | 53 | | | | | | |
Other operating expenses | 58 | | | 36 | | | | | | |
Interest expense | 30 | | | 22 | | | | | | |
| | | | | | | | |
Total benefits and expenses | 1,427 | | | 1,072 | | | | | | |
| | | | | | | | |
Earnings (loss) before income taxes | $ | 142 | | | $ | (203) | | | | | | |
Income tax expense (benefit) | 26 | | | (8) | | | | | | |
Net earnings (loss) | 116 | | | (195) | | | | | | |
Less: Noncontrolling interests | 1 | | | — | | | | | | |
Net earnings (loss) attributable to F&G | 115 | | | (195) | | | | | | |
Revenues
Life insurance premiums and other fees
Life insurance premiums and other fees primarily reflect premiums on life-contingent PRTs and traditional life insurance products, which are recognized as revenue when due from the policyholder, as well as policy rider fees primarily on FIAindexed annuity policies, the cost of insurance on IUL policies 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). The following table summarizes the Life insurance premiums and other fees, included within Escrow, title-related and other fees on the accompanying unaudited Condensed Consolidated Statements of Operations (in millions), for the three months ended March 31, 20232024 and 2022:March 31, 2023:
| | Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Life-contingent pension risk transfer premiums | |
Traditional life insurance and life-contingent immediate annuity premiums | |
Traditional life insurance and life-contingent immediate annuity premiums | |
Traditional life insurance and life-contingent immediate annuity premiums | |
| | | Three months ended | |
Surrender charges | |
| | March 31, 2023 | | March 31, 2022 | |
| | (In millions) |
Life-contingent pension risk transfer premiums | $ | 263 | | | $ | 525 | | |
Traditional life insurance premiums | 6 | | | 5 | | |
Life-contingent immediate annuity premiums | 6 | | | 5 | | |
Surrender charges | |
| Surrender charges | Surrender charges | 23 | | | 10 | | |
Policyholder fees and other income | Policyholder fees and other income | 67 | | | 51 | | |
Policyholder fees and other income | |
Policyholder fees and other income | |
Life insurance premiums and other fees | Life insurance premiums and other fees | $ | 365 | | | $ | 596 | | |
Life insurance premiums and other fees | |
Life insurance premiums and other fees | |
•Life insuranceLife-contingent pension risk transfer premiums and other feesincreased for the three months ended March 31, 2023 decreased2024 compared to the three months ended March 31, 2022,2023, reflecting lowerthe higher PRT premiums. As noted above, PRT premiums are subject to fluctuation period to period.sales.
•Surrender charges increased for the three months ended March 31, 20232024 compared to the three months ended March 31, 2022,2023, primarily reflecting an increaseincreases in withdrawals from policyholders with surrender charges and market value adjustments (“MVA”) assessed on certain surrendered FIA policies. An MVA will apply in most states to any withdrawal that incurs a surrender charge, subject to certain exceptions. The MVA is based on a formula that takes into account changes in interest rates since contract issuance. Generally, if interest rates have risen, the MVA will decrease
surrender value, whereas if rates have fallen, it will increase surrender value. In addition, surrender charges increases as a result of increased amounts assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts(MVAs), primarily on our FIAindexed annuities policies.
•Policyholder fees and other income increased for the three months ended March 31, 20232024, compared to the three months ended March 31, 2022,2023, primarily due to increased GMWB rider fees and cost of insurance charges, net of changes in URL on IUL policies and IUL premium loads.from growth in business. GMWB rider fees are based on the policyholder's benefit base and are collected at the end of the policy year.
Interest and investment income
Below is a summary of interest and investment income for the three months ended March 31, 20232024 and March 31, 2022:2023:
| | Three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| (In millions) | |
| Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Fixed maturity securities, available-for-sale | Fixed maturity securities, available-for-sale | $ | 432 | | | $ | 319 | | |
Equity securities | Equity securities | 5 | | | 4 | | |
Equity securities | |
Equity securities | |
Preferred securities | |
Preferred securities | |
Preferred securities | Preferred securities | 10 | | | 11 | | |
Mortgage loans | Mortgage loans | 51 | | | 39 | | |
Mortgage loans | |
Mortgage loans | |
Invested cash and short-term investments | |
Invested cash and short-term investments | |
Invested cash and short-term investments | Invested cash and short-term investments | 16 | | | 4 | | |
Limited partnerships | Limited partnerships | 57 | | | 113 | | |
Limited partnerships | |
Limited partnerships | |
Other investments | |
Other investments | |
Other investments | Other investments | 9 | | | 6 | | |
Gross investment income | Gross investment income | 580 | | | 496 | | |
Gross investment income | |
Gross investment income | |
Investment expense | |
Investment expense | |
Investment expense | Investment expense | (61) | | | (45) | | |
Interest and investment income | Interest and investment income | $ | 519 | | | $ | 451 | | |
Interest and investment income | |
Interest and investment income | |
Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $(58)$127 million and $(18)$58 million for the three months ended March 31, 20232024 and March 31, 2022,2023, respectively.
Recognized gains and (losses),losses, net
Below is a summary of the major components included in recognized gains and losses, net for the three months ended March 31, 20232024 and March 31, 2022:2023:
| | Three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| (In millions) | |
Net realized and unrealized losses on fixed maturity available-for-sale securities, equity securities and other invested assets | $ | (48) | | | $ | (107) | | |
| Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Net realized and unrealized (losses) gains on fixed maturity available-for-sale securities, equity securities and other invested assets | |
Change in allowance for expected credit losses | Change in allowance for expected credit losses | (8) | | | (1) | | |
Net realized and unrealized gains (losses) on certain derivatives instruments | 58 | | | (308) | | |
Change in allowance for expected credit losses | |
Change in allowance for expected credit losses | |
Net realized and unrealized (losses) gains on certain derivatives instruments | |
Net realized and unrealized (losses) gains on certain derivatives instruments | |
Net realized and unrealized (losses) gains on certain derivatives instruments | |
Change in fair value of reinsurance related embedded derivatives | |
Change in fair value of reinsurance related embedded derivatives | |
Change in fair value of reinsurance related embedded derivatives | Change in fair value of reinsurance related embedded derivatives | (19) | | | 122 | | |
Change in fair value of other derivatives and embedded derivatives | Change in fair value of other derivatives and embedded derivatives | 2 | | | (3) | | |
Change in fair value of other derivatives and embedded derivatives | |
Change in fair value of other derivatives and embedded derivatives | |
Recognized gains and losses, net | Recognized gains and losses, net | $ | (15) | | | $ | (297) | | |
Recognized gains and losses, net | |
Recognized gains and losses, net | |
Recognized gains and losses, net is shown net of amounts attributable to certain funds withheld reinsurance agreements, which is passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and losses net attributable to these agreements, and thus excluded from the totals in the table above, was $(22)$19 million and $128$22 million for the three months ended March 31, 20232024 and March 31, 2022,2023, respectively.
•For the three months ended March 31, 2024, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of unrealized fair value option (“FVO”) gains on owned distribution investments and preferred securities, partially offset by realized losses on fixed maturity available-for-sale securities and mark-to-market losses on our equity securities.
•For the three months ended March 31, 2023, net realized and unrealized gains (losses) on fixed maturity AFS securities, equity securities and other invested assets is primarily the result of realized losses on fixed maturity AFS securities and mark-to-market losses on our equity securities.
•For the three months ended March 31, 2022, net realized and unrealized gains (losses) on fixed maturity AFSavailable-for-sale securities, equity securities and other invested assets is primarily the result of mark-to-market losses on our equity securities and realized losses on fixed maturity AFSavailable-for-sale securities.
•For all periods, net realized and unrealized gains (losses) on certain derivative instruments primarily relate to the net realized and unrealized gains (losses) on options and futures used to hedge FIAindexed annuity and IUL products, including gains on option and futures expiration.expiration and changes in the fair value of interest rate swaps. See the table below for primary drivers of gains (losses) on certain derivatives.
•The fair value of reinsurance related embedded derivative is based on the change in fair value of the underlying assets held in the funds withheld (“FWH”) portfolio.
We utilize a combination of static (call options) and dynamic (long futures contracts) instruments in our product hedging strategy. A substantial portion of the call options and futures contracts are based upon the S&P 500 Index with the remainder based upon other equity, bond and gold market indices.
We utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments.
The components of the realized and unrealized gains (losses) on certain derivative instruments hedging our indexed annuity, and universal life products and floating rate investments are summarized in the table below for the three months ended March 31, 20232024 and March 31, 2022:2023:
| | Three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| (In millions) | |
| Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Call options: | Call options: | | |
Realized (losses) gains | $ | (91) | | | $ | 45 | | |
Change in unrealized gains (losses) | 146 | | | (359) | | |
Realized gains (losses) | |
Realized gains (losses) | |
Realized gains (losses) | |
Change in unrealized gains | |
Change in unrealized gains | |
Change in unrealized gains | |
Futures contracts: | |
Futures contracts: | |
Futures contracts: | Futures contracts: | | |
Gains on futures contracts expiration | Gains on futures contracts expiration | 3 | | | 2 | | |
Change in unrealized gains | 1 | | | 1 | | |
Gains on futures contracts expiration | |
Gains on futures contracts expiration | |
Change in unrealized (losses) gains | |
Change in unrealized (losses) gains | |
Change in unrealized (losses) gains | |
Interest rate swap (losses) gains | |
Interest rate swap (losses) gains | |
Interest rate swap (losses) gains | |
Foreign currency forward: | Foreign currency forward: | | |
(Losses) gains on foreign currency forward | (1) | | | 3 | | |
Foreign currency forward: | |
Foreign currency forward: | |
Gains (losses) on foreign currency forward | |
Gains (losses) on foreign currency forward | |
Gains (losses) on foreign currency forward | |
Total net change in fair value | |
Total net change in fair value | |
Total net change in fair value | Total net change in fair value | $ | 58 | | | $ | (308) | | |
| Annual Point-to-Point Change in S&P 500 Index during the periods | Annual Point-to-Point Change in S&P 500 Index during the periods | (9) | % | | 14 | % | |
| Annual Point-to-Point Change in S&P 500 Index during the periods | |
| Annual Point-to-Point Change in S&P 500 Index during the periods | |
Secured Overnight Financing Rates | |
Secured Overnight Financing Rates | |
Secured Overnight Financing Rates | |
|
•Realized gains and losses(losses) on certain derivative instruments are directly correlated to the performance 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. Gains (losses) on option expiration reflect the movement during each period on options settled during the respective period.
