SIGNIFICANT ACCOUNTING POLICIES AND OTHER CHANGES

Accounting for Variable Annuities with GMDB and GMIB Features

Future claims exposure on products with guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) features are sensitive to movements in the equity markets and interest rates. The Company has in place various hedging programs utilizing derivatives that are designed to mitigate the impact of movements in equity markets and interest rates. The accounting for these various hedging programs does not qualify for hedge accounting treatment. As a result, changes in the value of the derivatives will be recognized in the period in which they occur while offsetting changes in reserves and deferred policy acquisition costs (“DAC”) will be recognized over time in accordance with policies described in the Company’s Notes to Consolidated Financial Statements for the year ended December 31, 2016, under “Policyholders’ Account Balances and Future Policy Benefits” and “DAC”. These differences in recognition contribute to earnings volatility.

GMIB reinsurance contracts are used to cede to affiliated and non-affiliated reinsurers a portion of the exposure on variable annuity products that offer the GMIB feature. The GMIB reinsurance contracts are accounted for as derivatives and are reported at fair value. Gross reserves for GMIB are calculated on the basis of assumptions related to projected benefits and related contract charges over the lives of the contracts and therefore will not immediately reflect the offsetting impact on future claims exposure resulting from the same capital market and/or interest rate fluctuations that cause gains or losses on the fair value of the GMIB reinsurance contracts. The changes in the fair value of the GMIB reinsurance contracts are recorded in the period in which they occur while offsetting changes in gross reserves and DAC for GMIB are recognized over time in accordance with policies described in the Company’s Notes to Consolidated Financial Statements for the year ended December 31, 2016 under “Policyholders’ Account Balances and Future Policy Benefits” and “DAC”. These differences in recognition contribute to earnings volatility.

Adoption of New Accounting Pronouncements

In October 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance on consolidation of interests held through related parties that are under common control, which alters how a decision maker needs to consider indirect interests in a VIE held through an entity under common control. The new guidance amends the recently adopted consolidation guidance analysis. Under the new guidance, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The Company adopted the revised guidance effective January 1, 2017. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued new guidance simplifying the transition to the equity method of accounting. The amendment eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investments had been held. The Company adopted the revised guidance effective January 1, 2017. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued new guidance on improvements to employee share-based payment accounting. The amendment includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements including: income tax effects of share-based payments, minimum statutory tax withholding requirements and forfeitures. The Company adopted the revised guidance effective January 1, 2017. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Future Adoption of New Accounting Pronouncements

In May 2017, the FASB issued guidance on stock compensation. The new guidance provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance to a change to the terms or conditions of a share based payment award. The new guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted. The new guidance will be applied prospectively to an award modified on or after the adoption of this guidance. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In March 2017, the FASB issued guidance that requires certain premiums on callable debt securities to be amortized to the earliest call date. The new guidance will better align interest income recognition with the manner in which market participants price these instruments. The new guidance is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted and is to be applied on a modified retrospective basis. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In March 2017, the FASB issued new guidance on the presentation of net periodic pension and post-retirement benefit costs that required bifurcation of net benefit cost. The service cost component will be presented with other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations and will not be eligible for capitalization. The new guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted and is to be applied retrospectively for changes in the income statement presentation of net benefit cost and prospectively for changes in capitalization eligibility. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued revised guidance to lease accounting. The revised guidance will require lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases. Lessor accounting will continue to be similar to the current model, but updated to align with certain changes to the lessee model. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing contracts. The revised guidance is effective for interim and annual periods, beginning after December 15, 2018, with early adoption permitted. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In May 2014, the FASB issued new revenue recognition guidance that is intended to improve and converge the financial reporting requirements for revenue from contracts with customers with International Financial Reporting Standards (“IFRS”). The new guidance applies to contracts that deliver goods or services to a customer, except when those contracts are for: insurance, leases, rights and obligations that are in the scope of certain financial instruments (i.e., derivative contracts) and guarantees other than product or service warranties. The new guidance is effective for interim and annual periods, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Company has not yet completed this analysis, but based on the analysis completed to date, management does not expect the standard to have a material impact on our financial condition or results of operations.

Consolidation of VIEs

A VIE must be consolidated by its primary beneficiary, which generally is defined as the party who has a controlling financial interest in the VIE. The Company is deemed to have a controlling financial interest in a VIE if it has (i) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive income from the VIE that potentially could be significant to the VIE. For purposes of evaluating (ii) above, fees paid to the Company as a decision maker or service provider are excluded if the fees are compensation for services provided commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length.

