Reinsurance

9 Months Ended

Sep. 30, 2022

Note 10 – Reinsurance

The Company's insurance subsidiaries enter into agreements with other insurance companies to limit losses from large exposures and to permit recovery of a portion of incurred losses. Reinsurance is ceded primarily in acquisition and disposition transactions when the underwriting company is not being acquired. Reinsurance does not relieve the originating insurer of liability. Therefore, reinsured liabilities must continue to be reported along with the related reinsurance recoverables. The Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of its credit risk.

Reinsurance Recoverables

The majority of the Company's reinsurance recoverables resulted from acquisition and disposition transactions in which the underwriting company was not acquired. The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company. The Company reviews its reinsurance arrangements and establishes reserves against the recoverables. The Company's reinsurance recoverables as of September 30, 2022 are presented in the following table by range of external credit rating and collateral level:


(In millions)	Fair value of collateral contractually required to meet or exceed carrying value of recoverable		Collateral provisions exist that may mitigate risk of credit loss (3)		No collateral		Total
Ongoing Operations
A- equivalent and higher current ratings (1)	$	—	$	—	$	89	$	89
BBB- to BBB+ equivalent current credit ratings (1)	—		—		58		58
Not rated	131		5		30		166
Total recoverables related to ongoing operations (2)	131		5		177		313
Acquisition, disposition or run-off activities
A- equivalent and higher current ratings (1)
Lincoln National Life and Lincoln Life & Annuity of New York	—		2,819		—		2,819
Berkshire Hathaway Life Insurance Company of Nebraska	254		469		—		723
Prudential Retirement Insurance and Annuity (marketed under Empower brand)	142		—		—		142
Prudential Insurance Company of America	385		—		—		385
Life Insurance Company of North America	—		393		—		393
Other	208		20		16		244

Not rated	—		12		3		15
Total recoverables related to acquisition, disposition or run-off activities	989		3,713		19		4,721
Total	$	1,120	$	3,718	$	196	$	5,034
Allowance for uncollectible reinsurance							(29)
Total reinsurance recoverables (2)							$	5,005

(1) Certified by a Nationally Recognized Statistical Rating Organization ("NRSRO").

(2) Includes $179 million of current reinsurance recoverables that are reported in Other current assets.

(3) Includes collateral provisions requiring the reinsurer to fully collateralize its obligation if its external credit rating is downgraded to a specified level.

Collateral levels are defined internally based on the fair value of the collateral relative to the carrying amount of the reinsurance recoverable, the frequency at which collateral is required to be replenished and the potential for volatility in the collateral's fair value.

Effective Exit of GMDB and GMIB Business

The Company entered into an agreement with Berkshire to effectively exit the GMDB and GMIB business via a reinsurance transaction in 2013. Berkshire reinsured 100% of the Company's future claim payments in this business, net of other reinsurance arrangements existing at that time. The reinsurance agreement is subject to an overall limit with approximately $3.1 billion remaining at September 30, 2022.

GMDB is accounted for as assumed and ceded reinsurance and GMIB assets and liabilities are reported as derivatives at fair value as discussed below. GMIB assets are reported in Other current assets and Other assets and GMIB liabilities are reported in Accrued

expenses and other liabilities and Other non-current liabilities. Assumptions used in fair value measurement for these assets and liabilities are discussed in Note 10 of the Company's 2021 Form 10-K.

GMDB

The GMDB exposure arises under annuities written by ceding companies that guarantee the benefit received at death. The Company's exposure arises when the guaranteed minimum death benefit exceeds the fair value of the related mutual fund investments at the time of a contractholder's death.

The following table presents the account value, net amount at risk and the number of contractholders for guarantees assumed by the Company in the event of death. The net amount at risk is the amount that the Company would have to pay if all contractholders died as of the specified date. As of September 30, 2022, the account value decreased primarily due to unfavorable equity market performance, which resulted in an increase to the net amount at risk. The Company should be reimbursed in full for these payments unless the Berkshire reinsurance limit is exceeded.


(Dollars in millions, excludes impact of reinsurance ceded)	September 30, 2022		December 31, 2021
Account value	$	7,143	$	9,795
Net amount at risk	$	2,471	$	1,392

Number of contractholders (estimated)	160,000		170,000

GMIB

The Company reinsured contracts with issuers of GMIB products. The Company's exposure represents the excess of a contractually guaranteed amount over the level of variable annuity account values. Payment by the Company depends on the actual account value in the related underlying mutual funds and the level of interest rates when the contractholders elect to receive minimum income payments that can only occur within 30 days of a policy anniversary after the appropriate waiting period. The Company has purchased retrocessional coverage ("GMIB assets") for these contracts including retrocessional coverage from Berkshire.

GMIB liabilities totaling $410 million as of September 30, 2022 and $572 million as of December 31, 2021 are classified as Level 3 because fair value inputs are largely unobservable. The GMIB liabilities reflect the Company's credit risk, while the reinsurance recoverable reflects the credit risk of the reinsurers. There were three reinsurers covering 100% of the GMIB exposures as of September 30, 2022 and December 31, 2021 as follows:


(In millions)
Line of Business	Reinsurer	September 30, 2022		December 31, 2021		Collateral and Other Terms at September 30, 2022
GMIB	Berkshire	$	207	$	283	100% were secured by assets in a trust.
	Sun Life Assurance Company of Canada	120		167
	Liberty Re (Bermuda) Ltd.	110		151		100% were secured by assets in a trust.
Total GMIB recoverables reported in Other current assets and Other assets		$	437	$	601

All reinsurers are rated A- equivalent and higher by an NRSRO.