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INVESTMENTS

9 Months Ended

Sep. 30, 2022

Investments, Debt and Equity Securities [Abstract]

As discussed in Note 2, we have elected to apply the fair value option for FLIAC's entire portfolio of fixed maturity and equity securities, its secured receivable, and residential mortgage loans. The impact of the election has resulted in the following changes:

•Elimination of the "available-for-sale" designation on all fixed maturity securities, resulting in a change in the recording of unrealized gains and losses through "Investment gains (losses), net" in the consolidated statement of operations rather than in "Accumulated other comprehensive income" ("AOCI") as a component of equity in the consolidated statement of financial position;

•Elimination of the required allowance for current expected credit losses on applicable financial assets under ASC 326 - Financial Instruments - Credit Losses, which include fixed maturity securities designated as "available-for-sale" and mortgage and other loans; and

•Elimination of a significant portion of the required disclosures for available-for-sale securities. These disclosures primarily relate to the amortized cost and unrealized gains and losses on available-for-sale securities. Disclosures for historical periods under the Predecessor Company are retained throughout this note.

The accumulated unrealized gains and losses recorded in AOCI at March 31, 2022 related to the available-for-sale securities were reset in conjunction with our election of push-down accounting on April 1, 2022. Similarly, the allowance for credit losses at March 31, 2022 on our available-for-sale securities and secured receivable was eliminated in conjunction with our election of push-down accounting on April 1, 2022. As of September 30, 2022, there was no balance remaining in AOCI for unrealized gains and losses on our available-for-sale securities and no remaining allowance for credit losses.

See Note 7 for further discussion and disclosures of the fair values of these financial assets.

The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading) for the Predecessor Company:


	Predecessor Company
	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	654	$	74	$	1	$	—	$	727
Obligations of U.S. states and their political subdivisions	281		15		—		—		296
Foreign government bonds	106		9		1		—		114
U.S. public corporate securities	2,345		134		18		—		2,461
U.S. private corporate securities	1,635		24		14		1		1,644
Foreign public corporate securities	793		11		9		—		795
Foreign private corporate securities	920		5		34		—		891
Asset-backed securities(1)	1,058		5		1		—		1,062
Commercial mortgage-backed securities	692		22		8		—		706
Residential mortgage-backed securities(2)	72		3		—		—		75
Total fixed maturities, available-for-sale	$	8,556	$	302	$	86	$	1	$	8,771

(1)Includes credit-tranched securities collateralized by loan obligations, auto loans, education loans, equipment leases and sub-prime mortgages.

(2)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.

The following tables set forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position for the Predecessor Company:


	Predecessor Company
	December 31, 2021
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	74	$	1	$	—	$	—	$	74	$	1
Obligations of U.S. states and their political subdivisions	5		—		—		—		5		—
Foreign government bonds	13		1		7		—		20		1
U.S. public corporate securities	696		12		153		6		849		18
U.S. private corporate securities	855		14		—		—		855		14
Foreign public corporate securities	522		8		50		1		572		9
Foreign private corporate securities	689		34		—		—		689		34
Asset-backed securities	499		1		—		—		499		1
Commercial mortgage-backed securities	157		5		75		3		232		8
Residential mortgage-backed securities	6		—		—		—		6		—
Total fixed maturities, available-for-sale	$	3,516	$	76	$	285	$	10	$	3,801	$	86

As of December 31, 2021, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were comprised of $73 million related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $13 million related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2021, the $10 million of gross unrealized losses of twelve months or more were concentrated in the Predecessor Company’s corporate securities within the consumer non-cyclical, capital goods, and finance sectors.

The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on write-downs and the allowance for credit losses of fixed maturities, for the Predecessor Company:


	Predecessor Company
	Three months ended September 30		Nine months ended September 30
	2021
	(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	216	$	8,009
Proceeds from maturities/prepayments	196		607
Gross investment gains on sales and maturities	157		1,296
Gross investment losses on sales and maturities	(14)		(75)
Write-downs recognized in earnings (2)	—		(23)
(Addition to) release of allowance for credit losses	(2)		(2)

(1)Includes $(243) million of non-cash related proceeds due to the timing of trade settlements for the nine months ended September 30, 2021.

(2)Amounts represent write-downs on securities actively marketed for sale.