•The changechanges in unrealized gains (losses) due to the net changes in fair value of call options isand futures contracts are primarily driven by the underlying performance of the S&P 500 Index during each respective period relative to the S&P 500 Index on the policyholder buy dates.
•The net change in fair value of the call options and futures contractsinterest rate swaps was primarily driven by movementsfluctuations in the S&P 500 Index relative tointerest rate index underlying the policyholder buy dates.swap contracts.
The average index credits to policyholders are as follows:
| | Three months ended | |
| March 31, 2023 | | March 31, 2022 | |
| Three months ended | |
| Three months ended | |
| Three months ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
Average Crediting Rate | |
Average Crediting Rate | |
Average Crediting Rate | Average Crediting Rate | — | % | | 3 | % | |
S&P 500 Index: | S&P 500 Index: | | |
S&P 500 Index: | |
S&P 500 Index: | |
Point-to-point strategy | |
Point-to-point strategy | |
Point-to-point strategy | Point-to-point strategy | — | % | | 3 | % | |
Monthly average strategy | Monthly average strategy | — | % | | 3 | % | |
Monthly average strategy | |
Monthly average strategy | |
Monthly point-to-point strategy | |
Monthly point-to-point strategy | |
Monthly point-to-point strategy | Monthly point-to-point strategy | — | % | | 2 | % | |
3 year high water mark | 3 year high water mark | 13 | % | | 15 | % | |
3 year high water mark | |
3 year high water mark | |
•Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the FIAindexed annuity contracts and certain IUL contracts (caps, spreads and participation rates), which allow F&G to manage the cost of the options purchased to fund the annual index credits.
•The credits for the periods presented were based on comparing the S&P 500 Index on each issue date in the period to the same issue date in the respective prior year periods.
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:
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
| (In millions) | | | | |
PRT agreements | $ | 266 | | | $ | 532 | | | | | |
FIA/IUL market related liability movements | 369 | | | (559) | | | | | |
Index credits, interest credited & bonuses | 134 | | | 206 | | | | | |
Annuity payments and other | 43 | | | 24 | | | | | |
Total benefits and other changes in policy reserves | $ | 812 | | | $ | 203 | | | | | |
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
| (In millions) |
PRT agreements | $ | 598 | | | $ | 266 | | | | | |
Indexed annuities/IUL market related liability movements | 225 | | | 369 | | | | | |
Index credits, interest credited and bonuses | 327 | | | 134 | | | | | |
Other changes in policy reserves | 11 | | | 43 | | | | | |
Total benefits and other changes in policy reserves | $ | 1,161 | | | $ | 812 | | | | | |
•PRT agreements decreasedincreased for the three months ended March 31, 20232024 compared to the three months ended March 31, 20222023, reflecting lower PRT transactions during the periods and are subject to fluctuation period to period.higher pension risk transfer group annuity obligations.
•The FIA/indexed annuities/IUL market related liability movements during the three months ended March 31, 20232024 and March 31, 2022,2023, respectively, are mainly driven by changes in the equity markets, non-performance spreads, and risk free rates during the periods. The change in risk free rates and non-performance spreads (decreased) increased the FIAindexed annuities market related liability by $65$(84) million and $306$65 million during the three months ended March 31, 20232024 and March 31, 2022,2023, respectively. The remaining changes in market value of the market related liability movements for all periods was driven by equity market impacts. See table in the net investment gains/losses discussion“Revenues — Recognized gains and (losses), net” above for summary and discussion of net unrealized gains (losses) on certain derivative instruments.
•Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. During the first quarter ofthree months ended March 31, 2024 and March 31, 2023, based on increases in interest rates and pricing changes, we updated certain FIAindexed annuity assumptions used to calculate the fair value of the embedded derivative component within contractholder funds. These changes resulted in an increaseincreases in contractholder funds of $57 million and $102 million.million, respectively.
•Index credits, interest credited &and bonuses for the three months ended March 31, 20232024, were lowerhigher compared to the three months ended March 31, 2022 and2023, primarily reflected lowerreflecting higher index credits and interest credited on FIAindexed annuities and other policies as a result of market movement during the respective periods. Refer to average policyholder index discussion above for details on drivers.periods and higher interest credited associated with the growth in PRT agreements.
Market Risk Benefit Losses(Gains) losses
Below is a summary of market risk benefit losses:gains:
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
| (In millions) | | | | |
Market risk benefits (gains) losses | $ | 59 | | | $ | 70 | | | | | |
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
| (In millions) |
Market risk benefits (gains) losses | $ | (11) | | | $ | 59 | | | | | |
•Market risk benefitbenefits (gains) losses areis primarily driven by attributed fees collected, effects of market related movements (including changes in equity markets and risk freerisk-free rates), actual policyholder behavior as compared with expected and changes in assumptions during the periods. Market
•Changes in market risk benefit (gains) losses for the three months ended March 31, 2023 and March 31, 2022 were impacted by attributed fees collected and unfavorable market related movements in both periods. In addition, actual policyholder behavior for2024, compared to the three months ended March 31, 2023, was more in line with expected, as compared to March 31, 2022, resulting in a decrease to theprimarily reflect favorable market risk benefit losses. There were no significant changes in assumptions during either period.related movements.
Depreciation and Amortization
Below is a summary of the major components included in depreciation and amortization:
|
|
| Three months ended | |
| | March 31, 2023 | | March 31, 2022 | |
| | (In millions) | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
Amortization of VOBA, DAC and DSI | Amortization of VOBA, DAC and DSI | $ | 82 | | | $ | 69 | | |
| Amortization of other intangible assets and other depreciation | 8 | | | 7 | | |
Amortization of other intangible assets and fixed asset depreciation | |
| Amortization of other intangible assets and fixed asset depreciation | |
| Amortization of other intangible assets and fixed asset depreciation | |
Total depreciation and amortization | Total depreciation and amortization | $ | 90 | | | $ | 76 | | |
Total depreciation and amortization | |
Total depreciation and amortization | |
•DAC, VOBA DAC and DSI are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization.
•Depreciation and amortization increased for the three months ended March 31, 20232024 compared to the three months ended March 31, 2022 and2023, primarily reflectedreflecting increased DAC and DSI associated with the growth of the business, as well as a slightly increased amortization rate on some DAC and DSI balances due to updates to the surrender and mortality assumptions for the indexed annuity and fixed-rate annuity blocks that occurred in business.the third quarter of 2023.
•The three months ended March 31, 2024 also includes amortization of other intangible assets from F&G's majority owned interest in Roar.
Personnel Costs and Other Operating Expenses
Below is a summary of personnel costs and other operating expenses: | | | Three months ended | |
| | Three months ended | |
| | Three months ended | |
| | March 31, 2024 | |
| | March 31, 2024 | |
| | March 31, 2024 | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
Personnel costs | |
Other operating expenses | |
Other operating expenses | |
Other operating expenses | |
Total personnel costs and other operating expenses | |
Total personnel costs and other operating expenses | |
Total personnel costs and other operating expenses | |
| | | | Three months ended |
| | March 31, 2023 | | March 31, 2022 |
| | (In millions) |
Personnel costs | | 53 | | | 30 | |
Other operating expenses | | 36 | | | 18 | |
Total personnel costs and other operating costs | | $ | 89 | | | $ | 48 | |
•Personnel costs and other operating expenses for the three months ended March 31, 20232024 were higher compared to the three months ended March 31, 2022,2023, reflecting costs in line with the growth in sales and primarily reflect headcount growth to support higher volumes and strategic growth capabilities.assets along with continued investments in our operating platform. In addition, the three months ended March 31, 2024 includes $11 million from our majority owned interest in Roar.
Other Items Affecting Net Earnings (Loss)
Income Tax (Benefit) Expense
Below is a summary of the major components included in income tax (benefit) expense:
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2023 | | March 31, 2022 | | | | |
| (Dollars in millions) | | | | |
(Loss) income before taxes | $ | (203) | | | $ | 345 | | | | | |
| | | | | | | |
Income tax (benefit) expense before valuation allowance | (45) | | | 68 | | | | | |
Change in valuation allowance | 37 | | | 38 | | | | | |
Federal income tax (benefit) expense | $ | (8) | | | $ | 106 | | | | | |
Effective rate | 4 | % | | 31 | % | | | | |
| | | | | | | | | | | | | | | |
| Three months ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
| (Dollars in millions) |
Earnings (loss) before taxes | $ | 142 | | | $ | (203) | | | | | |
| | | | | | | |
Income tax expense (benefit) before valuation allowance | 25 | | | (45) | | | | | |
Change in valuation allowance | 1 | | | 37 | | | | | |
Income tax expense (benefit) | $ | 26 | | | $ | (8) | | | | | |
Effective rate | 18 | % | | 4 | % | | | | |
•Income tax benefitexpense for the three months ended March 31, 20232024 was $8$26 million, compared to income tax expensebenefit of $106$(8) million for the three months ended March 31, 2022.2023. The effective tax rate was 4%18% and 31%4% for the three months ended March 31, 20232024 and 2022,March 31, 2023 respectively. The decreaseincrease in income tax expense quarter over quarter is primarily related to the decreaseincrease in pre-tax income.income, partially offset by the valuation allowance expense for the three months ended March 31, 2024.
Investment Portfolio
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 investment income; (iii) preserve capital and (iv) provide liquidity to meet policyholder and other corporate obligations.
Our investment portfolio is designed to contribute stable earnings, excluding short term mark to market effects, and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities.
