0001668428 srt:WeightedAverageMember us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:MarketApproachValuationTechniqueMember 2019-01-01 2019-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended September 30, ~~2018~~2019



¨☐	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~~ ~~Grand Cayman, Cayman Islands KY1-1102~~	(I.R.S. Employer Identification No.)
	~~(Address of principal executive offices, including zip code)~~

4th Floor

~~(800)~~ Boundary Hall, Cricket Square

Grand Cayman, Cayman IslandsKY1-1102

(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. Yesx☒ 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)~~232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesx☒ or No¨

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



Large Accelerated Filer	x☒	Accelerated 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☒

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, par value $.0001 per share	FG	New York Stock Exchange
Warrants to purchase ordinary shares	FG WS	New York Stock Exchange

As of November ~~5, 2018,~~2, 2019, there were ~~221,561,070~~221,660,974 ordinary shares, $.0001 par value, issued and outstanding.

FGL HOLDINGS

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:	-2
Condensed Consolidated Balance Sheets ~~as of September 30, 2018~~ (unaudited) ~~and December 31, 2017~~	-2
Condensed Consolidated Statements of Operations (unaudited)	-3
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)	-4
Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited)	-5
Condensed Consolidated Statements of Cash Flows (unaudited)	-6
Notes to Unaudited Condensed Consolidated Financial Statements	-7
(1) Basis of Presentation	-7
(2) Significant Accounting Policies and Practices	-9-7
(3) Significant Risks and Uncertainties	~~-15~~-10
(4) Investments	~~-17~~-12
(5) Derivative Financial Instruments	~~-26~~-20
(6) Fair Value of Financial Instruments	~~-30~~-24
(7) Intangibles	-38
(8) Debt	-39
(9) Equity	-40
(10) Stock Compensation	-42
(11) Income Taxes	-44
~~(8) Debt~~(12) Commitments and Contingencies	-45
~~(9) Equity~~(13) Reinsurance	~~-46~~-48
~~(10) Stock Compensation~~	~~-46~~
~~(11) Income Taxes~~(14) Related Party Transactions	-49
~~(12) Commitments and Contingencies~~(15) Earnings Per Share	~~-51~~-50
~~(13) Reinsurance~~	~~-52~~
~~(14) Related Party Transactions~~	~~-53~~
~~(15) Earnings Per Share~~	~~-54~~
(16) Insurance Subsidiary Financial Information and Regulatory Matters	~~-55~~-50
~~(17) Subsequent Events~~	~~-56~~
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	~~-57~~-52
Item 3. Quantitative and Qualitative Disclosures about Market Risk	~~-83~~-78
Item 4. Controls and Procedures	~~-87~~-83

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	~~-89~~-84
Item 1A. Risk Factors	~~-89~~-84
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	~~-90~~-84
Item 3. Defaults Upon Senior Securities	~~-90~~-84
Item 4. Mine Safety Disclosures	~~-90~~-84
Item 5. Other Information	~~-90~~-84
Item 6. Exhibits	~~-91~~-85
Signatures	~~-91~~-85

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

FGL HOLDINGS

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)


	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
ASSETS
Investments:
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
Fixed maturity securities, available-for-sale, at fair value (amortized cost: September 30, 2019 - $23,047; December 31, 2018 - $22,219)							$	23,907		$	21,109
Equity securities, at fair value (cost: September 30, 2019 - $1,104; December 31, 2018 - $1,526)							1,097			1,382
Derivative investments	432			492			454			97
Short term investments	15			25
Commercial mortgage loans	497			548
Mortgage loans							836			667
Other invested assets	606			188			1,078			662
Total investments	24,411			23,604			27,372			23,917
Cash and cash equivalents	944			1,215			990			571
Accrued investment income	230			211			246			216
Funds withheld for reinsurance receivables, at fair value	708			756			2,045			757
Reinsurance recoverable	2,460			2,494			3,250			3,190
Intangibles, net	1,205			853			1,397			1,359
Deferred tax assets, net	285			182			92			343
Goodwill	467			467			467			467
Other assets	250			141			258			125
Total assets	$	30,960		$	29,923		$	36,117		$	30,945

LIABILITIES AND SHAREHOLDERS' EQUITY

Contractholder funds	$	23,164		$	21,827		$	25,355		$	23,387
Future policy benefits, including $684 and $728 at fair value at September 30, 2018 and December 31, 2017, respectively	4,631			4,751
Future policy benefits, including $1,887 and $725 at fair value at September 30, 2019 and December 31, 2018, respectively							5,714			4,641
Funds withheld for reinsurance liabilities							838			722
Liability for policy and contract claims	60			78			63			64
Debt	540			307			542			541
Revolving credit facility	—			105			15			—
Other liabilities	1,091			892			1,015			700
Total liabilities	29,486			27,960			33,542			30,055

Commitments and contingencies ("Note 12")

Shareholders' equity:
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)	—			—
Preferred stock ($.0001 par value, 100,000,000 shares authorized, 421,885 and 399,033 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively)							—			—
Common stock ($.0001 par value, 800,000,000 shares authorized, 221,660,974 issued and outstanding at September 30, 2019 and December 31, 2018)							—			—
Additional paid-in capital	2,056			2,037			2,022			1,998
Retained earnings (Accumulated deficit)	(13		)	(149		)	85			(167		)
Accumulated other comprehensive income (loss)	(569		)	75			520			(937		)
Treasury stock, at cost (6,622,420 shares at September 30, 2019; 600,000 shares at December 31, 2018)							(52		)	(4		)
Total shareholders' equity	1,474			1,963			2,575			890
Total liabilities and shareholders' equity	$	30,960		$	29,923		$	36,117		$	30,945

See accompanying notes to unaudited condensed consolidated financial statements.

FGL HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)



	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues:
Premiums	$	9		$	12		$	33		$	45
Net investment income	301			267			905			812
Net investment gains (losses)	103			119			478			(74		)
Insurance and investment product fees and other	42			46			134			139
Total revenues	455			444			1,550			922
Benefits and expenses:
Benefits and other changes in policy reserves	331			297			938			475
Acquisition and operating expenses, net of deferrals	48			40			239			126
Amortization of intangibles	12			28			54			72
Total benefits and expenses	391			365			1,231			673
Operating income	64			79			319			249
Interest expense	(8		)	(8		)	(24		)	(21		)
Income (loss) before income taxes	56			71			295			228
Income tax (expense) benefit	9			(15		)	(13		)	(67		)
Net income (loss)	$	65		$	56		$	282		$	161
Less Preferred stock dividend	7			7			23			21
Net income (loss) available to common shareholders	$	58		$	49		$	259		$	140

Net income (loss) per common share:
Basic	$	0.26		$	0.23		$	1.19		$	0.65
Diluted	$	0.26		$	0.23		$	1.19		$	0.65
Weighted average common shares used in computing net income (loss) per common share:
Basic	216,441,948			214,370,000			217,745,826			214,370,000
Diluted	216,540,885			214,418,693			217,814,942			214,390,931

Cash dividend per common share	$	0.01		$	—		$	0.03		$	—


Supplemental disclosures
Total other-than-temporary impairments	$	(2	)	$	—		$	(7	)	$	(2	)
Portion of other-than-temporary impairments included in other comprehensive income	—			—			—			—
Net other-than-temporary impairments	(2		)	—			(7		)	(2		)
Gains (losses) on derivatives and embedded derivatives	65			159			345			58
Other investment gains (losses)	40			(40		)	140			(130		)
Total net investment gains (losses)	$	103		$	119		$	478		$	(74	)

Three months ended Nine months ended
September 30, 2018 September 30, 2017 September 30,
2018 September 30,
2017
Predecessor Predecessor
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Premiums $ 12
$ 16
$ 45
$ 31
Net investment income 267
261
812
765
Net investment gains (losses) 119
117
(74 ) 265
Insurance and investment product fees and other 46
41
139
129
Total revenues 444
435
922
1,190
Benefits and expenses:
Benefits and other changes in policy reserves 297
320
475
823
Acquisition and operating expenses, net of deferrals 40
36
126
109
Amortization of intangibles 28
(14 ) 72
70
        Total benefits and expenses 365
342
673
1,002
Operating income 79
93
249
188
Interest expense (8 ) (6 ) (21 ) (18 )
Income (loss) before income taxes 71
87
228
170
Income tax expense (15 ) (26 ) (67 ) (55 )
        Net income (loss) $ 56
$ 61
$ 161
$ 115
Less preferred stock dividend 7
—
21
—
Net income (loss) available to common shareholders $ 49
$ 61
$ 140
$ 115

Net income (loss) per common share:
Basic $ 0.23
$ 1.06
$ 0.65
$ 1.98
Diluted $ 0.23
$ 1.06
$ 0.65
$ 1.98
Weighted average common shares used in computing net income per common share:
Basic 214,370,000
58,335,216
214,370,000
58,332,666
Diluted 214,418,693
58,478,612
214,390,931
58,437,832

Cash dividend per common share $ —
$ 0.065
$ —
$ 0.195

Supplemental disclosures
Total other-than-temporary impairments $ —
$ —
$ (2 ) $ (21 )
Portion of other-than-temporary impairments included in other comprehensive income —
—
—
—
Net other-than-temporary impairments —
—
(2 ) (21 )
Gains (losses) on derivatives and embedded derivatives 159
111
58
284
Other investment gains (losses) (40 ) 6
(130 ) 2
        Total net investment gains (losses) $ 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 ended Nine months ended
September 30, 2018 September 30, 2017 September 30,
2018 September 30,
2017
Predecessor Predecessor
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income $ 56
$ 61
$ 161
$ 115

Other comprehensive income (loss):
Unrealized investment gains/losses:
Change in unrealized investment gains/losses before reclassification adjustment (11 ) 173
(922 ) 845
Net reclassification adjustment for gains/losses included in net income 23
(4 ) 84
20
Changes in unrealized investment gains/losses after reclassification adjustment 12
169
(838 ) 865
Adjustments to intangible assets and unearned revenue 37
(51 ) 89
(265 )
Changes in deferred income tax asset/liability (15 ) (42 ) 101
(210 )
Net change in unrealized gains/losses on investments 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 income (loss) for the period 34
76
(648 ) 390
Comprehensive income (loss), net of tax $ 90
$ 137
$ (487 ) $ 505



	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net income (loss)	$	65		$	56		$	282		$	161

Other comprehensive income (loss):
Net change in unrealized gains/losses on investments	270			35			1,466			(649		)

Change in reinsurance liabilities held at fair value resulting from a change in the instrument-specific credit risk	(1		)	(1		)	(9		)	1

Net changes to derive comprehensive income (loss) for the period	269			34			1,457			(648		)
Comprehensive income (loss), net of tax	$	334		$	90		$	1,739		$	(487	)

See accompanying notes to unaudited condensed consolidated financial statements.

FGL HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited) (In millions)

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

Balance, December 31, 2017 —
—
2,037
(149 ) 75
1,963
Dividends —
—
16
(21 ) —
(5 )
Net income —
—
—
161
—
161
Unrealized investment gains (losses), net —
—
—
—
(648 ) (648 )
Cumulative effect of changes in accounting principles —
—
—
(4 ) 4
—
Stock-based compensation —
—
3
—
—
3
Balance, September 30, 2018 $ —
$ —
$ 2,056
$ (13 ) $ (569 ) $ 1,474



	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance, December 31, 2018	$	—	$	—	$	1,998	$	(167	)	$	(937	)	$	(4	)	$	890
Treasury shares purchased	—		—		—		—			—			(30		)	(30		)
Dividends
Preferred stock (paid in kind)	—		—		8		(8		)	—			—			—
Common stock ($0.01/share)	—		—		—		(2		)	—			—			(2		)
Net income (loss)	—		—		—		171			—			—			171
Unrealized investment gains (losses), net	—		—		—		—			724			—			724
Change in reinsurance liabilities held at fair value resulting from a change in the instrument-specific credit risk	—		—		—		—			(3		)	—			(3		)
Stock-based compensation	—		—		1		—			—			—			1
Balance, March 31, 2019	$	—	$	—	$	2,007	$	(6	)	$	(216	)	$	(34	)	$	1,751
Treasury shares purchased	—		—		—		—			—			(1		)	(1		)
Dividends
Preferred stock (paid in kind)	—		—		6		(8		)	—			—			(2		)
Common stock ($0.01/share)	—		—		—		(2		)	—			—			(2		)
Net income (loss)	—		—		—		46			—			—			46
Unrealized investment gains (losses), net	—		—		—		—			472			—			472
Change in reinsurance liabilities held at fair value resulting from a change in the instrument-specific credit risk	—		—		—		—			(5		)	—			(5		)
Stock-based compensation	—		—		1		—			—			—			1
Balance, June 30, 2019	$	—	$	—	$	2,014	$	30		$	251		$	(35	)	$	2,260
Treasury shares purchased	—		—		—		—			—			(17		)	(17		)
Dividends
Preferred stock (paid in kind)	—		—		7		(7		)	—			—			—
Common stock ($0.01/share)	—		—		—		(3		)	—			—			(3		)
Net income (loss)	—		—		—		65			—			—			65
Unrealized investment gains (losses), net	—		—		—		—			270			—			270
Change in reinsurance liabilities held at fair value resulting from a change in the instrument-specific credit risk	—		—		—		—			(1		)	—			(1		)
Stock-based compensation	—		—		1		—			—			—			1
Balance, September 30, 2019	$	—	$	—	$	2,022	$	85		$	520		$	(52	)	$	2,575

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)			Treasury Stock		Total Shareholders' Equity
Balance, December 31, 2017	$	—	$	—	$	2,037	$	(149	)	$	75		$	—	$	1,963
Dividends
Preferred stock (paid in kind)	—		—		2		(7		)	—			—		(5		)
Net income (loss)	—		—		—		65			—			—		65
Unrealized investment gains (losses), net	—		—		—		—			(359		)	—		(359		)
Change in reinsurance liabilities held at fair value resulting from a change in the instrument-specific credit risk	—		—		—		—			2			—		2
Cumulative effect of changes in accounting principles	—		—		—		(4		)	4			—		—
Balance, March 31, 2018	$	—	$	—	$	2,039	$	(95	)	$	(278	)	$	—	$	1,666
Dividends
Preferred stock (paid in kind)	—		—		7		(7		)	—			—		—
Net income (loss)	—		—		—		40			—			—		40
Unrealized investment gains (losses), net	—		—		—		—			(325		)	—		(325		)
Stock-based compensation	—		—		1		—			—			—		1
Balance, June 30, 2018	$	—	$	—	$	2,047	$	(62	)	$	(603	)	$	—	$	1,382
Dividends
Preferred stock (paid in kind)	—		—		7		(7		)	—			—		—
Net income (loss)	—		—		—		56			—			—		56
Unrealized investment gains (losses), net	—		—		—		—			35			—		35
Change in reinsurance liabilities held at fair value resulting from a change in the instrument-specific credit risk	—		—		—		—			(1		)	—		(1		)
Stock-based compensation	—		—		2		—			—			—		2
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)


	Nine months ended
	September 30, 2018			September 30, 2017			Nine months ended
				Predecessor			September 30, 2019			September 30, 2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	161		$	115
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	282		$	161
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock based compensation	3			5			4			3
Amortization	40			(36		)	21			40
Deferred income taxes	(4		)	(80		)	1			(4		)
Interest credited/index credits to contractholder account balances	452			714			855			452
Net recognized losses (gains) on investments and derivatives	74			(254		)	(478		)	74
Charges assessed to contractholders for mortality and administration	(103		)	(99		)	(96		)	(103		)
Deferred policy acquisition costs, net of related amortization	(237		)	(167		)
Intangibles, net							(295		)	(237		)
Gain on extinguishment of debt	(2		)	—			—			(2		)
Changes in operating assets and liabilities:
Reinsurance recoverable	11			(10		)	2			11
Future policy benefits	(120		)	(41		)
Funds withheld from reinsurers	11			(79		)
Future policy benefits reflected in net income (loss)							1,064			(120		)
Funds withheld for reinsurers							(1,077		)	11
Collateral (returned) posted	(62		)	118			279			(62		)
Other assets and other liabilities	40			(21		)	(108		)	40
Net cash provided by (used in) operating activities	264			165			454			264
Cash flows from investing activities:
Proceeds from available-for-sale investments sold, matured or repaid	5,865			2,022			2,915			5,865
Proceeds from derivatives instruments and other invested assets	430			387			212			430
Proceeds from commercial mortgage loans	50			35
Cost of available-for-sale investments	(7,345		)	(2,768		)
Proceeds from mortgage loans							54			50
Costs of available-for-sale investments							(3,340		)	(7,345		)
Costs of derivatives instruments and other invested assets	(632		)	(297		)	(720		)	(632		)
Costs of mortgage loans							(224		)	—
Capital expenditures	(7		)	(2		)	(10		)	(7		)
Contingent purchase price payment	(57		)	—			—			(57		)
Net cash provided by (used in) investing activities	(1,696		)	(623		)	(1,113		)	(1,696		)
Cash flows from financing activities:
Treasury stock							(48		)	—
Debt issuance costs	(7		)	—			—			(7		)
Proceeds from issuance of new debt	547			—			—			547
Retirement and paydown on debt and revolving credit facility	(440		)	—			—			(440		)
Draw on revolving credit facility	30			5			15			30
Dividends paid	—			(11		)
Common stock dividends paid							(7		)	—
Contractholder account deposits	3,020			2,192			3,146			3,020
Contractholder account withdrawals	(1,989		)	(1,475		)	(2,028		)	(1,989		)
Net cash provided by (used in) financing activities	1,161			711			1,078			1,161
Change in cash & cash equivalents	(271		)	253			419			(271		)
Cash & cash equivalents, beginning of period	1,215			632			571			1,215
Cash & cash equivalents, end of period	$	944		$	885		$	990		$	944

Supplemental disclosures of cash flow information:
Interest paid	$	14		$	13		$	15		$	14
Income taxes (refunded) paid	$	30		$	114		$	(1	)	$	30
Deferred sales inducements	$	98		$	20		$	103		$	98

See accompanying notes to unaudited condensed consolidated financial statements.

FGL HOLDINGS

NOTES TO UNAUDITED CONDENSED 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, 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., and, together with FSRC herein referred to as the "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" within 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.

~~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.

F&G Reinsurance Ltd (“F&G Re”), an exempted company incorporated in Bermuda with limited liability, provides a platform for non-affiliated reinsurance business. Front Street Re Cayman Ltd (“FSRC”), an exempted company incorporated in the Cayman Islands with limited liability, has a license to carry on business as an Unrestricted Class “B” Insurer that permits FSRC to conduct offshore direct and reinsurance business. F&G Re and FSRC (together herein referred to as the “F&G Reinsurance Companies”), are indirect wholly owned subsidiaries of the Company and parties to reinsurance transactions.

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, consisting of normal recurring items considered necessary for a fair statement of the results for the interim periods presented. 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 2018 Form 10-K, should be read in connection with the reading of these interim unaudited condensed consolidated financial statements.

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 September 30, ~~2018,~~2019, are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2018.~~2019. Amounts reclassified out of other comprehensive income are reflected in net investment gains in the unaudited Condensed Consolidated Statements of Operations.

Dollar amounts in the accompanying sections are presented in millions, unless otherwise noted.

(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~~any VIEs as of September 30, ~~2018.~~2019. See "Note 4. Investments" to the Company’s unaudited condensed consolidated financial statements for additional information on the Company’s investments in unconsolidated VIEs.

Reclassifications

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

Adoption of New Accounting Pronouncements

~~Revenue from Contracts with Customers~~Premium Amortization on Purchased Callable Debt Securities

In ~~May 2014,~~March 2017, the ~~Financial Accounting Standards Board (FASB)~~FASB issued new guidance on ~~revenue recognition~~the amortization of callable securities (ASU ~~2014-09,~~ ~~Revenue from Contracts~~2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities), effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The ASU requires premiums paid on purchased debt securities with ~~Customers~~an explicit call option to be amortized to the earliest call date, as opposed to the maturity date. The updated guidance is applicable to instruments that are callable based on explicit, non-contingent call features that are callable at fixed prices on preset dates. The amendments in this update were to be applied using the modified retrospective method through a cumulative effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted this new accounting guidance effective January 1, 2019, as required, and it had an immaterial impact on its unaudited condensed consolidated financial statements.

Amendments to Lease Accounting

In February 2016, the FASB issued amended guidance (ASU 2016-02, Leases (Topic ~~606)~~842)), 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~~2018, including interim periods within those fiscal years. Notable amendments in this ~~update will change~~update:

require entities to recognize the rights and obligations resulting from all leases or lease components of contracts, including operating leases, as lease assets and lease liabilities, with an exception allowed for leases with a term of 12 months or less

create a distinction between finance leases and operating leases, with classification ~~of certain cash receipts~~criteria substantially similar to that for distinguishing between capital leases and ~~cash payments in~~operating leases under previous guidance

not retain the ~~Statement of Cash Flows in the following ways:~~

~~cash payments~~accounting model for ~~debt prepayment or debt extinguishment costs will be classified as cash outflows~~leveraged leases under previous guidance for ~~financing activities~~

~~the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates~~leases that ~~are insignificant in relation to~~commence after the effective ~~interest rate~~date of ASU 2016-02

provide additional guidance on separating the ~~borrowing should be classified as follows:~~lease components from the ~~portion~~nonlease components of a contract

require qualitative disclosures along with specific quantitative disclosures to provide information regarding the ~~cash payment attributable to the accreted interest related to the debt discount as cash outflows for operating activities,~~amount, timing, 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~~uncertainty of cash flows ~~by determining~~arising from leases

include modifications to align lessor accounting with the changes to lessee accounting, as well as changes to the requirements of recognizing a transaction as a sale 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~~leaseback transaction, however, these changes will 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 insignificantno impact on the Company's ~~Condensed Consolidated Statements~~current lease arrangements

The amendments were required to be applied at the beginning of ~~Cash Flows.~~the earliest period presented using a modified retrospective approach (including several optional practical expedients related to leases commenced before the effective date). The Company adopted this standard effective January 1, 2019, as required, and it had an immaterial impact on its unaudited condensed consolidated financial statements.

~~Income Taxes - Intra-Entity Transfers~~Future Accounting Pronouncements

Accounting pronouncements that will impact the Company in future periods have been disclosed in the Company’s 2018 Form 10-K. There have not been any additional accounting pronouncements issued during the quarter ended September 30, 2019 that are expected to impact the Company. The following two pronouncements were discussed in the Company's 2018 Form 10-K but have been included below so as to provide an update on the Company’s status of ~~Assets Other Than Inventory~~adoption.

New Credit Loss Standard

In ~~October~~June 2016, the FASB issued ~~new guidance (ASU 2016-16,~~ ~~Income Taxes~~ASU 2016-13, Financial Instruments - Credit Losses (Topic ~~740)~~326), ~~Intra-Entity Transfers~~Measurement of ~~Assets Other Than Inventory)~~Credit Losses on Financial Instruments, 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 has not had 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~~2019 and interim periods within those fiscal years. ~~The~~Since its release, certain targeted improvements and transition relief amendments have been made to ASU ~~requires amounts generally described as changes~~2016-13 and have been published in ~~restricted cash~~ASU 2018-19, ASU 2019-04 and ~~restricted cash equivalents~~ASU 2019-05. Collectively, these ASUs will change the accounting for impairment of most financial assets and certain other instruments in the following ways:

financial assets (or a group of financial assets) measured at amortized cost will be required to be ~~included~~presented at the net amount expected to be collected, with ~~cash and cash equivalents~~an allowance for credit losses deducted from the amortized cost basis, resulting in a net carrying value that reflects the amount the entity expects to collect on the financial asset

credit losses relating to AFS fixed maturity securities will be recorded through an allowance for credit losses, rather than reductions in the amortized cost of the securities. The allowance methodology recognizes that value may be realized either through collection of contractual cash flows or through the sale of the security. Therefore, the amount of the allowance for credit losses will be limited to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value

the income statement will reflect the measurement of ~~cash flows.~~ expected credit losses for newly recognized financial assets as well as the expected increases or decreases (including the reversal of previously recognized losses) of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount

disclosures will be required to include information around how the credit loss allowance was developed, further details on information currently disclosed about credit quality of financing receivables and net investments in leases, and a rollforward of the allowance for credit losses for AFS fixed maturity securities as well as an aging analysis for securities that are past due

The amendments in this ASU ~~were~~may be early adopted ~~effective January 1,~~during any interim or annual period beginning after December 15, 2018, ~~as required.~~however the Company has elected not to early adopt. The Company has identified the material asset classes (e.g. available for sale securities, mortgage loans, reinsurance receivables, other miscellaneous receivables) affected by the new guidance and is in the process of assessing the impact that the adoption of this standard will have on our financial statements for all asset classes except mortgage loans where we expect the impact will be immaterial. We expect the adoption of this guidance ~~had no~~to significantly impact on the ~~Company's Condensed Consolidated Statements~~operation of ~~Cash Flows.~~

~~Scope of Modification Accounting~~our existing processes around assessing the aforementioned asset classes for ~~Stock Compensation~~

~~In May 2017, the FASB issued new guidance on the scope of modification accounting for stock compensation (ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting)~~, effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2017-09 may be early adopted. The ASU provides guidance on which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting in ~~Topic 718, Stock Compensation~~. Under the new guidance, an entity would account for the effects of a modification, immediately before the original award is modified, unless the fair value of the modified award is the same as the fair value of the original award, the vesting conditions of the modified award are the same as the vesting conditions of the original award, and the classification of the modified award (equity instrument or liability instrument) is the same as the classification of the original award. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The Company adopted the amendments in this ASU effective January 1, 2018 as required. The adoption of this guidance did not have an impact on the Company's 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~~impairment.

