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BUSINESS SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2020

The Company has four reportable segments: Individual Retirement, Group Retirement, Investment Management and Research and Protection Solutions.

These segments reflect the manner by which the Company’s chief operating decision maker views and manages the business. A brief description of these segments follows:


•	The Individual Retirement segment offers a diverse suite of variable annuity products which are primarily sold to affluent and high net worth individuals saving for retirement or seeking retirement income.


•	The Group Retirement segment offers tax-deferred investment and retirement services or products to plans sponsored by educational entities, municipalities and not-for-profit entities, as well as small and medium-sized businesses.


•	The Investment Management and Research segment provides diversified investment management, research and related solutions globally to a broad range of clients through three main client channels- Institutional, Retail and Private Wealth Management-and distributes its institutional research products and solutions through Bernstein Research Services.

•

The Protection Solutions segment includes our life insurance and group employee benefits businesses. Our life insurance business offers a variety of variable universal life, universal life and term life products to help affluent and high net worth individuals, as well as small and medium-sized business owners, with their wealth protection, wealth transfer and corporate needs. Our group employee benefits business offers a suite of dental, vision, life, and short- and long-term disability and other insurance products to small and medium-size businesses across the United States.

Measurement

Operating earnings (loss) is the financial measure which primarily focuses on the Company’s segments’ results of operations as well as the underlying profitability of the Company’s core business. By excluding items that can be distortive and unpredictable such as investment gains (losses) and investment income (loss) from derivative instruments, the Company believes Operating earnings (loss) by segment enhances the understanding of the Company’s underlying drivers of profitability and trends in the Company’s segments.

Operating earnings is calculated by adjusting each segment’s Net income (loss) attributable to Holdings for the following items:

•

Items related to variable annuity product features, which include: (i) certain changes in the fair value of the derivatives and other securities we use to hedge these features; (ii) the effect of benefit ratio unlock adjustments related to extraordinary economic conditions or events such as COVID-19; and (iii) changes in the fair value of the embedded derivatives reflected within variable annuity products’ net derivative results and the impact of these items on DAC amortization on our SCS product.


•	Investment (gains) losses, which includes credit loss impairments of securities/investments, sales or disposals of securities/investments, realized capital gains/losses and valuation allowances;


•	Net actuarial (gains) losses, which includes actuarial gains and losses as a result of differences between actual and expected experience on pension plan assets or projected benefit obligation during a given period related to pension, other postretirement benefit obligations, and the one-time impact of the settlement of the defined benefit obligation;


•	Other adjustments, which includes restructuring costs related to severance, lease write-offs related to non-recurring restructuring activities, separation costs and impacts related to COVID-19; and


•	Income tax expense (benefit) related to the above items and non-recurring tax items, which includes the effect of uncertain tax positions for a given audit period and permanent differences due to the Tax Reform Act.

Revenues derived from any customer did not exceed 10% of revenues for the three months ended March 31, 2020 and 2019.

The table below presents Operating earnings (loss) by segment and Corporate and Other and a reconciliation to Net income (loss) attributable to Holdings for the three months ended March 31, 2020 and 2019, respectively:



	Three Months Ended March 31,
	2020			2019
	(in millions)
Net income (loss) attributable to Holdings	$	5,410		$	(775	)
Adjustments related to:
Variable annuity product features (1)	(6,861		)	1,540
Investment (gains) losses	(4		)	11
Net actuarial (gains) losses related to pension and other postretirement benefit obligations	27			24
Other adjustments (2) (3)	634			40
Income tax expense (benefit) related to above adjustments (4)	1,303			(337		)
Non-recurring tax items	6			6
Non-GAAP Operating Earnings	$	515		$	509



	Three Months Ended March 31,
	2020			2019
	(in millions)
Operating earnings (loss) by segment:
Individual Retirement	$	372		$	370
Group Retirement	$	106		$	81
Investment Management and Research	$	95		$	77
Protection Solutions	$	38		$	49
Corporate and Other (5)	$	(96	)	$	(68	)

______________


(1)	Includes COVID Impact on Variable annuity product features due to assumption update of $1.5 billion and other COVID-19 related impacts of $35 million three months ended March 31, 2020.


(2)	Includes assumption updates due to COVID-19 of $1.0 billion and other COVID-19 related impacts of $51 million three months ended March 31, 2020.


(3)	Include separation costs of $32 million and $24 million for the three months ended March 31, 2020 and 2019, respectively.


(4)	Includes income taxes of $(534) million for the above COVID-19 items for the three months ended March 31, 2020.


(5)	Includes interest expense and financing fees of $56 million and $52 million for the three months ended March 31, 2020 and 2019, respectively.

Segment revenues is a measure of the Company’s revenue by segment as adjusted to exclude certain items. The following table reconciles segment revenues to Total revenues by excluding the following items:


•	Items related to variable annuity product features, which include certain changes in the fair value of the derivatives and other securities we use to hedge these features and changes in the fair value of the embedded derivatives reflected within the net derivative results of variable annuity product features;


•	Investment (gains) losses, which includes credit loss impairments of securities/investments, sales or disposals of securities/investments, realized capital gains/losses and valuation allowances;


•	Other adjustments, which includes investment income (loss) from certain derivative instruments, excluding derivative instruments used to hedge risks associated with interest margins on interest sensitive life and annuity contracts and freestanding and embedded derivatives associated with products with GMxB features.

The table below presents segment revenues for the three months ended March 31, 2020 and 2019.



	Three Months Ended March 31,
	2020		2019
	(in millions)
Segment revenues:
Individual Retirement (1)	$	1,481	$	1,007
Group Retirement (1)	282		251
Investment Management and Research (2)	907		780
Protection Solutions (1)	859		831
Corporate and Other (1)	299		312
Adjustments related to:
Variable annuity product features	8,339		(1,478		)
Investment gains (losses), net	4		(11		)
Other adjustments to segment revenues (3)	422		22
Total revenues	$	12,593	$	1,714

______________


(1)	Includes investment expenses charged by AB of $18 million and $18 million for the three months ended March 31, 2020 and 2019, respectively, for services provided to the Company.


(2)	Inter-segment investment management and other fees of $27 million and $25 million for the three months ended March 31, 2020 and 2019, respectively, are included in segment revenues of the Investment Management and Research segment.


(3)	Includes assumption updates due to COVID-19 of $46 million and other COVID-19 related impacts of $(51) million for the three months ended March 31, 2020.

The table below presents Total assets by segment as of March 31, 2020 and December 31, 2019:



	March 31, 2020		December 31, 2019
	(in millions)
Total assets by segment:
Individual Retirement	$	117,299	$	123,626
Group Retirement	41,194		43,588
Investment Management and Research	11,915		10,170
Protection Solutions	45,266		46,886
Corporate and Other	25,107		25,600
Total assets	$	240,781	$	249,870