UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   
Form 10-Q
   
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2018
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission file number: 001-37779
   
FGL HOLDINGS
(Exact name of registrant as specified in its charter)
   

Cayman Islands 98-1354810
(State or other jurisdiction of
incorporation or organization)
4th Floor
Boundary Hall, Cricket Square
4th Floor
Grand Cayman, Cayman Islands KY1-1102
(I.R.S. Employer
Identification No.)
 (Address of principal executive offices, including zip code) 
   

(800) 445-6758
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    or    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x    or    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated FilerxAccelerated Filer¨
Non-accelerated Filer¨(Do not check if a smaller reporting company) 
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  x
As of May 7,November 5, 2018, there were 214,370,000221,561,070 ordinary shares, $.0001 par value, issued and outstanding.
 

FGL HOLDINGS
TABLE OF CONTENTS

 Page
PART I. FINANCIAL INFORMATION 
       (4) Investments
       (9) Equity
  
PART II. OTHER INFORMATION 
 

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
FGL HOLDINGS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
March 31,
2018

December 31,
2017
September 30,
2018

December 31,
2017
(Unaudited)  (Unaudited)  
ASSETS





Investments:





Fixed maturity securities, available-for-sale, at fair value (amortized cost: March 31, 2018 - $21,738; December 31, 2017 - $21,475)$21,366

$21,590
Equity securities, at fair value (amortized cost: March 31, 2018 - $780; December 31, 2017 - $764)769

761
Fixed maturity securities, available-for-sale, at fair value (amortized cost: September 30, 2018 - $22,143; December 31, 2017 - $20,847)$21,421

$20,963
Equity securities, at fair value (cost: September 30, 2018 - $1,490; December 31, 2017 - $1,392)1,440

1,388
Derivative investments293

492
432

492
Short term investments

25
15

25
Commercial mortgage loans528

548
497

548
Other invested assets276

188
606

188
Total investments23,232

23,604
24,411

23,604
Cash and cash equivalents1,157
 1,215
944
 1,215
Accrued investment income240
 211
230
 211
Funds withheld for reinsurance receivables, at fair value748
 756
708
 756
Reinsurance recoverable2,495
 2,494
2,460
 2,494
Intangibles, net954
 856
1,205
 853
Deferred tax assets, net258
 176
285
 182
Goodwill476
 476
467
 467
Other assets105
 141
250
 141
Total assets$29,665
 $29,929
$30,960
 $29,923






LIABILITIES AND SHAREHOLDERS' EQUITY











Contractholder funds$22,083

$21,844
$23,164

$21,827
Future policy benefits, including $712 and $728 at fair value at March 31, 2018 and December 31, 2017, respectively4,711

4,751
Future policy benefits, including $684 and $728 at fair value at September 30, 2018 and December 31, 2017, respectively4,631

4,751
Liability for policy and contract claims70

78
60

78
Debt307

307
540

307
Revolving credit facility135

105


105
Other liabilities717

892
1,091

892
Total liabilities28,023

27,977
29,486

27,960






Commitments and contingencies ("Note 12")











Shareholders' equity:
 

 
Preferred stock ($.0001 par value, 100,000,000 shares authorized, 377,417 and 375,000 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively)
 
Common stock ($.0001 par value, 800,000,000 shares authorized, 214,370,000 issued and outstanding at March 31, 2018 and December 31, 2017, respectively)
 
Preferred stock ($.0001 par value, 100,000,000 shares authorized, 391,694 and 375,000 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)
 
Common stock ($.0001 par value, 800,000,000 shares authorized, 214,370,000 issued and outstanding at September 30, 2018 and December 31, 2017, respectively)
 
Additional paid-in capital2,039
 2,037
2,056
 2,037
(Accumulated deficit) Retained earnings(119) (160)
Accumulated other comprehensive (loss) income(278) 75
Retained earnings (Accumulated deficit)(13) (149)
Accumulated other comprehensive income (loss)(569) 75
Total shareholders' equity1,642
 1,952
1,474
 1,963
Total liabilities and shareholders' equity$29,665
 $29,929
$30,960
 $29,923
      

See accompanying notes to unaudited condensed consolidated financial statements.


FGL HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)

Three months endedThree months ended Nine months ended
March 31, 2018  March 31,
2017
September 30, 2018  September 30, 2017 September 30,
2018
  September 30,
2017
   Predecessor   Predecessor    Predecessor
(Unaudited)  (Unaudited)(Unaudited)  (Unaudited) (Unaudited)  (Unaudited)
Revenues:             
Premiums$18
  $3
$12
  $16
 $45
  $31
Net investment income263
  247
267
  261
 812
  765
Net investment (losses) gains(191)  81
Net investment gains (losses)119
  117
 (74)  265
Insurance and investment product fees and other41
  44
46
  41
 139
  129
Total revenues131
  375
444
  435
 922
  1,190
Benefits and expenses:             
Benefits and other changes in policy reserves(18)  268
297
  320
 475
  823
Acquisition and operating expenses, net of deferrals40
  33
40
  36
 126
  109
Amortization of intangibles16
  33
28
  (14) 72
  70
Total benefits and expenses38
  334
365
  342
 673
  1,002
Operating income93
  41
79
  93
 249
  188
Interest expense(6)  (6)(8)  (6) (21)  (18)
Income before income taxes87
  35
Income (loss) before income taxes71
  87
 228
  170
Income tax expense(35)  (13)(15)  (26) (67)  (55)
Net income$52
  $22
Net income (loss)$56
  $61
 $161
  $115
Less preferred stock dividend7
  
7
  
 21
  
Net income available to common shareholders$45
  $22
Net income per common share    
Net income (loss) available to common shareholders$49
  $61
 $140
  $115
             
Net income (loss) per common share:         
Basic$0.21
  $0.38
$0.23
  $1.06
 $0.65
  $1.98
Diluted$0.21
  $0.38
$0.23
  $1.06
 $0.65
  $1.98
Weighted average common shares used in computing net income per common share:             
Basic214,370,000
  58,326,396
214,370,000
  58,335,216
 214,370,000
  58,332,666
Diluted214,370,000
  58,382,130
214,418,693
  58,478,612
 214,390,931
  58,437,832
             
Cash dividend per common share$
  $0.065
$
  $0.065
 $
  $0.195
             
             
Supplemental disclosures             
Total other-than-temporary impairments$(2)  $(21)$
  $
 $(2)  $(21)
Portion of other-than-temporary impairments included in other comprehensive income
  

  
 
  
Net other-than-temporary impairments(2)  (21)
  
 (2)  (21)
(Losses) gains on derivatives and embedded derivatives(145)  99
Other investment (losses) gains(44)  3
Gains (losses) on derivatives and embedded derivatives159
  111
 58
  284
Other investment gains (losses)(40)  6
 (130)  2
Total net investment gains (losses)$(191)  $81
$119
  $117
 $(74)  $265


See accompanying notes to unaudited condensed consolidated financial statements.

FGL HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Three months endedThree months ended Nine months ended
March 31, 2018  March 31, 2017September 30, 2018  September 30, 2017 September 30,
2018
  September 30,
2017
   Predecessor   Predecessor    Predecessor
(Unaudited)  (Unaudited)(Unaudited)  (Unaudited) (Unaudited)  (Unaudited)
Net income$52
  $22
$56
  $61
 $161
  $115
             
Other comprehensive income (loss):             
Unrealized investment gains/losses:             
Change in unrealized investment gains/losses before reclassification adjustment(526)  298
(11)  173
 (922)  845
Net reclassification adjustment for gains/losses included in net income40
  18
23
  (4) 84
  20
Changes in unrealized investment gains/losses after reclassification adjustment(486)  316
12
  169
 (838)  865
Adjustments to intangible assets37
  (101)
Adjustments to intangible assets and unearned revenue37
  (51) 89
  (265)
Changes in deferred income tax asset/liability92
  (77)(15)  (42) 101
  (210)
Net change in unrealized gains/losses on investments(357)  138
34
  76
 (648)  390
Non-credit related other-than-temporary impairment:             
Changes in non-credit related other than-temporary impairment
  

  
 
  
Net non-credit related other-than-temporary impairment
  

  
 
  
Net changes to derive comprehensive (loss) income for the period(357)  138
Comprehensive (loss) income, net of tax$(305)  $160
Net changes to derive comprehensive income (loss) for the period34
  76
 (648)  390
Comprehensive income (loss), net of tax$90
  $137
 $(487)  $505

See accompanying notes to unaudited condensed consolidated financial statements.


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

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity
                       
Balance, December 31, 2017
 
 2,037
 (160) 75
 1,952
 
 
 2,037
 (149) 75
 1,963
Dividends
 
 2
 (7) 
 (5) 
 
 16
 (21) 
 (5)
Net income
 
 
 52
 
 52
 
 
 
 161
 
 161
Unrealized investment gains (losses), net
 
 
 
 (357) (357) 
 
 
 
 (648) (648)
Cumulative effect of changes in accounting principles
 
 
 (4) 4
 
 
 
 
 (4) 4
 
Balance, March 31, 2018$
 $
 $2,039
 $(119) $(278) $1,642
           
Stock-based compensation 
 
 3
 
 
 3
Balance, September 30, 2018 $
 $
 $2,056
 $(13) $(569) $1,474

See accompanying notes to unaudited condensed consolidated financial statements.


FGL HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Three months endedNine months ended
March 31,
2018
  March 31, 2017September 30,
2018
  September 30,
2017
   Predecessor   Predecessor
(Unaudited)  (Unaudited)(Unaudited)  (Unaudited)
Cash flows from operating activities:        
Net income$52
  $22
$161
  $115
Adjustments to reconcile net income to net cash provided by operating activities:        
Stock based compensation
  1
3
  5
Amortization15
  (7)40
  (36)
Deferred income taxes9
  (95)(4)  (80)
Interest credited/index credits to contractholder account balances(13)  243
452
  714
Net recognized (gains) losses on investments and derivatives191
  (81)
Net recognized losses (gains) on investments and derivatives74
  (254)
Charges assessed to contractholders for mortality and administration(38)  (32)(103)  (99)
Deferred policy acquisition costs, net of related amortization(60)  (57)(237)  (167)
Gain on extinguishment of debt(2)  
Changes in operating assets and liabilities:        
Reinsurance recoverable(8)  (4)11
  (10)
Future policy benefits(40)  (18)(120)  (41)
Funds withheld from reinsurers(12)  (15)11
  (79)
Collateral (returned) posted(145)  17
(62)  118
Other assets and other liabilities15
  86
40
  (21)
Net cash (used in) provided by operating activities(34)  60
Net cash provided by (used in) operating activities264
  165
Cash flows from investing activities:        
Proceeds from available-for-sale investments sold, matured or repaid3,286
  594
5,865
  2,022
Proceeds from derivatives instruments and other invested assets143
  138
430
  387
Proceeds from commercial mortgage loans20
  3
50
  35
Cost of available-for-sale investments(3,699)  (786)(7,345)  (2,768)
Costs of derivatives instruments and other invested assets(94)  (127)(632)  (297)
Capital expenditures(3)  (4)(7)  (2)
Contingent purchase price payment(30)  
(57)  
Net cash (used in) investing activities(377)  (182)
Net cash provided by (used in) investing activities(1,696)  (623)
Cash flows from financing activities:        
Debt issuance costs(7)  
Proceeds from issuance of new debt547
  
Retirement and paydown on debt and revolving credit facility(440)  
Draw on revolving credit facility30
  5
30
  5
Dividends paid
  (4)
  (11)
Contractholder account deposits959
  795
3,020
  2,192
Contractholder account withdrawals(636)  (419)(1,989)  (1,475)
Net cash provided by financing activities353
  377
Net cash provided by (used in) financing activities1,161
  711
Change in cash & cash equivalents(58)  255
(271)  253
Cash & cash equivalents, beginning of period1,215
  632
1,215
  632
Cash & cash equivalents, end of period$1,157
  $887
$944
  $885
        
Supplemental disclosures of cash flow information:        
Interest paid$2
  $1
$14
  $13
Income taxes (refunded) paid$(30)  $
$30
  $114
Deferred sales inducements$26
  $5
$98
  $20

See accompanying notes to unaudited condensed consolidated financial statements.

FGL HOLDINGS
NOTES TO UNAUDITED CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (In millions)
(1) Basis of Presentation
FGL Holdings (the “Company”, formerly known as CF Corporation (NASDAQ: CFCO) (“CF Corp”) and its
related entities (“CF Entities”)), a Cayman Islands exempted company, was originally incorporated in the Cayman Islands on February 26, 2016 as a Special Purpose Acquisition Company (“SPAC”). CF Corp formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. Prior to November 30, 2017, CF Corp. was a shell company with no operations. On November 30, 2017, CF Corp. consummated the acquisition of Fidelity & Guaranty Life ("FGL"), a Delaware corporation, ("FGL") and its subsidiaries, pursuant to the Agreement and Plan of Merger, dated as of May 24, 2017 (the “FGL Merger Agreement”). The transactions contemplated by the FGL Merger Agreement are referred to herein as the “Business Combination.”
Dollar amounts in the accompanying sections are presented in millions, unless otherwise noted.
Pursuant to the FGL Merger Agreement, except for shares specified in the FGL Merger Agreement, each issued and outstanding share of common stock of FGL was automatically canceled and converted into the right to receive $31.10 in cash, without interest and less any required withholding taxes (the “Merger Consideration”). Accordingly, CF Corp acquired FGL for a total of approximately $2 billion in cash, plus the assumption of $405 of existing debt.
In addition to the Business Combination, on November 30, 2017, CF Entities bought all of the issued and outstanding shares of Front Street Re Cayman Ltd. (“FSRC”) and F&G Reinsurance, Ltd. (formerly known as Front Street Re Ltd. (“FSR”, and, together with FSRC herein referred to as the “FSR Companies”"FSR Companies") from Front Street Re (Delaware) Ltd. (“FSRD”), a direct wholly owned subsidiary of HRG Group, Inc. (“HRG”; NYSE: HRG), pursuant to the Share Purchase Agreement, for cash consideration of $65, subject to certain adjustments.
As a result of the Business Combination, for accounting purposes, FGL Holdings is the acquirer and FGL is the acquired party and accounting predecessor. Our financial statement presentation includes the financial statements of FGL and its subsidiaries as “Predecessor” for the periods prior to the completion of the Business Combination and FGL Holdings, including the consolidation of FGL and its subsidiaries and the FSR Companies, as "Successor" for periods from and after the Closing Date. FGL Holdings was determined to be the Successor company as it is the surviving company organized and existing under the laws of the United States of America, any State of the United States, the District of Columbia or any territory thereof (and in the case of the Company, Bermuda or the Cayman Islands). Prior to the acquisition, FGL Holdings reported under a fiscal year end of December 31, and the Predecessor companies reported under a fiscal year end of September 30. Subsequent to the acquisition, the Successor reports under a fiscal year end of December 31.
On December 1, 2017, upon completion of the acquisitions, FGL Holdings began trading ordinary shares and warrants on the New York Stock Exchange ("NYSE") under the symbols “FG” and “FG WS,” respectively. For additional info related to the Business Combination please refer to “Item 1. Business" towithin FGL Holdings' Annual Report on Form 10-K, for the period ended December 31, 2017 (“2017 Form 10-K”).
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions for the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X, for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Company's 2017 Form 10-K, should be read in connection with the reading of these interim unaudited condensed consolidated financial statements. Dollar amounts in the accompanying sections are presented in millions, unless otherwise noted.
The Company markets products through its wholly-owned insurance subsidiaries, Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) and Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”), which together are licensed in all fifty states and the District of Columbia.

In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results.  Operating results for the three and nine months ended March 31,September 30, 2018, are not

necessarily indicative of the results that may be expected for the full year ending December 31, 2018.  Amounts reclassified out of other comprehensive income are reflected in net investment gains in the unaudited Condensed Consolidated Statements of Operations.

(2) Significant Accounting Policies and Practices
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all other entities in which the Company has a controlling financial interest and any variable interest entities ("VIEs") in which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
We are involved in certain entities that are considered VIEs as defined under GAAP. Our involvement with VIEs is primarily to invest in assets that allow us to gain exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our relationships to determine if we have the ability to direct the activities, or otherwise exert control, to evaluate if we are the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our unaudited condensed consolidated financial statements. The Company has determined that we are not the primary beneficiary of a VIE as of March 31,September 30, 2018. See "Note 4. Investments" to the Company’s unaudited condensed consolidated financial statements for additional information on the Company’s investments in unconsolidated VIEs.
Adoption of New Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued new guidance on revenue recognition (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), effective for fiscal years beginning after December 15, 2016 and interim periods within those years. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year. The FASB also issued the following ASUs which clarify the guidance in ASU 2014-09:
ASU 2016-08 - Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) issued in March 2016
ASU 2016-10 - Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing issued in April 2016
ASU 2016-11 - Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting issued in May 2016
ASU 2016-12 - Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients issued in May 2016
The guidance in ASU 2014-09 and the related ASUs supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance establishes a five-step process to achieve this core principle.
The Company adopted these standards effective January 1, 2018. The adoption of these standards has had an insignificant impact on its unaudited condensed consolidated financial statements as the Company’s primary sources of revenue, insurance contracts and financial instruments, are excluded from the scope of these standards.
Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued new guidance (ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments), effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Notable amendments in this update will change the classification of certain cash receipts and cash payments in the Statement of Cash Flows in the following ways:
cash payments for debt prepayment or debt extinguishment costs will be classified as cash outflows for financing activities

the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing should be classified as follows: the portion of the cash payment attributable to the accreted interest related to the debt discount as cash outflows for operating activities, and the portion of the cash payment attributable to the principal as cash outflows for financing activities
a reporting entity must make an accounting policy election to classify distributions received from equity method investees using either:
the cumulative earnings approach, which considers distributions received as returns on the investment and are classified as cash inflows from operating activities (with an exception when cumulative distributions received less distributions received in prior periods that were classified as returns of investment exceeds cumulative equity in earnings, in which case the current period distribution up to this excess amount will be considered a return of investment and classified as cash inflows from investing activities); or
the nature of the distribution approach, which classifies distributions received based on the nature of the activity or activities of the investee that generated the distribution (would be considered either a return on investment and classified as cash inflows from operating activities or a return of investment and classified as cash inflows from investing activities)
in the absence of specific GAAP guidance, an entity should classify cash receipts and payments that have aspects of more than one class of cash flows by determining and appropriately classifying each separately identifiable source or use within the cash receipts and cash payments on the basis of the underlying cash flows. If cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the activity that is likely to be the predominant source or use of cash flows for the item will determine the classification.
The amendments in this ASU were adopted by the Company effective January 1, 2018, as required. The Company has elected to use the nature of distribution approach to classify distributions received from equity method investees. The amendments in the update should be applied using a retrospective transition method to each period presented (except where impracticable to apply retrospectively; those specific amendments would be applied prospectively as of the earliest date practicable). The adoption of this standard had an insignificant impact on the Company's Condensed Consolidated Statements of Cash Flows.
Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued new guidance (ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory), effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Under this update:
an entity should recognize current and deferred income taxes for an intra-entity transfer of an asset other than inventory at the time of the transfer
the entity will no longer delay recognition of the income tax consequences of these types of intra-entity asset transfers until the asset has been sold to an outside party, as is practiced under current guidance
The amendments in this ASU were adopted by the Company effective January 1, 2018, as required. The Company does not have any intra-entity asset transfers, therefore this new accounting guidance ishas not expected tohad an impact on the Company's unaudited condensed consolidated financial statements.
Presentation of Changes in Restricted Cash on the Cash Flow Statement
In November 2016, the FASB issued amended guidance regarding the presentation of changes in restricted cash on the cash flow statement (ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash), effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The ASU requires amounts generally described as changes in restricted cash and restricted cash equivalents to be included with cash and cash equivalents on the statement of cash flows. The amendments in this ASU were adopted effective January 1, 2018, as required. The adoption of this guidance had an insignificantno impact on the Company's Condensed Consolidated Statements of Cash Flows.

Scope of Modification Accounting for Stock Compensation
In May 2017, the FASB issued new guidance on the scope of modification accounting for stock compensation (ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting), effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2017-09 may be early adopted. The ASU provides guidance on which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting in Topic 718, Stock Compensation. Under the new guidance, an entity would account for the effects of a modification, immediately before the original award is modified, unless the fair value of the modified award is the same as the fair value of the original award, the vesting conditions of the modified award are the same as the vesting conditions of the original award, and the classification of the modified award (equity instrument or liability instrument) is the same as the classification of the original award, all immediately before the original award is modified.award. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The Company adopted the amendments in this ASU effective January 1, 2018 as required. The adoption of this guidance did not have an impact on the Company's unaudited condensed consolidated financial statements.
Amendments to Recognition and Measurement of Financial Assets and Financial Liabilities
In March 2018, February 2018 and January 2016, the FASB issued amended guidance on the measurement of financial assets and financial liabilities (ASU 2018-04, Investments-Debt Securities (Topic 320) and Regulated Operations (Topic 980) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and
SEC Release No. 33-9273; ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities; and ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, respectively), effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Notable amendments in these updates:
require all equity securities (other than equity investments accounted for under the equity method of accounting or requiring the consolidation of the investee) to be measured at fair value with changes in fair value recognized through net income. Equity securities that do not have readily determinable fair values may be measured at cost minus impairment
require qualitative assessment for impairment of equity investments without readily determinable fair values at each reporting period and, if the qualitative assessment indicates that impairment exists, to measure the investment at fair value
eliminate the requirement to disclose the methods and significant assumptions used to estimate fair value (which is currently required to be disclosed, for financial instruments measured at amortized cost on the balance sheet)
require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments
The amendments in these ASUs should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, and the amendments related to equity securities without readily determinable fair values should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASUs 2016-01, 2018-03, and 2018-04 effective January 1, 2018, with a cumulative-effect adjustment to decrease retained earnings and increase AOCI by $4.
Future Accounting Pronouncements
Long-Duration Contracts
In August 2018, the FASB issued new guidance (ASU 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting pronouncementsfor Long-Duration Contracts), effective for fiscal years beginning after December 15, 2020 including interim periods within those fiscal years. Under this update:
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 other comprehensive income
market risk benefits associated with deposit contracts must be measured at fair value, with the effect of the change in the fair value attributable to a change in the instrument-specific credit risk being recognized in other comprehensive income
deferred acquisition costs are required to be amortized in proportion to premiums, gross profits, or gross margins and 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
disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, 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
The amendments in this ASU may be early adopted as of the beginning of an annual reporting period for which financial statements have not yet been issued, including interim financial statements. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
Fair Value Measurement
In August 2018, the FASB issued new guidance (ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement), effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. Under this update:
for investments in certain entities that calculate net asset value, investors are required to disclose the timing of liquidation of an investee's assets and the date when restrictions from redemption might lapse if the investee has communicated timing to the entity or announced timing publicly
entities should use the measurement uncertainty disclosure to communicate information about the uncertainty in measurement as of the reporting date
entities must disclose changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, or other quantitative information in lieu of weighted average if the entity determines such information would be more reasonable and rational
entities are no longer required to disclose the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements.
The amendments in this ASU may be early adopted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
Internal Use Software
In August 2018, the FASB issued new guidance (ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract), effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. Under this update:
entities are required to capitalize certain implementation costs incurred during the application development stage that relate to a hosting arrangement that is a service contract
entities are required to amortize the capitalized implementation costs over the term of the hosting arrangement.

The amendments in this ASU may be early adopted. The Company is currently evaluating the impact of this new accounting guidance on its unaudited condensed consolidated financial statements.
Credit Losses
In June 2016, the FASB issued new guidance on measurement of credit losses on financial instruments (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This ASU replaces the current incurred loss impairment methodology with one that reflects expected credit losses. The measurement of expected credit losses should be based on historical loss information, current conditions, and reasonable and supportable forecasts. The new guidance requires that an other-than-temporary impairment (“OTTI”) on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of the previous impairment and recognized through realized investment gains and losses. The guidance also requires enhanced disclosures. The Company has identified the material asset classes impacted by the new guidance and is in the process of assessing the accounting, reporting and/or process changes that will be required to comply with the new guidance. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
Reclassifications and Retrospective Adjustments

The Company identified immaterial errors, as described below, during the periods ended September 30, 2018 and June 30, 2018. Management has reviewed the impact of these errors on prior periods in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” (SAB 99) and determined none of these were material to the prior periods impacted.

Effective December 1, 2017, the Company measured the identifiable assets acquired and liabilities assumed from the Business Combination at acquisition-date fair value in future periodsaccordance with ASC 805. This required significant model changes for the re-bifurcation of the host contract and embedded derivative components of the fixed income annuity ("FIA") liability. During the quarter ended September 30, 2018, the Company identified an immaterial error resulting from the model code used in the calculation of the FIA embedded derivative liability. In issuing the September 30, 2018 Form 10-Q, the Company recorded an immaterial correction to the Condensed Consolidated Balance Sheet as of December 31, 2017 by decreasing the contractholder funds liability by $17 as well as a resulting decrease to the intangibles and deferred tax assets of $3 and $3, respectively. In addition, the Company recorded immaterial corrections to the Condensed Consolidated Statement of Operations for each of the three months ended March 31, 2018 and June 30, 2018, and the one month ended December 31, 2017 by decreasing the benefits and other changes in policy reserves by $21, $32, and $17, respectively, as well as increasing the amortization of intangibles by $4, $7 and $3, and income tax expense by $4, $5, and $3 respectively. These immaterial corrections had no impact on the Company’s net income for the three and nine months ended September 30, 2018.

During the quarter ended September 30, 2018, the Company identified an immaterial error related to the December 1, 2017 fair value of the deferred income tax valuation allowance acquired from the Business Combination. In issuing the September 30, 2018 Form 10-Q, the Company recorded an immaterial correction to the Condensed Consolidated Balance Sheet as of December 31, 2017 by decreasing the deferred income tax valuation allowance by $9 and increasing goodwill by a corresponding amount.

During the quarter ended June 30, 2018, the Company identified an immaterial error related to the classification of certain securities as debt or equity under ASC 320, “Investments - Debt and Equity Securities.” In issuing the June 30, 2018 Form 10-Q, the Company recorded an immaterial correction to the Condensed Consolidated Balance Sheet as of December 31, 2017 by decreasing fixed maturity securities, available for sale by $627 and increasing equity securities, at fair value by a corresponding amount. Effective January 1, 2018, the Company adopted guidance under ASU 2016-01 which among other things, requires that the change in fair value of equity securities be reported in income rather than as a direct adjustment to AOCI. As a result, the Company also recorded an immaterial $9 out of period adjustment in the Condensed Consolidated Statement of Operations for the three months ended June 30, 2018 to recognize the Q1 change in fair value associated with the proper classification of equity securities with a corresponding increase in AOCI, as reported in the June 30, 2018 Form 10-Q.


Certain prior year amounts have been disclosed inreclassified or combined to conform to the Company's 2017 Form 10-K. There have not been any additional accounting pronouncements expected to impact the Company.current year presentation.
These reclassifications and combinations had no effect on previously reported results of operations.