Long-Duration Contracts

In August 2018, the FASB issued ~~new guidance (ASU~~ASU 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting for Long-Duration ~~Contracts)~~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 isdoes not currently ~~evaluating the impact of~~expect to early adopt 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.standard. The Company has identified ~~the material asset classes~~specific areas that will be 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~~as well as 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 accordance 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 reclassified or combined to conform to the 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 had provided that persons who render investment advice for a fee or other compensation with respect to an employer plan or individual retirement account ~~("IRA"~~(“IRA”) ~~are~~would be fiduciaries of that plan or IRA and would have expanded the definition of fiduciary under ERISA to apply to commissioned insurance agents who sell the Company’s IRA products. On June 21, 2018, the United States Court of Appeals for the Fifth Circuit formally vacated the DOL fiduciary rule ~~in total~~ when it issued its mandate following the court’s decision on March 15, 2018, in U.S. Chamber of Commerce v. U.S. Department of Labor,, 885 F.3d 360 (5th ~~Cir. 2018)~~Cir.2018). Since then, the SEC adopted Regulation Best Interest in June 2019 imposing ostensibly higher sales practice standards on securities brokers. This does not directly impact the Company or its distributors, but has given impetus for the National Association of Insurance Commissioners (NAIC) and individual states to consider their own best interest proposals. FGL NY Insurance has modified certain processes in response to the New York Department of Financial Services (NYDFS) best interest rule despite a relatively low level of sales in New York. Management is following the legal challenge seeking to strike down the NYDFS rule and we will continue to monitor for ~~potential~~ action by other state officials or ~~the SEC~~federal agencies to implement sales practice rules ~~similar to the vacated DOL rule.~~affecting insurance agents selling fixed insurance or annuity products.

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.

The Company periodically, and at least annually, reviews the assumptions associated with reserves for policy benefits, product guarantees, and amortization of intangibles. As a result of the assumption review process that occurred in September 2019, the surrender rates, guaranteed minimum withdrawal benefit (“GMWB”) utilization, IUL premium persistency, maintenance expenses, and earned rate assumptions were updated to reflect the Company's current and expected future experience. These changes in assumptions resulted in a net decrease in future expected margins and a corresponding increase in amortization expense reported as a component of “unlocking” for the period ended September 30, 2019. This resulted in a decrease to intangible assets of $3. These assumptions are used in the SOP 03-1 liability for GMWB benefits and resulted in a decrease in liability of $13 for the period ended September 30, 2019. The surrender rate assumptions are also used in the reserve calculation and resulted in an increase in embedded derivative liability of $1 for the period ended September 30, 2019.

Concentrations of Financial Instruments

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company’s most significant investment in one industry, excluding United States ("U.S.") Government securities, was its investment securities in the ~~banking~~Banking industry with a fair value of ~~$2,642~~$2,419 or ~~11%~~9% and ~~$2,851~~$2,491 or ~~12%~~10%, respectively, of the invested assets portfolio and an amortized cost of ~~$2,760~~$2,352 and ~~$2,850,~~$2,691, respectively. As of September 30, ~~2018,~~2019, the Company’s holdings in this industry include investments in ~~112~~103 different issuers with the top ten investments accounting for ~~33%~~37% of the total holdings in this industry. As of September 30, ~~2018 and December 31, 2017,~~2019 the Company had no0 investments in issuers that exceeded 10% of shareholders' equity. As of December 31, 2018, the Company had 16 investments in issuers that exceeded 10% of shareholders' equity, with a total fair value of $1,634 or 7% of the invested assets portfolio: JP Morgan Chase & Co, Metropolitan Transportation Authority (NY), AT&T Inc, HSBC Holdings, Wells Fargo & Company, General Motors Co, Nationwide Mutual Insurance Company, Goldman Sachs Group Inc, United Mexican States, Energy Transfer Partners, Prudential Financial Inc, Citigroup Inc, HP Enterprise Co, Viacom Inc, Kinder Morgan Energy Partners, and Fuel Trust. The Company's largest concentration in any single issuer as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was AT&T ~~Inc.~~ ~~and~~ ~~Wells Fargo & Company, respectively,~~ with a total fair value of ~~$119~~$138 or 1%, and ~~$155~~JP Morgan Chase & Co, with a total fair value of $115 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. 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. Management believes this risk is also mitigated to some extent by surrender charge protection provided by the Company’s products. The Company expects to continue to face these challenges and uncertainties that could adversely affect its results of operations and financial condition.

Concentration of Reinsurance Risk

The Company has a significant concentration of reinsurance risk with third party reinsurers, Wilton Reassurance Company (“Wilton Re”) and Kubera Insurance (SAC) Ltd. ("Kubera"), ~~a third-party reinsurer,~~ that could have a material impact on the Company’s financial position in the event that either Wilton Re ~~fails~~or Kubera fail 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 September 30, ~~2018.~~2019. Kubera is not rated, however, management has attempted to mitigate the risk of non-performance through the funds withheld arrangement. As of September 30, ~~2018,~~2019, the net amount recoverable from Wilton Re was ~~$1,546.~~$1,519 and the net amount recoverable from Kubera was $852. The Company monitors both the financial condition of ~~Wilton Re~~individual reinsurers and ~~other individual~~risk concentration arising from similar activities and economic characteristics of 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 isand Kubera are current on all amounts due for periodic treaty settlements as of September 30, ~~2018.~~2019.

On March 6, 2019, Scottish Re (U.S.), Inc. (“SRUS”), a Delaware domestic life and health reinsurer of FGL Insurance, was ordered into receivership for purposes of rehabilitation. As of September 30, 2019, the net amount recoverable from SRUS was $47. The financial exposure related to these ceded reserves are substantially mitigated via a reinsurance agreement whereby Wilton Re assumes treaty non-performance including credit risk for this business.

On July 9, 2019, Pavonia Life Insurance Company of Michigan ("Pavonia"), a Michigan domiciled life, accident, and health insurance company, was placed into rehabilitation. While the court order indicated that Pavonia had a stable financial condition and lack of non-insurance affiliated investments, the Director of the Michigan Department of Insurance and Financial Services ("MDIFS") has concerns relating to Pavonia's parent company. To insulate Pavonia from its parent until a pending acquisition transaction could be consummated, MDIFS placed Pavonia under supervision and rehabilitation. As of September 30, 2019, the net amount recoverable from Pavonia was $85. The financial exposure related to these ceded reserves are substantially mitigated via a reinsurance agreement whereby Wilton Re assumes treaty non-performance including credit risk for this business.

(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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 are summarized as follows:

September 30, 2018
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value
Available-for sale securities
Asset-backed securities $ 3,705
$ 5
$ (28 ) $ 3,682
$ 3,682
Commercial mortgage-backed securities 1,808
11
(25 ) 1,794
1,794
Corporates 12,227
15
(608 ) 11,634
11,634
Hybrids 986
1
(36 ) 951
951
Municipals 1,434
—
(53 ) 1,381
1,381
Residential mortgage-backed securities 1,676
13
(9 ) 1,680
1,680
U.S. Government 141
—
(2 ) 139
139
Foreign Governments 166
—
(6 ) 160
160
Total available-for-sale securities 22,143
45
(767 ) 21,421
21,421
Equity securities 1,490
2
(52 ) 1,440
1,440
Derivative investments 319
135
(22 ) 432
432
Short term investments 15
—
—
15
15
Commercial mortgage loans 497
—
—
488
497
Other invested assets 606
—
—
602
606
Total investments $ 25,070
$ 182
$ (841 ) $ 24,398
$ 24,411


	December 31, 2017											September 30, 2019
	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
Available-for-sale securities
Asset-backed securities	$	3,061	$	7	$	(3	)	$	3,065	$	3,065	$	5,433	$	56	$	(94	)	$	5,395	$	5,395
Commercial mortgage-backed securities	956		1		(1		)	956		956		2,857		185		(2		)	3,040		3,040
Corporates	12,467		122		(19		)	12,570		12,570		11,338		627		(90		)	11,875		11,875
Hybrids	1,066		4		(3		)	1,067		1,067		1,035		39		(7		)	1,067		1,067
Municipals	1,736		12		(1		)	1,747		1,747		1,245		93		(4		)	1,334		1,334
Residential mortgage-backed securities	1,279		1		(3		)	1,277		1,277		964		42		(3		)	1,003		1,003
U.S. Government	84		—		—			84		84		37		1		—			38		38
Foreign Governments	198		—		(1		)	197		197		138		17		—			155		155
Total available-for-sale securities	20,847		147		(31		)	20,963		20,963		23,047		1,060		(200		)	23,907		23,907
Equity securities	1,392		3		(7		)	1,388		1,388		1,104		15		(22		)	1,097		1,097
Derivative investments	459		36		(3		)	492		492		327		163		(36		)	454		454
Short term investments	25		—		—			25		25
Commercial mortgage loans	548		—		—			549		548		444		—		—			460		444
Residential mortgage loans												392		—		—			397		392
Other invested assets	188		—		—			186		188		1,083		—		(5		)	1,068		1,078
Total investments	$	23,459	$	186	$	(41	)	$	23,603	$	23,604	$	26,397	$	1,238	$	(263	)	$	27,383	$	27,372



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Carrying Value
Available-for-sale securities
Asset-backed securities	$	4,954	$	15	$	(137	)	$	4,832	$	4,832
Commercial mortgage-backed securities	2,568		9		(40		)	2,537		2,537
Corporates	11,213		16		(848		)	10,381		10,381
Hybrids	992		—		(91		)	901		901
Municipals	1,216		3		(32		)	1,187		1,187
Residential mortgage-backed securities	1,027		12		(8		)	1,031		1,031
U.S. Government	120		—		(1		)	119		119
Foreign Governments	129		—		(8		)	121		121
Total available-for-sale securities	22,219		55		(1,165		)	21,109		21,109
Equity securities	1,526		1		(145		)	1,382		1,382
Derivative investments	330		2		(235		)	97		97
Commercial mortgage loans	482		—		—			483		482
Residential mortgage loans	185		—		—			187		185
Other invested assets	662		—		—			651		662
Total investments	$	25,404	$	58	$	(1,545	)	$	23,909	$	23,917

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 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 ~~OTTI~~other-than-temporary-impairments ("OTTI") on non-agency residential mortgage backed securities ("RMBS") for both September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Securities held on deposit with various state regulatory authorities had a fair value of ~~$20,705~~$17,546 and ~~$20,301~~$19,930 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Under Iowa regulations, insurance companies are required to hold securities on deposit in an amount no less than the legal reserve.

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company held no0 material investments that were non-income producing for a period greater than twelve 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 and are not available to the Company for general purposes. The collateral investments had a fair value of ~~$889~~$1,286 and ~~$715~~$1,401 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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.



	September 30, 2019
	Amortized Cost		Fair Value
Corporates, Non-structured Hybrids, Municipal and Government securities:
Due in one year or less	$	112	$	112
Due after one year through five years	864		869
Due after five years through ten years	2,007		2,053
Due after ten years	10,810		11,435
Subtotal	13,793		14,469
Other securities which provide for periodic payments:
Asset-backed securities	5,433		5,395
Commercial mortgage-backed securities	2,857		3,040
Residential mortgage-backed securities	964		1,003
Subtotal	9,254		9,438
Total fixed maturity available-for-sale securities	$	23,047	$	23,907

September 30, 2018
Amortized Cost Fair Value
Corporates, Non-structured Hybrids, Municipal and Government securities:
Due in one year or less $ 242
$ 241
Due after one year through five years 1,055
1,039
Due after five years through ten years 2,462
2,384
Due after ten years 11,195
10,601
Subtotal 14,954
14,265
Other securities which provide for periodic payments:
Asset-backed securities 3,705
3,682
Commercial mortgage-backed securities 1,808
1,794
Residential mortgage-backed securities 1,676
1,680
Subtotal 7,189
7,156
Total fixed maturity available-for-sale securities $ 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~~2018 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. Additionally, the Company considers other factors, including, but not limited to: whether the issuer is currently meeting its financial obligations and its ability to continue to meet these obligations, its existing cash available, and its access to additional available capital. 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 the unrealized losses as of September 30, ~~2018 increased~~2019 decreased due to ~~higher~~lower interest rates during the ~~year coupled~~quarter in conjunction with ~~an increase in the~~tighter credit spreads over ~~Treasuries required by investors for corporate and municipal bonds. Based on an assessment of all securities in the portfolio in unrealized~~Treasuries.

~~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 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:


	September 30, 2018														September 30, 2019
	Less than 12 months					12 months or longer				Total					Less 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	$	2,863	$	(28	)	$	—	$	—	$	2,863	$	(28	)	$	1,843	$	(52	)	$	1,347	$	(42	)	$	3,190	$	(94	)
Commercial mortgage-backed securities	1,208		(25		)	—		—		1,208		(25		)	143		(2		)	—		—			143		(2		)
Corporates	10,956		(608		)	—		—		10,956		(608		)	755		(17		)	1,177		(73		)	1,932		(90		)
Hybrids	796		(36		)	—		—		796		(36		)	80		(3		)	104		(4		)	184		(7		)
Municipals	1,356		(53		)	—		—		1,356		(53		)	1		—			77		(4		)	78		(4		)
Residential mortgage-backed securities	898		(9		)	—		—		898		(9		)	36		(1		)	116		(2		)	152		(3		)
U.S. Government	139		(2		)	—		—		139		(2		)	8		—			2		—			10		—
Foreign Government	143		(6		)	—		—		143		(6		)
Total available-for-sale securities	$	18,359	$	(767	)	$	—	$	—	$	18,359	$	(767	)	$	2,866	$	(75	)	$	2,823	$	(125	)	$	5,689	$	(200	)
Total number of available-for-sale securities in an unrealized loss position less than twelve months												2,049															382
Total number of available-for-sale securities in an unrealized loss position twelve months or longer												0															395
Total number of available-for-sale securities in an unrealized loss position												2,049															777



	December 31, 2018
	Less than 12 months					12 months or longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available-for-sale securities
Asset-backed securities	$	2,924	$	(116	)	$	643	$	(21	)	$	3,567	$	(137	)
Commercial mortgage-backed securities	1,466		(34		)	262		(6		)	1,728		(40		)
Corporates	8,016		(772		)	1,465		(76		)	9,481		(848		)
Hybrids	858		(90		)	7		(1		)	865		(91		)
Municipals	850		(27		)	172		(5		)	1,022		(32		)
Residential mortgage-backed securities	139		(3		)	190		(5		)	329		(8		)
U.S. Government	69		—			50		(1		)	119		(1		)
Foreign Government	47		(3		)	68		(5		)	115		(8		)
Total available-for-sale securities	$	14,369	$	(1,045	)	$	2,857	$	(120	)	$	17,226	$	(1,165	)
Total number of available-for-sale securities in an unrealized loss position less than twelve months													1,551
Total number of available-for-sale securities in an unrealized loss position twelve months or longer													556
Total number of available-for-sale securities in an unrealized loss position													2,107

December 31, 2017
Less than 12 months 12 months or longer Total
Fair Value
Gross Unrealized
Losses
Fair Value
Gross Unrealized
Losses
Fair Value
Gross Unrealized
Losses
Available-for-sale securities
Asset-backed securities $ 1,944
$ (3 ) $ —
$ —
$ 1,944
$ (3 )
Commercial mortgage-backed securities 478
(1 ) —
—
478
(1 )
Corporates 3,814
(19 ) —
—
3,814
(19 )
Hybrids 266
(3 ) —
—
266
(3 )
Municipals 285
(1 ) —
—
285
(1 )
Residential mortgage-backed securities 939
(3 ) —
—
939
(3 )
U.S. Government 74
—
—
—
74
—
Foreign Government 140
(1 ) —
—
140
(1 )
Total available-for-sale securities $ 7,940
$ (31 ) $ —
$ —
$ 7,940
$ (31 )
Total number of available-for-sale securities in an unrealized loss position less than twelve months 1,182
Total number of available-for-sale securities in an unrealized loss position twelve months or longer 0
Total number of available-for-sale securities in an unrealized loss position 1,182

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, securities in an unrealized loss position were primarily concentrated in corporate ~~debt.~~debt and asset-backed securities.

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, securities with a fair value of $5$71 and ~~$10,~~$132, 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 September 30, ~~2018~~2019 and ~~2017 (Predecessor),~~2018, for which a portion of the OTTI was recognized in AOCI:

Three months ended

Nine months ended

September 30, 2019

September 30, 2018

September 30, 2019

September 30, 2018

Beginning balance

—

Increases attributable to credit losses on securities:

OTTI was previously recognized

—

OTTI was not previously recognized

—

Ending balance

—

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Predecessor Predecessor
Beginning balance $ —
$ 3
$ —
$ 3
Increases attributable to credit losses on securities:
OTTI was previously recognized —
—
—
—
OTTI was not previously recognized —
—
—
—
Ending balance $ —
$ 3
$ —
$ 3

The following table breaks out the credit impairment loss type, the associated amortized cost and fair value 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 September 30, ~~2018~~2019 and ~~2017 (Predecessor):~~2018:



	Three months ended					Nine months ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Credit impairment losses in operations	$	(2	)	$	—	$	(7	)	$	(2	)
Change-of-intent losses in operations	—			—		—			—
Amortized cost	4			—		4			—
Fair value	3			—		4			—
Non-credit losses in other comprehensive income for investments which experienced OTTI	—			—		—			—

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Predecessor Predecessor
Credit impairment losses in operations $ —
$ —
$ (2 ) $ (21 )
Change-of-intent losses in operations —
—
—
—
Amortized cost —
—
—
—
Fair value —
—
—
—
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					Nine months ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Corporates	$	(1	)	$	—	$	(6	)	$	(2	)
Equity security	(1		)	—		(1		)	—
Total	$	(2	)	$	—	$	(7	)	$	(2	)

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Predecessor Predecessor
OTTI Recognized in Net Income (Loss)
Asset-backed securities $ —
$ —
$ —
$ (1 )
Corporates —
—
(2 ) (20 )
Other invested assets —
—
—
—
Total $ —
$ —
$ (2 ) $ (21 )

Mortgage Loans

The Company's mortgage loans are collateralized by commercial and residential properties.

Commercial Mortgage Loans

Commercial mortgage loans ("CMLs") represented approximately 2% of the Company’s total investments as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The Company primarily invests in mortgage loans on income producing properties including hotels, industrial properties, retail buildings, multifamily properties and office buildings. The Company diversifies its CML portfolio by geographic region and property type to attempt to reduce concentration risk. The Company continuously evaluates CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt. The distribution of CMLs, gross of valuation allowances, by property type and geographic region is reflected in the following tables:



	September 30, 2019				December 31, 2018
	Gross Carrying Value		% of Total		Gross Carrying Value		% of Total
Property Type:
Hotel	$	21	5	%	$	21	4	%
Industrial - General	37		8	%	37		8	%
Industrial - Warehouse	20		4	%	20		4	%
Multifamily	54		12	%	56		12	%
Office	144		33	%	147		30	%
Retail	168		38	%	201		42	%
Total commercial mortgage loans, gross of valuation allowance	$	444	100	%	$	482	100	%
Allowance for loan loss	—				—
Total commercial mortgage loans	$	444			$	482

U.S. Region:
East North Central	$	84	19	%	$	98	20	%
East South Central	19		4	%	19		4	%
Middle Atlantic	77		17	%	79		17	%
Mountain	51		11	%	65		13	%
New England	5		1	%	10		2	%
Pacific	114		26	%	116		24	%
South Atlantic	56		13	%	57		12	%
West North Central	13		3	%	13		3	%
West South Central	25		6	%	25		5	%
Total commercial mortgage loans, gross of valuation allowance	$	444	100	%	$	482	100	%
Allowance for loan loss	—				—
Total commercial mortgage loans	$	444			$	482

September 30, 2018 December 31, 2017
Gross Carrying Value % of Total Gross Carrying Value % of Total
Property Type:
Hotel 22
4 % 22
4 %
Industrial - General 45
9 % 46
9 %
Industrial - Warehouse 12
2 % 38
6 %
Multifamily 69
14 % 70
13 %
Office 147
30 % 158
29 %
Retail 202
41 % 214
39 %
Total commercial mortgage loans, gross of valuation allowance $ 497
100 % $ 548
100 %
Allowance for loan loss —
—

Total commercial mortgage loans $ 497
$ 548

U.S. Region:
East North Central $ 111
22 % $ 108
20 %
East South Central 20
4 % 20
4 %
Middle Atlantic 79
16 % 85
15 %
Mountain 65
13 % 67
12 %
New England 10
2 % 14
3 %
Pacific 116
23 % 135
25 %
South Atlantic 58
12 % 65
12 %
West North Central 13
3 % 13
2 %
West South Central 25
5 % 41
7 %
Total commercial mortgage loans, gross of valuation allowance $ 497
100 % $ 548
100 %
Allowance for loan loss —
—

Total commercial mortgage loans $ 497
$ 548

All of the Company's investments in CMLs had a loan-to-value ("LTV") ratio of less than 75% at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, as measured at inception of the loans unless otherwise updated. As of September 30, ~~2018,~~2019, 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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018:



	Debt-Service Coverage Ratios				Total Amount		% of Total		Estimated Fair Value		% of Total
	>1.25		1.00 - 1.25		Total Amount		% of Total		Estimated Fair Value		% of Total
September 30, 2019
LTV Ratios:
Less than 50%	$	287	$	6	$	293	66	%	$	304	66	%
50% to 60%	140		—		140		32	%	145		32	%
60% to 75%	11		—		11		2	%	11		2	%
Commercial mortgage loans	$	438	$	6	$	444	100	%	$	460	100	%

December 31, 2018
LTV Ratios:
Less than 50%	$	296	$	6	$	302	63	%	$	302	63	%
50% to 60%	169		—		169		35	%	170		35	%
60% to 75%	11		—		11		2	%	11		2	%
Commercial mortgage loans	$	476	$	6	$	482	100	%	$	483	100	%

Debt-Service Coverage Ratios Total Amount % of Total Estimated Fair Value % of Total
>1.25 1.00 - 1.25
September 30, 2018
LTV Ratios:
Less than 50% $ 256
$ —
$ 256
52 % $ 252
52 %
50% to 60% 222
7
229
46 % 225
46 %
60% to 75% 12
—
12
2 % 11
2 %
Commercial mortgage loans $ 490
$ 7
$ 497
100 % $ 488
100 %

December 31, 2017
LTV Ratios:
Less than 50% $ 293
$ —
$ 293
54 % $ 294
54 %
50% to 60% 236
7
243
44 % 243
44 %
60% to 75% 12
—
12
2 % 12
2 %
Commercial mortgage loans $ 541
$ 7
$ 548
100 % $ 549
100 %

~~(a) N/A - Current DSC ratio not available.~~

The Company establishes a general mortgage loan allowance based upon the underlying risk and quality of the mortgage loan portfolio using DSC ratio and LTV ratio. ~~A higher LTV ratio will result in a higher allowance. A higher DSC ratio will result in a lower allowance. The Company believes that the DSC ratio is an indicator of default risk on loans.~~ The Company believes that the LTV ratio is an indicator of the principal recovery risk for loans that default. A higher LTV ratio will result in a higher allowance. The Company believes that the DSC ratio is an indicator of default risk on loans. A higher DSC ratio will result in a lower allowance.

The Company recognizes a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At September 30, 2019 and December 31, 2018, the Company had no CMLs that were delinquent in principal or interest payments.

Mortgage loan workouts, refinances or restructures that are classified as troubled debt restructurings ("TDRs") are individually evaluated and measured for impairment. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, our CML portfolio had no0 impairments, modifications or ~~TDR.~~TDRs.

Residential Mortgage Loans

Residential mortgage loans ("RMLs") represented approximately 1% of the Company’s total investments as of September 30, 2019 and December 31, 2018. The Company's residential mortgage loans are closed end, amortizing loans and 100% of the properties are located in the United States. The Company diversifies its RML portfolio by state to attempt to reduce concentration risk. The distribution of RMLs by state with highest-to-lowest concentration are reflected in the following tables:



	September 30, 2019
US State:	Unpaid Principal Balance		% of Total
California	$	89	23	%
Florida	56		14	%
New Jersey	34		9	%
All Other States (a)	207		54	%
Total mortgage loans	$	386	100	%

(a) The individual concentration of each state is less than 9% as of September 30, 2019.



	December 31, 2018
US State:	Unpaid Principal Balance		% of Total
Florida	$	25	14	%
Illinois	24		13	%
New Jersey	17		9	%
All Other States (a)	114		64	%
Total mortgage loans	$	180	100	%

(a) The individual concentration of each state is less than 9% as of December 31, 2018.

