FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company's periodic fair value measurements for non-financial assets and liabilities was not material.

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized as follows:


•	Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.


•	Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:


a)	Quoted prices for similar assets or liabilities in active markets


b)	Quoted prices for identical or similar assets or liabilities in non-active markets


c)	Inputs other than quoted market prices that are observable


d)	Inputs that are derived principally from or corroborated by observable market data through correlation or other means.


•	Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The following table presents the Company's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 (Successor Company):



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities—available-for-sale
Residential mortgage-backed securities	$	—	$	1,898,480	$	3	$	1,898,483
Commercial mortgage-backed securities	—		1,811,470		—		1,811,470
Other asset-backed securities	—		648,929		562,604		1,211,533
U.S. government-related securities	1,002,020		266,139		—		1,268,159
State, municipalities, and political subdivisions	—		1,656,503		—		1,656,503
Other government-related securities	—		239,921		—		239,921
Corporate securities	—		26,707,519		664,046		27,371,565
Preferred stock	66,781		19,062		—		85,843
Total fixed maturity securities—available-for-sale	1,068,801		33,248,023		1,226,653		35,543,477
Fixed maturity securities—trading
Residential mortgage-backed securities	—		255,027		—		255,027
Commercial mortgage-backed securities	—		149,683		—		149,683
Other asset-backed securities	—		115,521		84,563		200,084
U.S. government-related securities	22,424		4,537		—		26,961
State, municipalities, and political subdivisions	—		316,519		—		316,519
Other government-related securities	—		63,012		—		63,012
Corporate securities	—		1,619,097		5,492		1,624,589
Preferred stock	3,985		—		—		3,985
Total fixed maturity securities—trading	26,409		2,523,396		90,055		2,639,860
Total fixed maturity securities	1,095,210		35,771,419		1,316,708		38,183,337
Equity securities	685,443		36		69,010		754,489
Other long-term investments⁽¹⁾⁽³⁾	82,420		335,498		124,325		542,243
Short-term investments	328,829		3,602		—		332,431
Total investments	2,191,902		36,110,555		1,510,043		39,812,500
Cash	348,182		—		—		348,182
Other assets	23,830		—		—		23,830
Assets related to separate accounts
Variable annuity	13,244,252		—		—		13,244,252
Variable universal life	895,925		—		—		895,925
Total assets measured at fair value on a recurring basis	$	16,704,091	$	36,110,555	$	1,510,043	$	54,324,689
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	87,616	$	87,616
Other liabilities⁽¹⁾⁽³⁾	13,004		163,974		571,843		748,821
Total liabilities measured at fair value on a recurring basis	$	13,004	$	163,974	$	659,459	$	836,437


(1)	Includes certain freestanding and embedded derivatives.


(2)	Represents liabilities related to fixed indexed annuities.


(3)	During 2016, the Company revised its methodology for assessing inputs to its valuation of certain centrally cleared derivatives. This change in estimate resulted in a transfer of $169.4 million in other long-term investments and $120.0 million in other liabilities from Level 1 to Level 2 of the fair value hierarchy.

The following table presents the Company's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 (Predecessor Company):



