UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2016~~2017

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-31901

PROTECTIVE LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)



TENNESSEE		63-0169720
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

2801 HIGHWAY 280 SOUTH

BIRMINGHAM, ALABAMA 35223

(Address of principal executive offices and zip code)

(205) 268-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o		Accelerated Filer o

Non-accelerated filer x		Smaller Reporting Company o

		Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

Number of shares of Common Stock, $1.00 Par Value, outstanding as of ~~October~~July 26, ~~2016:~~2017: 5,000,000

PROTECTIVE LIFE INSURANCE COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2016~~

2017

TABLE OF CONTENTS



		Page
	PART I

Item 1.	Financial Statements (unaudited):
	Consolidated Condensed Statements of Income For The Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016 (Successor Company), For The Three Months Ended September 30, 2015 (Successor Company), the Period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~2016	2
	Consolidated Condensed Statements of Comprehensive Income ~~(Loss)~~ For The Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016 (Successor Company), For The Three Months Ended September 30, 2015 (Successor Company), the Period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~2016	3
	Consolidated Condensed Balance Sheets as of ~~September~~June 30, ~~2016 (Successor Company)~~2017 and December 31, ~~2015 (Successor Company)~~2016	4
	Consolidated Condensed ~~Statements~~Statement of Shareowner’s Equity For The ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016 (Successor Company)~~2017	6
	Consolidated Condensed Statements of Cash Flows For The ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016 (Successor Company), the Period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~2016	7
	Notes to Consolidated Condensed Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6456
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~127~~106
Item 4.	Controls and Procedures	~~128~~107

	PART II

Item 1A.	Risk Factors	~~Risk Factors~~	~~128~~107
Item 6.	Exhibits	~~Exhibits~~	~~138~~114
	Signature	~~139~~115

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

Successor Company Predecessor Company
For The Three Months Ended September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Revenues

Premiums and policy fees $ 829,835
$ 793,572
$ 2,531,555
$ 2,128,016
$ 260,582
Reinsurance ceded (325,373 ) (312,256 ) (980,841 ) (810,265 ) (91,632 )
Net of reinsurance ceded 504,462
481,316
1,550,714
1,317,751
168,950
Net investment income 451,818
413,544
1,358,830
1,093,902
164,605
Realized investment gains (losses):

Derivative financial instruments 532
41,895
75,988
47,513
22,031
All other investments 24,152
5,309
194,644
(132,094 ) 81,153
Other-than-temporary impairment losses (1,898 ) (14,906 ) (10,194 ) (28,301 ) (636 )
Portion recognized in other comprehensive income (before taxes) (1,410 ) 4,842
3,302
12,503
155
Net impairment losses recognized in earnings (3,308 ) (10,064 ) (6,892 ) (15,798 ) (481 )
Other income 76,132
74,671
215,248
199,311
23,388
Total revenues 1,053,788
1,006,671
3,388,532
2,510,585
459,646
Benefits and expenses

Benefits and settlement expenses, net of reinsurance ceded: (three and nine months 2016 Successor - $277,383 and $851,562); (2015 Successor - $265,315 and $685,256); (2015 Predecessor - $87,830) 732,339
674,815
2,158,007
1,853,631
266,575
Amortization of deferred policy acquisition costs and value of business acquired 43,705
8,979
95,810
77,363
4,817
Other operating expenses, net of reinsurance ceded: (three and nine months 2016 Successor - $49,787 and $150,677); (2015 Successor - $51,174 and $138,013); (2015 Predecessor - $17,700) 183,477
166,756
544,889
434,501
55,407
Total benefits and expenses 959,521
850,550
2,798,706
2,365,495
326,799
Income before income tax 94,267
156,121
589,826
145,090
132,847
Income tax expense 20,965
42,542
185,114
40,667
44,325
Net income $ 73,302
$ 113,579
$ 404,712
$ 104,423
$ 88,522



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Revenues
Premiums and policy fees	$	862,906		$	853,351		$	1,718,485		$	1,701,720
Reinsurance ceded	(344,208		)	(340,594		)	(663,263		)	(655,468		)
Net of reinsurance ceded	518,698			512,757			1,055,222			1,046,252
Net investment income	475,722			458,783			950,431			907,012
Realized investment gains (losses):
Derivative financial instruments	(63,794		)	43,548			(124,694		)	75,456
All other investments	53,535			88,783			76,376			170,492
Other-than-temporary impairment losses	(33		)	(5,527		)	(128		)	(8,296		)
Portion recognized in other comprehensive income (before taxes)	(2,752		)	4,560			(7,858		)	4,712
Net impairment losses recognized in earnings	(2,785		)	(967		)	(7,986		)	(3,584		)
Other income	82,087			71,938			161,470			139,116
Total revenues	1,063,463			1,174,842			2,110,819			2,334,744
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (three months: 2017 - $284,405; 2016 - $274,911; six months: 2017 - $545,805; 2016 - $574,179)	711,644			712,647			1,461,094			1,425,668
Amortization of deferred policy acquisition costs and value of business acquired	23,454			21,064			44,238			52,105
Other operating expenses, net of reinsurance ceded: (three months: 2017 - $54,132; 2016 - $51,664; six months: 2017 - $105,893; 2016 - $100,890)	195,079			180,551			385,557			361,412
Total benefits and expenses	930,177			914,262			1,890,889			1,839,185
Income before income tax	133,286			260,580			219,930			495,559
Income tax expense	43,654			87,787			71,959			164,149
Net income	$	89,632		$	172,793		$	147,971		$	331,410

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited)

Successor Company Predecessor Company
For The Three Months Ended September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Net income $ 73,302
$ 113,579
$ 404,712
$ 104,423
$ 88,522
Other comprehensive income (loss):

Change in net unrealized gains (losses) on investments, net of income tax: (three and nine months 2016 Successor - $106,446 and $654,243); (2015 Successor - $(25,285) and $(506,797)); (2015 Predecessor - $259,616) 197,686
(46,958 ) 1,215,021
(941,196 ) 482,143
Reclassification adjustment for investment amounts included in net income, net of income tax: (three and nine months 2016 Successor - $575 and $(6,035)); (2015 Successor - $3,961 and $4,664); (2015 Predecessor - $(2,244)) 1,068
7,356
(11,206 ) 8,664
(4,166 )
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three and nine months 2016 Successor - $1,278 and $(106)); (2015 Successor - $781 and $(1,677)); (2015 Predecessor - $(131)) 2,374
1,451
(198 ) (3,115 ) (243 )
Change in accumulated (loss) gain - derivatives, net of income tax: (2015 Successor - $0 and $(45)); (2015 Predecessor - $5) —
—
—
(86 ) 9
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2015 Successor - $0 and $45); (2015 Predecessor - $13) —
—
—
86
23
Total other comprehensive income (loss) 201,128
(38,151 ) 1,203,617
(935,647 ) 477,766
Total comprehensive income (loss) $ 274,430
$ 75,428
$ 1,608,329
$ (831,224 ) $ 566,288



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Net income	$	89,632		$	172,793		$	147,971		$	331,410
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of income tax: (three months: 2017 - $154,403; 2016 - $312,512; six months: 2017 - $240,871; 2016 - $547,797)	286,748			580,379			447,332			1,017,335
Reclassification adjustment for investment amounts included in net income, net of income tax: (three months: 2017 - $1,355; 2016 - $(5,588); six months: 2017 - $(143); 2016 - $(6,610))	2,517			(10,377		)	(265		)	(12,274		)
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three months: 2017 - $1,391; 2016 - $(1,543); six months: 2017 - $3,385; 2016 - $(1,384))	2,585			(2,866		)	6,286			(2,572		)
Change in accumulated (loss) gain - derivatives, net of income tax: (three months: 2017 - $(64); 2016 - $0; six months: 2017 - $(426); 2016 - $0)	(120		)	—			(792		)	—
Reclassification adjustment for derivative amounts included in net income, net of income tax: (three months: 2017 - $53; 2016 - $0; six months: 2017 - $125; 2016 - $0)	100			—			233			—
Total other comprehensive income	291,830			567,136			452,794			1,002,489
Total comprehensive income	$	381,462		$	739,929		$	600,765		$	1,333,899

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


	Successor Company				As of
	As of September 30, 2016		As of December 31, 2015		June 30, 2017		December 31, 2016
	(Dollars In Thousands)				(Dollars In Thousands)
Assets
Fixed maturities, at fair value (amortized cost: Successor 2016 - $39,592,337; 2015 - $38,389,859)	$	39,435,064	$	35,507,098
Fixed maturities, at amortized cost (fair value: Successor 2016 - $2,894,615; 2015 - $515,000)	2,775,230		593,314
Equity securities, at fair value (cost: Successor 2016 - $680,987; 2015 - $693,147)	699,686		699,925
Mortgage loans (related to securitizations: Successor 2016 - $296,716; 2015 - $359,181)	5,912,683		5,662,812
Investment real estate, net of accumulated depreciation (Successor 2016 - $209; 2015 - $133)	8,006		11,118
Fixed maturities, at fair value (amortized cost: 2017 - $39,749,321; 2016 - $39,645,111)					$	39,175,025	$	37,996,577
Fixed maturities, at amortized cost (fair value: 2017 - $2,805,107; 2016 - $2,733,340)					2,747,077		2,770,177
Equity securities, at fair value (cost: 2017 - $731,168; 2016 - $729,951)					750,141		716,017
Mortgage loans (related to securitizations: 2017 - $255,641; 2016 - $277,964)					6,472,861		6,132,125
Investment real estate, net of accumulated depreciation (2017 - $328; 2016 - $252)					6,705		8,060
Policy loans	1,656,083		1,699,508		1,634,809		1,650,240
Other long-term investments	950,261		594,036		809,457		856,410
Short-term investments	168,552		263,837		362,048		315,834
Total investments	51,605,565		45,031,648		51,958,123		50,445,440
Cash	407,578		212,358		244,197		214,439
Accrued investment income	493,466		472,694		480,272		480,689
Accounts and premiums receivable	134,054		54,054		125,722		132,826
Reinsurance receivables	5,184,940		5,307,556		4,982,350		5,070,185
Deferred policy acquisition costs and value of business acquired	1,914,388		1,562,373		2,099,786		2,024,524
Goodwill	732,443		732,443		793,470		793,470
Other intangibles, net of accumulated amortization (Successor 2016 - $68,854; 2015 - $37,869)	614,147		645,131
Property and equipment, net of accumulated depreciation (Successor 2016 - $14,561; 2015 - $7,908)	103,502		101,600
Other intangibles, net of accumulated amortization (2017 - $113,666; 2016 - $79,183)					665,211		687,348
Property and equipment, net of accumulated depreciation (2017 - $16,317; 2016 - $16,573)					103,966		103,706
Other assets	279,394		255,283		337,761		275,965
Income tax receivable	70,601		—		95,353		96,363
Assets related to separate accounts
Variable annuity	13,164,747		12,829,188		13,616,259		13,244,252
Variable universal life	868,818		827,610		959,638		895,925
Total assets	$	75,573,643	$	68,031,938	$	76,462,108	$	74,465,132

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(continued)

(Unaudited)


	Successor Company						As of
	As of September 30, 2016			As of December 31, 2015			June 30, 2017			December 31, 2016
	(Dollars In Thousands)						(Dollars In Thousands)
Liabilities
Future policy benefits and claims	$	30,685,509		$	29,703,190		$	30,730,799		$	30,510,242
Unearned premiums	678,735			651,205			768,471			761,937
Total policy liabilities and accruals	31,364,244			30,354,395			31,499,270			31,272,179
Stable value product account balances	3,412,041			2,131,822			4,023,790			3,501,636
Annuity account balances	10,679,011			10,719,862			10,770,111			10,642,115
Other policyholders’ funds	1,406,578			1,069,572			1,267,352			1,165,749
Other liabilities	1,861,729			1,230,500			1,652,641			1,436,091
Income tax payable	—			76,584
Deferred income taxes	2,094,922			1,215,180			2,078,669			1,790,961
Debt							937			—
Non-recourse funding obligations	2,978,052			1,951,563			2,952,877			2,973,829
Repurchase program borrowings	219,457			438,185
Secured financing liabilities							440,125			802,721
Liabilities related to separate accounts
Variable annuity	13,164,747			12,829,188			13,616,259			13,244,252
Variable universal life	868,818			827,610			959,638			895,925
Total liabilities	68,049,599			62,844,461			69,261,669			67,725,458
Commitments and contingencies - Note 13
Commitments and contingencies - Note 11
Shareowner’s equity
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2,000	2			2
Common Stock, $1 par value, shares authorized and issued: 2016 and 2015 - 5,000,000	5,000			5,000
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2							2			2
Common Stock, $1 par value, shares authorized and issued: 2017 and 2016 - 5,000,000							5,000			5,000
Additional paid-in-capital	7,422,407			6,274,169			7,378,496			7,422,407
Retained earnings	139,409			154,697
Retained earnings (deficit)							19,187			(32,695		)
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (Successor 2016 - $648,208; 2015 - $(670,922))	(42,183		)	(1,245,998		)
Net unrealized gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (Successor 2016 - $(106); 2015 - $(212))	(591		)	(393		)
Net unrealized gains (losses) on investments, net of income tax: (2017 - $(108,514); 2016 - $(349,242))							(201,525		)	(648,592		)
Net unrealized gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2017 - $(479); 2016 - $(3,864))							(889		)	(7,175		)
Accumulated loss - derivatives, net of income tax: (2017 - $90; 2016 - $391)							168			727
Total shareowner’s equity	7,524,044			5,187,477			7,200,439			6,739,674
Total liabilities and shareowner’s equity	$	75,573,643		$	68,031,938		$	76,462,108		$	74,465,132

