Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Assets and Liabilities Carrying at Fair Value on Recurring Basis

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 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

Schedule of Unobservable Inputs Used for Level Three Fair Value Measurements of Financial Instruments on Recurring Basis

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		Valuation Technique	Unobservable Input(s)	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		Valuation Technique	Unobservable Input(s)	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

Changes in Fair Value of Financial Instruments - Assets

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
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
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
	Balance at Beginning of Period		Included in Earnings		Included in AOCI		Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
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.

Changes in Fair Value of Financial Instruments - Liabilities



	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
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
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
	Balance at Beginning of Period		Included in Earnings		Included in AOCI		Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
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.

Schedule of Net Asset Value

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

Gross Transfers Into and Out of Certain Fair Value Levels by Asset Class

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