INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

SUCCESSOR COMPANY

Acquisition-Related Tax Elections

In conjunction with the acquisition of FLIAC, FGH and PAI agreed to make a joint election under Section 338(h)(10) of the U.S. Internal Revenue Code and under any similar provisions of state or local law (the “Section 338(h)(10) Election”) with respect to the purchase of the shares of FLIAC. Under this election, the parties agreed to treat the transaction for federal income tax purposes as if it had been structured as an asset sale and purchase. As a result of this election, the tax basis of the Company's assets and liabilities were reset to fair value at the time of the acquisition, which resulted in the elimination of previously established current and deferred income tax balances and the establishment of new balances that reflect the updated tax basis, including tax deductible intangible asset. See Note 1 for further information regarding the acquisition and the associated updated income tax balances.

Tax Law Changes

On August 16, 2022, the U.S. enacted The Inflation Reduction Act of 2022, which provides among other provisions a new corporate alternative minimum tax (“CAMT”). The CAMT is effective for taxable years beginning after December 31, 2022 and generally applies to taxpayers with average annual financial statement income exceeding $1 billion over a three-year period. The impact of the new law was not material to the Company for the year ended December 31, 2023 and is not expected to be material in future years.

Effective Tax Rate

The following schedule discloses significant components of Income tax expense (benefit): 

	Successor Company
	Year Ended December 31		Nine Months Ended December 31
	2023		2022
	(in millions)
Current tax expense (benefit):
U.S. federal	$	(14)	$	18
Deferred tax expense (benefit):
U.S. federal	8		(52)
Income tax benefit	$	(6)	(34)
Income tax expense (benefit) reported in equity related to:
Other comprehensive income (loss)	(47)		29
Total income tax benefit	$	(53)	$	(5)

Reconciliation of Expected Tax at Statutory Rates to Reported Income Tax Expense (Benefit)

The difference between income taxes expected at the U.S. federal statutory income tax rate of 21 percent applicable and the reported income tax expense (benefit) are summarized as follows:

	Successor Company
	Year Ended December 31			Nine Months Ended December 31
	2023			2022
				(in millions)
Expected federal income tax benefit	$	(2)		$	(67)
Goodwill impairment	20			—
Change in valuation allowance	(1)			37
Non-taxable investment income (1)	(7)			(5)
Transfer pricing adjustment	(6)			—
Foreign taxes	(3)			—
Prior year true-up	(6)			—
Other	(1)			1
Reported income tax benefit	$	(6)		$	(34)
Effective tax rate	63.9		%	10.7		%

(1) - Primarily related to the impact of non-taxable investment income associated with the Dividends Received Deduction (“DRD”)

Schedule of Deferred Tax Assets and Deferred Tax Liabilities

	As of December 31,
	2023		2022
	(in millions)
Deferred tax assets:
Net operating loss	$	87	$	—
Investments	63		121
Intangibles	59		122
Capital loss carryforwards	32		26
Change in insurance liabilities - OCR component	17		—
Other	1		—
Total deferred tax assets	259		269
Deferred tax liabilities:
Insurance reserves	(134)		(150)
Change in insurance liabilities - OCR component	—		(29)
Other	—		(3)
Total deferred tax liabilities	(134)		(182)
Net deferred tax asset before valuation allowance	$	125	$	87
Valuation allowance	(36)		(37)
Net deferred tax asset	$	89	$	50

Valuation Allowance on Deferred Tax Assets

The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.

In evaluating the need for a valuation allowance, the Company considers many factors, including:

(1) the nature of the deferred tax assets and liabilities;

(2) whether they are ordinary or capital;

(3) the timing of their reversal;

(4) taxable income in prior carryback years;

(5) projected taxable earnings exclusive of reversing temporary differences and carryforwards;

(6) the length of time that carryovers can be utilized;

(7) any unique tax rules that would impact the utilization of the deferred tax assets; and

(8) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused.

Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowances, will be realized.

