Derivative Instruments

The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. The Company also may enter into and has previously issued financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or as embedded derivative instruments, such as certain GMWB riders included with certain variable annuity products.

Strategies that Qualify for Hedge Accounting

Some of the Company's derivatives satisfy hedge accounting requirements as outlined in Note 1 of these financial statements. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities or liability contracts. As a result of pushdown accounting, derivative instruments that previously qualified for hedge accounting were de-designated and recorded at fair value through adjustments to additional paid in capital at the acquisition date. The hedge strategies by hedge accounting designation include:

Cash Flow Hedges

Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on floating-rate fixed maturity securities to fixed rates. Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.

Non-qualifying Strategies

Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include the hedge program for the Company's variable annuity products as well as the hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate, foreign currency and equity risk of certain fixed maturities, equities and liabilities do not qualify for hedge accounting.

The non-qualifying strategies include:

Interest Rate Swaps, Swaptions, and Futures

The Company uses interest rate swaps, swaptions, and futures to manage interest rate duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of both December 31, 2019 and 2018 (Successor Company), the notional amount of interest rate swaps in offsetting relationships was $1.3 billion and $1.5 billion, respectively.

Foreign Currency Swaps and Forwards

The Company enters into foreign currency swaps to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars. The Company also enters into foreign currency forwards to hedge non-U.S. dollar denominated cash.

Fixed Payout Annuity Hedge

The Company previously had obligations for certain yen denominated fixed payout annuities under an assumed reinsurance contract. The Company had in place swap contracts to hedge the currency and yen interest rate exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments. The last swap matured on October 31, 2019.

Credit Contracts

Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Equity Index Swaps and Options

The Company enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio.

GMWB Derivatives, net

The Company formerly offered certain variable annuity products with GMWB riders. The GMWB product is a bifurcated embedded derivative (“GMWB product derivatives”) that has a notional value equal to the GRB. The Company uses reinsurance contracts to transfer a portion of its risk of loss due to GMWB. The reinsurance contracts covering GMWB (“GMWB reinsurance contracts”) are accounted for as free-standing derivatives with a notional amount equal to the GRB reinsured.

The Company utilizes derivatives (“GMWB hedging instruments”) as part of a dynamic hedging program designed to hedge a portion of the capital market risk exposures of the non-reinsured GMWB riders. The GMWB hedging instruments hedge changes in interest rates, equity market levels, and equity volatility. These derivatives include customized swaps, interest rate swaps and futures, and equity swaps, options and futures, on certain indices including the S&P 500 index, EAFE index and NASDAQ index. The Company retains the risk for differences between assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.



GMWB Hedging Instruments
	Successor Company
	Notional Amount				Fair Value
	December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018
Customized swaps	$	3,938	$	3,877	$	34		$	71
Equity swaps, options, and futures	855		776		(2		)	(25		)
Interest rate swaps and futures	2,189		3,140		41			25
Total	$	6,982	$	7,793	$	73		$	71

Macro Hedge Program

The Company utilizes equity swaps, options, and futures as well as interest rate swaps to provide protection against the statutory tail scenario risk to the Company's statutory surplus arising from higher GMWB and guaranteed minimum death benefits ("GMDB") claims as well as lower variable annuity fee revenue. These derivatives cover some of the residual risks not otherwise covered by the dynamic hedging program.

Modified Coinsurance Reinsurance Contracts

As of December 31, 2019 and 2018 (Successor Company), the Company had approximately $819 and $798, respectively, of invested assets supporting other policyholder funds and benefits payable reinsured under a modified coinsurance arrangement in connection with the sale of the Individual Life business, which was structured as a reinsurance transaction. The assets are primarily held in a trust established by the Company. The Company pays or receives cash quarterly to settle the operating results of the reinsured business, including the investment results. As a result of this modified coinsurance arrangement, the Company has an embedded derivative that transfers to the reinsurer certain unrealized changes in fair value of investments subject to interest rate and credit risk. The notional amount of the embedded derivative reinsurance contracts are the invested assets which are carried at fair value and support the reinsured reserves.

Derivative Balance Sheet Classification

For reporting purposes, the Company has elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The following fair value amounts do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivatives in the Company’s separate accounts, where the associated gains and losses accrue directly to policyholders are not included in the table below. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk. The following tables exclude investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section of Note 2 - Fair Value Measurements in Notes to Consolidated Financial Statements.