As of March 31, 20232024 and December 31, 2022,2023, the fair value of our investment portfolio was approximately $44$53 billion and $41$52 billion, respectively, and was divided among the following asset classes and sectors:
| | March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| Fair Value | | | Fair Value | | Percent | | Fair Value | | Percent |
| | March 31, 2023 | | December 31, 2022 | |
| Fair Value | | Percent | | Fair Value | | Percent | |
| Fixed maturity securities, available for sale: | |
Fixed maturity securities, available for sale: | |
Fixed maturity securities, available for sale: | Fixed maturity securities, available for sale: | (Dollars in millions) | | (Dollars in millions) |
United States Government full faith and credit | United States Government full faith and credit | $ | 71 | | | — | % | | $ | 32 | | | — | % | | United States Government full faith and credit | $ | 276 | | | — | | — | % | | $ | 261 | | | 1 | | 1 | % |
United States Government sponsored entities | United States Government sponsored entities | 40 | | | — | % | | 42 | | | — | % | | United States Government sponsored entities | 33 | | | — | | — | % | | 31 | | | — | | — | % |
United States municipalities, states and territories | United States municipalities, states and territories | 1,581 | | | 3 | % | | 1,410 | | | 3 | % | | United States municipalities, states and territories | 1,504 | | | 3 | | 3 | % | | 1,567 | | | 3 | | 3 | % |
Foreign Governments | Foreign Governments | 172 | | | — | % | | 148 | | | — | % | | Foreign Governments | 224 | | | — | | — | % | | 226 | | | — | | — | % |
Corporate securities: | Corporate securities: | | |
Finance, insurance and real estate | |
Finance, insurance and real estate | |
Finance, insurance and real estate | Finance, insurance and real estate | 5,960 | | | 14 | % | | 5,085 | | | 12 | % | | 7,571 | | | 14 | | 14 | % | | 6,895 | | | 13 | | 13 | % |
Manufacturing, construction and mining | Manufacturing, construction and mining | 931 | | | 2 | % | | 737 | | | 2 | % | | Manufacturing, construction and mining | 1,119 | | | 2 | | 2 | % | | 947 | | | 2 | | 2 | % |
Utilities, energy and related sectors | Utilities, energy and related sectors | 2,185 | | | 5 | % | | 2,275 | | | 6 | % | | Utilities, energy and related sectors | 2,456 | | | 5 | | 5 | % | | 2,374 | | | 5 | | 5 | % |
Wholesale/retail trade | Wholesale/retail trade | 2,064 | | | 5 | % | | 2,008 | | | 5 | % | | Wholesale/retail trade | 2,512 | | | 5 | | 5 | % | | 2,433 | | | 5 | | 5 | % |
Services, media and other | Services, media and other | 3,251 | | | 7 | % | | 2,794 | | | 7 | % | | Services, media and other | 4,011 | | | 8 | | 8 | % | | 3,930 | | | 8 | | 8 | % |
Hybrid securities | Hybrid securities | 754 | | | 2 | % | | 705 | | | 2 | % | | Hybrid securities | 633 | | | 1 | | 1 | % | | 618 | | | 1 | | 1 | % |
Non-agency residential mortgage-backed securities | Non-agency residential mortgage-backed securities | 1,624 | | | 4 | % | | 1,479 | | | 4 | % | | Non-agency residential mortgage-backed securities | 2,426 | | | 5 | | 5 | % | | 2,393 | | | 5 | | 5 | % |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 3,672 | | | 8 | % | | 3,036 | | | 7 | % | | Commercial mortgage-backed securities | 4,758 | | | 9 | | 9 | % | | 4,410 | | | 9 | | 9 | % |
Asset-backed securities | Asset-backed securities | 7,631 | | | 17 | % | | 7,245 | | | 18 | % | | Asset-backed securities | 9,491 | | | 18 | | 18 | % | | 8,929 | | | 17 | | 17 | % |
Collateral loan obligations ("CLO") | Collateral loan obligations ("CLO") | 4,261 | | | 10 | % | | 4,222 | | | 10 | % | | Collateral loan obligations ("CLO") | 5,617 | | | 10 | | 10 | % | | 5,405 | | | 10 | | 10 | % |
Total fixed maturity available for sale securities | Total fixed maturity available for sale securities | 34,197 | | | 77 | % | | 31,218 | | | 76 | % | | Total fixed maturity available for sale securities | 42,631 | | | 80 | | 80 | % | | 40,419 | | | 79 | | 79 | % |
Equity securities (a) | Equity securities (a) | 797 | | | 2 | % | | 823 | | | 2 | % | | Equity securities (a) | 519 | | | 1 | | 1 | % | | 606 | | | 1 | | 1 | % |
Limited partnerships: | Limited partnerships: | | |
Private equity | Private equity | 1,161 | | | 3 | % | | 1,129 | | | 3 | % | |
Private equity | |
Private equity | | 1,389 | | | 3 | % | | 1,277 | | | 2 | % |
Real assets | Real assets | 433 | | | 1 | % | | 431 | | | 1 | % | | Real assets | 473 | | | 1 | | 1 | % | | 463 | | | 1 | | 1 | % |
Credit | Credit | 964 | | | 2 | % | | 867 | | | 2 | % | | Credit | 1,156 | | | 2 | | 2 | % | | 1,039 | | | 2 | | 2 | % |
Limited Partnerships | | Limited Partnerships | $ | 3,018 | | | 6 | % | | $ | 2,779 | | | 5 | % |
Commercial mortgage loans | Commercial mortgage loans | 2,178 | | | 5 | % | | 2,083 | | | 5 | % | | Commercial mortgage loans | 2,229 | | | 4 | | 4 | % | | 2,253 | | | 4 | | 4 | % |
Residential mortgage loans | Residential mortgage loans | 2,323 | | | 5 | % | | 1,892 | | | 5 | % | | Residential mortgage loans | 2,590 | | | 5 | | 5 | % | | 2,545 | | | 5 | | 5 | % |
Other (primarily derivatives and company owned life insurance) | 1,108 | | | 3 | % | | 809 | | | 2 | % | |
Other (primarily derivatives, company owned life insurance and unconsolidated owned distribution investments) | | Other (primarily derivatives, company owned life insurance and unconsolidated owned distribution investments) | 2,008 | | | 4 | % | | 1,697 | | | 3 | % |
Short term investments | Short term investments | 776 | | | 2 | % | | 1,556 | | | 4 | % | | Short term investments | 263 | | | — | | — | % | | 1,452 | | | 3 | | 3 | % |
Total investments | Total investments | $ | 43,937 | | | 100 | % | | $ | 40,808 | | | 100 | % | | Total investments | $ | 53,258 | | | 100 | | 100 | % | | $ | 51,751 | | | 100 | | 100 | % |
(a) Includes investment grade non-redeemable preferred stocks ($650 million and $672 million as of March 31, 2023 and December 31, 2022, respectively). | |
(a) Includes investment grade non-redeemable preferred stocks ($333 million and $428 million as of March 31, 2024 and December 31, 2023, respectively). | | (a) Includes investment grade non-redeemable preferred stocks ($333 million and $428 million as of March 31, 2024 and December 31, 2023, respectively). |
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) corporateprimarily high-grade fixed-income assets across a wide range of sectors, including 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)and Structured securities, of comparable investment quality, if not rated.among others.
The NAIC’s Securities Valuation Office (“SVO”("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 securities are eligible for regulatory filings. The SVO conducts credit analysis on these securities for the purpose of
assigning an NAIC designation or 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 NAIC published comparison of NRSRO ratings to NAIC designations.
The NAIC determines ratings for non-agency Residential Mortgage Backed Securities (“RMBS”) and CMBS using modeling that estimates security level expected losses under a variety of economic scenarios. For such assets issued prior to January 1, 2013, an insurer’s amortized cost basis in applicable assets can impact the assigned rating. In the tables below, we present the rating of structured securities based on ratings from the 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 NAIC methodologies.
The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our fixed income portfolio at March 31, 20232024 and December 31, 2022:2023:
| | March 31, 2023 | | December 31, 2022 | |
| | | March 31, 2024 | |
| | | March 31, 2024 | |
| | | March 31, 2024 | |
NRSRO Rating | NRSRO Rating | NAIC Designation | Amortized Cost | | Fair Value | | Fair Value Percent | | Amortized Cost | | Fair Value | | Fair Value Percent | |
| (Dollars in millions) | |
NRSRO Rating | |
NRSRO Rating | |
| | | (Dollars in millions) | |
| | | (Dollars in millions) | |
| | | (Dollars in millions) | |
AAA/AA/A | |
AAA/AA/A | |
AAA/AA/A | AAA/AA/A | 1 | $ | 23,436 | | | $ | 21,164 | | | 62 | % | | $ | 21,294 | | | $ | 18,681 | | | 60 | % | |
BBB | BBB | 2 | 12,713 | | | 11,204 | | | 33 | % | | 12,422 | | | 10,737 | | | 34 | % | |
BBB | |
BBB | |
BB | |
BB | |
BB | BB | 3 | 1,647 | | | 1,477 | | | 4 | % | | 1,588 | | | 1,425 | | | 5 | % | |
B | B | 4 | 226 | | | 184 | | | 1 | % | | 259 | | | 236 | | | 1 | % | |
B | |
B | |
CCC | CCC | 5 | 114 | | | 88 | | | — | % | | 87 | | | 67 | | | — | % | |
In or near default | 6 | 90 | | | 80 | | | — | % | | 73 | | | 72 | | | — | % | |
CCC | |
CCC | |
CC and lower | |
CC and lower | |
CC and lower | |
Total | |
Total | |
Total | Total | | $ | 38,226 | | | $ | 34,197 | | | 100 | % | | $ | 35,723 | | | $ | 31,218 | | | 100 | % | |
|
Investment Industry ConcentrationConcentrations
The tables below present the top ten structured security and industry categories of our fixed maturity and equity securities including the fair value and percent of total fixed maturity and equity securities fair value as of March 31, 20232024 and December 31, 2022. Effective January 1, 2023, we updated our industry classifications as a result of a change in our investment accounting software and related service providers. Our investment strategy has remained consistent and our portfolio mix has not materially changed. The December 31, 2022 table was updated to reflect a consistent presentation with the March 31, 2023 classifications:2023.