(3) Significant Risks and Uncertainties
Federal Regulation    
In April 2016, the Department of Labor (“DOL”) issued the “fiduciary” rule which could have had a material impact on the Company, its products, distribution, and business model. The rule providesprovided that persons who render investment advice for a fee or other compensation with respect to an employer plan or individual retirement account ("IRA") are fiduciaries of that plan or IRA. The rule expandsIRA and would have expanded the definition of fiduciary under ERISA to apply to commissioned insurance agents who advise and sell products to IRA owners. As a result, commissioned insurance agents selling the Company’s IRA products must qualifyproducts. On June 21, 2018, the United States Court of Appeals for a prohibited transaction exemption, either the newly introduced Best Interest Contract Exemption ("BICE") or amended PTE 84-24. TheFifth Circuit formally vacated the DOL fiduciary rule took effect June 2016 butin total when it issued its mandate following the “applicability date" was delayed by DOL to June 9, 2017. DOL also acted to delay many aspectscourt’s decision on March 15, 2018, in U.S. Chamber of the prohibited transaction exemption requirements during a transition period which has been extended to July 1, 2019. If the requirementsCommerce v. U.S. Department of the exemptions were to be implemented fully, the impact on the financial services industry generally and on the Company and its business in particular is difficult to assess. We believe, however, it could have an adverse effect on sales of annuity products to IRA owners particularly in the independent agent distribution channel. A significant portion of the Company's annuity sales are to IRAs. Compliance with the prohibited transaction exemptions when fully phased in would likely require additional supervision of agents, cause changes to compensation practices and product offerings, and increase litigation risk, all of which could adversely impact our business, results of operations and/or financial condition.Labor, 885 F.3d 360 (5th Cir. 2018). Management will continue to monitor developments closely, includingfor potential action by state officials or the SEC to implement rules similar to the vacated DOL Rule by state officials or the Securities and Exchange Commission and believes it is prepared to execute implementation plans as necessary to meet the rule and exemption requirements on the requisite applicability dates.rule.
Use of Estimates and Assumptions
The preparation of the Company's unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used.
Concentrations of Financial Instruments
As of March 31,September 30, 2018 and December 31, 2017, the Company’s most significant investment in one industry, excluding United States ("U.S.") Government securities, was its investment securities in the banking industry with a fair value of $2,484$2,642 or 11% and $2,851 or 12%, respectively, of the invested assets portfolio and an amortized cost of $2,537$2,760 and $2,850, respectively. As of March 31,September 30, 2018, the Company’s holdings in this industry include investments in 110112 different issuers with the top ten investments accounting for 31%33% of the total holdings in this industry. As of March 31,September 30, 2018 and December 31, 2017, the Company had no investments in issuers that exceeded 10% of shareholders' equity. The Company's largest concentration in any single issuer as of March 31,September 30, 2018 and December 31, 2017 was AT&T Inc. and Wells Fargo & Company, respectively, with a total fair value of $127$119 or 1% and $155 or 1% of the invested assets portfolio, respectively.
Concentrations of Financial and Capital Markets Risk
The Company is exposed to financial and capital markets risk, including changes in interest rates and credit spreads which can have an adverse effect on the Company’s results of operations, financial condition and liquidity. The Company expects to continue to face challenges and uncertainties that could adversely affect its results of operations and financial condition. The Company attempts to mitigate the risk, including changes in interest rates by investing in less rate-sensitive investments, including senior tranches of collateralized loan obligations, non-agency residential mortgage-backed securities, and various types of asset backed securities.
The Company’s exposure to such financial and capital markets risk relates primarily to the market price and cash flow variability associated with changes in interest rates. A rise in interest rates, in the absence of other countervailing changes, will increase the net unrealized loss position of the Company’s investment portfolio and, if long-term interest rates rise dramatically within a six to twelve month time period, certain of the Company’s products may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders surrender their contracts in a rising interest rate environment, requiring the Company to liquidate assets in an unrealized loss position. Management believes this risk is mitigated to some extent by surrender charge protection provided by the Company’s products.

Concentration of Reinsurance Risk
The Company has a significant concentration of reinsurance with Wilton Reassurance Company (“Wilton Re”), a third-party reinsurer, that could have a material impact on the Company’s financial position in the event that Wilton Re fails to perform their obligations under the various reinsurance treaties. Wilton Re is a wholly-owned subsidiary of Canada Pension Plan Investment Board ("CPPIB"). CPPIB has an AAA issuer credit rating from Standard & Poor's Ratings Services ("S&P") as of March 31,September 30, 2018. As of March 31,September 30, 2018, the net amount recoverable from Wilton Re was $1,572.$1,546. The Company monitors the financial condition of Wilton Re and other individual reinsurers to attempt to reduce the risk of default by such reinsurers. The Company also monitors

concentration risk arising from similar economic characteristics of reinsurers. Wilton Re is current on all amounts due as of March 31,September 30, 2018.


(4) Investments
The Company’s fixed maturity securities investments have been designated as available-for-sale and are carried at fair value with unrealized gains and losses included in AOCI, net of associated adjustments for deferred acquisition costs ("DAC"), value of business acquired ("VOBA"), deferred sales inducements ("DSI"), unearned revenue ("UREV"), and deferred income taxes. The Company's equity securities investments are carried at fair value with unrealized gains and losses included in net income. The Company’s consolidated investments at March 31,September 30, 2018 and December 31, 2017 are summarized as follows:          
March 31, 2018September 30, 2018
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value
Available-for sale securities                  
Asset-backed securities$3,062
 $6
 $(16) $3,052
 $3,052
$3,705
 $5
 $(28) $3,682
 $3,682
Commercial mortgage-backed securities938
 1
 (15) 924
 924
1,808
 11
 (25) 1,794
 1,794
Corporates13,379
 22
 (317) 13,084
 13,084
12,227
 15
 (608) 11,634
 11,634
Hybrids1,230
 4
 (30) 1,204
 1,204
986
 1
 (36) 951
 951
Municipals1,733
 4
 (27) 1,710
 1,710
1,434
 
 (53) 1,381
 1,381
Residential mortgage-backed securities1,235
 5
 (8) 1,232
 1,232
1,676
 13
 (9) 1,680
 1,680
U.S. Government161
 
 (1) 160
 160
141
 
 (2) 139
 139
Foreign Governments166
 
 (6) 160
 160
Total available-for-sale securities21,738
 42
 (414) 21,366
 21,366
22,143
 45
 (767) 21,421
 21,421
Equities780
 2
 (13) 769
 769
Equity securities1,490
 2
 (52) 1,440
 1,440
Derivative investments389
 6
 (102) 293
 293
319
 135
 (22) 432
 432
Short term investments15
 
 
 15
 15
Commercial mortgage loans528
 
 
 526
 528
497
 
 
 488
 497
Other invested assets276
 
 
 272
 276
606
 
 
 602
 606
Total investments$23,711
 $50
 $(529) $23,226
 $23,232
$25,070
 $182
 $(841) $24,398
 $24,411
December 31, 2017December 31, 2017
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value
Available-for sale securities                  
Asset-backed securities$3,061
 $7
 $(3) $3,065
 $3,065
$3,061
 $7
 $(3) $3,065
 $3,065
Commercial mortgage-backed securities956
 1
 (1) 956
 956
956
 1
 (1) 956
 956
Corporates12,914
 122
 (21) 13,015
 13,015
12,467
 122
 (19) 12,570
 12,570
Equities764
 1
 (4) 761
 761
Hybrids1,445
 6
 (5) 1,446
 1,446
1,066
 4
 (3) 1,067
 1,067
Municipals1,736
 12
 (1) 1,747
 1,747
1,736
 12
 (1) 1,747
 1,747
Residential mortgage-backed securities1,279
 1
 (3) 1,277
 1,277
1,279
 1
 (3) 1,277
 1,277
U.S. Government84
 
 
 84
 84
84
 
 
 84
 84
Foreign Governments198
 
 (1) 197
 197
Total available-for-sale securities22,239
 150
 (38) 22,351
 22,351
20,847
 147
 (31) 20,963
 20,963
Equity securities1,392
 3
 (7) 1,388
 1,388
Derivative investments459
 36
 (3) 492
 492
459
 36
 (3) 492
 492
Short term investments25
 
 
 25
 25
25
 
 
 25
 25
Commercial mortgage loans548
 
 
 549
 548
548
 
 
 549
 548
Other invested assets188
 
 
 186
 188
188
 
 
 186
 188
Total investments$23,459
 $186
 $(41) $23,603
 $23,604
$23,459
 $186
 $(41) $23,603
 $23,604

The unrealized gains and losses were reset to zero effective November 30, 2017 as a result of the Business Combination and application of acquisition accounting.accounting which requires assets and liabilities acquired to be measured at fair value as of the date of the acquisition. Included in AOCI were cumulative gross unrealized gains of $0 and gross unrealized losses of $0 related to the non-credit portion of other-than-temporary-impairments ("OTTI")OTTI on non-agency residential mortgage backed securities ("RMBS") at March 31,for both September 30, 2018 and gross unrealized gains of $0 and gross unrealized losses of $0 related to the non-credit portion of OTTI on non-agency RMBS at December 31, 2017.

Securities held on deposit with various state regulatory authorities had a fair value of $20,138$20,705 and $20,301 at March 31,September 30, 2018 and December 31, 2017, respectively. Under Iowa regulations, insurance companies are required to hold securities on deposit in an amount no less than the Company's legal reserve as prescribed by Iowa regulations.reserve.
At March 31,September 30, 2018 and December 31, 2017, the Company held no material investments that were non-income producing for a period greater than twelve months with fair values of $0 and $0, respectively.months.
In accordance with the Company's FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities.liabilities and are not available to the Company for general purposes. The collateral investments had a fair value of $927$889 and $715 at March 31,September 30, 2018 and December 31, 2017, respectively.
The amortized cost and fair value of fixed maturity available-for-sale securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.
March 31, 2018September 30, 2018
Amortized Cost  Fair ValueAmortized Cost  Fair Value
Corporates, Non-structured Hybrids, Municipal and U.S. Government securities:   
Corporates, Non-structured Hybrids, Municipal and Government securities:   
Due in one year or less$188
 $188
$242
 $241
Due after one year through five years1,176
 1,166
1,055
 1,039
Due after five years through ten years2,543
 2,488
2,462
 2,384
Due after ten years11,917
 11,654
11,195
 10,601
Subtotal15,824
 15,496
14,954
 14,265
Other securities which provide for periodic payments:      
Asset-backed securities3,062
 3,052
3,705
 3,682
Commercial mortgage-backed securities938
 924
1,808
 1,794
Structured hybrids679
 662
Residential mortgage-backed securities1,235
 1,232
1,676
 1,680
Subtotal5,914
 5,870
7,189
 7,156
Total fixed maturity available-for-sale securities$21,738
 $21,366
$22,143
 $21,421
The Company's available-for-sale securities with unrealized losses are reviewed for potential OTTI. For factors considered in evaluating whether a decline in value is other-than-temporary, please refer to “Note 2. Significant Accounting Policies and Practices" to the Company’s 2017 Form 10-K.
The Company analyzes its ability to recover the amortized cost by comparing the net present value of cash flows expected to be collected with the amortized cost of the security. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment terms of the underlying assets backing a particular security, including interest rate and prepayment assumptions, based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also include other assumptions regarding the underlying collateral including default rates and recoveries, which vary based on the asset type and geographic location, as well as the vintage year of the security. For structured securities, the payment priority within the tranche structure is also considered. If the net present value is less than the amortized cost of the investment, an OTTI is recognized. For all other fixed maturity securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. If the net present value is less than the amortized cost of the investment, an OTTI is recognized.
Based on the results of our process for evaluating available-for-sale securities in unrealized loss positions for OTTI, as discussed above, the Company determined that the unrealized losses as of March 31,September 30, 2018 increased due to higher interest rates during the quarteryear coupled with an increase in the spreads over Treasuries required by investors for corporate and municipal bonds. Based on an assessment of all securities in the portfolio in unrealized

loss positions, the Company determined that the unrealized losses on the securities presented in the table below were not other-than-temporarily impaired as of March 31,September 30, 2018.

The fair value and gross unrealized losses of available-for-sale securities, aggregated by investment category and duration of fair value below amortized cost, were as follows:
March 31, 2018September 30, 2018
Less than 12 months 12 months or longer TotalLess than 12 months 12 months or longer Total
Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
Available-for-sale securities                      
Asset-backed securities$2,297
 $(16) $
 $
 $2,297
 $(16)$2,863
 $(28) $
 $
 $2,863
 $(28)
Commercial mortgage-backed securities815
 (15) 
 
 815
 (15)1,208
 (25) 
 
 1,208
 (25)
Corporates11,588
 (317) 
 
 11,588
 (317)10,956
 (608) 
 
 10,956
 (608)
Hybrids1,017
 (30) 
 
 1,017
 (30)796
 (36) 
 
 796
 (36)
Municipals1,482
 (27) 
 
 1,482
 (27)1,356
 (53) 
 
 1,356
 (53)
Residential mortgage-backed securities926
 (8) 
 
 926
 (8)898
 (9) 
 
 898
 (9)
U.S. Government161
 (1) 
 
 161
 (1)139
 (2) 
 
 139
 (2)
Foreign Government143
 (6) 
 
 143
 (6)
Total available-for-sale securities$18,286
 $(414) $
 $
 $18,286
 $(414)$18,359
 $(767) $
 $
 $18,359
 $(767)
Total number of available-for-sale securities in an unrealized loss position less than twelve months          2,054
          2,049
Total number of available-for-sale securities in an unrealized loss position twelve months or longer          0
          0
Total number of available-for-sale securities in an unrealized loss position          2,054
          2,049

December 31, 2017December 31, 2017
Less than 12 months 12 months or longer TotalLess than 12 months 12 months or longer Total
Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
 Fair Value 
Gross Unrealized
Losses
Available-for-sale securities                      
Asset-backed securities$1,944
 $(3) $
 $
 $1,944
 $(3)$1,944
 $(3) $
 $
 $1,944
 $(3)
Commercial mortgage-backed securities478
 (1) 
 
 478
 (1)478
 (1) 
 
 478
 (1)
Corporates4,098
 (21) 
 
 4,098
 (21)3,814
 (19) 
 
 3,814
 (19)
Equities436
 (4) 
 
 436
 (4)
Hybrids484
 (5) 
 
 484
 (5)266
 (3) 
 
 266
 (3)
Municipals285
 (1) 
 
 285
 (1)285
 (1) 
 
 285
 (1)
Residential mortgage-backed securities939
 (3) 
 
 939
 (3)939
 (3) 
 
 939
 (3)
U.S. Government74
 
 
 
 74
 
74
 
 
 
 74
 
Foreign Government140
 (1) 
 
 140
 (1)
Total available-for-sale securities$8,738
 $(38) $
 $
 $8,738
 $(38)$7,940
 $(31) $
 $
 $7,940
 $(31)
Total number of available-for-sale securities in an unrealized loss position less than twelve months          1,224
          1,182
Total number of available-for-sale securities in an unrealized loss position twelve months or longer          0
          0
Total number of available-for-sale securities in an unrealized loss position          1,224
          1,182
At March 31,September 30, 2018 and December 31, 2017, securities in an unrealized loss position were primarily concentrated in investment grade, corporate debt and hybrid instruments.debt.
At March 31,September 30, 2018 and December 31, 2017, securities with a fair value of $4$5 and $10, respectively, had an unrealized loss greater than 20% of amortized cost (excluding U.S. Government and U.S. Government sponsored agency securities), which were insignificant to the carrying value of all investments, respectively.
The following table provides a reconciliation of the beginning and ending balances of the credit loss portion of OTTI on fixed maturity available-for-sale securities held by the Company for the three and nine months ended March 31,September 30, 2018 and 2017 (Predecessor), for which a portion of the OTTI was recognized in AOCI:
Three months ended Three months ended September 30, Nine months ended September 30,
March 31, 2018  March 31, 2017 2018 2017 2018 2017
   Predecessor   Predecessor   Predecessor
Beginning balance$
  $3
 $
 $3
 $
 $3
Increases attributable to credit losses on securities:            
OTTI was previously recognized
  
 
 
 
 
OTTI was not previously recognized
  
 
 
 
 
Ending balance$
  $3
 $
 $3
 $
 $3

The following table breaks out the credit impairment loss type, the associated amortized cost and fair value of the investments at the balance sheet date and non-credit losses in relation to fixed maturity securities and other invested assets held by the Company for the three and nine months ended March 31,September 30, 2018 and 2017 (Predecessor):
Three months ended Three months ended September 30, Nine months ended September 30,
March 31, 2018  March 31, 2017 2018 2017 2018 2017
   Predecessor   Predecessor   Predecessor
Credit impairment losses in operations$(2)  $(21) $
 $
 $(2) $(21)
Change-of-intent losses in operations
  
 
 
 
 
Amortized cost
  7
 
 
 
 
Fair value
  6
 
 
 
 
Non-credit losses in other comprehensive income for investments which experienced OTTI
  
 
 
 
 
Details of OTTI that were recognized in "Net income (loss)" and included in net realized gains on securities were as follows:
Three months ended Three months ended September 30, Nine months ended September 30,
March 31, 2018  March 31, 2017 2018 2017 2018 2017
   Predecessor   Predecessor   Predecessor
OTTI Recognized in Net Income (Loss)            
Asset-backed securities $
 $
 $
 $(1)
Corporates$(2)  $(20) 
 
 (2) (20)
Other invested assets
  (1) 
 
 
 
Total$(2)  $(21) $
 $
 $(2) $(21)
The portion of OTTI recognized in AOCI is disclosed in the Condensed Consolidated Statements of Comprehensive Income (Loss).


Commercial Mortgage Loans
Commercial mortgage loans ("CMLs") represented approximately 2% and 2% of the Company’s total investments as of March 31,September 30, 2018 and December 31, 2017, respectively.2017. The Company primarily makesinvests in mortgage loans on income producing properties including hotels, industrial properties, retail buildings, multifamily properties and office buildings. The Company diversifies its CML portfolio by geographic region and property type to attempt to reduce concentration risk. The Company continuously evaluates CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt. The distribution of CMLs, gross of valuation allowances, by property type and geographic region is reflected in the following tables:
March 31, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Gross Carrying Value % of Total Gross Carrying Value % of Total Gross Carrying Value % of Total Gross Carrying Value % of Total
Property Type:               
Funeral Home$
 % $
 %
Hotel22
 4% 22
 4% 22
 4% 22
 4%
Industrial - General45
 9% 46
 9% 45
 9% 46
 9%
Industrial - Warehouse21
 4% 38
 6% 12
 2% 38
 6%
Multifamily70
 13% 70
 13% 69
 14% 70
 13%
Office157
 30% 158
 29% 147
 30% 158
 29%
Retail213
 40% 214
 39% 202
 41% 214
 39%
Total commercial mortgage loans, gross of valuation allowance$528
 100% $548
 100% $497
 100% $548
 100%
Allowance for loan loss
   
   
   
  
Total commercial mortgage loans$528
   $548
   $497
   $548
  
               
U.S. Region:               
East North Central$112
 21% $108
 20% $111
 22% $108
 20%
East South Central20
 4% 20
 4% 20
 4% 20
 4%
Middle Atlantic85
 16% 85
 15% 79
 16% 85
 15%
Mountain66
 13% 67
 12% 65
 13% 67
 12%
New England14
 3% 14
 3% 10
 2% 14
 3%
Pacific134
 25% 135
 25% 116
 23% 135
 25%
South Atlantic58
 11% 65
 12% 58
 12% 65
 12%
West North Central13
 2% 13
 2% 13
 3% 13
 2%
West South Central26
 5% 41
 7% 25
 5% 41
 7%
Total commercial mortgage loans, gross of valuation allowance$528
 100% $548
 100% $497
 100% $548
 100%
Allowance for loan loss
   
   
   
  
Total commercial mortgage loans$528
   $548
   $497
   $548
  
All of the Company's investments in CMLs had a loan-to-value ("LTV") ratio of less than 75% at March 31,September 30, 2018 and December 31, 2017, as measured at inception of the loans unless otherwise updated. As of March 31,September 30, 2018, all CMLs are current and have not experienced credit or other events which would require the recording of an impairment loss.
LTV and DSC ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.00 indicates that a property’s operations do not generate sufficient income to cover debt payments. We normalize our DSC ratios to a 25-year amortization period for purposes of our general loan allowance evaluation.

The following table presents the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios at March 31,September 30, 2018 and December 31, 2017:
Debt-Service Coverage Ratios Total Amount % of Total Estimated Fair Value % of TotalDebt-Service Coverage Ratios Total Amount % of Total Estimated Fair Value % of Total
>1.25 1.00 - 1.25 <1.00 N/A(a) >1.25 1.00 - 1.25 
March 31, 2018               
September 30, 2018           
LTV Ratios:                          
Less than 50%$275
 $
 $
 $
 $275
 52% $274
 52%$256
 $
 $256
 52% $252
 52%
50% to 60%234
 7
 
 
 241
 46% 240
 46%222
 7
 229
 46% 225
 46%
60% to 75%12
 
 
 
 12
 2% 12
 2%12
 
 12
 2% 11
 2%
Commercial mortgage loans$521
 $7
 $
 $
 $528
 100% $526
 100%$490
 $7
 $497
 100% $488
 100%
               
                          
December 31, 2017                          
LTV Ratios:                          
Less than 50%$293
 $
 $
 $
 $293
 54% $294
 54%$293
 $
 $293
 54% $294
 54%
50% to 60%236
 7
 
 
 243
 44% 243
 44%236
 7
 243
 44% 243
 44%
60% to 75%12
 
 
 
 12
 2% 12
 2%12
 
 12
 2% 12
 2%
Commercial mortgage loans$541
 $7
 $
 $
 $548
 100% $549
 100%$541
 $7
 $548
 100% $549
 100%
(a) N/A - Current DSC ratio not available.
The Company establishes a general mortgage loan allowance based upon the underlying risk and quality of the mortgage loan portfolio using DSC ratio and LTV ratio. A higher LTV ratio will result in a higher allowance. A higher DSC ratio will result in a lower allowance. The Company believes that the DSC ratio is an indicator of default risk on loans. The Company believes that the LTV ratio is an indicator of the principal recovery risk for loans that default.
 March 31, 2018 December 31, 2017
Gross balance commercial mortgage loans$528
 $548
Allowance for loan loss
 
Net balance commercial mortgage loans$528
 $548
The Company recognizes a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At March 31, 2018 and December 31, 2017, the Company had no CMLs that were delinquent in principal or interest payments. The following provides the current and past due composition of our CMLs:
 March 31, 2018 December 31, 2017
Current to 30 days$528
 $548
Past due
 
Total carrying value$528
 $548

Mortgage loan workouts, refinances or restructures that are classified as troubled debt restructurings (TDR)("TDRs") are individually evaluated and measured for impairment. As of March 31,September 30, 2018 and December 31, 2017, our CML portfolio had no impairments, modifications or TDR.
Net Investment Income
The major sources of “Net investment income” on the accompanying Condensed Consolidated Statements of Operations were as follows:
Three months ended Three months ended September 30, Nine months ended September 30,
March 31, 2018  March 31, 2017 2018 2017 2018 2017
   Predecessor   Predecessor   Predecessor
Fixed maturity securities, available-for-sale$242
  $236
 $249
 $247
 $739
 $725
Equity securities10
  10
 15
 10
 51
 31
Commercial mortgage loans7
  6
 5
 5
 17
 17
Related party loans 1
 
 1
 
Invested cash and short-term investments3
  
 6
 1
 13
 3
Other investments11
  1
 13
 3
 39
 6
Gross investment income273
  253
 289
 266
 860
 782
Investment expense(10)  (6) (22) (5) (48) (17)
Net investment income$263
  $247
 $267
 $261
 $812
 $765


Net Investment Gains (Losses)
Details underlying “Net investment gains (losses)” reported on the accompanying Condensed Consolidated Statements of Operations were as follows:
 Three months ended
 March 31, 2018  March 31, 2017
    Predecessor
Net realized losses on fixed maturity available-for-sale securities$(37)  $(17)
Realized losses on equity securities(6)  
Change in fair value of other derivatives and embedded derivatives
  1
Realized losses on other invested assets(3)  (1)
Hedging derivatives and reinsurance-related embedded derivatives:

  

Realized gains on certain derivative instruments11
  75
Unrealized gains (losses) on certain derivative instruments(135)  34
Change in fair value of reinsurance related embedded derivatives(21)  (11)
Realized gains (losses) on hedging derivatives and reinsurance-related embedded derivatives(145)  98
Net investment gains (losses)$(191)  $81
  Three months ended September 30, Nine months ended September 30,
  2018 2017 2018 2017
    Predecessor   Predecessor
Net realized gains (losses) on fixed maturity available-for-sale securities $(24) $3
 $(84) $(22)
Realized gains (losses) on equity securities (19) 3
 (48) 3
Realized gains (losses) on other invested assets 3
 
 
 
Derivatives and embedded derivatives: 

 

    
Realized gains (losses) on certain derivative instruments 27
 70
 23
 218
Unrealized gains (losses) on certain derivative instruments 135
 48
 72
 91
Change in fair value of reinsurance related embedded derivatives (a) (3) (8) (37) (28)
Change in fair value of other derivatives and embedded derivatives 
 1
 
 3
Realized gains (losses) on derivatives and embedded derivatives 159
 111
 58
 284
Net investment gains (losses) $119
 $117
 $(74) $265
(a) Change in fair value of reinsurance related embedded derivatives in the successor period is due to FSRC unaffiliated third party business and the predecessor periods activity is due to the FGL and FSRC reinsurance treaty. See "Note 14. Related Party Transactions".

The proceeds from the sale of fixed-maturity available for-sale-securities and the gross gains and losses associated with those transactions were as follows:
Three months ended Three months ended September 30, Nine months ended September 30,
March 31, 2018  March 31, 2017 2018 2017 2018 2017
   Predecessor   Predecessor   Predecessor
Proceeds$2,778
  $263
 $662
 $174
 $4,310
 $606
Gross gains8
  8
 1
 9
 9
 23
Gross losses(43)  (2) (26) (5) (91) (18)
In accordance with the Company's adoption of ASU 2016-01, for the three and nine months ended March 31,September 30, 2018 the Company had the following realized and unrealized gains and losses on equity securities:
Three months endedThree months ended Nine months ended
March 31, 2018September 30, 2018 September 30, 2018
Net gains (losses) recognized during the period on equity securities$(6)$(19) $(48)
Less: Net gains (losses) recognized during the period on equity securities sold during the period1

 (2)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date$(7)$(19) $(46)
The Company's adoption of ASU 2016-01 with respect to gains and losses on equity securities had a $(7) million$(19) and $(46) impact on pre-tax net income, or $0.03$(0.09) and $(0.21) per common share, for the three and nine months ended March 31, 2018.September 30, 2018, respectively.

Unconsolidated Variable Interest Entities
FGL Insurance owns investments in VIEs that are not consolidated within the Company’s financial statements.  VIEs do not have sufficient equity to finance their own activities without additional financial support and certain of its investors lack certain characteristics of a controlling financial interest.  These VIEs are not consolidated in the Company’s financial statements for the following reasons: 1)  FGL Insurance either does not control or does not have any voting rights or notice rights; 2)  the Company does not have any rights to remove the investment manager; and 3)  the Company was not involved in the design of the investment.  These characteristics indicate that FGL Insurance lacks the ability to direct the activities, or otherwise exert control, of the VIEs and is not considered the primary beneficiary of them. 
The Company previously executed a commitment of $75 to purchase common shares in an unaffiliated private business development company ("BDC"). The BDC invests in secured and unsecured fixed maturity and equity securities of middle market companies in the United States. Due to the voting structure of the transaction, the Company does not have voting power.  The initial capital call occurred June 30, 2015, with the remaining commitment expected to fund June 2019. The Company has funded $42$44 as of March 31,September 30, 2018.
The Company invests in various limited partnerships as a passive investor. These investments are in corporate credit and real estate debt strategies that have a current income bias. Limited partnership interests are accounted for under the equity method and are included in “Other invested assets” on the Company’s consolidated balance sheet. The Company's maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company's consolidated balance sheet in addition to any required unfunded commitments. As of March 31,September 30, 2018, the Company's maximum exposure to loss was $191$481 in recorded carrying value and $160$860 in unfunded commitments.


(5) Derivative Financial Instruments
The carrying amounts of derivative instruments, including derivative instruments embedded in FIA contracts, is as follows:
March 31, 2018 December 31, 2017September 30, 2018 December 31, 2017
Assets:      
Derivative investments:      
Call options$278
 $477
$431
 $492
Futures contracts2
 

 
FSRC derivative contracts13
 15
Foreign currency forward1
 
Other invested assets:      
Other derivatives and embedded derivatives17
 17
17
 17
$310
 $509
$449
 $509
Liabilities:      
Contractholder funds:      
FIA embedded derivative$2,333
 $2,387
$2,551
 $2,277
Other liabilities:      
Preferred shares reimbursement feature embedded derivative24
 23
22
 23
$2,357
 $2,410
$2,573
 $2,300
 
The change in fair value of derivative instruments included in the accompanying Condensed Consolidated Statements of Operations is as follows:
 Three months ended
 March 31, 2018  March 31, 2017
    Predecessor
Revenues:    
Net investment (losses) gains:    
    Call options$(120)  $105
    Futures contracts(2)  4
FSRC derivative contracts(2)  
Other derivatives and embedded derivatives
  1
Reinsurance related embedded derivatives(21)  (11)
Total net investment (losses) gains:$(145)  $99
     
Benefits and other changes in policy reserves:    
FIA embedded derivatives$(54)  $112
     
Acquisition and operating expenses, net of deferrals:    
Preferred shares reimbursement feature embedded derivative (a)(1)  
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
   Predecessor   Predecessor
Revenues:       
Net investment gains (losses):       
    Call options$153
 $113
 $86
 $299
    Futures contracts8
 5
 8
 10
    Foreign currency forward1
 
 1
 
Other derivatives and embedded derivatives
 1
 
 3
Reinsurance related embedded derivatives (a)(3) (8) (37) (28)
Total net investment gains (losses)$159
 $111
 $58
 $284
        
Benefits and other changes in policy reserves:       
FIA embedded derivatives$231
 $185
 $274
 $377
        
Acquisition and operating expenses, net of deferrals:       
Preferred shares reimbursement feature embedded derivative (b)$2
 $
 $1
 $
(a) Change in fair value of reinsurance related embedded derivatives in the successor period is due to FSRC unaffiliated third party business and the predecessor periods activity is due to the FGL and FSRC reinsurance treaty.
(b) Only applicable to Successor periods.