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY

(Unaudited)

Preferred
Stock

Common
Stock

Additional
Paid-In-Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareowner’s
Equity
Successor Company
(Dollars In Thousands)
Balance, December 31, 2015 $ 2
$ 5,000
$ 6,274,169
$ 154,697
$ (1,246,391 ) $ 5,187,477
Net income for the nine months ended September 30, 2016

404,712

404,712
Other comprehensive income

1,203,617
1,203,617
Comprehensive income for the nine months ended September 30, 2016

1,608,329
Capital contribution

1,148,238

1,148,238
Dividends paid to the parent company (420,000 ) (420,000 )
Balance, September 30, 2016 $ 2
$ 5,000
$ 7,422,407
$ 139,409
$ (42,774 ) $ 7,524,044



	Preferred Stock		Common Stock		Additional Paid-In-Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Shareowner’s Equity
	(Dollars In Thousands)
Balance, December 31, 2016	$	2	$	5,000	$	7,422,407		$	(32,695	)	$	(655,040	)	$	6,739,674
Net income for the six months ended June 30, 2017								147,971						147,971
Other comprehensive income											452,794			452,794
Comprehensive income for the six months ended June 30, 2017														600,765
Return of capital					(43,911		)							(43,911		)
Dividends paid to the parent company								(96,089		)				(96,089		)
Balance, June 30, 2017	$	2	$	5,000	$	7,378,496		$	19,187		$	(202,246	)	$	7,200,439

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

Successor Company Predecessor Company
For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015
January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Cash flows from operating activities

Net income $ 404,712
$ 104,423
$ 88,522
Adjustments to reconcile net income to net cash provided by operating activities:

Realized investment (gains) losses (263,740 ) 100,379
(102,703 )
Amortization of DAC and VOBA 95,810
77,363
4,817
Capitalization of deferred policy acquisition costs (246,073 ) (210,162 ) (22,799 )
Depreciation and amortization expense 37,974
33,254
796
Deferred income tax 231,631
4,555
91,709
Accrued income tax (147,185 ) 115,127
(48,469 )
Interest credited to universal life and investment products 532,998
521,760
79,088
Policy fees assessed on universal life and investment products (935,702 ) (756,276 ) (90,288 )
Change in reinsurance receivables 122,616
181,899
(98,148 )
Change in accrued investment income and other receivables (76,837 ) 16,984
(1,285 )
Change in policy liabilities and other policyholders’ funds of traditional life and health products (171,016 ) (157,729 ) 176,119
Trading securities:

Maturities and principal reductions of investments 93,397
90,548
17,946
Sale of investments 390,412
107,035
26,422
Cost of investments acquired (438,886 ) (174,455 ) (27,289 )
Other net change in trading securities 47,879
66,189
(26,901 )
Amortization of premiums and accretion of discounts on investments and mortgage loans 308,030
287,977
3,420
Change in other liabilities 383,921
23,500
211,031
Other, net (74,798 ) (39,211 ) (133,928 )
Net cash provided by operating activities $ 295,143
$ 393,160
$ 148,060



	For The Six Months Ended June 30,
	2017			2016
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	147,971		$	331,410
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) losses	56,304			(242,364		)
Amortization of DAC and VOBA	44,238			52,105
Capitalization of DAC	(135,010		)	(163,578		)
Depreciation and amortization expense	30,347			24,361
Deferred income tax	43,897			225,255
Accrued income tax	1,010			(80,535		)
Interest credited to universal life and investment products	326,949			365,702
Policy fees assessed on universal life and investment products	(666,174		)	(633,366		)
Change in reinsurance receivables	87,835			101,034
Change in accrued investment income and other receivables	19,622			(63,753		)
Change in policy liabilities and other policyholders’ funds of traditional life and health products	(169,825		)	(187,989		)
Trading securities:
Maturities and principal reductions of investments	77,697			54,710
Sale of investments	136,007			299,517
Cost of investments acquired	(193,774		)	(331,920		)
Other net change in trading securities	12,504			31,036
Amortization of premiums and accretion of discounts on investments and mortgage loans	218,944			195,147
Change in other liabilities	116,147			301,898
Other, net	(92,287		)	(8,653		)
Net cash provided by operating activities	$	62,402		$	270,017

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(continued)

Successor Company Predecessor Company
For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015
January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Cash flows from investing activities

Maturities and principal reductions of investments, available-for-sale $ 984,510
$ 756,207
$ 59,028
Sale of investments, available-for-sale 1,541,458
1,152,725
200,716
Cost of investments acquired, available-for-sale (3,839,376 ) (2,316,843 ) (150,030 )
Change in investments, held-to-maturity (2,185,000 ) (50,000 ) —
Mortgage loans:

New lendings (944,025 ) (1,101,820 ) (100,530 )
Repayments 648,109
894,164
45,741
Change in investment real estate, net 2,905
(59 ) 7
Change in policy loans, net 43,425
45,470
6,365
Change in other long-term investments, net (105,972 ) (76,572 ) (25,372 )
Change in short-term investments, net 59,225
22,703
(39,312 )
Net unsettled security transactions 52,292
(30,877 ) 37,510
Purchase of property and equipment (8,891 ) (5,700 ) (648 )
Amounts received from reinsurance transaction 325,800
—
—
Net cash (used in) provided by investing activities $ (3,425,540 ) $ (710,602 ) $ 33,475
Cash flows from financing activities

Issuance (repayment) of non-recourse funding obligations 2,173,700
50,000
—
Repurchase program borrowings (218,728 ) 405,718
—
Dividends/Return of capital to parent company (420,000 ) (230,000 ) —
Investment product deposits and change in universal life deposits 3,509,315
1,951,647
169,233
Investment product withdrawals (1,718,670 ) (1,720,926 ) (240,147 )
Other financing activities, net —
—
(4 )
Net cash provided by (used in) financing activities $ 3,325,617
$ 456,439
$ (70,918 )
Change in cash 195,220
138,997
110,617
Cash at beginning of period 212,358
378,903
268,286
Cash at end of period $ 407,578
$ 517,900
$ 378,903



	For The Six Months Ended June 30,
	2017			2016
	(Dollars In Thousands)
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	$	349,560		$	630,055
Sale of investments, available-for-sale	859,788			1,209,832
Cost of investments acquired, available-for-sale	(1,455,068		)	(2,746,767		)
Change in investments, held-to-maturity	21,000			(2,188,000		)
Mortgage loans:
New lendings	(745,445		)	(575,386		)
Repayments	373,836			457,181
Change in investment real estate, net	1,546			3,883
Change in policy loans, net	15,431			29,290
Change in other long-term investments, net	(6,244		)	(66,928		)
Change in short-term investments, net	(53,104		)	(4,060		)
Net unsettled security transactions	11,312			112,433
Purchase of property, equipment, and intangibles	(15,515		)	(4,502		)
Amounts received from reinsurance transaction	—			325,800
Net cash used in investing activities	$	(642,903	)	$	(2,817,169	)
Cash flows from financing activities
Issuance (repayment) of non-recourse funding obligations	(21,000		)	2,176,700
Secured financing liabilities	(357,596		)	(278,185		)
Dividends/Return of capital to parent company	(140,000		)	(280,000		)
Investment product deposits and change in universal life deposits	2,240,760			2,219,455
Investment product withdrawals	(1,111,905		)	(1,208,033		)
Net cash provided by financing activities	$	610,259		$	2,629,937
Change in cash	29,758			82,785
Cash at beginning of period	214,439			212,358
Cash at end of period	$	244,197		$	295,143

PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Basis of Presentation

Protective Life Insurance Company (the “Company”), a stock life insurance company, was founded in 1907. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company. On February 1, 2015, PLC became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (“(now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc. a wholly owned subsidiary of Dai-ichi Life, merged with and into ~~PLC (the “Merger”).~~PLC. Prior to February 1, 2015, ~~and for the periods reported as “predecessor”,~~ PLC’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger date, PLC and the Company remain as SEC registrants within the United States. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate segment devoted to the acquisition of insurance policies from other companies. PLC is a holding company with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products.

~~In conjunction with the Merger, the Company elected to apply “pushdown” accounting by applying the guidance allowed by ASC Topic 805,~~ ~~Business Combinations~~, including the initial recognition of most of the Company’s assets and liabilities at fair value as of the acquisition date, and similarly recognizing goodwill calculated based on the terms of the transaction and the fair value of the new basis of net assets of the Company. The new basis of accounting will be the basis of the accounting records for assets and liabilities held at the acquisition date in the preparation of future financial statements and related disclosures after the Merger date.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the interim periods presented herein. Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2016 (Successor Company).~~2017. The year-end consolidated condensed financial data included herein was derived from audited financial statements but does not include all disclosures required by GAAP within this report. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015 (Successor Company).~~

2016.

The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.

Entities Included

The consolidated condensed financial statements ~~for the predecessor and successor periods presented~~ in this report include the accounts of Protective Life Insurance Company and its affiliate companies in which the Company holds a majority voting or economic interest. Intercompany balances and transactions have been eliminated.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

For a full description of significant accounting policies, see Note 2 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015 (Successor Company).~~2016. There were no significant changes to the Company's accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~

2017.

Accounting Pronouncements Recently Adopted

~~Accounting Standards Update ("ASU") No. 2015-02-Consolidation-Amendments to the Consolidation Analysis.~~ This Update makes several targeted changes to generally accepted accounting principles, including a) eliminating the presumption that a general partner should consolidate a limited partnership and b) eliminating the consolidation model specific to limited partnerships. The amendments also clarify when fees and related party relationships should be considered in the consolidation of variable interest entities. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2015. The Update did not impact the Company's financial position or results of operations, and the Company has revised its policies and processes to comply with the revised guidance.

ASU No. ~~2015-03-Interest-Imputation~~2017-04-Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This Update simplifies the goodwill impairment test by re-defining the concept of ~~Interest.~~ ~~The objective of this Update is to eliminate diversity in practice related to~~goodwill impairment as the ~~presentation of debt issuance costs. The amendments in this Update require~~condition that ~~debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from~~exists when the carrying amount of a reporting unit exceeds its fair value. The Update eliminates “Step 2” of the current goodwill impairment test, which requires entities to determine goodwill impairment by calculating the implied fair value of goodwill by remeasuring to fair value the assets and liabilities of a reporting unit as if that ~~debt liability, consistent with debt discounts.~~reporting unit had been acquired in a business combination. The ~~recognition and measurement guidance for debt issuance costs are not affected by~~Company elected to adopt the amendments in ~~this Update. The~~the Update ~~is effective for fiscal years beginning after December 15, 2015, and requires revised presentation of debt issuance costs in all periods presented~~ in the ~~financial statements. The Update did not impact~~

~~the Company's financial position or results~~first quarter of ~~operations,~~2017, and ~~the Company has revised its policies and processes to comply with~~will apply the revised ~~guidance.~~

~~ASU No. 2015-15 - Interest - Imputation of Interest - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.~~ ~~The objective of this Update is~~guidance to clarify the SEC Staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on the topic in ASU No. 2015-03. This Update reflects the SEC Staff’s decision to not object when an entity defers and presents debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the termimpairment tests conducted after January 1, 2017. Application of the ~~line-of-credit arrangement. The Update~~revised guidance did ~~not impact the Company's financial position or results of operations, and the Company has revised its policies and processes to comply with the revised guidance.~~

~~ASU No. 2015-05 - Intangibles - Goodwill and Other - Internal-Use Software.~~ The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. The Update is effective for annual and interim periods beginning after December 15, 2015. The Update did not impact the Company's financial position or results of operations, and the Company has revised its policies and processes to comply with the new standard.

~~Accounting Pronouncements Not Yet Adopted~~

~~ASU No. 2014-09-Revenue from Contracts with Customers (Topic 606).~~ This Update provides for significant revisions to the recognition of revenue from contracts with customers across various industries. Under the new guidance, entities are required to apply a prescribed 5-step process to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting for revenues associated with insurance products is not within the scope of this Update. The Update was originally effective for annual and interim periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14 - ~~Revenues from Contracts with Customers: Deferral of the Effective Date~~, to defer the effective date of ASU No. 2014-09 by one year to annual and interim periods beginning after December 15, 2017. Early adoption will be allowed, but not before the original effective date. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption, and assessing the impact this standard will have on its non-insurance operations.