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities—available-for-sale
Residential mortgage-backed securities	$	—	$	1,765,270	$	3	$	1,765,273
Commercial mortgage-backed securities	—		1,286,887		—		1,286,887
Other asset-backed securities	—		210,020		587,031		797,051
U.S. government-related securities	1,054,353		477,824		—		1,532,177
State, municipalities, and political subdivisions	—		1,603,600		—		1,603,600
Other government-related securities	—		17,740		—		17,740
Corporate securities	83		24,941,584		902,119		25,843,786
Preferred stock	43,073		19,614		—		62,687
Total fixed maturity securities—available-for-sale	1,097,509		30,322,539		1,489,153		32,909,201
Fixed maturity securities—trading
Residential mortgage-backed securities	—		286,658		—		286,658
Commercial mortgage-backed securities	—		146,743		—		146,743
Other asset-backed securities	—		122,511		152,912		275,423
U.S. government-related securities	233,592		4,755		—		238,347
State, municipalities, and political subdivisions	—		313,354		—		313,354
Other government-related securities	—		58,827		—		58,827
Corporate securities	—		1,322,276		18,225		1,340,501
Preferred stock	2,794		1,402		—		4,196
Total fixed maturity securities—trading	236,386		2,256,526		171,137		2,664,049
Total fixed maturity securities	1,333,895		32,579,065		1,660,290		35,573,250
Equity securities	656,437		13,063		69,763		739,263
Other long-term investments⁽¹⁾	113,699		141,487		96,830		352,016
Short-term investments	261,947		6,771		—		268,718
Total investments	2,365,978		32,740,386		1,826,883		36,933,247
Cash	396,072		—		—		396,072
Other assets	19,099		—		—		19,099
Assets related to separate accounts
Variable annuity	12,829,188		—		—		12,829,188
Variable universal life	827,610		—		—		827,610
Total assets measured at fair value on a recurring basis	$	16,437,947	$	32,740,386	$	1,826,883	$	51,005,216
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	92,512	$	92,512
Other liabilities⁽¹⁾	40,067		3,932		585,556		629,555
Total liabilities measured at fair value on a recurring basis	$	40,067	$	3,932	$	678,068	$	722,067


(1)	Includes certain freestanding and embedded derivatives.


(2)	Represents liabilities related to fixed indexed annuities.

Determination of Fair Values

The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.

The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a "waterfall" approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price approximately 91% of the Company's available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using non-binding independent broker quotations, the Company obtains one quote per security, typically from the broker from which we purchased the security. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.

The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted- average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.

For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices. The Company uses a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the year ended December 31, 2016 (Successor Company).

The Company has analyzed the third party pricing services’ valuation methodologies and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.

During 2016, the Company revised its methodology for assessing inputs to its valuation of certain centrally cleared derivatives. The change in estimate resulted in a transfer of $169.4 million in other long-term assets and $120.0 million in other liabilities from Level 1 to Level 2 of the fair value hierarchy.

Asset-Backed Securities

This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or "ABS"). As of December 31, 2016 (Successor Company), the Company held $4.9 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.

After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.

As of December 31, 2016 (Successor Company), the Company held $647.2 million of Level 3 ABS, which included $562.6 million of other asset-backed securities classified as available-for-sale and $84.6 million of other asset-backed securities classified as trading. These securities within the available-for-sale portfolio are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. Due to the limited activity in the market for these securities, in periods where there are insufficient market transactions the Company prices its ARS using an income approach valuation model. As part of the valuation process the Company reviews the following characteristics of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, 7) credit ratings of the securities, 8) liquidity premium, and 9) paydown rate. In periods where market activity increases and there are transactions at a price that is not the result of a distressed or forced sale we consider those prices as part of our valuation. If the market activity during a period is solely the result of the issuer redeeming positions we consider those transactions in our valuation, but still consider them to be level three measurements due to the nature of the transaction.

Corporate Securities, U.S. Government-Related Securities, States, Municipals, and Political Subdivisions, and Other Government Related Securities

As of December 31, 2016 (Successor Company), the Company classified approximately $30.9 billion of corporate securities, U.S. government-related securities, states, municipals, and political subdivisions, and other government-related securities as Level 2. The fair value of the Level 2 securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the securities are considered to be the primary relevant inputs to the valuation: 1) weighted- average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.

The brokers and third party pricing service utilize valuation models that consist of a hybrid income and market approach to valuation. The pricing models utilize the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.

As of December 31, 2016 (Successor Company), the Company classified approximately $669.5 million of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.

Equities

As of December 31, 2016 (Successor Company), the Company held approximately $69.0 million of equity securities classified as Level 2 and Level 3. Of this total, $65.7 million represents FHLB stock. The Company believes that the cost of the FHLB stock approximates fair value.

Other Long-Term Investments and Other Liabilities

Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 8, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of December 31, 2016 (Successor Company), 100% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.

Derivative instruments classified as Level 1 generally include futures and options, which are traded on active exchange markets.

Derivative instruments classified as Level 2 primarily include swaps, options, and swaptions, which are traded over-the-counter. Level 2 also includes certain centrally cleared derivatives. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.

Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.

The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.