Additional Disclosures
Other Derivatives and Embedded Derivatives
On June 16, 2014, FGL Insurance invested inThe Company holds a $35 fund-linked note issued by Nomura International Funding Pte. Ltd. The note provides for an additional payment at maturity based on the value of an embedded derivative in AnchorPath Dedicated Return Fund (the "AnchorPath Fund") of $11 which was based on the actual return of the fund. At March 31,September 30, 2018, the fair value of the fund-linked note and embedded derivative were $25 and $17, respectively. At maturity of the fund-linked note, FGL Insurance will receive the $35 face value of the note plus the value of the embedded derivative in the AnchorPath Fund. The additional payment at maturity is an embedded derivative reported in "Other invested assets", while the host is an available-for-sale security reported in "Fixed maturities, available-for-sale".

Fixed Index Annuity ("FIA") ContractsEmbedded Derivative and Call Options and Futures
The Company has FIA 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 embedded derivative is valued at fair value and included in the liability for contractholder funds in the accompanying Condensed Consolidated Balance Sheets with changes in fair value included as a component of “Benefits and other changes in policy reserves” in the Condensed Consolidated Statements of Operations. See a description of the fair value methodology used in "Note 6. Fair Value of Financial Instruments".
The Company purchases derivatives consisting of a combination of call options and futures contracts on the applicable market indices to fund the index credits due to FIA contractholders. The call options are one, two, three, and five year options purchased to match the funding requirements of the underlying policies. On the respective anniversary dates of the index policies, the index used to compute the interest credit is reset and the Company purchases new one, two, three, or five year call options to fund the next index credit. The Company manages the cost of these purchases through the terms of its FIA contracts, which permit the Company 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 embedded derivative related to index performance. The call options and futures contracts are marked to fair value with the change in fair value included as a 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 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 the Company’s risk tolerance. The Company’s FIA hedging strategy economically hedges the equity returns and exposes the Company to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. The Company uses a variety of techniques, including direct estimation of market sensitivities and value-at-risk to monitor this risk daily. The Company intends to continue to adjust the hedging strategy as market conditions and the Company’s risk tolerance change.
Preferred Equity Remarketing Reimbursement Embedded Derivative Liability
On November 30, 2017 the Company issued 275,000 Series A cumulative preferred shares and 100,000 Series B cumulative preferred shares (together the “Preferred Shares”). The Preferred Shares do not have a maturity date and are non-callable for the first five years.From and after November 30, 2022, the original holders of the Preferred Shares may request and thus require, the Company (subject to customary blackout provisions) to remarket the Preferred Shares on their existing terms. If the remarketing is successful and the original holders elect to sell their preferred shares at the remarketed price and proceeds from such sale are less than the outstanding balance of the applicable shares (including dividends paid in kind and accumulated but unpaid dividends), the Company will be required to reimburse the sellers, up to a maximum of 10% of the par value of the originally issued preferred shares (including dividends paid in kind and accumulated but unpaid dividends) with such amount payable either in cash, ordinary shares, or any combination thereof, at the Company's option (the “Reimbursement Feature”). The Reimbursement Feature represents an embedded derivative that is not clearly and closely related to the preferred stock host and must be bifurcated. The Reimbursement Feature liability is held at fair value within “Other liabilities” in the accompanying Condensed Consolidated Balance Sheets using a Black Derman Toy model incorporating among other things the paid in kind dividend coupon rate and the Company’s call option. Changes in fair value of

this derivative are recognized within “Acquisition and operating expenses, net of deferrals” in the accompanying Condensed Consolidated Statements of Operations.

Foreign Currency Forward
On September 28, 2018, the Company entered into a foreign currency forward contract to economically hedge against unfavorable movements in EUR on an affiliated limited partnership.  Under the forward contract, the price is agreed upon at the time of the contract and payment is made at a specified future date.  The value of the forward was $1 at September 30, 2018 which is equal to the cumulative unrealized value and is reflected in “Derivative Instruments” with the changes in the fair value reflected in “Net investment gains”.  The Company had realized net investment gains of $1 for the nine months ended September, 30, 2018 related to the forward contract.

Credit Risk
The Company is exposed to credit loss in the event of non-performance by its counterparties on the call options and reflects assumptions regarding this non-performance risk in the fair value of the call options. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts less collateral held. The Company maintains a policy of requiring all derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement.
Information regarding the Company’s exposure to credit loss on the call options it holds is presented in the following table:
 March 31, 2018 December 31, 2017 September 30, 2018
Counterparty 
Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk Notional
Amount
 Fair Value Collateral Net Credit Risk 
Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk
Merrill Lynch  A/*/A+ $2,636
 $68
 $24
 $44
 $2,780
 $150
 $118
 $32
  A+/*/A+ $3,515
 $129
 $89
 $40
Deutsche Bank  A-/A3/A- 1,634
 40
 40
 
 1,345
 51
 55
 (4)  A-/A3/BBB+ 1,286
 46
 47
 (1)
Morgan Stanley  */A1/A+ 1,640
 39
 37
 2
 1,555
 92
 101
 (9)  */A1/A+ 1,969
 66
 72
 (6)
Barclay's Bank  A*+/A2/A 1,933
 61
 49
 12
 2,090
 103
 95
 8
  A/Baa3/BBB 1,387
 65
 42
 23
Canadian Imperial Bank of Commerce  AA-/Aa3/A+ 3,074
 83
 78
 5
 2,807
 96
 98
 (2)  */Aa2/A+ 2,376
 81
 82
 (1)
Wells Fargo  A+/A2/A- 1,063
 37
 37
 
Goldman Sachs A/A3/BBB+ 309
 7
 8
 (1)
Total $10,917
 $291
 $228
 $63
 $10,577
 $492
 $467
 $25
 $11,905
 $431
 $377
 $54
    December 31, 2017
Counterparty Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk
Merrill Lynch  A/*/A+ $2,780
 $150
 $118
 $32
Deutsche Bank  A-/A3/A- 1,345
 51
 55
 (4)
Morgan Stanley  */A1/A+ 1,555
 92
 101
 (9)
Barclay's Bank  A*+/A1/A 2,090
 103
 95
 8
Canadian Imperial Bank of Commerce  AA-/Aa3/A+ 2,807
 96
 98
 (2)
Total 
 $10,577
 $492
 $467
 $25
(a) An * represents credit ratings that were not available.
Collateral Agreements
The Company is required to maintain minimum ratings as a matter of routine practice as part of its over-the-counter derivative agreements on ISDA forms. Under some ISDA agreements, the Company has agreed to maintain certain financial strength ratings. A downgrade below these levels provides the counterparty under the agreement the right to terminate the open derivativeoption contracts between the parties, at which time any amounts payable by the Company or the counterparty would be dependent on the market value of the underlying derivativeoption contracts. The Company’sCompany's current rating allows multiple counterpartiesdoesn't allow any counterparty the right to terminate ISDA agreements. No ISDA agreements have been terminated, although the counterparties have reserved the right to terminate the ISDA agreements at any time. In certain

transactions, the Company and the counterparty have entered into a collateral support agreement requiring either party to post collateral when the net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating.For all counterparties, except one, this threshold is set to zero. As of March 31,September 30, 2018 and December 31, 2017, counterparties posted $228$377 and $467 of collateral, respectively, of which $204$288 and $349 is included in "Cash and cash equivalents" with an associated payable for this collateral included in "Other liabilities" on the Condensed Consolidated Balance Sheets. The remaining $24$89 and $118 of non-cash collateral was held by a third-party custodian and may not be sold or re-pledged, except in the event of default, and, therefore, is not included in the Company's Condensed Consolidated Balance Sheets at March 31,September 30, 2018 and December 31, 2017, respectively. This collateral generally consists of U.S. treasury bonds and mortgage-backed securities. Accordingly, the maximum amount of loss due to credit risk that the Company would incur if parties to the call options failed completely to perform according to the terms of the contracts was $63$54 and $25 at March 31,September 30, 2018 and December 31, 2017, respectively.
The Company is required to pay counterparties the effective federal funds rate each day for cash collateral posted to FGL for daily mark to market margin changes.  In June 2017, the Company began reinvesting derivative cash collateral to reduce the interest cost. Cash collateral is invested in short term Treasury securities and A1/P1 commercial paper which are included in "Cash and cash equivalents" in the accompanying Condensed Consolidated Balance Sheets.
The Company held 1,3641,029 and 1,754 futures contracts at March 31,September 30, 2018 and December 31, 2017, respectively. The fair value of the futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements). The Company provides cash collateral to the counterparties for the initial and variation margin on the futures contracts which is included in "Cash and cash equivalents" in the accompanying Condensed

Consolidated Balance Sheets. The amount of cash collateral held by the counterparties for such contracts was $7$6 and $8 at March 31,September 30, 2018 and December 31, 2017, respectively.
Reinsurance Related Embedded Derivatives (Predecessor)

FGL Insurance has a coinsurance arrangement with FSRC, meaning that funds are withheld by FGL Insurance as the legal owner, but the credit risk is borne by FSRC. This arrangement created an obligation for FGL Insurance to pay FSRC at a later date, which resulted in an embedded derivative. This embedded derivative was considered a total return swap with contractual returns that were attributable to the assets and liabilities associated with this reinsurance arrangement. The fair value of the total return swap was based on the change in fair value of the underlying assets held in the funds withheld portfolio. Investment results for the assets that support the coinsurance with funds withheld reinsurance arrangement, including gains and losses from sales, were passed directly to the reinsurer pursuant to contractual terms of the reinsurance arrangement. The reinsurance related embedded derivative was reported in “Other assets”, if in a net gain position, or "Other liabilities", if in a net loss position, on the Predecessor's Condensed Consolidated Balance Sheets and the related gains or losses were reported in “Net investment gains” on the Predecessor's Condensed Consolidated Statements of Operations. Due to the acquisition of FSRC, the reinsurance related embedded derivative is eliminated in consolidation in the Successor periods.
Call option payable to FSRC (Predecessor)
Under the terms of the coinsurance arrangement with FSRC, FGL Insurance is required to pay FSRC a portion of the net cost of equity option purchases and the proceeds from expirations related to the equity options which hedged the index credit feature of the reinsured FIA contracts. Accordingly, the payable to FSRC was reflected in "Funds withheld for reinsurance liabilities" as of the balance sheet date with changes in fair value reflected within the “Net investment gains (losses)” in Predecessor's Condensed Consolidated Statements of Operations. Due to the acquisition of FSRC, the call option payable to FSRC is eliminated in consolidation in the Successor periods.

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

The carrying amounts and estimated fair values of the Company’s financial instruments for which the disclosure of fair values is required, including financial assets and liabilities measured and carried at fair value on a recurring basis, with the exception of investment contracts, related party loans, portions of other invested assets and debt which are disclosed later within this footnote, was summarized according to the hierarchy previously described, as follows:
March 31, 2018September 30, 2018
Level 1 Level 2 Level 3 Fair Value Carrying AmountLevel 1 Level 2 Level 3 Fair Value Carrying Amount
Assets                  
Cash and cash equivalents$1,157
 $
 $
 $1,157
 $1,157
$944
 $
 $
 $944
 $944
Fixed maturity securities, available-for-sale:
 
 
 
 
         
Asset-backed securities
 2,751
 301
 3,052
 3,052

 3,278
 404
 3,682
 3,682
Commercial mortgage-backed securities
 882
 42
 924
 924

 1,747
 47
 1,794
 1,794
Corporates
 11,852
 1,232
 13,084
 13,084

 10,426
 1,208
 11,634
 11,634
Hybrids266
 928
 10
 1,204
 1,204
282
 660
 9
 951
 951
Municipals
 1,673
 37
 1,710
 1,710

 1,345
 36
 1,381
 1,381
Residential mortgage-backed securities
 1,167
 65
 1,232
 1,232

 1,105
 575
 1,680
 1,680
U.S. Government134
 26
 
 160
 160
113
 26
 
 139
 139
Foreign Governments
 144
 16
 160
 160
Equity securities457
 265
 4
 726
 726
490
 901
 4
 1,395
 1,395
Derivative financial instruments2
 291
 
 293
 293
Reinsurance related embedded derivative, included in other assets
 
 
 
 
Derivative investments1
 431
 
 432
 432
Short term investments
 
 
 
 
15
 
 
 15
 15
Other invested assets
 
 17
 17
 17

 
 56
 56
 56
Funds withheld for reinsurance receivables, at fair value82
 660
 6
 748
 748
95
 583
 2
 680
 680
Total financial assets at fair value$2,098
 $20,495
 $1,714
 $24,307
 $24,307
$1,940
 $20,646
 $2,357
 $24,943
 $24,943
Liabilities                  
Derivatives:                  
FIA embedded derivatives, included in contractholder funds
 
 2,333
 2,333
 2,333

 
 2,551
 2,551
 2,551
Preferred shares reimbursement feature embedded derivative
 
 22
 22
 22
Fair value of future policy benefits (FSRC)

 
 712
 712
 712

 
 684
 684
 684
Preferred shares reimbursement feature embedded derivative
 
 24
 24
 24
Total financial liabilities at fair value$
 $
 $3,069
 $3,069
 $3,069
$
 $
 $3,257
 $3,257
 $3,257

December 31, 2017December 31, 2017
Level 1 Level 2 Level 3 Fair Value Carrying AmountLevel 1 Level 2 Level 3 Fair Value Carrying Amount
Assets                  
Cash and cash equivalents$1,215
 $
 $
 $1,215
 $1,215
$1,215
 $
 $
 $1,215
 $1,215
Fixed maturity securities, available-for-sale:                  
Asset-backed securities
 2,653
 412
 3,065
 3,065

 2,653
 412
 3,065
 3,065
Commercial mortgage-backed securities
 907
 49
 956
 956

 907
 49
 956
 956
Corporates
 11,829
 1,186
 13,015
 13,015

 11,401
 1,169
 12,570
 12,570
Hybrids253
 1,183
 10
 1,446
 1,446
253
 804
 10
 1,067
 1,067
Municipals
 1,709
 38
 1,747
 1,747

 1,709
 38
 1,747
 1,747
Residential mortgage-backed securities
 1,211
 66
 1,277
 1,277

 1,211
 66
 1,277
 1,277
U.S. Government52
 32
 
 84
 84
52
 32
 
 84
 84
Equity securities, available-for-sale404
 310
 3
 717
 717
Derivative financial instruments
 492
 
 492
 492
Foreign Governments
 180
 17
 197
 197
Equity securities404
 937
 3
 1,344
 1,344
Derivative investments
 492
 
 492
 492
Short term investments25
 
 
 25
 25
25
 
 
 25
 25
Other invested assets
 
 17
 17
 17

 
 17
 17
 17
Funds withheld for reinsurance receivables, at fair value88
 648
 4
 740
 740
88
 648
 4
 740
 740
Total financial assets at fair value$2,037
 $20,974
 $1,785
 $24,796
 $24,796
$2,037
 $20,974
 $1,785
 $24,796
 $24,796
Liabilities                  
Derivatives:                  
FIA embedded derivatives, included in contractholder funds$
 $
 $2,387
 $2,387
 $2,387
$
 $
 $2,277
 $2,277
 $2,277
Preferred shares reimbursement feature embedded derivative
 
 23
 23
 23
Fair value of future policy benefits (FSRC)

 
 728
 728
 728

 
 728
 728
 728
Preferred shares reimbursement feature embedded derivative
 
 23
 23
 23
Total financial liabilities at fair value$
 $
 $3,138
 $3,138
 $3,138
$
 $
 $3,028
 $3,028
 $3,028
Valuation Methodologies
Fixed Maturity Securities & Equity Securities
The Company measures the fair value of its securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity or equity security, and the Company will then consistently apply the valuation methodology to measure the security’s fair value. The Company's fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach include third-party pricing services, independent broker quotations, or pricing matrices. The Company uses observable and unobservable inputs in its valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. In addition, market indicators and industry and economic events are monitored and further market data will be 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 unobservable input used in the fair value measurement of equity securities for which the market approach valuation technique is employed is yields for comparable securities. Increases (decreases)or decreases in the yields would result in lower or higher, respectively, fair value measurements. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. Management believes the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. The Company also has an equity investment in a private business development company which is not traded on an exchange or valued by other sources such as analytics or brokers. The Company based the fair value of this investment on an estimated net asset value provided by the investee. Management did not make any adjustments to this valuation.

The fair value of the Company's investment in mutual funds is based on the net asset value published by the respective mutual fund and represents the value the Company would have received if it withdrew its investment on the balance sheet date.

The Company did not adjust prices received from third parties as of March 31,September 30, 2018 or December 31, 2017. However, the Company does analyze the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy.
Derivative Financial Instruments
The fair value of call option assets is based upon valuation pricing models, which represents what the Company would expect to receive or pay at the balance sheet date if it canceled the options, entered into offsetting positions, or exercised the options. Fair values for these instruments are determined internally, based on valuation pricing models which use market-observable inputs, including interest rates, yield curve volatilities, and other factors.
The fair value of futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements) which represents what the Company would expect to receive or pay at the balance sheet date if it canceled the futures contract or entered into offsetting positions. These contracts are classified as Level 1.
The fair value measurement of the FIA embedded derivatives included in contractholder funds is determined through a combination of market observable information and significant unobservable inputs. The market observable inputs are the market value of option and interest swap rates. The significant unobservable inputs are the mortality multiplier, surrender rates, non-performance spread and option costs. The mortality multiplier at March 31,September 30, 2018 and December 31, 2017 was applied to the Annuity 2000 mortality tables. Significant increases (decreases)or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. Significant increases (decreases)or decreases in interest swap rates, mortality multiplier, surrender rates, or non-performance spread in isolation would result in a lower (higher)or higher fair value measurement.measurement, respectively. Generally, a change in any one unobservable input would not directly result in a change in any other unobservable input. Changes in unrealized gains or losses (gains), net inof the Company’s FIA embedded derivatives are included in "Benefits and other changes in policy reserves" in the Condensed Consolidated Statements of Operations.
The fair value of the Reimbursement Feature embedded derivative is determined using a Black Derman Toy model, incorporating the paid in kind dividend coupon, the Company's redemption option and the preferred shareholder's remarketing feature. The remarketing feature allows the shareholder to put the preferred shares to the Company for a value of par after five years and, if after a successful remarketing event the value would be otherwiseamount is less than 90% par.par, up to a maximum of 10% of liquidation price defined. There were $1$(2) and $(1) of changes in fair value are recognized during the three and nine months ended March 31,September 30, 2018, respectively, due to changes in the credit spread.
Other Invested Assets
Fair value of the AnchorPath embedded derivative is based on an unobservable input, the net asset value of the AnchorPath fund at the balance sheet date.  The embedded derivative is similar to a call option on the net asset value of the AnchorPath fund with a strike price of zero since FGL Insurance will not be required to make any additional payments at maturity of the fund-linked note in order to receive the net asset value of the AnchorPath fund on the maturity date.  Therefore, theA Black-Scholes model returnsdetermines the net asset value of the AnchorPath fund as the fair value of the call option regardless of the values used for the other inputs to the option pricing model.  The net asset value of the AnchorPath fund is provided by the fund manager at the end of each calendar month and represents the value an investor would receive if it withdrew its investment on the balance sheet date. Therefore, the key unobservable input used in the Black-Scholes model is the value of the AnchorPath fund. As the value of the AnchorPath fund increases or decreases, the fair value of the embedded derivative will increase or decrease.
FSRC Funds Withheld for Reinsurance Receivables and Future Policy Benefits
FSRC elected to apply the Fair Value Option to account for its funds withheld receivables and future policy benefits liability related to its assumed reinsurance. FSRC measures the fair value of the Funds Withheld for Reinsurance Receivables based on the fair values of the securities in the underlying funds withheld portfolio held by the cedant. FSRC uses a discounted cash flows approach to measure the fair value of the Future Policy Benefits Reserve. The cash flows associated with future policy premiums and benefits are generated using best estimate assumptions (plus a risk margin, where applicable) and are consistent with market prices, where available. Risk

margins are typically applied to non-observable, non-hedgeable market inputs such as long term volatility, mortality, morbidity, lapse, etc.
The significant unobservable inputs used in the fair value measurement of the FSRC future policy benefit liability are undiscounted cash flows, non-performance risk spread and risk margin to reflect uncertainty.  Significant increases (decreases)Undiscounted cash flows used in our September 30, 2018 discounted cash flow model equaled $1,025.  Increases or decreases in non-performance risk spread and risk margin to reflect uncertainty would result in a lower (higher)or higher fair value measurement.measurement, respectively. 


Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of March 31,September 30, 2018 and December 31, 2017, are as follows: 
 Fair Value at Range (Weighted average) Fair Value at Valuation Technique Unobservable Input(s) Range (Weighted average)
 March 31, 2018 Valuation Technique Unobservable Input(s) March 31, 2018 September 30, 2018 September 30, 2018
Assets      
Asset-backed securities $396
 Broker-quoted Offered quotes 97.12% - 102.00% (99.40%)
Asset-backed securities $301
  Broker-quoted  Offered quotes 97.50% - 102.75%
(99.96%)
 8
 Third-Party Valuation Offered quotes 0.00% - 99.70% (14.41%)
Commercial mortgage-backed securities
 17
  Broker-quoted  Offered quotes 100.00% - 105.99%
(105.64%)
 8
 Broker-quoted Offered quotes 100.44% - 100.44% (100.44%)
Commercial mortgage-backed securities 25
  Matrix Pricing  Quoted prices 120.74% - 120.74%
(120.74%)
 39
 Matrix Pricing Quoted prices 102.12% - 116.77% (110.74%)
Corporates 686
  Broker-quoted  Offered quotes 72.70% - 105.99%
(98.19%)
 684
 Broker-quoted Offered quotes 72.02% - 105.50% (96.81%)
Corporates 546
  Matrix Pricing  Quoted prices 68.36% - 112.21%
(100.95%)
 524
 Matrix Pricing Quoted prices 91.83% - 110.13% (99.14%)
Hybrids 10
  Broker-quoted  Offered quotes 94.85% - 94.85%
(94.85%)
 9
 Matrix Pricing Quoted prices 94.99% - 94.99% (94.99%)
Municipals 37
  Broker-quoted  Offered quotes 110.91% - 110.91%
(110.91%)
 36
 Broker-quoted Offered quotes 108.82% - 108.82% (108.82%)
Residential mortgage-backed securities 65
  Broker-quoted  Offered quotes 91.86% - 101.38%
(98.47%)
 242
 Broker-quoted Offered quotes 92.09% - 101.38% (99.68%)
Residential mortgage-backed securities 333
 Matrix Pricing Quoted prices 99.98% - 99.98% (99.98%)
Foreign Governments 16
 Broker-quoted Offered quotes 98.94% - 99.83% (99.22%)
Equity securities (Salus preferred equity) 4
  Income-Approach  Yield 6.40% 4
 Income-Approach Yield 7.11%
Other invested assets:      
Available-for-sale embedded derivative (AnchorPath) 17
  Black scholes model  Market value of AnchorPath fund 100.00% 17
 Black Scholes model Market value of AnchorPath fund 100.00%
Funds withheld for reinsurance receivables at fair value 5
  Matrix pricing  Calculated prices 100.00%
Affiliated bank loans 39
 Yield-method Blended rates 7.20% - 9.20%
Funds withheld for reinsurance receivables at fair value 1
  Loan recovery value Recovery rate 26.00% 2
 Matrix pricing Quoted prices 100.00%
Total $1,714
  $2,357
 
Liabilities      
Future policy benefits (FSRC) $712
 Discounted cash flow Non-Performance risk spread 0.30% $684
 Discounted cash flow Non-Performance risk spread 0.12% - 0.15% (0.13%)
   Risk margin to reflect uncertainty 0.50% - 0.62%
(0.54%)
Derivatives:      
FIA embedded derivatives included in contractholder funds 2,333
 Discounted Cash Flow Risk margin to reflect uncertainty 0.61% 2,551
 Discounted cash flow Market value of option 0.00% - 39.48% (3.33%)
   Market value of option 0.00% - 29.52%
(2.63%)
   SWAP rates 2.71% - 2.79%
(2.73%)
   SWAP rates 3.07% - 3.12% (3.09%)
   Mortality multiplier 80.00% - 80.00%
(80.00%)
   Mortality multiplier 80.00% - 80.00%
(80.00%)
   Surrender rates 0.50% - 75.00%
(6.04%)
   Surrender rates 0.50% - 75.00% (5.96%)
   Partial withdrawals 1.00% - 2.50%
(2.00%)
   Partial withdrawals 1.00% - 2.50%
(2.00%)
   Non-performance spread 0.25% - 0.25%
(0.25%)
   Non-performance spread 0.25% - 0.25%
(0.25%)
   Option cost 0.10% - 17.33%
(2.05%)
   Option cost 0.11% - 16.61% (2.14%)
Preferred shares reimbursement feature embedded derivative 24
 Black Derman Toy model Credit Spread 4.58% 22
 Black Derman Toy model Credit Spread 3.66%
   Yield Volatility 20.00%   Yield Volatility 20.00%
Total liabilities at fair value $3,069
  $3,257
 

 Fair Value at Range (Weighted average) Fair Value at Valuation Technique Unobservable Input(s) Range (Weighted average)
 December 31, 2017 Valuation Technique Unobservable Input(s) December 31, 2017 December 31, 2017 December 31, 2017
Assets      
Asset-backed securities $412
  Broker-quoted  Offered quotes 98.00% - 102.56%
(100.27%)
 $412
 Broker-quoted Offered quotes 98.00% - 102.56%
(100.27%)
Commercial mortgage-backed securities
 49
  Broker-quoted  Offered quotes 99.50% - 122.78%
(114.09%)
 49
 Broker-quoted Offered quotes 99.50% - 122.78%
(114.09%)
Corporates 780
  Broker-quoted  Offered quotes 73.55% - 109.63%
(99.77%)
 763
 Broker-quoted Offered quotes 73.55% - 109.63% (99.66%)
Corporates 406
  Matrix Pricing  Quoted prices 67.72% - 115.04%
(103.72%)
 406
 Matrix Pricing Quoted prices 67.72% - 115.04%
(103.72%)
Hybrids 10
  Broker-quoted  Offered quotes 96.89% - 96.89%
(96.89%)
 10
 Broker-quoted Offered quotes 96.89% - 96.89%
(96.89%)
Municipals 38
  Broker-quoted  Offered quotes 111.84% - 111.84%
(111.84%)
 38
 Broker-quoted Offered quotes 111.84% - 111.84%
(111.84%)
Residential mortgage-backed securities 66
  Broker-quoted  Offered quotes 93.25% - 102.25%
(100.11%)
 66
 Broker-quoted Offered quotes 93.25% - 102.25%
(100.11%)
Equity securities available-for-sale (Salus preferred equity) 3
  Income-Approach  Yield 5.00%
Foreign Governments 17
 Broker-quoted Offered quotes 104.16% - 106.28% (104.82%)
Equity securities (Salus preferred equity) 3
 Income-Approach Yield 5.00%
Other invested assets:      
Available-for-sale embedded derivative (AnchorPath) 17
  Black scholes model  Market value of AnchorPath fund 100.00% 17
 Black Scholes model Market value of AnchorPath fund 100.00%
Funds withheld for reinsurance receivables at fair value 3
  Matrix pricing  Calculated prices 100.00% 3
 Matrix pricing Quoted prices 100.00%
Funds withheld for reinsurance receivables at fair value 1
  Loan recovery value Recovery rate 26.00% 1
 Loan recovery value Recovery rate 26.00%
Total $1,785
  $1,785
 
Liabilities      
Future policy benefits (FSRC) $728
 Discounted cash flow Non-Performance risk spread 0.27% $728
 Discounted cash flow Non-Performance risk spread 0.27%
   Risk margin to reflect uncertainty 0.54%   Risk margin to reflect uncertainty 0.54%
Derivatives:      
FIA embedded derivatives, included in contractholder funds 2,387
 Discounted Cash Flow Market value of option 0.00% - 29.93%
(4.11%)
FIA embedded derivatives included in contractholder funds 2,277
 Discounted cash flow Market value of option 0.00% - 29.93%
(4.11%)
   SWAP rates 2.24% - 2.40%
(2.31%)
   SWAP rates 2.24% - 2.40%
(2.31%)
   Mortality multiplier 80.00% - 80.00%
(80.00%)
   Mortality multiplier 80.00% - 80.00%
(80.00%)
   Surrender rates 0.50% - 75.00%
(6.13%)
   Surrender rates 0.50% - 75.00%
(6.13%)
   Partial withdrawals 2.00% - 3.50%
(2.75%)
   Partial withdrawals 2.00% - 3.50%
(2.75%)
   Non-performance spread 0.25% - 0.25%
(0.25%)
   Non-performance spread 0.25% - 0.25%
(0.25%)
   Option cost 0.06% - 17.33%
(1.99%)
   Option cost 0.06% - 17.33%
(1.99%)
Preferred shares reimbursement feature embedded derivative $23
 Black Derman Toy model Credit Spread 4.13% $23
 Black Derman Toy model Credit Spread 4.13%
   Yield Volatility 20%   Yield Volatility 20.00%
Total liabilities at fair value $3,138
  $3,028
 


The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the three and nine months ended March 31,September 30, 2018 and 2017, respectively. This summary excludes any impact of amortization of VOBA and DAC. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.
Three months ended March 31, 2018Three months ended September 30, 2018
Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
 Included in
Earnings
 Included in
AOCI
  Included in
Earnings
 Included in
AOCI
 
Assets                              
Fixed maturity securities available-for-sale:                              
Asset-backed securities$412
 $
 $(2) $28
 $
 $(6) $(131) $301
$330
 $
 $
 $162
 $
 $(11) $(77) $404
Commercial mortgage-backed securities49
 
 (1) 
 
 (6) 
 42
60
 
 (1) 
 
 
 (12) 47
Corporates1,186
 
 (20) 100
 
 (34) 
 1,232
1,190
 
 (9) 53
 
 (5) (21) 1,208
Hybrids10
 
 
 
 
 
 
 10
10
 
 (1) 
 
 
 
 9
Municipals38
 
 (1) 
 
 
 
 37
37
 
 (1) 
 
 
 
 36
Residential mortgage-backed securities66
 
 
 
 
 (1) 
 65
242
 
 (2) 375
 (1) (3) (36) 575
Foreign Governments16
 
 
 
 
 
 
 16
Equity securities3
 1
 
 
 
 
 
 4
3
 1
 
 
 
 
 
 4
Other invested assets:                              
Available-for-sale embedded derivative17
 
 
 
 
 
 
 17
17
 
 
 
 
 
 
 17
Affiliated Bank Loans50
 
 
 
 (11) 
 
 39
Funds withheld for reinsurance receivables at fair value4
 
 
 2
 
 
 
 6
6
 
 
 
 
 (4) 
 2
Total assets at Level 3 fair value$1,785
 $1
 $(24) $130
 $
 $(47) $(131) $1,714
$1,961
 $1
 $(14) $590
 $(12) $(23) $(146) $2,357
Liabilities                              
FIA embedded derivatives, included in contractholder funds$2,387
 $(54) $
 $
 $
 $
 $
 $2,333
$2,320
 $231
 $
 $
 $
 $
 $
 $2,551
Future policy benefits (FSRC)728
 (20) 
 
 
 4
 
 712
737
 (25) 
 
 
 (28) 
 684
Preferred shares reimbursement feature embedded derivative23
 1
 
 
 
 
 
 24
24
 (2) 
 
 
 
 
 22
Total liabilities at Level 3 fair value$3,138
 $(73) $
 $
 $
 $4
 $
 $3,069
$3,081
 $204
 $
 $
 $
 $(28) $
 $3,257
(a) The net transfers out of Level 3 during the three months ended March 31,September 30, 2018 were exclusively to Level 2.