~~ASU No. 2014-15-Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.~~ This Update will require management to assess an entity’s ability to continue as a going concern, and will require footnote disclosures in certain circumstances. Under the updated guidance, management should consider relevant conditions and evaluate whether it is probable that the entity will be unable to meet its obligations within one year after the issuance date of the financial statements. The Update is effective for annual periods ending December 31, 2016 and for annual and interim periods thereafter, with early adoption permitted. The amendments in this Update will not impact the Company’s financial position or results of ~~operations. However, the new guidance~~operations and will ~~require a formal assessment of going concern by management based on criteria prescribed~~simplify its annual goodwill impairment test, which is generally conducted in the ~~new guidance. The Company is prepared~~fourth quarter. For more details regarding the Company’s goodwill assessment process, please refer to ~~comply with the revised guidance, upon adoption.~~Note 9, Goodwill.

ASU No. 2015-09 - Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts. The amendments in this Update require additional disclosures for short-duration contracts issued by insurance entities. The additional disclosures focus on the liability for unpaid claims and claim adjustment expenses and include incurred and paid claims development information by accident year in tabular form, along with a reconciliation of this information to the statement of financial position. For accident years included in the development tables, the amendments also require disclosure of the total incurred-but-not-reported liabilities and expected development on reported claims, along with claims frequency information unless impracticable. Finally, the amendments require disclosure of the historical average annual percentage payout of incurred claims. With the exception of the current reporting period, claims development information may be presented as supplementary information. The Update is effective for annual periods beginning after December 15, 2015 and interim periods beginning after December 15, 2016. The ~~Company does not anticipate that the~~ additional disclosures introduced in this Update ~~will be~~have not been provided, as the short-duration lines of business to which they apply are not material to ~~its~~the Company’s financial statements.

Accounting Pronouncements Not Yet Adopted

ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606). This Update provides for significant revisions to the recognition of revenue from contracts with customers across various industries. Under the new guidance, entities are required to apply a prescribed 5-step process to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting for revenues associated with insurance products is not within the scope of this Update. The Update was originally effective for annual and interim periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14 - Revenues from Contracts with Customers: Deferral of the Effective Date, to defer the effective date of ASU No. 2014-09 by one year to annual and interim periods beginning after December 15, 2017. The Company will adopt this Update on January 1, 2018 using the modified retrospective approach method. The amendments in the Update, along with clarifying updates issued subsequent to ASU 2014-09, may impact several of the Company's non-core lines of business, specifically revenues at the Company's affiliated broker dealers and insurance agency. Additionally, certain non-insurance products sold from the Asset Protection Division, such as fee-for-service arrangements, are expected to be in the scope of the revised guidance. Several application questions remain outstanding, most notably interpretive positions from the AICPA regarding the Update's application to insurance companies and products. Based on the assessment completed to date, the Company does not anticipate material financial impact from the implementation of the revised guidance.

ASU No. 2016-01 - Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the Update requires that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income. The Update also introduces a single-step impairment model for equity investments without a readily determinable fair value. Additionally, the Update requires changes in instrument-specific credit risk for fair value option liabilities to be recorded in other comprehensive income. The amendments in this Update are effective for annual and interim periods beginning after December 15, ~~2017.~~2017 and will be applied on a modified retrospective basis. The Company ~~is reviewing~~expects to complete its review of applicable policies and ~~processes~~procedures to ensure compliance with the revised guidance.

ASU No. 2016-02 - Leases. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of leases. The most significant change will relate to the accounting model used by lessees. The Update will require all leases with terms greater than 12 months to be recorded on the balance sheet in the form of a lease asset and liability. The lease asset and liability will be measured at the present value of the minimum lease payments less any upfront payments or fees. The Update also requires numerous disclosure changes for which the Company is assessing the impact. The amendments in the Update are effective for annual and interim periods beginning after December 15, ~~2018.~~2018 on a modified retrospective basis. The Company has completed an inventory of all leases in the organization and is ~~reviewing its policies~~currently assessing the impact of the Update and updating internal processes to ensure compliance with the revised guidance.

ASU No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this Update introduce a new ~~impairment~~current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the

scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be ~~collected.~~collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been ~~incurred.~~incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. The Update also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets. Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in this Update are effective for annual and interim periods beginning after December 15, ~~2019.~~2019 on a modified retrospective basis. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption, and assessing the impact this standard will have on its operations and financial results.

ASU No. 2016-15 - Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update are intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Specific transactions addressed in the new guidance include: Debt prepayment/extinguishment costs, contingent consideration payments, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investments. The Update does not introduce any new accounting or financial reporting requirements, and is effective for annual and interim periods beginning after December 15, ~~2018.~~2018 using the retrospective method. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption.

ASU No. ~~2016-16~~2016-18 - ~~Income Taxes - Intra-Entity Transfers~~Statement of ~~Assets Other Than Inventory.~~Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Task Force). The ~~objective~~amendments in this update provide guidance on the presentation of ~~this Update is to reduce complexity and~~restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing diversity in practice related to ~~certain types~~the presentation of ~~intra-entity asset transfers. Under~~these amounts. The amendments require that a statement of cash flows explain the ~~revised guidance, entities will be required to recognize~~change during the ~~income tax consequences~~period in the total of ~~intra-entity transfers of an assets other than inventory when those transfers occur.~~cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Update is effective for ~~annual reporting~~public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company expects to complete its review of applicable policies and procedures to ensure compliance with the revised guidance.

ASU No. 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of this update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in the Update provide a specific test by which an entity may determine whether an acquisition involves a set of assets or a business. The amendments

in the Update are to be applied prospectively for periods beginning after December 15, ~~2018~~2017. The Company has reviewed the revised requirements, and does not anticipate that the changes will impact its policies or recent conclusions related to its acquisition activities.

ASU No. 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this update require entities to disaggregate the current-service-cost component from other components of net benefit cost and present it with other current compensation costs in the income statement. The other components of net benefit cost must be presented outside of income from operations if that subtotal is presented. In addition, the Update requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The amendments in this update are effective for interim ~~reporting~~and annual periods beginning after December 15, ~~2019.~~2017. As provided for in the ASU, the Company expects to apply the provisions of the statement retrospectively for components of net periodic pension costs and prospectively for capitalization of the service costs component of net periodic costs and net periodic postretirement benefits. The Update will not impact the Company’s financial position or results of operations. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption.

ASU No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this update require that premiums on callable debt securities be amortized to the first call date. This is a change from current guidance, under which premiums are amortized to the maturity date of the security. The amendments are effective for annual and interim periods beginning after December 31, 2018, and early adoption is permitted. Transition will be through a modified retrospective approach in which the cumulative effect of application is recorded to retained earnings at the beginning of the annual period in which an entity adopts the revised guidance. The Company is currently reviewing ~~the Update~~its systems and processes to determine whether ~~the amendments will impact its financial position or results~~early adoption of ~~operations, and whether changes are needed to its policies and processes to comply with~~ the revised ~~guidance.~~guidance is practicable.

3. ~~REINSURANCE AND FINANCING TRANSACTIONS~~

On January 15, 2016, the Company completed the transaction contemplated by the Master Agreement, dated September 30, 2015 (the “Master Agreement”), with Genworth Life and Annuity Insurance Company (“GLAIC”). Pursuant to the Master Agreement, effective January 1, 2016, the Company entered into a reinsurance agreement (the “Reinsurance Agreement”) under the terms of which the Company coinsures certain term life insurance business of GLAIC (the “GLAIC Block”). In connection with the reinsurance transaction, on January 15, 2016, Golden Gate Captive Insurance Company (“Golden Gate”), a wholly owned subsidiary of the Company, and Steel City, LLC (“Steel City”), a newly formed wholly owned subsidiary of PLC, entered into an 18-year transaction to finance $2.188 billion of “XXX” reserves related to the acquired GLAIC Block and the other term life insurance business reinsured to Golden Gate by the Company and West Coast Life Insurance Company (“WCL”), a direct wholly owned subsidiary of the Company. Steel City issued notes with an aggregate initial principal amount of $2.188 billion to Golden Gate in exchange for a surplus note issued by Golden Gate with an initial principal amount of $2.188 billion. Through the structure, Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and Nomura Americas Re Ltd. (collectively, the “Risk-Takers”) provide credit enhancement to the Steel City notes for the 18-year term in exchange for credit enhancement fees. The transaction is “non-recourse” to PLC, WCL and the Company, meaning that none of these companies are liable to reimburse the Risk-Takers for any credit enhancement payments required to be made. In connection with the transaction, PLC has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate or Steel City, including a guarantee of the fees to the Risk-Takers. As a result of the financing transaction described above, the $800 million of Golden Gate Series A Surplus Notes held by PLC were contributed to the Company and then subsequently contributed to Golden Gate, which resulted in the extinguishment of these notes. Also on January 15, 2016, Golden Gate paid an extraordinary dividend of $300 million to the Company as approved by the Vermont Department of Financial Regulation.

The transactions described above resulted in an increase to total assets and total liabilities of $2.8 billion. Of the $2.8 billion increase in total assets, $0.6 billion was the result of the reinsurance transaction with GLAIC which included a $280 million increase in VOBA. The remaining $2.2 billion increase to total assets and liabilities is associated with the financing transaction between Golden Gate and Steel City.

The Company considered whether the Reinsurance Agreement constituted the purchase of a business for accounting and reporting purposes pursuant to ASC 805, Business Combinations. While the transaction included a continuation of the revenue-producing activities associated with the reinsured policies, it did not result in the acquisition of a market distribution system, sales force or production techniques. Based on Management’s decision not to pursue distribution opportunities or future sales related to the reinsured policies, the Company accounted for the transaction as a reinsurance agreement under ASC 944, Insurance Contracts and asset acquisition under ASC 805. Accordingly, the Company recorded the assets and liabilities acquired under the reinsurance agreement at fair value and recognized an intangible asset (value of business acquired or “VOBA”) equal to the excess of the fair value of assets acquired over liabilities assumed, measured in accordance with the Company's accounting policies for insurance and reinsurance contracts that it issues or holds pursuant to ASC 944.

4.~~DAI-ICHI MERGER~~

On February 1, 2015 PLC, subsequent to required approvals from PLC’s shareholders and relevant regulatory authorities, became a wholly owned subsidiary of Dai-ichi Life as contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) with Dai-ichi Life and DL Investment (Delaware), Inc., a Delaware corporation and wholly owned subsidiary of Dai-ichi Life, which provided for the Merger of DL Investment (Delaware), Inc. with and into PLC, with PLC surviving the Merger as a wholly owned subsidiary of Dai-ichi Life. On February 1, 2015 each share of PLC’s common stock outstanding was converted into the right to receive $70 per share, without interest (the “Per Share Merger Consideration”). The aggregate cash consideration paid in connection with the Merger for the outstanding shares of common stock was approximately $5.6 billion and paid directly to the

shareowners of record by Dai-ichi Life. The Merger provided Dai-ichi Life with a platform for growth in the United States, where it did not previously have a significant presence. In connection with the completion of the Merger, PLC’s previously publicly traded equity was delisted from the NYSE, although PLC and the Company remain SEC registrants for financial reporting purposes in the United States.

The Merger was accounted for under the acquisition method of accounting under ASC Topic 805. In accordance with ASC Topic 805-20-30, all identifiable assets acquired and liabilities assumed were measured at fair value as of the acquisition date. On the date of the Merger, goodwill of $735.7 million represented the cost in excess of the fair value of PLC’s net assets acquired (including identifiable intangibles) in the Merger, and reflected the Company’s assembled workforce, future growth potential and other sources of value not associated with identifiable assets. During the measurement period subsequent to February 1, 2015, the Company made adjustments to provisional amounts related to certain tax balances that resulted in a decrease to goodwill of $3.3 million from the amount recorded at the Merger date. The balance of goodwill associated with the Merger as of December 31, 2015 (Successor Company) and September 30, 2016 (Successor Company) was $732.4 million. None of the goodwill is tax deductible.