Successor Company
	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
Hedge Designation/ Derivative Type	Dec 31, 2019		Dec 31, 2018		Dec 31, 2019			Dec 31, 2018			Dec 31, 2019		Dec 31, 2018		Dec 31, 2019			Dec 31, 2018
Cash flow hedges
Foreign currency swaps	$	10	$	—	$	—		$	—		$	—	$	—	$	—		$	—
Total cash flow hedges	10		—		—			—			—		—		—			—
Non-qualifying strategies
Interest rate contracts
Interest rate swaps and futures	3,082		3,152		(39		)	(101		)	11		38		(50		)	(139		)
Foreign exchange contracts
Foreign currency swaps and forwards	225		225		(7		)	(9		)	9		7		(16		)	(16		)
Fixed payout annuity hedge	—		270		—			(82		)	—		—		—			(82		)
Credit contracts
Credit derivatives that purchase credit protection	40		45		(1		)	(1		)	—		—		(1		)	(1		)
Credit derivatives that assume credit risk [1]	—		372		—			3			—		3		—			—
Credit derivatives in offsetting positions	—		43		—			—			—		5		—			(5		)
Equity contracts
Equity index swaps and options	2,000		—		—			—			—		—		—			—
Variable annuity hedge program
GMWB product derivatives [2]	8,717		9,957		5			(80		)	23		—		(18		)	(80		)
GMWB reinsurance contracts	1,869		2,115		17			40			17		40		—			—
GMWB hedging instruments	6,982		7,793		73			71			89		114		(16		)	(43		)
Macro hedge program	19,879		10,765		(114		)	247			98		288		(212		)	(41		)
Other
Modified coinsurance reinsurance contracts	819		798		(43		)	12			—		12		(43		)	—
Total non-qualifying strategies	43,613		35,535		(109		)	100			247		507		(356		)	(407		)
Total cash flow hedges and non-qualifying strategies	$	43,623	$	35,535	$	(109	)	$	100		$	247	$	507	$	(356	)	$	(407	)
Balance Sheet Location
Fixed maturities, available-for-sale	$	43	$	41	$	—		$	—		$	—	$	—	$	—		$	—
Other investments	5,779		11,000		72			212			83		248		(11		)	(36		)
Other liabilities	26,396		11,623		(160		)	(84		)	124		207		(284		)	(291		)
Reinsurance recoverables	2,688		2,914		(26		)	52			17		52		(43		)	—
Other policyholder funds and benefits payable	8,717		9,957		5			(80		)	23		—		(18		)	(80		)
Total derivatives	$	43,623	$	35,535	$	(109	)	$	100		$	247	$	507	$	(356	)	$	(407	)


[1]	The derivative instruments related to this strategy are held for other investment purposes.


[2]	These derivatives are embedded within liabilities and are not held for risk management purposes.

Offsetting of Derivative Assets/Liabilities

The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset on the Company's Consolidated Balance Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.



Offsetting Derivative Assets and Liabilities (Successor Company)
	(i)			(ii)			(iii) = (i) - (ii)									(v) = (iii) - (iv)
							Net Amounts Presented on the Statement of Financial Position						Collateral Disallowed for Offset on the Statement of Financial Position
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset on the Statement of Financial Position			Derivative Assets [1] (Liabilities) [2]			Accrued Interest and Cash Collateral (Received) [3] Pledged [2]			Financial Collateral (Received) Pledged [4]			Net Amount
As of December 31, 2019
Other investments	$	207		$	187		$	72		$	(52	)	$	8		$	12
Other liabilities	(295		)	(91		)	(160		)	(44		)	(204		)	—
As of December 31, 2018
Other investments	$	455		$	352		$	212		$	(109	)	$	65		$	38
Other liabilities	(327		)	(147		)	(84		)	(96		)	(178		)	(2		)


[1]	Included in other invested assets on the Company's Consolidated Balance Sheets.


[2]	Included in other liabilities on the Company's Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.


[3]	Included in other investments on the Company's Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.


[4]	Excludes collateral associated with exchange-traded derivative instruments.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.



Derivatives in Cash Flow Hedging Relationships
	Gain (Loss) Recognized in OCI
	Successor Company				Predecessor Company
	For the Year Ended December 31, 2019		June 1, 2018 to December 31, 2018		January 1, 2018 to May 31, 2018			For the Year Ended December 31, 2017
Interest rate swaps	$	—	$	—	$	(17	)	$	(13	)
Foreign currency swaps	—		—		—			4
Total	$	—	$	—	$	(17	)	$	(9	)

Derivatives in Cash Flow Hedging Relationships (Successor Company)

Gain or (Loss) Reclassified from AOCI into Income

For the Year Ended December 31, 2019

June 1, 2018 to December 31, 2018

Net Capital
Gain/(Loss)

Net Investment Income

Net Capital
Gain/(Loss)

Net Investment Income

Interest rate swaps

—

Foreign currency swaps

—

Total

—



Derivatives in Cash Flow Hedging Relationships (Predecessor Company)
	Gain or (Loss) Reclassified from AOCI into Income
	January 1, 2018 to May 31, 2018					For the Year Ended December 31, 2017
	Net Capital Gain/(Loss)			Net Investment Income		Net Capital Gain/(Loss)			Net Investment Income
Interest rate swaps	—			8		(1		)	26
Foreign currency swaps	(2		)	—		11			—
Total	$	(2	)	$	8	$	10		$	26
Total Amounts Presented on the Consolidated Statement of Operations	$	(107	)	$	520	$	(60	)	$	1,281

For all periods presented, the Company had no net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

Non-qualifying Strategies

For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses).