Three months ended March 31, 2017Three months ended September 30, 2017
PredecessorPredecessor
Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
 Included in
Earnings
 Included in
AOCI
  Included in
Earnings
 Included in
AOCI
 
Assets                              
Fixed maturity securities available-for-sale:                              
Asset-backed securities$197
 $
 $1
 $
 $
 $(9) $(19) $170
$204
 $
 $1
 $22
 $
 $(16) $(52) $159
Commercial mortgage-backed securities85
 
 1
 
 
 
 (8) 78
84
 
 1
 10
 
 
 
 95
Corporates1,078
 
 5
 60
 
 (33) (4) 1,106
1,056
 
 
 73
 (15) (22) 5
 1,097
Hybrids10
 
 
 
 
 
 
 10
10
 
 
 
 
 
 
 10
Municipals37
 
 1
 
 
 
 
 38
38
 
 
 
 
 
 
 38
Residential mortgage-backed securities
 
 
 
 
 
 14
 14
15
 
 
 
 
 
 
 15
Equity securities available-for-sale1
 
 
 
 
 
 
 1
Foreign Governments17
 
 
 
 
 
 
 17
Equity securities1
 
 1
 
 
 
 
 2
Other invested assets:                              
Available-for-sale embedded derivative13
 1
 
 
 
 
 
 14
15
 1
 
 
 
 
 
 16
Loan participations6
 (1) 
 
 
 (5) 
 

 
 
 
 
 
 
 
Total assets at Level 3 fair value$1,427
 $
 $8
 $60
 $
 $(47) $(17) $1,431
$1,440
 $1
 $3
 $105
 $(15) $(38) $(47) $1,449
Liabilities                              
FIA embedded derivatives, included in contractholder funds$2,250
 $112
 $
 $
 $
 $
 $
 $2,362
$2,442
 $185
 $
 $
 $
 $
 $
 $2,627
Total liabilities at Level 3 fair value$2,250
 $112
 $
 $
 $
 $
 $
 $2,362
$2,442
 $
 $
 $
 $
 $
 $
 $2,627
(a) The net transfers out of Level 3 during the Predecessor three months ended March 31,September 30, 2017 were exclusively to Level 2.

 Nine months ended September 30, 2018
 Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
  Included in
Earnings
 Included in
AOCI
     
Assets               
Fixed maturity securities available-for-sale:               
Asset-backed securities$412
 $
 $(2) $342
 $
 $(18) $(330) $404
Commercial mortgage-backed securities49
 
 (3) 12
 
 (6) (5) 47
Corporates1,169
 
 (36) 252
 
 (108) (69) 1,208
Hybrids10
 
 (1) 
 
 
 
 9
Municipals38
 
 (2) 
 
 
 
 36
Residential mortgage-backed securities66
 
 
 554
 (1) (8) (36) 575
Foreign Governments17
 
 (1) 
 
 
 
 16
Equity securities3
 2
 (1) 
 
 
 
 4
Other invested assets:              
Available-for-sale embedded derivative17
 
 
 
 
 
 
 17
Affiliated Bank Loans
 
 
 50
 (11) 
 
 39
Funds withheld for reinsurance receivables at fair value4
 
 
 2
 
 (4) 
 2
Total assets at Level 3 fair value$1,785
 $2
 $(46) $1,212
 $(12) $(144) $(440) $2,357
Liabilities               
FIA embedded derivatives, included in contractholder funds$2,277
 $274
 $
 $
 $
 $
 $
 $2,551
Future policy benefits (FSRC)728
 (44) 
 
 
 
 
 684
Preferred shares reimbursement feature embedded derivative23
 (1) 
 
 
 
 
 22
Total liabilities at Level 3 fair value$3,028
 $229
 $
 $
 $
 $
 $
 $3,257
(a) The net transfers out of Level 3 during the nine months ended September 30, 2018 were exclusively to Level 2.

 Nine months ended September 30, 2017
 Predecessor
 Balance at Beginning
of Period
 Total Gains (Losses) Purchases Sales Settlements Net transfer In (Out) of
Level 3 (a)
 Balance at End of
Period
  Included in
Earnings
 Included in
AOCI
     
Assets               
Fixed maturity securities available-for-sale:               
Asset-backed securities$197
 $(1) $4
 $88
 $
 $(33) $(96) $159
Commercial mortgage-backed securities85
 
 3
 10
 
 (1) (2) 95
Corporates1,062
 
 11
 138
 (15) (61) (38) 1,097
Hybrids10
 
 
 
 
 
 
 10
Municipals37
 
 1
 
 
 
 
 38
Residential mortgage-backed securities
 
 1
 
 
 
 14
 15
Foreign Governments16
 
 1
 
 
 
 
 17
Equity securities1
 
 1
 
 
 
 
 2
Other invested assets:               
Available-for-sale embedded derivative13
 2
 1
 
 
 
 
 16
Loan participations6
 (1) 1
 
 
 (6) 
 
Total assets at Level 3 fair value$1,427
 $
 $24
 $236
 $(15) $(101) $(122) $1,449
Liabilities               
FIA embedded derivatives, included in contractholder funds$2,250
 $377
 $
 $
 $
 $
 $
 $2,627
Total liabilities at Level 3 fair value$2,250
 $377
 $
 $
 $
 $
 $
 $2,627
(a) The net transfers out of Level 3 during the Predecessor nine months ended September 30, 2017 were exclusively to Level 2.

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

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

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

Investment Contracts
Investment contracts include deferred annuities, FIAs, indexed universal life policies ("IULs") and immediate annuities. The fair value of deferred annuity, FIA, and IUL contracts is based on their cash surrender value (i.e. the cost the Company would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value of immediate annuities contracts is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. At March 31,September 30, 2018 and December 31, 2017, this resulted in lower fair value reserves relative to the carrying value. The Company is not required to, and has 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.
Debt
The fair value of debt is based on quoted market prices. The inputs used to measure the fair value of our outstanding debt are classified as Level 2 within the fair value hierarchy. Our revolving credit facility debt is classified as Level 3 within the fair value hierarchy, and the estimated fair value reflects the carrying value as the revolver has no maturity date.
The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the Condensed Consolidated Balance Sheets at amounts other than fair value, summarized according to the fair value hierarchy previously described.
March 31, 2018September 30, 2018
Level 1 Level 2 Level 3 Total Estimated Fair Value Carrying AmountLevel 1 Level 2 Level 3 Total Estimated Fair Value Carrying Amount
Assets                  
FHLB common stock, included in other invested assets$
 $50
 $
 $50
 $50
$
 $48
 $
 $48
 $48
Commercial mortgage loans
 
 526
 526
 528

 
 488
 488
 497
Policy loans, included in other invested assets
 
 14
 14
 18

 
 17
 17
 21
Funds withheld for reinsurance receivables, at fair value
 
 28
 28
 28
Total$
 $50
 $540
 $590
 $596
$
 $48
 $533
 $581
 $594
                  
Liabilities                  
Investment contracts, included in contractholder funds$
 $
 $17,158
 $17,158
 $19,750
$
 $
 $17,869
 $17,869
 $20,613
Debt
 304
 135
 439
 442

 545
 
 545
 540
Total$
 $304
 $17,293
 $17,597
 $20,192
$
 $545
 $17,869
 $18,414
 $21,153
December 31, 2017December 31, 2017
Level 1 Level 2 Level 3 Total Estimated Fair Value Carrying AmountLevel 1 Level 2 Level 3 Total Estimated Fair Value Carrying Amount
Assets                  
Commercial mortgage loans$
 $
 $549
 $549
 $548
$
 $
 $549
 $549
 $548
Policy loans, included in other invested assets
 
 15
 15
 17

 
 15
 15
 17
Funds withheld for reinsurance receivables, at fair value
 
 16
 16
 16

 
 16
 16
 16
Total$
 $
 $580
 $580
 $581
$
 $
 $580
 $580
 $581
                  
Liabilities                  
Investment contracts, included in contractholder funds$
 $
 $16,659
 $16,659
 $19,457
$
 $
 $16,769
 $16,769
 $19,550
Debt
 307
 105
 412
 412

 307
 105
 412
 412
Total$
 $307
 $16,764
 $17,071
 $19,869
$
 $307
 $16,874
 $17,181
 $19,962

The following table includes assets that have not been classified in the fair value hierarchy as the fair value of these investments are measured using the net asset value per share practical expedient. For further discussion about this adoption see “Note 2. Significant Accounting Policies” to the Company's 2017 Form 10-K.
Carrying Value After MeasurementCarrying Value After Measurement
March 31, 2018 December 31, 2017September 30, 2018 December 31, 2017
Equity securities$43
 $44
$45
 $44
Limited partnership investment, included in other invested assets191
 154
481
 154
The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3, or between other levels, at the beginning fair value for the reporting period in which the changes occur. The transfers into and out of Level 3 were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value.

The Company’s assessment resulted in gross transfers into and gross transfers out of certain fair value levels by asset class for the three and nine months ended March 31,September 30, 2018 and 2017, are as follows:
  Transfers Between Fair Value Levels
  Level 1 Level 2 Level 3
  In Out In Out In Out
Three months ended September 30, 2018            
Asset-backed securities $
 $
 $90
 $13
 $13
 $90
Commercial mortgage-backed securities 
 
 12
 
 
 12
Corporates 
 
 21
 
 
 21
Hybrids 
 
 
 
 
 
Residential mortgage-backed securities 
 
 36
 
 
 36
Equity securities 
 30
 30
 
 
 
Total transfers $
 $30
 $189
 $13
 $13
 $159
Predecessor            
Three months ended September 30, 2017            
Asset-backed securities $
 $
 $74
 $22
 $22
 $74
Commercial mortgage-backed securities 
 
 
 
 
 
Corporates 
 
 
 5
 5
 
Residential mortgage-backed securities 
 
 
 
 
 
Equity securities 
 
 
 
 
 
Total transfers $
 $
 $74
 $27
 $27
 $74
 Transfers Between Fair Value Levels Transfers Between Fair Value Levels
 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
 In Out In Out In Out In Out In Out In Out
Three months ended March 31, 2018            
Nine months ended September 30, 2018            
Asset-backed securities $
 $
 $131
 $
 $
 $131
 $
 $
 $343
 $13
 $13
 $343
Commercial mortgage-backed securities 
 
 13
 8
 8
 13
Corporates 
 
 72
 3
 3
 72
Hybrids 15
 
 
 15
 
 
 20
 
 
 20
 
 
Residential mortgage-backed securities 
 
 36
 
 
 36
Equity securities 25
 30
 30
 25
 
 
Total transfers $15
 $
 $131
 $15
 $
 $131
 $45
 $30
 $494
 $69
 $24
 $464
Predecessor                        
Three months ended March 31, 2017            
Nine months ended September 30, 2017            
Asset-backed securities $
 $
 $54
 $35
 $35
 $54
 $
 $
 $154
 $58
 $58
 $154
Commercial mortgage-backed securities 
 
 8
 
 
 8
 
 
 8
 6
 6
 8
Corporates 
 
 5
 1
 1
 5
 
 
 44
 6
 6
 44
Residential mortgage-backed securities 
 
 
 14
 14
 
 
 
 
 14
 14
 
Equity securities 
 
 
 
 
 
Total transfers $
 $
 $67
 $50
 $50
 $67
 $
 $
 $206
 $84
 $84
 $206


(7) Intangibles including deferred acquisition costs, deferred sales inducements and value of business acquired, net
FGL and FSR acquisitions
As part of the FGL acquisition, the following intangible assets (and the weighted average useful lives) were identified:
  Carrying amount Weighted Average Useful Life (Years)
State insurance licenses $6
 Indefinite
Trade marks / trade names 15
 10
Total $21
 
Carrying amounts
A summary of the changes in the carrying amounts of the Company's VOBA, DAC and DSI intangible assets are as follows:
                  
 VOBA UREV DSI DAC Total VOBA DAC DSI Total
Balance at December 31, 2017 $827
 $
 $10
 $19
 $856
 $821
 $22
 $10
 $853
Deferrals 
 (9) 26
 59
 76
 
 219
 98
 317
Amortization (26) 7
 (1) (1) (21) (75) (6) (5) (86)
Interest 5
 
 
 
 5
 15
 2
 1
 18
Unlocking 
 
 
 
 
 (4) 
 
 (4)
Adjustment for net unrealized investment (gains) losses 38
 (5) 1
 4
 38
 96
 6
 5
 107
Balance at March 31, 2018 $844
 $(7) $36
 $81
 $954
Balance at September 30, 2018 $853
 $243
 $109
 $1,205
                  
Predecessor VOBA UREV DSI DAC Total VOBA DAC DSI Total
Balance at December 31, 2016 $118
 $
 $86
 $1,024
 $1,228
 $118
 $1,024
 $86
 $1,228
Deferrals 
 
 11
 79
 90
 
 205
 31
 236
Amortization (9) 
 (5) (37) (51) (34) (98) (12) (144)
Interest 3
 
 1
 11
 15
 9
 32
 3
 44
Unlocking 4
 
 (1) 
 3
 26
 6
 (2) 30
Adjustment for net unrealized investment (gains) losses (107) 
 
 6
 (101) (119) (146) 
 (265)
Balance at March 31, 2017 $9
 $
 $92
 $1,083
 $1,184
Balance at September 30, 2017 $
 $1,023
 $106
 $1,129
Amortization of VOBA, DAC, DSI, and UREVDSI is based on the historical, current and future expected gross margins or profits recognized, including investment gains and losses. The interest accrual rate utilized to calculate the accretion of interest on VOBA ranged from 0.05% to 4.01%. The adjustment for unrealized net investment losses (gains) represents the amount of VOBA, DAC, DSI, and UREVDSI that would have been amortized if such unrealized gains and losses had been recognized. This is referred to as the “shadow adjustments” as the additional amortization is reflected in AOCI rather than the Consolidated StatementStatements of Operations. As of March 31,September 30, 2018, and March 31,September 30, 2017, the VOBA balances included cumulative adjustments for net unrealized investment (gains) losses (gains) of $22$78 and $(147)$(159), respectively, and the DAC balances included cumulative adjustments for net unrealized investment (gains) losses of $0$5 and $13,$(139), respectively. As of March 31,September 30, 2018, the DSI balance included net unrealized investment (gains) losses of $5.

Estimated amortization expense for VOBA in future fiscal periods is as follows:
  Estimated Amortization Expense
Fiscal Year  
2018 15
2019 69
2020 89
2021 85
2022 79
Thereafter 438
The Company had an unearned revenue balance of $26 as of September 30, 2018, including deferrals of $(28), amortization of $18, unlocking of $2, and the UREV balance includedadjustment for net unrealized investment gains(gains) losses of $(3)$(18).


Definite Lived Intangible Assets
Amortizable intangible assets as of March 31,September 30, 2018 consist of the following:
  March 31, 2018
  Cost Accumulated amortization Net
Trade names 16 1 15
Estimated amortization expense for VOBA in future fiscal periods is as follow:
  September 30, 2018 
  Cost Accumulated amortization NetWeighted Average Useful Life (Years)
Trade names 16 2 1410
  Estimated Amortization Expense
Fiscal Year  
2018 40
2019 79
2020 85
2021 81
2022 73
Thereafter 464
  Carrying amount Weighted Average Useful Life (Years)
State insurance licenses $6
 Indefinite
Trade marks / trade names 14
 10
Total $20
 

(8) Debt
On April 20, 2018, Fidelity & Guaranty Life Holdings, Inc. ("FGLH"), a subsidiary of the Company, completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025, issued at 99.5% for proceeds of $547. The Company used the net proceeds of the offering (i) to repay $135 of borrowings under its revolving credit facility and related expenses and (ii) to redeem in full and satisfy and discharge all of the outstanding $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021. The Company expects to use the remaining proceeds of the offering for general corporate purposes, which may include additional capital contributions to the Company's insurance subsidiaries. This exchange of debt instruments constituted an extinguishment. As a result, the Company recognized a $2 gain on the extinguishment of the 6.375% Senior Notes.
The Company capitalized $7 of debt issuance costs in connection with the 5.50% Senior Notes offering, which are classified as an offset within the "Debt" line on the Company's Condensed Consolidated Balance Sheets, and are being amortized from the date of issue to the redemption date using the straight-line method.
The Company's outstanding debt as of March 31,September 30, 2018 and December 31, 2017 is as follows:
March 31, 2018 December 31, 2017September 30, 2018 December 31, 2017
Debt$307
 $307
$550
 $307
Revolving credit facility135
 105

 105
The $135$0 and $105 drawn balances on the revolver carried interest rates equal to 4.63%0% and 4.17%, as of March 31,September 30, 2018 and December 31, 2017, respectively. As of March 31,September 30, 2018 and December 31, 2017, the amount available to be drawn on the revolver was $115$250 and $145, respectively.
The interest expense and amortization of debt issuance costs of the Company's debt for the three and nine months ended March 31,September 30, 2018 and 2017, respectively, were as follows:
Three months endedThree months ended Nine months ended
March 31, 2018  March 31, 2017September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
   Predecessor  Predecessor   Predecessor
Interest Expense Amortization  Interest Expense AmortizationInterest Expense Amortization Interest Expense Amortization Interest Expense Amortization Interest Expense Amortization
Debt5
 
  5
 
7
 1
 5
 
 20
 1
 14
 
Revolving credit facility1
 
  1
 

 
 1
 
 2
 
 3
 1
Gain on extinguishment of debt
 
 
 
 (2) 
 
 


(9) Equity

Share Repurchases (Predecessor)
The Company acquired 4 thousand shares for a total cost of $0 to satisfy employee income tax withholding pursuant to the Company’s stock compensation plan during the three months ended March 31, 2017.

Dividends
The Company did not declare a cash dividend to its common shareholders during the three and nine months ended March 31,September 30, 2018. The CompanyPredecessor declared the following cash dividends to its common shareholders during the three and nine months ended March 31,September 30, 2017:
Date Declared Date Paid Date Shareholders of record Shareholders of record (in thousands) Cash Dividend declared (per share) Total cash paid Date Paid Date Shareholders of record Shareholders of record (in thousands) Cash Dividend declared (per share) Total cash paid
February 2, 2017 March 6, 2017 February 21, 2017 58,308 $0.065 $4 March 6, 2017 February 21, 2017 58,308 $0.065 $4
May 1, 2017 June 5, 2017 May 22, 2017 58,315 $0.065 $4
July 27, 2017 August 28, 2017 August 14, 2017 58,316 $0.065 $4
The Company declared the following dividends to its preferred shareholders during the three and nine months ended March 31,September 30, 2018:
Type of Preferred Share Date Declared Date Paid Date Shareholders of record Shareholders of record (in thousands) Method of Payment Total cash paidTotal shares paid in kind (in thousands) Date Declared Date Paid Date Shareholders of record Shares outstanding at date of record (in thousands) Method of Payment Total cash paidTotal shares paid in kind (in thousands)
Series A Preferred Shares March 29, 2018 April 1, 2018 March 15, 2018 277 Paid in kind $—5 March 29, 2018 April 1, 2018 March 15, 2018 277 Paid in kind $—5
Series B Preferred Shares March 29, 2018 April 1, 2018 March 15, 2018 101 Paid in kind $—1 March 29, 2018 April 1, 2018 March 15, 2018 101 Paid in kind $—1
Series A Preferred Shares June 29, 2018 July 1, 2018 June 15, 2018 282 Paid in kind $—5
Series B Preferred Shares June 29, 2018 July 1, 2018 June 15, 2018 102 Paid in kind $—2
Series A Preferred Shares September 28, 2018 October 1, 2018 September 15, 2018 287 Paid in kind $—5
Series B Preferred Shares September 28, 2018 October 1, 2018 September 15, 2018 104 Paid in kind $—2
There were no preferred shareholders during the Predecessor three and nine months ended September 30, 2017.

(10) Stock Compensation

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

FGL Incentive Plan

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

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

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

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

In the nine months ended September 30, 2018, the Company granted 374 thousand phantom units to members of management under a management incentive plan (the "Management Incentive Plan"). The phantom units are settled in cash, and therefore the Management Incentive Plan is classified as a liability plan. The value of this plan is classified within "Other liabilities" on the unaudited Condensed Consolidated Balance Sheets and is adjusted each period, with a corresponding adjustment to “Acquisition and operating expenses, net of deferrals”, to reflect changes in the Company’s stock price. The total fair value of the restricted shares granted in the nine months ended September 30, 2018 was $3.

One half of the phantom units vest in three equal installments on each March 15th from 2019 to 2021, subject to awardees continued service with the Company. The other half will begin vesting on March 15, 2020 and cliff vest on March 15, 2021 based on continued service and attainment of a performance metric: adjusted operating income return on equity.
At September 30, 2018, the liability for phantom units of $0 was based on the number of units granted, the elapsed portion of the service period and the fair value of the Company’s common stock on that date which was $8.95.
A summary of the Management Incentive Plan nonvested phantom units outstanding as of March 31, 2018.September 30, 2018, and related activity during the nine months ended, is as follows (share amount in thousands):
Phantom units Shares 
Weighted Average Grant
Date Fair Value
Phantom units outstanding at December 31, 2017 
 $
Granted 374
 8.95
Vested 
 
Forfeited or expired (13) 8.96
Phantom units outstanding at September 30, 2018 361
 8.95

The Company recognized total stock compensation expense related to the FGL Incentive Plan and Management Incentive Plan is as follows:
  Three months endedNine months ended
  September 30, 2018 September 30, 2018
FGL Incentive Plan    
Stock options $2
 $3
Restricted shares 1
 1
  3
 4
Management Incentive Plan    
Phantom units 
 
  
 
Total stock compensation expense 3
 4
Related tax benefit 1
 1
Net stock compensation expense $2
 $3
The stock compensation expense is included in "Acquisition and operating expenses, net of deferrals" in the unaudited Condensed Consolidated Statements of Operations.
Total compensation expense related to the FGL Incentive Plan and Management Incentive Plan not yet recognized as of September 30, 2018 and the weighted-average period over which this expense will be recognized are as follows:
  Unrecognized Compensation
Expense
 Weighted Average Recognition
Period in Years
FGL Incentive Plan    
Stock options $26
 3
Restricted shares 
 0
  26
  
Management Incentive Plan    
Phantom units 3
 2
  3
  
Total unrecognized stock compensation expense $29
 3

(11) Income Taxes
    
The Company (“FGL Holdings, Cayman”) is a Cayman-domiciled corporation that has operations in Bermuda and the U.S. Neither the Cayman Islands nor Bermuda impose a corporate income tax. The Company’s U.S. non-life subsidiaries file a consolidated non-life U.S. Federal income tax return. For tax years prior to December 1, 2017, the non-life members were included in former parent company HRG’s consolidated U.S. Federal income tax return. The income tax liabilities of the Company as former members of the consolidated HRG return were calculated using the separate return method as prescribed in ASC 740. The Company’s US life insurance subsidiaries file a separate life consolidated U.S. Federal income tax return. The life insurance companies will be eligible to join in a consolidated filing with the U.S. non-life companies in 2022.
The Company’s Bermuda insurance subsidiary, F&G Life Re Ltd., is party to a ModCo reinsurance agreement with its US Life sister company, FGL Insurance. The Tax Cut and Jobs Act (“TCJA”) enacted inon December 22 2017, contained a Base-Erosion and Anti-Abuse Tax (“BEAT”). The BEAT provisions apply a minimum tax (5% in 2018) to certain reinsurance payments settled between FGL Insurance and F&G Re.Life Re Ltd. Absent clarifying guidance, the current language in the Act suggests that the tax is applied without regard to deduction or offset under a typical Modco arrangementModCo reinsurance agreement (i.e. a “Gross application”). Without clarifying guidance from Regulatory authorities in regards to allowing for a “Net application” in the calculation of BEAT, the Company will make an election under IRC Code Section 953(d) for the 2018 tax year, which will result in F&G Re LtdLtd. being treated as if it were a US Tax Payer. The effect of the election would be retroactive to the

beginning of the Tax calendar year. The current period financial statements reflect an assumed 953(d) election with regard to FGF&G Life Re Ltd. As a result of the assumed election, which would occur in the event that clarifying language allowing a "net application" is not determined, an opening balance sheet deferred tax liability was set up resulting in a discrete expense being recorded forin the quarter.first quarter of 2018. The provision for income taxes represents federal income taxes. The effective tax rate for the three and nine months ended March 31,September 30, 2018 was 40%.21% and 29%, respectively. The effective tax rate for the three and nine months ended March 31,September 30, 2017 was 37%.30% and 32%, respectively. The effective tax rate on pre-tax income for the current three monthnine months ended March 31,September 30, 2018 differs from the U.S Federal statutory rate for

2018 of 21% primarily due to the impact of F&G Life Re Ltd. making an election to be a US taxpayer. As a result of the election, an opening balance sheet deferred tax liability was set up resulting in a discrete expense being recorded in the first quarter. The effective tax rate on pre-tax income for the quarter.nine months ended September 30, 2017 differed from the U.S. Federal statutory rate for 2017 of 35% primarily due to a valuation allowance release within the non-life companies and favorable permanent adjustments, including low income housing credits and dividends received deduction. The effective tax rate on pre-tax income for the three months ended March 31,September 30, 2017 differed from the U.S Federal statutory rate for 2017 of 35% primarily due to thea valuation allowance placed againstrelease within the income tax benefitnon-life companies and the impact of the Company’s non-life subsidiaries.favorable permanent adjustments.
The Tax Cut and Jobs Act (“TCJA”) was enacted on December 22, 2017, and itTCJA amended many provisions of the Internal Revenue Code that effect on the Company.  The SEC’s Staff Accounting Bulletin No. 118 (“SAB 118”) provides guidance on accounting for the effects of U.S. tax reform in circumstances in which an exact calculation cannot be made, but for which a reasonable estimate can be determined. As internal systems are updated and additional guidance becomes available, the estimate will be updated in accordance with instruction outlined in the standard and within the measurement period, which is not to extend beyond one year from the enactment date.  The only provisional amount utilized in the preparation of the Company’s financial statements was tax reserves.  As of the reporting date, the Company has not yet been able to update its reserving system forfinalized the reserve impact of the TCJA.  A reasonable estimate, prepared by the CompaniesCompany's Actuarial department, was calculated at December 31, 2017 and refined as induring the current period.period ending June 30, 2018. The refinement had no impact on the Company’s ETR as the book\tax difference on tax reserves is a timing difference.  No other provisions of the U.S. tax reform had a significant impact on our 20172018 income tax provisions.
The Company maintains a valuation allowance against most of the deferred tax assets of its non-life insurance company subsidiaries, FSRC, and the unrealized capital losses on F&G Re.Life Re Ltd.. The Company has also placed a partial valuation allowance on its unrealized capital losses on the US life insurance subsidiaries. The non-life insurance company subsidiaries have a history of losses and insufficient sources of future income that would allow for recognition of all of their deferred tax assets. FSRC is in a cumulative loss position and does not have a sufficient track record of earnings to recognize any portion of its deferred tax assets. F&G Life Re Ltd. does not have a source of capital gain income needed to recognize its unrealized loss deferred tax assets. The Company’s US life insurance subsidiaries have sources of capital gain income, but not enough to cover all of its unrealized loss deferred tax assets.
All other deferred tax assets are more likely than not to be realized based on expectations as to our future taxable income and considering all other available evidence, both positive and negative.
The valuation allowance is reviewed quarterly and will be maintained until there is sufficient positive evidence to support a release. At each reporting date, management considers new evidence, both positive and negative, that could impact the future realization of deferred tax assets. Management will consider a release of the valuation allowance once there is sufficient positive evidence that it is more likely than not that the deferred tax assets will be realized. Any release of the valuation allowance will be recorded as a tax benefit increasing net income or other comprehensive income.
As of March 31,September 30, 2018, the Company had a partial valuation allowance of $34$82 against its gross deferred tax assets of $292.$367. The valuation allowance is an offset to most of the non-life company deferred tax assets, FSRC deferred tax assets, and F&G Life Re Ltd. and US Life Insurance Company deferred tax assets on unrealized capital losses that are considered more likely than not to be unrecoverable due to insufficient sources of future income.