~~The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date:~~

Fair Value
As of
February 1, 2015
(Dollars In Thousands)
Assets
Fixed maturities $ 38,342,948
Equity securities 699,081
Mortgage loans 5,580,229
Investment real estate 7,456
Policy loans 1,751,872
Other long-term investments 657,346
Short-term investments 311,236
Total investments 47,350,168
Cash 378,903
Accrued investment income 483,691
Accounts and premiums receivable 104,260
Reinsurance receivables 5,538,637
Value of business acquired 1,278,064
Goodwill 735,712
Other intangibles 683,000
Property and equipment 102,736
Other assets 224,555
Income tax receivable 50,117
Assets related to separate accounts
Variable annuity 12,970,587
Variable universal life 819,188
Total assets $ 70,719,618
Liabilities
Future policy and benefit claims $ 30,195,397
Unearned premiums 622,278
Total policy liabilities and accruals 30,817,675
Stable value product account balances 1,932,277
Annuity account balances 10,941,661
Other policyholders’ funds 1,388,083
Other liabilities 1,533,666
Deferred income taxes 1,861,632
Non-recourse funding obligations 1,895,636
Repurchase program borrowings 50,000
Liabilities related to separate accounts
Variable annuity 12,970,587
Variable universal life 819,188
Total liabilities 64,210,405
Net assets acquired $ 6,509,213

~~Treatment of Benefit Plans~~

At or immediately prior to the Merger, each stock appreciation right with respect to shares of PLC’s Common Stock granted under any Stock Plan (each, a “SAR”) that were outstanding and unexercised immediately prior to the Merger and that had a base price per share of Common Stock underlying such SAR (the “Base Price”) that was less than the Per Share Merger Consideration (each such SAR, an “In-the-Money SAR”), whether or not exercisable or vested, was cancelled and converted into the right to receive an amount in cash less any applicable withholding taxes, determined by multiplying (i) the excess of the Per

~~Share Merger Consideration over the Base Price of such In-the-Money SAR by (ii) the number of shares of Common Stock subject to such In-the-Money SAR (such amount, the “SAR Consideration”).~~

At or immediately prior to the effective time of the Merger, each restricted stock unit with respect to a share of PLC Common Stock granted under any Stock Plan (each, a “RSU”) that was outstanding immediately prior to the Merger, whether or not vested, was cancelled and converted into the right to receive an amount in cash, without interest, less any applicable withholding taxes, determined by multiplying (i) the Per Share Merger Consideration by (ii) the number of RSUs.

The number of performance shares earned for each award of performance shares granted under any Stock Plan was calculated by determining the number of performance shares that would have been paid if the subject award period had ended on the December 31 immediately preceding the Merger (based on the conditions set for payment of performance share awards for the subject award period), provided that the number of performance shares earned for each award were not less than the aggregate number of performance shares at the target performance level. Each performance share earned that was outstanding immediately prior to the Merger, whether or not vested, was cancelled and converted into the right to receive an amount in cash, without interest, less any applicable withholding taxes, determined by multiplying (i) the Per Share Merger Consideration by (ii) the number of Performance Shares.

5.MONY CLOSED BLOCK OF BUSINESS

In 1998, MONY Life Insurance Company (“MONY”) converted from a mutual insurance company to a stock corporation (“demutualization”). In connection with its demutualization, an accounting mechanism known as a closed block (the “Closed Block”) was established for certain individuals’ participating policies in force as of the date of demutualization. Assets, liabilities, and earnings of the Closed Block are specifically identified to support its participating policyholders. The Company acquired the Closed Block in conjunction with the acquisition of MONY in 2013.

Assets allocated to the Closed Block inure solely to the benefit of each Closed Block’s policyholders and will not revert to the benefit of MONY or the Company. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of MONY’s general account, any of MONY’s separate accounts or any affiliate of MONY without the approval of the Superintendent of The New York State Department of Financial Services (the “Superintendent”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the general account.

The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in accumulated other comprehensive income (loss) (“AOCI”)) at the acquisition date of October 1, 2013, represented the estimated maximum future post-tax earnings from the Closed Block that would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. In connection with the acquisition of MONY, the Company developed an actuarial calculation of the expected timing of MONY’s Closed Block’s earnings as of October 1, 2013. Pursuant to the acquisition of the Company by Dai-ichi Life, this actuarial calculation of the expected timing of MONY’s Closed Block earnings was recalculated and reset as of February 1, 2015, along with the establishment of a policyholder dividend obligation as of such date.

If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in the Company’s net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.

Many expenses related to Closed Block operations, including amortization of VOBA, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block.

Summarized financial information for the Closed Block as of ~~September~~June 30, ~~2016 (Successor Company)~~2017, and December 31, ~~2015 (Successor Company)~~2016 is as follows:


	Successor Company					As of
	As of September 30, 2016		As of December 31, 2015			June 30, 2017		December 31, 2016
	(Dollars In Thousands)					(Dollars In Thousands)
Closed block liabilities
Future policy benefits, policyholders’ account balances and other policyholder liabilities	$	5,913,411	$	6,010,520		$	5,837,388	$	5,896,355
Policyholder dividend obligation	264,107		—			123,449		31,932
Other liabilities	52,435		24,539			18,662		40,007
Total closed block liabilities	6,229,953		6,035,059			5,979,499		5,968,294
Closed block assets
Fixed maturities, available-for-sale, at fair value	$	4,696,136	$	4,426,090		$	4,568,414	$	4,440,105
Mortgage loans on real estate	201,078		247,162			153,106		201,088
Policy loans	717,887		746,102			709,618		712,959
Cash	79,115		34,420			52,863		108,270
Other assets	155,360		162,640			139,948		135,794
Total closed block assets	5,849,576		5,616,414			5,623,949		5,598,216
Excess of reported closed block liabilities over closed block assets	380,377		418,645			355,550		370,078
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses) net of policyholder dividend obligation of $16,169 (Successor) and $(179,360) (Successor)	—		(18,597		)
Net unrealized investment gains (losses) net of policyholder dividend obligation: $(80,032) and $(197,450); and net of income tax: $28,011 and $69,107						—		—
Future earnings to be recognized from closed block assets and closed block liabilities	$	380,377	$	400,048		$	355,550	$	370,078

Reconciliation of the policyholder dividend obligation is as follows:


	Successor Company						Predecessor Company			For The Six Months Ended June 30,
	For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)						(Dollars In Thousands)			(Dollars In Thousands)
Policyholder dividend obligation, beginning of period	$	—		$	323,432		$	366,745		$	31,932		$	—
Applicable to net revenue (losses)	(36,707		)	(27,854		)	(1,369		)	(25,901		)	(28,921		)
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation; includes deferred tax benefits of $(8,706) (Successor); $(83,000) (2015 - Successor); $47,277 (2015 - Predecessor)	300,814			(237,143		)	135,077
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation										117,418			261,343
Policyholder dividend obligation, end of period	$	264,107		$	58,435		$	500,453		$	123,449		$	232,422

Closed Block revenues and expenses were as follows:


	Successor Company								Predecessor Company		For The Three Months Ended June 30,				For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016		For The Three Months Ended September 30, 2015		For The Nine Months Ended September 30, 2016		February 1, 2015 to September 30, 2015		January 1, 2015 to January 31, 2015		2017		2016		2017		2016
	(Dollars In Thousands)								(Dollars In Thousands)		(Dollars In Thousands)
Revenues
Premiums and other income	$	44,043	$	46,610	$	135,282	$	128,279	$	15,065	$	44,898	$	47,320	$	87,734	$	91,239
Net investment income	53,582		54,593		156,458		142,274		19,107		51,343		52,008		102,701		102,875
Net investment gains	326		167		963		3,017		568		43		450		106		637
Total revenues	97,951		101,370		292,703		273,570		34,740		96,284		99,778		190,541		194,751
Benefits and other deductions
Benefits and settlement expenses	88,143		90,966		260,227		245,711		31,152		87,490		92,029		167,598		172,084
Other operating expenses	537		258		2,214		733		—		428		653		592		1,677
Total benefits and other deductions	88,680		91,224		262,441		246,444		31,152		87,918		92,682		168,190		173,761
Net revenues before income taxes	9,271		10,146		30,262		27,126		3,588		8,366		7,096		22,351		20,990
Income tax expense	3,245		3,551		10,591		9,494		1,256		2,928		2,484		7,823		7,346
Net revenues	$	6,026	$	6,595	$	19,671	$	17,632	$	2,332	$	5,438	$	4,612	$	14,528	$	13,644

6.4. INVESTMENT OPERATIONS

Net realized gains (losses) for all other investments are summarized as follows:


	Successor Company												Predecessor Company			For The Three Months Ended June 30,						For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Fixed maturities	$	1,665		$	(1,304	)	$	24,097		$	2,398		$	6,891		$	(50	)	$	16,733		$	9,440		$	22,435
Equity securities	—			51			36			72			—			(1,037		)	202			(1,046		)	36
Impairments on corporate securities	(3,308		)	(10,064		)	(6,892		)	(15,798		)	(481		)
Impairments																(2,785		)	(967		)	(7,986		)	(3,584		)
Modco trading portfolio	23,995			8,377			178,353			(133,524		)	73,062			55,230			76,201			73,782			154,355
Other investments	(1,508		)	(1,815		)	(7,842		)	(1,040		)	1,200			(608		)	(4,353		)	(5,800		)	(6,334		)
Total realized gains (losses) - investments	$	20,844		$	(4,755	)	$	187,752		$	(147,892	)	$	80,672		$	50,750		$	87,816		$	68,390		$	166,908

Gross realized gains and gross realized losses on investments available-for-sale (fixed maturities, equity securities, and short-term investments) are as follows:



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Gross realized gains	$	2,297		$	18,752		$	13,035		$	27,781
Gross realized losses:
Impairment losses	$	(2,785	)	$	(967	)	$	(7,986	)	$	(3,584	)
Other realized losses	$	(3,384	)	$	(1,817	)	$	(4,641	)	$	(5,310	)

The chart below summarizes the fair value (proceeds) and the ~~gains/losses~~gains (losses) realized on securities the Company sold that were in an unrealized gain position and an unrealized loss position.



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Securities in an unrealized gain position:
Fair value (proceeds)	$	275,470		$	513,544		$	444,604		$	819,775
Gains realized	$	2,297		$	18,752		$	13,035		$	27,781

Securities in an unrealized loss position⁽¹⁾:
Fair value (proceeds)	$	71,813		$	6,895		$	84,265		$	60,582
Losses realized	$	(3,384	)	$	(1,820	)	$	(4,641	)	$	(5,313	)

(1) The Company made the decision to exit these holdings in conjunction with its overall asset liability management process.

The amortized cost and fair value of the Company’s investments classified as available-for-sale are as follows:



As of June 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Total OTTI Recognized in OCI⁽¹⁾
	(Dollars In Thousands)
Fixed maturities:
Residential mortgage-backed securities	$	1,997,251	$	14,311	$	(19,247	)	$	1,992,315	$	8
Commercial mortgage-backed securities	1,822,565		5,927		(25,714		)	1,802,778		—
Other asset-backed securities	1,179,284		19,712		(16,993		)	1,182,003		—
U.S. government-related securities	1,321,287		1,351		(26,530		)	1,296,108		—
Other government-related securities	251,130		6,489		(8,161		)	249,458		—
States, municipals, and political subdivisions	1,755,780		5,154		(71,613		)	1,689,321		—
Corporate securities	28,634,563		375,017		(832,705		)	28,176,875		(1,376		)
Preferred stock	94,362		1,791		(3,085		)	93,068		—
	37,056,222		429,752		(1,004,048		)	36,481,926		(1,368		)
Equity securities	725,980		25,427		(6,453		)	744,954
Short-term investments	316,284		—		—			316,284
	$	38,098,486	$	455,179	$	(1,010,501	)	$	37,543,164	$	(1,368	)

As of December 31, 2016
Fixed maturities:
Residential mortgage-backed securities	$	1,904,165	$	10,737	$	(25,295	)	$	1,889,607	$	(9	)
Commercial mortgage-backed securities	1,820,644		2,455		(40,602		)	1,782,497		—
Other asset-backed securities	1,210,490		21,741		(20,698		)	1,211,533		—
U.S. government-related securities	1,308,192		422		(40,455		)	1,268,159		—
Other government-related securities	251,197		1,526		(14,797		)	237,926		—
States, municipals, and political subdivisions	1,760,837		1,224		(105,558		)	1,656,503		—
Corporate securities	28,655,364		151,383		(1,582,098		)	27,224,649		(11,030		)
Preferred stock	94,362		—		(8,519		)	85,843		—
	37,005,251		189,488		(1,838,022		)	35,356,717		(11,039		)
Equity securities	722,868		7,751		(21,685		)	708,934		—
Short-term investments	263,185		—		—			263,185		—
	$	37,991,304	$	197,239	$	(1,859,707	)	$	36,328,836	$	(11,039	)

(1) These amounts are included in the gross unrealized gains and gross unrealized losses columns above.