The following tables set forth the activity in the allowance for credit losses for fixed maturity securities, for the Predecessor Company:


	Predecessor Company
	Three Months Ended March 31, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	—	$	—	$	1	$	—	$	—	$	—	$	1
Additions to allowance for credit losses not previously recorded	—		—		—		—		—		—		—
Reductions for securities sold during the period	—		—		—		—		—		—		—
Additions on securities with previous allowance	—		—		—		—		—		—		—
Balance, end of period	$	—	$	—	$	1	$	—	$	—	$	—	$	1


	Predecessor Company
	Three Months Ended September 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Additions to allowance for credit losses not previously recorded	—		—		2		—		—		—		2
Reductions for securities sold during the period	—		—		—		—		—		—		—
Reductions on securities with previous allowance	—		—		—		—		—		—		—
Balance, end of period	$	—	$	—	$	2	$	—	$	—	$	—	$	2


	Predecessor Company
	Nine Months Ended September 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	—	$	—	$	1	$	—	$	—	$	—	$	1
Additions to allowance for credit losses not previously recorded	—		—		3		—		—		—		3
Reductions for securities sold during the period	—		—		(1)		—		—		—		(1)
Reductions on securities with previous allowance	—		—		(1)		—		—		—		(1)
Balance, end of period	$	—	$	—	$	2	$	—	$	—	$	—	$	2

See Note 2 to the Financial Statements included in the Predecessor Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information about the Predecessor Company’s methodology for developing our allowance for credit losses for the Predecessor Company.

For the three and nine months ended September 30, 2021, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in the capital goods and transportation sectors within private corporate securities.

The Predecessor Company did not have any fixed maturity securities purchased with credit deterioration as of December 31, 2021.

Fixed Maturity Securities, Trading (Predecessor Company)

The net change in unrealized gains (losses) from fixed maturity securities, trading still held at period end, recorded by the Predecessor Company within “Other income (loss),” was $24 million and $(276) million during the three and nine months ended September 30, 2021, respectively.

Equity Securities (Predecessor Company)

The net change in unrealized gains (losses) from equity securities still held at period end, recorded by the Predecessor Company within “Other income (loss),” was $(3) million and $(12) million during the three and nine months ended September 30, 2021, respectively.

Commercial Mortgage and Other Loans (Predecessor Company)

The following table sets forth the composition of “Commercial mortgage and other loans,” for the Predecessor Company:


	Predecessor Company
	December 31, 2021
	Amount (in millions)		% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	385	25.5	%
Hospitality	17		1.1
Industrial	624		41.5
Office	196		13.0
Other	134		8.9
Retail	102		6.7
Total commercial mortgage loans	1,458		96.7	%
Agricultural property loans	51		3.3
Total commercial mortgage and agricultural property loans	1,509		100.0	%
Allowance for credit losses	(5)
Total net commercial mortgage and agricultural property loans	$	1,504

As of December 31, 2021, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States with the largest concentrations in California (34%), Texas (18%) and New York (7%) and included loans secured by properties in Europe (8%) and Australia (1%).

The following tables set forth the activity in the allowance for credit losses for commercial mortgage and other loans for the Predecessor Company:


	Predecessor Company
	Three Months Ended March 31,
	2022
	Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in millions)
Allowance, beginning of period	$	5	$	—	$	5
Release of allowance for expected losses	(1)		—		(1)
Allowance, end of period	$	4	$	—	$	4


	Predecessor Company
	Three Months Ended September 30						Nine Months Ended September 30
	2021
	Commercial Mortgage Loans		Agricultural Property Loans		Total		Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in millions)
Allowance, beginning of period	$	5	$	—	$	5	$	7	$	—	$	7
Addition to (release of) allowance for expected losses	(1)		—		(1)		(3)		—		(3)
Allowance, end of period	$	4	$	—	$	4	$	4	$	—	$	4

See Note 2 to the Financial Statements included in the Predecessor Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information about the Predecessor Company's methodology for developing the allowance and expected losses.

For the three months ended March 31, 2022 and the three and nine months ended September 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment. Also impacting the decline for the three months ended September 30, 2021 were loan sales.

The following tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, for the Predecessor Company:


	Predecessor Company
	December 31, 2021
	Amortized Cost by Origination Year
	2021		2020		2019		2018		2017		Prior		Total
	(in millions)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%	$	150	$	—	$	21	$	7	$	93	$	232	$	503
60%-69.99%	389		33		10		11		39		28		510
70%-79.99%	317		48		17		—		21		21		424
80% or greater	—		—		—		—		—		21		21
Total	$	856	$	81	$	48	$	18	$	153	$	302	$	1,458
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	856	$	81	$	48	$	7	$	120	$	295	$	1,407
1.0 - 1.2x	—		—		—		11		—		—		11
Less than 1.0x	—		—		—		—		33		7		40
Total	$	856	$	81	$	48	$	18	$	153	$	302	$	1,458
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%	$	40	$	1	$	—	$	—	$	3	$	7	$	51
60%-69.99%	—		—		—		—		—		—		—
70%-79.99%	—		—		—		—		—		—		—
80% or greater	—		—		—		—		—		—		—
Total	$	40	$	1	$	—	$	—	$	3	$	7	$	51
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	40	$	1	$	—	$	—	$	3	$	3	$	47
1.0 - 1.2x	—		—		—		—		—		—		—
Less than 1.0x	—		—		—		—		—		4		4
Total	$	40	$	1	$	—	$	—	$	3	$	7	$	51

See Note 2 to the Financial Statements included in the Predecessor Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information about the commercial mortgage and other loans credit quality monitoring process.

