Reinsurance

FGL reinsures portions of its policy risks with other insurance companies. The use of 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 FGL’s retention limit is reinsured with other insurers. FGL seeks reinsurance coverage in order to limit its exposure to mortality losses and enhance capital management. FGL follows reinsurance accounting when there is adequate risk transfer. Otherwise, the deposit method of accounting is followed.

FGL and Front Street Cayman also assume policy risks from other insurance companies.

The effect of reinsurance on premiums earned, benefits incurred and reserve changes for the three and six months ended March 31, 2014 and March 31, 2013 were as follows:



	Three months ended												Six months ended
	March 31, 2014						March 31, 2013						March 31, 2014						March 31, 2013
	Insurance Premiums			Benefits and Other Changes in Insurance Policy Reserves			Insurance Premiums			Benefits and Other Changes in Insurance Policy Reserves			Insurance Premiums			Benefits and Other Changes in Insurance Policy Reserves			Insurance Premiums			Benefits and Other Changes in Insurance Policy Reserves
Direct	$	67.0		$	256.4		$	70.0		$	289.3		$	134.7		$	552.8		$	142.4		$	428.9
Assumed	9.5			9.9			3.3			1.0			18.8			15.3			15.4			7.5
Ceded	(61.7		)	(69.8		)	(59.2		)	(49.4		)	(124.8		)	(136.9		)	(129.9		)	(111.9		)
Net	$	14.8		$	196.5		$	14.1		$	240.9		$	28.7		$	431.2		$	27.9		$	324.5

Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. During the three and six months ended March 31, 2014 and March 31, 2013, FGL did not write off any reinsurance balances. During the three and six months ended March 31, 2014 and March 31, 2013, FGL did not commute any ceded reinsurance.

No policies issued by FGL 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.

FGL 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.

Front Street

On December 31, 2012, FGL entered into a Reinsurance Agreement with Front Street Cayman, an indirect subsidiary of the Company. Pursuant to the Reinsurance Agreement, Front Street Cayman has reinsured approximately 10%, or approximately $1,400.0 of FGL’s policy liabilities, on a funds withheld basis. In connection with the Reinsurance Agreement, Front Street Cayman, FGL and an indirect subsidiary of the Company, Five Island, entered into an investment management agreement, pursuant to which Five Island Asset Management, LLC, (“Five Island”) would manage the assets securing Front Street Cayman’s reinsurance obligations under the Reinsurance Agreement, which assets are held by FGL in a segregated account. The assets in the segregated account are invested in accordance with FGL’s existing guidelines.

On December 16, 2013, Front Street Cayman, closed a reinsurance treaty with Bankers Life Insurance Company. Under the terms of the treaty, Bankers Life Insurance Company ceded approximately $153.0 of its annuity business to Front Street Cayman, on a funds withheld basis. The agreement, which has been approved by the State of Florida Office of Insurance Regulation, is retroactive to November 30, 2013. Front Street Cayman will manage the assets supporting reserves in accordance with the internal investment policy of Bankers Life Insurance Company and applicable law.