Residential mortgage loans have a primary credit quality indicator of either a performing or nonperforming loan. The Company defines non-performing residential mortgage loans as those that are 90 or more days past due or in nonaccrual status which is assessed monthly. The credit quality of RMLs as at September 30, 2019 and December 31, 2018, respectively, was as follows:



	September 30, 2019				December 31, 2018
Performance indicators:	Carrying Value		% of Total		Carrying Value		% of Total
Performing	$	392	100	%	$	185	100	%
Non-performing	—		—	%	—		—	%
Total residential mortgage loans, gross of valuation allowance	$	392	100	%	$	185	100	%
Allowance for loan loss	—		—	%	—		—	%
Total residential mortgage loans	$	392	100	%	$	185	100	%

Net Investment Income

The major sources of “Net investment income” reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			Three months ended						Nine months ended
				Predecessor						Predecessor			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Fixed maturity securities, available-for-sale	$	249		$	247		$	739		$	725		$	264		$	249		$	796		$	739
Equity securities	15			10			51			31			16			15			56			51
Commercial mortgage loans	5			5			17			17
Related party loans	1			—			1			—
Mortgage loans													11			5			26			17
Invested cash and short-term investments	6			1			13			3			4			6			14			13
Funds withheld													18			7			43			21
Limited partnerships													16			5			45			14
Other investments	13			3			39			6			3			2			10			5
Gross investment income	289			266			860			782			332			289			990			860
Investment expense	(22		)	(5		)	(48		)	(17		)	(31		)	(22		)	(85		)	(48		)
Net investment income	$	267		$	261		$	812		$	765		$	301		$	267		$	905		$	812

Net Investment Gains (Losses)

Details underlying “Net investment gains (losses)” reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			Three months ended						Nine months ended
				Predecessor						Predecessor			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net realized gains (losses) on fixed maturity available-for-sale securities	$	(24	)	$	3		$	(84	)	$	(22	)	$	19		$	(24	)	$	11		$	(84	)
Realized gains (losses) on equity securities	(19		)	3			(48		)	3
Net realized/unrealized gains (losses) on equity securities													19			(19		)	119			(48		)
Realized gains (losses) on other invested assets	3			—			—			—			—			3			3			—
Derivatives and embedded derivatives:
Realized gains (losses) on certain derivative instruments	27			70			23			218			(13		)	27			(42		)	23
Unrealized gains (losses) on certain derivative instruments	135			48			72			91			62			135			325			72
Change in fair value of reinsurance related embedded derivatives (a)	(3		)	(8		)	(37		)	(28		)	16			(3		)	58			(37		)
Change in fair value of other derivatives and embedded derivatives	—			1			—			3			—			—			4			—
Realized gains (losses) on derivatives and embedded derivatives	159			111			58			284			65			159			345			58
Net investment gains (losses)	$	119		$	117		$	(74	)	$	265		$	103		$	119		$	478		$	(74	)

(a) Change in fair value of reinsurance related embedded derivatives ~~in the successor period~~ is due to F&G Re and 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~~".business.

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 September 30, Nine months ended September 30,
2018 2017 2018 2017
Predecessor Predecessor
Proceeds $ 662
$ 174
$ 4,310
$ 606
Gross gains 1
9
9
23
Gross losses (26 ) (5 ) (91 ) (18 )

In accordance with the Company's adoption of ASU 2016-01, for the three and nine months ended September 30, 2018 the Company had the following realized and unrealized gains and losses on equity securities:

Three months ended Nine months ended
September 30, 2018 September 30, 2018
Net gains (losses) recognized during the period on equity securities $ (19 ) $ (48 )
Less: Net gains (losses) recognized during the period on equity securities sold during the period —
(2 )
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date $ (19 ) $ (46 )

The Company's adoption of ASU 2016-01 with respect to gains and losses on equity securities had a $(19) and $(46) impact on pre-tax net income, or $(0.09) and $(0.21) per common share, for the three and nine months ended September 30, 2018, respectively.



	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Proceeds	$	828		$	662		$	1,764		$	4,310
Gross gains	28			1			38			9
Gross losses	(9		)	(26		)	(24		)	(91		)

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~~VIE’s are ~~not~~ consolidated by their ‘primary beneficiary’, a designation given to an entity that receives both the benefits from the VIE as well as the substantive power to make its key economic decisions. While FGL Insurance participates in the ~~Company’s financial statements~~benefits from VIEs in which it invests, the substantive power to make the key economic decisions for ~~the following reasons: 1)~~each respective VIE resides with entities not under common control with 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 indicateInsurance. It is for this reason 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.~~ and why these VIE investments are not consolidated.

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.~~2020. The Company has funded ~~$44~~$69 as of September 30, ~~2018.~~2019.

The Company invests in various limited partnerships as a passive investor. These investments are in ~~corporate~~ credit ~~and real estate debt strategies that have~~funds with a current income ~~bias.~~bias, real assets, or private equity. 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 September 30, ~~2018,~~2019, the Company's maximum exposure to loss was ~~$481~~$917 in recorded carrying value and ~~$860~~$1,073 in unfunded commitments.

(5) Derivative Financial Instruments

The carrying amounts of derivative instruments, including derivative instruments embedded in FIA contracts, is as follows:


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Assets:
Derivative investments:
Call options	$	431	$	492	$	454	$	97
Futures contracts	—		—		—		—
Foreign currency forward	1		—
Other invested assets:
Other derivatives and embedded derivatives	17		17		19		14
	$	449	$	509	$	473	$	111


Liabilities:
Contractholder funds:
FIA embedded derivative	$	2,551	$	2,277	$	3,136	$	2,476
Other liabilities:
Preferred shares reimbursement feature embedded derivative	22		23		14		29
	$	2,573	$	2,300	$	3,150	$	2,505

The change in fair value of derivative instruments included in the accompanying unaudited Condensed Consolidated Statements of Operations is as follows:



	Three months ended						Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net investment gains (losses):
Call options	$	43		$	153		$	261		$	86
Futures contracts	3			8			17			8
Foreign currency forward	3			1			5			1
Other derivatives and embedded derivatives	—			—			4			—
Reinsurance related embedded derivatives	16			(3		)	58			(37		)
Total net investment gains (losses)	$	65		$	159		$	345		$	58

Benefits and other changes in policy reserves:
FIA embedded derivatives	$	202		$	231		$	660		$	274

Acquisition and operating expenses, net of deferrals:
Preferred shares reimbursement feature embedded derivative	$	(10	)	$	(2	)	$	(15	)	$	(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 contracts 8
5
8
10
    Foreign currency forward 1
—
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

The Company holds a ~~$35~~ fund-linked note issued by Nomura International Funding Pte. ~~Ltd.~~Ltd with a face value of $35. 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 September 30, 2019, the fair value of the fund-linked note and embedded derivative were $29 and $19, respectively. At December 31, 2018, the fair value of the fund-linked note and embedded derivative were ~~$25~~$26 and ~~$17,~~$14, 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") Embedded 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 unaudited 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 and it is determined 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 unaudited 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:


		September 30, 2018										September 30, 2019
Counterparty	Credit Rating (Fitch/Moody's/S&P) (a)	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+	$	3,515	$	129	$	89	$	40		A+/*/A+	$	2,815	$	70	$	24	$	46
Deutsche Bank	A-/A3/BBB+	1,286		46		47		(1		)	BBB/A3/BBB+	804		12		11		1
Morgan Stanley	*/A1/A+	1,969		66		72		(6		)	*/A1/A+	1,772		39		36		3
Barclay's Bank	A/Baa3/BBB	1,387		65		42		23			A+/A2/A	3,381		165		154		11
Canadian Imperial Bank of Commerce	*/Aa2/A+	2,376		81		82		(1		)	*/Aa2/A+	2,557		81		53		28
Wells Fargo	A+/A2/A-	1,063		37		37		—			A+/A2/A-	2,075		66		65		1
Goldman Sachs	A/A3/BBB+	309		7		8		(1		)	A/A3/BBB+	1,079		21		19		2
Total		$	11,905	$	431	$	377	$	54			$	14,483	$	454	$	362	$	92


		December 31, 2017										December 31, 2018
Counterparty	Credit Rating (Fitch/Moody's/S&P) (a)	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+	$	2,780	$	150	$	118	$	32		A+/*/A+	$	3,952	$	25	$	—	$	25
Deutsche Bank	A-/A3/A-	1,345		51		55		(4		)	A-/A3/BBB+	1,327		5		6		(1		)
Morgan Stanley	*/A1/A+	1,555		92		101		(9		)	*/A1/A+	1,648		9		6		3
Barclay's Bank	A*+/A1/A	2,090		103		95		8			A+/A2/A	2,205		27		20		7
Canadian Imperial Bank of Commerce	AA-/Aa3/A+	2,807		96		98		(2		)	*/Aa2/A+	1,716		11		8		3
Wells Fargo											A+/A2/A-	1,635		17		16		1
Goldman Sachs											A/A3/BBB+	647		3		3		—
Total		$	10,577	$	492	$	467	$	25			$	13,130	$	97	$	59	$	38

(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 option 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 option contracts. The Company's current rating doesn't allow any counterparty the right to terminate ISDA agreements. 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. For all counterparties, except one, this threshold is set to zero. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, counterparties posted ~~$377~~$362 and ~~$467~~$59 of collateral, respectively, of which ~~$288~~$338 and ~~$349~~$59 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 ~~$89~~$24 and ~~$118~~$0 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 September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 ~~$54~~$92 and ~~$25~~$38 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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~~The Company ~~began reinvesting~~reinvests derivative cash collateral to reduce the interest cost. Cash collateral is invested in ~~short term Treasury securities and A1/P1 commercial paper~~overnight investment sweep products which are included in "Cash and cash equivalents" in the accompanying Condensed Consolidated Balance Sheets.

The Company held ~~1,029~~724 and ~~1,754~~664 futures contracts at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 $6$4 and $8$3 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

~~Reinsurance Related Embedded Derivatives (Predecessor)~~

FGL Insurance has a coinsurance arrangement with FSRC, meaning that funds are withheld by FGL Insurance as the legal owner, but the credit risk is borne by FSRC. This arrangement created an obligation for FGL Insurance to pay FSRC at a later date, which resulted in an embedded derivative. This embedded derivative was considered a total return swap with contractual returns that were attributable to the assets and liabilities associated with this reinsurance arrangement. The fair value of the total return swap was based on the change in fair value of the underlying assets held in the funds withheld portfolio. Investment results for the assets that support the coinsurance funds withheld reinsurance arrangement, including gains and losses from sales, were passed directly to the reinsurer pursuant to contractual terms of the reinsurance arrangement. The reinsurance related embedded derivative was reported in “Other assets”, if in a net gain position, or "Other liabilities", if in a net loss position, on the Predecessor's Condensed Consolidated Balance Sheets and the related gains or losses were reported in “Net investment gains” on the Predecessor's Condensed Consolidated Statements of Operations. Due to the acquisition of FSRC, the reinsurance related embedded derivative is eliminated in consolidation in the Successor periods.

~~Call option payable to FSRC (Predecessor)~~

Under the terms of the coinsurance arrangement with FSRC, FGL Insurance is required to pay FSRC a portion of the net cost of equity option purchases and the proceeds from expirations related to the equity options which hedged the index credit feature of the reinsured FIA contracts. Accordingly, the payable to FSRC was reflected in "Funds withheld for reinsurance liabilities" as of the balance sheet date with changes in fair value reflected within the “Net investment gains (losses)” in Predecessor's Condensed Consolidated Statements of Operations. Due to the acquisition of FSRC, the call option payable to FSRC is eliminated in consolidation in the Successor periods.

(6) Fair Value of Financial Instruments

The Company’s measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or non-performance risk, which may include the Company’s own credit risk. The Company’s estimate of an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market for that asset or liability in the absence of a principal market as opposed to the price that would be paid to acquire the asset or assume a liability (“entry price”). 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 lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult. In addition to the unobservable inputs, Level 3 fair value investments may include observable components, which are components that are actively quoted or can be validated to market-based sources.

The carrying amounts and estimated fair values of the Company’s financial instruments for which the disclosure of fair values is required, including financial assets and liabilities measured and carried at fair value on a recurring basis, with the exception of investment contracts, related party loans, portions of other invested assets and debt which are disclosed later within this footnote, was summarized according to the hierarchy previously described, as follows:



	September 30, 2019
	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets
Cash and cash equivalents	$	990	$	—	$	—	$	990	$	990
Fixed maturity securities, available-for-sale:
Asset-backed securities	—		4,803		592		5,395		5,395
Commercial mortgage-backed securities	—		3,014		26		3,040		3,040
Corporates	—		10,446		1,429		11,875		11,875
Hybrids	301		756		10		1,067		1,067
Municipals	—		1,292		42		1,334		1,334
Residential mortgage-backed securities	—		434		569		1,003		1,003
U.S. Government	30		8		—		38		38
Foreign Governments	—		137		18		155		155
Equity securities	429		597		2		1,028		1,028
Derivative investments	—		454		—		454		454
Other invested assets	—		—		44		44		44
Funds withheld for reinsurance receivables, at fair value	447		1,584		14		2,045		2,045
Total financial assets at fair value	$	2,197	$	23,525	$	2,746	$	28,468	$	28,468
Liabilities
Fair value of future policy benefits	—		—		1,887		1,887		1,887
Derivatives:
FIA embedded derivatives, included in contractholder funds	—		—		3,136		3,136		3,136
Preferred shares reimbursement feature embedded derivative	—		—		14		14		14
Total financial liabilities at fair value	$	—	$	—	$	5,037	$	5,037	$	5,037

September 30, 2018
Level 1 Level 2 Level 3 Fair Value Carrying Amount
Assets
Cash and cash equivalents $ 944
$ —
$ —
$ 944
$ 944
Fixed maturity securities, available-for-sale:
Asset-backed securities —
3,278
404
3,682
3,682
Commercial mortgage-backed securities —
1,747
47
1,794
1,794
Corporates —
10,426
1,208
11,634
11,634
Hybrids 282
660
9
951
951
Municipals —
1,345
36
1,381
1,381
Residential mortgage-backed securities —
1,105
575
1,680
1,680
U.S. Government 113
26
—
139
139
Foreign Governments —
144
16
160
160
Equity securities 490
901
4
1,395
1,395
Derivative investments 1
431
—
432
432
Short term investments 15
—
—
15
15
Other invested assets —
—
56
56
56
Funds withheld for reinsurance receivables, at fair value 95
583
2
680
680
Total financial assets at fair value $ 1,940
$ 20,646
$ 2,357
$ 24,943
$ 24,943
Liabilities
Derivatives:
FIA embedded derivatives, included in contractholder funds —
—
2,551
2,551
2,551
Preferred shares reimbursement feature embedded derivative —
—
22
22
22
Fair value of future policy benefits (FSRC)
—
—
684
684
684
Total financial liabilities at fair value $ —
$ —
$ 3,257
$ 3,257
$ 3,257



	December 31, 2018
	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets
Cash and cash equivalents	$	571	$	—	$	—	$	571	$	571
Fixed maturity securities, available-for-sale:
Asset-backed securities	—		4,388		444		4,832		4,832
Commercial mortgage-backed securities	—		2,470		67		2,537		2,537
Corporates	—		9,150		1,231		10,381		10,381
Hybrids	265		626		10		901		901
Municipals	—		1,150		37		1,187		1,187
Residential mortgage-backed securities	—		417		614		1,031		1,031
U.S. Government	114		5		—		119		119
Foreign Governments	—		105		16		121		121
Equity securities	454		874		4		1,332		1,332
Derivative investments	—		97		—		97		97
Other invested assets	—		—		39		39		39
Funds withheld for reinsurance receivables, at fair value	177		576		4		757		757
Total financial assets at fair value	$	1,581	$	19,858	$	2,466	$	23,905	$	23,905
Liabilities
Fair value of future policy benefits	—		—		725		725		725
Derivatives:
FIA embedded derivatives, included in contractholder funds	—		—		2,476		2,476		2,476
Preferred shares reimbursement feature embedded derivative	—		—		29		29		29
Total financial liabilities at fair value	$	—	$	—	$	3,230	$	3,230	$	3,230

December 31, 2017
Level 1 Level 2 Level 3 Fair Value Carrying Amount
Assets
Cash and cash equivalents $ 1,215
$ —
$ —
$ 1,215
$ 1,215
Fixed maturity securities, available-for-sale:
Asset-backed securities —
2,653
412
3,065
3,065
Commercial mortgage-backed securities —
907
49
956
956
Corporates —
11,401
1,169
12,570
12,570
Hybrids 253
804
10
1,067
1,067
Municipals —
1,709
38
1,747
1,747
Residential mortgage-backed securities —
1,211
66
1,277
1,277
U.S. Government 52
32
—
84
84
Foreign Governments —
180
17
197
197
Equity securities 404
937
3
1,344
1,344
Derivative investments —
492
—
492
492
Short term investments 25
—
—
25
25
Other invested assets —
—
17
17
17
Funds withheld for reinsurance receivables, at fair value 88
648
4
740
740
Total financial assets at fair value $ 2,037
$ 20,974
$ 1,785
$ 24,796
$ 24,796
Liabilities
Derivatives:
FIA embedded derivatives, included in contractholder funds $ —
$ —
$ 2,277
$ 2,277
$ 2,277
Preferred shares reimbursement feature embedded derivative —
—
23
23
23
Fair value of future policy benefits (FSRC)
—
—
728
728
728
Total financial liabilities at fair value $ —
$ —
$ 3,028
$ 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~~yield for comparable securities. Increases or decreases in the yields would result in lower or higher, respectively, fair value measurements. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. 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 September 30, 2018 or December 31, 2017. However, the~~ Company does analyze the third-party valuation methodologies and related inputs to perform assessments to determine the appropriate level within the fair value hierarchy. However, the Company did not adjust prices received from third parties as of September 30, 2019 or December 31, 2018.

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.~~inputs using the option budget method. 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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was applied to the Annuity 2000 mortality tables. ~~Significant increases~~Increases or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. ~~Significant increases~~Increases or decreases in interest swap rates, mortality multiplier, surrender rates, or non-performance spread in isolation would result in a lower or higher fair value measurement, respectively. Generally, a change in any one unobservable input would not directly result in a change in any other unobservable input. Changes in unrealized gains or losses of the Company’s FIA embedded derivatives are included in "Benefits and other changes in policy reserves" in the Condensed Consolidated Statements of Operations.

The fair value of the Reimbursement Feature ~~embedded derivative~~ is determined using a Black Derman Toy model, incorporating the paid in kind dividend coupon, the Company's redemption option and the preferred shareholder's remarketing feature. The remarketing feature allows the shareholder to put the preferred shares to the Company for a value of par after five years and, if after a successful remarketing event the amount is less than 90% par, up to a maximum of 10% of liquidation price defined. ~~There were $(2)~~Fair value of this derivative decreased $10 and ~~$(1) of changes in fair value recognized~~$15 during the three and nine months ended September 30, ~~2018,~~2019, respectively, due primarily to changes in the credit ~~spread.~~spread applied in the discount rate.

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. A Black-Scholes model determines the net asset value of the AnchorPath fund as the fair value of the call option regardless of the values used for the 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 and F&G Re Funds Withheld for Reinsurance Receivables and Future Policy Benefits

FSRC and F&G Re 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 and F&G Re 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~~and F&G Re use 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 and F&G Re future policy benefit liability are undiscounted cash flows, non-performance risk spread and risk margin to reflect uncertainty. Undiscounted cash flows used in our September 30, ~~2018~~2019 discounted cash flow model equaled ~~$1,025.~~$2,399. Increases or decreases in non-performance risk spread and risk margin to reflect uncertainty would result in a lower or higher fair value measurement, respectively.

Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, are as follows:

Fair Value at Valuation Technique Unobservable Input(s) Range (Weighted average)
September 30, 2018 September 30, 2018
Assets
Asset-backed securities $ 396
Broker-quoted Offered quotes 97.12% - 102.00% (99.40%)
Asset-backed securities 8
Third-Party Valuation Offered quotes 0.00% - 99.70% (14.41%)
Commercial mortgage-backed securities
8
Broker-quoted Offered quotes 100.44% - 100.44% (100.44%)
Commercial mortgage-backed securities 39
Matrix Pricing Quoted prices 102.12% - 116.77% (110.74%)
Corporates 684
Broker-quoted Offered quotes 72.02% - 105.50% (96.81%)
Corporates 524
Matrix Pricing Quoted prices 91.83% - 110.13% (99.14%)
Hybrids 9
Matrix Pricing Quoted prices 94.99% - 94.99% (94.99%)
Municipals 36
Broker-quoted Offered quotes 108.82% - 108.82% (108.82%)
Residential mortgage-backed securities 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 7.11%
Other invested assets:
Available-for-sale embedded derivative (AnchorPath) 17
Black Scholes model Market value of AnchorPath fund 100.00%
Affiliated bank loans 39
Yield-method Blended rates 7.20% - 9.20%
Funds withheld for reinsurance receivables at fair value 2
Matrix pricing Quoted prices 100.00%
Total $ 2,357

Liabilities
Future policy benefits (FSRC) $ 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 2,551
Discounted cash flow Market value of option 0.00% - 39.48% (3.33%)
SWAP rates 3.07% - 3.12% (3.09%)
Mortality multiplier 80.00% - 80.00%
(80.00%)
Surrender rates 0.50% - 75.00% (5.96%)
Partial withdrawals 1.00% - 2.50%
(2.00%)
Non-performance spread 0.25% - 0.25%
(0.25%)
Option cost 0.11% - 16.61% (2.14%)
Preferred shares reimbursement feature embedded derivative 22
Black Derman Toy model Credit Spread 3.66%
Yield Volatility 20.00%
Total liabilities at fair value $ 3,257


	Fair Value at		Valuation Technique		Unobservable Input(s)		Range (Weighted average)	Fair Value at			Valuation Technique		Unobservable Input(s)	Range (Weighted average)
	December 31, 2017				Unobservable Input(s)	December 31, 2017	September 30, 2019					September 30, 2019	Unobservable Input(s)
Assets
Asset-backed securities	$	412	Valuation Technique	Broker-quoted		Offered quotes		98.00% - 102.56% (100.27%)	$	566	Valuation Technique		Broker-quoted	Offered quotes	98.65% - 109.06% (102.48%)
Asset-backed securities								26			Third-Party Valuation		Offered quotes	0.00% - 99.39% (34.92%)
Commercial mortgage-backed securities	49		Broker-quoted		Offered quotes		99.50% - 122.78% (114.09%)	26			Broker-quoted		Offered quotes	100.20% - 126.34% (125.60%)
Corporates	763		Broker-quoted		Offered quotes		73.55% - 109.63% (99.66%)
Corporates	406		Matrix Pricing		Quoted prices		67.72% - 115.04% (103.72%)	1,429			Broker-quoted		Offered quotes	83.06% - 122.30% (103.52%)
Hybrids	10		Broker-quoted		Offered quotes		96.89% - 96.89% (96.89%)	10			Broker-quoted		Offered quotes	103.64% - 103.64% (103.64%)
Municipals	38		Broker-quoted		Offered quotes		111.84% - 111.84% (111.84%)	42			Broker-quoted		Offered quotes	128.04% - 128.04% (128.04%)
Residential mortgage-backed securities	66		Broker-quoted		Offered quotes		93.25% - 102.25% (100.11%)	569			Broker-quoted		Offered quotes	15.53% - 106.40% (106.03%)
Foreign Governments	17		Broker-quoted		Offered quotes		104.16% - 106.28% (104.82%)
Foreign governments								18			Broker-quoted		Offered quotes	108.75% - 115.74% (110.94%)
Equity securities (Salus preferred equity)	3		Income-Approach		Yield		5.00%	2			Income-Approach		Yield	3.01%
Other invested assets:
Other Invested Assets:
Available-for-sale embedded derivative (AnchorPath)	17		Black Scholes model		Market value of AnchorPath fund		100.00%	19			Black Scholes model		Market value of AnchorPath fund	100.00%
Credit Linked Note								25			Broker-quoted		Offered quotes	100.00%
Funds withheld for reinsurance receivables at fair value	3		Matrix pricing		Quoted prices		100.00%	14			Broker-quoted		Offered quotes	103.22%
Funds withheld for reinsurance receivables at fair value	1		Loan recovery value		Recovery rate		26.00%
Total	$	1,785
Total financial assets at fair value								$	2,746
Liabilities
Future policy benefits (FSRC)	$	728	Discounted cash flow		Non-Performance risk spread		0.27%
Future policy benefits								1,887			Discounted cash flow		Market value of option	0.00% - 7.56% (1.76%)
													Mortality multiplier	80.00% - 120.00% (94.83%)
													Surrender rates	0.00% - 55.00% (21.11%)
													Partial withdrawals	0.00% - 4.00% (2.27%)
													Non-performance spread	0.00% - 0.10% (0.07%)
													Option cost	0.00% - 4.58% (1.13%)
													Risk margin to reflect uncertainty	0.24% - 0.62% (0.30%)
					Risk margin to reflect uncertainty		0.54%						Morbidity risk margin	0.00% - 2.00% (0.07%)
Derivatives:
FIA embedded derivatives included in contractholder funds	2,277		Discounted cash flow		Market value of option		0.00% - 29.93% (4.11%)	3,136			Discounted cash flow		Market value of option	0.00% - 28.63% (2.87%)
					SWAP rates		2.24% - 2.40% (2.31%)						SWAP rates	1.50% - 1.56% (1.52%)
					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% (5.82%)
					Partial withdrawals		2.00% - 3.50% (2.75%)						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		0.06% - 17.33% (1.99%)						Option cost	0.18% - 16.61% (2.15%)
Preferred shares reimbursement feature embedded derivative	$	23	Black Derman Toy model		Credit Spread		4.13%	14			Black Derman Toy model		Credit Spread	3.31%
					Yield Volatility		20.00%						Yield Volatility	20.00%
Total liabilities at fair value	$	3,028
Total financial liabilities at fair value								$	5,037



	Fair Value at		Valuation Technique	Unobservable Input(s)	Range (Weighted average)
	December 31, 2018		Valuation Technique	Unobservable Input(s)	December 31, 2018
Assets
Asset-backed securities	$	405	Broker-quoted	Offered quotes	97.00% - 102.00% (99.77%)
Asset-backed securities	24		Matrix Pricing	Quoted prices	96.07% - 96.07% (96.07%)
Asset-backed securities	15		Third-Party Valuation	Offered quotes	0.00% - 99.29% (23.05%)
Commercial mortgage-backed securities	43		Broker-quoted	Offered quotes	77.12% - 100.08% (85.46%)
Commercial mortgage-backed securities	24		Matrix Pricing	Quoted prices	117.72% - 117.72% (117.72%)
Corporates	577		Broker-quoted	Offered quotes	74.63% - 104.62% (97.80%)
Corporates	654		Matrix Pricing	Quoted prices	91.74% - 113.25% (98.86%)
Hybrids	10		Matrix Pricing	Quoted prices	96.60% - 96.60% (96.60%)
Municipals	37		Broker-quoted	Offered quotes	111.23% - 111.23% (111.23%)
Residential mortgage-backed securities	614		Broker-quoted	Offered quotes	89.80% - 100.99% (100.73%)
Foreign governments	16		Broker-quoted	Offered quotes	98.38% - 99.01% (98.58%)
Equity securities (Salus preferred equity)	4		Income-Approach	Yield	7.15%
Other Invested Assets:
Available-for-sale embedded derivative (AnchorPath)	14		Black Scholes model	Market value of AnchorPath fund	100.00%
Credit Linked Note	25		Broker-quoted	Offered quotes	100.00%
Funds withheld for reinsurance receivables, at fair value	4		Matrix pricing	Calculated prices	100.00%
Total financial assets at fair value	$	2,466
Liabilities
Future policy benefits	725		Discounted cash flow	Non-Performance risk spread	0.00% - 0.22% (0.18%)
				Risk margin to reflect uncertainty	0.35% - 0.71% (0.68%)
Derivatives:
FIA embedded derivatives included in contractholder funds	2,476		Discounted cash flow	Market value of option	0.00% - 31.06% (0.94%)
				SWAP rates	2.57% - 2.71% (2.63%)
				Mortality multiplier	80.00% - 80.00% (80.00%)
				Surrender rates	0.50% - 75.00% (5.90%)
				Partial withdrawals	1.00% - 2.50% (2.00%)
				Non-performance spread	0.25% - 0.25% (0.25%)
				Option cost	0.11% - 16.61% (2.18%)
Preferred shares reimbursement feature embedded derivative	29		Black Derman Toy model	Credit Spread	5.14%
				Yield Volatility	20.00%
Total financial liabilities at fair value	$	3,230

Changes in unrealized losses (gains), net in the Company’s FIA embedded derivatives are included in "Benefits and other changes in policy reserves" in the unaudited Condensed Consolidated Statements of Operations.