| | | | | | | | | | | | | | | | |
| | March 31, 2023 | | |
Top 10 Industry Concentration | | Fair Value (In millions) | | Percent of Total Fair Value | | |
ABS Other | | $ | 7,631 | | | 22 | % | | |
CLO securities | | 4,261 | | | 12 | % | | |
Commercial mortgage backed securities | | 3,672 | | | 11 | % | | |
Diversified financial services | | 2,919 | | | 8 | % | | |
Banks | | 2,224 | | | 6 | % | | |
Municipal | | 1,598 | | | 5 | % | | |
Insurance | | 1,567 | | | 4 | % | | |
Whole loan collateralized mortgage obligations ("CMO") | | 1,375 | | | 4 | % | | |
Electric | | 1,058 | | | 3 | % | | |
Telecommunications | | 600 | | | 2 | % | | |
Total | | $ | 26,905 | | | 77 | % | | |
| | | | | | |
| | December 31, 2022 | | |
Top 10 Industry Concentration | | Fair Value (In millions) | | Percent of Total Fair Value | | |
ABS Other | | $ | 7,359 | | | 23 | % | | |
CLO securities | | 3,856 | | | 12 | % | | |
Commercial mortgage-backed securities | | 3,399 | | | 11 | % | | |
Diversified financial services | | 2,620 | | | 8 | % | | |
Banks | | 1,850 | | | 6 | % | | |
Insurance | | 1,545 | | | 5 | % | | |
Municipal | | 1,428 | | | 4 | % | | |
Whole loan collateralized mortgage obligations | | 1,278 | | | 4 | % | | |
Electric | | 1,014 | | | 3 | % | | |
Telecommunications | | 547 | | | 2 | % | | |
Total | | $ | 24,896 | | | 78 | % | | |
| | | | | | |
| | | | | | | | | | | | | | | | |
| | March 31, 2024 | | |
Top 10 Concentrations | | Fair Value (In millions) | | Percent of Total Fair Value | | |
ABS other | | $ | 9,491 | | | 22 | % | | |
CLO securities | | 5,617 | | | 13 | % | | |
Commercial mortgage backed securities | | 4,758 | | | 11 | % | | |
Diversified financial services | | 3,657 | | | 8 | % | | |
Banking | | 2,158 | | | 5 | % | | |
Whole loan collateralized mortgage obligation | | 2,078 | | | 5 | % | | |
Insurance | | 1,616 | | | 4 | % | | |
Municipal | | 1,504 | | | 3 | % | | |
Electric | | 1,146 | | | 3 | % | | |
Telecommunications | | 700 | | | 2 | % | | |
Total | | $ | 32,725 | | | 76 | % | | |
| | | | | | |
| | December 31, 2023 | | |
Top 10 Concentrations | | Fair Value (In millions) | | Percent of Total Fair Value | | |
ABS other | | $ | 8,929 | | | 22 | % | | |
CLO securities | | 5,405 | | | 13 | % | | |
Commercial mortgage-backed securities | | 4,410 | | | 11 | % | | |
Diversified financial services | | 3,272 | | | 8 | % | | |
Banking | | 2,048 | | | 5 | % | | |
Whole loan collateralized mortgage obligation | | 2,043 | | | 5 | % | | |
Municipal | | 1,600 | | | 4 | % | | |
Insurance | | 1,567 | | | 4 | % | | |
Electric | | 1,086 | | | 3 | % | | |
Telecommunications | | 696 | | | 2 | % | | |
Total | | $ | 31,056 | | | 77 | % | | |
| | | | | | |
The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of March 31, 20232024 and December 31, 2022,2023, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
| | March 31, 2023 | | December 31, 2022 | |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | |
Corporate, Non-structured Hybrids, Municipal and Government securities: | (In millions) | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| Amortized Cost | |
| Amortized Cost | |
| Amortized Cost | |
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities: | |
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities: | |
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities: | |
Due in one year or less | |
Due in one year or less | |
Due in one year or less | Due in one year or less | $ | 170 | | | $ | 166 | | | $ | 124 | | | $ | 123 | | |
Due after one year through five years | Due after one year through five years | 2,853 | | | 2,724 | | | 2,193 | | | 2,059 | | |
Due after one year through five years | |
Due after one year through five years | |
Due after five years through ten years | |
Due after five years through ten years | |
Due after five years through ten years | Due after five years through ten years | 1,922 | | | 1,750 | | | 1,840 | | | 1,633 | | |
Due after ten years | Due after ten years | 14,893 | | | 12,329 | | | 14,417 | | | 11,379 | | |
Due after ten years | |
Due after ten years | |
Subtotal | |
Subtotal | |
Subtotal | Subtotal | $ | 19,838 | | | $ | 16,969 | | | $ | 18,574 | | | $ | 15,194 | | |
Other securities, which provide for periodic payments: | Other securities, which provide for periodic payments: | | |
Other securities, which provide for periodic payments: | |
Other securities, which provide for periodic payments: | |
Asset-backed securities | |
Asset-backed securities | |
Asset-backed securities | Asset-backed securities | $ | 12,620 | | | $ | 11,892 | | | $ | 12,209 | | | $ | 11,467 | | |
| Commercial-mortgage-backed securities | Commercial-mortgage-backed securities | 4,004 | | | 3,672 | | | 3,309 | | | 3,036 | | |
Structured hybrids | — | | | — | | | — | | | — | | |
| Commercial-mortgage-backed securities | |
| Commercial-mortgage-backed securities | |
| Residential mortgage-backed securities | |
| Residential mortgage-backed securities | |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 1,764 | | | 1,664 | | | 1,631 | | | 1,521 | | |
Subtotal | Subtotal | $ | 18,388 | | | $ | 17,228 | | | $ | 17,149 | | | $ | 16,024 | | |
Subtotal | |
Subtotal | |
Total fixed maturity available-for-sale securities | Total fixed maturity available-for-sale securities | $ | 38,226 | | | $ | 34,197 | | | $ | 35,723 | | | $ | 31,218 | | |
Total fixed maturity available-for-sale securities | |
Total fixed maturity available-for-sale securities | |
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 securities and Alt-A RMBS securities was $38were $33 million and $52$47 million as of March 31, 2023,2024, respectively, and $40$33 million and $54$49 million as of December 31, 2022,2023, respectively. As of both March 31, 20232024 and December 31, 20222023, approximately 94% and 91%, respectively,95% of the subprime and Alt-A RMBS exposures were rated NAIC 2 or higher.
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 March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | |
NAIC Designation: | Fair Value (In millions) | | Percent of Total | | Fair Value (In millions) | | Percent of Total | | | | |
1 | $ | 82 | | | 91 | % | | $ | 83 | | | 88 | % | | | | |
2 | 3 | | | 3 | % | | 3 | | | 3 | % | | | | |
3 | 4 | | | 5 | % | | 7 | | | 8 | % | | | | |
4 | 1 | | | 1 | % | | 1 | | | 1 | % | | | | |
5 | — | | | — | % | | — | | | — | % | | | | |
6 | — | | | — | % | | — | | | — | % | | | | |
Total | $ | 90 | | | 100 | % | | $ | 94 | | | 100 | % | | | | |
| | | | | | | | | | | |
NRSRO: | | | | | | | | | | | |
AAA | $ | — | | | — | % | | $ | — | | | — | % | | | | |
AA | 12 | | | 13 | % | | 12 | | | 13 | % | | | | |
A | 4 | | | 4 | % | | 4 | | | 4 | % | | | | |
BBB | 7 | | | 8 | % | | 8 | | | 9 | % | | | | |
Not rated - above investment grade (a) | 18 | | | 20 | % | | 20 | | | 21 | % | | | | |
BB and below | 49 | | | 55 | % | | 50 | | | 53 | % | | | | |
Total | $ | 90 | | | 100 | % | | $ | 94 | | | 100 | % | | | | |
| | | | | | | | | | | |
Vintage: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
2005 and prior | $ | 43 | | | 48 | % | | $ | 46 | | | 24 | % | | | | |
Total | 90 | | | 100 | % | | 94 | | | 27 | % | | | | |
| | | | | | | | | | | |
(a) Securities denoted as not-rated by an NRSRO were classified as investment or non-investment grade according to the securities' respective NAIC designation.
ABS and CLO Exposures
Our ABS exposures are largely diversified by underlying collateral and issuer type. Our CLO exposures are generally senior tranches of CLOs, which have leveraged loans as their underlying collateral.
As of March 31, 2024, the CLO and ABS positions were trading at a net unrealized gain of $113 million and a net unrealized loss of $242 million, respectively. As of December 31, 2023, the CLO and ABS positions were trading at a net unrealized lossgain position of $190$65 million and $529 million, respectively. As of December 31, 2022, the CLO and ABS positions were trading at a net unrealized loss position of $236 million and $499$344 million, respectively.
The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS ABS portfolio (dollars in millions) at March 31, 2024 and December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Fair Value | | Percent | | Fair Value | | Percent |
NRSRO Rating | NAIC Designation | | | | | | | |
AAA/AA/A | 1 | $ | 7,444 | | | 78% | | $ | 7,023 | | | 79% |
BBB | 2 | 1,495 | | 16% | | 1,375 | | 15% |
BB | 3 | 441 | | 5% | | 418 | | 5% |
B | 4 | 61 | | 1% | | 59 | | 1% |
CCC | 5 | 8 | | —% | | 13 | | —% |
CC and lower | 6 | 42 | | —% | | 41 | | —% |
Total | | $ | 9,491 | | | 100% | | $ | 8,929 | | | 100% |
The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS CLO portfolio (dollars in millions) at March 31, 2024 and December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Fair Value | | Percent | | Fair Value | | Percent |
NRSRO Rating | NAIC Designation | | | | | | | |
AAA/AA/A | 1 | $ | 3,433 | | | 61% | | $ | 3,288 | | | 61% |
BBB | 2 | 1,649 | | 29% | | 1,582 | | 29% |
BB | 3 | 476 | | 9% | | 480 | | 9% |
B | 4 | 18 | | —% | | 17 | | —% |
CCC | 5 | — | | —% | | 0 | | —% |
CC and lower | 6 | 41 | | 1% | | 38 | | 1% |
Total | | $ | 5,617 | | | 100% | | $ | 5,405 | | | 100% |
Municipal Bond Exposure
Our municipal bond exposure is a combination of general obligation bonds (fair value of $212$227 million and $188$231 million and an amortized cost of $246$265 million and $231$268 million as of March 31, 20232024 and December 31, 2022,2023, respectively) and special revenue bonds (fair value of $1,196$1,275 million and $1,017$1,334 million and an amortized cost of $1,375$1,457 million and $1,248$1,506 million as of March 31, 20232024 and December 31, 2022,2023, respectively).
Across all municipal bonds, the largest issuer represented 5% and 6% of the category as offor both March 31, 20232024 and December 31, 2022, respectively, less than 1% of the entire portfolio2023, and is rated NAIC 1. Our focus within municipal bonds is on NAIC 1 rated instruments, and 97%98% of our municipal bond exposure is rated NAIC 1 as offor both March 31, 2024 and December 31, 2023.
Mortgage Loans
Commercial Mortgage Loans
We diversify our commercial mortgage loans ("CMLs") portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on relevant current information to ensure properties are performing at a level to secure the related debt. LTV and DSC ratios are utilized to assess the risk and quality of CMLs. As ofFor both March 31, 20232024 and December 31, 2022,2023, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times, and 2.4 times, respectively, and a weighted average LTV ratio of 55% and 57%, respectively. See Note D Investments to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on our CMLs, including our distribution by property type, geographic region and LTV and DSC ratios..
