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SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS (Policies)

9 Months Ended

Sep. 30, 2022

The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The accompanying Unaudited Consolidated Financial Statements present the consolidated results of operations, financial condition, and cash flows of the Company and a variable interest entity ("VIE") that meets the requirements for consolidation. All intercompany transactions have been eliminated in consolidation.

Following the acquisition of FLIAC, purchase accounting was applied to FGH's financial statements and we have elected to "push down" the basis to FLIAC in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. The application of push-down accounting created a new basis of accounting for all assets and liabilities based on fair value at the date of acquisition. As a result, FLIAC's financial position, results of operations, and cash flows subsequent to the acquisition are not comparable with those prior to April 1, 2022, and therefore have been segregated to indicate pre-acquisition and post-acquisition periods. The pre-acquisition period through March 31, 2022 is referred to as the Predecessor Company. The post-acquisition period, April 1, 2022 and forward, includes the impact of push-down accounting and is referred to as the Successor Company. See Note 3 for further information regarding the acquisition and our application of push-down accounting.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Predecessor Company’s Financial Statements included in the Predecessor Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

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 represents the financial statement line items impacted by the fair value election and the changes to such line items from what was previously presented under the Predecessor Company:

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, at fair value"
and
"Fixed maturity securities, trading, at fair value"

"Equity securities, at fair value"

"Secured Receivable" (1)

"Commercial mortgage and other loans"

Other

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

"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" by the Predecessor Company. See "Secured Receivable"section below for further discussion.

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

(3) Included within "Other assets" by the Predecessor Company.

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

Secured Receivable

Secured ReceivableThe economics of commercial mortgage and other loans and certain fixed maturity securities 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 an Accounting Standards Update ("ASU") 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 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 September 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. Public business entities that meet the definition of an SEC filer and are not Small Reporting 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 their 2022 financial statements. Companies that do not early adopt ASU 2018-12 will 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 our 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 September 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 for our secured receivable, and the expectation to elect the fair value option on any newly acquired financing receivables, we do not expect the adoption of the ASU to have an impact on the Consolidated Financial Statements or Notes to the Consolidated Financial Statements