The embedded derivatives are carried at fair value in other long-term investments and other liabilities on the Company's consolidated balance sheet. The changes in fair value are recorded in earnings as "Realized investment gains (losses)—Derivative financial instruments". Refer to Note 8, Derivative Financial Instruments for more information related to each embedded derivatives gains and losses.

The fair value of the GLWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity volatilities and correlations. The projected equity volatilities are based on a blend of historical volatility and near- term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the Ruark 2015 ALB table with attained age factors varying from 91.1% - 106.6%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR plus a credit spread (to represent the Company's non-performance risk). As a result of using significant unobservable inputs, the GLWB embedded derivative is categorized as Level 3. These assumptions are reviewed on a quarterly basis.

The balance of the FIA embedded derivative is impacted by policyholder cash flows associated with the FIA product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the FIA embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 1994 Variable Annuity MGDB mortality table modified with company experience, with attained age factors varying from 46% - 113%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company's non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.

The balance of the indexed universal life (“IUL”) embedded derivative is impacted by policyholder cash flows associated with the IUL product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the IUL embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the SOA 2015 VBT Primary Tables modified with company experience, with attained age factors varying from 38% - 153%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company's non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the IUL embedded derivative is categorized as Level 3.

The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements are designated as "trading securities"; therefore changes in their fair value are also reported in earnings. As of December 31, 2016 (Successor Company), the fair value of the embedded derivative is based upon the relationship between the statutory policy liabilities (net of policy loans) of $2.4 billion and the statutory unrealized gain (loss) of the securities of $147.3 million. As a result, changes in the fair value of the embedded derivatives are largely offset by the changes in fair value of the related investments and each are reported in earnings. The fair value of the embedded derivative is considered a Level 3 valuation due to the unobservable nature of the policy liabilities.

Annuity Account Balances

The Company records a certain legacy block of FIA reserves at fair value. Based on the characteristics of these reserves, the Company believes that the fund value approximates fair value. The fair value measurement of these reserves is considered a Level 3 valuation due to the unobservable nature of the fund values. The Level 3 fair value as of December 31, 2016 (Successor Company) is $87.6 million.

Separate Accounts

Separate account assets are invested in open-ended mutual funds and are included in Level 1.

Valuation of Level 3 Financial Instruments

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:



	Successor Company
	Fair Value As of December 31, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	553,308	Liquidation	Liquidation value	$88 - $97.25 ($95.04)
Corporate securities	638,279		Discounted cash flow	Spread over treasury	0.31% - 4.50% (2.04%)
Liabilities:⁽¹⁾
Embedded derivatives—GLWB⁽²⁾	$	115,370	Actuarial cash flow model	Mortality	91.1% to 106.6% of Ruark 2015 ALB table
				Lapse	0.3% - 15%, depending on product/duration/funded status of guarantee
				Utilization	99%. 10% of policies have a one-time over-utilization of 400%
				Nonperformance risk	0.18% - 1.09%
Embedded derivative—FIA	147,368		Actuarial cash flow model	Expenses	$126 per policy
				Asset Earned Rate	4.08% - 4.66%
				Withdrawal rate	1% prior to age 70, 100% of the RMD for ages 70+
				Mortality	1994 MGDB table with company experience
				Lapse	2.0% - 40.0%, depending on duration/surrender charge period
				Nonperformance risk	0.18% - 1.09%
Embedded derivative—IUL	46,051		Actuarial cash flow model	Mortality	38% - 153% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending on duration/distribution channel and smoking class
				Nonperformance risk	0.18% - 1.09%


(1)	Excludes modified coinsurance arrangements.


(2)	The fair value for the GLWB embedded derivative is presented as a net liability.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and those which book value approximates fair value.

The Company has considered all reasonably available quantitative inputs as of December 31, 2016 (Successor Company), but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $128.2 million of financial instruments being classified as Level 3 as of December 31, 2016 (Successor Company). Of the $128.2 million, $93.9 million are other asset-backed securities, $31.3 million are corporate securities, and $3.1 million are equity securities.

In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2016 (Successor Company), the Company held $65.9 million of financial instruments where book value approximates fair value which was predominantly FHLB stock.