If the Company has a variable interest in an entity that is determined not to be a VIE, the entity then is evaluated for consolidation under the voting interest entity (“VOE”) model. For limited partnerships and similar entities, the Company is deemed to have a controlling financial interest in a VOE, and would be required to consolidate the entity, if the Company owns a majority of the entity’s kick-out rights through voting limited partnership interests and other limited partners do not hold substantive participating rights (or other rights that would indicate that the Company does not control the entity). For entities other than limited partnerships, the Company is deemed to have a controlling financial interest in a VOE if it owns a majority voting interest in the entity.

The analysis performed to identify variable interests held, determine whether entities are VIEs or VOEs, and evaluate whether the Company has a controlling financial interest in such entities requires the exercise of judgment and is updated on a continuous basis as circumstances change or new entities are developed. The primary beneficiary evaluation generally is performed qualitatively based on all facts and circumstances, including consideration of economic interests in the VIE held directly and indirectly through related parties and entities under common control, as well as quantitatively, as appropriate.

At June 30, 2017, the Insurance segment’s General Account held approximately $1,201 million of investment assets in the form of equity interests issued by non-corporate legal entities determined under the new guidance to be VIEs, such as limited partnerships and limited liability companies, including hedge funds, private equity funds, and real estate-related funds. As an equity investor, the Insurance segment is considered to have a “variable interest” in each of these VIEs as a result of its participation in the risks and/or rewards these funds were designed to create by their defined portfolio objectives and strategies. Primarily through qualitative assessment, including consideration of related party interests and/or other financial arrangements, if any, the Insurance segment was not identified as primary beneficiary of any of these VIEs, largely due to its inability to direct the activities that most significantly impact their economic performance. Consequently, the Company continues to reflect these equity interests in the consolidated balance sheet as “Other equity investments” and to apply the equity method of accounting for these positions. The net assets of these non-consolidated VIEs are approximately $162,386 million, and the Company’s maximum exposure to loss from its direct involvement with these VIEs is the carrying value of its investment of $1,201 million at June 30, 2017. Except for approximately $801 million of unfunded commitments at June 30, 2017, the Company has no further economic interest in these VIEs in the form of guarantees, derivatives, credit enhancements or similar instruments and obligations.

AB regularly provides seed capital to new company-sponsored investment funds. As such, it may consolidate or de-consolidate a variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to its involvement with each company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as those disclosures regarding the carrying amount and classification of assets.

AB is not required to provide financial support to company-sponsored investment funds and only the assets of such funds are available to settle its own liabilities. AB’s exposure to loss with respect to consolidated company-sponsored investment funds is limited to its investment in, and its management fee earned from, such funds. Equity and debt holders of such funds have no recourse to AB’s assets or to the general credit of AB. The balances of consolidated VIEs and VOEs included in the Company’s balance sheet at June 30, 2017 were assets of $1,031 million, liabilities of $426 million, Redeemable noncontrolling interest of $335 million, Equity attributable to the Company of $68 million and $36 million attributable to non-redeemable noncontrolling interest. The balances of consolidated VIEs and VOEs included in the Company’s balance sheet at December 31, 2016 were assets of $956 million, liabilities of $293 million, Redeemable noncontrolling interest of $384 million, Equity attributable to the Company of $71 million and $35 million attributable to non-redeemable noncontrolling interest.

As of June 30, 2017, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $49,400 million, and AB’s maximum risk of loss is its investment of $20 million in these VIEs and advisory fee receivables from these VIEs, which are not material.

Revision of Prior Period Financial Statements

During the first six months of 2017 management identified errors in its previous financial statements. These errors primarily related to errors in the calculation of policyholders’ benefit reserves for one of the Company’s variable annuity products with indexed-linked features and the calculation of DAC amortization for certain VISL products. Management evaluated the impact of these errors both individually and in the aggregate and concluded they were not material to any previously reported annual financial statements. However, as the errors would likely be material to the 2017 annual results, management has revised the consolidated balance sheet as of and for the year ended December 31, 2016 and 2015 and the related consolidated statements of earnings (loss), comprehensive income (loss), shareholders’ equity and of cash flows for the years ended December 31, 2016, 2015 and 2014 and for the second quarter and first six months of June 30, 2016, included herein, to include the revisions discussed above and all previously recorded out of period adjustments in each of the applicable periods for comparability purposes. The impacts of these revisions to each of the previously reported consolidated statements are disclosed below.

