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 and December 31, 2017 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
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Carrying Value
Available-for sale securities
Asset-backed securities	$	3,061	$	7	$	(3	)	$	3,065	$	3,065
Commercial mortgage-backed securities	956		1		(1		)	956		956
Corporates	12,467		122		(19		)	12,570		12,570
Hybrids	1,066		4		(3		)	1,067		1,067
Municipals	1,736		12		(1		)	1,747		1,747
Residential mortgage-backed securities	1,279		1		(3		)	1,277		1,277
U.S. Government	84		—		—			84		84
Foreign Governments	198		—		(1		)	197		197
Total available-for-sale securities	20,847		147		(31		)	20,963		20,963
Equity securities	1,392		3		(7		)	1,388		1,388
Derivative investments	459		36		(3		)	492		492
Short term investments	25		—		—			25		25
Commercial mortgage loans	548		—		—			549		548
Other invested assets	188		—		—			186		188
Total investments	$	23,459	$	186	$	(41	)	$	23,603	$	23,604

The unrealized gains and losses were reset to zero effective November 30, 2017 as a result of the Business Combination and application of acquisition accounting 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 on non-agency residential mortgage backed securities ("RMBS") for both September 30, 2018 and December 31, 2017.

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

At September 30, 2018 and December 31, 2017, the Company held no material investments that were non-income producing for a period greater than twelve months.

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 and $715 at September 30, 2018 and December 31, 2017, respectively.

The amortized cost and fair value of fixed maturity available-for-sale securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.



	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 Form 10-K.

The Company analyzes its ability to recover the amortized cost by comparing the net present value of cash flows expected to be collected with the amortized cost of the security. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment terms of the underlying assets backing a particular security, including interest rate and prepayment assumptions, based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also include other assumptions regarding the underlying collateral including default rates and recoveries, which vary based on the asset type and geographic location, as well as the vintage year of the security. For structured securities, the payment priority within the tranche structure is also considered. If the net present value is less than the amortized cost of the investment, an OTTI is recognized. For all other fixed maturity securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default.

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 due to higher interest rates during the year coupled with an increase in the spreads over Treasuries required by investors for corporate and municipal bonds. Based on an assessment of all securities in the portfolio in unrealized loss positions, the Company determined that the unrealized losses on the securities presented in the table below were not other-than-temporarily impaired as of 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
	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	$	2,863	$	(28	)	$	—	$	—	$	2,863	$	(28	)
Commercial mortgage-backed securities	1,208		(25		)	—		—		1,208		(25		)
Corporates	10,956		(608		)	—		—		10,956		(608		)
Hybrids	796		(36		)	—		—		796		(36		)
Municipals	1,356		(53		)	—		—		1,356		(53		)
Residential mortgage-backed securities	898		(9		)	—		—		898		(9		)
U.S. Government	139		(2		)	—		—		139		(2		)
Foreign Government	143		(6		)	—		—		143		(6		)
Total available-for-sale securities	$	18,359	$	(767	)	$	—	$	—	$	18,359	$	(767	)
Total number of available-for-sale securities in an unrealized loss position less than twelve months												2,049
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												2,049



	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 and December 31, 2017, securities in an unrealized loss position were primarily concentrated in corporate debt.

At September 30, 2018 and December 31, 2017, securities with a fair value of $5 and $10, respectively, had an unrealized loss greater than 20% of amortized cost (excluding U.S. Government and U.S. Government sponsored agency securities), which were insignificant to the carrying value of all investments, respectively.

The following table provides a reconciliation of the beginning and ending balances of the credit loss portion of OTTI on fixed maturity available-for-sale securities held by the Company for the three and nine months ended September 30, 2018 and 2017 (Predecessor), for which a portion of the OTTI was recognized in AOCI:



	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 and 2017 (Predecessor):



	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 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	)

Commercial Mortgage Loans

Commercial mortgage loans ("CMLs") represented approximately 2% of the Company’s total investments as of September 30, 2018 and December 31, 2017. 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, 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 and December 31, 2017, as measured at inception of the loans unless otherwise updated. As of September 30, 2018, all CMLs are current and have not experienced credit or other events which would require the recording of an impairment loss.

LTV and DSC ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.00 indicates that a property’s operations do not generate sufficient income to cover debt payments. We normalize our DSC ratios to a 25-year amortization period for purposes of our general loan allowance evaluation.

The following table presents the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios at September 30, 2018 and December 31, 2017:



	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, 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.

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 and December 31, 2017, our CML portfolio had no impairments, modifications or TDR.

Net Investment Income

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



	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
				Predecessor						Predecessor
Fixed maturity securities, available-for-sale	$	249		$	247		$	739		$	725
Equity securities	15			10			51			31
Commercial mortgage loans	5			5			17			17
Related party loans	1			—			1			—
Invested cash and short-term investments	6			1			13			3
Other investments	13			3			39			6
Gross investment income	289			266			860			782
Investment expense	(22		)	(5		)	(48		)	(17		)
Net investment income	$	267		$	261		$	812		$	765

Net Investment Gains (Losses)

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



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

(a) Change in fair value of reinsurance related embedded derivatives in the successor period is due to FSRC unaffiliated third party business and the predecessor periods activity is due to the FGL and FSRC reinsurance treaty. See "Note 14. Related Party Transactions".

The proceeds from the sale of fixed-maturity available for-sale-securities and the gross gains and losses associated with those transactions were as follows:



	Three months ended 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.

Unconsolidated Variable Interest Entities

FGL Insurance owns investments in VIEs that are not consolidated within the Company’s financial statements. VIEs do not have sufficient equity to finance their own activities without additional financial support and certain of its investors lack certain characteristics of a controlling financial interest. These VIEs are not consolidated in the Company’s financial statements for the following reasons: 1) FGL Insurance either does not control or does not have any voting rights or notice rights; 2) the Company does not have any rights to remove the investment manager; and 3) the Company was not involved in the design of the investment. These characteristics indicate that FGL Insurance lacks the ability to direct the activities, or otherwise exert control, of the VIEs and is not considered the primary beneficiary of them.

The Company previously executed a commitment of $75 to purchase common shares in an unaffiliated private business development company ("BDC"). The BDC invests in secured and unsecured fixed maturity and equity securities of middle market companies in the United States. Due to the voting structure of the transaction, the Company does not have voting power. The initial capital call occurred June 30, 2015, with the remaining commitment expected to fund June 2019. The Company has funded $44 as of September 30, 2018.

The Company invests in various limited partnerships as a passive investor. These investments are in corporate credit and real estate debt strategies that have a current income bias. Limited partnership interests are accounted for under the equity method and are included in “Other invested assets” on the Company’s consolidated balance sheet. The Company's maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company's consolidated balance sheet in addition to any required unfunded commitments. As of September 30, 2018, the Company's maximum exposure to loss was $481 in recorded carrying value and $860 in unfunded commitments.