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:



	Successor Company
	Fair Value As of December 31, 2015		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	587,031	Discounted cash flow	Liquidity premium	0.27% - 1.49% (0.42%)
				Paydown rate	10.20% - 14.72% (13.11%)
Corporate securities	875,810		Discounted cash flow	Spread over treasury	0.10% - 19.00% (2.61%)
Liabilities:⁽¹⁾
Embedded derivatives—GLWB⁽²⁾	$	181,612	Actuarial cash flow model	Mortality	1994 MGDB table with company experience
				Lapse	0.3% - 15%, depending on product/duration/funded status of guarantee
				Utilization	99%. 10% of policies have a one-time over-utilization of 400%
				Nonperformance risk	0.18% - 1.04%
Annuity account balances⁽³⁾	92,512		Actuarial cash flow model	Asset earned rate	4.53% - 5.67%
				Expenses	$81 per policy
				Withdrawal rate	2.20%
				Mortality	1994 MGDB table with company experience
				Lapse	2.2% - 33.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.18% - 1.04%
Embedded derivative—FIA	100,329		Actuarial cash flow model	Expenses	$81.50 per policy
				Withdrawal rate	1.1% - 4.5% depending on duration and tax qualification
				Mortality	1994 MGDB table with company experience
				Lapse	2.5% - 40.0%, depending on duration/surrender charge period
				Nonperformance risk	0.18% - 1.04%
Embedded derivative - IUL	29,629		Actuarial cash flow model	Mortality	38% - 153% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending on duration/distribution channel and smoking class
				Nonperformance risk	0.18% - 1.04%


(1)	Excludes modified coinsurance arrangements.


(2)	The fair value for the GLWB embedded derivative is presented as a net liability.


(3)	Represents liabilities related to fixed indexed annuities.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and those which book value approximates fair value.

The Company has considered all reasonably available quantitative inputs as of December 31, 2015 (Successor Company), but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $200.5 million of financial instruments being classified as Level 3 as of December 31, 2015 (Successor Company). Of the $200.5 million, $152.9 million are other asset-backed securities, $44.5 million are corporate securities, and $3.1 million are equity securities.

In certain cases the Company determined that book value materially approximates fair value. As of December 31, 2015 (Successor Company), the Company held $66.7 million of financial instruments where book value approximates fair value, which was predominantly FHLB stock.

The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’ fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease in the liquidity premium would increase the fair value of these securities. The liquidation value for these securities are sensitive to the issuer's available cash flows and ability to redeem the securities, as well as the current holders' willingness to liquidate at the specified price.

The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease, and decreases when spreads increase.

The fair value of the GLWB embedded derivative is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the fair value of the liability and conversely, if there is a decrease in the assumptions the fair value would increase. The fair value is also dependent on the assumed policyholder utilization of the GLWB where an increase in assumed utilization would result in an increase in the fair value of the liability and conversely, if there is a decrease in the assumption, the fair value would decrease.

The fair value of the FIA embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and nonperformance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.

The fair value of the IUL embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the IUL embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and non-performance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for year ended December 31, 2016 (Successor Company), for which the Company has used significant unobservable inputs (Level 3):