(12) Commitments and Contingencies
Commitments
The Company has unfunded investment commitments as of March 31,September 30, 2018 based upon the timing of when investments are executed compared to when the actual investments are funded, as some investments require that funding occur over a period of months or years. A summary of unfunded commitments by invested asset class are included below:
 March 31, 2018 September 30, 2018
Asset Type    
Other invested assets $160
 $859
Equity securities 33
 31
Fixed maturity securities, available-for-sale 110
 43
Other assets 12
 9
Total $315
 $942

As of September 30, 2018, the Company had unfunded commitments in affiliated investments which are included in the table above. See "Note 14. Related Party Transactions" for further information.
Lease Commitments
The Company leases office space under non-cancelable operating leases that expire in May 2021. Rent expense and minimum rental commitments under non-cancelable leases are immaterial.
Contingencies
Regulatory and Litigation Matters
The Company is involved in various pending or threatened legal proceedings, including purported class actions, arising in the ordinary course of business. In some instances, these proceedings include claims for unspecified or substantial punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief. In the opinion of the Company's management and in light of existing insurance and other potential indemnification, reinsurance and established accruals, such litigation is not expected to have a material adverse effect on the Company's financial position, although it is possible that the results of operations and cash flows could be materially affected by an unfavorable outcome in any one period.
The Company is assessed amounts by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. At March 31,September 30, 2018, FGL has accrued $2 for guaranty fund assessments that is expected to be offset by estimated future premium tax deductions of $2.
The Company has received inquiries from a number of state regulatory authorities regarding its use of the U.S. Social Security Administration’s Death Master File (the "Death Master File") and compliance with state claims practices regulation. Legislation requiring insurance companies to use the Death Master File to identify potential claims has been enacted in a number of states. As a result of these legislative and regulatory developments, the Company uses the Death Master File and other publicly available databases to identify persons potentially entitled to benefits under life insurance policies, annuities and retained asset accounts. In addition, the Company has received audit and examination notices from several state agencies responsible for escheatment and unclaimed property regulation in those states and in some cases has challenged the audits including litigation against the Controller for the State of California which is subject to a stay and separate litigation against the Treasurer for the State of Illinois. The Company believes its current accrual will cover the reasonably estimated liability arising out of these developments,developments; however, costs that cannot be reasonably estimated as of the date of this filing are possible as a result of ongoing regulatory developments and other future requirements related to these matters.

On June 30, 2017, a putative class action complaint was filed against the CompanyFGL Insurance, FGL, and FS Holdco II Ltd in the United States District Court for the District of Maryland, captioned Brokerage Insurance Partners v. Fidelity & Guaranty Life Insurance Company, Fidelity & Guaranty Life, FS Holdco II Ltd, and John Doe, No. 17-cv-1815. The complaint alleges that the CompanyFGL Insurance breached the terms of its agency agreement with Brokerage Insurance Partners (“BIP”) and other agents by changing certain compensation terms. The complaint asserts, among other causes of action, breach of contract, defamation, tortious interference with contract, negligent misrepresentation, and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”).  The complaint seeks to certify a class composed of all persons who entered into an agreement with the CompanyFGL Insurance to sell life insurance and who sold at least one life insurance policy between January 1, 2015 and January 1, 2017.  The complaint seeks unspecified compensatory, consequential, and punitive damages in an amount not presently determinable, among other forms of relief.
On September 1, 2017, the CompanyFGL Insurance filed a counterclaim against BIP and John and Jane Does 1-10, asserting, among other causes of action, breach of contract, fraud, civil conspiracy and violations of RICO. On September 22, 2017, Plaintiff filed an Amended Complaint, and on October 16, 2017, the CompanyFGL Insurance filed an Amended Counterclaim against BIP, Agent Does 1-10, and Other Person Does 1-10. The parties also filed cross-Motions to Dismiss in Part, which arePart.
On August 17, 2018, the Court in the BIP Litigation denied all pending beforeMotions to Dismiss filed by all parties without prejudice, pending a decision as to whether the Court.BIP Litigation will be consolidated into related litigation, captioned Fidelity & Guaranty Life Insurance Company v. Network Partners, et al., Case No. 17-cv-1508. On August 31, 2018, FGL filed its Answer to BIP’s Amended Complaint. Also on that date, FGL Insurance filed its Answer to Amended Complaint, Affirmative Defenses, and Counterclaim, Filed Pursuant to Fed. R. Civ. P. 12(a)(4)(A). As of September 30, 2018, BIP has not filed any document in response to the Court’s August 17, 2018 Order or to FGL Insurance’s filing.
As of the date of this report, the Company does not have sufficient information to determine whether it has exposure to any losses that would be either probable or reasonably estimable. 
On July 5, 2013, Plaintiff Eddie L. Cressy filed a putative class Complaint captioned Cressy v. Fidelity Guaranty [sic] Life Insurance Company, et. al. in theSuperior Court of California, County of Los Angeles (the "Court"), Case No. BC-514340. The Complaint was filed after the Plaintiff was unable to maintain an action in federal court. The Complaint asserted, inter alia, that the Plaintiff and members of the putative class relied on Defendants’ advice in purchasing allegedly unsuitable equity-indexed insurance policies.

On January 2, 2015, the Court entered Final Judgment in Cressy, certifying the class for settlement purposes, and approving the class settlement reached on April 4, 2014. On August 10, 2015, the Company tendered $1 to the Settlement Administrator for a claim review fund. The Company implemented an interest enhancement feature for certain policies as part of the class settlement, which enhancement began on October 12, 2015. On October 24, 2016, the parties filed a Joint Motion to amend the January 2, 2015 Final Order and Judgment, to extend the deadline for settlement completion from October 24, 2016 to December 5, 2016. On December 5, 2016, Plaintiff Cressy filed a Notice of Filing Declaration of Settlement Administrator and Status of Completion of Settlement; the Declaration of Settlement Administrator included a certification by the Settlement Administrator that the Company had complied in all respects with the class settlement and that all eligible claims had been paid and the interest enhancement had been implemented pursuant to the terms of the class settlement. On March 24, 2017, the Court entered a Minute Order indicating that it was satisfied that the parties had fully and finally performed all of the terms of the settlement and recorded the matter as complete without the need for any further hearings.
During the Predecessor period from April 1, 2015 to June 30, 2015, the Company, HRG and OM Group (UK) Limited reached a global settlement that resolved all prior outstanding claims arising under the First Amended and Restated Stock Purchase Agreement, dated February 17, 2011 (the "F&G Stock Purchase Agreement") between FGL (previously, HFG) and OM Group (UK) Limited ("OMGUK"). As a part of the settlement, the Company received $4 to settle its outstanding claim that OMGUK was obligated to indemnify the Company for the costs to defend and the settlement of the actions brought by Plaintiff Cressy.

(13) Reinsurance
The Company reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding the Company's retention limit is reinsured. The Company primarily seeks reinsurance coverage in order to limit its exposure to mortality losses and enhance capital management. The Company follows reinsurance accounting when there is adequate risk transfer. Otherwise, the deposit method of accounting is followed. The Company also assumes policy risks from other insurance companies.
The effect of reinsurance on net premiums earned and net benefits incurred (benefits incurred and reserve changes) for the three and nine months ended March 31,September 30, 2018, and the Predecessor three and nine months ended March 31,September 30, 2017 were as follows:
Three months endedThree months ended Nine months ended
March 31, 2018  March 31, 2017September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
   Predecessor  Predecessor   Predecessor
Net Premiums Earned Net Benefits Incurred  Net Premiums Earned Net Benefits IncurredNet Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred
Direct60
 62
  59
 343
54
 336
 58
 389
 172
 653
 176
 1,028
Assumed
 (21)  
 

 12
 
 
 
 (14) 
 
Ceded(42) (59)  (56) (75)(42) (51) (42) (69) (127) (164) (145) (205)
Net18
 (18)  3
 268
12
 297
 16
 320
 45
 475
 31
 823

Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. The Company did not write off any significant reinsurance balances during the threenine months ended March 31,September 30, 2018 or the Predecessor threenine months ended March 31,September 30, 2017. The Company did not commute any ceded reinsurance treaties during the threenine months ended March 31,September 30, 2018 or the Predecessor threenine months ended March 31,September 30, 2017.
Effective January 1, 2017, FGL Insurance entered into an indemnity reinsurance agreement with Hannover Re, a third party reinsurer,  to reinsure an inforce block of its FIA and fixed deferred annuity contracts with  GMWB and Guaranteed Minimum Death Benefit (“GMDB”) guarantees. In accordance with the terms of this agreement, FGL Insurance cedes 70% net retention of guarantee payments in excess of account value for GMWB and GMDB guarantees. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP, since it is not “reasonably possible” that the reinsurer may realize significant loss from assuming the insurance risk. In accordance with the terms of this agreement, FGL Insurance cedes 70% net retention of guarantee payments in excess of account value for GMWB and GMDB guarantees. Effective July 1, 2017, FGL Insurance extended this agreement to include new business issued during 2017. Effective January 1, 2018 FGL Insurance extended this agreement to include new

business issued during 2018, and extended the recapture period from 8 to 12 years. FGL Insurance incurred risk charge fees of $2$3, and $1$8 during the three and nine months ended March 31,September 30, 2018, and the period from December 1, 2017 to December 31, 2017, respectively, in relation to this reinsurance agreement.
No policies issued by the Company have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance.
The Company has not entered into any reinsurance agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than non-payment of premiums or other similar credit issues.
FSRC
FSRC, an affiliate of FGL Insurance, has entered into various reinsurance agreements on a funds withheld basis, meaning that funds are withheld by the ceding company from the coinsurance premium owed to FSRC as collateral for FSRC's payment obligations. Accordingly, the collateral assets remain under the ultimate ownership of the ceding company. FSRC manages the assets supporting the reserves assumed in accordance with the internal investment policy of the ceding companies and applicable law. Two treaties were recaptured effective July 1, 2018 resulting in a $5 loss upon recapture, which is included in the "Benefits & Other Expenses" line in the Company's unaudited Condensed Consolidated Statements of Operations.
FSRC has fivethree reinsurance treaties with unaffiliated parties. At March 31,September 30, 2018, FSRC had $748$708 of funds withheld receivables and $712$684 of insurance reserves related to these reinsurance treaties.
See a description of FSRC’s accounting policy for its assumed reinsurance contracts in "Note 2. Significant Accounting Policies and Practices" within the Company's 2017 Form 10-K.
The Company adopted ASU 2016-01 effective January 1, 2018, which requires FSRC to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The adoption of this new accounting guidance had a $(2) million$1 and $(1) impact on pre-tax net income, or $0.01$0.00 and $0.00 per common share, for the three and nine months ended March 31, 2018.September 30, 2018, respectively.
(14) Related Party Transactions
Affiliated Investments
The Company entered into investment management agreements with Blackstone ISG-I Advisors LLC ("BISGA"), a wholly-owned subsidiary of The Blackstone Group LP ("Blackstone"), and certain subsidiaries of the Company on December 1, 2017. The Company paid $23 to BISGA upon the close of the merger for services rendered related to the transaction and BISGA will forego approximately 30% of the first thirteen months’ management fee to which it is entitled under the investment management agreement. As of March 31,September 30, 2018, the Company has a net liability of $2$14 for the services consumed under this investment management agreement, partially offset by fees received and expense reimbursements from BISGA.
The Company holds certain fixed income security interests, limited partnerships and bank loans issued by portfolio companies that are affiliates of Blackstone Tactical Opportunities, an affiliate of Blackstone Tactical Opportunities LR Associates-B (Cayman) Ltd. (the “Blackstone Fixed Income Securities”) both on a direct and indirect basis.  Indirect investments include an investment made in an affiliates’ asset backed fund while direct investments entailare an investment in an affiliatesaffiliates' equity or debt securities.  As of March 31,September 30, 2018 and December 31, 2017, the Company held $186$445 and $188 in affiliated investments, respectively, which includes foreign exchange

unrealized loss of $(1) and $0, respectively. For the three months ended March 31,In addition, as of September 30, 2018, the Company did nothad commitments to invest in or sell any of its11 other affiliated investments. The unfunded commitments relating to these affiliated investments at September 30, 2018 is $717.
The Company paid-in-kind dividends on preferred shares held by GSO Capital Partners, an indirect wholly owned subsidiary of The Blackstone Group LP, of 5 thousand shares and 15 thousand shares for the three and nine months ended September 30, 2018, respectively.
The Company had no gross realized gains or realized impairment losses on related party investments during the three and nine months ended March 31,September 30, 2018.
The Company had $2$(1) and $(3) gross realized losses, netgains (losses), inclusive of impairment losses on related party investments during the Predecessor three and nine months ended March 31, 2017.September 30, 2017, respectively.
FSRC (Predecessor)
FGL Insurance reinsures certain liabilities and obligations to FSRC. For the three and nine months ended March 31,September 30, 2017, (Predecessor), FGL Insurance ceded $1$0 and $14$1 of premium revenue and $12 and $37 of benefits and other changes isin policy reserves, respectively, to FSRC. There are no ceded operating results related to the FGL Insurance and FSRC reinsurance agreement reported in the unaudited Condensed Consolidated Statement of Operations for the three and nine months ended March 31,September 30, 2018 as such amounts are eliminated on consolidation.

(15) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (share amounts in thousands):
Three months endedThree months ended Nine months ended
March 31, 2018  March 31, 2017September 30, 2018  September 30, 2017 September 30, 2018 September 30, 2017
   Predecessor   Predecessor   Predecessor
Net Income$52
  $22
$56
  $61
 $161
 $115
Less Preferred stock dividend7
  
7
  
 21
 
Net income available to common shares45
  22
49
  61
 140
 115
            
Weighted-average common shares outstanding - basic214,370
  58,326
214,370
  58,335
 214,370
 58,333
Dilutive effect of unvested restricted stock & PRSU
  20
49
  52
 21
 37
Dilutive effect of stock options
  36

  92
 
 68
Weighted-average shares outstanding - diluted214,370
  58,382
214,419
  58,479
 214,391
 58,438
            
Net income per common share:            
Basic$0.21
  $0.38
$0.23
  $1.06
 $0.65
 $1.98
Diluted$0.21
  $0.38
$0.23
  $1.06
 $0.65
 $1.98
The number of shares of common stock outstanding used in calculating the weighted average thereof reflects the actual number of the Successor and Predecessor shares of common stock outstanding, excluding unvested restricted stock and shares held in treasury.
The calculation of diluted earnings per share for the three and nine months ended March 31,September 30, 2018 excludes the incremental effect of 7170 million weighted average common stock warrants outstanding due to their anti-dilutive effect. This calculation also excludes the potential dilutive effect of the 377391 thousand preferred stock shares outstanding as of March 31,September 30, 2018 as the contingency that would allow for the preferred shares to be converted to common shares has not yet been met. The calculation of diluted earnings per share for the three and nine months ended September 30, 2018 excludes the incremental effect related to certain outstanding stock options and restricted shares due to their anti-dilutive effect. The number of weighted average equivalent shares excluded is 1,384 thousand and 609 thousand shares for the three and nine months ended September 30, 2018, respectively.

The calculation of diluted earnings per share for the Predecessor three and nine months ended March 31,September 30, 2017 excludes the incremental effect related to certain outstanding stock options and restricted shares due to their anti-dilutive effect. The number of weighted average equivalent shares excluded in the Predecessor three and nine months ended March 31,September 30, 2017 are 40 thousand and 0 thousand shares.
The settlement terms of the PRSUs granted in 2017 by the Predecessor required cash settlement upon vesting as opposed to common equity settlement. As a result, these awards were liability classified and were excluded from EPS calculations.


(16) Insurance Subsidiary Financial Information and Regulatory Matters
The Company’s U.S. insurance subsidiaries file financial statements with state insurance regulatory authorities and the National Association of Insurance Commissioners (“NAIC”) that are prepared in accordance with Statutory Accounting Principles (“SAP”) prescribed or permitted by such authorities, which may vary materially from GAAP. Prescribed SAP includes the Accounting Practices and Procedures Manual of the NAIC as well as state laws, regulations and administrative rules. Permitted SAP encompasses all accounting practices not so prescribed. The principal differences between SAP financial statements and financial statements prepared in accordance with GAAP are that SAP financial statements do not reflect DAC and VOBA, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contractholder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. Accordingly, SAP operating results and SAP capital and surplus may differ substantially from amounts reported in the GAAP basis financial statements for comparable items.
The FSR Companies (Cayman and Bermuda)FSRC (Cayman), F&G Re Ltd. (Bermuda), and F&G Life Re Ltd. (Bermuda) file financial statements with their respective regulators that are based on U.S. GAAP.

FGL Insurance’s statutory carrying value of Raven Re reflects the effect of permitted practices Raven Re received to treat the available amount of a letter of credit as an admitted asset which increased Raven Re’s statutory capital and surplus by $110 and $110 at March 31,September 30, 2018 and December 31, 2017, respectively.
Raven Re is also permitted to follow Iowa prescribed statutory accounting practice for its reserves on reinsurance assumed from FGL Insurance which increased Raven Re’s statutory capital and surplus by $3$4 and $5 at March 31,September 30, 2018 and December 31, 2017, respectively. Without such permitted statutory accounting practices Raven Re’s statutory capital and (deficit) surplus would be $(13)$(11) and $(18) as of March 31,September 30, 2018 and December 31, 2017, respectively, and its risk-based capital would fall below the minimum regulatory requirements. The letter of credit facility is collateralized by NAIC 1 rated debt securities. If the permitted practice was revoked, the letter of credit could be replaced by the collateral assets with Nomura’s consent. FGL Insurance’s statutory carrying value of Raven Re at March 31,September 30, 2018 and December 31, 2017 was $100$103 and $97, respectively.
On November 1, 2013, FGL Insurance re-domesticated from Maryland to Iowa. After re-domestication, FGL Insurance elected to apply Iowa-prescribed accounting practices that permit Iowa-domiciled insurers to report equity call options used to economically hedge FIA index credits at amortized cost for statutory accounting purposes and to calculate FIA statutory reserves such that index credit returns will be included in the reserve only after crediting to the annuity contract. This resulted in a $(32)$37 and $54 (decrease)/increasedecrease to statutory capital and surplus at March 31,September 30, 2018 and December 31, 2017, respectively.
The prescribed and permitted statutory accounting practices have no impact on the Company’s Consolidated Financial Statementsunaudited condensed consolidated financial statements which are prepared in accordance with GAAP.
As of March 31, 2017,September 30, 2018, FGL NY Insurance did not follow any prescribed or permitted statutory accounting practices that differ from the NAIC's statutory accounting practices.
On May 14, 2018, FGLH made a dividend payment of $27 to FGL US Holdings, Inc. ("FGL US Holdings"). On June 28, 2018, FGL US Holdings issued a $65 intercompany note to F&G Life Re Ltd and subsequently approved a $65 capital contribution to its wholly owned subsidiary, FGLH. On June 28, 2018, FGLH made a capital contribution for $125 to FGL Insurance. On July 3, 2018, CF Bermuda Holdings Ltd. issued a $50 intercompany note to F&G Life Re Ltd. (Bermuda) and subsequently approved a $50 capital contribution to its wholly owned subsidiary, F&G Reinsurance, Ltd. (Bermuda).


(17) Subsequent Events
The Company’s offer to exchange its outstanding warrants for 0.11 ordinary shares of the Company, par value $0.0001 (the "Exchange Shares") and $0.98, in cash, without interest, per warrant, expired on October 4, 2018. A total of 65,374 warrants were properly tendered prior to the expiration of the offer to exchange. On April 20,October 9, 2018 the Company completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025. The Company expects to useissued 7,191 shares and paid $64 in cash in exchange for the net proceedswarrants tendered. After completion of the offering (i)Offer to repay $135 of borrowings under its revolving credit facility and related expenses, (ii) to redeem in full and satisfy and discharge all of theExchange, 5,510 warrants still remain outstanding, $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021 and (iii) for general corporate purposes, which may include additional capital contributions to the Company's insurance subsidiaries.will expire on November 30, 2022, or upon earlier redemption or liquidation.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
This quarterly report includes forward-looking statements. Some of the forward-looking statements can be identified by the use of terms such as “believes”, “expects”, “may”, “will”, “should”, “could”, “seeks”, “intends”, “plans”, “estimates”, “anticipates” or other comparable terms. However, not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects and growth strategies and the industries in which we operate and including, without limitation, statements relating to our future performance.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our consolidated results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”), which can be found at the U.S. Securities & Exchange Commission's ("SEC's") website, www.sec.gov. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:
general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance;
concentration in certain states for distribution of our products;
the impact of interest rate fluctuations;
equity market volatility;
credit market volatility or disruption;
the impact of credit risk of our counterparties;
volatility or decline in the market price of our ordinary shares could impair our ability to raise necessary capital;
changes in our assumptions and estimates regarding the amortization of our deferred acquisition costs, deferred sales inducements and value of business acquired balances;
changes in our methodologies, estimates and assumptions regarding our valuation of investments and the determinations of the amounts of allowances and impairments;
changes in our valuation allowance against our deferred tax assets, and restrictions on our ability to fully utilize such assets;
the accuracy of management’s reserving assumptions;
regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) underwriting of insurance products and regulation of the sale, underwriting and pricing of products and minimum capitalization and statutory reserve requirements for insurance companies, or the ability of our insurance subsidiaries to make cash distributions to us (including dividends or payments on surplus notes those subsidiaries issue to us);
the ability to maintain or obtain approval of Iowa Insurance Division ("IID") and other regulatory authorities as required for our operations and those of our insurance subsidiaries
the impact of the Department of Labor fiduciary rule, finalized in April 2016 but possibly subject to being vacated, and other fiduciary rule proposals by the SEC and NAIC on the Company, its products, distribution and business model;
changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products;
changes in tax laws which affect us and/or our shareholders;
potential adverse tax consequences if we are treated as a passive foreign investment company;
the impact on our business of new accounting rules or changes to existing accounting rules;
our potential need and our insurance subsidiaries’ potential need for additional capital to maintain our and their financial strength and credit ratings and meet other requirements and obligations;

our ability to successfully acquire new companies or businesses and integrate such acquisitions into our existing framework;
the impact of potential litigation, including class action litigation;
our ability to protect our intellectual property;
our ability to maintain effective internal controls over financial reporting;
the impact of restrictions in the Company's debt instruments on its ability to operate its business, finance its capital needs or pursue or expand its business strategies;
our ability and our insurance subsidiaries’ ability to maintain or improve financial strength ratings;
the continued availability of capital required for our insurance subsidiaries to grow;
the performance of third parties including third party administrators, independent distributors, underwriters, actuarial consultants and other outsourcing relationships;
the loss of key personnel;
interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems;
our exposure to unidentified or unanticipated risk not adequately addressed by our risk management policies and procedures;
the impact on our business of natural and man-made catastrophes, pandemics, and malicious and terrorist acts;
our ability to compete in a highly competitive industry;
our ability to attract and retain national marketing organizations and independent agents;
our subsidiaries’ ability to pay dividends to us; and
the other factors discussed in “Risk Factors” of our 2017 Form 10-K.
You should read this report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this report and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Introduction
Management's discussion and analysis reviews our unaudited condensed consolidated financial position at March 31,September 30, 2018 (unaudited) and December 31, 2017, and the unaudited consolidated results of operations for the three and nine months ended March 31,September 30, 2018 and 2017 and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with our unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of FGL Holdings (“FGL Holdings,” “we,” “us,” “our” and, collectively with its subsidiaries, the “Company”), which was included with our audited consolidated financial statements for the year ended December 31, 2017 included within the Company’s 2017 Form 10-K. Certain statements we make under this Item 2 constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. See "Special Note Regarding Forward-Looking Statements" in this report. You should consider our forward-looking statements in light of our unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this report, and our filings with the SEC, including our 2017 Form 10-K, which can be found at the SEC website, www.sec.gov. In this Quarterly Report on Form 10-Q we refer to the three months ended March 31, 2018 and 2017 as the "Fiscal 2018 Quarter" and the "Fiscal 2017 Quarter", respectively.
Basis of Presentation
As a result of the completion of the Business Combination on November 30, 2017, our Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements included elsewhere in the Quarterly Report are presented: (i) as of March 31,September 30, 2018 and December 31, 2017 ;2017; (ii) for the three and nine months ended March 31,September 30, 2018 and the Predecessor three and nine months ended March 31,September 30, 2017. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we discuss the three and nine months ended March 31,September 30, 2018 results compared to the Predecessor three and nine months ended March 31,September 30, 2017 results. We believe this discussion provides helpful information with respect to performance of our business during those respective periods. Our

financial statement presentation includes the financial statements of FGL and its subsidiaries as “Predecessor” for the periods prior to the completion of the Business Combination and FGL Holdings, including the consolidation of FGL and its subsidiaries and FSR Companies, as "Successor" for periods from and after the Closing Date.
Overview
We provide our principal life and annuity products through our insurance subsidiaries - Fidelity & Guaranty Life Insurance Company ("FGL Insurance") and Fidelity & Guaranty Life Insurance Company of New York ("FGL NY Insurance"). Our customers range across a variety of age groups and are concentrated in the middle-income market. Our fixed indexed annuities (“FIAs”) provide for pre-retirement wealth accumulation and post-retirement income management. Our universal life insurance providesproducts ("IUL") provide wealth protection and transfer opportunities through indexed universal life products.opportunities. Life and annuity products are primarily distributed through Independent Marketing Organizations ("IMOs") and independent insurance agents.
In setting the features and pricing new FIA products relative to our targeted net margin, we take into account our expectations regarding (1) net investment spread, which is the difference between the net investment income we earn and the sum of the interest credited to policyholders and the cost of hedging our risk on the policies; (2) fees, including surrender charges and rider fees, partly offset by vesting bonuses that we pay our policyholders; and (3) a number of related expenses, including benefits and changes in reserves, acquisition costs, and general and administrative expenses.
Trends and Uncertainties
The following factors represent some of the key trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and financial performance in the future.
Market Conditions
Market volatility has affected and may continue to affect our business and financial performance in varying ways. Volatility can pressure sales and reduce demand as consumers hesitate to make financial decisions. To enhance the attractiveness and profitability of our products and services, we continually monitor the behavior of our customers, as evidenced by annuitization rates and lapse rates, which vary in response to changes in market conditions.
Interest Rate Environment
Some of our products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of March 31,September 30, 2018, the Company's reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $4 billion and 3%, respectively. We are required to pay the guaranteed minimum crediting rates even if earnings on our investment portfolio decline, which would negatively impact earnings. In addition, we expect more policyholders to hold policies with comparatively high guaranteed rates for a longer period in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio would increase earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect that policyholders would be less likely to hold policies with existing guarantees as interest rates rise and the relative value of other new business offerings are increased, which would negatively impact our earnings and cash flows.
See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” for a more detailed discussion of interest rate risk.
Aging of the U.S. Population
We believe that the aging of the U.S. population will increase the demand for our products. As the “baby boomer” generation prepares for retirement, we believe that demand for retirement savings, growth, and income products will grow. The impact of this growth may be offset to some extent by asset outflows as an increasing percentage of the population begins withdrawing assets to convert their savings into income.
Industry Factors and Trends Affecting Our Results of Operations
Demographics and macroeconomic factors are increasing the demand for our FIA and indexed universal life ("IUL")IUL products, for which demand is large and growing: overgrowing. Over 10,000 people will turn 65 each day in the United States over the next

15 years. Accordingyears, 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 15% in 2015 to 20% in 2030.