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 September 30, ~~2018~~2019 and ~~2017,~~2018, 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 September 30, 2018																						Three months ended September 30, 2019
	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
	Balance at Beginning of Period		Included in Earnings			Included in AOCI					Sales			Settlements			Included in Earnings				Balance at End of Period		Balance at Beginning of Period		Included in AOCI							Purchases		Sales		Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets									Purchases
Fixed maturity securities available-for-sale:																		Net transfer In (Out) of Level 3 (a)
Asset-backed securities	$	330	$	—		$	—		$	162	$	—		$	(11	)		$	(77	)	$	404	$	736		$	—		$	3		$	14	$	—	$	(36	)	$	(125	)	$	592
Commercial mortgage-backed securities	60		—			(1		)	—		—			—				(12		)	47		50			—			—			—		—		(1		)	(23		)	26
Corporates	1,190		—			(9		)	53		—			(5		)		(21		)	1,208		1,319			—			17			107		—		(14		)	—			1,429
Hybrids	10		—			(1		)	—		—			—				—			9		10			—			—			—		—		—			—			10
Municipals	37		—			(1		)	—		—			—				—			36		39			—			3			—		—		—			—			42
Residential mortgage-backed securities	242		—			(2		)	375		(1		)	(3		)		(36		)	575		588			—			(2		)	6		—		(23		)	—			569
Foreign Governments	16		—			—			—		—			—				—			16		17			—			1			—		—		—			—			18
Equity securities	3		1			—			—		—			—				—			4		3			(1		)	—			—		—		—			—			2
Other invested assets:
Available-for-sale embedded derivative	17		—			—			—		—			—				—			17		18			1			—			—		—		—			—			19
Affiliated Bank Loans	50		—			—			—		(11		)	—				—			39
Funds withheld for reinsurance receivables at fair value	6		—			—			—		—			(4		)		—			2
Credit linked note																							25			—			—			—		—		—			—			25
Funds withheld for reinsurance receivables, at fair value																							—			—			—			14		—		—			—			14
Total assets at Level 3 fair value	$	1,961	$	1		$	(14	)	$	590	$	(12	)	$	(23	)		$	(146	)	$	2,357	$	2,805		$	—		$	22		$	141	$	—	$	(74	)	$	(148	)	$	2,746
Liabilities
Future policy benefits																							$	1,787		$	54		$	1		$	—	$	—	$	45		$	—		$	1,887
FIA embedded derivatives, included in contractholder funds	$	2,320	$	231		$	—		$	—	$	—		$	—			$	—		$	2,551	2,934			202			—			—		—		—			—			3,136
Future policy benefits (FSRC)	737		(25		)	—			—		—			(28		)		—			684
Preferred shares reimbursement feature embedded derivative	24		(2		)	—			—		—			—				—			22		24			(10		)														14
Total liabilities at Level 3 fair value	$	3,081	$	204		$	—		$	—	$	—		$	(28	)		$	—		$	3,257	$	4,745		$	246		$	1		$	—	$	—	$	45		$	—		$	5,037

(a) The net transfers out of Level 3 during the three months ended September 30, 2019 were exclusively to Level 2.



	Three 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		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets
Fixed maturity securities available-for-sale:
Asset-backed securities	$	330	$	—		$	—		$	162	$	—		$	(11	)	$	(77	)	$	404
Commercial mortgage-backed securities	60		—			(1		)	—		—			—			(12		)	47
Corporates	1,190		—			(9		)	53		—			(5		)	(21		)	1,208
Hybrids	10		—			(1		)	—		—			—			—			9
Municipals	37		—			(1		)	—		—			—			—			36
Residential mortgage-backed securities	242		—			(2		)	375		(1		)	(3		)	(36		)	575
Foreign Governments	16		—			—			—		—			—			—			16
Equity securities	3		1			—			—		—			—			—			4
Other invested assets:
Available-for-sale embedded derivative	17		—			—			—		—			—			—			17
Affiliated Bank Loans	50		—			—			—		(11		)	—			—			39
Funds withheld for reinsurance receivables, at fair value	6		—			—			—		—			(4		)	—			2
Total assets at Level 3 fair value	$	1,961	$	1		$	(14	)	$	590	$	(12	)	$	(23	)	$	(146	)	$	2,357
Liabilities
Future policy benefits (FSRC)	$	737	$	(26	)	$	1		$	—	$	—		$	(28	)	$	—		$	684
FIA embedded derivatives, included in contractholder funds	2,320		231			—			—		—			—			—			2,551
Preferred shares reimbursements feature embedded derivative	24		(2		)	—			—		—			—			—			22
Total liabilities at Level 3 fair value	$	3,081	$	203		$	1		$	—	$	—		$	(28	)	$	—		$	3,257

(a) The net transfers out of Level 3 during the three months ended September 30, 2018 were exclusively to Level 2.


	Three months ended September 30, 2017
	Predecessor																				Nine months ended September 30, 2019
	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
	Balance at Beginning of Period		Included in Earnings		Included in AOCI				Sales			Settlements			Included in Earnings				Balance at End of Period		Balance at Beginning of Period		Included in AOCI							Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets							Purchases
Fixed maturity securities available-for-sale:																Net transfer In (Out) of Level 3 (a)
Asset-backed securities	$	204	$	—	$	1	$	22	$	—		$	(16	)		$	(52	)	$	159	$	444		$	—		$	16		$	390	$	—		$	(79	)	$	(179	)	$	592
Commercial mortgage-backed securities	84		—		1		10		—			—				—			95		67			—			4			1		—			(10		)	(36		)	26
Corporates	1,056		—		—		73		(15		)	(22		)		5			1,097		1,231			(1		)	67			221		(25		)	(74		)	10			1,429
Hybrids	10		—		—		—		—			—				—			10		10			—			—			—		—			—			—			10
Municipals	38		—		—		—		—			—				—			38		37			—			5			—		—			—			—			42
Residential mortgage-backed securities	15		—		—		—		—			—				—			15		614			—			28			19		—			(63		)	(29		)	569
Foreign Governments	17		—		—		—		—			—				—			17		16			—			2			—		—			—			—			18
Equity securities	1		—		1		—		—			—				—			2		4			(1		)	(1		)	—		—			—			—			2
Other invested assets:
Available-for-sale embedded derivative	15		1		—		—		—			—				—			16		14			5			—			—		—			—			—			19
Loan participations	—		—		—		—		—			—				—			—
Credit linked note																					25			—			—			—		—			—			—			25
Funds withheld for reinsurance receivables, at fair value																					4			—			—			19		(1		)	—			(8		)	14
Total assets at Level 3 fair value	$	1,440	$	1	$	3	$	105	$	(15	)	$	(38	)		$	(47	)	$	1,449	$	2,466		$	3		$	121		$	650	$	(26	)	$	(226	)	$	(242	)	$	2,746
Liabilities
Future policy benefits																					$	725		$	143		$	9		$	—	$	—		$	1,010		$	—		$	1,887
FIA embedded derivatives, included in contractholder funds	$	2,442	$	185	$	—	$	—	$	—		$	—			$	—		$	2,627	2,476			660			—			—		—			—			—			3,136
Preferred shares reimbursement feature embedded derivative																					29			(15		)	—			—		—			—			—			14
Total liabilities at Level 3 fair value	$	2,442	$	—	$	—	$	—	$	—		$	—			$	—		$	2,627	$	3,230		$	788		$	9		$	—	$	—		$	1,010		$	—		$	5,037

~~(a) The net transfers out of Level 3 during the Predecessor three months ended 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 securities 49
—
(3 ) 12
—
(6 ) (5 ) 47
Corporates 1,169
—
(36 ) 252
—
(108 ) (69 ) 1,208
Hybrids 10
—
(1 ) —
—
—
—
9
Municipals 38
—
(2 ) —
—
—
—
36
Residential mortgage-backed securities 66
—
—
554
(1 ) (8 ) (36 ) 575
Foreign Governments 17
—
(1 ) —
—
—
—
16
Equity securities 3
2
(1 ) —
—
—
—
4
Other invested assets:
Available-for-sale embedded derivative 17
—
—
—
—
—
—
17
Affiliated Bank Loans —
—
—
50
(11 ) —
—
39
Funds withheld for reinsurance receivables at fair value 4
—
—
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 derivative 23
(1 ) —
—
—
—
—
22
Total liabilities at Level 3 fair value $ 3,028
$ 229
$ —
$ —
$ —
$ —
$ —
$ 3,257

~~(a)~~(a) The net transfers out of Level 3 during the nine months endedSeptember 30, ~~2018~~2019 were exclusively to Level 2.


	Nine months ended September 30, 2017
	Predecessor																					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		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		Included in Earnings			Included in AOCI				Sales			Settlements			Included in Earnings				Balance at End of Period		Balance at Beginning of Period		Included in AOCI							Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets								Purchases
Fixed maturity securities available-for-sale:																	Net transfer In (Out) of Level 3 (a)
Asset-backed securities	$	197	$	(1	)	$	4	$	88	$	—		$	(33	)		$	(96	)	$	159	$	412		$	—		$	(2	)	$	342	$	—		$	(18	)	$	(330	)	$	404
Commercial mortgage-backed securities	85		—			3		10		—			(1		)		(2		)	95		49			—			(3		)	12		—			(6		)	(5		)	47
Corporates	1,062		—			11		138		(15		)	(61		)		(38		)	1,097		1,169			—			(36		)	252		—			(108		)	(69		)	1,208
Hybrids	10		—			—		—		—			—				—			10		10			—			(1		)	—		—			—			—			9
Municipals	37		—			1		—		—			—				—			38		38			—			(2		)	—		—			—			—			36
Residential mortgage-backed securities	—		—			1		—		—			—				14			15		66			—			—			554		(1		)	(8		)	(36		)	575
Foreign Governments	16		—			1		—		—			—				—			17		17			—			(1		)	—		—			—			—			16
Equity securities	1		—			1		—		—			—				—			2		3			2			(1		)	—		—			—			—			4
Other invested assets:
Available-for-sale embedded derivative	13		2			1		—		—			—				—			16		17			—			—			—		—			—			—			17
Loan participations	6		(1		)	1		—		—			(6		)		—			—
Affiliated bank loans																						—			—			—			50		(11		)	—			—			39
Funds withheld for reinsurance receivables, at fair value																						4			—			—			2		—			(4		)	—			2
Total assets at Level 3 fair value	$	1,427	$	—		$	24	$	236	$	(15	)	$	(101	)		$	(122	)	$	1,449	$	1,785		$	2		$	(46	)	$	1,212	$	(12	)	$	(144	)	$	(440	)	$	2,357
Liabilities
Future policy benefits (FSRC)																						$	728		$	(43	)	$	(1	)	$	—	$	—		$	—		$	—		$	684
FIA embedded derivatives, included in contractholder funds	$	2,250	$	377		$	—	$	—	$	—		$	—			$	—		$	2,627	2,277			274			—			—		—			—			—			2,551
Preferred shares reimbursement feature embedded derivative																						23			(1		)	—			—		—			—			—			22
Total liabilities at Level 3 fair value	$	2,250	$	377		$	—	$	—	$	—		$	—			$	—		$	2,627	$	3,028		$	230		$	(1	)	$	—	$	—		$	—		$	—		$	3,257

~~(a)~~(a) The net transfers out of Level 3 during the ~~Predecessor~~ nine months endedSeptember 30, ~~2017~~2018 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~~ FHLB Common Stock

The fair value of FHLB common stock is based on cost.

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.

Affiliated Other Invested Assets (included within Other Invested Assets)

The fair value of the affiliated bank loan is estimated using a discounted cash flow method based on the weighted average cost of capital ("WACC"). This yield-based approach is sourced from a third-party vendor and the WACC establishes a market participant discount rate by determining the hypothetical capital structure for the asset should it be underwritten as of each period end.

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 September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 and Revolving Credit Facility

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.


	September 30, 2018										September 30, 2019
	Level 1		Level 2		Level 3		Total Estimated Fair Value		Carrying Amount		Level 1		Level 2		Level 3		Total Estimated Fair Value		Carrying Amount
Assets
FHLB common stock, included in other invested assets	$	—	$	48	$	—	$	48	$	48
FHLB common stock											$	—	$	63	$	—	$	63	$	63
Commercial mortgage loans	—		—		488		488		497		—		—		460		460		444
Residential mortgage loans											—		—		397		397		392
Policy loans, included in other invested assets	—		—		17		17		21		—		—		17		17		26
Funds withheld for reinsurance receivables, at fair value	—		—		28		28		28
Affiliated other invested assets											—		—		28		28		28
Total	$	—	$	48	$	533	$	581	$	594	$	—	$	63	$	902	$	965	$	953

Liabilities
Investment contracts, included in contractholder funds	$	—	$	—	$	17,869	$	17,869	$	20,613	—		—		19,077		19,077		22,219
Debt	—		545		—		545		540		—		583		—		583		542
Revolving credit facility											—		—		16		16		15
Total	$	—	$	545	$	17,869	$	18,414	$	21,153	$	—	$	583	$	19,093	$	19,676	$	22,776



	December 31, 2018
	Level 1		Level 2		Level 3		Total Estimated Fair Value		Carrying Amount
Assets
FHLB common stock	$	—	$	52	$	—	$	52	$	52
Commercial mortgage loans	—		—		483		483		482
Residential mortgage loans	—		—		187		187		185
Policy loans, included in other invested assets	—		—		11		11		22
Affiliated other invested assets	—		—		39		39		39
Total	$	—	$	52	$	720	$	772	$	780

Liabilities
Investment contracts, included in contractholder funds	$	—	$	—	$	18,358	$	18,358	$	20,911
Debt	—		520		—		520		541
Total	$	—	$	520	$	18,358	$	18,878	$	21,452

December 31, 2017
Level 1 Level 2 Level 3 Total Estimated Fair Value Carrying Amount
Assets
Commercial mortgage loans $ —
$ —
$ 549
$ 549
$ 548
Policy loans, included in other invested assets —
—
15
15
17
Funds withheld for reinsurance receivables, at fair value —
—
16
16
16
Total $ —
$ —
$ 580
$ 580
$ 581

Liabilities
Investment contracts, included in contractholder funds $ —
$ —
$ 16,769
$ 16,769
$ 19,550
Debt —
307
105
412
412
Total $ —
$ 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”~~Policies and Practices” to the Company's ~~2017~~2018 Form 10-K.



	Carrying Value After Measurement
	September 30, 2019		December 31, 2018
Equity securities	$	69	$	50
Limited partnership investment, included in other invested assets	917		510

Carrying Value After Measurement
September 30, 2018 December 31, 2017
Equity securities $ 45
$ 44
Limited partnership investment, included in other invested assets 481
154
For investments for which NAV is used as a practical expedient for fair value, the Company does not have any significant restrictions in their ability to liquidate their positions in these investments, other than obtaining general partner approval, nor does the Company believe it is probable a price less than NAV would be received in the event of a liquidation.

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 September 30, ~~2018~~2019 and ~~2017,~~2018, are as follows:


	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 September 30, 2018
Three months ended September 30, 2019
Asset-backed securities	$	—	$	—	$	90	$	13	$	13	$	90	$	—	$	—	$	125	$	—	$	—	$	125
Commercial mortgage-backed securities	—		—		12		—		—		12		—		—		23		—		—		23
Corporates	—		—		21		—		—		21
Hybrids	—		—		—		—		—		—
Residential mortgage-backed securities	—		—		36		—		—		36
Equity securities	—		30		30		—		—		—
Total transfers	$	—	$	30	$	189	$	13	$	13	$	159	$	—	$	—	$	148	$	—	$	—	$	148
Predecessor
Three months ended September 30, 2017

Three months ended September 30, 2018
Asset-backed securities	$	—	$	—	$	74	$	22	$	22	$	74	$	—	$	—	$	90	$	13	$	13	$	90
Commercial mortgage-backed securities	—		—		—		—		—		—		—		—		12		—		—		12
Corporates	—		—		—		5		5		—		—		—		21		—		—		21
Residential mortgage-backed securities	—		—		—		—		—		—		—		—		36		—		—		36
Equity securities	—		—		—		—		—		—		—		30		30		—		—		—
Total transfers	$	—	$	—	$	74	$	27	$	27	$	74	$	—	$	30	$	189	$	13	$	13	$	159


	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
Nine months ended September 30, 2019
Asset-backed securities													$	—	$	—	$	231	$	52	$	52	$	231
Commercial mortgage-backed securities													—		—		37		1		1		37
Corporates													—		—		1		11		11		1
Residential mortgage-backed securities													—		—		29		—		—		29
Equity securities													7		18		18		7		16		16
Funds withheld for reinsurance receivables													—		—		8		—		—		8
Total transfers													$	7	$	18	$	324	$	71	$	80	$	322
	In		Out		In		Out		In		Out
Nine months ended September 30, 2018
Asset-backed securities	$	—	$	—	$	343	$	13	$	13	$	343	$	—	$	—	$	343	$	13	$	13	$	343
Commercial mortgage-backed securities	—		—		13		8		8		13		—		—		13		8		8		13
Corporates	—		—		72		3		3		72		—		—		72		3		3		72
Hybrids	20		—		—		20		—		—		20		—		—		20		—		—
Residential mortgage-backed securities	—		—		36		—		—		36		—		—		36		—		—		36
Equity securities	25		30		30		25		—		—		25		30		30		25		—		—
Total transfers	$	45	$	30	$	494	$	69	$	24	$	464	$	45	$	30	$	494	$	69	$	24	$	464
Predecessor
Nine months ended September 30, 2017
Asset-backed securities	$	—	$	—	$	154	$	58	$	58	$	154
Commercial mortgage-backed securities	—		—		8		6		6		8
Corporates	—		—		44		6		6		44
Residential mortgage-backed securities	—		—		—		14		14		—
Equity securities	—		—		—		—		—		—
Total transfers	$	—	$	—	$	206	$	84	$	84	$	206

(7) Intangibles

A summary of the changes in the carrying amounts of the Company's VOBA, DAC and DSI intangible assets are as follows:


													VOBA			DAC			DSI			Total
	VOBA			DAC			DSI			Total
Balance at December 31, 2017	$	821		$	22		$	10		$	853
Balance at December 31, 2018													$	866		$	344		$	149		$	1,359
Deferrals	—			219			98			317			—			274			103			377
Amortization	(75		)	(6		)	(5		)	(86		)	(75		)	(3		)	(3		)	(81		)
Interest	15			2			1			18			14			9			3			26
Unlocking	(4		)	—			—			(4		)	3			(1		)	(1		)	1
Adjustment for net unrealized investment (gains) losses	96			6			5			107			(178		)	(72		)	(35		)	(285		)
Balance at September 30, 2018	$	853		$	243		$	109		$	1,205
Balance at September 30, 2019													$	630		$	551		$	216		$	1,397


													VOBA			DAC			DSI			Total
Predecessor	VOBA			DAC			DSI			Total
Balance at December 31, 2016	$	118		$	1,024		$	86		$	1,228
Balance at December 31, 2017													$	821		$	22		$	10		$	853
Deferrals	—			205			31			236			—			219			98			317
Amortization	(34		)	(98		)	(12		)	(144		)	(75		)	(6		)	(5		)	(86		)
Interest	9			32			3			44			15			2			1			18
Unlocking	26			6			(2		)	30			(4		)	—			—			(4		)
Adjustment for net unrealized investment (gains) losses	(119		)	(146		)	—			(265		)	96			6			5			107
Balance at September 30, 2017	$	—		$	1,023		$	106		$	1,129
Balance at September 30, 2018													$	853		$	243		$	109		$	1,205

Amortization of VOBA, DAC, and DSI 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, and DSI 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 unaudited Condensed Consolidated Statements of Operations. As of September 30, ~~2018,~~2019 and ~~September 30, 2017,~~2018, the VOBA balances included cumulative adjustments for net unrealized investment (gains) losses of $(103) and $78, ~~and $(159),~~ respectively, ~~and~~ the DAC balances included cumulative adjustments for net unrealized investment (gains) losses of $(68) and $5, respectively, and ~~$(139), respectively. As of September 30, 2018,~~ the DSI balance included net unrealized investment (gains) losses of ~~$5.~~

$(32) and $5, respectively.

Estimated amortization expense for VOBA in future fiscal periods is as follows:



	Estimated Amortization Expense
Fiscal Year
2019	16
2020	78
2021	87
2022	82
2023	73
Thereafter	397

Estimated Amortization Expense
Fiscal Year
2018 15
2019 69
2020 89
2021 85
2022 79
Thereafter 438

The Company had an unearned revenue liability balance of ~~$26~~$(34) as of September 30, 2019, including deferrals of $(30), amortization of $5, interest of $(1), unlocking of $(2) and adjustment for net unrealized investment gains (losses) of $35. The Company had an unearned revenue liability balance of $(26) as of September 30, 2018, including deferrals of $(28), amortization of $18, unlocking of $2 and adjustment for net unrealized investment ~~(gains) losses~~gains (losses) of $(18).

Definite and Indefinite Lived Intangible Assets

~~Amortizable~~Other intangible assets as of September 30, ~~2018~~2019 consist of the following:



	Cost		Accumulated amortization		Net carrying amount		Weighted average useful life (years)
Trade marks / trade names	$	16	$	3	$	13	10
State insurance licenses	6		N/A		6		Indefinite
Total					$	19

September 30, 2018
Cost Accumulated amortization Net Weighted Average Useful Life (Years)
Trade names 16 2 14 10

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~~The carrying amount 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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 is as follows:


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Debt	$	550	$	307	$	542	$	541
Revolving credit facility	—		105		15		—

On September 3, 2019, the Company drew $15 on the revolving credit facility (the "revolver"). The $0$15 and ~~$105~~$0 drawn balances on the revolver carried interest rates equal to 0%4.85% and ~~4.17%,~~5.27% (had we drawn on the revolver) as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the amount available to be drawn on the revolver was $235 and $250, respectively. On October 3, 2019, the Company drew an additional $12 on the revolver and ~~$145, respectively.~~on October 17, 2019, the $27 drawn on the revolver was repaid in full.

The interest expense and amortization of debt issuance costs for the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, were as follows:



	Three months ended				Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	Interest Expense	Amortization	Interest Expense	Amortization	Interest Expense	Amortization	Interest Expense		Amortization
Debt	8	—	7	1	23	1	20		1
Revolving credit facility	—	—	—	—	—	—	2		—
Gain on extinguishment of debt	—	—	—	—	—	—	(2	)	—

Three months ended Nine months ended
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
Predecessor Predecessor
Interest Expense Amortization Interest Expense Amortization Interest Expense Amortization Interest Expense Amortization
Debt 7
1
5
—
20
1
14
—
Revolving credit facility —
—
1
—
2
—
3
1
Gain on extinguishment of debt —
—
—
—
(2 ) —
—
—

(9) Equity

Share Repurchases

On December 19, 2018, the Company's Board of Directors authorized a share repurchase program of up to $150 of the Company's outstanding common stock. This program will expire on December 15, 2020, and may be modified at any time. Under the share repurchase program, the Company may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934. The extent to which the Company repurchases its shares, and the timing of such purchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other considerations, as determined by the Company.

During the three and nine months ended September 30, 2019, the Company repurchased 2,146 thousand shares for a total cost of $17, and 6,022 thousand shares for a total cost of $48, respectively. As of September 30, 2019, the Company had repurchased a total of 6,622 thousand shares for a total cost of $52.

Dividends

The Company declared the following cash dividend to its common shareholders during the three and nine months ended September 30, 2019.



Date Declared	Date Paid	Date Shareholders of record	Shareholders of record (in thousands)	Cash Dividend declared (per share)	Total cash paid
February 27, 2019	April 1, 2019	March 18, 2019	221,661	$0.01	$2
May 7, 2019	June 10, 2019	May 28, 2019	221,661	$0.01	$2
August 7, 2019	September 9, 2019	August 26, 2019	221,661	$0.01	$2

On November 6, 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.01 per share. The dividend will be paid on December 9, 2019 to shareholders of record as of the close of business on November 25, 2019.