																														Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	3	$	—
Commercial mortgage-backed securities	—		—		7		—			(1,750		)	25,607		—			—		—		(23,844		)	(20		)	—		—
Other asset-backed securities	587,031		6,859		42,865		—			(29,673		)	30,441		(79,314		)	—		—		7,457			(3,062		)	562,604		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate securities	902,119		925		40,574		(4,135		)	(33,151		)	102,426		(225,557		)	—		—		(109,792		)	(9,363		)	664,046		—
Total fixed maturity securities— available-for-sale	1,489,153		7,784		83,446		(4,135		)	(64,574		)	158,474		(304,871		)	—		—		(126,179		)	(12,445		)	1,226,653		—
Fixed maturity securities—trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	152,912		5,386		—		(4,790		)	—			—		(70,270		)	—		—		172			1,153			84,563		594
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate securities	18,225		713		—		(442		)	—			10,906		(4,071		)	—		—		(19,722		)	(117		)	5,492		101
Total fixed maturity securities—trading	171,137		6,099		—		(5,232		)	—			10,906		(74,341		)	—		—		(19,550		)	1,036			90,055		695
Total fixed maturity securities	1,660,290		13,883		83,446		(9,367		)	(64,574		)	169,380		(379,212		)	—		—		(145,729		)	(11,409		)	1,316,708		695
Equity securities	69,763		—		—		(740		)	—			23		—			—		—		(36		)	—			69,010		—
Other long-term investments⁽¹⁾	96,830		77,108		—		(49,613		)	—			—		—			—		—		—			—			124,325		27,495
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	1,826,883		90,991		83,446		(59,720		)	(64,574		)	169,403		(379,212		)	—		—		(145,765		)	(11,409		)	1,510,043		28,190
Total assets measured at fair value on a recurring basis	$	1,826,883	$	90,991	$	83,446	$	(59,720	)	$	(64,574	)	$	169,403	$	(379,212	)	$	—	$	—	$	(145,765	)	$	(11,409	)	$	1,510,043	$	28,190
Liabilities:
Annuity account balances⁽²⁾	$	92,512	$	—	$	—	$	(3,144	)	$	—		$	—	$	—		$	555	$	9,844	$	—		$	1,249		$	87,616	$	—
Other liabilities⁽¹⁾	585,556		499,894		—		(486,181		)	—			—		—			—		—		—			—			571,843		13,713
Total liabilities measured at fair value on a recurring basis	$	678,068	$	499,894	$	—	$	(489,325	)	$	—		$	—	$	—		$	555	$	9,844	$	—		$	1,249		$	659,459	$	13,713


(1)	Represents certain freestanding and embedded derivatives.


(2)	Represents liabilities related to fixed indexed annuities.

For the year ended December 31, 2016 (Successor Company), there were $75.7 million transfers of securities into Level 3.

For the year ended December 31, 2016 (Successor Company), $221.5 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of December 31, 2016 (Successor Company).

For the year ended December 31, 2016 (Successor Company), there were $12.2 million transfers from Level 2 to Level 1.

For the year ended December 31, 2016 (Successor Company), there were $0.1 million transfers from Level 1 into Level 2. In addition, there was transfers of $169.4 million in other long-term investments and $120.0 million in other liabilities from Level 1 to Level 2.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for period of February 1, 2015 to December 31, 2015 (Successor Company), for which the Company has used significant unobservable inputs (Level 3):



																														Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	3	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	603,646		—		11,040		(92		)	(17,076		)	—		(9,677		)	—		—		—			(810		)	587,031		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals, and political subdivisions	3,675		—		—		—			—			—		(3,675		)	—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate securities	1,307,259		4,367		24,490		(963		)	(52,898		)	199,924		(407,052		)	—		—		(164,588		)	(8,420		)	902,119		—
Total fixed maturity securities— available-for-sale	1,914,583		4,367		35,530		(1,055		)	(69,974		)	199,924		(420,404		)	—		—		(164,588		)	(9,230		)	1,489,153		—
Fixed maturity securities—trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	169,473		6,260		—		(7,967		)	—			2,000		(15,154		)	—		—		(1,982		)	282			152,912		(5,804		)
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate securities	25,130		501		—		(1,407		)	—			—		(5,805		)	—		—		—			(194		)	18,225		(1,430		)
Total fixed maturity securities—trading	194,603		6,761		—		(9,374		)	—			2,000		(20,959		)	—		—		(1,982		)	88			171,137		(7,234		)
Total fixed maturity securities	2,109,186		11,128		35,530		(10,429		)	(69,974		)	201,924		(441,363		)	—		—		(166,570		)	(9,142		)	1,660,290		(7,234		)
Equity securities	73,044		—		44		—			—			—		(231		)	—		—		—			(3,094		)	69,763		—
Other long-term investments⁽¹⁾	93,274		78,095		—		(74,539		)	—			—		—			—		—		—			—			96,830		3,556
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	2,275,504		89,223		35,574		(84,968		)	(69,974		)	201,924		(441,594		)	—		—		(166,570		)	(12,236		)	1,826,883		(3,678		)
Total assets measured at fair value on a recurring basis	$	2,275,504	$	89,223	$	35,574	$	(84,968	)	$	(69,974	)	$	201,924	$	(441,594	)	$	—	$	—	$	(166,570	)	$	(12,236	)	$	1,826,883	$	(3,678	)
Liabilities:
Annuity account balances⁽²⁾	$	98,279	$	—	$	—	$	(6,156	)	$	—		$	—	$	—		$	368	$	12,291	$	—		$	—		$	92,512	$	—
Other liabilities⁽¹⁾	742,130		450,253		—		(293,679		)	—			—		—			—		—		—			—			585,556		156,574
Total liabilities measured at fair value on a recurring basis	$	840,409	$	450,253	$	—	$	(299,835	)	$	—		$	—	$	—		$	368	$	12,291	$	—		$	—		$	678,068	$	156,574