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 the Company. As a tool for addressing the unmet need for retirement planning, we believe that many middle-income Americans have grown to appreciate the “sleep at night protection” that annuities such as our FIA products afford. Accordingly, the FIA market grew from nearly $12 billion of sales in 2002 to $54 billion of sales in 2017. Additionally, this market demand has positively impacted the IUL market as it has expanded from $100 million of annual premiums in 2002 to $2 billion of annual premiums in 2017.
 
Competition
Please refer to "Part I-Item 1. Business-Competition" in our 2017 Form 10-K for discussion on our competition.
Annuity and Life Sales
We regularly monitor and report the production volume metric titled “Sales”. Sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP. Annuity and IUL sales are recorded as deposit liabilities (i.e. contractholder funds) within the Company's unaudited condensed consolidated financial statements in accordance with GAAP. Management believes that presentation of sales, as measured for management purposes, enhances the understanding of our business and helps depict longer term trends that may not be apparent in the results of operations due to the timing of sales and revenue recognition. Sales of annuities and IULs by fiscal quarters for the quarters ended March 31, June 30 and September 30 were as follows:
Annuity Sales IUL SalesAnnuity Sales IUL Sales
(dollars in millions)
2018 2017 2018 20172018 2017 2018 2017
First Quarter$778
 $732
 $6
 $14
$778
 $732
 $6
 $14
Second Quarter769
 582
 7
 9
Third Quarter842
 588
 7
 6
Total$2,389
 $1,902
 $20
 $29
Key Components of Our Historical Results of Operations
Under U.S. GAAP, premium collections for fixed indexed annuities, fixed rate annuities, and immediate annuities without life contingency are reported in the financial statements as deposit liabilities (i.e., contractholder funds) instead of as sales or revenues. Similarly, cash payments to customers are reported as decreases in the liability for contractholder funds and not as expenses. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender and other charges deducted from 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 cost of providing index credits to the policyholder), amortization of deferred acquisition cost (“DAC”), deferred sales inducements (“DSI”), and value of business acquired (“VOBA”), other operating costs and expenses, and income taxes.
Through our insurance subsidiaries, we issue a broad portfolio of deferred annuities (fixed indexed and fixed rate annuities) and immediate annuities. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically makes payments of principal and interest earnings over a period of time.
The Company hedges certain portions of its exposure to product related equity market risk by entering into derivative transactions. We purchase derivatives consisting predominantly of call options and, to a lesser degree, futures contracts on the equity indices underlying the applicable policy. These derivatives are used to fundoffset the statutory reserve impact of the index credits due to policyholders under the FIA contracts. The majority of all such call options are one-year options purchased to match the funding requirements underlying the FIA contracts. We attempt to manage the cost of these purchases through the terms of our FIA contracts, which permit us to change

caps, spread, or participation rates, subject to certain guaranteed minimums that must be maintained. The change in the fair value of the call options and futures contracts is generally designed to offset the equity market related change in the fair value of the FIA contract’s reserve liability. 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.
Earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on FIA policies, known as the net investment spread. With respect to FIAs, the cost of hedging our risk includes the expenses incurred to fund the index credits, and where applicable, minimum guaranteed interest credited.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.
Our profitability depends in large part upon the amount of assets under management (“AUM”), the net investment spreads earned on our average assets under management ("AAUM"), our ability to manage our operating expenses and the costs of acquiring new business (principally commissions to agents and bonuses credited to policyholders). As we grow AUM, earnings generally increase. AUM increases when cash inflows, which include sales, exceed cash outflows. Managing net investment spreads involves the ability to managemaximize returns on our investment portfolios to maximize returnsAUM and minimize risks on our AUM such as interest rate changes and defaults or impairment of investments, andinvestments. It also includes our ability to manage interest rates credited to policyholders and the costs of the options and futures purchased to fund the annual index credits on the FIAs or IULs. We analyze returns on AAUM pre- and post-DAC, DSI and VOBA as well as pre- and post-tax to measure our profitability in terms of growth and improved earnings.
Adjusted Operating Income ("AOI")Non-GAAP Financial Measures
Management believes that certain non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do. Reconciliations of such measures to the most comparable GAAP measures are included herein.
AOIAdjusted Operating Income ("AOI") is a non-GAAP economic measure we use to evaluate financial performance each period. AOI is calculated by adjusting net income (loss) to eliminate (i) the impact of net investment gains/losses including other than temporary impairment ("OTTI") losses recognized in operations, but excluding gains and losses on derivatives hedging our indexed annuity policies, (ii) the effect of changes in fair values of FIA related derivatives and embedded derivatives, net of hedging cost, (iii) the tax effect of affiliated reinsurance embedded derivative, (iv) the effect of integration, merger related & other non-operating items, (v) impact of extinguishment of debt, and (vi) net impact from Tax Cuts and Jobs Act. Adjustments to AOI are net of the corresponding impact on amortization of intangibles, as appropriate. The income tax impact related to these adjustments is measured using an effective tax rate of 21%, as appropriate. While these adjustments are an integral part of the overall performance of the Company, market conditions and/or the non-recurring or non-operating nature of these items can overshadow the underlying performance of the core business. Accordingly, Management considers this to be a useful measure internally and to investors and analysts in analyzing the trends of our operations. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do.
Together with net income, we believe AOI provides a meaningful financial metric that helps investors understand our underlying results and profitability. Beginning with the quarter ended March 31, 2018, the Company updated its AOI definition to remove the residual impacts of fair value accounting on its FIA products, including gains and losses on derivatives hedging those policies. Management believes the revised measure enhances the understanding of the business post-merger and is more useful and relevant to investors as compared to the previous definition which eliminated only the effects of changes in the interest rates used to discount the FIA embedded derivative. Periods shown prior to March 31, 2018 have not been adjusted to reflect the new definition.
AOI should not be used as a substitute for net income. However, we believe the adjustments made to net income in order to derive AOI provide an understanding of our overall results of operations. For example, we could have strong operating results in a given period, yet report net income that is materially less, if during such period the fair value of our derivative assets hedging the FIA index credit obligations decreased due to general equity market conditions but the embedded derivative liability related to the index credit obligation did not decrease in the same proportion as the derivative assets because of non-equity market factors such as interest rate movements. Similarly, we could also have poor operating results in a given period yet show net income that is materially greater, if during such period the fair value of the derivative assets increases but the embedded derivative liability did not increase in the same proportion as the derivative assets. We hedge our FIA index credits with a combination of

static and dynamic strategies, which can result in earnings volatility, the effects of which are generally likely to reverse over time. Our management and board of directors review AOI and net income as part of their examination of our overall financial results. However, these examples illustrate the significant impact derivative and embedded derivative movements can have on our net income. Accordingly, our management and board of directors perform a review and analysis of these items, as part of their review of our hedging results each period.
The adjustments to net income are net of DAC, DSI, and VOBA amortization. Amounts attributable to the fair value accounting for derivatives hedging the FIA index credits and the related embedded derivative liability

fluctuate from period to period based upon changes in the fair values of call options purchased to fund the annual index credits for FIAs, changes in the interest rates used to discount the embedded derivative liability, and the fair value assumptions reflected in the embedded derivative liability. The accounting standards for fair value measurement require the discount rates used in the calculation of the embedded derivative liability to be based on risk-free interest rates.rates as of the reporting date. The impact of the change in fair values of FIA-related derivatives, embedded derivatives and hedging costs has been removed from net income in calculating AOI.
AAUM is a non-GAAP measure we use to assess the rate of return on assets available for reinvestment. AAUM is calculated as the sum of (i) total invested assets at amortized cost, excluding derivatives; (ii) related party loans and investments; (iii) accrued investment income; (iv) funds withheld at fair value; (v) the net payable/receivable for the purchase/sale of investments and (iv) cash and cash equivalents, excluding derivative collateral, at the beginning of the period and the end of each month in the period, divided by the total number of months in the period plus one. Management considers this non-GAAP financial measure to be a useful measure internally and to investors and analysts when assessing the rate of return on assets available for reinvestment.
In addition, we regularly monitor and report the production volume metric titled “Sales”. Sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP. For GAAP purposes annuity and IUL sales are recorded as deposit liabilities (i.e. contract holder funds). Management believes that presentation of sales as measured for management purposes enhances the understanding of our business and helps depict longer term trends that may not be apparent in the results of operations due to the timing of sales and revenue recognition.
Critical Accounting Policies and Estimates
The preparation of the Company’s unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the threenine months ended March 31,September 30, 2018, the Company did not make any material changes in its critical accounting policies as previously disclosed in Management’s Discussion and Analysis in the Company’s 2017 Form 10-K as filed with the SEC.
Recent Accounting Pronouncements
Please refer to "Note 2. Significant Accounting Policies and Practices" to our unaudited condensed consolidated financial statements for disclosure of recent accounting pronouncements.

Results of Operations
(All amounts presented in millions unless otherwise noted)
The following tables set forth the consolidated results of operations for the three and nine months ended March 31,September 30, 2018 and the Predecessor three and nine months ended March 31,September 30, 2017:
     Three months ended   Nine months ended  
March 31,
2018
  March 31,
2017
 
Increase/
(Decrease)
September 30, 2018  September 30, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
   Predecessor     Predecessor      Predecessor  
Revenues:                   
Premiums$18
  $3
 $15
$12
  $16
 $(4) $45
  $31
 $14
Net investment income263
  247
 16
267
  261
 6
 812
  765
 47
Net investment (losses) gains(191)  81
 (272)
Net investment gains (losses)119
  117
 2
 (74)  265
 (339)
Insurance and investment product fees and other41
  44
 (3)46
  41
 5
 139
  129
 10
Total revenues131
  375
 (244)444
  435
 9
 922
  1,190
 (268)
Benefits and expenses:                   
Benefits and other changes in policy reserves(18)  268
 (286)297
  320
 (23) 475
  823
 (348)
Acquisition and operating expenses, net of deferrals40
  33
 7
40
  36
 4
 126
  109
 17
Amortization of intangibles16
  33
 (17)28
  (14) 42
 72
  70
 2
Total benefits and expenses38
  334
 (296)365
  342
 23
 673
  1,002
 (329)
Operating income93
  41
 52
79
  93
 (14) 249
  188
 61
Interest expense(6)  (6) 
(8)  (6) (2) (21)  (18) (3)
Income before income taxes87
  35
 52
Income (loss) before income taxes71
  87
 (16) 228
  170
 58
Income tax expense(35)  (13) (22)(15)  (26) 11
 (67)  (55) (12)
Net income$52
  $22
 $30
Net income (loss)$56
  $61
 $(5) $161
  $115
 46
Less preferred stock dividend7
  
 7
7
  
 7
 21
  
 21
Net income available to common shareholders$45
  $22
 $23
Net income (loss) available to common shareholders$49
  $61
 $(12) $140
  $115
 $25
AnnuityThe following table summarizes sales by product type for the three months ended March 31, 2018 and Predecessor quarter ended March 31, 2017 were $778 and $732, respectively, including FIA sales of $436 and $438, respectively. periods presented:
 Three months ended   Nine months ended  
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor  
Fixed index annuities ("FIA")$631
  $424
 $207
 $1,616
  $1,317
 $299
Fixed rate annuities ("MYGA")211
  164
 47
 573
  449
 124
Institutional spread based
  
 
 200
  136
 64
Total annuity$842
  $588
 $254
 $2,389
  $1,902
 $487
Index universal life ("IUL")$7
  $6
 $1
 $20
  $29
 $(9)
FIA sales during the Predecessor quarterthree and nine months ended March 31, 2017September 30, 2018 reflect continued strong and productive collaboration with our distribution partners, primarily Independent Marketing Organizations. The three months ended March 31, 2018 reflects a $200Organizations, as well as the overall growth of the FIA market.
Institutional spread based products in both nine month periods reflect funding agreementagreements with Federal Home Loan Bank, under an investment spread strategy, while the Predecessor quarter ended March 31, 2017 reflects a $136 funding agreement with Federal Home Loan Bank. This funding agreement is reflected as an institutional spread based product and westrategy. We view this volume as subject to fluctuation period to period. Sales of MYGA were $142 in the three months ended March 31, 2018 and $158 in the Predecessor quarter ended March 31, 2017. Indexed universal life sales during the three months ended ended March 31, 2018 and the Predecessor quarter ended March 31, 2017 were $6 and $14, respectively.
The decline in IUL sales during the threenine months ended ended March 31,September 30, 2018 reflects our focus on quality of new business and pricing discipline to achieve profitability and capital targets.


Revenues

Premiums

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

Premiums were $18 and $3 for the quarter ended March 31, 2018 and Predecessor quarter ended March 31, 2017, respectively. The primary drivers of these results were $9 premiums earned on traditional life insurance products as well as $9 in life-contingent immediate annuity annuitizations during the quarter ended March 31,

2018, compared to $3 life-contingent immediate annuity annuitzations during the Predecessor quarter ended March 31, 2017.

 Three months ended   Nine months ended  
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor  
Traditional life insurance$7
  $10
 $(3) $23
  $17
 $6
Life-contingent immediate annuity5
  6
 (1) 22
  14
 8
Premiums$12
  $16
 $(4) $45
  $31
 $14
Net investment income
Below is a summary of the major components included in net investment income ("NII") for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
Fixed maturity securities, available-for-sale $242
  $236
 $6
 $249
  $247
 $2
 $739
  $725
 $14
Equity securities 10
  10
 
 15
  10
 5
 51
  31
 20
Commercial mortgage loans, related party loans, invested cash, short term investments, and other investments 21
  7
 14
Commercial mortgage loans, invested cash, short term investments, and other investments 25
  9
 16
 70
  26
 44
Gross investment income 273
  253
 20
 289
  266
 23
 860
  782
 78
Investment expense (10)  (6) (4) (22)  (5) (17) (48)  (17) (31)
Net investment income $263
  $247
 $16
 $267
  $261
 $6
 $812
  $765
 $47
Our net investment spread and AAUM for the period is summarized as follows (annualized):
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
Yield on AAUM (at amortized cost) 4.21 %  4.90 % (0.69)% 4.13 %  5.02 % (0.89)% 4.26 %  4.98 % (0.72)%
Less: Interest credited and option cost (2.33)%  (2.49)% 0.16 % (2.42)%  (2.58)% 0.16 % (2.37)%  (2.52)% 0.15 %
Net investment spread 1.88 %  2.41 % (0.53)% 1.71 %  2.44 % (0.73)% 1.89 %  2.46 % (0.57)%
AAUM $24,967
  $20,162
 $4,805
 $25,883
  $20,840
 $5,043
 $25,437
  $20,524
 $4,913
NII of $263The increases in AAUM during the three and $247 for the quarternine months ended March 31,September 30, 2018 and the Predecessor quarter ended March 31, 2017, respectively, were affected by AAUM (volume).
AAUM of $24,967 and $20,162 for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017, respectively. The results were primarily influenced by the acquisition$1.7 billion net new business asset flows, $1.2 billion increased mark-to-market valuation of the investment portfolio as of the date of the merger, and the inclusion of the $1.9 billion acquired AAUM in FSR Companies as well as by the effects of purchase accounting on the investments of FGL and sales.Companies.
The 2% increase in NII of $16, or 6%, from the Predecessor quarterthree months ended March 31,September 30, 2017 to the quarterthree months ended March 31,September 30, 2018 was primarily due to an increase in net investment income growth of $29 from invested asset growth and $11 from the portfolio reposition lift. This increase was offset by $17 of premium amortization resulting from the fair value mark on the investment portfolio at merger transaction close and $17 of higher planned investment fees under the new investment management agreement entered into upon merger close.

The 6% increase in NII from the Predecessor nine months ended September 30, 2017 to the nine months ended September 30, 2018 was primarily due to an increase in AAUM (volume).  The volume increase period over period resulted in net investment income growth of $59.$184. This increase was offset by $43$138 driven by a decline in earned yields (rate) as the result of purchase accounting impacts.


Net investment gains (losses) gains
Below is a summary of the major components included in net investment gains (losses) for the quarterthree months ended March 31,September 30, 2018, the Predecessor three months ended September 30, 2017, the nine months ended September 30, 2018 and the Predecessor quarternine months ended March 31,September 30, 2017:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 
Increase/
(Decrease)
 September 30,
2018
  September 30,
2017
 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor
  
Net realized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets $(46)  $(17) $(29) $(40)  $7
 $(47) $(132)  $(16) $(116)
Net realized and unrealized gains (losses) on hedging derivatives and reinsurance-related embedded derivatives (124)  109
 (233) 162
  118
 44
 95
  309
 (214)
Change in fair value of reinsurance related embedded derivatives (21)  (11) (10) (3)  (8) 5
 (37)  (28) (9)
Net investment gains (losses) $(191)  $81
 $(272) $119
  $117
 $2
 $(74)  $265
 $(339)

For the quarterthree months ended March 31,September 30, 2018, net realized losses on available-for-sale securities of $46$40 includes $36$24 of trading loss on the block trade completed in February 2018losses as part of a planned portfolio re-positioning strategy following the completion of the merger $7and $19 change in the unrealized losses on equity securities reflecting the post adoption impact of ASU 2016-01.
For the nine months ended September 30, 2018, net realized losses on available-for-sale securities of $132 includes $80 of trading losses as part of a planned portfolio re-positioning strategy following the completion of the merger, $48 change in the unrealized losses on equity securities reflecting the post adoption impact of ASU 2016-01 and $2 of impairment losses. In the Predecessor quarternine months ended March 31,September 30, 2017, net realized losses on available-for-sale securities of $17, inclusive of$16, includes $21 of impairments related to corporates, other invested assets and asset backed securities, comprised primarily of $20 credit-related impairment losses on available-for-sale debt securities related to investments in First National Bank Holding Co. Refer to "Note 4. Investments" of our unaudited Condensed Consolidated Financial Statements for additional details.
Net realized and unrealized losses on certain derivatives were $124 for the quarter ended March 31, 2018 as compared to net realized and unrealized gains of $109 for the Predecessor quarter ended March 31, 2017. See the table below for primary drivers of these gains (losses).
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. The majority of the movement in the value of this derivative was driven by the Predecessor's coinsurance agreement with FSR.between FGL Insurance and FSRC. As part of the Merger,Business Combination, FSRC is now parta subsidiary of the Company which eliminated the impact of this component of net investment gains (losses) for the quarterthree and nine months ended March 31,September 30, 2018. In the current period the change in fair value of the underlying assets held in FWH portfolio relates to FSRC's unaffiliated reinsurance agreements.
See the table below for primary drivers of gains (losses) on certain derivatives.
We utilize a combination of static (call options) and dynamic (long futures contracts) instruments in our 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.

The components of the realized and unrealized gains on certain derivative instruments hedging our indexed annuity and universal life products are summarized in the table below for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
Call Options:                     
Gains (losses) on option expiration $5
  $72
 $(67) $23
  $68
 $(45) $14
  $212
 $(198)
Change in unrealized gains (losses) (124)  33
 (157) 130
  45
 85
 72
  87
 (15)
Change in unrealized (loss) gain (FSRC) (3)  
 $(3)
Futures contracts:                     
Gains (losses) on futures contracts expiration 6
  3
 3
 4
  2
 2
 9
  6
 3
Change in unrealized gains (losses) (8)  1
 (9) 5
  3
 2
 
  4
 (4)
Total net change in fair value $(124)  $109
 $(233) $162
  $118
 $44

$95


$309

$(214)
                     
Change in S&P 500 Index during the period (1)%  6% (7)% 9%  5% 4% 7%  13% (6)%
Realized gains and losses on certain derivative instruments are directly correlated to the performances of the indices upon which the call options and futures contracts are based and the value of the derivatives at the time of expiration compared to the value at the time of purchase. Additionally, the fair value of call options are primarily driven by the underlying performance of the S&P 500 index relative to the S&P index on the policyholder buy dates during each respective year.
The net change in fair value of certain derivative instruments for the quarterthree and nine months ended March 31,September 30, 2018 and the Predecessor quarterthree and nine months ended March 31,September 30, 2017 waswere primarily driven by movements in the S&P 500 Index.Index relative to the buy dates during each respective year.
The average index credits to policyholders for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30,
2018
  September 30,
2017
 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
Average Crediting Rate 5%  4% 1 % 4%  % 4 % 4%  5% (1)%
S&P 500 Index:                     
Point-to-point strategy 4%  3% 1 % 4%  4%  % 4%  4%  %
Monthly average strategy 4%  3% 1 % 4%  4%  % 4%  4%  %
Monthly point-to-point strategy 7%  5% 2 % 4%  7% (3)% 5%  6% (1)%
3 year high water mark 7%  10% (3)% 22%  15% 7 % 14%  13% 1 %
Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the FIA contracts (caps, spreads and participation rates) which allow the Company to manage the cost of the options purchased to fund the annual index credits.
The credits for the quarterthree months ended March 31,September 30, 2018 and the Predecessor quarterthree months ended March 31,September 30, 2017 were based on comparing the S&P 500 Index on each issue date in these respective periods to the same issue date in the respective prior year periods. Favorable indexIndex performance at different pointsresulted in these periods caused an increase incomparable crediting rates in the point-to-point, monthly point-to-point strategies due to higher equity returns in the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017.periods disclosed above.

Insurance and investment product fees and other
Below is a summary of the major components included in Insurance and investment product fees and other for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
Insurance and investment product fees and other:       
Surrender charges $14
  $9
 $5
 $9
  $9
 $
 $35
  $27
 $8
Cost of insurance fees and other income 27
  35
 (8) 37
  32
 5
 104
  102
 2
Total insurance and investment product fees and other $41
  $44
 $(3) $46
  $41
 $5
 $139
  $129
 $10
Insurance and investment product fees and other consists primarily of the cost of insurance on IUL policies, policy rider fees primarily on FIA 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).
Total insurance and investment product fees and other was $41, and $44 for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017, respectively. These fees are primarily related to rider fees on FIA policies as well as cost of insurance ("COI") charges on IUL policies. Guaranteed minimum withdrawal benefit ("GMWB") rider fees were $21$19 and $17$15 for the quarterthree months ended March 31,September 30, 2018 and the Predecessor quarterthree months ended March 31,September 30, 2017, respectively. Guaranteed minimum withdrawal benefit ("GMWB") rider fees were $61 and $45 for the nine months ended September 30, 2018 and the Predecessor nine months ended September 30, 2017, respectively. This increase in fees is a result of growth in benefit base, which is partially offset by a corresponding increase in income rider reserves (included in Benefits and other changes in policy reserves). GMWB rider fees are based on the policyholder's benefit base and are collected at the end of the policy year.

Benefits and expenses
Benefits and other changes in policy reserves
Below is a summary of the major components included in Benefits and other changes in policy reserves for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
FIA FAS 133 impact (242)  50
 (292) 64
  91
 (27) (202)  142
 (344)
Index credits, interest credited & bonuses 207
  181
 26
 183
  174
 9
 560
  537
 23
Annuity payments 38
  38
 
 37
  37
 
 113
  112
 1
Other policy benefits and reserve movements (7)  (1) (6) 66
  18
 48
 48
  32
 16
Change in fair value of reserve liabilities held at fair value (14)  
 (14) (53)  
 (53) (44)  
 (44)
Total benefits and other changes in policy reserves $(18)  $268
 $(286) $297
  $320
 $(23) $475
  $823
 $(348)
            
FIA FAS 133 Impact - The FIA market value option liability decreased $223 during the quarter ended March 31, 2018over quarter and increased $38 in the Predecessor quarter ended March 31, 2017, respectively, and wereyear over year, driven by the changes in the equity markets and risk free rates during the current quarter. The declinerise in equity markets resulted in a $149 reduction inrisk free rates reduced the FAS 133 liabilityreserves by approximately $11 during Q1the three months ended September 30, 2018 as compared to $38an increase during Q1 2017.of $12 for the corresponding period in 2017, with the remaining impacts from changes in the equity markets. The rise in risk free rates reduced the FAS 133 reserves by approximately $97$135 during Q1the nine months ended September 30, 2018 as compared to $1$167 for the corresponding period in 2017.2017, with the remaining impacts from changes in the equity markets. The change in equity market also impacts the market value of the derivative assets hedging our FIA policies. See table in the net investment gains/losses discussion above for summary and discussion of net unrealized gains (losses) on certain derivative instruments.
Index
The quarter over quarter and year over year increases in index credits, interest credited & bonuses were $207 and $181 for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017, respectively. The quarter over quarter increase of $26 was primarily due to highhigher index credits on FIA policies reflecting the favorable performance of the S&P 500increased sales volume for FIA products.

Index relative to the S&P 500 Index level on the policyholder buy dates and related increases in proceeds from options and futures which fund FIA index credits.
The change in the fair value of reserve liabilities held at fair value decreased $14 for the quarter ended March 31, 2018. Reserves held at fair value represents FSRC's third-party businessbusiness. The decrease for the three and impacts the quarternine months ended March 31,September 30, 2018 is primarily due to the November 30, 2017 acquisitionrecapture of FSR.
two treaties effective July 1, 2018.
Acquisition and operating expenses, net of deferrals
Below is a summary of the major components included in acquisition and operating expenses, net of deferrals for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
Acquisition and operating expenses, net of deferrals:       
General expenses $35
  $30
 $5
 $31
  $30
 $1
 $103
  $95
 $8
Acquisition expenses 54
  81
 (27) 94
  65
 29
 242
  218
 24
Deferred acquisition costs (49)  (78) 29
 (85)  (59) (26) (219)  (204) (15)
Total acquisition and operating expenses, net of deferrals $40
  $33
 $7
 $40
  $36
 $4
 $126
  $109
 $17

The increase in acquisition and operating expenses, net of deferrals, during the quarter ended March 31, 2018 compared to the Predecessor quarter ended March 31, 2017year over year reflects an increase in general expenses primarily related to planned employee headcount growth as well asand higher professional fees related to post-merger year-end audit fees driven by additional post-merger year end activity.and project related costs. Gross acquisition expenses decreased $27increased $24 quarter over quarter due to lowerhigher commissions.
Amortization of intangibles
Below is a summary of the major components included in amortization of intangibles for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
Amortization of intangibles related to:    Predecessor  

    Predecessor      Predecessor  
Amortization $30
  $28
 $2
 $86
  $144
 $(58)
Interest (7)  (15) 8
 (18)  (44) 26
Unlocking $
  $(3) $3
 5
  (27) 32
 4
  (30) 34
Interest (5)  (15) 10
Amortization 21
  51
 (30)
Total amortization of intangibles $16
  $33
 $(17) $28
  $(14) $42
 $72
  $70
 $2
Amortization of intangibles is based on historical, current and future expected gross margins (pre-tax operating income before amortization). The quarter over quarter decreaseand year over year increases in total net amortization of $17 waswere primarily due to lowerhigher actual gross profits ("AGPs") on the DAC and VOBA lines of business (LOBs).with VOBA. AGPs were driven primarily by net investment losses duringlower change in reserves in the quarterthree and nine months ended March 31,September 30, 2018 compared to net investment gains in the Predecessor quarterthree and nine months ended March 31,September 30, 2017. This was partially offset by an increase in interest period-over-period due to continued growth in our in force book of business.



Other items affecting net income
Interest expense
The interest expense and amortization of debt issuance costs of the Company's debt for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
Interest expense and amortization related to:    Predecessor  
    Predecessor      Predecessor  
Debt $5
  $5
 $
 $8
  $5
 $3
 $21
  $14
 $7
Revolving credit facility 1
  1
 
 
  1
 (1) 2
  4
 (2)
Gain on extinguishment of debt 
  
 
 (2)  
 (2)
Total interest expense 6
  6
 
 $8
  $6
 $2
 $21
  $18
 $5
Interest
On April 20, 2018, the Company completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025. The Company used the net proceeds of the offering (i) to repay $135 of borrowings under its revolving credit facility and related expenses and (ii) to redeem in full and satisfy and discharge all of the outstanding $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021. The current period reflects the interest expense was $6 for both the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017, and reflects interest incurred on the debt and revolving credit facility for those periods.5.50% senior notes due 2025.

Income tax expense
Below is a summary of the major components included in Income tax expense (benefit) for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
    Predecessor      Predecessor      Predecessor  
Income before taxes $87
  $35
 $52
 $71
  $87
 $(16) $228
  $170
 $58
      
      
       
Income tax before valuation allowance and tax law impact 30
  13
 17
Income tax before valuation allowance 12
  27
 (15) 56
  56
 
Change in valuation allowance 5
  
 5
 3
  (1) 4
 11
  (1) 12
Income tax $35
  $13
 $22
 $15
  $26
 $(11) $67
  $55
 $12
Effective rate 40%  37% 3% 21%  30% (9)% 29%  32% (3)%

Income tax expense for the three months ended March 31,September 30, 2018 was $35,$15, inclusive of a valuation allowance expense of $5,$3, compared to income tax expense of $13$26 for the Predecessor three months ended March 31,September 30, 2017, net of a valuation allowance release of $(1). The decrease in income tax expense of $11 quarter over quarter was primarily due to lower pre-tax income and the lower U.S. Federal statutory tax rate of 21% in 2018 compared with 35% in 2017, partially offset by the valuation allowance expense of $3 in the 2018 quarter.