We consider a CML delinquent when a loan payment is greater than 30 days past due. For 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. AtAs of March 31, 2024 and December 31, 2023, we had one CMLno CMLs that waswere delinquent in principal or interest payments and none in the process of foreclosure. As of December 31, 2022, we had noSee Note D - Investments to the Condensed Financial Statements included in this report for additional information on our CMLs, that were delinquent in principal or interest payments or in process of foreclosure.including our distribution by property type, geographic region, LTV and DSC ratios.
Residential Mortgage Loans
F&G's RMLs are closed end, amortizing loans, and 100% of the properties are in the United States. F&G diversifies its RML portfolio by state to attempt to reduce concentration risk. RMLs have a primary credit quality indicator of either a performing or nonperforming loan. F&G defines non-performing RMLs as those that are 90 or more days past due and/or in nonaccrual status.
Loans are placed on nonaccrual status when they are over 90 days delinquent. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current can be put in place. See Note D Investments to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on our RMLs.
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 March 31, 20232024 and December 31, 2022,2023, were as follows:
| | March 31, 2023 |
| Number of securities | | Amortized Cost | | Allowance for Expected Credit Losses | | Unrealized Losses | | Fair Value |
| March 31, 2024 | | | March 31, 2024 |
| Number of Securities | | | Number of Securities | | Amortized Cost | | Allowance for Expected Credit Losses | | Unrealized Losses | | Fair Value |
Fixed maturity securities, available for sale: | Fixed maturity securities, available for sale: | (In millions) | Fixed maturity securities, available for sale: | (In millions) |
United States Government full faith and credit | United States Government full faith and credit | 4 | | | $ | 27 | | | $ | — | | | $ | (1) | | | $ | 26 | |
United States Government sponsored agencies | United States Government sponsored agencies | 57 | | | 36 | | | — | | | (3) | | | 33 | |
United States municipalities, states and territories | United States municipalities, states and territories | 192 | | | 1,576 | | | — | | | (229) | | | 1,347 | |
Foreign Governments | Foreign Governments | 64 | | | 200 | | | — | | | (40) | | | 160 | |
Corporate securities: | Corporate securities: | |
Finance, insurance and real estate | |
Finance, insurance and real estate | |
Finance, insurance and real estate | Finance, insurance and real estate | 714 | | | 6,058 | | | — | | | (788) | | | 5,270 | |
Manufacturing, construction and mining | Manufacturing, construction and mining | 136 | | | 1,038 | | | — | | | (164) | | | 874 | |
Utilities, energy and related sectors | Utilities, energy and related sectors | 341 | | | 2,495 | | | — | | | (503) | | | 1,991 | |
Wholesale/retail trade | Wholesale/retail trade | 444 | | | 2,222 | | | — | | | (416) | | | 1,806 | |
Services, media and other | Services, media and other | 348 | | | 3,505 | | | — | | | (728) | | | 2,777 | |
Hybrid securities | Hybrid securities | 47 | | | 745 | | | — | | | (83) | | | 662 | |
Non-agency residential mortgage-backed securities | Non-agency residential mortgage-backed securities | 252 | | | 1,351 | | | (5) | | | (104) | | | 1,242 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 532 | | | 3,802 | | | — | | | (336) | | | 3,466 | |
Asset-backed securities | Asset-backed securities | 1,182 | | | 10,651 | | | (9) | | | (762) | | | 9,880 | |
Total fixed maturity available for sale securities | Total fixed maturity available for sale securities | 4,313 | | | 33,706 | | | (14) | | | (4,157) | | | 29,534 | |
Equity securities | Equity securities | 58 | | | 844 | | | — | | | (144) | | | 700 | |
Total investments | Total investments | 4,371 | | | $ | 34,550 | | | $ | (14) | | | $ | (4,301) | | | $ | 30,234 | |
| | December 31, 2022 |
| Number of securities | | Amortized Cost | | Allowance for Expected Credit Losses | | Unrealized Losses | | Fair Value |
| December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| Number of Securities | | | Number of Securities | | Amortized Cost | | Allowance for Expected Credit Losses | | Unrealized Losses | | Fair Value |
Fixed maturity securities, available for sale: | Fixed maturity securities, available for sale: | (In millions) | Fixed maturity securities, available for sale: | (In millions) |
United States Government full faith and credit | United States Government full faith and credit | 6 | | | $ | 34 | | | $ | — | | | $ | (2) | | | $ | 32 | |
United States Government sponsored agencies | United States Government sponsored agencies | 58 | | | 39 | | | — | | | (4) | | | 35 | |
United States municipalities, states and territories | United States municipalities, states and territories | 167 | | | 1,590 | | | — | | | (289) | | | 1,301 | |
Foreign Governments | Foreign Governments | 44 | | | 169 | | | — | | | (37) | | | 132 | |
Corporate securities: | Corporate securities: | |
Finance, insurance and real estate | |
Finance, insurance and real estate | |
Finance, insurance and real estate | Finance, insurance and real estate | 526 | | | 5,586 | | | (15) | | | (876) | | | 4,695 | |
Manufacturing, construction and mining | Manufacturing, construction and mining | 120 | | | 850 | | | — | | | (160) | | | 690 | |
Utilities, energy and related sectors | Utilities, energy and related sectors | 333 | | | 2,825 | | | — | | | (644) | | | 2,181 | |
Wholesale/retail trade | Wholesale/retail trade | 316 | | | 2,418 | | | — | | | (532) | | | 1,886 | |
Services, media and other | Services, media and other | 360 | | | 3,354 | | | — | | | (783) | | | 2,571 | |
Hybrid securities | Hybrid securities | 43 | | | 706 | | | — | | | (84) | | | 622 | |
Non-agency residential mortgage-backed securities | Non-agency residential mortgage-backed securities | 241 | | | 1,353 | | | (5) | | | (105) | | | 1,243 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 365 | | | 2,850 | | | — | | | (284) | | | 2,566 | |
Asset-backed securities | Asset-backed securities | 1,147 | | | 11,511 | | | (1) | | | (770) | | | 10,740 | |
Total fixed maturity available for sale securities | Total fixed maturity available for sale securities | 3,726 | | | 33,285 | | | (21) | | | (4,570) | | | 28,694 | |
Equity securities | Equity securities | 59 | | | 879 | | | — | | | (174) | | | 705 | |
Total investments | Total investments | 3,785 | | | $ | 34,164 | | | $ | (21) | | | $ | (4,744) | | | $ | 29,399 | |
The gross unrealized loss position on the fixed maturity AFSavailable-for-sale fixed and equity portfolio was $4,301$3,709 million and $4,744$3,691 million as of March 31, 20232024 and December 31, 2022,2023, respectively. Most components of the portfolio exhibited price depreciation caused primarily by lowerhigher treasury rates and spread compression.rates. The total amortized cost of all securities in an unrealized loss position was $34,550$29,688 million and $34,164$29,741 million as of March 31, 20232024 and December 31, 2022,2023, respectively. The average market value/book value of the investment category with the largest unrealized loss position was 87%80% for Finance, insuranceservices, media and real estateother as of March 31, 2023.2024. In the aggregate, Finance, insuranceservices, media and real estateother represented 18%20% of the total unrealized loss position as of March 31, 2023.2024. The average market value/book value of the investment category with the largest unrealized loss position was 84%88% for finance, insurance and real estate as of December 31, 2022.2023. In aggregate, finance, insurance and real estate represented 18%19% of the total unrealized loss position as of December 31, 2022.2023.
The amortized cost and fair value of fixed maturity AFSavailable for sale securities under watch list analysis and the number of months in a loss position with investment grade securities (NRSRO rating of BBB/Baa or higher) as of March 31, 20232024 and December 31, 2022,2023, were as follows:
| | March 31, 2023 |
| Number of securities | | Amortized Cost | | Fair Value | | Allowance for Credit Loss | | Gross Unrealized Losses |
| March 31, 2024 | | | March 31, 2024 |
| Number of Securities | | | Number of Securities | | Amortized Cost | | Fair Value | | Allowance for Credit Loss | | Gross Unrealized Losses |
Investment grade: | Investment grade: | (Dollars in millions) | Investment grade: | (Dollars in millions) |
Less than six months | Less than six months | 6 | | | $ | 13 | | | $ | 10 | | | $ | — | | $ | — | | $ | (2) | |
Six months or more and less than twelve months | Six months or more and less than twelve months | — | | | — | | | — | | | — | | — | | — | |
Twelve months or greater | Twelve months or greater | 69 | | | 691 | | | 465 | | | — | | — | | (226) | |
Total investment grade | Total investment grade | 75 | | | 703 | | | 475 | | | — | | — | | (228) | |
| Below investment grade: | Below investment grade: | |
Below investment grade: | |
Below investment grade: | |
Less than six months | |
Less than six months | |
Less than six months | |
Six months or more and less than twelve months | |
Twelve months or greater | |
Total below investment grade | |
Total | |
| | December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| Number of Securities | | | Number of Securities | | Amortized Cost | | Fair Value | | Allowance for Credit Loss | | Gross Unrealized Losses |
Investment grade: | | Investment grade: | (Dollars in Millions) |
Less than six months | |
Six months or more and less than twelve months | |
Twelve months or greater | |
Total investment grade | |
| Below investment grade: | |
Below investment grade: | |
Below investment grade: | |
Less than six months | |
Less than six months | |
Less than six months | Less than six months | 3 | | | 20 | | | 18 | | | — | | | (2) | |
Six months or more and less than twelve months | Six months or more and less than twelve months | 5 | | | 52 | | | 42 | | | — | | | (10) | |
Twelve months or greater | Twelve months or greater | 7 | | | 45 | | | 38 | | | — | | | (7) | |
Total below investment grade | Total below investment grade | 15 | | | 117 | | | 98 | | | — | | | (19) | |
Total | Total | 90 | | | $ | 820 | | | $ | 573 | | | $ | — | | | $ | (247) | |
| | | December 31, 2022 |
| | Number of securities | | Amortized Cost | | Fair Value | | Allowance for Credit Loss | | Gross Unrealized Losses |
Investment grade: | (Dollars in Millions) |
Less than six months | 6 | | | $ | 5 | | | $ | 3 | | | $ | — | | | $ | (2) | |
Six months or more and less than twelve months | 49 | | | 299 | | | 200 | | | — | | | (99) | |
Twelve months or greater | 76 | | | 969 | | | 634 | | | — | | | (335) | |
Total investment grade | 131 | | | 1,273 | | | 837 | | | — | | | (436) | |
| Below investment grade: | |
Less than six months | 1 | | | 32 | | | 13 | | | 15 | | | (4) | |
Six months or more and less than twelve months | 12 | | | 124 | | | 94 | | | — | | | (30) | |
Twelve months or greater | 2 | | | 6 | | | 4 | | | — | | | (2) | |
Total below investment grade | 15 | | | 162 | | | 111 | | | 15 | | | (36) | |
Total | 146 | | | $ | 1,435 | | | $ | 948 | | | $ | 15 | | | $ | (472) | |
|
Expected Credit Losses and Watch List
F&G prepares a watch list to identify securities to evaluate for expected credit losses. Factors used in preparing the watch list include fair values relative to amortized cost, ratings and negative ratings actions and other factors. Detailed analysis is performed for each security on the watch list to further assess the presence of credit impairment loss indicators and, where present, calculate an allowance for expected credit loss or direct write-down of a security’s amortized cost.