The Company did not declare a cash dividend to its common shareholders during the three ~~and~~or nine months ended September 30, 2018.

The ~~Predecessor~~Company declared the following ~~cash~~ dividends to its ~~common~~preferred shareholders during the three and nine months ended September 30, ~~2017:~~2019:

Type of Preferred Share

Date Declared

Date Paid

Date Shareholders of record

Shares outstanding at date of record (in thousands)

Method of Payment

Total cash paid

Total shares paid in kind (in thousands)

Series A Preferred Shares

March 29, 2019

April 1, 2019

March 15, 2019

298

Paid in kind

$—

Series B Preferred Shares

March 29, 2019

April 1, 2019

March 15, 2019

108

Paid in kind

$—

Series A Preferred Shares

June 28, 2019

July 1, 2019

June 15, 2019

304

Paid in kind

$—

Series B Preferred Shares

June 28, 2019

July 1, 2019

June 15, 2019

110

Paid in kind

$—

Series A Preferred Shares

August 7, 2019

September 9, 2019

August 26, 2019

310

Paid in kind

$—

Series B Preferred Shares

August 7, 2019

September 9, 2019

August 26, 2019

112

Paid in kind

$—

Date Declared Date Paid Date Shareholders of record Shareholders of record (in thousands) Cash Dividend declared (per share) Total cash paid
February 2, 2017 March 6, 2017 February 21, 2017 58,308 $0.065 $4
May 1, 2017 June 5, 2017 May 22, 2017 58,315 $0.065 $4
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 September 30, 2018:

Type of Preferred Share

Date Declared

Date Paid

Date Shareholders of record

Shares outstanding at date of record (in thousands)

Method of Payment

Total cash paid

Total shares paid in kind (in thousands)

Series A Preferred Shares

March 29, 2018

April 1, 2018

March 15, 2018

277

Paid in kind

$—

Series B Preferred Shares

March 29, 2018

April 1, 2018

March 15, 2018

101

Paid in kind

$—

Series A Preferred Shares

June 29, 2018

July 1, 2018

June 15, 2018

282

Paid in kind

$—

Series B Preferred Shares

June 29, 2018

July 1, 2018

June 15, 2018

102

Paid in kind

$—

Series A Preferred Shares

September 28, 2018

October 1, 2018

September 15, 2018

287

Paid in kind

$—

Series B Preferred Shares

September 28, 2018

October 1, 2018

September 15, 2018

104

Paid in kind

$—

Type of Preferred Share Date Declared Date Paid Date Shareholders of record Shares outstanding at date of record (in thousands) Method of Payment Total cash paid Total shares paid in kind (in thousands)
Series A Preferred Shares March 29, 2018 April 1, 2018 March 15, 2018 277 Paid in kind $— 5
Series B Preferred Shares March 29, 2018 April 1, 2018 March 15, 2018 101 Paid in kind $— 1
Series A Preferred Shares June 29, 2018 July 1, 2018 June 15, 2018 282 Paid in kind $— 5
Series B Preferred Shares June 29, 2018 July 1, 2018 June 15, 2018 102 Paid in kind $— 2
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 “FGL Incentive Plan”) that permits the granting of awards in the form of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, unrestricted stock, performance-based awards, dividend equivalents, cash awards and any combination of the foregoing. The Company’s Compensation Committee is authorized to grant up to 15,006 thousand equity awards under the Incentive Plan. At September 30, ~~2018, 1,171~~2019, 5,689 thousand equity awards are available for future issuance.

FGL Incentive Plan

~~On May 15, 2018 FGL~~The Company granted ~~13,835 thousand stock~~the following options, including vesting conditions, to certain officers during the nine months ended September 30, 2019:




Grant Date		February 26, 2019		May 20, 2019		August 6, 2019
Total granted		1,699		850		700
Total fair value (at grant date)		$	3	$	1	$	1

Vesting mechanism	Vest Dates	Number of options subject to these vesting conditions
Service	Each March 15 from 2020 through 2023; subject to continued service	485		242		233
Service and return on equity performance	March 15 2020, 2021 and 2022 subject to continued service and targeted return on equity	607		304		233
Service and stock price performance	Each March 15 from 2020 through 2023; subject to continued service and target stock price goals being achieved	—		304		234
Service and stock price performance	Each March 15 from 2019 through 2023; subject to continued service and target stock price goals being achieved	607		—		—

Additionally, on August 6, 2019, the Company established vesting conditions for certain performance based options issued on December 21, 2018, thus establishing the accounting grant date. The total fair value of ~~the Company.~~these options granted on August 6, 2019 was $3. The following table summarizes ~~the~~their vesting ~~conditions for these options:~~conditions:



Vesting mechanism	Vest Dates	Number of options subject to these vesting conditions
Service	~~Each March 15 from 2019 through 2023; subject to continued service~~	~~3,937~~
~~Service~~ and return on equity performance	~~March 15~~December 2019, 2020, 2021, 2022 and ~~2022~~2023 subject to continued service and targeted return on equity	~~4,949~~1,250
Service and stock price performance	~~Each March 15 from~~December 2019, ~~through~~2020, 2021, 2022 and 2023; subject to continued service and target stock price goals being achieved	~~4,949~~1,250

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 requisite service period, which generally corresponds to the vesting period.

At September 30, ~~2018,~~2019, the intrinsic value of stock options outstanding or expected to vest was ~~$0.~~$3. At September 30, ~~2018,~~2019, the weighted average remaining contractual term of stock options outstanding, exercisable and vested or expected to vest was ~~7 years.~~6, 6 and 6, respectively. At September 30, ~~2018~~2019 there were no436 thousand options that were ~~exercisable or vested.~~exercisable.

A summary of the Company’s outstanding stock options as of September 30, ~~2018,~~2019, and related activity during the nine months ended September 30, ~~2018,~~2019, is as follows (share amount in thousands):


Stock Option Awards	Options	Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Stock options outstanding at December 31, 2017	—	$	—
Stock options outstanding at December 31, 2018				13,007		$	9.68
Granted	13,835	10.00		5,749		8.92
Exercised	—	—		—		—
Forfeited or expired	—	—		(3,519	)	10.00
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
Stock options outstanding at September 30, 2019				15,237		9.31
Exercisable at September 30, 2019				436		10.00
Vested or projected to vest at September 30, 2019				15,237		9.31

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.~~

of the grants made in the nine months ended September 30, 2019.

Black-Scholes Model

Monte Carlo Model

Black-Scholes Model

Monte Carlo Model

Serviced based

ROE Performance based

Stock Price Performance based

Source of input/ assumption

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

$1.72

$1.63

$0.97

N/A

Risk-free interest rate

2.95%

2.98%

3.02%

US Treasury Curve

1.53%-2.48%

1.53%-2.50%

1.62%-2.30%

US Treasury Curve

Assumed dividend yield

—%

Internal projection

0.46% - 0.56%

Internal projection

Expected option term

5.5 years

6.0 years

N/A

Internal model

4.5-5.8 years

4.8-6.0 years

N/A

Internal model

Contractual term

N/A

7.0 years

N/A

6.0-7.0 years

Employee option agreement

Volatility

25.00%

25.72%

Predecessor and peer group experience

26.00%

Predecessor and peer group experience

Early exercise multiple

N/A

2.8

Hull White model

N/A

2.8

Hull White model

Cost of equity

N/A

10.50%

Capital asset pricing model - 20 year risk free rate

N/A

9.39% - 10.50%

Capital asset pricing model - 20 year risk free rate

The Company granted ~~112~~147 thousand restricted shares to directors in the nine months ended September 30, ~~2018.~~2019. These shares will vest on December 31, ~~2018.~~2019. The total fair value of the restricted shares granted in the nine months ended September 30, ~~2018~~2019 was $1.

A summary of the Company’s nonvested restricted shares outstanding as of September 30, ~~2018,~~2019, 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



Restricted Stock Awards	Shares	Weighted Average Grant Date Fair Value
Restricted shares outstanding at December 31, 2018	—	$	—
Granted	147	6.82
Vested or expected to vest at September 30, 2019	147	6.82

Management Incentive Plan

In the nine months ended September 30, ~~2018,~~2019, the Company granted ~~374~~541 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~~2019 was ~~$3.~~$5.

One half of the phantom units vest in three equal installments on each March 15^th from ~~2019~~2020 to ~~2021,~~2022, subject to awardees continued service with the Company. The other half will begin vesting on March 15, ~~2020~~2021 and cliff vest on March 15, ~~2021~~2022 based on continued service and attainment of a performance metric: adjusted operating income return on equity.

At September 30, ~~2018,~~2019, the liability for phantom units of $0$1 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.~~$7.98.

A summary of the Management Incentive Plan nonvested phantom units outstanding as of September 30, ~~2018,~~2019, and related activity during the nine months ended, is as follows (share amount in thousands):


Phantom units	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Phantom units outstanding at December 31, 2017	—		$	—
Phantom units outstanding at December 31, 2018					356		$	8.95
Granted	374		8.95		541		8.54
Vested	—		—		(59	)	10.00
Forfeited or expired	(13	)	8.96		(87	)	9.37
Phantom units outstanding at September 30, 2018	361		8.95
Phantom units outstanding at September 30, 2019					751		9.02

The Company recognized total stock compensation expense related to the FGL Incentive Plan and Management Incentive Plan is as follows:


	Three months ended		Nine months ended		Three months ended		Nine months ended
	September 30, 2018		September 30, 2018		September 30, 2019		September 30, 2019
FGL Incentive Plan
Stock options	$	2	$	3	$	—	$	2
Restricted shares	1		1		1		1
	3		4		1		3
Management Incentive Plan
Phantom units	—		—		—		1
	—		—		—		1
Total stock compensation expense	3		4		1		4
Related tax benefit	1		1		—		1
Net stock compensation expense	$	2	$	3	$	1	$	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~~2019 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	$	18	3
Restricted shares	—		0
	18
Management Incentive Plan
Phantom units	3		2
	3
Total unrecognized stock compensation expense	$	21	3

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 USU.S. 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 on December 22 2017, contained a Base-Erosion and Anti-Abuse Tax (“BEAT”). The BEAT provisions apply a minimum tax (5% in 2018) to certain reinsurance payments settled between FGL Insurance and F&G 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 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 Ltd. 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 F&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 in the first quarter of 2018. The provision for income taxes represents federal income taxes. The effective tax rate for the three and nine months ended September 30, 2019 was (16)% and 4%, respectively. The effective tax rate for the three and nine months ended September 30, 2018 was 21% and 29%, respectively. The effective tax rate on pre-tax income for the ~~three and~~ nine months ended September 30, ~~2017~~2019 differs from the U.S Federal statutory rate for 2019 of 21% primarily due to three factors. First, in 2018, a partial valuation allowance was ~~30%~~established against the U.S. Life companies' unrealized loss deferred tax assets because there were not sufficient sources of income to recover those assets. During the first quarter of 2019, the unrealized loss position recovered enough that the valuation allowance was no longer needed and ~~32%, respectively.~~it was released. Secondly, the Company had substantial income in jurisdictions that do not impose an income tax. Thirdly, a valuation allowance release was recorded for FSRC for all of its deferred tax assets, with the exception of its capital deferred tax assets, as of September 30, 2019 based on positive evidence including: cumulative three year income, future projected earnings, and management’s ability to implement a future tax planning strategy if needed. The effective tax rate on pre-tax income for the ~~current~~three months ended September 30, 2019 differs from the U.S. Federal statutory rate for 2019 of 21% primarily due to income incurred in jurisdictions that do not impose an income tax, and the valuation allowance release for FSRC on all of its deferred tax assets with the exception of its capital deferred tax assets. The effective tax rate on pre-tax income for the nine months ended September 30, 2018 ~~differs~~differed from the ~~U.S~~U.S. Federal statutory rate for 2018 of 21% primarily due to the impact of an intended tax election. During the first quarter of 2018, there was uncertainty surrounding the impact of the Base-Erosion and Anti-Abuse Tax ("BEAT") that was enacted as part of the Tax Cut and Jobs Act and how it would impact the reinsurance agreement between F&G Life Re ~~Ltd. making an election to be a US taxpayer.~~and FGL Insurance. As a result of the uncertainty, F&G Life Re intended to make an election under IRC Code Section 953(d) for the 2018 tax year to be treated as if it were a U.S. taxpayer for the year. As such, an opening balance sheet deferred tax liability was set up resulting in a discrete expense being recorded in the first ~~quarter. The~~quarter of 2018 that increased the first quarter effective ~~tax rate~~rate. Based on ~~pre-tax income for~~clarifying guidance, the ~~nine months ended~~Company ultimately decided not to make that election in the fourth quarter of 2018.

As of September 30, ~~2017 differed from~~2019, the ~~U.S. Federal statutory rate for 2017 of 35% primarily due to~~Company had a partial 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 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 the impact of favorable permanent adjustments.~~

The TCJA amended many provisions of the Internal Revenue Code that effect on the Company. The SEC’s Staff Accounting Bulletin No. 118 (“SAB 118”) provides guidance on accounting for the effects of U.S. tax reform in circumstances in which an exact calculation cannot be made, but for which a reasonable estimate can be determined. As internal systems are updated and additional guidance becomes available, the estimate will be 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 finalized the reserve impact of the TCJA. A reasonable estimate, prepared by the Company's Actuarial department, was calculated at December 31, 2017 and refined during the 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 2018 income tax provisions.

~~The Company maintains a valuation allowance~~$11 against ~~most of the~~its deferred tax assets of ~~its non-life insurance company subsidiaries, FSRC, and the unrealized capital losses on F&G Life Re Ltd..~~$103. The ~~Company has also placed a partial~~ valuation allowance ~~on its unrealized~~is an offset to the non-life companies deferred tax assets and FSRC capital ~~losses on the US life insurance subsidiaries.~~deferred tax assets. The non-life insurance company subsidiaries have a history of losses and insufficient sources of future income that would allow for recognition of ~~all~~any 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~~earnings to recognize against its ~~unrealized loss~~capital 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 September 30, 2018, the Company had a partial valuation allowance of $82 against its gross~~All other deferred tax assets of $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~~realized based on expectations as to ~~insufficient sources of~~our future ~~income.~~taxable income and considering all other available evidence, both positive and negative.

(12) Commitments and Contingencies

Commitments


	September 30, 2018		September 30, 2019
Asset Type
Other invested assets	$	859	$	1,073
Equity securities	31		7
Fixed maturity securities, available-for-sale	43		17
Other assets	9		46
Bank loans			5
Residential mortgage loans			8
Total	$	942	$	1,156

As of September 30, ~~2018,~~2019, 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 September 30, ~~2018, FGL~~2019, the Company 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~~our use of the U.S. Social Security Administration’s Death Master File ~~(the "Death~~(“Death Master ~~File"~~File”) and compliance with state claims practices ~~regulation. Legislation requiring~~regulations and unclaimed property or escheatment laws. We have established procedures to periodically compare our in-force life insurance ~~companies to use~~and annuity policies against the Death Master File or similar databases; investigate any identified potential matches to ~~identify potential claims has been enacted in a number of states. As a result of these legislative and regulatory developments,~~confirm the Company uses the Death Master File and other publicly available databases to identify persons potentially entitled to benefits under life insurance policies, annuities and retained asset accounts. In addition, the Company has received audit and examination notices from several state agencies responsible for escheatment and unclaimed property regulation in those states and in some cases has challenged the audits including litigation against the Controller for the State of California which is subject to a stay and separate litigation against the Treasurer for the State of Illinois. The Company believes its current accrual will cover the reasonably estimated liability arising out of these developments; however, costs that cannot be reasonably estimated asdeath of the ~~date~~insured; and determine whether benefits are due and attempt to locate the beneficiaries of ~~this filing are possible~~any benefits due or, if no beneficiary can be located, escheat the benefit to the state as ~~a result of ongoing regulatory developments and other future requirements related~~unclaimed property. We believe we have established sufficient reserves with respect to these ~~matters.~~matters; however, it is possible that third parties could dispute these amounts and additional payments or additional unreported claims or liabilities could be identified which could be significant and could have a material adverse effect on our results of operations.

On June 30, 2017, a putative class action complaint was filed against FGL Insurance, FGL, and FS Holdco II Ltd in the United States District Court for the District of Maryland, captioned Brokerage Insurance Partners v. Fidelity & Guaranty Life Insurance Company, Fidelity & Guaranty Life, FS Holdco II Ltd, and John Doe, No. 17-cv-1815. The complaint alleges that FGL Insurance breached the terms of its agency agreement with Brokerage Insurance Partners (“BIP”) and other agents by changing certain compensation terms. The complaint asserts, among other causes of action, breach of contract, defamation, tortious interference with contract, negligent misrepresentation, and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The complaint seeks to certify a class composed of all persons who entered into an agreement with FGL Insurance to sell life insurance and who sold at least one life insurance policy between January 1, 2015 and January 1, 2017. The complaint seeks unspecified compensatory, consequential, and punitive damages in an amount not presently determinable, among other forms of relief.

On September 1, 2017, FGL Insurance filed a counterclaim against BIP and John and Jane Does 1-10, asserting, among other causes of action, breach of contract, fraud, civil conspiracy and violations of RICO. On September 22, 2017, Plaintiff filed an Amended Complaint, and on October 16, 2017, FGL Insurance filed an Amended Counterclaim against BIP, Agent Does 1-10, and Other Person Does 1-10. The parties also filed cross-Motions to Dismiss in Part.

On August 17, 2018, the Court in the BIP Litigation denied all pending Motions to Dismiss filed by all parties without prejudice, pending a decision as to whether the 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 Insurance 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

On October 15, 2019, BIP filed with the Court an Unopposed Motion for Preliminary Approval of ~~September 30, 2018, BIP~~Settlement and Class Certification, along with a copy of the Class Action Settlement Agreement signed by all parties.Final settlement is subject to, among other requirements, both preliminary and final approval by the Court after Court-approved Notice has ~~not filed any document in response~~been provided to the ~~Court’s August 17, 2018 Order or to FGL Insurance’s filing.~~absent members of the putative class.

As of the date of this report, the Company does not have sufficient information to determine whether it has exposure to any losses that would be either probable or reasonably estimable.

(13) Reinsurance

The Company reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding the Company's retention limit is reinsured. The Company primarily seeks reinsurance coverage in order to limit its exposure to mortality losses and enhance capital management. The Company follows reinsurance accounting when there is adequate risk transfer. Otherwise, the deposit method of accounting is followed. The Company also assumes policy risks from other insurance companies.

The effect of reinsurance on net premiums earned and net benefits incurred (benefits incurred and reserve changes) for the three and nine months ended September 30, ~~2018,~~2019 and ~~the Predecessor three and nine months ended September 30, 2017~~2018 were as follows:



	Three months ended								Nine months ended
	September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
	Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred
Direct	50		336		54		336		158		1,067		172		653
Assumed	—		42		—		12		—		23		—		(14	)
Ceded	(41	)	(47	)	(42	)	(51	)	(125	)	(152	)	(127	)	(164	)
Net	9		331		12		297		33		938		45		475

Three months ended Nine months ended
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
Predecessor Predecessor
Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred
Direct 54
336
58
389
172
653
176
1,028
Assumed —
12
—
—
—
(14 ) —
—
Ceded (42 ) (51 ) (42 ) (69 ) (127 ) (164 ) (145 ) (205 )
Net 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 nine months ended September 30, ~~2018 or the Predecessor nine months ended September 30, 2017.~~2019 and 2018. The Company did not commute any ceded reinsurance treaties during the nine months ended September 30, ~~2018~~2019 or 2018.

NaN policies issued by the ~~Predecessor nine months ended September 30, 2017.~~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.

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%~~a quota share percentage of the 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. 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. Effective January 1, 2019, FGL Insurance extended this agreement to include new business issued during 2019. FGL Insurance incurred risk charge fees of ~~$3,~~$4 and $8$12 during the three and nine months ended September 30, ~~2018, respectively,~~2019, 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~~Effective December 31, 2018, FGL Insurance entered into ~~any~~a reinsurance ~~agreements in which~~agreement with Kubera to cede approximately $758 of certain MYGA and deferred annuity GAAP reserve on a coinsurance funds withheld basis, net of applicable existing reinsurance. In accordance with the terms of this agreement, FGL Insurance cedes a quota share percentage of MYGA and deferred annuity policies for certain issue years to Kubera. Effective June 30, 2019, FGL Insurance and Kubera executed a letter of intent to amend this agreement and cede an additional $185 of MYGA GAAP reserves on a coinsurance funds withheld basis via a quota share percentage of certain issue years. The amended reinsurance agreement was executed on July 31, 2019.

Effective December 31, 2018, FGL Insurance entered into a reinsurance agreement with Kubera to cede approximately $4 billion of certain FIA statutory reserve on a coinsurance funds withheld basis, net of applicable existing reinsurance. In accordance with the terms of this agreement, FGL Insurance cedes a quota share percentage of FIA policies for certain issue years to Kubera. 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 ~~unilaterally cancel any~~realize significant loss from assuming the insurance risk. Effective June 30, 2019, FGL Insurance and Kubera executed a letter of intent to amend this agreement and cede an additional $1 billion of FIA statutory reserves on a coinsurance funds withheld basis via a quota share percentage of certain issue years. The amended reinsurance agreement was executed on July 31, 2019. The effects of the amendment are also not accounted for ~~reasons other than non-payment of premiums or other similar credit issues.~~as reinsurance as it does not satisfy the risk transfer requirements for GAAP.

F&G Reinsurance Companies

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 three reinsurance treaties with unaffiliated parties.~~ At September 30, ~~2018,~~2019, FSRC had ~~$708~~$308 of funds withheld receivables and ~~$684~~$282 of insurance reserves related to these reinsurance treaties.

F&G Re has entered into multiple reinsurance agreements on a funds withheld basis with unaffiliated parties. At September 30, 2019, F&G Re had $1,737 of funds withheld receivables and $1,605 of insurance reserves related to these reinsurance treaties. Effective April 1, 2019, F&G Re entered into a reinsurance agreement with an unaffiliated company to reinsure an inforce block of fixed deferred annuity contracts on a 100% coinsurance funds withheld basis. In accordance with the terms of this agreement, F&G Re established a fair value of funds withheld asset and future policy benefits liability of $983 and $896, respectively.

See a description of FSRC’s and F&G Re's accounting policy for its assumed reinsurance contracts in "Note 2. Significant Accounting Policies and Practices" within the Company's ~~2017~~2018 Form 10-K.

The Company adopted ASU 2016-01 effective January 1, 2018, which requires FSRC to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The adoption of this new accounting guidance had a $1 and $(1) impact on pre-tax net income, or $0.00 and $0.00 per common share, for the three and nine months ended September 30, 2018, respectively.

(14) Related Party Transactions

Affiliated Investments

The Company, and certain subsidiaries of 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~~Pursuant to the ~~transaction and BISGA will forego approximately 30%~~terms of ~~the first thirteen months’ management fee to which it is entitled under~~ the investment management ~~agreement.~~agreements, BISGA may delegate certain of its investment management services to sub-managers and any fees or other remuneration payable to such sub-managers is payable by the Company out of the assets managed by such sub-managers. BISGA has delegated certain investment management services to its affiliates, Blackstone Real Estate Special Situations Advisors L.L.C. (“BRESSA”) and GSO Capital Advisors II LLC (“GSO Capital Advisors II”), pursuant to sub-management agreements executed between BISGA and each of BRESSA and GSO Capital Advisors. As of September 30, 2019 and December 31, 2018, the Company has a net liability of ~~$14~~$30 and $20, respectively, for the services consumed under ~~this~~the investment management ~~agreement,~~agreements and related sub-management agreements, partially offset by fees received and expense reimbursements from BISGA.

During the three and nine months ended September 30, 2019 and 2018, the Company received expense reimbursements from BISGA for the services consumed under these agreements. Fees received for these types of services are $2 and $7 for the three and nine months ended September 30, 2019, respectively, and $2 and $7 for the three and nine months ended September 30, 2018, respectively.

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.~~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 are an investment in affiliates' equity or debt securities. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company held ~~$445~~$1,932 and ~~$188~~$1,461 in affiliated investments, respectively, which includes foreign exchange

unrealized loss of ~~$(1)~~$(6) and ~~$0,~~$(2), respectively. ~~In addition, as~~As of September 30, 2019 and December 31, 2018, the Company had ~~commitments to invest in 11 other affiliated investments. The~~ unfunded commitments relating to ~~these~~ affiliated investments atof $927 and $990, respectively.

The Company purchased $37 and $185 of residential loans from Finance of America Holdings LLC, a Blackstone affiliate, during the nine months ended September 30, 2019 and on December 17, 2018, ~~is $717.~~respectively.

On December 1, 2017, the Company executed an agreement with Blackstone Tactical Opportunities Advisors LLC ("BTO Advisors") and Fidelity National Financial, Inc. ("FNF"), to provide the Company transactional and operational services and advice through December 31, 2018. The agreement was amended on November 2, 2018 and August 23, 2019 to provide services through June 30, 2020. As of September 30, 2019, the Company has a liability of $4 for services and advice provided under this agreement.

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 6 thousand shares and 18 thousand shares for the three and nine months ended September 30, 2019, respectively. The Company paid-in-kind dividends on preferred shares held by GSO Capital Partners of 5 thousand shares and 15 thousand shares for the three and nine months ended September 30, 2018, respectively.

The Company had no0 gross realized gains or realized impairment losses on related party investments during the three and nine months ended September 30, 2019 and 2018.

The Company had $(1) and $(3) gross realized gains (losses), inclusive of impairment losses on related party investments during the Predecessor three and nine months ended September 30, 2017, respectively.