As of December 31, 2021 there were no commercial and other loans past due or in non-accrual status held by the Predecessor Company. For additional information regarding the Predecessor Company's policies for accruing interest on loans, see Note 2 to the Financial Statements included in the Predecessor Company's Annual Report on Form 10-K for the year ended December 31, 2021.

The Predecessor Company did not hold any commercial mortgage and other loans that were purchased with credit deterioration as of December 31, 2021.

For the three months ended September 30, 2021, all commercial mortgage loans acquired were through direct origination. For the nine months ended September 30, 2021, there were $167 million commercial mortgage loans acquired, other than those through direct origination. For both the three and nine months ended September 30, 2021 there were $707 million of commercial and other loans sold.

Other Invested Assets

The following table sets forth the composition of “Other invested assets,” as of the dates indicated.


	Successor Company		Predecessor Company
	September 30, 2022		December 31, 2021
	(in millions)

LPs/LLCs:
Equity method:
Private equity	$	14	$	19
Real estate-related	5		62
Subtotal equity method	19		81
Fair value:
Private equity	64		4
Real estate-related	—		6
Subtotal fair value	64		10
Total LPs/LLCs	83		91
Derivative instruments	265		3
Other	82		12
Total other invested assets	$	430	$	106

Amounts contained within Other are comprised primarily of residential mortgage loans and policy loans.

Accrued Investment Income

The following table sets forth the composition of “Accrued investment income,” as of the dates indicated:


	Successor Company		Predecessor Company
	September 30, 2022		December 31, 2021
	(in millions)
Fixed maturity securities	$	45	$	58
Commercial mortgage and other loans	—		3
Other invested assets	6		—
Short-term investments and cash equivalents	5		—
Total accrued investment income	$	56	$	61

There were no write-downs on accrued investment income for the three and six months ended September 30, 2022, the three months ended March 31, 2022, and the three and nine months ended September 30, 2021.

Net Investment Income

The following table sets forth “Net investment income” by investment type, for the periods indicated:


	Successor Company				Predecessor Company
	Three Months Ended September 30		Six Months Ended September 30		Three Months Ended March 31		Three Months Ended September 30		Nine Months Ended September 30
	2022						2021
	(in millions)
Fixed maturities securities (1)	$	76	$	156	$	61	$	82	$	308
Equity securities	1		2		1		1		3
Secured receivable	7		18		—		—		—
Commercial mortgage and other loans	—		—		11		14		46
Other invested assets	10		14		29		11		50
Short-term investments and cash equivalents	3		5		1		1		1
Gross investment income	97		195		103		109		408
Less: investment expenses	(5)		(6)		(4)		(8)		(22)
Net investment income	$	92	$	189	$	99	$	101	$	386

(1)Includes fixed maturity securities classified as available-for-sale and trading for the three months ended March 31, 2022 and the three and nine months ended, September 30, 2021.

The activity above includes interest income related to fair value option investments.

Investment Gains (Losses), Net

The following table sets forth “Investment gains (losses), net” by investment type, for the periods indicated:


	Successor Company				Predecessor Company
	Three Months Ended September 30		Six Months Ended September 30		Three Months Ended March 31		Three Months Ended September 30		Nine Months Ended September 30
	2022						2021
	(in millions)
Fixed maturity securities (1)	$	(458)	$	(1,102)	$	(21)	$	141	$	1,197
Secured receivable	(8)		(59)		—		—		—
Commercial mortgage and other loans	—		—		—		28		28
Derivatives	24		(560)		502		4,906		6,139
Other invested assets and equity securities	(13)		(32)		—		6		9
Investment gains (losses), net	$	(455)	$	(1,753)	$	481	$	5,081	$	7,373

(1)For the Predecessor Company, includes fixed maturity securities classified as available-for-sale and excludes fixed maturity securities classified as trading.

Net Unrealized Gains (Losses) on Investments within AOCI (Predecessor Company)

The following table sets forth net unrealized gains (losses) on investments, as of the dates indicated:


	Predecessor Company
	December 31, 2021
	(in millions)
Fixed maturity securities, available-for-sale without an allowance	$	216
Derivatives designated as cash flow hedges(1)	25
Net unrealized gains on investments	$	241

(1)For more information on cash flow hedges for the Predecessor Company, see Note 6.

Repurchase Agreements and Securities Lending

In the normal course of business, FLIAC sells securities under agreements to repurchase and enters into securities lending transactions. These balances are recorded within Other liabilities in the unaudited interim consolidated statements of financial position.

The following table sets forth the remaining contractual maturities of the Successor Company's outstanding repurchase agreements by security type.


	Successor Company
	September 30, 2022
	Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 days		30-90 days		Total
	(in millions)
U.S. corporate public securities	$	—	$	—	$	200	$	200

The following table sets forth the remaining contractual maturities of the Successor Company's cash collateral received for securities loaned by security type:


	Successor Company
	September 30, 2022
	Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 days		30-90 days		Total
	(in millions)
Equity securities	$	169	$	—	$	—	$	169

As of December 31, 2021 the Predecessor Company had no outstanding repurchase agreements or securities lending transactions.