At March 31, 2023,2024, our watch list included 9087 securities in an unrealized loss position with an amortized cost of $820$1,168 million, no allowance for expected credit loss,losses, unrealized losses of $247$356 million and a fair value of $573$812 million.
At December 31, 2022,2023, our watch list included 14652 securities in an unrealized loss position with an amortized cost of $1,435$722 million, no allowance for expected credit losses, of $15 million, unrealized losses of $472$205 million and a fair value of $948$517 million.
The watch list excludes structured securities as we have separate processes to evaluate the credit quality on the structured securities.
There were 3949 and 64101 structured securities with a fair value of $70$146 million and $162$316 million to which we had potential credit exposure as of March 31, 20232024 and December 31, 2022,2023, respectively. Our analysis of these structured securities, which included cash flow testing, resulted in allowances for expected credit losses of $16$33 million and $35 million as of March 31, 20232024 and December 31, 2022.2023, respectively.
Exposure to Sovereign Debt and Certain Other Exposures
ThereOur investment portfolio had an immaterial amount of direct exposure to European sovereign debt as of March 31, 2024 and December 31, 2023, respectively. We have been no material changesexposure to investments in Russia or Ukraine and de minimis investments in peripheral countries in the exposure to sovereign debt described in our Annual Report on Form 10-K for the year ended December 31, 2022.region.
Interest and Investment Income
For discussion regarding our netinterest and investment income and net investmentrecognized gains and (losses), net refer to Note D - Investments to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
AFS Securities
For additional information regarding our AFS securities, including the amortized cost, gross unrealized gains (losses), and fair value as well as the amortized cost and fair value of fixed maturity AFS securities by contractual maturities, as of March 31, 20232024 and December 31, 2022,2023, refer to Note D Investments to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
Concentrations of Financial Instruments
For certain information regarding our concentrations of financial instruments, refer to Note D Investments to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
There have been no other material changes in the concentrations of financial instruments described in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
Derivatives
We are exposed to credit loss in the event of nonperformance by our counterparties on call options.derivative instruments. We attempt to reduce this credit risk by purchasing such optionsderivative instruments from large, well-established financial institutions.
We also hold cash and cash equivalents received from counterparties for call optionderivative instrument collateral, as well as U.S. Government securities pledged as call optionderivative instrument collateral, if our counterparty’s net exposures exceed pre-determined thresholds.
We are required to pay counterparties the effective federal funds rate each day for cash collateral posted to F&G for daily mark to market margin changes. We reduce the negative interest cost associated with cash collateral posted from counterparties under various ISDA agreements by reinvesting derivative cash collateral. This program permits collateral cash received to be invested in short term Treasury securities, bank deposits and
commercial paper rated A1/P1, which are included in Cash and cash equivalents in the accompanying unaudited Condensed Consolidated Balance Sheets.
See Note E Derivative Financial Instruments to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information regarding our derivatives and our exposure to credit loss on call options.
Corporate and Other
The Corporate and Other segment consists of the operations of the parent holding company and our real estate technology subsidiaries. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment.
The following table presents the results of operations of our Corporate and Other segment:
| | |
| |
| |
| | | Three months ended March 31, | |
| | 2023 | | 2022 | |
| Revenues: | Revenues: | (In millions) | |
| Revenues: | |
| Revenues: | | (In millions) |
| Escrow, title-related and other fees | |
| Escrow, title-related and other fees | |
| Escrow, title-related and other fees | Escrow, title-related and other fees | $ | 44 | | | $ | 31 | | |
Interest and investment income | Interest and investment income | 11 | | | — | | |
Interest and investment income | |
Interest and investment income | |
Recognized gains and losses, net | |
Recognized gains and losses, net | |
Recognized gains and losses, net | Recognized gains and losses, net | (2) | | | 3 | | |
Total revenues | Total revenues | 53 | | | 34 | | |
Total revenues | |
Total revenues | |
Expenses: | Expenses: | | | | |
Expenses: | |
Expenses: | |
Personnel costs | |
Personnel costs | |
Personnel costs | Personnel costs | 26 | | | 17 | | |
| Other operating expenses | Other operating expenses | 28 | | | 27 | | |
| Other operating expenses | |
| Other operating expenses | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 7 | | | 6 | | |
| Interest expense | Interest expense | 20 | | | 22 | | |
| Interest expense | |
| Interest expense | |
Total expenses | |
Total expenses | |
Total expenses | Total expenses | 81 | | | 72 | | |
Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | $ | (28) | | | $ | (38) | | |
Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | |
Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | |
The revenue in the Corporate and Other segment represents revenue generated by our non-title real estate technology subsidiaries as well as mark-to-market valuation changes on certain corporate deferred compensation plans.
Total revenues in the Corporate and Other segment increased $19$41 million, or 56%77%, in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The increase in the three months ended March 31, 2024 from the corresponding period in 2023 is primarily attributable to an increase inincreased valuations associated with our deferred compensation plan assets of approximately $13$12 million in the 2023 period and various other immaterial items.increased dividends received from F&G of $27 million. The dividends received from F&G are eliminated upon consolidation.
Personnel costs in the Corporate and Other segment increased $9$17 million, or 53%65%, in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The increase in the three months ended March 31, 2024 from the corresponding period in 2023 period wasis primarily attributable to the aforementioned $13 million increase in valuations associated with our deferred compensation plan assets, which increased both revenue and personnel costs, partially offset byand various other immaterial items.
Other operating expenses in the Corporate and Other segment increased $1decreased $2 million, or 4%7%, in the three months ended March 31, 20232024 from the corresponding period in 2022.2023. The increasedecrease in the three months ended March 31, 2024 from the corresponding period in 2023 is attributable to various immaterial items.
Interest expense in the Corporate and Other segment decreased $2$1 million, or 9%5%, in the three months ended March 31, 20232024 from the corresponding period in 2022. The decrease was primarily attributable to lower average debt outstanding in the three months ended March 31, 2023 from the corresponding period in 2022.2023.
Liquidity and Capital Resources
Cash Requirements. Our current cash requirements include personnel costs, operating expenses, claim payments, taxes, payments of interest and principal on our debt, capital expenditures, business acquisitions, stock repurchases and dividends on our common stock. We paid dividends of $0.45$0.48 per share in the first quarter of 2023,2024, or approximately $122$130 million to our common shareholders. On May 3, 2023,8, 2024, our Board of Directors declared cash dividends of $0.45$0.48 per share, payable on June 30, 202328, 2024, to FNF common shareholders of record as of June 16, 202314, 2024. There are no restrictions on our retained earnings regarding our ability to pay dividends to our shareholders, although there are limits on the ability of certain subsidiaries to pay dividends to us, as described below. The declaration of any future dividends is at the discretion of our Board of Directors.
As of March 31, 2023,2024, we had cash and cash equivalents of $2,821$3,517 million, short term investments of $1,346$646 million, and available capacity under our Revolving Credit Facility of $800 million and available capacity under the Amended F&G Credit agreement of $385 million. On January 2, 2024, F&G acquired a 70% majority ownership stake in the equity of Roar Joint Venture, LLC ("Roar"). Roar wholesales life insurance and annuity products to banks and broker dealers through a network of agents. Total initial consideration was $269 million. Under the terms of the purchase agreement, F&G has agreed to make cash payments of up to $90 million over a three year period upon the achievement of certain earnings before interest, taxes,
depreciation and amortization milestones of Roar. On February 16, 2024, we entered into a Sixth Amended and Restated Credit Agreement for our $800 million revolving credit facility with Bank of America, N.A., as administrative agent and other agents party thereto (the "Sixth Restated Credit Agreement"). Among other changes, the Sixth Amended and Restated Credit Agreement amends the Revolving Credit Facility to extend the maturity date from October 29, 2025, to February 16, 2029. On February 16, 2024, we entered into a Second Amended and Restated F&G Credit Agreement of our $665 million credit agreement, with the guarantors party thereto, the financial institutions party thereto as lenders, and Bank of America, N.A., as administrative agent, swing line lender and an issuing bank (the "Second Amended and Restated F&G Credit Agreement"). Among other changes, the Second Amended and Restated F&G Credit Agreement amends the Amended F&G Credit Agreement to extend the maturity date and increase the aggregate principal amount of commitments under the revolving credit facility to $750 million. We continually assess our capital allocation strategy, including decisions relating to the amount of our dividend, reducing debt, repurchasing our stock, investing in growth of our subsidiaries, making acquisitions and/or conserving cash. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities, potential sales of non-strategic assets, potential issuances of additional debt or equity securities, and borrowings on our Revolving Credit Facility. Our short-term and long-term liquidity requirements are monitored regularly to ensure that we can meet our cash requirements. We forecast the needs of all of our subsidiaries and periodically review their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts.
Our insurance subsidiaries generate cash from premiums earned and their respective investment portfolios, and these funds are adequate to satisfy the payments of claims and other liabilities. Due to the magnitude of our investment portfolio in relation to our title claim loss reserves, we do not specifically match durations of our investments to the cash outflows required to pay claims, but do manage outflows on a shorter time frame.
Our two significant sources of internally generated funds are dividends and other payments from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. The reimbursements are paid within the guidelines of management agreements among us and our subsidiaries. Our insurance subsidiaries are restricted by state regulation in their ability to pay dividends and make distributions. Each applicable state of domicile regulates the extent to which our title underwriters can pay dividends or make other distributions. As of December 31, 2022, $1,4422023, $1,445 million of our net assets were restricted from dividend payments without prior approval from the relevant departments of insurance. We anticipate that our title insurance subsidiaries will pay or make dividends in the remainder of 20232024 of approximately $457$355 million. Our underwritten title companies and non-insurance subsidiaries are not regulated to the same extent as our insurance subsidiaries.
