Accounting Policies - Guaranteed Minimum Death Benefits (Policies)

12 Months Ended

Dec. 31, 2018

Variable Annuity [Member] | Guaranteed Minimum Death Benefit [Member]

Activity in future policy benefits reserves for GMDB business [Line Items]

Future Policy Benefits

GMDB is accounted for as reinsurance and GMIB assets and liabilities are reported as derivatives at fair value as discussed below. GMIB assets are reported in other current assets and other assets, and GMIB liabilities are reported in accrued expenses and other liabilities and other non-current liabilities.

Accounting policy.The Company estimates the gross liability and reinsurance recoverable with an internal model based on the Company’s experience and future expectations over anextended period, consistent with the long-term nature of this product. As a result of the reinsurance transaction, reserve increases have acorresponding increase in the recorded reinsurance recoverable, provided the increased recoverable remains within the overallBerkshire limit (including the GMIB assetpresented below).The ending net retained reserve covers ongoing administrative expenses, as well as minor claim exposure retained by the Company.

Accounting policy.The Company reports GMIB liabilities and assets as derivatives at fair value because cash flows of these liabilities and assets are affected by equity markets and interest rates, but are without significant life insurance risk and are settled in lump sum payments. The Company receives and pays fees periodically based on either contractholders’ account values or deposits increased at a contractual rate. The Company will also pay and receive cash depending on changes in account values and interest rates when contractholders first elect to receive minimum income payments. Cash flows on these contracts are reported in operating activities.

Assumptions used in fair value measurement. GMIB assets and liabilities are established using capital market assumptions and assumptions related to future annuitant behavior (including mortality, lapse, and annuity election rates). The Company classifies GMIB assets and liabilities in Level 3 in the fair value hierarchy described in Note 10because assumptions related to future annuitant behavior are largely unobservable.

The only assumption expected to impact future shareholders’ net income is non-performance risk. The non-performance risk adjustment reflects a market participant’s view of nonpayment risk by adding an additional spread to the discount rate in the calculation of both (a) the GMIB liabilities to be paid by the Company, and (b) the GMIB assets to be paid by the reinsurers, after considering collateral.

The Company regularly evaluates each of the assumptions used in establishing these assets and liabilities. Significant decreases in assumed lapse rates or spreads used to calculate non-performance risk of the Company, or significant increases in assumed annuity election rates or spreads used to calculate the non-performance risk of the reinsurers, would result in higher fair value measurements. A change in one of these assumptions is not necessarily accompanied by a change in another assumption.