SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2022

SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Accounting Policy Election

Fair Value Option

Following the acquisition, we have elected to prospectively apply the fair value option to several of FLIAC's assets and liabilities. We have made this election as it improves our operational efficiency and better aligns the recognition and measurement of our investments, insurance liabilities, and associated reinsurance activity with how we expect to manage the business.

The following are the financial statement line items for which we have made the fair value election and the changes to the historical financial statement line items resulting from the election, where applicable:

Successor Company

Predecessor Company

Financial Statement Line Item

STATEMENTS OF FINANCIAL POSITION

Assets

Investments

"Fixed maturity securities, at fair value"

"Fixed maturity securities, available-for-sale"
and
"Fixed maturity securities, trading"

"Equity securities"

"Secured Receivable"

"Commercial mortgage and other loans" (1)

Other

"Net modified coinsurance receivable, at fair value" (2) "Reinsurance recoverables"

"Reinsurance recoverables" and "Reinsurance payables"

"Deposit asset at fair value" (3)

"Deposit asset"

Liabilities

"Insurance liabilities, at fair value"

"Future policy benefits"
and
"Policyholders' account balances"

STATEMENTS OF OPERATIONS

Revenues

"Investment gains (losses), net"

"Realized investment gains (losses), net" and "Net unrealized investment gains (losses)" (4)

Benefits and Expenses

"Policyholder benefits and changes in fair value of insurance liabilities"

"Policyholders' benefits"
and
"Interest credited to policyholders' account balances"

STATEMENTS OF COMPREHENSIVE INCOME

Other comprehensive income (loss)

"Changes in own-credit risk related to insurance liabilities"

N/A

(1) Also includes certain fixed maturity securities previously contained in "Fixed maturity securities, available-for-sale"

(2) Balances unrelated to the modified coinsurance agreement will remain in the respective reinsurance recoverable and payable line items

(2) Previously included within "Other assets"

(4) Represents "Net unrealized investment gains (losses)" included in Other comprehensive income (loss)

Secured Receivable

The economics of commercial mortgage and other loans and certain fixed maturities held by the Predecessor Company have been transferred to FLIAC via participation agreements. The legal ownership and control over the participated assets was not transferred and cannot be freely pledged or exchanged by FLIAC. This transfer did not meet the requirements of sale accounting and is therefore accounted for as a secured borrowing. These participated assets are represented on our balance sheet, at fair value, in the form of a secured receivable, all of which is associated with our Ceded Business segment.

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the ASC. We consider the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of March 31, 2022, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

ASU issued but not yet adopted as of June 30, 2022 — ASU 2018-12

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, 2018, and was amended by ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date, issued in October 2019, and ASU 2020-11, Financial Services-Insurance (Topic 944): Effective Date and Early Application, issued in November 2020. Large calendar-year public companies that early adopt ASU 2018-12 are allowed to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements.

As previously discussed, we have elected to apply the fair value option for all of its insurance liabilities. As a result of this election, our insurance liabilities are no longer within the scope of ASU 2018-12.

Other ASUs issued but not yet adopted as of June 30, 2022

Standard

Description

Effective date and method of adoption

Effect on the financial statements or other significant matters

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosure

This ASU eliminates the accounting guidance for Troubled Debt Restructurings (“TDR”) for creditors and adds enhanced disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Following adoption of the ASU, all loan refinancings are subject to the modification guidance in ASC 310-20. This ASU also amends the guidance on the vintage disclosures to require disclosure of current-period gross write-offs by year of origination.

January 1, 2023 using the prospective method with an option to apply a modified retrospective transition method for the recognition and measurement of TDRs which will include a cumulative effect adjustment on the balance sheet in the period of adoption. Early adoption is permitted beginning January 1, 2022, including adoption in an interim period provided guidance is applied as of the beginning of the year.

Following our election of the fair value option on our secured receivable, we do not expect the adoption of the ASU to have an impact on the Financial Statements or Notes to the Financial Statements