As of ~~September~~June 30, ~~2016 (Successor Company)~~2017 and December 31, ~~2015 (Successor Company), are as follows:~~

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Total OTTI
Recognized
in OCI⁽¹⁾
Successor Company
As of September 30, 2016
(Dollars In Thousands)
Fixed maturities:

Residential mortgage-backed securities $ 1,842,012
$ 49,259
$ (4,558 ) $ 1,886,713
$ —
Commercial mortgage-backed securities 1,654,152
31,706
(2,632 ) 1,683,226
—
Other asset-backed securities 1,202,982
14,625
(15,691 ) 1,201,916
—
U.S. government-related securities 1,299,876
13,092
(1,789 ) 1,311,179
—
Other government-related securities 18,350
184
(2 ) 18,532
—
States, municipals, and political subdivisions 1,725,351
25,239
(23,329 ) 1,727,261
—
Corporate securities 28,966,811
488,460
(731,249 ) 28,724,022
(909 )
Preferred stock 94,362
1,227
(1,815 ) 93,774
—
36,803,896
623,792
(781,065 ) 36,646,623
(909 )
Equity securities 673,709
25,454
(6,755 ) 692,408
—
Short-term investments 142,870
—
—
142,870
—
$ 37,620,475
$ 649,246
$ (787,820 ) $ 37,481,901
$ (909 )

As of December 31, 2015
Fixed maturities:

Residential mortgage-backed securities $ 1,773,099
$ 9,286
$ (17,112 ) $ 1,765,273
$ —
Commercial mortgage-backed securities 1,327,288
428
(41,852 ) 1,285,864
—
Other asset-backed securities 813,056
2,758
(18,763 ) 797,051
—
U.S. government-related securities 1,566,260
449
(34,532 ) 1,532,177
—
Other government-related securities 18,483
—
(743 ) 17,740
—
States, municipals, and political subdivisions 1,729,732
682
(126,814 ) 1,603,600
—
Corporate securities 28,433,530
26,147
(2,681,020 ) 25,778,657
(605 )
Preferred stock 64,362
192
(1,867 ) 62,687
—
35,725,810
39,942
(2,922,703 ) 32,843,049
(605 )
Equity securities 684,888
13,255
(6,477 ) 691,666
—
Short-term investments 202,110
—
—
202,110
—
$ 36,612,808
$ 53,197
$ (2,929,180 ) $ 33,736,825
$ (605 )

~~(1) These amounts are included in the gross unrealized gains and gross unrealized losses columns above.~~

~~As of September 30,~~ 2016, ~~(Successor Company) and December 31, 2015 (Successor Company),~~ the Company had an additional ~~$2.8~~$2.7 billion and ~~$2.7~~$2.6 billion of fixed maturities, ~~$7.3~~$5.2 million and ~~$8.3~~$7.1 million of equity securities, and ~~$25.7~~$45.8 million and ~~$61.7~~$52.6 million of short-term investments classified as trading securities, respectively.

The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of ~~September~~June 30, ~~2016 (Successor Company),~~2017, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.


	Successor Company
	Available-for-sale				Held-to-maturity				Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars In Thousands)				(Dollars In Thousands)				(Dollars In Thousands)
Due in one year or less	$	786,505	$	787,980	$	—	$	—	$	793,423	$	793,702	$	—	$	—
Due after one year through five years	6,834,174		6,901,114		—		—		6,068,649		6,084,212		—		—
Due after five years through ten years	7,735,392		7,887,064		—		—		7,503,015		7,504,505		—		—
Due after ten years	21,447,825		21,070,465		2,775,230		2,894,615		22,691,135		22,099,507		2,747,077		2,805,107
	$	36,803,896	$	36,646,623	$	2,775,230	$	2,894,615	$	37,056,222	$	36,481,926	$	2,747,077	$	2,805,107

The chart below summarizes the Company's other-than-temporary impairments of investments. All of the impairments were related to fixed or equity maturities.


																For The Three Months Ended June 30,								For The Six Months Ended June 30,
	Successor Company												Predecessor Company			2017								2017
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			Fixed Maturities			Equity Securities		Total Securities			Fixed Maturities			Equity Securities		Total Securities
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Other-than-temporary impairments	$	(1,898	)	$	(14,906	)	$	(10,194	)	$	(28,301	)	$	(636	)	$	(33	)	$	—	$	(33	)	$	(128	)	$	—	$	(128	)
Non-credit impairment losses recorded in other comprehensive income	(1,410		)	4,842			3,302			12,503			155			(2,752		)	—		(2,752		)	(7,858		)	—		(7,858		)
Net impairment losses recognized in earnings	$	(3,308	)	$	(10,064	)	$	(6,892	)	$	(15,798	)	$	(481	)	$	(2,785	)	$	—	$	(2,785	)	$	(7,986	)	$	—	$	(7,986	)



	For The Three Months Ended June 30,								For The Six Months Ended June 30,
	2016								2016
	Fixed Maturities			Equity Securities		Total Securities			Fixed Maturities			Equity Securities		Total Securities
	(Dollars In Thousands)
Other-than-temporary impairments	$	(5,527	)	$	—	$	(5,527	)	$	(8,296	)	$	—	$	(8,296	)
Non-credit impairment losses recorded in other comprehensive income	4,560			—		4,560			4,712			—		4,712
Net impairment losses recognized in earnings	$	(967	)	$	—	$	(967	)	$	(3,584	)	$	—	$	(3,584	)

There were no other-than-temporary impairments related to fixed maturities or equity securities that the Company intended to sell or expected to be required to sell for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), for the three months ended September 30, 2015 (Successor Company), for the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~for the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~2016.

The following chart is a rollforward of available-for-sale credit losses on fixed maturities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss):



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Beginning balance	$	—		$	2,619		$	12,685		$	22,761
Additions for newly impaired securities	—			964			—			3,056
Additions for previously impaired securities	2,785			—			2,785			525
Reductions for previously impaired securities due to a change in expected cash flows	(2		)	—			(12,687		)	(22,759		)
Reductions for previously impaired securities that were sold in the current period	—			(2,619		)	—			(2,619		)
Ending balance	$	2,783		$	964		$	2,783		$	964

The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of ~~September~~June 30, ~~2016 (Successor Company):~~

2017:


	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars In Thousands)															(Dollars In Thousands)
Residential mortgage-backed securities	$	86,908	$	(433	)	$	180,768	$	(4,125	)	$	267,676	$	(4,558	)	$	1,016,569	$	(17,069	)	$	78,327	$	(2,178	)	$	1,094,896	$	(19,247	)
Commercial mortgage-backed securities	175,209		(1,162		)	104,931		(1,470		)	280,140		(2,632		)	1,287,270		(22,056		)	92,718		(3,658		)	1,379,988		(25,714		)
Other asset-backed securities	68,039		(268		)	465,787		(15,423		)	533,826		(15,691		)	215,084		(5,730		)	169,548		(11,263		)	384,632		(16,993		)
U.S. government-related securities	128,224		(1,789		)	3		—			128,227		(1,789		)	1,182,817		(26,530		)	2		—			1,182,819		(26,530		)
Other government-related securities	1,927		(2		)	—		—			1,927		(2		)	43,859		(467		)	83,449		(7,694		)	127,308		(8,161		)
States, municipalities, and political subdivisions	239,380		(2,842		)	561,253		(20,487		)	800,633		(23,329		)	893,426		(35,282		)	564,522		(36,331		)	1,457,948		(71,613		)
Corporate securities	2,769,939		(46,629		)	10,876,293		(684,620		)	13,646,232		(731,249		)	8,368,818		(195,818		)	8,906,691		(636,887		)	17,275,509		(832,705		)
Preferred stock	53,040		(128		)	19,251		(1,687		)	72,291		(1,815		)	33,561		(1,081		)	18,934		(2,004		)	52,495		(3,085		)
Equities	84,188		(989		)	59,929		(5,766		)	144,117		(6,755		)	118,129		(1,783		)	55,382		(4,670		)	173,511		(6,453		)
	$	3,606,854	$	(54,242	)	$	12,268,215	$	(733,578	)	$	15,875,069	$	(787,820	)	$	13,159,533	$	(305,816	)	$	9,969,573	$	(704,685	)	$	23,129,106	$	(1,010,501	)

RMBS and CMBS had gross unrealized losses greater than twelve months of ~~$4.1~~$2.2 million and ~~$1.5~~$3.7 million, respectively, as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.

The other asset-backed securities had a gross unrealized loss greater than twelve months of ~~$15.4~~$11.3 million as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

The other government-related securities had gross unrealized losses greater than twelve months of $7.7 million as of June 30, 2017. These declines were related to changes in interest rates.

The states, municipalities, and political subdivisions category had gross unrealized losses greater than twelve months of ~~$20.5~~$36.3 million as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. These declines were related to changes in interest rates.

The corporate securities category had gross unrealized losses greater than twelve months of ~~$684.6~~$636.9 million as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company had a total of ~~1,230~~1,846 positions that were in an unrealized loss position, but the Company does not consider these unrealized loss positions to be other-than-temporary. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and the Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.

2016:


	Less Than 12 Months					12 Months or More				Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars In Thousands)														(Dollars In Thousands)
Residential mortgage-backed securities	$	977,433	$	(17,112	)	$	—	$	—	$	977,433	$	(17,112	)	$	1,051,694	$	(21,178	)	$	170,826	$	(4,117	)	$	1,222,520	$	(25,295	)
Commercial mortgage-backed securities	1,232,495		(41,852		)	—		—		1,232,495		(41,852		)	1,426,252		(36,589		)	100,475		(4,013		)	1,526,727		(40,602		)
Other asset-backed securities	633,274		(18,763		)	—		—		633,274		(18,763		)	323,706		(9,291		)	176,792		(11,407		)	500,498		(20,698		)
U.S. government-related securities	1,291,476		(34,532		)	—		—		1,291,476		(34,532		)	1,237,942		(40,454		)	3		(1		)	1,237,945		(40,455		)
Other government-related securities	17,740		(743		)	—		—		17,740		(743		)	98,412		(2,907		)	79,393		(11,890		)	177,805		(14,797		)
States, municipalities, and political subdivisions	1,566,752		(126,814		)	—		—		1,566,752		(126,814		)	1,062,368		(63,809		)	548,254		(41,749		)	1,610,622		(105,558		)
Corporate securities	24,235,121		(2,681,020		)	—		—		24,235,121		(2,681,020		)	12,490,517		(467,463		)	9,791,313		(1,114,635		)	22,281,830		(1,582,098		)
Preferred stock	34,685		(1,867		)	—		—		34,685		(1,867		)	66,781		(6,642		)	19,062		(1,877		)	85,843		(8,519		)
Equities	248,493		(6,477		)	—		—		248,493		(6,477		)	411,845		(15,273		)	69,497		(6,412		)	481,342		(21,685		)
	$	30,237,469	$	(2,929,180	)	$	—	$	—	$	30,237,469	$	(2,929,180	)	$	18,169,517	$	(663,606	)	$	10,955,615	$	(1,196,101	)	$	29,125,132	$	(1,859,707	)

~~The book value~~RMBS and CMBS had gross unrealized losses greater than twelve months of $4.1 million and $4.0 million, respectively, as of December 31, 2016. Factors such as the credit enhancement within the deal structure, the average life of the ~~Company’s investment portfolio was marked to fair value~~securities, and the performance of the underlying collateral support the recoverability of these investments.

The other asset-backed securities had a gross unrealized loss greater than twelve months of $11.4 million as of ~~February 1, 2015 (Successor Company), in conjunction with~~December 31, 2016. This category predominately includes student-loan backed auction rate securities, the ~~Dai-ichi Merger~~underlying collateral, of which ~~resulted in~~is at least 97% guaranteed by the elimination of previously unrealized gains and losses from accumulated other comprehensive income. The level of interest rates as of February 1, 2015 (Successor Company) resulted in an increase in the carrying value of the Company’s investments. Since February 1, 2015 (Successor Company), interest rates have increased resulting in net unrealized losses in the Company’s investment portfolio.

~~The Company does not consider these unrealized loss positions to be other-than-temporary, based on the aggregate factors discussed previously and because~~FFELP. At this time, the Company has no reason to believe that the ~~ability~~U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

The other government-related securities had gross unrealized losses greater than twelve months of $11.9 million as of December 31, 2016. These declines were related to changes in interest rates.

The states, municipalities, and ~~intent~~political subdivisions category had gross unrealized losses greater than twelve months of $41.7 million as of December 31, 2016. These declines were related to ~~hold~~changes in interest rates.

The corporate securities category had gross unrealized losses greater than twelve months of $1.1 billion as of December 31, 2016. The aggregate decline in market value of these ~~investments until~~securities was deemed temporary due to positive factors supporting the ~~fair values recover, and does not intend to sell or expect to be required to sell the securities before recovering the Company's amortized cost~~recoverability of the ~~securities.~~respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.9 billion and had an amortized cost of ~~$2.0~~$1.9 billion. In addition, included in the Company’s trading portfolio, the Company held ~~$266.4~~$240.2 million of securities which were rated below investment grade. Approximately ~~$328.6~~$341.5 million of the available-for-sale and trading securities ~~that~~that were below investment grade were not publicly traded.