~~FSRC (Predecessor)~~

FGL Insurance reinsures certain liabilities and obligations to FSRC. For the three and nine months ended September 30, 2017, FGL Insurance ceded $0 and $1 of premium revenue and $12 and $37 of benefits and other changes in 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 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 ended				Nine months ended				Three months ended				Nine months ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
			Predecessor				Predecessor
Net Income	$	56	$	61	$	161	$	115
Net income (loss)									$	65	$	56	$	282	$	161
Less Preferred stock dividend	7		—		21		—		7		7		23		21
Net income available to common shares	49		61		140		115
Net income (loss) available to common shares									58		49		259		140

Weighted-average common shares outstanding - basic	214,370		58,335		214,370		58,333		216,442		214,370		217,746		214,370
Dilutive effect of unvested restricted stock & PRSU	49		52		21		37
Dilutive effect of stock options	—		92		—		68
Dilutive effect of unvested restricted stock									99		49		69		21
Weighted-average shares outstanding - diluted	214,419		58,479		214,391		58,438		216,541		214,419		217,815		214,391

Net income per common share:
Net income (loss) per common share:
Basic	$	0.23	$	1.06	$	0.65	$	1.98	$	0.26	$	0.23	$	1.19	$	0.65
Diluted	$	0.23	$	1.06	$	0.65	$	1.98	$	0.26	$	0.23	$	1.19	$	0.65

The number of shares of common stock outstanding used in calculating the weighted average thereof reflects the actual number of ~~the Successor and Predecessor~~FGL Holdings 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 September 30, ~~2018~~2019 excludes the incremental effect of 6 million weighted average common stock warrants outstanding due to their anti-dilutive effect. This calculation also excludes the potential dilutive effect of the 422 thousand preferred stock shares outstanding as of September 30, 2019 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, 2019 excludes the incremental effect related to certain outstanding stock options due to their anti-dilutive effect. The number of weighted average equivalent shares excluded is 1,591 thousand and 1,569 thousand shares for the three and nine months ended September 30, 2019.

The calculation of diluted earnings per share for the three and nine months ended September 30, 2018 excludes the potential dilutive effective of the 70 million weighted average common stock warrants outstanding due to their anti-dilutive effect. This calculation also excludes the potential dilutive effect of the 391 thousand preferred stock shares outstanding as of 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 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 September 30, 2017 are 0 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, DSI 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.

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.

Effective April 1, 2019, Raven Re and FGL Insurance executed the third amended and restated Reinsurance Agreement (the "CARVM treaty"). The amendment allowed Raven Re to declare and pay a one-time dividend of up to $30 to FGL Insurance provided that the dividend was paid on or before June 30, 2020 and subject to other provisions outlined in the amendment. The Vermont Department of Financial Regulation approved the amendment on April 15, 2019. Pursuant to the provisions of the amended CARVM treaty, Raven Re paid a $20 dividend to FGL Insurance in June 2019.

FGL Insurance applies Iowa-prescribed accounting practices that permit Iowa-domiciled insurers to report equity call options used to economically hedge FIA index credits at amortized cost for statutory accounting 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 $95 decrease and $30 increase to statutory capital and surplus at September 30, 2019 and December 31, 2018, respectively.

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~~$100 and $110 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 $4$3 and $5$0 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Without such permitted statutory accounting practices Raven Re’s statutory capital and surplus (deficit) ~~surplus~~ would be ~~$(11)~~$(19) and ~~$(18)~~$(16) as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$103~~$84 and ~~$97,~~$94, respectively.

~~On November 1, 2013,~~As of September 30, 2019, FGL NY Insurance ~~re-domesticated from Maryland to Iowa. After re-domestication, FGL Insurance elected to apply Iowa-prescribed~~did not follow any prescribed or permitted statutory accounting practices that ~~permit Iowa-domiciled insurers to report equity call options used to economically hedge FIA index credits at amortized cost for~~differ from the NAIC's 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 $37 and $54 decrease to statutory capital and surplus at September 30, 2018 and December 31, 2017, respectively.practices.

The prescribed and permitted statutory accounting practices have no impact on the Company’s unaudited condensed consolidated financial statements which are prepared in accordance with GAAP.

~~As of 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 October 9, 2018 the Company issued 7,191 shares and paid $64 in cash in exchange for the warrants tendered. After completion of the Offer to Exchange, 5,510 warrants still remain outstanding, which 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~~2018 (“~~2017~~2018 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 ~~fiduciary~~"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~~2018 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 September 30, ~~2018~~2019 (unaudited) and December 31, ~~2017,~~2018, and the unaudited consolidated results of operations for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of FGL Holdings (“FGL Holdings,” “we,” “us,” “our” and, collectively with its subsidiaries, the “Company”), which was included with our audited consolidated financial statements for the year ended December 31, ~~2017~~2018 included within the Company’s ~~2017~~2018 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~~2018 Form 10-K, which can be found at the SEC website, www.sec.gov.

Basis of Presentation

~~As a result of the completion of the Business Combination on November 30, 2017, our~~Our unaudited condensed consolidated financial statements included elsewhere in the Quarterly Report are presented: (i) as of September 30, ~~2018~~2019 and December 31, ~~2017;~~2018; and (ii) for the three and nine months ended September 30, ~~2018~~2019 and ~~the Predecessor three and nine months ended September 30, 2017.~~2018. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we discuss the three and nine months ended September 30, ~~2018~~2019 results compared to the ~~Predecessor~~ three and nine months ended September 30, ~~2017~~2018 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 products ("IUL") provide wealth protection and transfer opportunities. Life and annuity products are primarily distributed through Independent Marketing Organizations ("IMOs") and independent insurance agents.

In setting the features and pricing of 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.

F&G Reinsurance Ltd (“F&G Re”), an exempted company incorporated in Bermuda with limited liability, provides a platform for non-affiliated international business. Front Street Re Cayman Ltd (“FSRC”), an exempted company incorporated in the Cayman Islands with limited liability, has a license to carry on business as an Unrestricted Class “B” Insurer that permits FSRC to conduct offshore direct and reinsurance business. F&G Re and FSRC (together herein referred to as the “F&G Reinsurance Companies”), are indirect wholly owned subsidiaries of the Company and parties to reinsurance transactions.

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 September 30, ~~2018,~~2019, the Company's reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $4 billion and 3%, respectively. We are required to pay the guaranteed minimum crediting rates even if earnings on our investment portfolio decline, which would negatively impact earnings. In addition, we expect more policyholders to hold policies with comparatively high guaranteed rates for a longer period in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio would increase earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect that policyholders would be less likely to hold policies with existing guarantees as interest rates rise and the relative value of other new business offerings are increased, which would negatively impact our earnings and cash flows.

See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” for a more detailed discussion of interest rate risk.

Aging of the U.S. Population

We believe that the aging of the U.S. population will increase the demand for our products. As the “baby boomer” generation prepares for retirement, we believe that demand for retirement savings, growth, and income products will grow. The impact of this growth may be offset to some extent by asset outflows as an increasing percentage of the population begins withdrawing assets to convert their savings into income.

Industry Factors and Trends Affecting Our Results of Operations

Demographics and macroeconomic factors are increasing the demand for our FIA and IUL ~~products, for which demand is large and growing.~~products. Over 10,000 people will turn 65 each day in the United States over the next

15 years, and according to the U.S. Census Bureau, the proportion of the U.S. population over the age of 65 is expected to grow from 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 $5468 billion of sales in ~~2017.~~2018. 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.~~2018.

Competition

Please refer to ~~"Part I-Item~~section titled "Competition" in Part I Item 1. ~~Business-Competition"~~Business in our ~~2017~~2018 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 ~~for the quarters ended March 31, June 30 and September 30~~ were as follows:


	Annuity Sales				IUL Sales				Annuity Sales				IUL Sales
(dollars in millions)	2018		2017		2018		2017		2019		2018		2019		2018
First Quarter	$	778	$	732	$	6	$	14	$	1,053	$	778	$	8	$	6
Second Quarter	769		582		7		9		1,122		769		10		7
Third Quarter	842		588		7		6		797		842		9		7
Total	$	2,389	$	1,902	$	20	$	29	$	2,972	$	2,389	$	27	$	20

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 offset the statutory reserve impact of the index credits due to policyholders under the FIA contracts. The majority of all such call options are one-year options purchased to match the funding requirements underlying the FIA contracts. We

attempt to manage the cost of these purchases through the terms of our FIA contracts, which permit us to change

caps, spread, or participation rates, subject to certain guaranteed minimums that must be maintained. The call options and futures contracts are marked to fair value with the change in fair value included as a component of net investment gains (losses). The change in fair value of the call options and futures contracts includes the gains and losses recognized at the expiration of the instruments’ terms or upon early termination and the changes in fair value of open positions.

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. 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"),~~AUM, 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 maximize returns on our AUM and minimize risks such as interest rate changes and defaults or impairment of investments. 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~~average assets under management ("AAUM") pre- and post-DAC, DSI and VOBA as well as pre- and post-tax to measure our profitability in terms of growth and improved earnings.

Non-GAAP 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.

Adjusted Operating Income ("AOI") is a non-GAAP economic measure we use to evaluate financial performance each period. AOI is calculated by adjusting net income (loss) to ~~eliminate~~ eliminate:

(i) the impact of net investment gains/losses, including other than temporary impairment ("OTTI") losses recognized in operations, but excluding realized gains and losses on derivatives hedging our indexed annuity policies,

(ii) the ~~effect of~~impacts related to changes in the fair values of FIA related derivatives and embedded derivatives, net of hedging cost, and the fair value accounting impacts of assumed reinsurance by our international subsidiaries,

(iii) the tax effect of affiliated reinsurance embedded derivative,

(iv) the effect of change in fair value of the reinsurance related embedded derivative,

(v) the effect of integration, merger related & other non-operating items, ~~(v)~~

(vi) impact of extinguishment of debt, and ~~(vi)~~

(vii) 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.~~appropriate by tax jurisdiction. While these adjustments are an integral part of the overall performance of the Company, market conditions and/or the non-operating nature of these items can overshadow the underlying performance of the core business. Accordingly, ~~Management~~management considers this to be a useful measure internally and to investors and analysts in analyzing the trends of our operations.

Beginning with the quarter ended ~~March~~December 31, 2018, the Company updated its AOI definition to remove the ~~residual impacts~~incremental change due to the impact of the fair value accounting election for international subsidiaries. Management believes this revision will enhance the understanding of our business as the Company executes its growth strategy through international third party assumed business and is more relevant to investors as the impact of fair value accounting ~~on its FIA products, including gains and losses on derivatives hedging those policies. Management believes~~election can create an increases/decreases in the ~~revised measure enhances~~ assumed liabilities that does not match

the ~~understanding~~increase/decrease of the ~~business post-merger and is more useful and relevant to investors~~corresponding assets. This change will be applied on a prospective basis 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.Company executes its growth strategy through international third party assumed reinsurance.

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.~~intangibles amortization, as appropriate. Amounts attributable to the fair value accounting for derivatives hedging the FIA index credits and the related embedded derivative liability fluctuate from period to period based upon changes in the fair values of call options purchased to fund the annual index credits for FIAs, changes in the interest rates used to discount the embedded derivative liability, and the fair value assumptions reflected in the embedded derivative liability. The accounting standards for fair value measurement require the discount rates used in the calculation of the embedded derivative liability to be based on risk-free interest rates as of the reporting date. The impact of the change in fair values of FIA-related derivatives, embedded derivatives and hedging costs has been removed from net income in calculating AOI.

AAUM is a non-GAAP measure we use to assess the rate of return on assets available for reinvestment. AAUM is calculated as the sum of 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.

Critical Accounting Policies and Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the nine months ended September 30, ~~2018,~~2019, 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~~2018 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~~table sets forth the consolidated results of operations for the ~~three and nine months ended September 30, 2018 and the Predecessor three and nine months ended September 30, 2017:~~periods presented:


	Three months ended									Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor									Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
Revenues:
Premiums	$	12		$	16		$	(4	)	$	45		$	31		$	14		$	9		$	12		$	(3	)	$	33		$	45		$	(12	)
Net investment income	267			261			6			812			765			47			301			267			34			905			812			93
Net investment gains (losses)	119			117			2			(74		)	265			(339		)	103			119			(16		)	478			(74		)	552
Insurance and investment product fees and other	46			41			5			139			129			10			42			46			(4		)	134			139			(5		)
Total revenues	444			435			9			922			1,190			(268		)	455			444			11			1,550			922			628
Benefits and expenses:
Benefits and other changes in policy reserves	297			320			(23		)	475			823			(348		)	331			297			34			938			475			463
Acquisition and operating expenses, net of deferrals	40			36			4			126			109			17			48			40			8			239			126			113
Amortization of intangibles	28			(14		)	42			72			70			2			12			28			(16		)	54			72			(18		)
Total benefits and expenses	365			342			23			673			1,002			(329		)	391			365			26			1,231			673			558
Operating income	79			93			(14		)	249			188			61			64			79			(15		)	319			249			70
Interest expense	(8		)	(6		)	(2		)	(21		)	(18		)	(3		)	(8		)	(8		)	—			(24		)	(21		)	(3		)
Income (loss) before income taxes	71			87			(16		)	228			170			58			56			71			(15		)	295			228			67
Income tax expense	(15		)	(26		)	11			(67		)	(55		)	(12		)
Income tax (expense) benefit																			9			(15		)	24			(13		)	(67		)	54
Net income (loss)	$	56		$	61		$	(5	)	$	161		$	115		46			$	65		$	56		$	9		$	282		$	161		121
Less preferred stock dividend	7			—			7			21			—			21
Less Preferred stock dividend																			7			7			—			23			21			2
Net income (loss) available to common shareholders	$	49		$	61		$	(12	)	$	140		$	115		$	25		$	58		$	49		$	9		$	259		$	140		$	119

The following table summarizes sales by product type for the periods presented:


	Three months ended						Nine months ended
	September 30, 2018		September 30, 2017		Increase/ (Decrease)		September 30, 2018		September 30, 2017		Increase/ (Decrease)			Three months ended							Nine months ended
			Predecessor						Predecessor					September 30, 2019		September 30, 2018		Increase/ (Decrease)			September 30, 2019		September 30, 2018		Increase/ (Decrease)
Fixed index annuities ("FIA")	$	631	$	424	$	207	$	1,616	$	1,317	$	299		$	590	$	631	$	(41	)	$	2,025	$	1,616	$	409
Fixed rate annuities ("MYGA")	211		164		47		573		449		124			107		211		(104		)	650		573		77
Institutional spread based	—		—		—		200		136		64			100		—		100			297		200		97
Total annuity	$	842	$	588	$	254	$	2,389	$	1,902	$	487		$	797	$	842	$	(45	)	$	2,972	$	2,389	$	583

Index universal life ("IUL")	$	7	$	6	$	1	$	20	$	29	$	(9	)	$	9	$	7	$	2		$	27	$	20	$	7

Flow reinsurance														$	108	$	45	$	63		$	272	$	132	$	140

FIA and MYGA sales during the three months ended September 30, 2019 compared to 2018 reflect disciplined pricing to achieve profit and capital targets. FIA and MYGA sales during the nine months ended September 30, 2019 compared to 2018 reflect ~~continued strong and productive collaboration with our distribution partners, primarily Independent Marketing Organizations, as well as~~ the ~~overall~~Company’s growth ~~of the FIA market.~~strategy.

Institutional spread based products ~~in both nine month periods~~ reflect funding agreements with Federal Home Loan Bank, under an investment ~~strategy. We view this volume as~~strategy that is subject to fluctuation period to period.

The ~~decline~~increase in ~~IUL sales during~~flow reinsurance for the three and nine months ended September 30, 2019 compared to 2018 ~~reflects our focus on quality~~reflect F&G Re's assumed third party flow reinsurance which includes the on-boarding of F&G Re's new ~~business and pricing discipline to achieve profitability and capital targets.~~flow reinsurance partner effective January 1, 2019.

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. While the base contract has been reinsured, we continue to retain the return of premium rider. The traditional life insurance 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:


	Three months ended							Nine months ended
	September 30, 2018		September 30, 2017		Increase/ (Decrease)			September 30, 2018		September 30, 2017		Increase/ (Decrease)		Three months ended							Nine months ended
			Predecessor							Predecessor				September 30, 2019		September 30, 2018		Increase/ (Decrease)			September 30, 2019		September 30, 2018		Increase/ (Decrease)
Traditional life insurance	$	7	$	10	$	(3	)	$	23	$	17	$	6	$	5	$	7	$	(2	)	$	20	$	23	$	(3	)
Life-contingent immediate annuity	5		6		(1		)	22		14		8		4		5		(1		)	13		22		(9		)
Premiums	$	12	$	16	$	(4	)	$	45	$	31	$	14	$	9	$	12	$	(3	)	$	33	$	45	$	(12	)

Immediate annuity premiums for the three and nine months ended September 30, 2019 reflects a decrease as a result of policyholder behavior for annuitizations as well as FGL Insurance's reinsurance agreements with Kubera Insurance (SAC) Ltd. ("Kubera"), effective December 31, 2018 and June 30, 2019.

Net investment income

Below is a summary of net investment income ("NII") for the periods presented:


	Three months ended									Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor									Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
Fixed maturity securities, available-for-sale	$	249		$	247		$	2		$	739		$	725		$	14		$	264		$	249		$	15		$	796		$	739		$	57
Equity securities	15			10			5			51			31			20			16			15			1			56			51			5
Commercial mortgage loans, invested cash, short term investments, and other investments	25			9			16			70			26			44
Mortgage loans																			11			5			6			26			17			9
Invested cash and short-term investments																			4			6			(2		)	14			13			1
Funds withheld																			18			7			11			43			21			22
Limited partnerships																			16			5			11			45			14			31
Other investments																			3			2			1			10			5			5
Gross investment income	289			266			23			860			782			78			332			289			43			990			860			130
Investment expense	(22		)	(5		)	(17		)	(48		)	(17		)	(31		)	(31		)	(22		)	(9		)	(85		)	(48		)	(37		)
Net investment income	$	267		$	261		$	6		$	812		$	765		$	47		$	301		$	267		$	34		$	905		$	812		$	93

Our net investment spread and AAUM for the period is summarized as follows (annualized):


	Three months ended									Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor									Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
Yield on AAUM (at amortized cost)	4.13		%	5.02		%	(0.89		)%	4.26		%	4.98		%	(0.72		)%	4.32		%	4.13		%	0.19		%	4.46		%	4.26		%	0.20		%
Less: Interest credited and option cost	(2.42		)%	(2.58		)%	0.16		%	(2.37		)%	(2.52		)%	0.15		%	(2.27		)%	(2.42		)%	0.15		%	(2.30		)%	(2.37		)%	0.07		%
Net investment spread	1.71		%	2.44		%	(0.73		)%	1.89		%	2.46		%	(0.57		)%	2.05		%	1.71		%	0.34		%	2.16		%	1.89		%	0.27		%
AAUM	$	25,883		$	20,840		$	5,043		$	25,437		$	20,524		$	4,913		$	27,871		$	25,883		$	1,988		$	27,050		$	25,437		$	1,613

The ~~increases~~increase in AAUM ~~during the three and nine months ended~~from September 30, 2018 ~~were primarily influenced by~~to September 30, 2019 is the ~~$1.7~~result of $2.0 billion net new business asset flows ~~$1.2~~and an offshore $0.9 billion ~~increased mark-to-market valuation of the investment portfolio as of the date of the merger, and the inclusion of the $1.9~~assumed third-party block reinsurance transaction, partially offset by $0.9 billion ~~acquired AAUM in FSR Companies.~~reinsurance cession to Kubera.

The 2%13% increase in NII from the ~~Predecessor~~ three months ended September 30, ~~2017~~2018 to the three months ended September 30, ~~2018~~2019 was primarily due to ~~an increase in net investment income growth of $29~~$31 from portfolio reposition uplift, $20 from invested asset growth and ~~$11~~$4 from ~~the portfolio reposition lift. This increase was~~fewer CLO redemptions held at premium to par and other rate impacts, partially offset by ~~$17 of premium amortization resulting from the fair value mark on the investment portfolio at merger transaction close and $17 of~~$9 higher planned investment ~~fees under the new investment management agreement entered into upon merger close.~~expense and $14 lower floating rate income.

The 6%11% increase in NII from the ~~Predecessor~~ nine months ended September 30, ~~2017~~2018 to the nine months ended September 30, ~~2018~~2019 was primarily due to ~~an increase in AAUM (volume). The volume increase period over period resulted in net investment income~~$88 from portfolio reposition uplift, $52 from invested asset growth, ~~of $184. This increase was~~and $17 from other rate impacts, partially offset by ~~$138 driven by a decline in earned yields (rate) as the result of purchase accounting impacts.~~$37 higher planned investment expense, $18 lower floating rate income, and $9 lower bond prepayment income.

Net investment gains (losses)

Below is a summary of the major components included in net investment gains (losses) for the ~~three months ended September 30, 2018, the Predecessor three months ended September 30, 2017, the nine months ended September 30, 2018 and the Predecessor nine months ended September 30, 2017:~~periods presented:


	Three months ended									Nine months ended									Three months ended								Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2019		September 30, 2018			Increase/ (Decrease)			September 30, 2019		September 30, 2018			Increase/ (Decrease)
				Predecessor									Predecessor
Net realized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets	$	(40	)	$	7		$	(47	)	$	(132	)	$	(16	)	$	(116	)
Net realized and unrealized gains (losses) on hedging derivatives and reinsurance-related embedded derivatives	162			118			44			95			309			(214		)
Net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets																			$	38	$	(40	)	$	78		$	133	$	(132	)	$	265
Net realized and unrealized gains (losses) on certain derivatives instruments																			49		162			(113		)	283		95			188
Change in fair value of reinsurance related embedded derivatives	(3		)	(8		)	5			(37		)	(28		)	(9		)	16		(3		)	19			58		(37		)	95
Change in fair value of other derivatives and embedded derivatives																			—		—			—			4		—			4
Net investment gains (losses)	$	119		$	117		$	2		$	(74	)	$	265		$	(339	)	$	103	$	119		$	(16	)	$	478	$	(74	)	$	552

For the three months ended September 30, ~~2018,~~2019, net realized ~~losses~~and unrealized gains (losses) on available-for-sale securities, equity securities and other invested assets includes $21 in unrealized gains (losses) on equity securities, reflecting market movements during the period, $19 net realized gains on available-for-sale securities as part of ~~$40~~a planned portfolio repositioning strategy and $2 of credit related impairments. The three months ended September 30, 2018 includes ~~$24~~$(19) in unrealized losses on equity securities and $(24) of trading losses as part of a planned portfolio ~~re-positioning strategy following the completion of the merger and $19 change in the unrealized losses on equity securities reflecting the post adoption impact of ASU 2016-01.~~re-positioning.

For the nine months ended September 30, ~~2018,~~2019, net realized ~~losses~~and unrealized gains (losses) on available-for-sale securities, equity securities and other invested assets includes $132 in unrealized gains (losses) on equity securities, reflecting market movements during the period, $4 net realized gains on available-for-sale and equity securities as part of ~~$132~~a planned portfolio repositioning strategy and $7 of credit related impairments. The nine months ended September 30, 2018 includes ~~$80~~$(48) in unrealized losses on equity securities and $(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 nine months ended September 30, 2017, net realized losses on available-for-sale securities 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.re-positioning.

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 coinsurance agreement between FGL Insurance and FSRC. As part of the Business Combination, FSRC is now a subsidiary of the Company which eliminated the impact of this component of net investment gains (losses) for the three and nine months ended 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 (losses) on certain derivative instruments hedging our indexed annuity and universal life products are summarized in the table below for the periods presented:


	Three months ended									Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor									Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
Call Options:
Gains (losses) on option expiration	$	23		$	68		$	(45	)	$	14		$	212		$	(198	)	$	(23	)	$	23		$	(46	)	$	(64	)	$	14		$	(78	)
Change in unrealized gains (losses)	130			45			85			72			87			(15		)	66			130			(64		)	325			72			253
Futures contracts:
Gains (losses) on futures contracts expiration	4			2			2			9			6			3			7			4			3			17			8			9
Change in unrealized gains (losses)	5			3			2			—			4			(4		)	(4		)	4			(8		)	—			—			—
Foreign currency forward:
Gains (losses) on foreign currency forward																			3			1			2			5			1			4
Total net change in fair value	$	162		$	118		$	44		$	95		$	309		$	(214	)	$	49		$	162		$	(113	)	$	283		$	95		$	188

Change in S&P 500 Index during the period	9		%	5		%	4		%	7		%	13		%	(6		)%
Annual Point-to-Point Change in S&P 500 Index during the period																			1		%	9		%	(8		)%	2		%	7		%	(5		)%

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~~Index during each respective year relative to the S&P ~~index~~Index on the policyholder buy ~~dates~~dates.

Gains (losses) on option expiration reflect the movement during ~~each~~the three and nine months ended September 30, 2019 and 2018 on options settled during the respective ~~year.~~period.

The net change in fair value of ~~certain derivative instruments~~the call options and futures contracts for the three and nine months ended September 30, 2019 and 2018 ~~and the Predecessor three and nine months ended September 30, 2017 were~~was primarily driven by movements in the S&P 500 Index relative to the policyholder buy ~~dates during each respective year.~~dates.