(1)	Represents certain freestanding and embedded derivatives.


(2)	Represents liabilities related to fixed indexed annuities.

For the period of February 1, 2015 to December 31, 2015 (Successor Company), there were no transfers of securities into Level 3.

For the period of February 1, 2015 to December 31, 2015 (Successor Company), $166.6 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of December 31, 2015 (Successor Company).

For the period of February 1, 2015 to December 31, 2015 (Successor Company), there were $90.4 million transfers from Level 2 to Level 1.

For the period of February 1, 2015 to December 31, 2015 (Successor Company), there were $21.0 million transfers from Level 1 into Level 2.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), for which the Company has used significant unobservable inputs (Level 3):



																													Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3		Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	3	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	563,961		—		—		—			(3,867		)	—		(32		)	—		—		43,205		379			603,646		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	3,675		—		—		—			—			—		—			—		—		—		—			3,675		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate securities	1,325,683		—		12,282		—			(23,029		)	—		(7,062		)	—		—		—		(615		)	1,307,259		—
Total fixed maturity securities— available-for-sale	1,893,322		—		12,282		—			(26,896		)	—		(7,094		)	—		—		43,205		(236		)	1,914,583		—
Fixed maturity securities—trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	169,461		586		—		(139		)	—			—		(472		)	—		—		—		37			169,473		447
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate securities	24,744		602		—		(196		)	—			—		(20		)	—		—		—		—			25,130		406
Total fixed maturity securities—trading	194,205		1,188		—		(335		)	—			—		(492		)	—		—		—		37			194,603		853
Total fixed maturity securities	2,087,527		1,188		12,282		(335		)	(26,896		)	—		(7,586		)	—		—		43,205		(199		)	2,109,186		853
Equity securities	73,054		—		—		—			(10		)	—		—			—		—		—		—			73,044		—
Other long-term investments⁽¹⁾	67,894		753		—		(25,902		)	—			—		—			—		—		—		—			42,745		(25,149		)
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	2,228,475		1,941		12,282		(26,237		)	(26,906		)	—		(7,586		)	—		—		43,205		(199		)	2,224,975		(24,296		)
Total assets measured at fair value on a recurring basis	$	2,228,475	$	1,941	$	12,282	$	(26,237	)	$	(26,906	)	$	—	$	(7,586	)	$	—	$	—	$	43,205	$	(199	)	$	2,224,975	$	(24,296	)
Liabilities:
Annuity account balances⁽²⁾	$	97,825	$	—	$	—	$	(536	)	$	—		$	—	$	—		$	7	$	419	$	—	$	—		$	97,949	$	—
Other liabilities⁽¹⁾	754,852		61		—		(253,773		)	—			—		—			—		—		—		—			1,008,564		(253,712		)
Total liabilities measured at fair value on a recurring basis	$	852,677	$	61	$	—	$	(254,309	)	$	—		$	—	$	—		$	7	$	419	$	—	$	—		$	1,106,513	$	(253,712	)


(1)	Represents certain freestanding and embedded derivatives.


(2)	Represents liabilities related to fixed indexed annuities.

For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), $43.2 million of securities were transferred into Level 3. This amount was transferred from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods, using no significant unobservable inputs, but were priced internally using significant unobservable inputs where market observable inputs were no longer available as of January 31, 2015 (Predecessor Company). All transfers are recognized as of the end of the period.

For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), there were no transfers from Level 3 to Level 2.

For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), there were no transfers from Level 2 to Level 1 and there were no transfers out of Level 1.

