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Segment Information
 9 Months Ended
Sep. 30, 2018
Segment Reporting [Abstract]  
Segment Information
2. Segment Information
The Company is organized into three segments: Annuities; Life; and Run-off. In addition, the Company reports certain of its results of operations in Corporate & Other.
Annuities
The Annuities segment consists of a variety of variable, fixed, index-linked and income annuities designed to address contract holders’ needs for protected wealth accumulation on a tax-deferred basis, wealth transfer and income security.
Life
The Life segment consists of insurance products and services, including term, whole, universal and variable life products designed to address policyholders’ needs for financial security and protected wealth transfer, which may be provided on a tax-advantaged basis.
Run-off
The Run-off segment consists of products no longer actively sold and which are separately managed, including structured settlements, pension risk transfer contracts, certain company-owned life insurance policies, funding agreements and universal life with secondary guarantees.
Corporate & Other
Corporate & Other contains the excess capital not allocated to the segments and interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes the elimination of intersegment amounts, long-term care and workers compensation business reinsured through 100% quota share reinsurance agreements and term life insurance sold direct to consumers, which is no longer being offered for new sales.
Financial Measures and Segment Accounting Policies
Adjusted earnings is a financial measure used by management to evaluate performance, allocate resources and facilitate comparisons to industry results. Consistent with GAAP guidance for segment reporting, adjusted earnings is also used to measure segment performance. The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings should not be viewed as a substitute for net income (loss).
Adjusted earnings, which may be positive or negative, focuses on the Company’s primary businesses principally by excluding (i) the impact of market volatility, which could distort trends, and (ii) businesses that have been or will be sold or exited by the Company, referred to as divested businesses.
The following are significant items excluded from total revenues, net of income tax, in calculating adjusted earnings:
•
Net investment gains (losses);
•
Net derivative gains (losses) except earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment; and
•
Amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity guaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”).
The following are significant items excluded from total expenses, net of income tax, in calculating adjusted earnings:
•
Amounts associated with benefits and hedging costs related to GMIBs (“GMIB Costs”);
•
Amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”); and
•
Amortization of DAC and value of business acquired (“VOBA”) related to: (i) net investment gains (losses), (ii) net derivative gains (losses), (iii) GMIB Fees and GMIB Costs and (iv) Market Value Adjustments.
The tax impact of the adjustments mentioned above is calculated net of the U.S. statutory tax rate, which could differ from the Company’s effective tax rate.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the three months and nine months ended September 30, 2018 and 2017 and at September 30, 2018 and December 31, 2017. The segment accounting policies are the same as those used to prepare the Company’s condensed consolidated financial statements, except for the adjustments to calculate adjusted earnings described above. In addition, segment accounting policies include the methods of capital allocation described below.
Beginning in the first quarter of 2018, the Company changed the methodology for how capital is allocated to segments and, in some cases, products (the “Portfolio Realignment”). Segment investment and capitalization targets are now based on statutory oriented risk principles and metrics. Segment invested assets backing liabilities are based on net statutory liabilities plus excess capital. For the variable annuity business, the excess capital held is based on the target statutory total asset requirement consistent with the Company’s variable annuity risk management strategy discussed in the 2017 Annual Report. For insurance businesses other than variable annuities, excess capital held is based on a percentage of required statutory risk-based capital. Assets in excess of those allocated to the segments, if any, are held in Corporate & Other. Segment net investment income reflects the performance of each segment’s respective invested assets.
Previously, invested assets held in the segments were based on net GAAP liabilities. Excess capital was retained in Corporate & Other and allocated to segments based on an internally developed statistics based capital model intended to capture the material risks to which the Company was exposed (referred to as “allocated equity”). Surplus assets in excess of the combined allocations to the segments were held in Corporate & Other with net investment income being credited back to the segments at a predetermined rate. Any excess or shortfall in net investment income from surplus assets was recognized in Corporate & Other.
The Portfolio Realignment had no effect on the Company’s consolidated net income (loss) or adjusted earnings, but it did impact segment results for the nine months ended September 30, 2018. It was not practicable to determine the impact of the Portfolio Realignment to adjusted earnings in prior periods; however, the Company estimates that pre-tax adjusted earnings in the Life segment for the nine months ended September 30, 2018 increased between $60 million and $75 million as a result of the change, with most of the offsetting impact in the Run-off segment. Impacts to the Annuities segment and Corporate & Other would not have been significantly different under the previous allocation method.
In addition, the total assets recognized in the segments changed as a result of the Portfolio Realignment. Total assets (on a book value basis) in the Annuities and Life segments increased approximately $2 billion and approximately $3 billion, respectively, under the new allocation method. The Run-off segment and Corporate & Other experienced decreases in total assets of approximately $3 billion and approximately $2 billion, respectively, as a result of the Portfolio Realignment.
 