The following table presents the effects of the revision to the Company’s previously reported consolidated statements of earnings (loss) and comprehensive income (loss) for the second quarter and first six months ended June 30, 2016 and the statements of equity and statements of cash flows for the first six months ended June 30, 2016:



	Three Months Ended June 30, 2016									Six Months Ended June 30, 2016
	As previously reported			Adjustments			As Revised			As previously reported			Adjustments			As Revised
	(In Millions)
Statements of Earnings (Loss):
Revenues:
Universal life and investment-type product policy fee income	$	915		$	(74	)	$	841		$	1,816		$	(160	)	$	1,656
Premiums	121			76			197			247			165			412
Increase (decrease in the fair value of the GMIB reinsurance contract asset	1,104			—			1,104			2,741			(8		)	2,733
Total Revenues	4,297			2			4,299			9,331			(3		)	9,328
Benefits and other deductions:
Policyholders' benefits	1,276			8			1,284			2,426			(24		)	2,402
Interest credited to Policyholder's Account Balances	349			(24		)	325			626			(56		)	570
Amortization of deferred policy acquisition costs, net	(74		)	—			(74		)	(84		)	10			(74		)
Total benefits and other deductions	2,721			(16		)	2,705			5,301			(70		)	5,231

Earnings (loss) from operations, before income taxes	1,576			18			1,594			4,030			67			4,097
Income tax (expense) benefit	(515		)	(8		)	(523		)	(1,249		)	(25		)	(1,274		)

Net earnings (loss)	1,061			10			1,071			2,781			42			2,823

Less: net (earnings) loss attributable to the noncontrolling interest	(92		)	1			(91		)	(209		)	1			(208		)
Net Earnings (Loss) Attributable to AXA Equitable	$	969		$	11		$	980		$	2,572		$	43		$	2,615

Statements of Comprehensive Income (Loss):

Net earnings (loss)	$	1,061		$	10		$	1,071		$	2,781		$	42		$	2,823
Comprehensive income (loss)	1,681			10			1,691			4,190			42			4,232
Less: Comprehensive (income) loss attributable to noncontrolling interest	$	(89	)	$	1		$	(88	)	$	(209	)	$	1		$	(208	)
Comprehensive Income (Loss) Attributable to AXA Equitable	$	1,592		$	11		$	1,603		$	3,981		$	43		$	4,024



Six Months Ended June 30, 2016	As previously reported		Adjustments			As Revised
	(In Millions)
Statements of Equity:
Retained earnings, beginning of year	$	8,958	$	(54	)	$	8,904
Net earnings (loss)	2,572		43			2,615
Retained earnings, end of period	11,030		(11		)	11,019
Total AXA Equitable’s equity, end of period	17,987		(11		)	17,976

Noncontrolling interest, beginning of year	3,086		(27		)	3,059
Net earnings (loss) attributable to noncontrolling interest	203		1			204
Noncontrolling interest, end of period	3,026		(26		)	3,000
Total Equity, End of Period	$	21,013	$	(37	)	$	20,976




Six Months Ended June 30, 2016	As previously reported			Adjustments			As Revised
	(In Millions)
Statements of Cash flows:
Cash flow from operating activities:
Net earnings (loss)	$	2,781		$	42		$	2,823
Universal life and investment-type product policy fee income	(1,816		)	160			(1,656		)
Interest credited to policyholders’ account balances	626			(56		)	570
(Increase) decrease in the fair value of the reinsurance contract asset	(2,741		)	8			(2,733		)
Changes in:							—
Future policy benefits	1,314			(11		)	1,303
Reinsurance recoverable	(92		)	(178		)	(270		)
Deferred Policy Acquisition costs	(84		)	10			(74		)
Current and deferred income taxes	985			25			1,010
Accounts payable and accrued expenses	—			—			—
Other	245			(48		)	197
Net cash provided by (used in) operating activities	$	(337	)	$	(48	)	$	(385	)

Cash flows from financing activities:
(Decrease) increase in overdrafts payable	—			48			48
Net cash provided by (used in) financing activities	$	4,016		$	48		$	4,064

The following table presents the effects of the revision to the Company's previously reported consolidated balance sheets as of December 31, 2016 and 2015:



	As previously reported				Adjustments						As Revised
	December 31,				December 31,						December 31,
	2016		2015		2016			2015			2016		2015
	(In Millions)
Assets:
DAC	$	4,301	$	4,469	$	(45	)	$	15		$	4,256	$	4,484
Amounts due from reinsurers	4,635		4,466		—			21			4,635		4,487
Guaranteed minimum income benefit reinsurance asset, at fair value	10,309		10,570		—			8			10,309		10,578
Other assets	4,260		4,634		—			13			4,260		4,647
Total Assets	$	203,764	$	194,626	$	(45	)	$	57		$	203,719	$	194,683