Non-qualifying Strategies Gain (Loss) Recognized within Net Realized Capital Gains (Losses)
	Successor Company						Predecessor Company
	For the Year Ended December 31, 2019			June 1, 2018 to December 31, 2018			January 1, 2018 to May 31, 2018			For the Year Ended December 31, 2017
Variable annuity hedge program
GMWB product derivatives	$	134		$	(25	)	$	82		$	231
GMWB reinsurance contracts	(13		)	1			(25		)	(49		)
GMWB hedging instruments	(68		)	36			(45		)	(134		)
Macro hedge program	(418		)	153			(36		)	(260		)
Total variable annuity hedge program	(365		)	165			(24		)	(212		)
Foreign exchange contracts
Foreign currency swaps and forwards	—			2			(3		)	(9		)
Fixed payout annuity hedge	(4		)	(15		)	10			4
Total foreign exchange contracts	(4		)	(13		)	7			(5		)
Other non-qualifying derivatives
Interest rate contracts
Interest rate swaps, swaptions, and futures	103			23			(40		)	4
Credit contracts
Credit derivatives that purchase credit protection	—			—			1			(12		)
Credit derivatives that assume credit risk	7			(1		)	(3		)	18
Equity contracts
Equity index swaps and options	(1		)	—			—			3
Other
Modified coinsurance reinsurance contracts	(55		)	13			32			(13		)
Total other non-qualifying derivatives	54			35			(10		)	—
Total [1]	$	(315	)	$	187		$	(27	)	$	(217	)


[1]	Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 2 - Fair Value Measurements of Notes to the Consolidated Financial Statements.

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions that are permissible under the Company's investment policies. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard diversified portfolios of corporate and CMBS issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings. As of December 31, 2019 (Successor Company), the Company did not hold any credit derivatives that assume credit risk.



As of December 31, 2018 (Successor Company)
							Underlying Referenced Credit Obligation(s) [1]
Credit Derivative Type by Derivative Risk Exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	80	$	1		4 years	Corporate Credit/ Foreign Gov.	A	$	—	$	—
Basket credit default swaps [4]
Investment grade risk exposure	202		1			5 years	Corporate Credit	BBB+	—		—
Below investment grade risk exposure	80		2			5 years	Corporate Credit	B+	—		—
Investment grade risk exposure	12		(1		)	5 years	CMBS Credit	A-	2		—
Below investment grade risk exposure	19		(5		)	Less than 1 Year	CMBS Credit	B-	19		5
Total [5]	$	393	$	(2	)				$	21	$	5


[1]	The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.


[2]	Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements and applicable law which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.


[3]	The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.


[4]	Comprised of swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.


[5]	Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 2 - Fair Value Measurements of Notes to the Consolidated Financial Statements.

Derivative Collateral Arrangements

The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of December 31, 2019 and 2018 (Successor Company), the Company pledged cash collateral with a fair value of $10 and $2, respectively, associated with derivative instruments. The collateral receivable has been recorded in other assets or other liabilities on the Company's Consolidated Balance Sheets, as determined by the Company's election to offset on the balance sheet. As of December 31, 2019 and 2018 (Successor Company), the Company also pledged securities collateral associated with derivative instruments with a fair value of $214 and $191, respectively, which have been included in fixed maturities on the Consolidated Balance Sheets. The counterparties generally have the right to sell or re-pledge these securities. In addition, as of December 31, 2019 and 2018 (Successor Company), the Company has pledged initial margin of securities related to OTC-cleared and exchange traded derivatives with a fair value of $165 and $85, respectively.

As of December 31, 2019 and 2018 (Successor Company), the Company accepted cash collateral associated with derivative instruments of $188 and $402, respectively, which was invested and recorded on the Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other investments or other liabilities as determined by the Company's election to offset on the balance sheet. The Company also accepted securities collateral as of December 31, 2019 and 2018 (Successor Company) with a fair value of $9 and $76, respectively, all of which the Company has the right to sell or repledge. As of December 31, 2019 (Successor Company), the Company has not repledged securities and did not sell any securities. The non-cash collateral accepted was held in separate custodial accounts and was not included on the Company's Consolidated Balance Sheets.