Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

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, 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, 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 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.

Derivative Financial Instruments

The fair value of call option assets is based upon valuation pricing models, which represents what the Company would expect to receive or pay at the balance sheet date if it canceled the options, entered into offsetting positions, or exercised the options. Fair values for these instruments are determined internally, based on valuation pricing models which use market-observable inputs, including interest rates, yield curve volatilities, and other factors.

The fair value of futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements) which represents what the Company would expect to receive or pay at the balance sheet date if it canceled the futures contract or entered into offsetting positions. These contracts are classified as Level 1.

The fair value measurement of the FIA embedded derivatives included in contractholder funds is determined through a combination of market observable information and significant unobservable inputs. The market observable inputs are the market value of option and interest swap rates. The significant unobservable inputs are the mortality multiplier, surrender rates, non-performance spread and option costs. The mortality multiplier at September 30, 2018 and December 31, 2017 was applied to the Annuity 2000 mortality tables. Significant 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 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) and $(1) of changes in fair value recognized during the three and nine months ended September 30, 2018, respectively, due to changes in the credit spread.

Other Invested Assets

Fair value of the AnchorPath embedded derivative is based on an unobservable input, the net asset value of the AnchorPath fund at the balance sheet date.  The embedded derivative is similar to a call option on the net asset value of the AnchorPath fund with a strike price of zero since FGL Insurance will not be required to make any additional payments at maturity of the fund-linked note in order to receive the net asset value of the AnchorPath fund on the maturity date.  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 Funds Withheld for Reinsurance Receivables and Future Policy Benefits

FSRC elected to apply the Fair Value Option to account for its funds withheld receivables and future policy benefits liability related to its assumed reinsurance. FSRC measures the fair value of the Funds Withheld for Reinsurance Receivables based on the fair values of the securities in the underlying funds withheld portfolio held by the cedant. FSRC uses a discounted cash flows approach to measure the fair value of the Future Policy Benefits Reserve. The cash flows associated with future policy premiums and benefits are generated using best estimate assumptions (plus a risk margin, where applicable) and are consistent with market prices, where available. Risk margins are typically applied to non-observable, non-hedgeable market inputs such as long term volatility, mortality, morbidity, lapse, etc.

The significant unobservable inputs used in the fair value measurement of the FSRC future policy benefit liability are undiscounted cash flows, non-performance risk spread and risk margin to reflect uncertainty.  Undiscounted cash flows used in our September 30, 2018 discounted cash flow model equaled $1,025.  Increases or decreases in non-performance risk spread and risk margin to reflect uncertainty would result in a lower 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 and December 31, 2017, 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)
	December 31, 2017				December 31, 2017
Assets
Asset-backed securities	$	412	Broker-quoted	Offered quotes	98.00% - 102.56% (100.27%)
Commercial mortgage-backed securities	49		Broker-quoted	Offered quotes	99.50% - 122.78% (114.09%)
Corporates	763		Broker-quoted	Offered quotes	73.55% - 109.63% (99.66%)
Corporates	406		Matrix Pricing	Quoted prices	67.72% - 115.04% (103.72%)
Hybrids	10		Broker-quoted	Offered quotes	96.89% - 96.89% (96.89%)
Municipals	38		Broker-quoted	Offered quotes	111.84% - 111.84% (111.84%)
Residential mortgage-backed securities	66		Broker-quoted	Offered quotes	93.25% - 102.25% (100.11%)
Foreign Governments	17		Broker-quoted	Offered quotes	104.16% - 106.28% (104.82%)
Equity securities (Salus preferred equity)	3		Income-Approach	Yield	5.00%
Other invested assets:
Available-for-sale embedded derivative (AnchorPath)	17		Black Scholes model	Market value of AnchorPath fund	100.00%
Funds withheld for reinsurance receivables at fair value	3		Matrix pricing	Quoted prices	100.00%
Funds withheld for reinsurance receivables at fair value	1		Loan recovery value	Recovery rate	26.00%
Total	$	1,785
Liabilities
Future policy benefits (FSRC)	$	728	Discounted cash flow	Non-Performance risk spread	0.27%
				Risk margin to reflect uncertainty	0.54%
Derivatives:
FIA embedded derivatives included in contractholder funds	2,277		Discounted cash flow	Market value of option	0.00% - 29.93% (4.11%)
				SWAP rates	2.24% - 2.40% (2.31%)
				Mortality multiplier	80.00% - 80.00% (80.00%)
				Surrender rates	0.50% - 75.00% (6.13%)
				Partial withdrawals	2.00% - 3.50% (2.75%)
				Non-performance spread	0.25% - 0.25% (0.25%)
				Option cost	0.06% - 17.33% (1.99%)
Preferred shares reimbursement feature embedded derivative	$	23	Black Derman Toy model	Credit Spread	4.13%
				Yield Volatility	20.00%
Total liabilities at fair value	$	3,028

