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, and the Predecessor three and nine months ended September 30, 2017 were as follows:



	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. The Company did not commute any ceded reinsurance treaties during the nine months ended September 30, 2018 or the Predecessor nine months ended September 30, 2017.

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% 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. FGL Insurance incurred risk charge fees of $3, and $8 during the three and nine months ended September 30, 2018, respectively, 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 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.

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, FSRC had $708 of funds withheld receivables and $684 of insurance reserves related to these reinsurance treaties.

See a description of FSRC’s accounting policy for its assumed reinsurance contracts in "Note 2. Significant Accounting Policies and Practices" within the Company's 2017 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.