Basis of Presentation and Significant Accounting Policies (Tables)

Under current accounting guidance, assumptions for traditional long-duration insurance contracts (e.g., mortality, lapses, etc.), are locked-in at issuance.

The new guidance requires insurers to review, and if necessary, update the cash flow assumptions used to measure liabilities for future policy benefits periodically. The change in the liability estimate as a result of updating cash flow assumptions will be recognized in net income.

The Company expects the impact of such adjustment will likely result in an after-tax decrease to retained earnings of less than $5 million.

The Company does not expect any material impacts to its results of operations subsequent to the effective date of the ASU.

Under current accounting guidance, the-then current discount rate is locked-in at issuance.

The new guidance requires insurers to update the discount rate assumption used to measure liabilities for future policy benefits at each reporting period, and the discount rate utilized must be based on an upper-medium grade fixed income instrument yield. The change in the liability estimate as a result of updating the discount rate assumption will be recognized in other comprehensive income.

The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, there will be an adjustment to accumulated other comprehensive income (AOCI) as a result of remeasuring in force contract liabilities using a standard discount rate to measure the liabilities that will be equivalent to the yield from a high-quality bond and the adjustment will largely reflect the difference between discount rates locked-in at contract inception versus current discount rates at transition.

The Company currently estimates that the transition date impact from adoption is likely to result in an after-tax decrease to AOCI in a range between $475 million and $525 million.

The Company expects material impacts to AOCI subsequent to the effective date of the ASU due to subsequent increases and decreases in discount rates.

Under current accounting guidance, certain benefit features of annuity contracts (e.g., GMDB, etc.) are accounted for using a benefit ratio methodology.

The new guidance created a new category of benefit features called market risk benefits that will be measured at fair value with changes in fair value attributable to a change in the instrument-specific credit risk recognized in other comprehensive income.

The Company will adopt this guidance on a retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, the Company expects an impact to AOCI for the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date and retained earnings for the difference between fair value and carrying value at the transition date, excluding the changes in the instrument-specific credit risk.

The Company is currently evaluating the impact of these adjustments but anticipates they will likely reduce AOCI and retained earnings by less than $15 million after-tax.

Subsequent to the effective date of the ASU, the Company expects market risk benefits will add volatility to benefits expense which could be material. The Company is currently evaluating the impacts of these adjustments subsequent to the effective date of the ASU.

Under current accounting guidance, for all annuity contracts, DAC is amortized over 20 years in proportion to estimated gross profits. For individual life contracts, DAC is amortized in proportion to anticipated premiums over the terms of the insurance policies (10, 15, 20, 30) years. For IUL, DAC is amortized in proportion to estimated gross profits over 30 years.

The new guidance requires DAC and other balances to be amortized on a constant level basis over the expected term of the related contracts.

The Company expects to adopt this guidance on a modified retrospective basis as of the earliest period presented in the year of adoption. Upon adoption, the Company expects an adjustment to AOCI for the removal of cumulative adjustments to DAC associated with unrealized investment gains and losses previously recorded in AOCI.

The impact of this adjustment will likely result in an after-tax increase to AOCI in a range between $70 million and $75 million upon adoption.

Subsequent to the effective date of the ASU, the Company expects a significant reduction in volatility of DAC unlocking due to the removal of investment performance and market impacts and an insignificant decrease in amortization expense due to the treatment of interest expense and method of amortizing DAC.