Total realized and unrealized gains (losses) on Level 3 assets and liabilities are primarily reported in either realized investment gains (losses) within the consolidated condensed statements of income (loss) or other comprehensive income (loss) within shareowner’s equity based on the appropriate accounting treatment for the item.

Purchases, sales, issuances, and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of fixed indexed annuities.

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 at the beginning fair value for the reporting period in which the changes occur. The asset transfers in the table(s) above primarily related to positions moved from Level 3 to Level 2 as the Company determined that certain inputs were observable.

The amount of total gains (losses) for assets and liabilities still held as of the reporting date primarily represents changes in fair value of trading securities and certain derivatives that exist as of the reporting date and the change in fair value of fixed indexed annuities.

Estimated Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company's financial instruments as of the periods shown below are as follows:



		Successor Company
		As of December 31,
		2016				2015
	Fair Value Level	Carrying Amounts		Fair Values		Carrying Amounts		Fair Values
		(Dollars In Thousands)				(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	6,132,125	$	5,930,992	$	5,662,812	$	5,529,803
Policy loans	3	1,650,240		1,650,240		1,699,508		1,699,508
Fixed maturities, held-to-maturity⁽¹⁾	3	2,770,177		2,733,340		593,314		515,000
Liabilities:
Stable value product account balances	3	$	3,501,636	$	3,488,877	$	2,131,822	$	2,124,712
Future policy benefits and claims⁽²⁾	3	221,634		221,658		226,499		226,527
Other policyholders' funds⁽³⁾	3	135,367		136,127		132,840		133,657
Debt:
Bank borrowings	3	$	170,000	$	170,000	$	485,000	$	485,000
Senior Notes	2	993,285		937,074		1,103,806		1,020,025
Subordinated debt securities	2	441,202		443,355		448,763		457,275
Non-recourse funding obligations⁽⁴⁾	3	2,796,474		2,765,558		685,684		614,380

Except as noted below, fair values were estimated using quoted market prices.


(1)	Securities purchased from unconsolidated subsidiaries, Red Mountain LLC and Steel City LLC.


(2)	Single premium immediate annuity without life contingencies.


(3)	Supplementary contracts without life contingencies.


(4)	Of this carrying amount $565.0 million, fair value of $567.1 million, as of December 31, 2016 (Successor Company), and $500.0 million, fair value of $495.5 million, as of December 31, 2015 (Successor Company), relates to non-recourse funding obligations issued by Golden Gate V.

Fair Value Measurements

Mortgage loans on real estate

The Company estimates the fair value of mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company’s current mortgage loan lending rate and an expected cash flow analysis based on a review of the mortgage loan terms. The model also contains the Company’s determined representative risk adjustment assumptions related to credit and liquidity risks.

Policy loans

The Company believes the fair value of policy loans approximates book value. Policy loans are funds provided to policy holders in return for a claim on the policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of repayments, the Company believes the fair value of policy loans approximates carrying value.

Fixed maturities, held-to-maturity

The Company estimates the fair value of its fixed maturity, held-to-maturity securities using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.

Stable value product and other investment contract balances

The Company estimates the fair value of stable value product account balances and other investment contract balances (included in Future policy benefits and claims as well as Other policyholder funds line items on our balance sheet) using models based on discounted expected cash flows. The discount rates used in the models are based on a current market rate for similar financial instruments.

Previously, the Company's policy had been to disclose the fair value of annuity account balances, as reported on the consolidated balance sheets, in the table above. During 2016, the Company revised its classification criteria with respect to the disclosure of its insurance products to include only guaranteed investment contracts, term-certain annuities, and similar products which are classified as investment contracts pursuant to ASC 944 - Insurance Contracts. Amounts in the table above, including the comparative figures as of December 31, 2015 (Successor Company), reflect this policy change, which the Company believes this provides more detailed and useful information to financial statement users.

Debt

Bank borrowings

The Company believes the carrying value of its bank borrowings approximates fair value as the borrowings pay a floating interest rate plus a spread based on the rating of the Company’s senior debt which the Company believes approximates a market interest rate.

Non-recourse funding obligations

The Company estimates the fair value of its non-recourse funding obligations using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.