The average index credits to policyholders are as follows for the periods presented:


	Three months ended						Nine months ended
	September 30, 2018		September 30, 2017		Increase/ (Decrease)		September 30, 2018		September 30, 2017		Increase/ (Decrease)		Three months ended						Nine months ended
			Predecessor						Predecessor				September 30, 2019		September 30, 2018		Increase/ (Decrease)		September 30, 2019		September 30, 2018		Increase/ (Decrease)
Average Crediting Rate	4	%	—	%	4	%	4	%	5	%	(1	)%	2	%	4	%	(2	)%	1	%	4	%	(3	)%
S&P 500 Index:
Point-to-point strategy	4	%	4	%	—	%	4	%	4	%	—	%	3	%	4	%	(1	)%	3	%	4	%	(1	)%
Monthly average strategy	4	%	4	%	—	%	4	%	4	%	—	%	2	%	4	%	(2	)%	1	%	4	%	(3	)%
Monthly point-to-point strategy	4	%	7	%	(3	)%	5	%	6	%	(1	)%	—	%	4	%	(4	)%	—	%	5	%	(5	)%
3 year high water mark	22	%	15	%	7	%	14	%	13	%	1	%	20	%	22	%	(2	)%	19	%	14	%	5	%

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 three and nine months ended September 30, ~~2018~~2019 and ~~the Predecessor three months ended September 30, 2017~~2018 were based on comparing the S&P 500 Index on each issue date in these respective periods to the same issue date in the respective prior year periods. ~~Index performance resulted in comparable crediting rates~~Due to volatility in the ~~periods disclosed above.~~S&P 500 Index, policyholders with anniversaries during the three and nine months ended September 30, 2019, on average, received less credits as compared to the three and nine months ended September 30, 2018.

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 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
Surrender charges $ 9
$ 9
$ —
$ 35
$ 27
$ 8
Cost of insurance fees and other income 37
32
5
104
102
2
Total insurance and investment product fees and other $ 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).

~~Guaranteed minimum withdrawal benefit ("GMWB") rider~~ Below is a summary of the major components included in Insurance and investment product fees ~~were $19~~ and ~~$15~~other for the ~~three months ended September 30,~~periods presented:



	Three months ended							Nine months ended
	September 30, 2019		September 30, 2018		Increase/ (Decrease)			September 30, 2019		September 30, 2018		Increase/ (Decrease)
Surrender charges	$	7	$	9	$	(2	)	$	23	$	35	$	(12	)
Cost of insurance fees and other income	35		37		(2		)	111		104		7
Total insurance and investment product fees and other	$	42	$	46	$	(4	)	$	134	$	139	$	(5	)

Cost of insurance fees and other income changed year over year primarily due to the amortization of the deferred reinsurance gain established at the inception of FGL Insurance's reinsurance agreement with Kubera, effective December 31, 2018, and the ~~Predecessor three months ended September 30, 2017, respectively. Guaranteed minimum withdrawal benefit ("GMWB") rider fees~~amortization of unearned revenue liability.

Surrender charges were ~~$61 and $45 for~~higher in the ~~nine months ended September 30, 2018 and the Predecessor nine months ended September 30, 2017, respectively. This increase in fees is~~prior year periods, primarily due to a ~~result~~higher number of ~~growth in benefit base, which is partially offset by a corresponding increase in income rider reserves (included in Benefits and other changes in~~universal life policy ~~reserves). GMWB rider fees are based on the policyholder's benefit base and are collected at the end of the policy year.~~

surrenders.

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 periods presented:


	Three months ended								Nine months ended								Three months ended									Nine months ended
	September 30, 2018			September 30, 2017		Increase/ (Decrease)			September 30, 2018			September 30, 2017		Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
				Predecessor								Predecessor
FIA FAS 133 impact	64			91		(27		)	(202		)	142		(344		)
FIA embedded derivative impact																	144			64			80			446			(202		)	648
Index credits, interest credited & bonuses	183			174		9			560			537		23			114			183			(69		)	328			560			(232		)
Annuity payments	37			37		—			113			112		1			35			37			(2		)	104			113			(9		)
Change in fair value of reserve liabilities held at fair value																	98			(53		)	151			77			(44		)	121
Other policy benefits and reserve movements	66			18		48			48			32		16			(60		)	66			(126		)	(17		)	48			(65		)
Change in fair value of reserve liabilities held at fair value	(53		)	—		(53		)	(44		)	—		(44		)
Total benefits and other changes in policy reserves	$	297		$	320	$	(23	)	$	475		$	823	$	(348	)	$	331		$	297		$	34		$	938		$	475		$	463

~~FIA FAS 133 Impact~~ - The FIA market value option liability ~~decreased~~increased quarter over quarter, ~~and year over year,~~ driven by the changes in the equity markets and risk free rates during the current ~~quarter.~~quarter, and premium growth arising from quarterly sales. The ~~rise~~movements in risk free rates ~~reduced~~increased the ~~FAS 133 reserves~~FIA embedded derivative liability by approximately ~~$11~~$115 during the three months ended September 30, ~~2018~~2019 as compared to ~~an increase~~a decrease of ~~$12~~$54 for the corresponding period in ~~2017,~~2018, with the remaining impacts from changes in the equity markets. The ~~rise~~increase in the FIA embedded derivative liability was primarily driven by the movements in risk free rates ~~reduced the FAS 133 reserves~~ by approximately ~~$135~~$264 during the nine months ended September 30, ~~2018~~2019 as compared to ~~$167~~a decrease of $178 for the corresponding period in ~~2017, with~~2018, as well as equity market movements of $176 during the ~~remaining impacts from changes~~nine months ended September 30, 2019 as compared to $34 for the corresponding period in ~~the equity markets.~~2018. 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.

Annually, the Company reviews assumptions associated with reserves for policy benefits and product guarantees. In September 2019, this resulted in a $12 net decrease in reserves as compared to a $5 decrease in reserves in September 2018.

The quarter over quarter ~~and year over year increases~~decreases in index credits, interest credited & bonuses were primarily due to ~~higher~~lower index credits on FIA policies, reflecting ~~increased sales volume for FIA products.~~market movement during the respective periods.

The change in the fair value of reserve liabilities held at fair value ~~represents FSRC's third-party business. The decrease~~increased for the three and nine months ended September 30, ~~2018 is~~2019 primarily due to benefit payments on FSRC and F&G Re's assumed third-party business. For the ~~recapture~~nine months ended September 30, 2019, the change also includes the impact of ~~two treaties effective July 1, 2018.~~the ceding commissions on a closed block reinsurance transaction executed during the second quarter of 2019 for F&G Re.

Acquisition and operating expenses, net of deferrals

Below is a summary of acquisition and operating expenses, net of deferrals for the periods presented:


	Three months ended									Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor									Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
General expenses	$	31		$	30		$	1		$	103		$	95		$	8		$	26		$	31		$	(5	)	$	101		$	103		$	(2	)
Acquisition expenses	94			65			29			242			218			24			97			94			3			407			242			165
Deferred acquisition costs	(85		)	(59		)	(26		)	(219		)	(204		)	(15		)	(75		)	(85		)	10			(269		)	(219		)	(50		)
Total acquisition and operating expenses, net of deferrals	$	40		$	36		$	4		$	126		$	109		$	17		$	48		$	40		$	8		$	239		$	126		$	113

The increase in acquisition and operating expenses, net of deferrals, during the three months ended September 30, 2019 compared to the prior year ~~over year reflects an~~three months ended September 30, 2018 is primarily due to F&G Re ceding commissions on flow reinsurance, partially offset by a decrease in the preferred equity remarketing reimbursement embedded derivative liability.

The increase in ~~general~~acquisition and operating expenses, ~~primarily related~~net of deferrals, during the nine months ended September 30, 2019 compared to ~~planned employee headcount growth and higher professional fees related to post-merger year-end audit and project related costs. Gross acquisition expenses increased $24 quarter over quarter~~the prior year nine months ended September 30, 2018 is primarily due to ~~higher commissions.~~the F&G Re closed block reinsurance transaction initial ceding commission and ceding commissions on flow reinsurance, partially offset by a decrease in the preferred equity remarketing reimbursement embedded derivative liability.

Amortization of intangibles

Below is a summary of the major components included in amortization of intangibles for the periods presented:


	Three months ended								Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)		September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor								Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
Amortization	$	30		$	28		$	2	$	86		$	144		$	(58	)	$	24		$	30		$	(6	)	$	81		$	86		$	(5	)
Interest	(7		)	(15		)	8		(18		)	(44		)	26			(10		)	(7		)	(3		)	(26		)	(18		)	(8		)
Unlocking	5			(27		)	32		4			(30		)	34			(2		)	5			(7		)	(1		)	4			(5		)
Total amortization of intangibles	$	28		$	(14	)	$	42	$	72		$	70		$	2		$	12		$	28		$	(16	)	$	54		$	72		$	(18	)

Amortization of intangibles is based on historical, current and future expected gross margins (pre-tax operating income before amortization). The change in amortization quarter over quarter and year over year ~~increases in total net amortization were primarily due to higher~~is the result of actual gross profits ("AGPs") in each period. Annually the Company reviews assumptions, associated with the amortization of intangibles. In September 2019, this resulted in a decrease in future expected margins and an increase of $3 amortization expense reported as a component of “unlocking”. In September 2018, this assumption review process resulted in an increase in future expected margins and a corresponding decrease of $2 amortization expense.

Other items affecting net income

Interest expense

Below is a summary of the interest expense on our debt and revolving credit facility and amortization of debt issuance costs for the ~~lines of business with VOBA. AGPs were driven primarily by lower change in reserves in the~~periods presented:



	Three months ended						Nine months ended
	September 30, 2019		September 30, 2018		Increase/ (Decrease)		September 30, 2019		September 30, 2018			Increase/ (Decrease)
Debt	$	8	$	8	$	—	$	24	$	21		$	3
Revolving credit facility	—		—		—		—		2			(2		)
Gain on extinguishment of debt	—		—		—		—		(2		)	2
Total interest expense	$	8	$	8	$	—	$	24	$	21		$	3

The three and nine months ended September 30, ~~2018 compared to the three and nine months ended September 30, 2017.~~

~~Other items affecting net income~~

~~Interest expense~~

~~The~~2019 reflects consistent debt interest expense ~~and amortization of debt issuance costs of~~incurred on the ~~Company's debt for the 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
Debt $ 8
$ 5
$ 3
$ 21
$ 14
$ 7
Revolving credit facility —
1
(1 ) 2
4
(2 )
Gain on extinguishment of debt —
—
—
(2 ) —
(2 )
Total interest expense $ 8
$ 6
$ 2
$ 21
$ 18
$ 5

$550 5.50% Senior Notes. 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~~September 30, 2018 period reflects a $2 gain on extinguishment of the ~~interest expense incurred~~$300 debt.

On September 3, 2019, the Company drew $15 on the ~~5.50% senior notes due 2025.~~revolving credit facility (the "revolver"). On October 3, 2019, the Company drew an additional $12 on the revolver and the $27 drawn on the revolver was repaid in full on October 17, 2019.

Income tax expense (benefit)

Below is a summary of the major components included in ~~Income~~income tax expense for the periods presented:


	Three months ended									Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor									Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
Income before taxes	$	71		$	87		$	(16	)	$	228		$	170		$	58		$	56		$	71		$	(15	)	$	295		$	228		$	67

Income tax before valuation allowance	12			27			(15		)	56			56			—			10			12			(2		)	55			56			(1		)
Change in valuation allowance	3			(1		)	4			11			(1		)	12			(19		)	3			(22		)	(42		)	11			(53		)
Income tax	$	15		$	26		$	(11	)	$	67		$	55		$	12
Income tax expense (benefit)																			$	(9	)	$	15		$	(24	)	$	13		$	67		$	(54	)
Effective rate	21		%	30		%	(9		)%	29		%	32		%	(3		)%	(16		)%	21		%	(37		)%	4		%	29		%	(25		)%

Income tax benefit for the three months ended September 30, 2019 was $9, net of a valuation allowance release of $19, compared to income tax expense of $15 for the three months ended September 30, 2018, ~~was $15,~~ inclusive of a valuation allowance expense of ~~$3, compared to income tax expense of $26 for the Predecessor three months ended September 30, 2017, net of a valuation allowance release of $(1).~~$3. The decrease in income tax expense of ~~$11~~$24 quarter over quarter ~~was~~is 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~~a valuation allowance ~~expense~~release of ~~$3 in~~$19 for the ~~2018 quarter.~~three months ended September 30, 2019, inclusive of an $18 valuation allowance release on FSRC for all of its deferred tax assets as of September 30, 2019, with the exception of its capital deferred tax assets. For further details on the FSRC valuation allowance release, refer to "Note 11. Income Taxes".

Income tax expense for the nine months ended September 30, ~~2018~~2019 was $13, net of a valuation allowance release of $42, compared to income tax expense of $67 for the nine months ended September 30, 2018, inclusive of a valuation allowance expense of ~~$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).~~$11. The ~~increase~~decrease in income tax expense of ~~$12~~$54 period over period was primarily due to ~~an expense of $15 to establish an opening tax balance sheet as a result~~the valuation allowance release on the partial recovery of the ~~intended election by~~unrealized loss position for the U.S. life companies, the valuation allowance release on FSRC for all of its deferred tax assets with the exception of its capital deferred tax assets, as well as higher income in tax jurisdictions that do not impose an income tax for the nine months ended September 30, 2019. For the nine months ended September 30, 2018 there was a $15 expense related to F&G Life ReRe. For further details, refer to ~~be treated as a US taxpayer, higher 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.~~"Note 11. Income Taxes".

AOI

The table below shows the adjustments made to reconcile net income to ~~our~~ AOI for the periods presented:


	Three months ended									Nine months ended
	September 30, 2018			September 30, 2017			Increase/ (Decrease)			September 30, 2018			September 30, 2017			Increase/ (Decrease)			Three months ended									Nine months ended
				Predecessor									Predecessor						September 30, 2019			September 30, 2018			Increase/ (Decrease)			September 30, 2019			September 30, 2018			Increase/ (Decrease)
Net income (loss)	$	56		$	61		$	(5	)	$	161		$	115		$	46		$	65		$	56		$	9		$	282		$	161		$	121
Adjustments to arrive at AOI:
Effect of investment losses (gains), net of offsets (a)	38			(5		)	43			114			14			100			(44		)	38			(82		)	(136		)	114			(250		)
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)	—			5			(5		)	—			21			(21		)
Impacts related to changes in the fair values of FIA related derivatives and embedded derivatives, net of hedging cost, and the fair value accounting impacts of assumed reinsurance by our international subsidiaries (a) (b)																			63			(30		)	93			115			(102		)	217
Effect of change in fair value of reinsurance related embedded derivative, net of offsets (a)																			18			—			18			27			—			27
Effects of integration, merger related & other non-operating items	4			2			2			15			9			6			(6		)	4			(10		)	(12		)	15			(27		)
Effects of extinguishment of debt	—			—			—			(2		)	—			(2		)	—			—			—			—			(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
Net impact of Tax Cuts and Jobs Act (c)																			—			3			(3		)	—			3			(3		)
Tax impact of adjusting items	(2		)	(1		)	(1		)	(2		)	(11		)	9			(10		)	(2		)	(8		)	(27		)	(2		)	(25		)
AOI	$	69		$	65		$	4		$	202		$	145		$	57		$	86		$	69		$	17		$	249		$	202		$	47

(a) Amounts are net of offsets related to value of business acquired ("VOBA"), deferred acquisition cost ("DAC"), deferred sale inducement ("DSI"), ~~and~~ unearned revenue ("UREV") amortization and cost of reinsurance, as applicable.

(b) The updated definition of AOI removes the ~~impact of~~ fair value ~~accounting on FIA products~~impacts of assumed reinsurance by our international subsidiaries for periods after ~~December 31, 2017.~~September 30, 2018.

(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" of the Company’s Form 10-K for additional information.

AOI increased ~~$4 from $65 in the Predecessor three months ended September 30, 2017 to $69~~ for the three months ended September 30, ~~2018. The~~2019 primarily as the result of a $34 increase in net investment income. Additionally, the current quarter results included $(2) net unfavorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line, offset by $15 tax benefit due to the release of the FSRC valuation allowance and other, and a $7 net favorable adjustments resulting from the annual assumption review. Comparatively, the three months ended September 30, 2018 AOI included $5 net favorable actual to expected mortality within the SPIA product line and other annuity reserve movements and $5 net favorable adjustments resulting from the annual assumptions review.

AOI increased for the nine months ended September 30, 2019 primarily as the result of a $93 increase in net investment income. Additionally, the current period results included $15 net favorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line, and ~~$5 favorable adjustments for lower amortization~~$24 tax benefit due to the release of ~~DAC~~the FSRC valuation allowance and ~~VOBA from annual unlocking assumptions. Comparatively, the Predecessor three months ended September 30, 2017 AOI included approximately $21 of~~other, and a $7 net favorable adjustments ~~for lower DAC amortization~~resulting from ~~unlocking,~~the annual assumption review, ~~and equity market fluctuations, $2 favorable adjustment due to a lower effective tax rate,~~partially 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~~$13 net project costs. Comparatively, the nine months ended September 30, ~~2018. The current quarter results~~2018 AOI included $18 net favorable actual to expected mortality within the single premium immediate annuity ("SPIA") product line and other annuity reserve movements, $4 favorable net investment income from bond prepayment income, 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 nine 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, $3 of net favorable actual to expected mortality within the SPIA product line and other annuity reserve movements, $5 favorable adjustments resulting from the annual assumptions review, and $4 net bond prepay income and other, partially offset by ~~$2 of expenses related to the Company's legacy incentive compensation plan.~~

$3 project costs.

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 September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the fair value of our investment portfolio was approximately ~~$24~~$27 billion and $24 billion, respectively, and was divided among the following asset class and sectors:


		September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
		Fair Value		Percent		Fair Value		Percent		Fair Value		Percent		Fair Value		Percent

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	$	139	1	%	$	84	1	%	$	38	—	%	$	119	—	%
United States Government sponsored entities	United States Government sponsored entities	108		—	%	122		1	%	139		—	%	106		—	%
United States municipalities, states and territories	United States municipalities, states and territories	1,381		6	%	1,747		7	%	1,334		5	%	1,187		5	%
Foreign Governments	Foreign Governments	160		1	%	197		1	%	155		1	%	121		1	%
Corporate securities:	Corporate securities:
Finance, insurance and real estate	Finance, insurance and real estate	4,524		19	%	5,500		23	%	4,373		16	%	4,113		17	%
Manufacturing, construction and mining	Manufacturing, construction and mining	616		3	%	1,002		4	%	750		3	%	574		2	%
Utilities, energy and related sectors	Utilities, energy and related sectors	2,545		10	%	2,281		10	%	2,538		9	%	2,281		10	%
Wholesale/retail trade	Wholesale/retail trade	1,503		6	%	1,428		6	%	1,638		6	%	1,376		6	%
Services, media and other	Services, media and other	2,446		10	%	2,359		10	%	2,576		9	%	2,037		9	%
Hybrid securities	Hybrid securities	951		4	%	1,067		4	%	1,067		4	%	901		4	%
Non-agency residential mortgage-backed securities	Non-agency residential mortgage-backed securities	1,572		6	%	1,155		5	%	864		3	%	925		4	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,794		7	%	956		4	%	3,040		11	%	2,537		10	%
Asset-backed securities	Asset-backed securities	3,682		15	%	3,065		13	%	5,395		20	%	4,832		20	%
Total fixed maturity available for sale securities	Total fixed maturity available for sale securities	21,421		88	%	20,963		89	%	23,907		87	%	21,109		88	%
Equity securities (a)	Equity securities (a)	1,440		6	%	1,388		6	%	1,097		4	%	1,382		6	%
Commercial mortgage loans	Commercial mortgage loans	488		2	%	549		2	%	460		2	%	483		2	%
Other (primarily derivatives, limited partnerships and FHLB common stock)		1,034		4	%	678		3	%
Short term investments		15		—	%	25		—	%
Residential mortgage loans										397		1	%	187		1	%
Other (primarily derivatives and limited partnerships)										1,522		6	%	748		3	%
Total investments	Total investments	$	24,398	100	%	$	23,603	100	%	$	27,383	100	%	$	23,909	100	%

(a) Includes investment grade non-redeemable preferred stocks ($~~1,273~~913 and ~~$1,194,~~$1,208, respectively) and Federal Home Loan Bank of Atlanta common stock ( $42 December 31, 2017). Federal Home Loan Bank of Atlanta common stock was reclassed on January 1, 2018 from "Equity securities" to "Other invested assets".

Insurance statutes regulate the type of investments that our life insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and our business and investment strategy, we generally seek to invest in (i) corporate securities rated investment grade by established nationally recognized statistical rating organizations (each, an “NRSRO”), (ii) U.S. Government and government-sponsored agency securities, or (iii) securities of comparable investment quality, if not rated.

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, our fixed maturity available-for-sale ("AFS") securities portfolio was approximately ~~$21~~$24 billion and $21 billion, respectively. The following table summarizes the credit quality, by Nationally Recognized Statistical Ratings Organization ("NRSRO") rating, of our fixed income portfolio:


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
Rating	Fair Value		Percent		Fair Value		Percent		Fair Value		Percent		Fair Value		Percent
AAA	$	2,711	13	%	$	1,784	8	%	$	585	2	%	$	627	3	%
AA	1,454		7	%	2,036		10	%	1,556		7	%	1,415		7	%
A	5,159		24	%	5,834		28	%	6,579		28	%	5,354		25	%
BBB	9,829		46	%	9,256		44	%	9,170		38	%	8,328		39	%
Not rated (c)									4,153		17	%	3,612		17	%
Total investment grade									22,043		92	%	19,336		91	%
BB (a)	1,326		6	%	975		5	%	1,316		6	%	1,307		6	%
B and below (b)	942		4	%	1,078		5	%	434		2	%	351		2	%
Not rated (c)									114		—	%	115		1	%
Total below investment grade									1,864		8	%	1,773		9	%
Total	$	21,421	100	%	$	20,963	100	%	$	23,907	100	%	$	21,109	100	%

(a) Includes ~~$52~~$14 and ~~$47~~$17 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, of non-agency residential mortgage-backed securities ("RMBS") that carry a National Association of Insurance Commissioners ("NAIC") 1 designation.

(b) Includes ~~$749~~$148 and ~~$853~~$175 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, of non-agency RMBS that carry a NAIC 1 designation.

(c) Securities denoted as not-rated by an NRSRO were classified as investment or non-investment grade according to the securities' respective NAIC 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~~number 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 September 30, ~~2018~~2019 and December 31, ~~2017:~~2018:


	September 30, 2018						September 30, 2019
NAIC Designation	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
1	$	11,215	$	10,915	51	%	$	12,317	$	12,919	54	%
2	9,415		9,031		42	%	9,238		9,527		40	%
3	1,306		1,270		6	%	1,135		1,118		5	%
4	169		167		1	%	279		269		1	%
5	33		33		—	%	76		72		—	%
6	5		5		—	%	2		2		—	%
Total	$	22,143	$	21,421	100	%	$	23,047	$	23,907	100	%

	December 31, 2017						December 31, 2018
NAIC Designation	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
1	$	11,046	$	11,109	53	%	$	11,245	$	10,928	52	%
2	8,563		8,619		41	%	9,677		9,003		43	%
3	1,036		1,037		5	%	1,064		967		4	%
4	136		136		1	%	155		139		1	%
5	65		61		—	%	71		65		—	%
6	1		1		—	%	7		7		—	%
Total	$	20,847	$	20,963	100	%	$	22,219	$	21,109	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 September 30, ~~2018~~2019 and December 31, ~~2017:~~2018:


	September 30, 2018				September 30, 2019
Top 10 Industry Concentration	Fair Value		Percent of Total Fair Value		Fair Value		Percent of Total Fair Value
Banking	$	2,642	12	%
ABS collateralized loan obligation ("CLO")	2,259		10	%	$	3,658	15	%
Whole loan collateralized mortgage obligation ("CMO")	1,989		9	%	2,596		10	%
Banking					2,419		10	%
ABS Other					1,697		7	%
Life insurance	1,500		7	%	1,683		7	%
Municipal	1,497		7	%	1,334		5	%
ABS Other	1,417		6	%
Electric	990		4	%	1,260		5	%
CMBS					919		4	%
Pipelines	951		4	%	702		3	%
CMBS	946		4	%
Technology	727		3	%	677		3	%
Total	$	14,918	65	%	$	16,945	69	%


	December 31, 2017				December 31, 2018
Top 10 Industry Concentration	Fair Value		Percent of Total Fair Value		Fair Value		Percent of Total Fair Value
ABS collateralized loan obligation ("CLO")					$	3,283	15	%
Banking	$	2,851	13	%	2,491		11	%
ABS CLO	2,078		9	%
Whole loan collateralized mortgage obligation ("CMO")					2,234		10	%
ABS Other					1,545		7	%
Life insurance					1,376		6	%
Municipal	1,977		9	%	1,187		5	%
Life insurance	1,514		7	%
Electric	1,097		5	%	939		4	%
CMBS					874		4	%
Pipelines					812		4	%
Property and casualty insurance	1,006		5	%	542		2	%
ABS Other	980		4	%
Whole loan CMO	834		4	%
CMBS	791		3	%
Other financial institutions	781		3	%
Total	$	13,909	62	%	$	15,283	68	%

The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Corporate, Non-structured Hybrids, Municipal and Government securities:
Due in one year or less	$	242	$	241	$	268	$	268	$	112	$	112	$	191	$	191
Due after one year through five years	1,055		1,039		2,087		2,086		864		869		817		794
Due after five years through ten years	2,462		2,384		3,127		3,126		2,007		2,053		2,219		2,137
Due after ten years	11,195		10,601		10,069		10,185		10,810		11,435		10,443		9,587
Subtotal	$	14,954	$	14,265	$	15,551	$	15,665	$	13,793	$	14,469	$	13,670	$	12,709
Other securities which provide for periodic payments:
Asset-backed securities	$	3,705	$	3,682	$	3,061	$	3,065	$	5,433	$	5,395	$	4,954	$	4,832
Commercial-mortgage-backed securities	1,808		1,794		956		956		2,857		3,040		2,568		2,537
Residential mortgage-backed securities	1,676		1,680		1,279		1,277		964		1,003		1,027		1,031
Subtotal	$	7,189	$	7,156	$	5,296	$	5,298	$	9,254	$	9,438	$	8,549	$	8,400
Total fixed maturity available-for-sale securities	$	22,143	$	21,421	$	20,847	$	20,963	$	23,047	$	23,907	$	22,219	$	21,109

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 ~~$228~~$90 and ~~$622~~$151 as of September 30, ~~2018,~~2019, respectively, and ~~$267~~$104 and ~~$689~~$163 as of December 31, ~~2017,~~2018, 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 September 30, ~~2018~~2019 and December 31, ~~2017:~~2018:


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
NAIC Designation:	Fair Value		Percent of Total		Fair Value		Percent of Total		Fair Value		Percent of Total		Fair Value		Percent of Total
1	$	827	98	%	$	929	96	%	$	218	91	%	$	245	92	%
2	19		2	%	17		2	%	16		7	%	18		7	%
3	3		—	%	5		1	%	6		2	%	—		—	%
4	—		—	%	—		—	%	1		—	%	4		1	%
5	1		—	%	5		1	%	—		—	%	—		—	%
6	—		—	%	—		—	%	—		—	%	—		—	%
Total	$	850	100	%	$	956	100	%	$	241	100	%	$	267	100	%

NRSRO:
AAA	$	27	3	%	$	43	4	%	$	1	—	%	$	1	—	%
AA	16		2	%	11		1	%	7		3	%	11		4	%
A	50		6	%	36		4	%	23		10	%	25		9	%
BBB	38		4	%	67		7	%	7		3	%	8		3	%
Not rated - Above investment grade (a)									50		21	%	46		17	%
BB and below	719		85	%	799		84	%	153		63	%	176		66	%
Total	$	850	100	%	$	956	100	%	$	241	100	%	$	267	100	%

Vintage:
2017	$	12	1	%	$	12	1	%	$	13	6	%	$	12	4	%
2016	15		2	%	15		2	%	15		6	%	15		6	%
2007	178		21	%	199		21	%	46		19	%	51		19	%
2006	312		37	%	346		36	%	58		24	%	63		24	%
2005 and prior	333		39	%	384		40	%	109		45	%	126		47	%
Total	$	850	100	%	$	956	100	%	$	241	100	%	$	267	100	%

(a) Securities denoted as not-rated by an NRSRO were classified as investment or non-investment grade according to the securities' respective NAIC designation.