Liabilities:
Policyholders' account balance	$	38,782	$	33,033	$	60		$	(120	)	$	38,842	$	32,913
Future policyholders' benefits and other policyholders' liabilities	25,358		24,531		77			296			25,435		24,827
Current and deferred taxes	3,816		4,647		(63		)	14			3,753		4,661
Other liabilities	2,108		2,586		—			(52		)	2,108		2,534
Total Liabilities	186,945		177,018		74			138			187,019		177,156
Equity:
Retained Earnings	7,983		8,958		(119		)	(54		)	7,864		8,904
AXA Equitable Equity	13,331		14,509		(119		)	(54		)	13,212		14,455
Noncontrolling interest	3,085		3,086		—			(27		)	3,085		3,059
Equity	16,416		17,595		(119		)	(81		)	16,297		17,514

Total Liabilities and Equity	$	203,764	$	194,626	$	(45	)	$	57		$	203,719	$	194,683

The following table presents the effects of the revision to the Company’s previously reported consolidated statements of earnings (loss), statements comprehensive income (loss), statements of equity and cash flows for the years ended December 31, 2016, 2015 and 2014:



	As previously reported									Adjustments									As Revised
	Year Ended December 31,									Year Ended December 31,									Year Ended December 31,
	2016			2015			2014			2016			2015			2014			2016			2015			2014
	(In Millions)
Statements of Earnings (Loss):
Revenues:
Universal life and investment-type product policy fee income	$	3,423		$	3,208		$	3,115		$	12		$	132		$	66		$	3,435		$	3,340		$	3,181
Premiums	880			854			874			(26		)	(26		)	(27		)	854			828			847
Increase (decrease in the fair value of the GMIB reinsurance contract asset	(261		)	(141		)	3,964			(8		)	—			(2		)	(269		)	(141		)	3,962
Total Revenues	9,705			9,819			15,640			(22		)	106			37			9,683			9,925			15,677
Benefits and other deductions:
Policyholders' benefits	2,893			2,799			3,708			(65		)	41			339			2,828			2,840			4,047
Interest credited to Policyholder's Account Balances	1,555			978			1,186			100			(72		)	(109		)	1,655			906			1,077
Amortization of deferred policy acquisition costs	162			(331		)	(413		)	60			18			39			222			(313		)	(374		)
Other operating costs and expenses	1,458			1,415			1,692			—			82			(24		)	1,458			1,497			1,668
Total benefits and other deductions	9,274			8,169			9,525			95			69			245			9,369			8,238			9,770

Earnings (loss) from operations, before income taxes	431			1,650			6,115			(117		)	37			(208		)	314			1,687			5,907
Income tax (expense) benefit	113			(186		)	(1,695		)	79			(11		)	74			192			(197		)	(1,621		)

Net earnings (loss)	544			1,464			4,420			(38		)	26			(134		)	506			1,490			4,286

Less: net (earnings) loss attributable to the noncontrolling interest	(469		)	(403		)	(387		)	(27		)	—			—			(496		)	(403		)	(387		)

Net Earnings (Loss) Attributable to AXA Equitable	$	75		$	1,061		$	4,033		$	(65	)	$	26		$	(134	)	$	10		$	1,087		$	3,899

Statements of Comprehensive Income (Loss):

Net earnings (loss)	$	544		$	1,464		$	4,420		$	(38	)	$	26		$	(134	)	$	506		$	1,490		$	4,286
Comprehensive income (loss)	306			554			5,345			(38		)	26			(134		)	268			580			5,211
Less: Comprehensive (income) loss attributable to noncontrolling interest	(452		)	(388		)	(358		)	(27		)	—			—			(479		)	(388		)	(358		)
Comprehensive Income (Loss) Attributable to AXA Equitable	$	(146	)	$	166		$	4,987		$	(65	)	$	26		$	(134	)	$	(211	)	$	192		$	4,853



	As previously reported									Adjustments									As Revised
	Year Ended December 31,									Year Ended December 31,									Year Ended December 31,
	2016			2015			2014			2016			2015			2014			2016			2015			2014
	(In Millions)
Statements of Equity:
Capital in excess of par value, beginning of year	$	5,321		$	5,957		$	5,934		$	—		$	—		$	(26	)	$	5,321		$	5,957		$	5,908
Deferred tax on dividend of AB Units	—			(35		)	(26		)	—			—			26			—			(35		)	—
Capital in excess of par value, end of year	5,339			5,321			5,957			—			—			—			5,339			5,321			5,957