The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, depending on business and regulatory conditions, we may in the future need to retain cash in our underwriters or even contribute cash to one or more of them in order to maintain their ratings or their statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in statutory accounting requirements by regulators.
Cash flow from our operations will be used for general corporate purposes including to reinvest in operations, repay debt, pay dividends, repurchase stock, pursue other strategic initiatives and/or conserve cash.
Operating Cash Flow. Our cash flows provided by operations for the three months ended March 31, 2024 and 2023 and 2022 totaled $1,418$1,591 million and $667$1,418 million, respectively. The increase in cash provided by operating activities in 2023the 2024 period of $751$173 million is primarily attributable to the increase in net earnings of approximately $357 million and increased net cash inflows associated with the change in future policy benefits of $281 million, partially offset by reduced net cash inflows associated with the change in funds withheld from reinsurers of approximately $943 million and the timing of receipts and payments of prepaid assets and payables, and other individually immaterial items, partially offset by the decrease in net earnings of $490 million in 2023, increased net cash outflows associated with the change in reinsurance recoverable of $126 million, increased net cash outflows associated with the change in income taxes of approximately $171million and reduced net cash inflows associated with the change in future policy benefits of approximately $204 million,$184 million.
Investing Cash Flows. Our cash flows used in investing activities for the three months ended March 31, 2024 and 2023 and 2022 were $2,285$1,096 million and $3,414$2,285 million, respectively. The decrease in cash used in investing activities in 2023the 2024 period of $1,129$1,189 million iswas primarily attributable to decreased net proceedsincreased cash inflows from sales and maturities of short-term investments of approximately $2,504 million, partially offset by decreased proceeds from sales, calls and maturities of investment securities of approximately $893$692 million, increased cash inflows associated with the net proceeds from sales of short-term investment securities of $224 million and decreased net cash outflows associated with the purchases of investment securities of approximately $267 million and increased cash outflows associated with acquisitions of approximately $253$258 million.
Capital Expenditures. Total capital expenditures for property and equipment and capitalized software were $34$35 million and $43$34 million for the three months ended March 31, 2024 and 2023, and 2022, respectively.
Financing Cash Flows. Our cash flows provided by financing activities for the three months ended March 31, 2024 and 2023 and 2022 were $1,402$255 million and $1,180$1,402 million, respectively. The increasedecrease in cash provided by financing activities in 2023the 2024 period of $222$1,147 million iswas primarily attributable to reduced cash inflows from contractholder deposits of $186 million, increased cash outflows from contractholder withdrawals of $533 million and cash inflows associated with the issuance of the 7.40% F&G Notes of $500 million in the 2023 and reduced cash outflows associated with the purchase of treasury stock of approximately $123 million, partially offset by increased cash outflows associated with the change in contractholder withdrawals of approximately $227 million and increased cash outflows associated with the change in secured trust deposits of approximately $97 million.period.
Financing Arrangements. For a description of our financing arrangements see Note G Notes Payable included in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021.2023.
Capital Stock Transactions. On August 3, 2021, our Board of Directors approved the 2021 Repurchase Program (the "Repurchase Program") under which we may purchase up to 25 million shares of our FNF common stock through July 31, 2024. We repurchased 100,000 shares ofdid not repurchase any FNF common stock during the three months ended March 31, 2023 for approximately $4 million, at an average price of $38.45 per share.2024. Subsequent to March 31, 20232024 and through market close on May 5, 20238, 2024 we have not repurchased additional shares under this program. Since the original commencement of the Repurchase Program, we repurchased a total of 16,449,565 FNF common shares for approximately $701 million, at an average price of $42.60 per share.
Equity and Preferred Security Investments. Our equity and preferred security investments may be subject to significant volatility. Currently prevailing accounting standards require us to record the change in fair value of equity and preferred security investments held as of any given period end within earnings. Our results of operations in future periods is anticipated to be subject to such volatility.
Off-Balance Sheet Arrangements. Other than our unfunded investment commitments discussed below, there have been no significant changes to our off-balance sheet arrangements since our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
We have unfunded investment commitments as of March 31, 20232024 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. Please refer to Note F Commitments and Contingencies to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional details on unfunded investment commitments.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the market risks described in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is: (a) recorded, processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms; and (b) accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 20232024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 5. Other Information
During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
PART II
Item 1. Legal Proceedings
See discussion of legal proceedings in Note F Commitment and Contingencies to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Item 1 of Part II.
Item 1A. Risk Factors
In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the "Risk Factors" disclosed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K which was filed withfor the SEC on February 27,year ended December 31, 2023. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
We adopted Accounting Standards Update (“ASU”) 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”) using the full retrospective transition method effective January 1, 2023, with changes appliedExcept as of January 1, 2021, also referred to as the transition date. The following updates to Risk Factors relate to the adoption of ASU 2018-12. Therediscussed below, there have been no other material changes fromas of the Risk Factors previouslydate of this report to the risk factors disclosed in "Item 1A.“Item IA. Risk Factors"Factors” included in our Annual Report filed with the SEC on February 27, 2023 and hereby incorporated by reference.
ASU 2018-12 requires that VOBA, DAC and DSI be amortized on a constant level basisForm 10-K for the grouped contracts over the expected term of the related contractsyear ended December 31, 2023.
Risk Factors Relating to approximate straight-line amortization. Based on this change, we have removed the risk factor previously titled “The pattern of amortizing our VOBA, DAC and DSI balances relies on assumptions and estimates made by management. Our Business
Changes in these assumptions and estimates could impact our results of operations and financial condition.”
Interest rate fluctuationsthe Company’s dealings with large mortgage lenders, servicers or government-sponsored enterprises could adversely affect our business, financial condition, liquiditytitle insurance and resultsmortgage servicing subsidiaries.
Large mortgage lenders, servicers and government-sponsored enterprises have significant influence over the products and services provided by our title insurance and mortgage servicing subsidiaries. Changes in our dealings with any of operations.
Interest rate risk is a significant market risk for us, as our F&G business involves issuing interest rate sensitive obligations backed primarily by investments in fixed income assets. F&G also maintainsthese lenders, servicers or the government-sponsored enterprises, the loss of all or a portion of the assets in its investment portfolio in floating rate instruments and had executed a variable interest rate Credit Agreement, which are both subject to an element of market riskbusiness derived from changes in interest rates.
Prior to 2022, interest rates had been atthese parties, or near historical low levels over the preceding several years. A prolonged period of low rates exposes usrevisions to the risk of not achieving returns sufficientgovernment-sponsored enterprises’ Selling or Servicing Guides related to meet our earnings targets and/title insurance or our contractual obligations. Furthermore, low or declining interest rates may reduce the rate of policyholder surrenders and withdrawals on our life insurance and annuity products, thus increasing the duration of the liabilities, creating asset and liability duration mismatches and increasing the risk of having to reinvest assets at yields below the amounts required to support our obligations. Lower interest rates may also result in decreased sales of certain insurance products, negatively impacting our profitability from new business.
During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as universal life insurance and fixed rate annuities, and we may increase crediting rates on in-force products to keep these products competitive. We may be required to accept lower spread income (the difference between the returns we earn on our investments and the amounts we credit to contract holders), thus reducing our profitability, as returns on our portfolio of invested assets may not increase as quickly as current interest rates. Rapidly rising interest rates may also expose us to the risk of financial disintermediation, which is an increase in policy surrenders, withdrawals and requests for policy loans as customers seek to achieve higher returns elsewhere, requiring us to liquidate assets in an unrealized loss position. If we experience unexpected withdrawal activity, we could exhaust our liquid assets and be forced to liquidate other less liquid assets such as limited partnership investments. We may have difficulty selling these investments in a timely manner and/or be forced to sell them for less than we otherwise would have been able to realize, whichmortgage servicing, could have a material adverse effect on our business, financial conditionbusiness.
Risk Factors Relating to Government Regulation of the Insurance Industry
Our subsidiaries must comply with federal and state statutes and regulations. These statutes and regulations may increase our costs, impede our provision of certain products or services, or impose burdensome conditions on actions that we might seek to take to increase the revenues of those subsidiaries, resulting in decreased demand for the Company's products and services or otherwise adversely affecting the Company.
Changes to federal and state statutes and regulations; statutory or regulatory guidance, policies or interpretations of existing regulations or statutes; guidelines published by the government-sponsored enterprises; enhanced federal or state governmental oversight or efforts by federal or state governmental agencies that cause customers to refrain from purchasing or using the Company’s products and services, could: (i) prohibit, impact or limit our future operations, (ii) make it more costly or burdensome to conduct such operations, or (iii) result in decreased demand for the Company’s products and services. Such changes could impact our competitive position and have a negative impact on our ability to generate revenues, earnings and cash flows.
Additionally, our insurance businesses are subject to extensive regulation by state insurance authorities in each state in which they operate. These agencies have broad administrative and supervisory power relating to the following, among other matters:
•licensing requirements;
•trade and marketing practices;
•accounting and financing practices;
•disclosure requirements on key terms of mortgage loans;
•capital and surplus requirements;
•the amount of dividends and other payments made by insurance subsidiaries;
•investment practices;
•rate schedules;
•deposits of securities for the benefit of policyholders;
•establishing reserves; and
•regulation of reinsurance.
Most states also regulate insurance holding companies like us with respect to acquisitions, changes of control and the terms of transactions with our affiliates. State regulations may impede or impose burdensome conditions on our ability to increase or maintain rate levels or on other actions that we may want to take to enhance our operating results. We have developed and maintain asset liability management programs and procedures that are, we believe, designed to mitigate interest rate risk by matching asset cash flows to expected liability cash flows. In addition, we assess surrender charges onmay incur significant costs in the course of complying with regulatory requirements. Further, various state legislatures have in the past considered offering a public alternative to the title industry in their states, as a means to increase state government revenues. Although we think this situation is unlikely, if one or more such takeovers were to occur they could adversely affect our business. We cannot be assured that future legislative or regulatory changes will not adversely affect our business operations. See “Item 1. Business — Regulation” for further discussion of the current regulatory environment.
withdrawalsOur ServiceLink subsidiary provides mortgage transaction services including title-related services and facilitation of production and management of mortgage loans. Certain of these businesses are subject to federal and state regulatory oversight. For example, ServiceLink’s LoanCare business services and subservices mortgage loans secured primarily by residential real estate throughout the United States. LoanCare is subject to extensive federal, state and local regulatory oversight, including federal and state regulatory examinations, information gathering requests, inquiries, and investigations by governmental and regulatory agencies, including the CFPB. In connection with formal and informal inquiries by those agencies, LoanCare receives numerous requests, subpoenas, and orders for documents, testimony and information in excessconnection with various aspects of allowable penalty-free amounts that occur during the surrender charge period. There can be no assurance that actual withdrawals, contract benefits, and maturities will match our estimates. Despite our efforts to reduce the impact of rising interest rates, we may beits or its clients’ regulated activities.