Income tax expense for the nine months ended September 30, 2018 was $67, inclusive of a valuation allowance expense of $0.$11, compared to income tax expense of $55 for the Predecessor nine months ended September 30, 2017, net of a valuation allowance release of $(1). The increase in income tax expense of $22 quarter$12 period over quarterperiod was primarily due to an increase in the 2018 Quarter's pre-tax income of $52 compared to an expense of $15 to establish an opening tax balance sheet as a result of the intended election by F&G Life Re to be treated as a US taxpayer, for the 2018 tax year. Those increases in expenses werehigher pre-tax earnings, and valuation allowance expense of $11, partially offset by the lower U.S. Federal statutory tax rate of 21% in 2018 compared with 35% in 2017.

AOI
The table below shows the adjustments made to reconcile net income to our AOI for the quarter ended March 31, 2018 and the Predecessor quarter ended March 31, 2017:periods presented:
       Three months ended   Nine months ended  
 March 31, 2018  March 31, 2017 
Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
 September 30, 2018  September 30, 2017 Increase/
(Decrease)
Reconciliation from Net Income to AOI:    Predecessor  
Net income $52
  $22
 $30
    Predecessor      Predecessor  
Net income (loss) $56
  $61
 $(5) $161
  $115
 $46
Adjustments to arrive at AOI:                     
Effect of investment losses (gains), net of offsets (a) 39
  15
 24
 38
  (5) 43
 114
  14
 100
Effect of change in FIA embedded derivative discount rate, net of offsets (a) (b) 
  (2) 2
Effect of changes in fair values of FIA related derivatives and embedded derivatives, net of hedging costs (a) (46)  
 (46)
Effect of changes in fair values of FIA related derivatives, net of hedging costs (a) (b) (30)  3
 (33) (102)  (3) (99)
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a) (c) 
  8
 (8) 
  5
 (5) 
  21
 (21)
Effects of integration, merger related & other non-operating items 8
  2
 6
 4
  2
 2
 15
  9
 6
Effects of extinguishment of debt 
  
 
 (2)  
 (2)
Tax effect of affiliated reinsurance embedded derivative 15
  
 15
 
  
 
 15
  
 15
Net impact of Tax Cuts and Jobs Act 3
  
 3
 3
  
 3
Tax impact of adjusting items 
  (7) 7
 (2)  (1) (1) (2)  (11) 9
AOI $68
  $38
 $30
 $69
  $65
 $4
 $202
  $145
 $57
(a) Amounts are net of offsets related to value of business acquired ("VOBA"), deferred acquisition cost ("DAC") and, deferred sale inducement ("DSI") amortization., and unearned revenue ("UREV") amortization, as applicable.
(b) Adjustment is not applicable to for the quarter ended March 31, 2018 as theThe updated definition of AOI removes the impact of fair value accounting on FIA products.products for periods after December 31, 2017.
(c) Adjustment is not applicable subsequent to the Business Combination as the reinsurance agreement and related activity are eliminated via consolidation for U.S. GAAP reporting.
(d) The Company recorded an immaterial out of period adjustment related to the December 1, 2017 fair value of the deferred income tax valuation allowance acquired from the Business Combination.  See "Note 2. Significant Accounting Policies and Practices" for additional information.

AOI increased $30$4 from $38$65 in the Predecessor quarterthree months ended March 31,September 30, 2017 to $68 in$69 for the quarterthree months ended March 31,September 30, 2018. The current quarter results included $8$5 net favorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line, and $5 favorable adjustments for lower amortization of DAC and VOBA from annual unlocking assumptions. Comparatively, the Predecessor three months ended September 30, 2017 AOI included approximately $21 of net favorable adjustments for lower DAC amortization from unlocking, annual assumption review and equity market fluctuations, $2 favorable adjustment due to a lower effective tax rate, offset by $2 unfavorable actual to expenses mortality within the SPIA product line.
AOI increased $57 from the Predecessor nine months ended September 30, 2017 to $202 in the nine months ended September 30, 2018. The current quarter results included $18 net favorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line and other annuity reserve movements.movements, $4 favorable net investment income from bond prepayment income, and $5 favorable adjustments for lower amortization of DAC and VOBA from annual unlocking assumptions; offset by $3 higher project related expenses. Comparatively, the Predecessor quarternine months ended March 31,September 30, 2017 AOI included approximately $3$21 of net favorable adjustments relatedfor lower DAC amortization from unlocking, annual assumption review and equity market fluctuations, $2 favorable adjustment due to a lower effective tax rate, $3 of net favorable actual to expected mortality within the SPIA product line;line, offset by $1$2 of expenses related to the Company's legacy incentive compensation plan as well as $3 of unfavorable DAC amortization, primarily due to equity market fluctuations.plan.


Investment Portfolio
(All dollar amounts presented in millions unless otherwise noted)
The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. Within the parameters of these laws, we invest in assets giving consideration to four primary investment objectives: (i) maintain robust absolute returns; (ii) provide reliable yield and 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 and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities.
As of March 31,September 30, 2018 and December 31, 2017, the fair value of our investment portfolio was approximately $23$24 billion and $24 billion, respectively, and was divided among the following asset class and sectors:

 March 31, 2018 December 31, 2017 September 30, 2018 December 31, 2017
 Fair Value Percent Fair Value Percent Fair Value Percent Fair Value Percent
                
Fixed maturity securities, available for sale:Fixed maturity securities, available for sale:       Fixed maturity securities, available for sale:       
United States Government full faith and credit United States Government full faith and credit$160
 1% $84
 1% United States Government full faith and credit$139
 1% $84
 1%
United States Government sponsored entities United States Government sponsored entities118
 1% 122
 1% United States Government sponsored entities108
 % 122
 1%
United States municipalities, states and territories United States municipalities, states and territories1,710
 7% 1,747
 7% United States municipalities, states and territories1,381
 6% 1,747
 7%
Foreign Governments Foreign Governments160
 1% 197
 1%
Corporate securities:Corporate securities:      

Corporate securities:      

Finance, insurance and real estate Finance, insurance and real estate5,118
 22% 5,930
 25% Finance, insurance and real estate4,524
 19% 5,500
 23%
Manufacturing, construction and mining Manufacturing, construction and mining1,011
 4% 996
 4% Manufacturing, construction and mining616
 3% 1,002
 4%
Utilities, energy and related sectors Utilities, energy and related sectors2,522
 11% 2,278
 10% Utilities, energy and related sectors2,545
 10% 2,281
 10%
Wholesale/retail trade Wholesale/retail trade1,584
 7% 1,457
 6% Wholesale/retail trade1,503
 6% 1,428
 6%
Services, media and other Services, media and other2,849
 12% 2,354
 10% Services, media and other2,446
 10% 2,359
 10%
Hybrid securitiesHybrid securities1,204
 5% 1,446
 6%Hybrid securities951
 4% 1,067
 4%
Non-agency residential mortgage-backed securitiesNon-agency residential mortgage-backed securities1,114
 5% 1,155
 5%Non-agency residential mortgage-backed securities1,572
 6% 1,155
 5%
Commercial mortgage-backed securitiesCommercial mortgage-backed securities924
 4% 956
 4%Commercial mortgage-backed securities1,794
 7% 956
 4%
Asset-backed securitiesAsset-backed securities3,052
 13% 3,065
 13%Asset-backed securities3,682
 15% 3,065
 13%
Total fixed maturity available for sale securitiesTotal fixed maturity available for sale securities21,366
 92% 21,590
 92%Total fixed maturity available for sale securities21,421
 88% 20,963
 89%
Equity securities (a)Equity securities (a)769
 4% 761
 3%Equity securities (a)1,440
 6% 1,388
 6%
Commercial mortgage loansCommercial mortgage loans526
 2% 549
 2%Commercial mortgage loans488
 2% 549
 2%
Other (primarily derivatives, limited partnerships and FHLB common stock)Other (primarily derivatives, limited partnerships and FHLB common stock)565
 2% 678
 3%Other (primarily derivatives, limited partnerships and FHLB common stock)1,034
 4% 678
 3%
Short term investmentsShort term investments
 % 25
 %Short term investments15
 % 25
 %
Total investmentsTotal investments$23,226
 100% $23,603
 100%Total investments$24,398
 100% $23,603
 100%
(a) Includes investment grade non-redeemable preferred stocks ($6471,273 and $587,$1,194, respectively) and Federal Home Loan Bank of Atlanta common stock ($42 for( $42 December 31, 2017). Federal Home Loan Bank of Atlanta common stock was reclassed on January 1, 2018 from "Equity securities" to "Other invested assets".
Insurance statutes regulate the type of investments that our life insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and our business and investment strategy, we generally seek to invest in (i) corporate securities rated investment grade by established nationally recognized statistical rating organizations (each, an “NRSRO”), (ii) U.S. Government and government-sponsored agency securities, or (iii) securities of comparable investment quality, if not rated.

As of March 31,September 30, 2018 and December 31, 2017, our fixed maturity available-for-sale ("AFS") securities portfolio was approximately $21 billion and $22$21 billion, respectively. The following table summarizes the credit quality, by Nationally Recognized Statistical Ratings Organization ("NRSRO") rating, of our fixed income portfolio:

 March 31, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Rating Fair Value Percent Fair Value Percent Fair Value Percent Fair Value Percent
AAA $1,838
 9% $1,784
 8% $2,711
 13% $1,784
 8%
AA 1,829
 8% 2,036
 9% 1,454
 7% 2,036
 10%
A 5,486
 26% 5,887
 27% 5,159
 24% 5,834
 28%
BBB 10,110
 47% 9,810
 46% 9,829
 46% 9,256
 44%
BB (a) 1,091
 5% 994
 5% 1,326
 6% 975
 5%
B and below (b) 1,012
 5% 1,079
 5% 942
 4% 1,078
 5%
Total $21,366
 100% $21,590
 100% $21,421
 100% $20,963
 100%
(a) Includes $50$52 and $47 at March 31,September 30, 2018 and December 31, 2017, respectively, of non-agency residential mortgage-backed securities ("RMBS") that carry a National Association of Insurance Commissioners ("NAIC") 1 designation.
(b) Includes $811$749 and $853 at March 31,September 30, 2018 and December 31, 2017, respectively, of non-agency RMBS that carry a NAIC 1 designation.
The NAIC’s Securities Valuation Office ("SVO") is responsible for the day-to-day credit quality assessment and valuation of securities owned by state regulated insurance companies. Insurance companies report ownership of securities to the SVO when such 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 following system:
NAIC Designation NRSRO Equivalent Rating
1 AAA/AA/A
2 BBB
3 BB
4 B
5 CCC and lower
6 In or near default
The NAIC has adopted revised designation methodologies for non-agency RMBS, including RMBS backed by subprime mortgage loans and for commercial mortgage-backed securities ("CMBS"). The NAIC’s objective with the revised designation methodologies for these structured securities was to increase accuracy in assessing expected losses and to use the improved assessment to determine a more appropriate capital requirement for such structured securities. The NAIC designations for structured securities, including subprime and Alternative A-paper ("Alt-A"), RMBS, are based upon a comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security. Securities where modeling does not generate an expected loss in all scenarios are given the highest designation of NAIC 1. A large percentage of our RMBS securities carry a NAIC 1 designation while the NRSRO rating indicates below investment grade. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from such structured securities. In the tables below, we present the rating of structured securities based on ratings from the revised NAIC rating methodologies described above (which in some cases do not correspond to rating agency designations). All NAIC designations (e.g., NAIC 1-6) are based on the revised NAIC methodologies.

The tables below present our fixed maturity securities by NAIC designation as of March 31,September 30, 2018 and December 31, 2017:
 March 31, 2018 September 30, 2018
NAIC Designation Amortized Cost Fair Value Percent of Total Fair Value Amortized Cost Fair Value Percent of Total Fair Value
1 $10,509
 $10,342
 48% $11,215
 $10,915
 51%
2 9,767
 9,589
 45% 9,415
 9,031
 42%
3 1,277
 1,254
 6% 1,306
 1,270
 6%
4 142
 138
 1% 169
 167
 1%
5 43
 43
 % 33
 33
 %
6 
 
 % 5
 5
 %
Total $21,738
 $21,366
 100% $22,143
 $21,421
 100%
            
 December 31, 2017 December 31, 2017
NAIC Designation Amortized Cost Fair Value Percent of Total Fair Value Amortized Cost Fair Value Percent of Total Fair Value
1 $11,153
 $11,217
 52% $11,046
 $11,109
 53%
2 9,032
 9,086
 42% 8,563
 8,619
 41%
3 1,088
 1,089
 5% 1,036
 1,037
 5%
4 136
 136
 1% 136
 136
 1%
5 65
 61
 % 65
 61
 %
6 1
 1
 % 1
 1
 %
Total $21,475
 $21,590
 100% $20,847
 $20,963
 100%
            

Investment Industry Concentration
The tables below present the top ten industry categories of our fixed maturity and equity securities and FHLB common stock, including the fair value and percent of total fixed maturity and equity securities and FHLB common stock fair value as of March 31,September 30, 2018 and December 31, 2017:
 March 31, 2018 September 30, 2018
Top 10 Industry Concentration Fair Value Percent of Total Fair Value Fair Value Percent of Total Fair Value
Banking $2,484
 11% $2,642
 12%
ABS collateralized loan obligation ("CLO") 1,918
 9% 2,259
 10%
Whole loan collateralized mortgage obligation ("CMO") 1,989
 9%
Life insurance 1,500
 7%
Municipal 1,887
 9% 1,497
 7%
Life insurance 1,391
 6%
ABS Other 1,127
 5% 1,417
 6%
Electric 998
 4% 990
 4%
Whole loan collateralized mortgage obligation ("CMO") 824
 4%
Pipelines 951
 4%
CMBS 946
 4%
Technology 776
 3% 727
 3%
CMBS 728
 3%
Pipelines 705
 3%
Total $12,838
 58% $14,918
 65%
  December 31, 2017
Top 10 Industry Concentration Fair Value Percent of Total Fair Value
Banking $2,851
 13%
ABS CLO 2,078
 9%
Municipal 1,977
 9%
Life insurance 1,514
 7%
Electric 1,097
 5%
Property and casualty insurance 1,006
 5%
ABS Other 980
 4%
Whole loan CMO 834
 4%
CMBS 791
 3%
Other financial institutions 781
 3%
Total $13,909
 62%





The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of March 31,September 30, 2018 and December 31, 2017, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
 March 31, 2018 December 31, 2017 September 30, 2018 December 31, 2017
 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities:        
Corporate, Non-structured Hybrids, Municipal and Government securities:        
Due in one year or less $188
 $188
 $268
 $268
 $242
 $241
 $268
 $268
Due after one year through five years 1,176
 1,166
 2,087
 2,086
 1,055
 1,039
 2,087
 2,086
Due after five years through ten years 2,543
 2,488
 3,127
 3,126
 2,462
 2,384
 3,127
 3,126
Due after ten years 11,917
 11,654
 9,938
 10,055
 11,195
 10,601
 10,069
 10,185
Subtotal $15,824
 $15,496
 $15,420
 $15,535
 $14,954
 $14,265
 $15,551
 $15,665
Other securities which provide for periodic payments:                
Asset-backed securities $3,062
 $3,052
 $3,061
 $3,065
 $3,705
 $3,682
 $3,061
 $3,065
Commercial-mortgage-backed securities 938
 924
 956
 956
 1,808
 1,794
 956
 956
Structured hybrids 679
 662
 759
 757
Residential mortgage-backed securities 1,235
 1,232
 1,279
 1,277
 1,676
 1,680
 1,279
 1,277
Subtotal $5,914
 $5,870
 $6,055
 $6,055
 $7,189
 $7,156
 $5,296
 $5,298
Total fixed maturity available-for-sale securities $21,738
 $21,366
 $21,475
 $21,590
 $22,143
 $21,421
 $20,847
 $20,963
Non-Agency RMBS Exposure    
Our investment in non-agency RMBS securities is predicated on the conservative and adequate cushion between purchase price and NAIC 1 rating, general lack of sensitivity to interest rates, positive convexity to prepayment rates and correlation between the price of the securities and the unfolding recovery of the housing market.
The fair value of our investments in subprime and Alt-A RMBS securities was $255$228 and $665$622 as of March 31,September 30, 2018, respectively, and $267 and $689 as of December 31, 2017, respectively.

The following tables summarize our exposure to subprime and Alt-A RMBS by credit quality using NAIC designations, NRSRO ratings and vintage year as of March 31,September 30, 2018 and December 31, 2017 :2017:
 March 31, 2018 December 31, 2017 September 30, 2018 December 31, 2017
NAIC Designation: Fair Value Percent of Total Fair Value Percent of Total Fair Value Percent of Total Fair Value Percent of Total
1 $892
 97% $929
 96% $827
 98% $929
 96%
2 24
 3% 17
 2% 19
 2% 17
 2%
3 3
 % 5
 1% 3
 % 5
 1%
4 
 % 
 % 
 % 
 %
5 1
 % 5
 1% 1
 % 5
 1%
6 
 % 
 % 
 % 
 %
Total $920
 100% $956
 100% $850
 100% $956
 100%
                
NRSRO:                
AAA $37
 4% $43
 4% $27
 3% $43
 4%
AA 11
 1% 11
 1% 16
 2% 11
 1%
A 49
 5% 36
 4% 50
 6% 36
 4%
BBB 53
 6% 67
 7% 38
 4% 67
 7%
BB and below 770
 84% 799
 84% 719
 85% 799
 84%
Total $920
 100% $956
 100% $850
 100% $956
 100%
                
Vintage:                
2017 $12
 1% $12
 1% $12
 1% $12
 1%
2016 15
 2% 15
 2% 15
 2% 15
 2%
2007 191
 21% 199
 21% 178
 21% 199
 21%
2006 334
 36% 346
 36% 312
 37% 346
 36%
2005 and prior 368
 40% 384
 40% 333
 39% 384
 40%
Total $920
 100% $956
 100% $850
 100% $956
 100%
ABS Exposure
As of MarchSeptember 30, 2018 and December 31, 2018,2017, our ABS exposure was largely composed of CLOs, which comprised 63%61% and 68%, respectively, of all ABS holdings. These exposures are generally senior tranches of CLOs which have leveraged loans as their underlying collateral. The remainder of our ABS exposure was largely diversified by underlying collateral and issuer type, including automobile and home equity receivables.
The following tables summarize our ABS exposure. TheAs of September 30, 2018, the non-CLO exposure represents 37%39% of total ABS assets, or 5%6% of total invested assets. As of March 31, 2018,assets and the CLO and non-CLO positions were trading at a net unrealized loss position of $6$13 and $5,$10, respectively.
The non-CLO exposure as As of December 31, 2017, the non-CLO exposure represented 32% of total ABS assets, or 4% of total invested assets respectively. As of December 31, 2017and the CLO and non-CLO positions were trading at a net unrealized gain position of $3$4 and $0, respectively.
The following tables summarize our ABS exposure.
 March 31, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Asset Class Fair Value Percent Fair Value Percent Fair Value Percent Fair Value Percent
ABS CLO $1,918
 63% $2,078
 68% $2,259
 61% $2,078
 68%
ABS auto 4
 % 4
 % 3
 % 4
 %
ABS credit card 3
 % 3
 % 3
 % 3
 %
ABS other 1,127
 37% 980
 32% 1,417
 39% 980
 32%
Total ABS $3,052
 100% $3,065
 100% $3,682
 100% $3,065
 100%

Commercial Mortgage Loans
We rate all CMLs to quantify the level of risk. We place those loans with higher risk on a watch list and closely monitor them for collateral deficiency or other credit events that may lead to a potential loss of principal and/or interest. If we determine the value of any CML to be impaired (i.e., when it is probable that we will be unable to collect on amounts due according to the contractual terms of the loan agreement), the carrying value of the CML is reduced to either the present value of expected cash flows from the loan, discounted at the loan’s effective interest rate, or fair value of the collateral. For those mortgage loans that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. The carrying value of the impaired loans is reduced by establishing a specific write-down recorded in "Net realized capital gains (losses)" in the Condensed Consolidated Statements of Operations.
Loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios are utilized as part of the review process described above. See "Note 4. Investments" to our unaudited condensed consolidated financial statements for additional information regarding our LTV and DSC CML balances.ratios.
As of March 31,September 30, 2018, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times, and a weighted average LTV ratio of 48%49%.


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,September 30, 2018 and December 31, 2017 were as follows:
March 31, 2018September 30, 2018
Number of securities Amortized Cost Unrealized Losses Fair ValueNumber of securities Amortized Cost Unrealized Losses Fair Value
Fixed maturity securities, available for sale:              
United States Government full faith and credit15
 $162
 $(1) $161
15
 $141
 $(2) $139
United States Government sponsored agencies70
 85
 (1) 84
75
 93
 (2) 91
United States municipalities, states and territories141
 1,509
 (27) 1,482
143
 1,408
 (52) 1,356
Foreign Governments16
 149
 (6) 143
Corporate securities:              
Finance, insurance and real estate360
 4,668
 (128) 4,540
330
 4,402
 (216) 4,186
Manufacturing, construction and mining114
 839
 (23) 816
93
 655
 (39) 616
Utilities, energy and related sectors215
 2,309
 (56) 2,253
233
 2,490
 (130) 2,360
Wholesale/retail trade208
 1,505
 (44) 1,461
207
 1,589
 (104) 1,485
Services, media and other282
 2,584
 (66) 2,518
269
 2,428
 (119) 2,309
Hybrid securities57
 1,047
 (30) 1,017
54
 832
 (36) 796
Non-agency residential mortgage backed securities195
 849
 (7) 842
133
 815
 (8) 807
Commercial mortgage backed securities116
 830
 (15) 815
145
 1,233
 (25) 1,208
Asset backed securities281
 2,313
 (16) 2,297
336
 2,891
 (28) 2,863
Total fixed maturity available for sale securities2,054
 18,700
 (414) 18,286
2,049
 19,126
 (767) 18,359
Equity securities51
 642
 (13) 629
87
 1,352
 (52) 1,300
Total2,105
 $19,342
 $(427) $18,915
2,136
 $20,478
 $(819) $19,659
December 31, 2017December 31, 2017
Number of securities Amortized Cost Unrealized Losses Fair ValueNumber of securities Amortized Cost Unrealized Losses Fair Value
Fixed maturity securities, available for sale:              
United States Government full faith and credit9
 $74
 $
 $74
9
 $74
 $
 $74
United States Government sponsored agencies54
 58
 (1) 57
54
 58
 (1) 57
United States municipalities, states and territories46
 286
 (1) 285
46
 286
 (1) 285
Foreign Governments9
 141
 (1) 140
Corporate securities:      

      

Finance, insurance and real estate197
 2,188
 (8) 2,180
183
 1,914
 (5) 1,909
Manufacturing, construction and mining50
 290
 (2) 288
50
 290
 (2) 288
Utilities, energy and related sectors69
 504
 (6) 498
70
 506
 (6) 500
Wholesale/retail trade116
 623
 (2) 621
115
 610
 (2) 608
Services, media and other99
 514
 (3) 511
98
 513
 (4) 509
Hybrid securities37
 489
 (5) 484
27
 269
 (3) 266
Non-agency residential mortgage backed securities205
 884
 (2) 882
205
 884
 (2) 882
Commercial mortgage backed securities64
 479
 (1) 478
64
 479
 (1) 478
Asset backed securities236
 1,947
 (3) 1,944
236
 1,947
 (3) 1,944
Total fixed maturity available for sale securities1,182
 8,336
 (34) 8,302
1,166
 7,971
 (31) 7,940
Equity securities42
 440
 (4) 436
58
 805
 (7) 798
Total1,224
 $8,776
 $(38) $8,738
$1,224
 $8,776
 $(38) $8,738

The gross unrealized loss position on the available-for-sale fixed and equity portfolio as of March 31, 2018 and December 31, 2017 was $427 and $38, respectively. The gross unrealized loss position increased $389$781 from December 31, 2017 to March 31,September 30, 2018. Most components of the portfolio exhibited price declines as interest rates rose and credit spreads widened during the quarter.period. The total book value of all securities in an unrealized loss position was $19,342$20,478 and $8,776 as of March 31,September 30, 2018 and December 31, 2017, respectively. The total book value of all securities in an unrealized loss position increased 120%133% from December 31, 2017 to March 31, September 30,

2018. The average market value/book value of corporate bonds in an unrealized loss position was 97%95% and 99%100% as of March 31,September 30, 2018 and December 31,

2017, respectively. In aggregate, corporate bonds represented 74% and 58%50% of the total unrealized loss position of the fixed and equity securities as of March 31,September 30, 2018 and December 31, 2017, respectively.
Our municipal bond exposure is a combination of general obligation bonds (fair value of $331$259 and an amortized cost of $335$270 as of March 31,September 30, 2018) and special revenue bonds (fair value of $1,379$1,122 and amortized cost of $1,398$1,164 as of March 31,September 30, 2018).
Across all municipal bonds, the largest issuer represented 7%8% of the category, less than 1% of the entire portfolio and is rated NAIC 1. Our focus within municipal bonds is on NAIC 1 rated instruments, and 93%91% of our municipal bond exposure is rated NAIC 1.
The amortized cost and fair value of fixed maturity securities and equity securities (excluding U.S. Government and U.S. Government-sponsored agency securities) in an unrealized loss position greater than 20% and the number of months in an unrealized loss position with fixed maturity investment grade securities (NRSRO rating of BBB/Baa or higher) as of March 31,September 30, 2018 and December 31, 2017, were as follows:
March 31, 2018September 30, 2018
Number of securities Amortized Cost Fair Value Gross Unrealized LossesNumber of securities Amortized Cost Fair Value Gross Unrealized Losses
Investment grade:              
Less than six months
 $
 $
 $

 $
 $
 $
Six months or more and less than twelve months
 
 
 

 
 
 
Twelve months or greater
 
 
 

 
 
 
Total investment grade
 
 
 

 
 
 
              
Below investment grade:              
Less than six months2
 6
 4
 (2)2
 
 
 
Six months or more and less than twelve months
 
 
 
2
 7
 5
 (2)
Twelve months or greater
 
 
 

 
 
 
Total below investment grade2
 6
 4
 (2)4
 7
 5
 (2)
Total2
 $6
 $4
 $(2)4
 $7
 $5
 $(2)
 December 31, 2017
 Number of securities Amortized Cost Fair Value Gross Unrealized Losses
Investment grade:       
Less than six months
 $
 $
 $
Six months or more and less than twelve months
 
 
 
Twelve months or greater
 
 
 
Total investment grade
 
 
 
        
Below investment grade:       
Less than six months1
 13
 10
 (3)
Six months or more and less than twelve months
 
 
 
Twelve months or greater
 
 
 
Total below investment grade1
 13
 10
 (3)
Total1
 $13
 $10
 $(3)

OTTI and Watch List
At March 31,September 30, 2018 and December 31, 2017, our watch list included 35 and 1 securities, respectively, in an unrealized loss position with an amortized cost of $6$7 and $13, unrealized losses of $2 and $3, and a fair value of $4$5 and $10, respectively. As part of the cash flow testing analysis, we evaluated each of these securities to assess the following:
whether the issuer is currently meeting its financial obligations
its ability to continue to meet these obligations
its existing cash available

its access to additional available capital
any expense management actions the issuer has taken; and
whether the issuer has the ability and willingness to sell non-core assets to generate liquidity
Based on our analysis, these securities demonstrated that the March 31,September 30, 2018 and December 31, 2017 carrying values were fully recoverable.
There were 13 and 0 structured securities with a fair value of $0 and $0 on the watch list to which we had potential credit exposure as of March 31,September 30, 2018 and December 31, 2017, respectively. Our analysis of these structured securities, which included cash flow testing results, demonstrated the March 31,September 30, 2018 and December 31, 2017 values were fully recoverable.
Exposure to Sovereign Debt
Our investment portfolio had no direct exposure to European sovereign debt as of March 31,September 30, 2018 and December 31, 2017.
As of March 31,September 30, 2018 and December 31, 2017 the Company also had no material exposure risk related to financial investments in Puerto Rico.
Available-For-Sale Securities
For additional information regarding our AFS securities, including the amortized cost, gross unrealized gains (losses), and fair value of AFS securities as well as the amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of March 31,September 30, 2018, refer to "Note 4. Investments", to our condensed consolidated financial statements.
Net Investment Income and Net Investment Gains
For discussion regarding our net investment income and net investment gains refer to "Note 4. Investments" to ourunaudited condensed consolidated financial statements.
Concentrations of Financial Instruments
For detail regarding our concentration of financial instruments refer to "Note 3. Significant Risks and Uncertainties" to our unaudited condensed consolidated financial statements.
Derivatives
We are exposed to credit loss in the event of nonperformance by our counterparties on call options. We attempt to reduce this credit risk by purchasing such options from large, well-established financial institutions.
We also hold cash and cash equivalents received from counterparties for call option collateral, as well as U.S. Government securities pledged as call option collateral, if our counterparty’s net exposures exceed pre-determined thresholds.
In June 2017, the Company began a program to reduce the negative interest cost associated with cash collateral posted from counterparties under various ISDA agreements by reinvesting derivative cash collateral.  The Company is required to pay counterparties the effective federal funds rate each day for cash collateral posted to FGL for daily mark to market margin changes.  The new program permits collateral cash received to be invested in short term Treasury securities and commercial paper rated A1/P1 which are included in "Cash and cash equivalents" in the accompanying Condensed Consolidated Balance Sheets.
See "Note 5. Derivative Financial Instruments" to our unaudited condensed consolidated financial statements for additional information regarding our derivatives and our exposure to credit loss on call options.