The change in unrealized gains (losses), net of income tax, on fixed maturity and equity securities, classified as available-for-sale is summarized as follows:



	For The Three Months Ended June 30,				For The Six Months Ended June 30,
	2017		2016		2017		2016
	(Dollars In Thousands)
Fixed maturities	$	474,906	$	845,933	$	698,255	$	1,476,650
Equity securities	6,822		9,509		21,390		9,439

The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of ~~September~~June 30, ~~2016 (Successor Company)~~2017 and December 31, ~~2015 (Successor Company),~~2016, are as follows:


	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses				Fair Value			Total OTTI Recognized in OCI
Successor Company
As of September 30, 2016
As of June 30, 2017																Amortized Cost			Gross Unrecognized Holding Gains			Gross Unrecognized Holding Losses				Fair Value			Total OTTI Recognized in OCI
			(Dollars In Thousands)															(Dollars In Thousands)
Fixed maturities:
Securities issued by affiliates:
Red Mountain LLC	$	640,230		$	—		$	(1,751	)			$	638,479		$	—		$	682,077		$	—			$	(22,575	)	$	659,502		$	—
Steel City LLC	2,135,000			121,136		—				2,256,136			—			2,065,000			80,605			—				2,145,605			—
	$	2,775,230		$	121,136	$	(1,751	)		$	2,894,615		$	—		$	2,747,077		$	80,605		$	(22,575	)		$	2,805,107		$	—

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses				Fair Value			Total OTTI Recognized in OCI
Successor Company
As of December 31, 2015
As of December 31, 2016																Amortized Cost			Gross Unrecognized Holding Gains			Gross Unrecognized Holding Losses				Fair Value			Total OTTI Recognized in OCI
			(Dollars In Thousands)															(Dollars In Thousands)
Fixed maturities:
Securities issued by affiliates:
Red Mountain LLC	$	593,314		$	—		$	(78,314	)			$	515,000		$	—		$	654,177		$	—			$	(67,222	)	$	586,955		$	—
Steel City LLC																2,116,000			30,385			—				2,146,385			—
	$	593,314		$	—	$	(78,314	)		$	515,000		$	—		$	2,770,177		$	30,385		$	(67,222	)		$	2,733,340		$	—

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company),~~2016, the Company ~~did not record any~~recorded no other-than-temporary impairments on held-to-maturity securities.

The Company’s held-to-maturity securities had ~~$121.1~~ $80.6 million of gross ~~unrealized~~unrecognized holding gains and ~~$1.8~~$22.6 million of gross unrecognized holding losses by maturity as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information. These held-to-maturity securities are issued by affiliates of the Company which are considered variable interest entities ("VIE's"). The Company is not the primary beneficiary of these entities and thus the securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are affiliates of the Company.

The Company’s held-to-maturity securities had ~~$78.3~~$30.4 million of gross unrecognized holding gains and $67.2 million of gross unrecognized holding losses by maturity as of December 31, ~~2015 (Successor Company).~~2016. The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information.

Variable Interest Entities

The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC” or “Codification”) (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a ~~variable interest entity ("VIE").~~VIE. If the entity is determined to be a VIE, the Company then performs a detailed review to determine whether the interest would be considered a variable interest under the guidance. The Company then performs a qualitative review of all variable interests with the entity and determines whether the Company is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and 2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

Based on this analysis, the Company had an interest in one wholly owned subsidiary, Red Mountain, LLC ("Red Mountain") as of ~~September~~June 30, ~~2016 (Successor Company)~~2017 and December 31, ~~2015 (Successor Company),~~2016, that was determined to be a VIE.

The activity most significant to Red Mountain is the issuance of a note in connection with a financing transaction involving Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) and the Company in which Golden Gate V issued non-recourse funding obligations to Red Mountain and Red Mountain issued the note to Golden Gate V. Credit enhancement on the Red Mountain Note is provided by an unrelated third party. ~~For details of this transaction, see Note 12,~~ ~~Debt and Other Obligations~~. The Company had the power, via its 100% ownership through an affiliate, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne

primarily by the third party in its function as provider of credit enhancement on the Red Mountain Note. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment of $10,000. Additionally, the Company has guaranteed

Red Mountain’s payment obligation for the credit enhancement fee to the unrelated third party provider. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, no payments have been made or required related to this guarantee.

7.5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company’s periodic fair value measurements for non-financial assets and liabilities was not material.

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized as follows:

•Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

a)~~Quoted prices for similar assets or liabilities in active markets~~

b)~~Quoted prices for identical or similar assets or liabilities in non-active markets~~

c)~~Inputs other than quoted market prices that are observable~~

d)~~Inputs that are derived principally from or corroborated by observable market data through correlation or other means.~~


a.	Quoted prices for similar assets or liabilities in active markets


b.	Quoted prices for identical or similar assets or liabilities in non-active markets


c.	Inputs other than quoted market prices that are observable


d.	Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2016 (Successor Company):~~

2017:

Level 1 Level 2 Level 3 Total
(Dollars In Thousands)
Assets:

Fixed maturity securities - available-for-sale

Residential mortgage-backed securities $ —
$ 1,886,710
$ 3
$ 1,886,713
Commercial mortgage-backed securities —
1,659,667
23,559
1,683,226
Other asset-backed securities —
648,687
553,229
1,201,916
U.S. government-related securities 1,070,116
241,063
—
1,311,179
State, municipalities, and political subdivisions —
1,727,261
—
1,727,261
Other government-related securities —
18,532
—
18,532
Corporate securities —
27,970,626
753,396
28,724,022
Preferred stock 74,522
19,252
—
93,774
Total fixed maturity securities - available-for-sale 1,144,638
34,171,798
1,330,187
36,646,623
Fixed maturity securities - trading

Residential mortgage-backed securities —
264,142
—
264,142
Commercial mortgage-backed securities —
157,152
—
157,152
Other asset-backed securities —
117,380
145,833
263,213
U.S. government-related securities 32,143
4,735
—
36,878
State, municipalities, and political subdivisions —
340,983
—
340,983
Other government-related securities —
60,774
—
60,774
Corporate securities —
1,655,812
5,699
1,661,511
Preferred stock 3,788
—
—
3,788
Total fixed maturity securities - trading 35,931
2,600,978
151,532
2,788,441
Total fixed maturity securities 1,180,569
36,772,776
1,481,719
39,435,064
Equity securities 633,160
—
66,526
699,686
Other long-term investments ⁽¹⁾
316,007
270,661
87,149
673,817
Short-term investments 164,702
3,850
—
168,552
Total investments 2,294,438
37,047,287
1,635,394
40,977,119
Cash 407,578
—
—
407,578
Assets related to separate accounts

Variable annuity 13,164,747
—
—
13,164,747
Variable universal life 868,818
—
—
868,818
Total assets measured at fair value on a recurring basis $ 16,735,581
$ 37,047,287
$ 1,635,394
$ 55,418,262
Liabilities:

Annuity account balances⁽²⁾
$ —
$ —
$ 88,857
$ 88,857
Other liabilities ⁽¹⁾
102,318
139,766
604,827
846,911
Total liabilities measured at fair value on a recurring basis $ 102,318
$ 139,766
$ 693,684
$ 935,768

~~(1)Includes certain freestanding and embedded derivatives.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,980,453	$	11,862	$	1,992,315
Commercial mortgage-backed securities	—		1,802,778		—		1,802,778
Other asset-backed securities	—		629,040		552,963		1,182,003
U.S. government-related securities	1,010,562		285,546		—		1,296,108
State, municipalities, and political subdivisions	—		1,689,321		—		1,689,321
Other government-related securities	—		249,458		—		249,458
Corporate securities	—		27,514,221		662,654		28,176,875
Preferred stock	74,134		18,934		—		93,068
Total fixed maturity securities - available-for-sale	1,084,696		34,169,751		1,227,479		36,481,926
Fixed maturity securities - trading
Residential mortgage-backed securities	—		264,109		—		264,109
Commercial mortgage-backed securities	—		152,522		—		152,522
Other asset-backed securities	—		110,852		54,923		165,775
U.S. government-related securities	21,609		4,492		—		26,101
State, municipalities, and political subdivisions	—		323,720		—		323,720
Other government-related securities	—		63,763		—		63,763
Corporate securities	—		1,688,476		5,520		1,693,996
Preferred stock	3,113		—		—		3,113
Total fixed maturity securities - trading	24,722		2,607,934		60,443		2,693,099
Total fixed maturity securities	1,109,418		36,777,685		1,287,922		39,175,025
Equity securities	684,455		—		65,686		750,141
Other long-term investments⁽¹⁾	68,323		361,195		93,245		522,763
Short-term investments	333,255		28,793		—		362,048
Total investments	2,195,451		37,167,673		1,446,853		40,809,977
Cash	244,197		—		—		244,197
Assets related to separate accounts
Variable annuity	13,616,259		—		—		13,616,259
Variable universal life	959,638		—		—		959,638
Total assets measured at fair value on a recurring basis	$	17,015,545	$	37,167,673	$	1,446,853	$	55,630,071
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	86,094	$	86,094
Other liabilities⁽¹⁾	6,586		266,193		532,763		805,542
Total liabilities measured at fair value on a recurring basis	$	6,586	$	266,193	$	618,857	$	891,636

(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, ~~2015 (Successor Company):~~

2016:

Level 1 Level 2 Level 3 Total
(Dollars In Thousands)
Assets:

Fixed maturity securities - available-for-sale

Residential mortgage-backed securities $ —
$ 1,765,270
$ 3
$ 1,765,273
Commercial mortgage-backed securities —
1,285,864
—
1,285,864
Other asset-backed securities —
210,020
587,031
797,051
U.S. government-related securities 1,054,353
477,824
—
1,532,177
State, municipalities, and political subdivisions —
1,603,600
—
1,603,600
Other government-related securities —
17,740
—
17,740
Corporate securities 83
24,876,455
902,119
25,778,657
Preferred stock 43,073
19,614
—
62,687
Total fixed maturity securities - available-for-sale 1,097,509
30,256,387
1,489,153
32,843,049
Fixed maturity securities - trading

Residential mortgage-backed securities —
286,658
—
286,658
Commercial mortgage-backed securities —
146,743
—
146,743
Other asset-backed securities —
122,511
152,912
275,423
U.S. government-related securities 233,592
4,755
—
238,347
State, municipalities, and political subdivisions —
313,354
—
313,354
Other government-related securities —
58,827
—
58,827
Corporate securities —
1,322,276
18,225
1,340,501
Preferred stock 2,794
1,402
—
4,196
Total fixed maturity securities - trading 236,386
2,256,526
171,137
2,664,049
Total fixed maturity securities 1,333,895
32,512,913
1,660,290
35,507,098
Equity securities 620,358
13,063
66,504
699,925
Other long-term investments (1)
113,699
141,487
68,384
323,570
Short-term investments 261,659
2,178
—
263,837
Total investments 2,329,611
32,669,641
1,795,178
36,794,430
Cash 212,358
—
—
212,358
Assets related to separate accounts

Variable annuity 12,829,188
—
—
12,829,188
Variable universal life 827,610
—
—
827,610
Total assets measured at fair value on a recurring basis $ 16,198,767
$ 32,669,641
$ 1,795,178
$ 50,663,586
Liabilities:

Annuity account balances (2)
$ —
$ —
$ 92,512
$ 92,512
Other liabilities (1)
40,067
106,310
375,848
522,225
Total liabilities measured at fair value on a recurring basis $ 40,067
$ 106,310
$ 468,360
$ 614,737

~~(1)Includes certain freestanding and embedded derivatives.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,889,604	$	3	$	1,889,607
Commercial mortgage-backed securities	—		1,782,497		—		1,782,497
Other asset-backed securities	—		648,929		562,604		1,211,533
U.S. government-related securities	1,002,020		266,139		—		1,268,159
State, municipalities, and political subdivisions	—		1,656,503		—		1,656,503
Other government-related securities	—		237,926		—		237,926
Corporate securities	—		26,560,603		664,046		27,224,649
Preferred stock	66,781		19,062		—		85,843
Total fixed maturity securities - available-for-sale	1,068,801		33,061,263		1,226,653		35,356,717
Fixed maturity securities - trading
Residential mortgage-backed securities	—		255,027		—		255,027
Commercial mortgage-backed securities	—		149,683		—		149,683
Other asset-backed securities	—		115,521		84,563		200,084
U.S. government-related securities	22,424		4,537		—		26,961
State, municipalities, and political subdivisions	—		316,519		—		316,519
Other government-related securities	—		63,012		—		63,012
Corporate securities	—		1,619,097		5,492		1,624,589
Preferred stock	3,985		—		—		3,985
Total fixed maturity securities - trading	26,409		2,523,396		90,055		2,639,860
Total fixed maturity securities	1,095,210		35,584,659		1,316,708		37,996,577
Equity securities	650,231		—		65,786		716,017
Other long-term investments⁽¹⁾	82,420		335,497		115,516		533,433
Short-term investments	313,835		1,999		—		315,834
Total investments	2,141,696		35,922,155		1,498,010		39,561,861
Cash	214,439		—		—		214,439
Assets related to separate accounts
Variable annuity	13,244,252		—		—		13,244,252
Variable universal life	895,925		—		—		895,925
Total assets measured at fair value on a recurring basis	$	16,496,312	$	35,922,155	$	1,498,010	$	53,916,477
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	87,616	$	87,616
Other liabilities⁽¹⁾	13,004		255,241		405,803		674,048
Total liabilities measured at fair value on a recurring basis	$	13,004	$	255,241	$	493,419	$	761,664

(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

Determination of fair values

The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity, and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.