ABS Exposure

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, our ABS exposure was largely composed of CLOs, which comprised ~~61%~~68% 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.

As of September 30, ~~2018,~~2019, the non-CLO exposure represents ~~39%~~32% of total ABS assets, or 6% of total invested assets and the CLO and non-CLO positions were trading at a net unrealized ~~loss~~gain (loss) position of ~~$13~~$(85) and ~~$10,~~$47, respectively. As of December 31, ~~2017,~~2018, the non-CLO exposure represented 32% of total ABS assets, or 4%6% of total invested assets and the CLO and non-CLO positions were trading at a net unrealized gain (loss) position of $4$(128) and ~~$0,~~$6, respectively.

The following ~~tables~~table summarize our ABS exposure.


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
Asset Class	Fair Value		Percent		Fair Value		Percent		Fair Value		Percent		Fair Value		Percent
ABS CLO	$	2,259	61	%	$	2,078	68	%	$	3,658	68	%	$	3,283	68	%
ABS auto	3		—	%	4		—	%	37		1	%	1		—	%
ABS credit card	3		—	%	3		—	%	3		—	%	3		—	%
ABS other	1,417		39	%	980		32	%	1,697		31	%	1,545		32	%
Total ABS	$	3,682	100	%	$	3,065	100	%	$	5,395	100	%	$	4,832	100	%

~~Commercial~~ Mortgage Loans

We rate all ~~CMLs~~commercial mortgage loans ("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 unaudited 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. As of September 30, 2019, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.2 times, and a weighted average LTV ratio of 46%. See "Note 4. Investments" to our unaudited condensed consolidated financial statements for additional information regarding our LTV and DSC ratios.

~~As of September 30, 2018, our~~The Company's residential mortgage loans ~~on real estate~~(“RML”) are closed end, amortizing loans and 100% of the properties are located in the United States. The Company diversifies its RML portfolio ~~had~~by state to attempt to reduce concentration risk. Residential mortgage loans have a ~~weighted average DSC ratio~~primary credit quality indicator of ~~2.3 times, and~~either a ~~weighted average LTV ratio of 49%.~~performing or nonperforming loan. The Company defines non-performing residential mortgage loans as those that are 90 or more days past due and/or in nonaccrual status which is assessed monthly.

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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:


	September 30, 2018								September 30, 2019
	Number of securities	Amortized Cost		Unrealized Losses			Fair Value		Number of securities	Amortized Cost		Unrealized Losses			Fair Value
Fixed maturity securities, available for sale:
United States Government full faith and credit	15	$	141	$	(2	)	$	139	3	$	10	$	—		$	10
United States Government sponsored agencies	75	93		(2		)	91		33	41		—			41
United States municipalities, states and territories	143	1,408		(52		)	1,356		14	82		(4		)	78
Foreign Governments	16	149		(6		)	143		—	—		—			—
Corporate securities:
Finance, insurance and real estate	330	4,402		(216		)	4,186		51	487		(18		)	469
Manufacturing, construction and mining	93	655		(39		)	616		28	174		(5		)	169
Utilities, energy and related sectors	233	2,490		(130		)	2,360		54	526		(33		)	493
Wholesale/retail trade	207	1,589		(104		)	1,485		62	580		(25		)	555
Services, media and other	269	2,428		(119		)	2,309		38	255		(9		)	246
Hybrid securities	54	832		(36		)	796		18	191		(7		)	184
Non-agency residential mortgage backed securities	133	815		(8		)	807		51	114		(3		)	111
Commercial mortgage backed securities	145	1,233		(25		)	1,208		29	145		(2		)	143
Asset backed securities	336	2,891		(28		)	2,863		396	3,284		(94		)	3,190
Total fixed maturity available for sale securities	2,049	19,126		(767		)	18,359		777	5,889		(200		)	5,689
Equity securities	87	1,352		(52		)	1,300		46	701		(22		)	679
Total	2,136	$	20,478	$	(819	)	$	19,659
Total investments									823	$	6,590	$	(222	)	$	6,368


	December 31, 2017									December 31, 2018
	Number of securities		Amortized Cost		Unrealized Losses			Fair Value		Number of securities	Amortized Cost		Unrealized Losses			Fair Value
Fixed maturity securities, available for sale:
United States Government full faith and credit	9		$	74	$	—		$	74	15	$	120	$	(1	)	$	119
United States Government sponsored agencies	54		58		(1		)	57		72	88		(2		)	86
United States municipalities, states and territories	46		286		(1		)	285		103	1,054		(32		)	1,022
Foreign Governments	9		141		(1		)	140		16	123		(8		)	115
Corporate securities:
Finance, insurance and real estate	183		1,914		(5		)	1,909		300	3,721		(230		)	3,491
Manufacturing, construction and mining	50		290		(2		)	288		86	613		(57		)	556
Utilities, energy and related sectors	70		506		(6		)	500		237	2,347		(222		)	2,125
Wholesale/retail trade	115		610		(2		)	608		211	1,469		(144		)	1,325
Services, media and other	98		513		(4		)	509		266	2,179		(195		)	1,984
Hybrid securities	27		269		(3		)	266		67	956		(91		)	865
Non-agency residential mortgage backed securities	205		884		(2		)	882		110	249		(6		)	243
Commercial mortgage backed securities	64		479		(1		)	478		205	1,768		(40		)	1,728
Asset backed securities	236		1,947		(3		)	1,944		419	3,704		(137		)	3,567
Total fixed maturity available for sale securities	1,166		7,971		(31		)	7,940		2,107	18,391		(1,165		)	17,226
Equity securities	58		805		(7		)	798		95	1,523		(145		)	1,378
Total	$	1,224	$	8,776	$	(38	)	$	8,738
Total investments										2,202	$	19,914	$	(1,310	)	$	18,604

The gross unrealized loss position on the available-for-sale fixed and equity portfolio ~~increased $781 from~~was $222 and $1,310 as of September 30, 2019 and December 31, ~~2017 to September 30, 2018.~~2018, respectively. Most components of the portfolio exhibited price ~~declines~~appreciation as interest rates ~~rose~~ and credit spreads ~~widened~~tightened during the period. The total book value of all securities in an unrealized loss position was ~~$20,478~~$6,590 and ~~$8,776~~$19,914 as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The total book value of all securities in an unrealized loss position ~~increased 133%~~decreased 67% from December 31, ~~2017~~2018 to September 30,

~~2018.~~ 2019. The average market value/book value of ~~corporate bonds in an~~ the investment category with the largest

unrealized loss position was ~~95%~~97% for asset backed securities and ~~100%~~92% for corporate bonds as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. In aggregate, asset backed securities represented 42% and corporate bonds represented ~~74% and 50%~~65% of the total unrealized loss position ~~of the fixed and equity securities~~ as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Our municipal bond exposure is a combination of general obligation bonds (fair value of ~~$259~~$235 and an amortized cost of ~~$270~~$218 as of September 30, ~~2018)~~2019) and special revenue bonds (fair value of ~~$1,122~~$1,099 and amortized cost of ~~$1,164~~$1,027 as of September 30, ~~2018)~~2019).

Across all municipal bonds, the largest issuer represented 8%9% 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 ~~91%~~92% of our municipal bond exposure is rated NAIC 1.

The amortized cost and fair value of fixed maturity securities and equity securities (excluding U.S. Government and U.S. Government-sponsored agency securities) in an unrealized loss position greater than 20% and the number of months in an unrealized loss position with fixed maturity investment grade securities (NRSRO rating of BBB/Baa or higher) as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, were as follows:


	September 30, 2018								September 30, 2019
	Number of securities	Amortized Cost		Fair Value		Gross Unrealized Losses			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	—	—		—		—			2	12		9		(3		)
Total investment grade	—	—		—		—			2	12		9		(3		)

Below investment grade:
Less than six months	2	—		—		—			3	9		6		(3		)
Six months or more and less than twelve months	2	7		5		(2		)	2	4		3		(1		)
Twelve months or greater	—	—		—		—			10	70		52		(18		)
Total below investment grade	4	7		5		(2		)	15	83		61		(22		)
Total	4	$	7	$	5	$	(2	)	17	$	95	$	70	$	(25	)


	December 31, 2017								December 31, 2018
	Number of securities	Amortized Cost		Fair Value		Gross Unrealized Losses			Number of securities	Amortized Cost		Fair Value		Gross Unrealized Losses
Investment grade:
Less than six months	—	$	—	$	—	$	—		3	$	23	$	18	$	(5	)
Six months or more and less than twelve months	—	—		—		—			10	72		55		(17		)
Twelve months or greater	—	—		—		—			4	25		19		(6		)
Total investment grade	—	—		—		—			17	120		92		(28		)

Below investment grade:
Less than six months	1	13		10		(3		)	3	11		9		(2		)
Six months or more and less than twelve months	—	—		—		—			9	31		22		(9		)
Twelve months or greater	—	—		—		—			5	12		9		(3		)
Total below investment grade	1	13		10		(3		)	17	54		40		(14		)
Total	1	$	13	$	10	$	(3	)	34	$	174	$	132	$	(42	)

OTTI and Watch List

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, our watch list included 520 and 134 securities, respectively, in an unrealized loss position with an amortized cost of $7$95 and ~~$13,~~$174, unrealized losses of $2$25 and ~~$3,~~$42, and a fair value of $5$70 and ~~$10,~~$132, 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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 carrying values were fully recoverable.

There were 34 and 04 structured securities with a fair value of $0 and $0$6 on the watch list to which we had potential credit exposure as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Our analysis of these structured securities, which included cash flow testing results, demonstrated the September 30, ~~2018~~2019 and December 31, ~~2017~~2018 values were fully recoverable.

Exposure to Sovereign Debt

Our investment portfolio had no direct exposure to European sovereign debt as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

As of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 the Company also had no material exposure risk related to financial investments in Puerto Rico.

Net Investment Income and Net Investment Gains (Losses)

For discussion regarding our net investment income and net investment gains (losses) refer to "Note 4. Investments" to our unaudited condensed consolidated financial statements.

Available-For-Sale Securities

For additional information regarding our AFS securities, including the amortized cost, gross unrealized gains (losses), and fair value as well as the amortized cost and fair value of fixed maturity AFS securities by contractual maturities, as of September 30, ~~2018,~~2019, refer to "Note 4. Investments", to our unaudited 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~~Company reduces the negative interest cost associated with cash collateral posted from counterparties under various ISDA agreements by reinvesting derivative cash collateral. This program permits collateral cash received to be invested in short term Treasury securities, bank deposits and commercial paper rated A1/P1 which are included in "Cash and cash equivalents" in the accompanying unaudited Condensed Consolidated Balance Sheets.

See "Note 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) cash of $454 in the nine months ended September 30, 2019 and $264 in the nine months ended September 30, 2018, ~~and $165 in the Predecessor nine months ended 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 ("CF Bermuda"), 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 nine months ended September 30, ~~2018, the Predecessor nine months ended September 30, 2017:~~2019 and 2018:


(dollars in millions)	Nine months ended						Nine months ended
	September 30, 2018			September 30, 2017			September 30, 2019			September 30, 2018
Cash provided by (used in):				Predecessor
Operating activities	$	264		$	165		$	454		$	264
Investing activities	(1,696		)	(623		)	(1,113		)	(1,696		)
Financing activities	1,161			711			1,078			1,161
Net increase (decrease) in cash and cash equivalents	$	(271	)	$	253		$	419		$	(271	)

Operating Activities

Cash provided by (used in) operating activities totaled ~~$264~~$454 and ~~$165~~$264 for the nine months ended September 30, ~~2018~~2019 and ~~the Predecessor nine months ended September 30, 2017,~~2018, respectively, which were principally due to a ~~$129~~$341 increase ~~of investment income receipts period over period,~~in cash and short-term collateral from derivative counterparties, partially offset by a ~~$53~~$60 increase in deferred acquisition costs ~~period over period.~~and deferred sales inducements, and a $31 decrease in income tax refunds received.

Investing Activities

Cash ~~used in~~provided by (used in) investing activities was ~~$1,696~~$(1,113) and ~~$623~~$(1,696) for the nine months ended September 30, 2019 and 2018, ~~and the Predecessor nine months ended September 30, 2017,~~ respectively, ~~which were principally~~ due to the purchases of fixed maturity securities, residential mortgage loans, and other investments, ~~net of~~and the cash proceeds from sales, maturities and repayments.

Financing Activities

Cash provided by financing activities was ~~$1,161~~$1,078 and ~~$711~~$1,161 for the Company in the nine months ended September 30, ~~2018~~2019 and ~~the Predecessor nine months ended September 30, 2017,~~2018, 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.

On April 20, 2018, the FGLH completed a debt offering of $550 aggregate principal amount of 5.50% senior notes due 2025 (the “5.50% Senior Notes”). The Company used the net proceeds of the offering (i) to repay $135 of borrowings under its revolving credit facility and related expenses and (ii) to redeem in full and satisfy and discharge all of the outstanding $300 aggregate principal amount of FGLH's outstanding 6.375% Senior Notes due 2021. The Company also expects to use the remaining proceeds for general corporate purposes, which may include additional capital contributionsPlease refer 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.Form 10-K for further discussion.

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 September 30, ~~2018,~~2019, the total drawn on the revolver was ~~$0.~~

$15. On October 3, 2019, the Company drew an additional $12,000,000 on the revolver and the $27,000,000 drawn on the revolver was repaid in full on October 17, 2019. Please refer to the Company's 2018 Form 10-K for further discussion.

The Company has unfunded investment commitments as of September 30, ~~2018~~2019 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~~Please refer to "Note 4. Investments" and "Note 12. Commitments and Contingencies" to our unaudited condensed consolidated financial statements for additional details on unfunded ~~commitments by invested asset class are included below:~~investment commitments.

September 30, 2018
Asset Type
Other invested assets $ 859
Equity securities 31
Fixed maturity securities, available-for-sale 43
Other assets 9
Total $ 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 7a7A. Quantitative and Qualitative Disclosures about Market Risk" included in our ~~2017~~2018 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 September 30, ~~2018,~~2019, is summarized as follows:


(dollars in millions)
(Dollars in millions)
Duration	Amortized Cost		% of Total		Amortized Cost		% of Total
0-4	$	8,358	34	%	$	10,703	41	%
5-9	7,146		29	%	6,492		25	%
10-14	7,399		30	%	6,034		23	%
15-19	1,813		7	%	2,797		11	%
20-25	7		—	%	57		—	%
Total	$	24,723	100	%	$	26,083	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~~$24 billion and $21 billion at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Our credit risk materializes primarily as impairment losses. We are exposed to occasional cyclical economic downturns, during which impairment losses may be significantly higher than the long-term historical average. This is offset by years where we expect the actual impairment losses to be substantially lower than the long-term average. Credit risk in the portfolio can also materialize as increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on our capital requirements is also dependent on the economic cycle and increased asset impairment levels may go hand in hand with increased asset related capital requirements.

We attempt to manage the risk of default and rating migration by applying disciplined credit evaluation and underwriting standards and limiting allocations to lower quality, higher risk investments. In addition, we diversify our exposure by issuer and country, using rating based issuer and country limits. We also set investment constraints that limit our exposure by industry segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, we have portfolio-level credit risk constraints in place. Limit compliance is monitored on a monthly or, in some cases, daily basis.

In connection with the use of call options, we are exposed to counterparty credit risk-the risk that a counterparty fails to perform under the terms of the derivative contract. We have adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of attempting to mitigate the financial loss from defaults. The exposure and credit rating of the counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst different approved counterparties to limit the concentration in one counterparty. Our policy allows for the purchase of derivative instruments from counterparties and/or clearinghouses that meet the required qualifications under the Iowa Code. The Company reviews the ratings of all the counterparties periodically. Collateral support documents are negotiated to further reduce the exposure when deemed necessary. See "Note 5. Derivative Financial Instruments" to our unaudited condensed consolidated financial statements for additional information regarding our exposure to credit loss.

~~Information regarding the Company's exposure to credit loss on the call options it holds is presented in the following table:~~

(dollars in millions) 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
Merrill Lynch A+/*/A+ $ 3,515
$ 129
$ 89
$ 40
$ 2,780
$ 150
$ 118
$ 32
Deutsche Bank A-/A3/BBB+ 1,286
46
47
(1 ) 1,345
51
55
(4 )
Morgan Stanley */A1/A+ 1,969
66
72
(6 ) 1,555
92
101
(9 )
Barclay's Bank A/Baa3/BBB 1,387
65
42
23
2,090
103
95
8
Canadian Imperial Bank of Commerce */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 $ 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 September 30, ~~2018:~~2019:



(Dollars in millions)		Financial Strength Rating
Parent Company/Principal Reinsurers	Reinsurance Recoverable	AM Best	S&P	Fitch	Moody's
Wilton ~~Re.~~Re	$~~1,546~~1,519	A+	Not Rated	A+	Not Rated
Kubera Insurance (SAC) Ltd	852	Not Rated	Not Rated	Not Rated	Not Rated
Security Life of Denver	~~164~~158	ANot Rated	A+	A	A2
Hannover Re	~~125~~130	A+	AA-	Not Rated	Not Rated
London Life	~~110~~107	A+	Not Rated	Not Rated
~~Swiss Re Life and Health~~	~~103~~	A+	~~AA-~~	~~Aa3~~Not Rated

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 September 30, ~~2018~~2019 that would require an allowance for uncollectible amounts.

Through FSRC and F&G Re, the Company is exposed to insurance counterparty risk, which is the potential for FSRC and F&G Re 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 and F&G Re.

FSRC and F&G Re 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 FSRC and F&G Re’s funds withheld receivables portfolio that consists primarily of debt and equity securities. FSRC and F&G Re’s credit risk materializes primarily as impairment losses. FSRC and F&G Re 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 FSRC and F&G Re 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 FSRC and F&G Re’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 and F&G Re assume 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 and F&G Re’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~~and F&G Re have 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.~~income (loss). The rate of amortization of intangibles related to FIA products and the cost of providing GMWB could also increase if equity market performance is worse than assumed.

To economically hedge the equity returns on these products, we purchase derivatives to hedge the FIA equity exposure. The primary way we hedge FIA equity exposure is to purchase over the counter equity index call options from broker-dealer derivative counterparties approved by the Company. The second way to hedge FIA equity exposure is by purchasing exchange traded equity index futures contracts. Our hedging strategy enables us to reduce our overall hedging costs and achieve a high correlation of returns on the call options purchased relative to the index credits earned by the FIA contractholders. The majority of the call options are one-year options purchased to match the funding requirements underlying the FIA contracts. These hedge programs are limited to the current policy term of the FIA contracts, based on current participation rates. Future returns, which may be reflected in FIA contracts’ credited rates beyond the current policy term, are not hedged. We attempt to manage the costs of these purchases through the terms of our FIA contracts, which permit us to change caps or participation rates, subject to certain guaranteed minimums that must be maintained.

The derivatives are used to fund the FIA contract index credits and the cost of the call options purchased is treated as a component of spread earnings. While the FIA hedging program does not explicitly hedge GAAP income volatility, the FIA hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the equity market and risk-free rates. This is due to the fact that a key component in the calculation of GAAP reserves is the market valuation of the current term embedded derivative. Due to the alignment of the embedded derivative reserve component with hedging of this same embedded derivative, there should be a reasonable match between changes in this component of the reserve and changes in the assets backing this component of the reserve. However, there may be an interim mismatch due to the fact that the hedges which are put in place are only intended to cover exposures expected to remain until the end of an indexing term. To the extent index credits earned by the contractholder exceed the proceeds from option expirations and futures income, we incur a raw hedging loss.

See "Note 5. Derivative Financial Instruments" to our unaudited 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 nine months ended September 30, ~~2018~~2019 and ~~the Predecessor nine months ended September 30, 2017,~~2018, the annual index credits to policyholders on their anniversaries were ~~$328~~$117 and ~~$232,~~$328, respectively. Proceeds received at expiration on options related to such credits were ~~$332~~$123 and ~~$232,~~$332, 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 September 30, ~~2018,~~2019, the estimated fair value of our fixed maturity securities would decrease by approximately ~~$1,614.~~$1,711. The impact on shareholders’ equity of such decrease, net of income taxes (assumes a 21% tax rate) and intangibles adjustments, and the change in reinsurance related derivative would be a decrease of ~~$1,272~~$1,131 in AOCI and ~~a decrease of $1,231~~ in total shareholders’ equity. If interest rates were to decrease by 100 basis points from levels at September 30, ~~2018,~~2019, the estimated impact on the FIA embedded derivative liability of such a decrease would be an increase of ~~$234.~~$286.

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 ~~$144,~~$110, our call option investments to decrease by approximately ~~$18~~$20 based on equity positions and our FIA embedded derivative liability to decrease by approximately ~~$35~~$39 as of September 30, ~~2018.~~2019. Due to the adoption of ASU 2016-01 in 2018, the 10% decline in market value of our equity securities would affect current earnings. These scenarios consider only the direct effect on fair value of declines in equity market levels and not changes in asset-based fees recognized as revenue, or changes in our estimates of total gross profits used as a basis for amortizing ~~DAC and VOBA.~~intangibles.


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 September 30, ~~2018,~~2019, 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~~An evaluation was performed under the supervision of the Company's management, including the CEO and ~~implementation~~CFO, of whether any change in the Company's 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~~occurred during the quarter ended September 30, 2018, we continue 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.2019.

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 reportBased 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,~~that evaluation, the Company’s management, including the CEO and CFO, concluded that no ~~changes~~change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, ~~2018~~2019 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~~2018 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~~2018 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.~~10-K.

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 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.~~Purchases of Equity Securities by the Issuer

On December 19, 2018, the Company's board of directors authorized a share repurchase program of up to $150 of the Company's outstanding common stock. This program will expire on December 15, 2020, and may be modified at any time. Under the share repurchase program, the Company may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934. The extent to which the Company repurchases its shares, and the timing of such purchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other considerations, as determined by the Company.

The following table provides information about our repurchases of our ordinary shares during the three months ended September 30, 2019.



	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (1)
Period
August 1 to August 31, 2019	1,419,402	7.80	1,419,402	104
September 1 to September 30, 2019	727,099	7.97	727,099	98
Total	2,146,501	7.86	2,146,501	98

(1) On December 19, 2018, the Company's board of directors authorized and the Company announced a share repurchase program of up to $150 million of the Company's outstanding ordinary shares. This repurchase program will expire on December 15, 2020, and may be modified at any time.

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 Quarterly Report on Form 10-Q.



Exhibit No.		Description of Exhibits

31.1 *		Certification of Chief Executive Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *		Certification of Chief Financial Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 *		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 *		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.INS~~101 *		The following financial information from FGL Holdings' Quarterly Report on Form 10-Q for the period ended June 30, 2019 is formatted in Inline XBRL ~~Instance Document.~~(Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018, (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Condensed Consolidated Statements of Changes in Stockholders Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to the Condensed Consolidated Financial Statements.
~~101.SCH~~104 *		The cover page from FGL Holdings' Quarterly Report on Form 10-Q for the period ended September 30, 2019 is formatted in Inline 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.~~(Extensible Business Reporting Language).


*	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:	November ~~7, 2018~~6, 2019	By:	/s/ Dennis R. Vigneau
			Chief Financial Officer
			(on behalf of the Registrant and as Principal Financial Officer)

~~-91~~-85