Retained earnings, beginning of year	$	8,958		$	8,809		$	5,205		$	(54	)	$	(80	)	$	6		$	8,904		$	8,729		$	5,211
Stockholder dividends	(1,050		)	912			(429		)	—			—			48			$	(1,050	)	$	912		$	(381	)
Net earnings (loss)	75			1,061			4,033			(65		)	26			(134		)	10			1,087			3,899
Retained earnings, end of period	7,983			8,958			8,809			(119		)	(54		)	(80		)	7,864			8,904			8,729

Total AXA Equitable’s equity, end of period	13,331			14,509			15,119			(119		)	(54		)	(80		)	13,212			14,455			15,039

Noncontrolling interest, beginning of year	3,086			2,989			2,903			(27		)	(27		)	21			3,059			2,962			2,924
Net earnings (loss) attributable to noncontrolling interest	464			403			387			27			—			—			491			403			387
Dividend of AB Units by AXA Equitable to AXA Financial	—			145			48			—			—			(48		)	—			145			—
Noncontrolling interest, end of year	3,085			3,086			2,989			—			(27		)	(27		)	3,085			3,059			2,962

Total Equity, End of Period	$	16,416		$	17,595		$	18,108		$	(119	)	$	(81	)	$	(107	)	$	16,297		$	17,514		$	18,001

Statements of Cash flows:
Cash flow from operating activities:
Net earnings (loss)	$	544		$	1,464		$	4,420		$	(38	)	$	26		$	(134	)	$	506		$	1,490		$	4,286
Universal life and investment-type product policy fee income	(3,423		)	(3,208		)	(3,115		)	(12		)	(132		)	(66		)	(3,435		)	(3,340		)	(3,181		)
Interest credited to policyholders’ account balances	1,555			978			1,186			100			(72		)	(109		)	1,655			906			1,077
(Increase) decrease in the fair value of the reinsurance contract asset	261			141			(3,964		)	8			—			2			269			141			(3,962		)
Amortization of deferred cost of reinsurance asset	159			39			302			—			82			(24		)	159			121			278
Changes in:
Future policy benefits	783			934			1,647			(65		)	41			339			718			1,001			2,013
Deferred Policy Acquisition costs	162			(331		)	(413		)	60			18			39			222			(313		)	(374		)
Current and deferred income taxes	(771		)	258			1,448			(79		)	11			(74		)	(850		)	269			1,374
Other	31			111			(98		)	—			82			39			31			193			(59		)
Net cash provided by (used in) operating activities	$	(461	)	$	(244	)	$	(639	)	$	(26	)	$	82		$	39		$	(487	)	$	(162	)	$	(600	)

Cash flows from financing activities:
Policyholders' accounts balance deposits	$	9,342		$	5,757		$	6,011		$	404		$	484		$	494		$	9,746		$	6,241		$	6,505
Policyholders' accounts balance transfer (to) from Separate Accounts	1,606			1,045			815			(404		)	(484		)	(494		)	1,202			561			321
(Decrease) increase in overdrafts payable	(85		)	—			—			—			(82		)	(39		)	(85		)	(82		)	(39		)



	As previously reported						Adjustments								As Revised
	Year Ended December 31,						Year Ended December 31,								Year Ended December 31,
	2016		2015		2014		2016		2015			2014			2016		2015		2014
	(In Millions)
Net cash provided by (used in) financing activities	$	5,751	$	3,034	$	3,843	$	—	$	(82	)	$	(39	)	$	5,751	$	2,952	$	3,804

Assumption Updates:

2017 Assumption Changes. During second quarter 2017, the Company updated its expectations of long-term lapse and partial withdrawal behavior for variable annuities with GMDB, GMIB and GMWB guarantees based on emerging experience. These updates increased policyholders’ benefits by $602 million, increased the fair value of the GMIB reinsurance contract asset by $1,532 million, decreased the amortization of the deferred cost of reinsurance asset by $226 million and decreased the amortization of DAC by $32 million. In the second quarter and first six months of 2017, the after tax impacts of these assumption updates increased Net earnings by approximately $772 million.

2016 Assumption Changes. During the second quarter of 2016, the Company updated its mortality assumption on certain VISL products as a result of favorable mortality experience, which decreased the amortization of DAC and the initial fee liability by $70 million and $16 million, respectively. Additionally, in the second quarter 2016 the Company updated the General Account spread assumption on certain VISL products to reflect lower expected investment yields which increased the amortization of DAC and the initial fee liability by $79 million and$4 million, respectively. In the second quarter and first six months of 2016, the after tax impacts of these assumption updates decreased Net earnings by approximately $14 million.