 
Operating Results
Three Months Ended September 30, 2018
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
469

 
$
52

 
$
(135
)
 
$
(120
)
 
$
266

Provision for income tax expense (benefit)
 
81

 
10

 
(29
)
 
(30
)
 
32

Adjusted earnings
 
$
388

 
$
42

 
$
(106
)
 
$
(90
)
 
234

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(42
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(665
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
34

Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
140

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(299
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
395

 
$
96

 
$
322

 
$
12

 
 
Interest expense
 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
Operating Results
Three Months Ended September 30, 2017
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
441

 
$
(16
)
 
$
144

 
$
(58
)
 
$
511

Provision for income tax expense (benefit)
 
128

 
(11
)
 
41

 
1,057

 
1,215

Adjusted earnings
 
$
313

 
$
(5
)
 
$
103

 
$
(1,115
)
 
(704
)
Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
21

Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(162
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
(492
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
648

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(689
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
306

 
$
76

 
$
349

 
$
20

 
 
Interest expense
 
$
—

 
$
(4
)
 
$
4

 
$
—

 
 
 
 
Operating Results
Nine Months Ended September 30, 2018
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
979

 
$
142

 
$
(79
)
 
$
(175
)
 
$
867

Provision for income tax expense (benefit)
 
168

 
28

 
(18
)
 
(53
)
 
125

Adjusted earnings
 
$
811

 
$
114

 
$
(61
)
 
$
(122
)
 
742

Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(120
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(1,230
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
(177
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
320

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(465
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
1,128

 
$
276

 
$
979

 
$
29

 
 
Interest expense
 
$
—

 
$
—

 
$
—

 
$
2

 
 
 
 
Operating Results
Nine Months Ended September 30, 2017
 
Annuities
 
Life
 
Run-off
 
Corporate & Other
 
Total
 
 
(In millions)
Pre-tax adjusted earnings
 
$
970

 
$
(58
)
 
$
(340
)
 
$
(43
)
 
$
529

Provision for income tax expense (benefit)
 
260

 
(27
)
 
(130
)
 
1,054

 
1,157

Adjusted earnings
 
$
710

 
$
(31
)
 
$
(210
)
 
$
(1,097
)
 
(628
)
Adjustments for:
 
 
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
 
 
 
 
 
 
 
 
(34
)
Net derivative gains (losses)
 
 
 
 
 
 
 
 
 
(1,064
)
Other adjustments to net income
 
 
 
 
 
 
 
 
 
(618
)
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
1,026

Net income (loss)
 
 
 
 
 
 
 
 
 
$
(1,318
)
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
$
938

 
$
230

 
$
1,061

 
$
122

 
 
Interest expense
 
$
—

 
$
(4
)
 
$
23

 
$
37

 
 
The following table presents total revenues with respect to the Company’s segments, as well as Corporate & Other:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(In millions)
Annuities
 
$
995

 
$
901

 
$
2,957

 
$
2,789

Life
 
307

 
288

 
885

 
774

Run-off
 
536

 
549

 
1,594

 
1,634

Corporate & Other
 
41

 
48

 
108

 
203

Adjustments
 
(641
)
 
(92
)
 
(1,172
)
 
(1,016
)
Total
 
$
1,238

 
$
1,694

 
$
4,372

 
$
4,384

The following table presents total assets with respect to the Company’s segments, as well as Corporate & Other, at:

September 30, 2018

December 31, 2017

(In millions)
Annuities
$
147,374

 
$
149,920

Life
14,805

 
13,044

Run-off
31,684

 
36,719

Corporate & Other
11,105

 
12,362

Total
$
204,968


$
212,045