The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price approximately 91% of the Company’s available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using ~~non- binding~~non-binding independent broker quotations, the Company obtains one quote per security, typically from the broker from which we purchased the security. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.

The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted- average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.

For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices. The Company uses a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~2017.

The Company has analyzed the third party pricing services’ valuation methodologies and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.

Asset-Backed Securities

This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company held ~~$4.7~~$4.9 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the ~~securities.~~securities.

After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value ~~presentation.~~presentation.

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company ~~held $722.6~~held $619.7 million of Level 3 ABS, which included ~~$553.2~~$564.8 million of other asset-backed securities classified as available-for-sale and ~~$145.8~~$54.9 million of other ~~asset-backed~~asset-backed securities classified as trading. These securities are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. As a result of the ARS market collapse during 2008, the Company prices its ARS using an income approach valuation model. As part of the valuation process the Company reviews the following characteristics of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, 7) credit ratings of the securities, 8) liquidity premium, and 9) paydown rate.

In periods where market activity increases and there are transactions at a price that is not the result of a distressed or forced sale we consider those prices as part of our valuation. If the market activity during a period is solely the result of the issuer redeeming positions we consider those transactions in our valuation, but still consider them to be level three measurements due to the nature of the transaction.

C~~orporate~~Corporate Securities, U.S. Government-Related Securities, States, Municipals, and Political Subdivisions, and Other Government Related Securities

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company classified approximately ~~$32.0~~$31.8 billion of corporate securities, U.S. government-related securities, states, municipals, and political subdivisions, and other government-related securities as Level 2. The fair value of the Level 2 securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the securities are considered to be the primary relevant inputs to the valuation: 1) weighted- average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.

The brokers and third party pricing service utilize valuation models that consist of a hybrid income and market approach to valuation. The pricing models utilize the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company classified approximately ~~$759.1~~$668.2 million of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.

Equities

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company held approximately ~~$66.5~~$65.7 million of equity securities classified as Level 2 and Level 3. Of this total, ~~$65.7~~$65.6 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value.

Other long-term investments and Other liabilities

Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 8,6, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of ~~September~~June 30, ~~2016 (Successor Company), 78.1%~~2017, 82.0% of ~~derivatives~~derivatives based upon notional values were priced using exchange prices or independent broker quotations. The remaining derivatives were priced by pricing valuation models, which ~~predominantly~~ utilize observable market data ~~inputs.~~inputs to the extent they are available. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.

Derivative instruments classified as Level 1 generally include futures and options, which are traded on active exchange markets.

Derivative instruments classified as Level 2 primarily include ~~interest rate and inflation~~ swaps, options, and ~~swaptions.~~swaptions, which are traded over-the-counter. Level 2 also includes certain centrally cleared derivatives. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.

Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.

The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.

The embedded derivatives are carried at fair value in “other long-term investments” and “other liabilities” on the Company’s consolidated condensed balance sheet. The changes in fair value are recorded in earnings as “Realized investment gains (losses)-Derivative financial instruments”. Refer to Note 8,6, Derivative Financial Instruments for more information related to each embedded derivatives gains and ~~losses.~~losses.

The fair value of the ~~GMWB~~GLWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity volatilities and correlations. The projected equity volatilities are based on a blend of historical volatility and near- term equity market implied

volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the~~the~~ Ruark 2015 ALB table with attained age factors varying from 91.1%-106.6%. The ~~present~~present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR plus a credit spread (to represent the Company’s non-performance risk). As a result of using significant unobservable inputs, the ~~GMWB~~GLWB embedded derivative is categorized as Level 3. ~~These~~Policyholder assumptions are reviewed on ~~a quarterly~~an annual basis.

The balance of the FIA embedded derivative is impacted by policyholder cash flows associated with the FIA product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the FIA embedded derivative is derived through the income ~~method~~method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 1994 Variable Annuity MGDB mortality table modified ~~for~~with company experience, with attained age factors varying from 46% - 113%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.

The balance of the indexed universal life (“IUL”) embedded derivative is impacted by policyholder cash flows associated with the IUL product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the IUL embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the SOA 2015 VBT Primary Tables modified with company experience, with attained age factors varying from 38% - 153%. The present value of the cash flows is determined using the discount rate curve, which is based uponLIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the IUL embedded derivative is categorized as Level 3.

The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements are designated as “trading securities”; therefore changes in their fair value are ~~also~~also reported in earnings. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the fair value of the embedded derivative is based upon the relationship between the statutory policy liabilities (net of policy loans) of $2.4 billion and the statutory unrealized gain (loss) of the securities of ~~$265.6~~$207.6 million. As a result, changes in the fair value of the embedded derivatives are largely offset by the changes in fair value of the related ~~investments~~investments and each are reported in earnings. The fair value of the embedded derivative is considered a Level 3 valuation due to the unobservable nature of the policy liabilities.

~~Certain~~The Company and certain of ~~the Company’s~~its subsidiaries have entered into interest support, yearly renewable term (“YRT”) premium support, and portfolio maintenance agreements with PLC. These agreements meet the definition of a derivative and are accounted for at fair value and are considered Level 3 valuations. The fair value of these derivatives as of ~~September~~June 30, ~~2016 (Successor Company)~~2017 was ~~$50.7~~$31.5 million and is included in Other long-term investments. For information regarding realized gains on these derivatives please refer to Note 8,6, Derivative Financial Instruments.

The Interest Support Agreement provides that PLC will make payments to Golden Gate II if actual investment income on certain of Golden Gate II’s asset portfolios falls below a calculated investment income amount as defined in the Interest Support Agreement. The calculated investment income amount is a level of investment income deemed to be sufficient to support certain of Golden Gate II’s obligations under a reinsurance agreement with the Company, dated July 1, 2007. The derivative is valued using an internal valuation model that assumes a conservative projection of investment income under an adverse interest rate scenario and the probability that the expectation falls below the calculated investment income amount. This derivative had a fair value of ~~$44.5~~$25.2 million as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, no payments have been triggered under this agreement, however, certain interest support agreement obligations to Golden Gate II of approximately ~~$1.5~~$2.8 million have been collateralized by PLC. Re-evaluation and, if necessary, adjustments of any support agreement collateralization amounts occur annually during the first quarter pursuant to the terms of the support agreement. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, no payments have been triggered under this agreement.

The YRT premium support agreements provide that PLC will make payments to Golden Gate and Golden Gate II in the event that YRT premium rates increase. The derivatives are valued using an internal valuation model. The valuation model is a probability weighted discounted cash flow model. The value is primarily a function of the likelihood and severity of future YRT premium increases. The fair value of these derivatives as of ~~September~~June 30, ~~2016 (Successor Company)~~2017 was ~~$2.7 million.~~$2.1 million. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, no payments have been made under these agreements.

The portfolio maintenance agreements provide that PLC will make payments to Golden Gate, Golden Gate V, and WCL in the event of other-than-temporary impairments on investments that exceed defined thresholds. The derivatives are valued using an internal discounted cash flow model. The significant unobservable inputs are the projected probability and severity of credit losses used to project future cash flows on the investment portfolios. The fair value of the portfolio maintenance

agreements as of ~~September~~June 30, ~~2016 (Successor Company),~~2017, was ~~$3.6 million.~~$4.2 million. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, no payments have been made under these agreements.

The Funds Withheld derivative results from a reinsurance agreement with Shades Creek where the economic performance of certain hedging instruments held by the Company is ceded to Shades Creek. The value of the Funds Withheld derivative is directly tied to the value of the hedging instruments held in the funds withheld account. The hedging instruments predominantly consist of derivative instruments the fair values of which are classified as a Level 2 measurement; as such, the fair value of the Funds Withheld derivative has been classified as a Level 2 measurement. The fair value of the Funds Withheld derivative as of ~~September~~June 30, ~~2016 (Successor Company)~~2017, was a liability of ~~$112.3 million.~~$69.8 million.

Annuity account balances

The Company records a certain legacy block of ~~its~~ FIA reserves at fair value. Based on the characteristics of these reserves, the Company believes that the fund value approximates fair value. The fair value measurement of these reserves is considered a Level 3 ~~valuation. The FIA~~ valuation ~~model calculates~~due to the present value of future benefit cash flows less the projected future profits to quantify the net liability that is held as a reserve. This calculation is done using multiple risk neutral stochastic equity scenarios. The cash flows are discounted using LIBOR plus a credit spread. Best estimate assumptions are used for partial withdrawals, lapses, expenses and asset earned rate with a risk margin applied to each. These assumptions are reviewed at least annually as a partunobservable nature of the ~~formal unlocking process. If an event were to occur within a quarter that would make the assumptions unreasonable, the assumptions would be reviewed within the quarter.~~

fund values. The ~~discount rate for the fixed indexed annuities~~Level 3 fair value as of June 30, 2017 is based on an upward sloping rate curve which is updated each quarter. The discount rates for September 30, 2016 (Successor Company), ranged from a one month rate of 0.73%, a 5 year rate of 1.99%, and a 30 year rate of 2.97%. A credit spread component is also included in the calculation to accommodate non-performance risk.$86.1 million.

Separate Accounts

Separate account assets are invested in open-ended mutual funds and are included in Level 1.

Valuation of Level 3 Financial Instruments

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:

Successor Company
Fair Value
As of
September 30, 2016
Valuation
Technique

Unobservable
Input

Range
(Weighted Average)
(Dollars In Thousands)
Assets:
Other asset-backed securities $ 554,230
Discounted cash flow Liquidity premium 0.44% - 1.19% (0.70%)

Paydown rate 10.90% - 11.83% (11.18%)
Corporate securities 726,890
Discounted cash flow Spread over treasury 0.97% - 5.10% (2.11%)
Liabilities:

Embedded derivatives - GMWB(1)
$ 128,877
Actuarial cash flow model Mortality 91.1% to 106.6% of

Ruark 2015 ALB Table

Lapse 0.3% - 15%, depending on

product/duration/funded

status of guarantee

Utilization 99%. 10% of policies have

a one-time over-utilization

of 400%

Nonperformance risk 0.20% - 1.19%
Annuity account balances(2)
88,857
Actuarial cash flow model Asset earned rate 4.02% - 5.76%

Expenses $126 per policy

Withdrawal rate 2.20%

Mortality 1994 MGDB table with

company experience

Lapse 2.2% - 33.0%, depending

on duration/surrender

charge period

Return on assets 1.50% - 1.85% depending on

duration/surrender charge period

Nonperformance risk 0.20% - 1.19%
Embedded derivative - FIA 141,651
Actuarial cash flow model Expenses $126 per policy

Withdrawal rate 1% prior to age 70, 100%

of the RMD for ages 70+

Mortality 1994 MGDB table with

company experience

Lapse 2.0% - 40.0%, depending on

on duration/surrender

charge period

Nonperformance risk 0.20% - 1.19%
Embedded derivative - IUL 46,348
Actuarial cash flow model Mortality 38% - 153% of 2015

VBT Primary Tables

Lapse 0.5% - 10.0%, depending on

duration/distribution channel

and smoking class

Nonperformance risk 0.20% - 1.19%

~~(1)The fair value for the GMWB embedded derivative is presented as a net liability for the purposes of this chart. Excludes modified coinsurance arrangements.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~



	Fair Value As of June 30, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	552,816	Liquidation	Liquidation value	$90 - $97 ($95.05)
			Discounted cash flow	Liquidity premium	0.51% - 1.30% (0.94%)
				Paydown rate	10.82% - 12.15% (11.28%)
Corporate securities	634,340		Discounted cash flow	Spread over treasury	0.74% - 4.75% (1.72%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	20,824	Actuarial cash flow model	Mortality	91.1% to 106.6% of Ruark 2015 ALB Table
				Lapse	0.3% - 15%, depending on product/duration/funded status of guarantee
				Utilization	99%. 10% of policies have a one-time over-utilization of 400%
				Nonperformance risk	0.10% - 0.86%
Embedded derivative - FIA	191,226		Actuarial cash flow model	Expenses	$126 per policy
				Asset Earned Rate	4.08% - 4.66%
				Withdrawal rate	1% prior to age 70, 100% of the RMD for ages 70+
				Mortality	1994 MGDB table with company experience
				Lapse	2.0% - 40%, depending on duration/surrender charge period
				Nonperformance risk	0.10% - 0.86%
Embedded derivative - IUL	62,747		Actuarial cash flow model	Mortality	38% - 15.3% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending on
					duration/distribution channel
					and smoking class
				Nonperformance risk	0.10% - 0.86%

(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and ~~those~~for which book value approximates fair value.

