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Derivatives

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 and currency exchange rate exposures or movements. 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.

Derivatives Designated and Qualifying as Hedging Instruments

Some of the Company's derivatives satisfy hedge accounting requirements as outlined in Note 1 - Basis of Presentation and Significant Accounting Policies 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. 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.

Derivatives Not Designated as Hedging Instruments

Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include the hedge program for the Company's VA 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 December 31, 2023 (Successor Company), there were no interest rate swaps in offsetting relationships and as of December 31, 2022 (Successor Company), the notional amount of interest rate swaps in offsetting relationships was $276.

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.

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 or the Company 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.

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 GMDB claims, as well as lower VA fee revenue.

Embedded Derivatives

The Company has assumed through reinsurance certain FIA products with index-based crediting that constitutes an embedded derivative. The cedant hedges this risk and provides the benefits of this hedging as part of the reinsurance settlements.

The Company formerly offered, and subsequently fully reinsured, certain UL products with index-linked features that also constitute an embedded derivative.

Ceded Modified Coinsurance Reinsurance Contracts

As of December 31, 2023 and 2022 (Successor Company), the Company had approximately $877 and $645, 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 trust accounts 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 reinsured liabilities which are generally measured on a statutory basis and equivalent to the book value of the identified invested assets which support the reinsured reserves. The identified underlying is the total return on the identified invested assets which support the reinsured reserves. A funds withheld liability is recorded for funds contractually withheld by the Company under funds withheld modified coinsurance arrangements in which the Company is the cedant.

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 FVO.

The table below provides a summary of the gross notional amount and fair value of derivative contracts by the primary underlying risks they are utilized to manage. The fair value amounts below represent the value of derivative contracts prior to taking into account the netting effects of master netting agreements, accrued interest, and cash collateral.


	Notional Amount		Fair Value
			Net		Assets		Liabilities
As of December 31, 2023
Designated and qualifying as hedges
Cash flow hedges
Interest rate swaps	$	250	$	(29)	$	—	$	29

Not designated as hedges
Embedded derivatives
Funds withheld on modified coinsurance [2] [3]	—		302		—		(302)
Fixed indexed annuities [2] [3]	—		(135)		406		541
Other [2] [3]	—		—		(5)		(5)
Total embedded derivatives	—		167		401		234

Freestanding derivatives [1]
Variable annuities macro hedge program	10,340		5		151		146
Foreign currency swaps and forwards	202		12		12		—
Interest rate swaps, swaptions, and futures	1,087		(188)		—		188


	Notional Amount		Fair Value
			Net		Assets		Liabilities
Credit derivatives	500		10		10		—
Total freestanding derivatives	12,129		(161)		173		334

Total not designated as hedges	12,129		6		574		568

Total derivatives	$	12,379	$	(23)	$	574	$	597

As of December 31, 2022
Designated and qualifying as hedges
Cash flow hedges [1]
Interest rate swaps	$	250	$	—	$	—	$	—

Not designated as hedges
Embedded derivatives
Funds withheld on modified coinsurance [2] [3]	—		726		129		(597)
Fixed indexed annuities [2] [3]	—		(81)		243		324
Other [2] [3]	—		—		(29)		(29)
Total embedded derivatives	—		645		343		(302)

Freestanding derivatives [1]
Variable annuities macro hedge program	22,823		211		506		295
Foreign currency swaps and forwards	161		15		16		1
Interest rate swaps, swaptions, and futures	1,363		(1)		3		4
Credit derivatives	500		4		4		—
Total freestanding derivatives	24,847		229		529		300

Total not designated as hedges	24,847		874		872		(2)

Total derivatives	$	25,097	$	874	$	872	$	(2)

[1]Represents the gross fair value of freestanding derivatives excluding collateral and accrued income which are recorded in other investments and other liabilities on the balance sheets.

[2]For certain assumed and ceded reinsurance agreements the notional value is not indicative of the volume of activity. Refer to Note 6 - Reinsurance for additional information regarding the activity which generated the value of the embedded derivative.

[3]These derivatives are not held for risk management purposes. Assets are recorded in reinsurance recoverables and liabilities in other policyholder funds and benefits payable.

Offsetting of Derivative Assets/Liabilities

The following table presents the gross fair value amounts, inclusive of income accruals, amounts offset, and the net position of derivative instruments eligible for offset on the Company's 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 US GAAP.

The following presents the effect or potential effect of rights of set-off associated with recognized derivative assets and liabilities:


	As of December 31, 2023				As of December 31, 2022
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Gross amounts recognized [1]	$	202	$	(386)	$	529	$	(300)
Gross amounts offset [2]	(167)		329		(446)		195
Net amount presented [3]	35		(57)		83		(105)

Gross amounts not offset:
Cash collateral [2]	(30)		30		—		—
Net amount	5		(27)		83		(105)

Off-balance sheet securities collateral [4]	(1)		58		(68)		103
Net amount	$	4	$	31	$	15	$	(2)

[1]Represents the fair value of freestanding derivatives inclusive of accrued income.

[2]Excludes collateral associated with exchange-traded derivative instruments included in other assets.

[3]Derivative assets and liabilities, including cash collateral and accrued interest, are presented on the Company's balance sheets in other investments and other liabilities, respectively.

[4]Non-cash collateral received excludes initial margin and is not recognized on our balance sheets unless the obligor (transferor) has defaulted under the terms of the secured contract and is no longer entitled to redeem the pledged asset.

Refer to Note 3 - Investments for the effect of rights of set-off associated with repurchase agreements.

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.

As of December 31, 2023 (Successor Company), there were no before tax deferred net losses on derivative instruments expected to be reclassified from AOCI to earnings over the next twelve months. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to net investment income over the term of the investment cash flows.

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.

Refer to Note 18 - Accumulated Other Comprehensive Income (Loss) for details regarding amounts recorded in and reclassified from AOCI for cash flow hedges.

Non-Qualifying Derivatives

For non-qualifying, including embedded derivatives that are required to be bifurcated from their host contracts, the gain or loss on the derivative is recognized within investment and derivative related losses, net as follows:


	Successor Company						Predecessor Company
	For the Years Ended December 31,				For the Period of July 1, 2021 to December 31, 2021		For the Six Months Ended June 30, 2021
	2023		2022
Embedded derivatives
Modified coinsurance	$	247	$	809	$	15	$	22
Fixed indexed annuities	(54)		200		—		—
GMWB reinsurance contracts	—		—		—		(24)
GMWB and other products	5		5		—		82
Total embedded derivatives	198		1,014		15		80

Freestanding derivatives
Variable annuities macro hedge program	(897)		(1)		(100)		(301)
Foreign currency swaps and forwards	(1)		7		5		(2)
Interest rate swaps, swaptions, and futures	(40)		(306)		21		(76)
Credit derivatives	12		3		1		—
Total freestanding derivatives	(926)		(297)		(73)		(379)

Total	$	(728)	$	717	$	(58)	$	(299)