The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the three and nine months ended September 30, 2018 and 2017, respectively. This summary excludes any impact of amortization of VOBA and DAC. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.

	Three months ended 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	$	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
FIA embedded derivatives, included in contractholder funds	$	2,320	$	231		$	—		$	—	$	—		$	—		$	—		$	2,551
Future policy benefits (FSRC)	737		(25		)	—			—		—			(28		)	—			684
Preferred shares reimbursement feature embedded derivative	24		(2		)	—			—		—			—			—			22
Total liabilities at Level 3 fair value	$	3,081	$	204		$	—		$	—	$	—		$	(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
	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	$	204	$	—	$	1	$	22	$	—		$	(16	)	$	(52	)	$	159
Commercial mortgage-backed securities	84		—		1		10		—			—			—			95
Corporates	1,056		—		—		73		(15		)	(22		)	5			1,097
Hybrids	10		—		—		—		—			—			—			10
Municipals	38		—		—		—		—			—			—			38
Residential mortgage-backed securities	15		—		—		—		—			—			—			15
Foreign Governments	17		—		—		—		—			—			—			17
Equity securities	1		—		1		—		—			—			—			2
Other invested assets:
Available-for-sale embedded derivative	15		1		—		—		—			—			—			16
Loan participations	—		—		—		—		—			—			—			—
Total assets at Level 3 fair value	$	1,440	$	1	$	3	$	105	$	(15	)	$	(38	)	$	(47	)	$	1,449
Liabilities
FIA embedded derivatives, included in contractholder funds	$	2,442	$	185	$	—	$	—	$	—		$	—		$	—		$	2,627
Total liabilities at Level 3 fair value	$	2,442	$	—	$	—	$	—	$	—		$	—		$	—		$	2,627

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

	Nine months ended September 30, 2017
	Predecessor
	Balance at Beginning of Period		Total Gains (Losses)					Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
			Included in Earnings			Included in AOCI
Assets
Fixed maturity securities available-for-sale:
Asset-backed securities	$	197	$	(1	)	$	4	$	88	$	—		$	(33	)	$	(96	)	$	159
Commercial mortgage-backed securities	85		—			3		10		—			(1		)	(2		)	95
Corporates	1,062		—			11		138		(15		)	(61		)	(38		)	1,097
Hybrids	10		—			—		—		—			—			—			10
Municipals	37		—			1		—		—			—			—			38
Residential mortgage-backed securities	—		—			1		—		—			—			14			15
Foreign Governments	16		—			1		—		—			—			—			17
Equity securities	1		—			1		—		—			—			—			2
Other invested assets:
Available-for-sale embedded derivative	13		2			1		—		—			—			—			16
Loan participations	6		(1		)	1		—		—			(6		)	—			—
Total assets at Level 3 fair value	$	1,427	$	—		$	24	$	236	$	(15	)	$	(101	)	$	(122	)	$	1,449
Liabilities
FIA embedded derivatives, included in contractholder funds	$	2,250	$	377		$	—	$	—	$	—		$	—		$	—		$	2,627
Total liabilities at Level 3 fair value	$	2,250	$	377		$	—	$	—	$	—		$	—		$	—		$	2,627

(a) The net transfers out of Level 3 during the Predecessor nine months endedSeptember 30, 2017 were exclusively to Level 2.

Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value

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

Commercial Mortgage Loans

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

Policy Loans (included within Other Invested Assets)

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

Investment Contracts

Investment contracts include deferred annuities, FIAs, indexed universal life policies ("IULs") and immediate annuities. The fair value of deferred annuity, FIA, and IUL contracts is based on their cash surrender value (i.e. the cost the Company would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value of immediate annuities contracts is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. At September 30, 2018 and December 31, 2017, this resulted in lower fair value reserves relative to the carrying value. The Company is not required to, and has not, estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value.

Debt

The fair value of debt is based on quoted market prices. The inputs used to measure the fair value of our outstanding debt are classified as Level 2 within the fair value hierarchy. Our revolving credit facility debt is classified as Level 3 within the fair value hierarchy, and the estimated fair value reflects the carrying value as the revolver has no maturity date.

The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the Condensed Consolidated Balance Sheets at amounts other than fair value, summarized according to the fair value hierarchy previously described.

	September 30, 2018
	Level 1		Level 2		Level 3		Total Estimated Fair Value		Carrying Amount
Assets
FHLB common stock, included in other invested assets	$	—	$	48	$	—	$	48	$	48
Commercial mortgage loans	—		—		488		488		497
Policy loans, included in other invested assets	—		—		17		17		21
Funds withheld for reinsurance receivables, at fair value	—		—		28		28		28
Total	$	—	$	48	$	533	$	581	$	594
Liabilities
Investment contracts, included in contractholder funds	$	—	$	—	$	17,869	$	17,869	$	20,613
Debt	—		545		—		545		540
Total	$	—	$	545	$	17,869	$	18,414	$	21,153

	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” to the Company's 2017 Form 10-K.

	Carrying Value After Measurement
	September 30, 2018		December 31, 2017
Equity securities	$	45	$	44
Limited partnership investment, included in other invested assets	481		154

The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3, or between other levels, at the beginning fair value for the reporting period in which the changes occur. The transfers into and out of Level 3 were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value.

The Company’s assessment resulted in gross transfers into and gross transfers out of certain fair value levels by asset class for the three and nine months ended September 30, 2018 and 2017, are as follows:

	Transfers Between Fair Value Levels
	Level 1				Level 2				Level 3
	In		Out		In		Out		In		Out
Three months ended September 30, 2018
Asset-backed securities	$	—	$	—	$	90	$	13	$	13	$	90
Commercial mortgage-backed securities	—		—		12		—		—		12
Corporates	—		—		21		—		—		21
Hybrids	—		—		—		—		—		—
Residential mortgage-backed securities	—		—		36		—		—		36
Equity securities	—		30		30		—		—		—
Total transfers	$	—	$	30	$	189	$	13	$	13	$	159
Predecessor
Three months ended September 30, 2017
Asset-backed securities	$	—	$	—	$	74	$	22	$	22	$	74
Commercial mortgage-backed securities	—		—		—		—		—		—
Corporates	—		—		—		5		5		—
Residential mortgage-backed securities	—		—		—		—		—		—
Equity securities	—		—		—		—		—		—
Total transfers	$	—	$	—	$	74	$	27	$	27	$	74

	Transfers Between Fair Value Levels
	Level 1				Level 2				Level 3
	In		Out		In		Out		In		Out
Nine months ended September 30, 2018
Asset-backed securities	$	—	$	—	$	343	$	13	$	13	$	343
Commercial mortgage-backed securities	—		—		13		8		8		13
Corporates	—		—		72		3		3		72
Hybrids	20		—		—		20		—		—
Residential mortgage-backed securities	—		—		36		—		—		36
Equity securities	25		30		30		25		—		—
Total transfers	$	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