Liquidity and Capital Resources
Liquidity and Cash Flow

Liquidity refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations to meet cash requirements with a prudent margin of safety. Our principal sources of cash flow from operating activities are insurance premiums, and fees and investment income, however, sources of cash flows from investing activities also result from maturities and sales of invested assets. Our operating activities provided (used) provided cash of
$(34) and $60 $264 in the threenine months ended March 31,September 30, 2018 and $165 in the Predecessor threenine months ended March 31,September 30, 2017, respectively. When considering our liquidity and cash flow, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, FGL Holdings. As a holding company with no operations of its own, FGL Holdings derives its cash primarily from its insurance subsidiaries and CF Bermuda Holdings Limited, a Bermuda exempted limited liability company and a wholly owned direct subsidiary of the Company ("CF Bermuda"), a downstream holding company that provides additional sources of liquidity.  Dividends from our insurance subsidiaries flow through CF Bermuda to FGL Holdings.

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

Our cash flows associated with collateral received from and posted with counterparties change as the market value of the underlying derivative contract changes. As the value of a derivative asset declines (or increases), the collateral required to be posted by our counterparties would also decline (or increase). Likewise, when the value of a derivative liability declines (or increases), the collateral we are required to post to our counterparties would also decline (or increase).
Discussion of Consolidated Cash Flows
Presented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided or used from those activities for the threenine months ended March 31,September 30, 2018, the Predecessor threenine months ended March 31,September 30, 2017:
(dollars in millions)Three months endedNine months ended
March 31,
2018
  March 31,
2017
September 30,
2018
  September 30,
2017
Cash provided by (used in):   Predecessor   Predecessor
Operating activities$(34)  $60
$264
  $165
Investing activities(377)  (182)(1,696)  (623)
Financing activities353
  377
1,161
  711
Net increase (decrease) in cash and cash equivalents$(58)  $255
$(271)  $253
Operating Activities
Cash (used in) and provided by operating activities totaled $(34)$264 and $60$165 for the threenine months ended March 31,September 30, 2018 and the Predecessor threenine months ended March 31,September 30, 2017, respectively, which were principally due to a $162 decrease in cash and short-term collateral from our derivative counterparties$129 increase of investment income receipts period over period, partially offset by a $30 tax refund$53 increase in the three months ended March 31, 2018.deferred acquisition costs period over period.
Investing Activities
Cash used in investing activities was $377$1,696 and $182$623 for the threenine months ended March 31,September 30, 2018 and the Predecessor threenine months ended March 31,September 30, 2017, respectively, which were principally due to the purchases of fixed maturity securities and other investments, net of cash proceeds from sales, maturities and repayments.


Financing Activities
Cash provided by financing activities were $353was $1,161 and $377$711 for the Company in the threenine months ended March 31,September 30, 2018 and the Predecessor threenine months ended March 31,September 30, 2017, respectively, which were primarily related to the issuance of investment contracts and pending new production, including annuity and universal life insurance contracts, net of redemptions and benefit payments. Additionally,
On April 20, 2018, the FGLH completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025 (the “5.50% Senior Notes”). The Company made a $30 draw onused the net proceeds of the offering (i) to repay $135 of borrowings under its revolving credit facility duringand related expenses and (ii) to redeem in full and satisfy and discharge all of the three months ended March 31,outstanding $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021. The Company also expects to use the remaining proceeds for general corporate purposes, which may include additional capital contributions to the Company's insurance subsidiaries.
The 5.50% Senior Notes were issued pursuant to an indenture, dated as of April 20, 2018 (the “Base Indenture”), among FGLH, the guarantors from time to time party thereto and Wells Fargo Bank, National Association, as trustee (the “Trustee”), and a supplemental indenture thereto (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). FGLH will pay interest on the 5.50% Senior Notes in cash on May 1 and November 1 of each year at a rate of 5.50% per annum. Interest on the 5.50% Senior Notes will accrue from and including April 20, 2018 and the first interest payment date is November 1, 2018. The 5.50% Senior Notes will mature on May 1, 2025. The 5.50% Senior Notes are fully and unconditionally guaranteed by FGLH’s direct parent, FGL US Holdings Inc., a Delaware corporation, FGL’s indirect parent, CF Bermuda, and certain existing and future wholly-owned domestic restricted subsidiaries of the CF Bermuda, other than its insurance subsidiaries.
The Indenture contains covenants that restrict the CF Bermuda’s and its restricted subsidiaries’ ability to, among other things, pay dividends on or make other distributions in respect of equity interests or make other restricted payments, make certain investments, incur or guarantee additional indebtedness, create liens on certain assets to secure debt, sell certain assets, consummate certain mergers or consolidations or sell all or substantially all assets, or enter into transactions with affiliates.
Off-Balance Sheet Arrangements
Throughout our history, we have entered into indemnifications in the ordinary course of business with our customers, suppliers, service providers, business partners and in certain instances, when we sold businesses. Additionally, we have indemnified our directors and officers who are, or were, serving at our request in such capacities. Although the specific terms or number of such arrangements is not precisely known due to the extensive history of our past operations, costs incurred to settle claims related to these indemnifications have not been material to our financial statements. We have no reason to believe that future costs to settle claims related to our former operations will have a material impact on our financial position, results of operations or cash flows.
On November 30, 2017, FGLH and CF Bermuda, together as borrowers and each as a borrower, entered into the Credit Agreement with certain financial institutions party thereto, as lenders, and Royal Bank of Canada, as administrative agent and letter of credit issuer, which provides for a $250 senior unsecured revolving credit facility with a maturity of three years. The Credit Agreement provides a letter of credit sub-facility in a maximum amount of $20. The borrowers are permitted to use the proceeds of the loans under the Credit Agreement for working capital, growth initiatives and general corporate purposes, as well as to pay fees, commissions and expenses incurred in connection with the Credit Agreement and the transactions contemplated thereby. Amounts borrowed under the Credit Agreement may be reborrowed until the maturity date or termination of commitments under the Credit Agreement. The borrowers may increase the maximum amount of availability under the Credit Agreement from time to time by up to an aggregate amount not to exceed $50, subject to certain conditions, including the consent of the lenders participating in each such increase. As of March 31,September 30, 2018, the total drawn on the revolver was $135.$0.
On April 20, 2018, the Company completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025. See "Note 17. Subsequent Events" to our condensed consolidated financial statements for additional details.
The Company has unfunded investment commitments as of March 31,September 30, 2018 based upon the timing of when investments are executed compared to when the actual investments are funded, as some investments require that funding occur over a period of months or years. A summary of unfunded commitments by invested asset class are included below:
 March 31, 2018 September 30, 2018
Asset Type    
Other invested assets $160
 $859
Equity securities 33
 31
Fixed maturity securities, available-for-sale 110
 43
Other assets 12
 9
Total $315
 $942

Item 3.Quantitative and Qualitative Disclosures about Market Risk
Market Risk Factors
Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. We have significant holdings in financial instruments and are naturally exposed to a variety of market risks. We are primarily exposed to interest rate risk, credit risk and equity price risk and have some exposure to counterparty risk, which affect the fair value of financial instruments subject to market risk.

Enterprise Risk Management
For information about our enterprise risk management see "Part II - Item 7a Quantitative and Qualitative Disclosures about Market Risk" included in our 2017 Form 10-K.
Interest Rate Risk
Interest rate risk is our primary market risk exposure. We define interest rate risk as the risk of an economic loss due to adverse changes in interest rates. This risk arises from our holdings in interest sensitive assets and liabilities, primarily as a result of investing life insurance premiums and fixed annuity deposits received in interest-sensitive assets and carrying these funds as interest-sensitive liabilities. Substantial and sustained increases or decreases in market interest rates can affect the profitability of the insurance products and the fair value of our investments, as the majority of our insurance liabilities are backed by fixed maturity securities.
The profitability of most of our products depends on the spreads between interest yield on investments and rates credited on insurance liabilities. We have the ability to adjust the rates credited, primarily caps and credit rates, on the majority of the annuity liabilities at least annually, subject to minimum guaranteed values. In addition, the majority of the annuity products have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. However, competitive factors, including the impact of the level of surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at the levels necessary to avoid a narrowing of spreads under certain market conditions.
In order to meet our policy and contractual obligations, we must earn a sufficient return on our invested assets. Significant changes in interest rates exposes us to the risk of not earning the anticipated spreads between the interest rate earned on our investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect interest earnings, spread income and the attractiveness of certain of our products.
During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as IUL insurance and fixed annuities, and we may increase crediting rates on in-force products to keep these products competitive. A rise in interest rates, in the absence of other countervailing changes, will result in a decline in the market value of our investment portfolio.

As part of our asset liability management (“ALM”) program, we have made a significant effort to identify the assets appropriate to different product lines and ensure investing strategies match the profile of these liabilities. Our ALM strategy is designed to align the expected cash flows from the investment portfolio with the expected liability cash flows. As such, a major component of our effort to manage interest rate risk has been to structure the investment portfolio with cash flow characteristics that are consistent with the cash flow characteristics of the insurance liabilities. We use actuarial models to simulate the cash flows expected from the existing business under various interest rate scenarios. These simulations enable us to measure the potential gain or loss in the fair value of interest rate-sensitive financial instruments, to evaluate the adequacy of expected cash flows from assets to meet the expected cash requirements of the liabilities and to determine if it is necessary to lengthen or shorten the average life and duration of our investment portfolio. Duration measures the price sensitivity of a security to a small change in interest rates. When the durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in the value of assets could be expected to be largely offset by a change in the value of liabilities.

The duration of the investment portfolio, excluding cash and cash equivalents, derivatives, policy loans, and common stocks as of March 31,September 30, 2018, is summarized as follows:
 
(dollars in millions)        
Duration  Amortized Cost
 % of Total Amortized Cost
 % of Total
0-4 $7,401
 32% $8,358
 34%
5-9 6,325
 27% 7,146
 29%
10-14 7,005
 30% 7,399
 30%
15-19 2,527
 11% 1,813
 7%
20-25 43
 % 7
 %
Total $23,301
 100% $24,723
 100%
Credit Risk and Counterparty Risk
We are exposed to the risk that a counterparty will default on its contractual obligation resulting in financial loss. The major source of credit risk arises predominantly in our insurance operations’ portfolios of debt and similar securities and FSRC’s funds withheld receivables portfolio that consists primarily of debt and equity securities. The fair value of our fixed maturity portfolio totaled $21 billion and $22$21 billion at March 31,September 30, 2018 and December 31, 2017, respectively. Our credit risk materializes primarily as impairment losses. We are exposed to occasional cyclical economic downturns, during which impairment losses may be significantly higher than the long-term historical average. This is offset by years where we expect the actual impairment losses to be substantially lower than the long-term average. Credit risk in the portfolio can also materialize as increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on our capital requirements is also dependent on the economic cycle and increased asset impairment levels may go hand in hand with increased asset related capital requirements.
We attempt to manage the risk of default and rating migration by applying disciplined credit evaluation and underwriting standards and limiting allocations to lower quality, higher risk investments. In addition, we diversify our exposure by issuer and country, using rating based issuer and country limits. We also set investment constraints that limit our exposure by industry segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, we have portfolio-level credit risk constraints in place. Limit compliance is monitored on a monthly or, in some cases, daily basis.
In connection with the use of call options, we are exposed to counterparty credit risk-the risk that a counterparty fails to perform under the terms of the derivative contract. We have adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of attempting to mitigate the financial loss from defaults. The exposure and credit rating of the counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst five different approved counterparties to limit the concentration in one counterparty. Our policy allows for the purchase of derivative instruments from counterparties and/or clearinghouses that meet the required qualifications under the Iowa Code. The internal credit departmentCompany reviews the ratings of all the counterparties periodically. Collateral support documents are negotiated to further reduce the exposure when deemed necessary. See "Note 5. Derivative Financial Instruments" to our unaudited condensed consolidated financial statements for additional information regarding our exposure to credit loss.

Information regarding the Company's exposure to credit loss on the call options it holds is presented in the following table:
(dollars in millions) March 31, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Counterparty Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk Notional
Amount
 Fair Value Collateral Net Credit Risk Credit Rating
(Fitch/Moody's/S&P) (a)
 Notional
Amount
 Fair Value Collateral Net Credit Risk Notional
Amount
 Fair Value Collateral Net Credit Risk
Merrill Lynch  A/*/A+ $2,636
 $68
 $24
 $44
 $2,780
 $150
 $118
 $32
  A+/*/A+ $3,515
 $129
 $89
 $40
 $2,780
 $150
 $118
 $32
Deutsche Bank  A-/A3/A- 1,634
 40
 40
 
 1,345
 51
 55
 (4)  A-/A3/BBB+ 1,286
 46
 47
 (1) 1,345
 51
 55
 (4)
Morgan Stanley  */A1/A+ 1,640
 39
 37
 2
 1,555
 92
 101
 (9)  */A1/A+ 1,969
 66
 72
 (6) 1,555
 92
 101
 (9)
Barclay's Bank  A*+/A2/A 1,933
 61
 49
 12
 2,090
 103
 95
 8
  A/Baa3/BBB 1,387
 65
 42
 23
 2,090
 103
 95
 8
Canadian Imperial Bank of Commerce  AA-/Aa3/A+ 3,074
 83
 78
 5
 2,807
 96
 98
 (2)  */Aa2/A+ 2,376
 81
 82
 (1) 2,807
 96
 98
 (2)
Wells Fargo  A+/A2/A- 1,063
 37
 37
 
 
 
 
 
Goldman Sachs A/A3/BBB+ 309
 7
 8
 (1) $
 $
 $
 $
Total $10,917
 $291
 $228
 $63
 $10,577
 $492
 $467
 $25
 $11,905
 $431
 $377
 $54
 $10,577
 $492
 $467
 $25
(a) An * represents credit ratings that were not available.
We also have credit risk related to the ability of reinsurance counterparties to honor their obligations to pay the contract amounts under various agreements. To minimize the risk of credit loss on such contracts, we diversify our exposures among many reinsurers and limit the amount of exposure to each based on credit rating. We also generally limit our selection of counterparties with which we do new transactions to those with an “A-” credit rating or above and/or that are appropriately collateralized and provide credit for reinsurance. When exceptions are made to that principle, we ensure that we obtain collateral to mitigate our risk of loss. The following table presents our reinsurance recoverable balances and financial strength ratings for our five largest reinsurance recoverable balances as of March 31,September 30, 2018:
(in millions)   Financial Strength Rating
Parent Company/Principal Reinsurers Reinsurance Recoverable AM Best S&P Moody's
Wilton ReinsuranceRe. $1,5721,546  A+  Not Rated Not Rated
Scottish Re183Not RatedNot RatedNot Rated
Security Life of Denver 168164 A A A2
Hannover Re125A+AA-Not Rated
London Life 112110  AA+  Not Rated Not Rated
Swiss Re Life and Health 105103 A+ AA- Aa3
In the normal course of business, certain reinsurance recoverables are subject to reviews by the reinsurers. We are not aware of any material disputes arising from these reviews or other communications with the counterparties as of March 31,September 30, 2018 that would require an allowance for uncollectible amounts.
Through FSRC, the Company is exposed to insurance counterparty risk, which is the potential for FSRC to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk and collection risk. The run-on-the-bank risk is that a client’s in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Substantially higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs. The collection risk for clients and retrocessionaires includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to FSRC. FSRC has not experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims.
FSRC is exposed to the risk that a counterparty will default on its contractual obligation resulting in financial loss. The major source of credit risk arises predominantly in FSRC’s funds withheld receivables portfolio that consists primarily of debt and equity securities. FSRC’s credit risk materializes primarily as impairment losses. FSRC is exposed to occasional cyclical economic downturns, during which impairment losses may be significantly

higher than the long-term historical average. This is offset by years where FSRC expects the actual impairment losses to be substantially lower than the long-term average. Credit risk in the portfolio can also materialize as increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on FSRC’s capital requirements is also dependent on the economic cycle and increased asset impairment levels may go hand in hand with increased asset related capital requirements.
FSRC assumes reinsurance business from counterparties that seek to manage the risk of default and rating migration by applying credit evaluation and underwriting standards and limiting allocations to lower quality, higher risk investments. In addition, FSRC’s reinsurance counterparties diversify their exposure by issuer and country, using rating based issuer and country limits and set investment constraints that limit its exposure by industry segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, FSRC has portfolio-level credit risk constraints in place. Limit compliance is monitored on a daily or, in some cases, monthly basis.

Equity Price Risk
We are primarily exposed to equity price risk through certain insurance products, specifically those products with GMWB. We offer a variety of FIA contracts with crediting strategies linked to the performance of indices such as the S&P 500 Index, Dow Jones Industrials or the NASDAQ 100 Index. The estimated cost of providing GMWB incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity markets, increased equity volatility or reduced interest rates could result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with such products, resulting in a reduction in our net income. The rate of amortization of intangibles related to FIA products and the cost of providing GMWB could also increase if equity market performance is worse than assumed.
To economically hedge the equity returns on these products, we purchase derivatives to hedge the FIA equity exposure. The primary way we hedge FIA equity exposure is to purchase over the counter equity index call options from broker-dealer derivative counterparties approved by our internal credit department.the Company. The second way to hedge FIA equity exposure is by purchasing exchange traded equity index futures contracts. Our hedging strategy enables us to reduce our overall hedging costs and achieve a high correlation of returns on the call options purchased relative to the index credits earned by the FIA contractholders. The majority of the call options are one-year options purchased to match the funding requirements underlying the FIA contracts. These hedge programs are limited to the current policy term of the FIA contracts, based on current participation rates. Future returns, which may be reflected in FIA contracts’ credited rates beyond the current policy term, are not hedged. We attempt to manage the costs of these purchases through the terms of our FIA contracts, which permit us to change caps or participation rates, subject to certain guaranteed minimums that must be maintained.
The derivatives are used to fund the FIA contract index credits and the cost of the call options purchased is treated as a component of spread earnings. While the FIA hedging program does not explicitly hedge GAAP income volatility, the FIA hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the equity market and risk-free rates. This is due to the fact that a key component in the calculation of GAAP reserves is the market valuation of the current term embedded derivative. Due to the alignment of the embedded derivative reserve component with hedging of this same embedded derivative, there should be a reasonable match between changes in this component of the reserve and changes in the assets backing this component of the reserve. However, there may be an interim mismatch due to the fact that the hedges which are put in place are only intended to cover exposures expected to remain until the end of an indexing term. To the extent index credits earned by the contractholder exceed the proceeds from option expirations and futures income, we incur a raw hedging loss.
See "Note 5. Derivative Financial Instruments" to our unaudited condensed consolidated financial statements for additional details on the derivatives portfolio.
Fair value changes associated with these investments are intended to, but do not always, substantially offset the increase or decrease in the amounts added to policyholder account balances for index products. When index credits to policyholders exceed option proceeds received at expiration related to such credits, any shortfall is funded by our net investment spread earnings and futures income. For the threenine months ended March 31,September 30, 2018 and the Predecessor threenine months ended March 31,September 30, 2017, the annual index credits to policyholders on their anniversaries were $131$328 and $116,$232, respectively. Proceeds received at expiration on options related to such credits were $131$332 and $115,$232, respectively.

Other market exposures are hedged periodically depending on market conditions and our risk tolerance. The FIA hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. We use a variety of techniques including direct estimation of market sensitivities and value-at-risk to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and risk tolerance change.

Sensitivity Analysis
The analysis below is hypothetical and should not be considered a projection of future risks. Earnings projections are before tax and non-controlling interest.
Interest Rate Risk
We assess interest rate exposures for financial assets, liabilities and derivatives using hypothetical test scenarios that assume either increasing or decreasing 100 basis point parallel shifts in the yield curve, reflecting changes in either credit spreads or risk-free rates.
If interest rates were to increase 100 basis points from levels at March 31,September 30, 2018, the estimated fair value of our fixed maturity securities would decrease by approximately $1,654.$1,614. The impact on shareholders’ equity of such decrease, net of income taxes (assumes a 35%21% tax rate) and intangibles adjustments, and the change in reinsurance related derivative would be a decrease of $1,305$1,272 in AOCI and a decrease of $1,261$1,231 in total shareholders’ equity. If interest rates were to decrease by 100 basis points from levels at March 31,September 30, 2018, the estimated impact on the FIA embedded derivative liability of such a decrease would be an increase of $237.$234.
The actuarial models used to estimate the impact of a one percentage point change in market interest rates incorporate numerous assumptions, require significant estimates and assume an immediate and parallel change in interest rates without any management of the investment portfolio in reaction to such change. Consequently, potential changes in value of financial instruments indicated by these simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our investments and liabilities, the net exposure to interest rates can vary over time. However, any such decreases in the fair value of fixed maturity securities, unless related to credit concerns of the issuer requiring recognition of an OTTI, would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet liquidity needs. Our liquidity needs are managed using the surrender and withdrawal provisions of the annuity contracts and through other means.
Equity Price Risk
Assuming all other factors are constant, we estimate that a decline in equity market prices of 10% would cause the market value of our equity investments to decrease by approximately $77,$144, our call option investments to decrease by approximately $17$18 based on equity positions and our FIA embedded derivative liability to decrease by approximately $27$35 as of March 31,September 30, 2018. Because our equity investments are classified as AFS,Due to the adoption of ASU 2016-01, the 10% decline in market value of our equity securities would not affect current earnings except to the extent that it reflects OTTI.earnings. These scenarios consider only the direct effect on fair value of declines in equity market levels and not changes in asset-based fees recognized as revenue, or changes in our estimates of total gross profits used as a basis for amortizing DAC and VOBA.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and participation of the Company’s management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this report. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of March 31,September 30, 2018, the Company’s disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

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

Changes in Internal Control Over Financial Reporting
The design and implementation of internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company post-Business Combination has required and will continue to require significant time and resources from management and other personnel. During the quarter ended March 31,September 30, 2018, we were engagedcontinue to engage in the process of the design and implementation of our internal control over financial reporting in a manner commensurate with the scale and complexity of our operations post-Business Combination.

In preparation for the quarter ended September 30, 2018, and in conjunction with the Company’s post-Business Combination internal control implementation activities, management identified a deficiency in the design of an internal control to validate the accuracy of actuarial model methodology changes. Specifically, the design of our internal control relating to the review of the actuarial model methodology changes required to measure the Company’s FIA contract reserve liabilities as part of the accounting for the Business Combination was not modified to address the increased risk associated with the complexity and volume of such changes.

As disclosed in Note 2 to the interim financial statements, this control deficiency did not result in a material misstatement of our previously issued financial statements; however, immaterial corrections were made to the Condensed Consolidated Balance Sheet as of December 31, 2017 and the Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and June 30, 2018 and the one month ended December 31, 2017. While not required to include management’s report on internal controls over financial reporting in the 2017 annual report on Form 10-K pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations, management has concluded the deficiency represented a material weakness in internal control over financial reporting based upon the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) (COSO 2013 Framework) as of December 31, 2017 and during the quarters ended March 31, 2018 and June 30, 2018.

We evaluated the controls associated with actuarial model methodology changes and designed a remediation plan to strengthen the control associated with the review of such changes. During the quarter ended September 30, 2018, management implemented the remediation plan and executed those procedures necessary to remediate the deficiency, which included review of the changes to the valuation model code resulting from the errors identified. Management tested the enhanced control associated with the review of actuarial model methodology changes and concluded the deficiency has been remediated as of September 30, 2018.

Management continues to execute the previously disclosed remediation plan relative to the material weakness identified during the quarter ended June 30, 2018. As of September 30, 2018 management has implemented a redesigned control associated with the identification of securities requiring analysis as to debt and equity classification under ASC 320, including validation of data, assumptions and other inputs to ensure a complete analysis has been performed. Management believes the remediation steps will strengthen the Company’s internal control over financial reporting. Management will test the ongoing operating effectiveness of the new controls subsequent to implementation and anticipate this material weakness will be remediated as of December 31, 2018 (i.e., after the applicable controls operate effectively for a sufficient period of time).
Except with respect to the activities described above, the Company’s management, including the CEO and CFO, concluded that no significant changes in the Company’s internal control over financial reporting occurred during the quarter ended March 31,September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.


PART II

Item 1. Legal Proceedings
See "Note 12. Commitments and Contingencies" to our unaudited condensed consolidated financial statements.
Item 1A. Risk Factors
A detailed discussion of our risk factors can be found in our 2017 Form 10-K, which can be found at the SEC's website www.sec.gov. There have been no material changes to the risk factors disclosed in our 2017 Form 10-K, except for the inclusion of the following risk factor regarding our growth strategy and the amendment and restatement of the risk factor regarding fiduciary rule proposals.
Our growth strategy includes selectively acquiring business through acquisitions of other insurance companies and reinsurance of insurance obligations written by unaffiliated insurance companies, and our ability to consummate these acquisitions on economically advantageous terms acceptable to us in the future is unknown.
We intend to grow our business in the future in part by acquisitions of other insurance companies and businesses, and through block reinsurance, which could materially increase the size of our business and could require additional capital, systems development and skilled personnel. Any such acquisitions could be funded through cash from operations, the issuance of equity of our Parent and/or the incurrence of additional indebtedness, which amount may be material, or a combination thereof. We actively monitor the market for merger and acquisition opportunities; however the timing, structure and size of any such acquisitions are uncertain and any such acquisitions could be material.
Moreover, we may experience challenges identifying, financing, consummating and integrating such acquisitions and block reinsurance transactions. Competition exists in the market for profitable blocks of business and such competition is likely to intensify as insurance businesses become more attractive targets.
It is also possible that merger and acquisition transactions will become less frequent, or be difficult to consummate due to financing or other factors, which could also make it more difficult for us to implement this aspect of our growth strategy. Our acquisition and block reinsurance transaction activities may also divert the

attention of our management from our business, which may have an adverse effect on our business and results of operations.
Occasionally we may acquire or seek to acquire an insurance company or business that writes businesses that are not core to our business. The ability of our management to transfer or source sufficient reasonably priced reinsurance for non-core businesses that we may acquire and want to dispose of may be limited. In the event that we were unable to find buyers or purchase adequate reinsurance, we would have to accept an increase in our net risk exposures, revise our pricing to reflect higher reinsurance premiums, or otherwise modify our acquisitions and product offerings, each of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In furtherance of our strategy of growth through acquisitions, we may review and conduct investigations of potential acquisitions or block reinsurance transactions, some of which may be material. When we believe a favorable opportunity exists, we may seek to enter into discussions with target companies or sellers regarding the possibility of such transactions. At any given time, we may be in discussions with one or more counterparties. There can be no assurance that any such negotiations will lead to definitive agreements, or if such agreements are reached, that any transactions would be consummated.

Our business is highly regulated and subject to numerous legal restrictions and regulations.
“Fiduciary” Rule Proposals

A significant portion of our annuity sales are to IRAs. Prior to being vacated, the DOL “fiduciary” rule applied to insurance agents who advise and sell products to IRA owners. As a result, commissioned insurance agents selling the Company’s IRA products would have been required to qualify for a prohibited transaction exemption. Although the DOL rule has been vacated in total, similar rules proposed by state officials or the Securities and Exchange Commission may have an adverse effect on sales of annuity products to IRA owners particularly in the independent agent distribution channel. Compliance with such rules may require additional supervision of agents, cause changes to compensation practices and product offerings, and increase litigation risk, all of which could have adversely impact our business, results of operations and/or financial condition. Management will continue to monitor for potential action by state officials or the Securities and Exchange Commission to implement rules similar to the vacated DOL rule.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.



Item 6. Exhibits  
The following is a list of exhibits filed or incorporated by reference as a part of this AnnualQuarterly Report on Form 10-K.10-Q.
Exhibit
No. 
 Description of Exhibits
   
31.1 * 
31.2 * 
32.1 * 
32.2 * 
101.INS * XBRL Instance Document.
101.SCH * XBRL Taxonomy Extension Schema.
101.CAL * XBRL Taxonomy Extension Calculation Linkbase.
101.DEF * XBRL Taxonomy Definition Linkbase.
101.LAB * XBRL Taxonomy Extension Label Linkbase.
101.PRE * XBRL Taxonomy Extension Presentation Linkbase.
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  FGL HOLDINGS (Registrant)
    
Date:May 9,November 7, 2018By:/s/ Dennis R. Vigneau
   Chief Financial Officer
   (on behalf of the Registrant and as Principal Financial Officer)

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