Reinsurance

6 Months Ended

Jun. 30, 2023

The Company reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding the Company's retention limit is reinsured. The Company primarily seeks reinsurance coverage in order to limit its exposure to mortality losses and enhance capital management. The Company follows reinsurance accounting when there is adequate risk transfer or deposit accounting if there is inadequate risk transfer. If the underlying policy being reinsured is an investment contract, the effects of the agreement are accounted for as a separate investment contract.

The effects of reinsurance on net premiums earned and net benefits incurred (benefits paid and reserve changes) for the three and six months ended June 30, 2023 and June 30, 2022 were as follows (in millions):


	Three months ended								Six months ended
	June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
	Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred
Direct	$	510	$	862	$	39	$	204	$	811	$	1,734	$	606	$	709

Ceded	(27)		(45)		(35)		(581)		(53)		(105)		(67)		(883)
Net	$	483	$	817	$	4	$	(377)	$	758	$	1,629	$	539	$	(174)

Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. The Company did not write off any significant reinsurance balances during the three and six months ended June 30, 2023 and June 30, 2022. The Company did not commute any ceded reinsurance treaties during the three and six months ended June 30, 2023 and June 30, 2022.

The Company estimates expected credit losses on reinsurance recoverables using a probability of default/loss given default model. Significant inputs to the model include the reinsurer's credit risk, expected timing of recovery, industry-wide historical default experience, senior unsecured bond recovery rates, and credit enhancement features.

The expected credit loss reserves were as follows (in millions):


	Three months ended				Six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Balance at Beginning of Period	$	(9)	$	(20)	$	(10)	$	(20)
Changes in the expected credit loss reserve	—		1		1		1
Balance at End of Period	$	(9)	$	(19)	$	(9)	$	(19)

No policies issued by the Company have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance.

The Company has not entered into any reinsurance agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than non-payment of premiums or other similar credit issues.

Aspida Reinsurance Transaction. F&G executed a Funds Withheld Coinsurance Agreement with Aspida Re, a Bermuda reinsurer. In accordance with the terms of this agreement, F&G cedes to the reinsurer, on a funds withheld coinsurance basis, certain MYGA business written effective January 1, 2021. The agreement was originally executed January 15, 2021 and amended in August 2021 and September 2022. For reinsured policies issued prior to September 1, 2022, the policies are ceded on a fifty percent (50%) quota share basis. For reinsured policies issued on or after September 1, 2022, the policies are ceded on a seventy-five percent (75%) quota share basis, capped at $350 million cession per month. For the month of March 2023 only, the premiums cap increased to $450 million. As the policies ceded to Aspida are investment contracts, there is no significant insurance risk present and therefore the effects of this agreement are accounted for as a separate investment contract.

There have been no other significant changes to reinsurance contracts for the three and six months ended June 30, 2023.

Concentration of Reinsurance Risk

The Company has a significant concentration of reinsurance risk with third party reinsurers, Aspida Re, Wilton Reassurance Company (“Wilton Re”), and Somerset that could have a material impact on our financial position in the event that any of these reinsurers fails to perform its obligations under the various reinsurance treaties. Aspida Re has an A- issuer credit rating from AM Best as of June 30, 2023, and the risk of non-performance is further mitigated through the funds withheld arrangement. Wilton Re has an A+ issuer credit rating from AM Best and an A issuer credit rating from Fitch as of June 30, 2023. Somerset has an A- issuer credit rating from AM Best and a BBB+ issuer credit rating from S&P as of June 30, 2023, and the risk of non-performance is further mitigated through the funds withheld arrangement. On June 30, 2023, the net amounts recoverable from Aspida Re, Wilton Re, and Somerset were $4,857 million, $1,157 million, and $543 million, respectively. We monitor both the financial condition of individual reinsurers and risk concentration arising from similar activities and economic characteristics of reinsurers to attempt to reduce the risk of default by such reinsurers. We believe that all amounts due from Aspida Re, Wilton Re, and Somerset for periodic treaty settlements are collectible as of June 30, 2023.

There have been no other material changes in the reinsurance and the intercompany reinsurance agreements described in our Annual Report for the year ended December 31, 2022.