As of December 31, 2023 and 2022, the Company established a valuation allowance of $36 million and $37 million, respectively, with respect to realized and unrealized capital losses on our fixed maturity securities portfolio. A portion of the deferred tax asset relates to unrealized capital losses for which the carryforward period has not yet begun, and as such, when assessing its recoverability, we consider our ability and intent to hold the underlying securities to recovery. The amount of the deferred tax asset considered realizable may be adjusted if projections of future taxable income, including the character of that taxable income during the requisite carryforward period, are updated or if objective negative evidence exists that outweighs the positive evidence. The decrease in the valuation allowance is due to the continued recovery of unrealized capital losses on our fixed maturity securities portfolio.

Loss Carryforwards

The Company generated a capital loss carryforward of $33 million and $122 million for the year ended December 31, 2023 and the nine months ended December 31, 2022, respectively. The capital losses will be carried forward for five years and utilized against any future capital gains generated during that period.

The Company generated a net operating loss carryforward of $198 million and $216 million for the year ended December 31, 2023 and the nine months ended December 31, 2022, respectively. The net operating loss will be carried forward indefinitely.

Tax Audits and Unrecognized Tax Benefits

The Company filed tax returns for the period beginning the day after the acquisition through December 31, 2022. Pursuant to the acquisition agreement, any tax examinations and resulting tax liability for the Predecessor Company will be the sole responsibility of PAI.

We periodically evaluate uncertain tax positions to determine whether the tax positions are more likely than not to be realized as a tax benefit or expense in the current year. We also recognize interest and penalties related to uncertain tax benefits in U.S. Federal income tax expense. As of December 31, 2023 and 2022, there were no uncertain tax positions and no accrual for interest and penalties. The Company does not anticipate any significant changes within the next twelve months to its total unrecognized tax benefits related to tax years for which the statute of limitations has not expired.

PREDECESSOR COMPANY

The following schedule discloses significant components of income tax expense for each period presented: 

	Year Ended December 31
	2021
	(in millions)
Current tax expense:
U.S. federal	$	241
State and local	3
Total	244
Deferred tax expense:
U.S. federal	1,050
Total	1,050
Income tax expense	1,294
Income tax expense reported in equity related to:
Other comprehensive income (loss)	(362)
Total income tax expense	$	932

With respect to the three months ended March 31, 2022, the Company uses a full year projected effective tax rate approach to calculate year-to-date taxes. In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. The projected effective tax rate is the ratio of projected “Income tax expense (benefit)” divided by projected “Income (loss) from operations before income taxes”. The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year. Accordingly comparable information, as presented for the full year December 31, 2021 is not presented above or in the following chart.

Reconciliation of Expected Tax at Statutory Rates to Reported Income Tax Expense

The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax expense are summarized as follows:

	Year Ended December 31
	2021
	(in millions)
Expected federal income tax expense	$	1,314
Non-taxable investment income	(12)
Tax credits	(10)
Other	2
Reported income tax expense	$	1,294
Effective tax rate	20.7		%

The effective tax rate is the ratio of Total income tax expense divided by Income (loss) from operations before income taxes. The Company’s effective tax rate for the year ended December 31, 2021 was 20.7%. The following is a description of items that had the most significant impact on the difference between the Company’s statutory U.S. federal income tax rate of 21 percent applicable for the year ended December 31, 2021 and the Company’s effective tax rate during the period presented:

Non-Taxable Investment Income. The DRD reduces the amount of dividend income subject to U.S. tax and accounts for most of the non-taxable investment income shown in the table above. More specifically, the U.S. DRD constitutes $11 million of the total $12 million of 2021 non-taxable investment income. The DRD for 2021 was estimated using information from 2020, current year investment results, and current year’s equity market performance. The actual 2021 DRD can vary based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from fund investments, changes in the account balances of variable life and annuity contracts, and the Predecessor Company’s taxable income before the DRD.

Tax credits. These amounts primarily represent tax credits relating to foreign taxes withheld on the Predecessor Company’s separate account investments.

Other. This line item represents insignificant reconciling items that are individually less than 5 percent of the computed expected federal income tax expense (benefit) and have therefore been aggregated for purposes of this reconciliation in accordance with relevant disclosure guidance.