SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to September 30, 2020, and through the date the Company filed its consolidated condensed financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in the Company's consolidated condensed financial statements.

On October 1, 2020, as part of a corporate initiative to consolidate and simplify PLC’s reserve financing structures and reduce related financial and operational costs, Golden Gate II Captive Insurance Company, Golden Gate III Vermont Captive Insurance Company, Golden Gate IV Vermont Captive Insurance Company, and Golden Gate V Vermont Captive Insurance Company, all of which are wholly owned captive insurance company subsidiaries of the Company (collectively “the Captives”) merged with and into (the “Captive Merger”) Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of the Company.

In conjunction with the Captive Merger, Golden Gate and Steel City, LLC (“Steel City”), a wholly owned subsidiary of PLC, terminated the financing facility into which Golden Gate and Steel City had entered in 2016. This termination included redeeming the fixed maturity securities issued by Steel City to Golden Gate and the surplus note issued by Golden Gate to Steel City.

In conjunction with the Captive Merger, Golden Gate II redeemed the full outstanding principal amount of floating rate non-recourse funding obligations due July 15, 2052. These non-recourse funding obligations were previously marked to fair value in conjunction with the February 1, 2015 acquisition of the Company by The Dai-ichi Life Insurance Company (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”). The redemption required the acceleration of the accretion of the discount associated with the non-recourse funding obligation. The estimated impact of this non-cash acceleration is a $54 million reduction to income before income taxes for the year ended December 31, 2020.

Also in conjunction with the Captive Merger, Golden Gate V and Red Mountain, LLC (“Red Mountain”), a wholly owned subsidiary of PLC, terminated the financing facility into which Golden Gate V and Red Mountain had entered into in 2012. This termination included redeeming the fixed maturity securities issued by Red Mountain to Golden Gate V and the non-recourse funding obligation issued by Golden Gate V to Red Mountain. As a result of these redemptions, the amortization and accretion of premiums and discounts recorded against the fixed maturities and non-recourse funding obligations which were previously marked to fair value in conjunction with the February 1, 2015 acquisition of the Company by Dai-ichi Life was accelerated. The estimated net impact of this non-cash acceleration is a $16 million reduction to income before income taxes for the year ended December 31, 2020.

Also, in connection with the Captive Merger, the interest support and YRT premium support agreements that were entered into with PLC were terminated. As discussed in Note 6, Fair Value of Financial Instruments, these agreements met the definition of a derivative financial instrument and were accounted for at fair value in the consolidated financial statements. PLC intends to settle its obligations under these agreements during the fourth quarter of 2020.

On October 1, 2020, immediately following the Captive Merger, Golden Gate entered into a transaction with a term of 20 years, that may be extended to up to a maximum term of 25 years, to finance up to a maximum term of $5 billion of “XXX” and “AXXX” reserves related to the term life insurance business and universal life insurance with secondary guarantee business that is reinsured to Golden Gate by PLICO and West Coast pursuant to an Excess of Loss Reinsurance Agreement (the “XOL Agreement”) with Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and RGA Reinsurance Company (Barbados) Ltd. (collectively, the “Retrocessionaires”). Pursuant to the XOL Agreement, in exchange for periodic fees, the Retrocessionaires assume, on an excess of loss basis, the obligation to pay (the “XOL Payments”) each quarter the lessor of a) the greater of (i) statutory reserves in excess of economic reserves and (ii) the financed amount and b) if total claims for such quarter exceed the available assets (as set forth in the XOL Agreement) of Golden Gate, the amount of such excess. The transaction is “non-recourse” to the Company, WCL, and PLICO, meaning that none of these companies are liable to reimburse the Retrocessionaires for any XOL payments required to be made.