LoanCare is also required to maintain a variety of licenses, both federal and state. License requirements are in a frequent state of renewal and reexamination as regulations change or are reinterpreted. In addition, federal and state statutes establish specific guidelines and procedures that debt collectors must follow when collecting consumer accounts. LoanCare’s failure to comply with any of these laws, should the states take an opposing interpretation, could have an adverse effect on LoanCare in the event and to the extent that they apply to some or all of its servicing activities.
Our F&G segment is highly regulated and subject to numerous legal restrictions and regulations.
State insurance regulators, the NAIC and federal regulators continually reexamine existing laws and regulations and may impose changes in the future. New interpretations of existing laws and the passage of new legislation may harm our ability to sell assetsnew policies, increase our claims exposure on policies we issued previously and adversely affect our profitability and financial strength. We are also subject to raise the cash necessary to respond to an increaserisk that compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in surrenders, withdrawalscompliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Regulators and loans, thereby realizing capital losses on the assets sold.
Liabilities that are held on our balance sheet at fair value, including embedded derivatives on our FIA and IUL business and MRBs on our FIA and fixed rate annuity business, are sensitive to fluctuations in interest rates. Decreases in interest rates generally wouldother authorities have the impact of increasing the value of these liabilities,power to bring administrative or judicial proceedings against us, which willcould result in, a reduction inamong other things, suspension or revocation of our net income. Liabilities for future policyholder benefits are valued using locked-in discount rates,licenses, cease and any changes in interest rates since the inception of those contracts are reflected in OCI. Decreases in interest rates would result in a reduction in our OCI. In addition, certain statutory capital and reserve requirements are based on formulasdesist orders, fines, civil penalties, criminal penalties or models that consider interest rates and a prolonged period of low interest rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to support statutory reserves.
Economic conditions, including higher interest rates,other disciplinary action, which could materially adversely affectedharm our business, results of operations and financial condition. However, we
We cannot predict what form any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if it willany, such proposals might have on us if enacted into law. In addition, because our activities are relatively concentrated in a small number of lines of business, any change in law or regulation affecting one of those lines of business could have a disproportionate impact on us as compared to other more diversified insurance companies. See section titled “Regulation” in Item 1. Business for further discussion of the impact of regulations on our business.
State Regulation
Our business is subject to government regulation in each of the states in which we conduct business and is concerned primarily with the protection of policyholders and other customers rather than shareholders. Such regulation is vested in state agencies having broad administrative and discretionary authority, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers and capital adequacy. At any given time, we and our insurance subsidiaries may be the subject of a number of ongoing financial or market conduct, audits or inquiries. From time to time, regulators raise issues during such examinations or audits that could have a material impact on our business.
Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. We cannot predict the amount or timing of any such future assessments and therefore the liability we have established for these potential assessments may not be adequate. In addition, regulators may change their interpretation or application of existing laws and regulations such as the case with broadening the scope of carriers that must contribute towards Long Term Care insolvencies.
NAIC
Although our business is subject to regulation in each state in which we conduct business, in many instances the state regulatory models emanate from the NAIC. Some of the NAIC pronouncements, particularly as they affect accounting issues, take effect automatically in the various states without affirmative action by the states. Statutes, regulations and interpretations may be applied with retroactive impact, particularly in areas such as accounting and reserve requirements. The NAIC continues to work to reform state regulation in various areas, including comprehensive reforms relating to cybersecurity regulations, best interest standards, RBC and life insurance reserves.
Our insurance subsidiaries are subject to minimum capitalization requirements based on RBC formulas for life insurance companies that establish capital requirements relating to insurance, business, asset, interest rate and certain other risks. Changes to statutory reserve or risk-based capital requirements may increase the amount of reserves or capital our insurance companies are required to hold and may impact our business, resultsability to pay dividends. In addition, changes in statutory reserve or risk-based capital requirements may adversely impact our financial strength ratings. Changes currently under consideration include adding an operational risk component, factors for asset credit risk, and group wide capital calculations.
“Fiduciary” Rule
In December 2020, the DOL issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), and sets forth a new exemption, referred to as prohibited transaction class exemption (“PTE”) 2020-02. The rule’s preamble also contains the DOL’s reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling IRA products and withdraws the DOL’s longstanding position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021. The DOL left in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products, provided that certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. F&G, along with FGL Insurance and FGL NY Insurance, designed and launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. Meanwhile, the DOL has publicly announced its intention to consider future rulemaking that may revoke or modify PTE 84-24.
On April 23, 2024, following previous attempts to expand fiduciary regulation for advisers, the DOL released a new rule, the New Fiduciary Rule, which significantly broadens the definition of “fiduciary” under ERISA and Section 4975 when advisers provide investment recommendations to plans subject to ERISA and Section 4975 of the Code.. Among other requirements, the New Fiduciary Rule provides that any person will be an investment advice fiduciary such person provides investment advice or makes an investment recommendation to a retirement investor (i.e., a plan, a discretionary plan fiduciary, a plan participant or beneficiary, an IRA, an IRA owner or beneficiary, or an IRA fiduciary) for a fee or other compensation, the person makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation is based on a review of the particular needs or individual investor circumstances of the retirement investor, reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor’s best interest. Unlike the current ERISA standard, the New Fiduciary Rule subjects non-discretionary investment advice to retirement plans and accounts care and loyalty standards that also apply to investment advisors with discretionary authority or control over such plans and accounts. In addition, on the same date, the DOL issued amended versions of PTE 2020-02 and PTE 84-24, either or both of which provide prohibited transaction exemptive relief to insurance companies and insurance producers who make insurance product recommendations to retirement investors, subject to certain conditions. The New Fiduciary Rule likely means that certain of the Company’s agents will be considered fiduciaries for purposes of ERISA and the Code, subjecting the Company, and the insurance industry on the whole, to greater regulatory risk.
Management believes these current and emerging developments relating to market conduct standards for the forgoing reasons.financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks.
Equity market volatility could negatively impactBermuda and Cayman Islands Regulation
Our business is subject to regulation in Bermuda and the Cayman Islands, including the BMA and the CIMA. These regulations may limit or curtail our business.
The estimated cost of providing GMWB riders associated withactivities, including activities that might be profitable, and changes to existing regulations may affect our annuityability to continue to offer our existing products incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity marketsservices, or increased equity volatility could result in an increasenew products and services we may wish to offer in the valuationfuture.
Our reinsurance subsidiary, F&G Life Re, is registered in Bermuda under the Bermuda Insurance Act and subject to the rules and regulations promulgated thereunder. The BMA has sought regulatory equivalency, which enables Bermuda’s commercial insurers to transact business with the European Union on a “level playing field.” In connection with its initial efforts to achieve equivalency under the European Union’s Directive (2009/138/EC) (“Solvency II”), the BMA implemented and imposed additional requirements on the companies it regulates. The European Commission in 2016 granted Bermuda’s commercial insurers full equivalence in all areas of Solvency II for an indefinite period of time.
Our reinsurance subsidiary, F&G Cayman Re, is licensed in the MRBCayman Islands by the CIMA and is subject to supervision by CIMA and CIMA may at any time direct F&G Cayman Re, in relation to a policy, a line of business or policyholder account balance liabilities associated withthe entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such products, resultingacts as in a reduction in our revenues and net income.
the opinion of CIMA are necessary to remedy or ameliorate the situation.
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Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities |
The following table summarizes repurchases
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
12/31/2022 | | | | | | | | 8,650,435 | |
1/1/2023 - 1/31/2023 | | 100,000 | | | $ | 38.45 | | | 100,000 | | | 8,550,435 | |
2/1/2023 - 2/28/2023 | | — | | | — | | | — | | | 8,550,435 | |
3/1/2023 - 3/31/2023 | | — | | | — | | | — | | | 8,550,435 | |
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Total | | 100,000 | | | $ | 38.45 | | | 100,000 | | | 8,550,435 | |
(1) On August 3, 2021, our Board of Directors approved the Repurchase Program under which we may purchase up to 25 million shares of our FNF common stock through July 31, 2024.
(2) As of the last day of the applicable month.None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule
10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation
S-K.
Item 6. Exhibits
(a) Exhibits:
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10.1 | | | |
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10.2 | | Sixth Amended and Restated Credit Agreement, dated as of DecemberFebruary 16, 2020,2024, by and between F&G Cayman Re Ltd.among Fidelity National Financial, Inc., a Delaware corporation, as the borrower, Bank of America, N.A., as administrative agent, and Blackstone ISGI Advisors L.L.C.the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 16, 2024). | |
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10.6 | | Indenture relating to the 7.400% Senior Notes due 2028, dated as of January 13, 2023,February 16, 2024, by and among F&G Annuities & Life, Inc., a Delaware corporation, as the borrower, the guarantors named therein and Citibank,party thereto, Bank of America, N.A., as trustee, filedadministrative agent, and the financial institutions party thereto as lenders (incorporated by reference to Exhibit 4.110.2 to ourthe Registrant’s Current Report on Form 8-K filed January 13, 2023on February 16, 2024). | |
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10.9 | | Registration Rights Agreement relating to the 7.400% Senior Notes due 2028, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and BofA Securities, Inc., J.P. Morgan Securities LC and RBC Capital Markets, LLC, as representatives of the initial purchasers, filed as Exhibit 10.1 to our Current Report on Form 8-K filed January 13, 2023 |
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101.INS | | Inline XBRL Instance Document*
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document
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104 | | Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
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| (1) A management or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 601(b)(10)(ii) of Regulation S-K.
* The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
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** Furnished herewith in accordance with Item 601(b)(32) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: | May 9, 202310, 2024 | FIDELITY NATIONAL FINANCIAL, INC. (registrant) | |
| | By: | /s/ Anthony J. Park | |
| | | Anthony J. Park | |
| | | Chief Financial Officer (Principal Financial and Accounting Officer) | |