The Company has considered all reasonably available quantitative inputs as of ~~September~~June 30, ~~2016 (Successor Company),~~2017, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in ~~$210.6~~$89.0 million of financial instruments being classified as Level 3 as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. Of the ~~$210.6~~$89.0 million, ~~$178.4~~$55.1 million are other asset-backed securities and ~~$32.2~~$33.8 million are corporate securities.

In certain cases the Company has determined that book value materially approximates fair value. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company held ~~$66.5~~$77.5 million of financial instruments where book value approximates fair value which were predominantly FHLB stock.

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:

Successor Company
Fair Value
As of
December 31, 2015
Valuation
Technique

Unobservable
Input

Range
(Weighted Average)
(Dollars In Thousands)
Assets:
Other asset-backed securities $ 587,031
Discounted cash flow Liquidity premium 0.27% - 1.49% (0.42%)
Paydown rate 10.20% - 14.72% (13.11%)
Corporate securities 875,810
Discounted cash flow Spread over 0.10% - 19.00% (2.61%)
treasury
Liabilities:
Embedded derivatives - GMWB(1)
$ 18,511
Actuarial cash flow model Mortality 1994 MGDB table with
company experience
Lapse 0.3% - 15%, depending on
product/duration/funded
status of guarantee
Utilization 99%. 10% of policies have
a one-time over-utilization
of 400%
Nonperformance risk 0.18% - 1.04%
Annuity account balances(2)
92,512
Actuarial cash flow model Asset earned rate 4.53% - 5.67%

Expenses $81 per policy

Withdrawal rate 2.20%

Mortality 1994 MGDB table with

company experience

Lapse 2.2% - 33.0%, depending

on duration/surrender

charge period

Return on assets 1.50% - 1.85% depending on

surrender charge period

Nonperformance risk 0.18% - 1.04%
Embedded derivative - FIA 100,329
Actuarial cash flow model Expenses $81.50 per policy

Withdrawal rate 1.1% - 4.5% depending on

duration and tax qualification

Mortality 1994 MGDB table with

company experience

Lapse 2.5% - 40.0%, depending

on duration/surrender

charge period

Nonperformance risk 0.18% - 1.04%
Embedded derivative - IUL 29,629
Actuarial cash flow model Mortality 38% - 153% of 2015
VBT Primary Tables
Lapse 0.5% - 10.0%, depending
on duration/distribution
channel and smoking class
Nonperformance risk 0.18% - 1.04%

~~(1)The fair value for the GMWB embedded derivative is presented as a net liability, for the purposes of this chart. Excludes modified coinsurance arrangements.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~



	Fair Value As of December 31, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	553,308	Liquidation	Liquidation value	$88 - $97.25 ($95.04)
Corporate securities	638,279		Discounted cash flow	Spread over treasury	0.31% - 4.50% (2.04%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	7,031	Actuarial cash flow model	Mortality	91.1% to 106.6% of Ruark 2015 ALB Table
				Lapse	0.3% - 15%, depending on product/duration/funded status of guarantee
				Utilization	99%. 10% of policies have a one-time over-utilization of 400%
				Nonperformance risk	0.18% - 1.09%
Embedded derivative - FIA	147,368		Actuarial cash flow model	Expenses	$126 per policy
				Asset Earned Rate	4.08% - 4.66%
				Withdrawal rate	1% prior to age 70, 100% of the RMD for ages 70+
				Mortality	1994 MGDB table with company experience
				Lapse	2.0% - 40.0%, depending on duration/surrender charge period
				Nonperformance risk	0.18% - 1.09%
Embedded derivative - IUL	46,051		Actuarial cash flow model	Mortality	38% - 153% of 2015 VBT Primary Tables
				Lapse	0.5% - 10.0%, depending on duration/distribution channel and smoking class
				Nonperformance risk	0.18% - 1.09%

(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

The chart above excludes Level 3 financial instruments that are valued using broker quotes and ~~those~~for which book value approximates fair value.

The Company has considered all reasonably available quantitative inputs as of December 31, ~~2015 (Successor Company),~~2016, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in ~~$197.5~~$125.2 million of financial instruments being classified as Level 3 as of December 31, ~~2015 (Successor Company).~~2016. Of the ~~$197.5~~$125.2 million, ~~$152.9~~$93.9 million are other asset backed securities and ~~$44.6~~$31.3 million are corporate securities.

In certain cases the Company has determined that book value materially approximates fair value. As of December 31, ~~2015 (Successor Company),~~2016, the Company held ~~$66.5~~$65.7 million of financial instruments where book value approximates fair value which are predominantly FHLB stock.

The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’ fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease in the liquidity premium would increase the fair value of these securities.

The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease and decreases when spreads increase.

The fair value of the ~~GMWB~~GLWB embedded derivative is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the ~~three~~ unobservable

assumptions would result in a decrease in the fair value of the liability and conversely, if there is a decrease in the assumptions the fair value would increase. The fair value is also dependent on the assumed policyholder utilization of the ~~GMWB~~GLWB where an increase in assumed utilization would result in an increase in the fair value of the liability and conversely, if there is a decrease in the assumption, the fair value would decrease.

The fair value of the FIA account balance liability is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in discount rate and non-performance risk and decreases with increases in the discount rate and non-performance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.

The fair value of the FIA embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and nonperformance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.

The fair value of the IUL embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the IUL embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and non-performance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, for which the Company has used significant unobservable inputs (Level 3):

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses

Total
Gains (losses)
included in

Beginning
Balance

Included in
Earnings

Included in
Other
Comprehensive
Income

Included in
Earnings

Included in
Other
Comprehensive
Income
Purchases Sales Issuances Settlements
Transfers
in/out of
Level 3
Other
Ending
Balance

Earnings
related to
Instruments
still held at
the Reporting
Date
(Dollars In Thousands)
Assets:

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Commercial mortgage-backed securities —
—
6
—
—
23,559
—
—
—
—
(6 ) 23,559
—
Other asset-backed securities 533,141
—
23,350
—
(19 ) —
(12 ) —
—
—
(3,231 ) 553,229
—
Corporate securities 783,143
—
9,324
—
(3,335 ) 28,327
(26,001 ) —
—
(36,237 ) (1,825 ) 753,396
—
Total fixed maturity securities - available-for-sale 1,316,287
—
32,680
—
(3,354 ) 51,886
(26,013 ) —
—
(36,237 ) (5,062 ) 1,330,187
—
Fixed maturity securities - trading

Other asset-backed securities 151,964
3,260
—
(71 ) —
—
(9,366 ) —
—
—
46
145,833
3,189
Corporate securities 16,587
381
—
—
—
—
—
—
—
(11,243 ) (26 ) 5,699
42
Total fixed maturity securities - trading 168,551
3,641
—
(71 ) —
—
(9,366 ) —
—
(11,243 ) 20
151,532
3,231
Total fixed maturity securities 1,484,838
3,641
32,680
(71 ) (3,354 ) 51,886
(35,379 ) —
—
(47,480 ) (5,042 ) 1,481,719
3,231
Equity securities 66,526
—
—
—
—
—
—
—
—
—
—
66,526
—
Other long-term investments(1)
62,920
25,674
—
(1,445 ) —
—
—
—
—
—
—
87,149
24,229
Short-term investments —
—
—
—
—
—
—
—
—
—
—
—
—
Total investments 1,614,284
29,315
32,680
(1,516 ) (3,354 ) 51,886
(35,379 ) —
—
(47,480 ) (5,042 ) 1,635,394
27,460
Total assets measured at fair value on a recurring basis $ 1,614,284
$ 29,315
$ 32,680
$ (1,516 ) $ (3,354 ) $ 51,886
$ (35,379 ) $ —
$ —
$ (47,480 ) $ (5,042 ) $ 1,635,394
$ 27,460
Liabilities:

Annuity account balances(2)
$ 88,820
$ —
$ —
$ (735 ) $ —
$ —
$ —
$ 279
$ 2,226
—
$ 1,249
$ 88,857
$ —
Other liabilities(1)
581,046
22,275
—
(46,056 ) —
—
—
—
—
—
—
604,827
(23,781 )
Total liabilities measured at fair value on a recurring basis $ 669,866
$ 22,275
$ —
$ (46,791 ) $ —
$ —
$ —
$ 279
$ 2,226
$ —
$ 1,249
$ 693,684
$ (23,781 )

~~(1)Represents certain freestanding and embedded derivatives.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	—	$	—	$	—	$	—		$	—		$	11,862	$	—		$	—	$	—	$	—		$	—		$	11,862	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	556,936		—		—		—			(4,257		)	—		(12		)	—		—		—			296			552,963		—
Corporate securities	666,705		—		10,027		—			(260		)	43,492		(54,066		)	—		—		(2,220		)	(1,024		)	662,654		—
Total fixed maturity securities - available-for-sale	1,223,641		—		10,027		—			(4,517		)	55,354		(54,078		)	—		—		(2,220		)	(728		)	1,227,479		—
Fixed maturity securities - trading
Other asset-backed securities	68,752		205		—		(215		)	—			—		(14,020		)	—		—		—			201			54,923		196
Corporate securities	5,504		40		—		—			—			—		—			—		—		—			(24		)	5,520		40
Total fixed maturity securities - trading	74,256		245		—		(215		)	—			—		(14,020		)	—		—		—			177			60,443		236
Total fixed maturity securities	1,297,897		245		10,027		(215		)	(4,517		)	55,354		(68,098		)	—		—		(2,220		)	(551		)	1,287,922		236
Equity securities	65,788		—		—		—			—			—		(103		)	—		—		—			1			65,686		—
Other long-term investments⁽¹⁾	103,895		731		—		(11,381		)	—			—		—			—		—		—			—			93,245		(10,650		)
Total investments	1,467,580		976		10,027		(11,596		)	(4,517		)	55,354		(68,201		)	—		—		(2,220		)	(550		)	1,446,853		(10,414		)
Total assets measured at fair value on a recurring basis	$	1,467,580	$	976	$	10,027	$	(11,596	)	$	(4,517	)	$	55,354	$	(68,201	)	$	—	$	—	$	(2,220	)	$	(550	)	$	1,446,853	$	(10,414	)
Liabilities:
Annuity account balances⁽²⁾	$	86,415	$	—	$	—	$	(1,110	)	$	—		$	—	$	—		$	212	$	1,643	—			$	—		$	86,094	$	—
Other liabilities⁽¹⁾	438,801		—		—		(93,962		)	—			—		—			—		—		—			—			532,763		(93,962		)
Total liabilities measured at fair value on a recurring basis	$	525,216	$	—	$	—	$	(95,072	)	$	—		$	—	$	—		$	212	$	1,643	$	—		$	—		$	618,857	$	(93,962	)

(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

For the three months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, there were no ~~transfers of~~ securities transferred into Level 3.

For the three months ended June 30, 2017, $2.2 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of June 30, 2017.

For the three months ended ~~September~~June 30, ~~2016 (Successor Company), $47.5~~2017, there were no securities transferred from Level 2 to Level 1.

For the three months ended June 30, 2017, there were no securities transferred from Level 1.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the six months ended June 30, 2017, for which the Company has used significant unobservable inputs (Level 3):



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	11,862	$	(3	)	$	—	$	—	$	—		$	—		$	11,862	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	562,604		—		3,530		—			(5,088		)	—		(2,027		)	—		—		(6,643		)	587			552,963		—
Corporate securities	664,046		—		17,798		—			(542		)	80,751		(92,950		)	—		—		(4,867		)	(1,582		)	662,654		—
Total fixed maturity securities - available-for-sale	1,226,653		—		21,328		—			(5,630		)	92,613		(94,980		)	—		—		(11,510		)	(995		)	1,227,479		—
Fixed maturity securities - trading
Other asset-backed securities	84,563		3,679		—		(801		)	—			—		(33,328		)	—		—		—			810			54,923		3,598
Corporate securities	5,492		74		—		—			—			—		—			—		—		—			(46		)	5,520		74
Total fixed maturity securities - trading	90,055		3,753		—		(801		)	—			—		(33,328		)	—		—		—			764			60,443		3,672
Total fixed maturity securities	1,316,708		3,753		21,328		(801		)	(5,630		)	92,613		(128,308		)	—		—		(11,510		)	(231		)	1,287,922		3,672
Equity securities	65,786		—		—		—			—			—		(103		)	—		—		3			—			65,686		—
Other long-term investments⁽¹⁾	115,516		5,976		—		(28,247		)	—			—		—			—		—		—			—			93,245		(22,271		)
Total investments	1,498,010		9,729		21,328		(29,048		)	(5,630		)	92,613		(128,411		)	—		—		(11,507		)	(231		)	1,446,853		(18,599		)
Total assets measured at fair value on a recurring basis	$	1,498,010	$	9,729	$	21,328	$	(29,048	)	$	(5,630	)	$	92,613	$	(128,411	)	$	—	$	—	$	(11,507	)	$	(231	)	$	1,446,853	$	(18,599	)
Liabilities:
Annuity account balances⁽²⁾	$	87,616	$	—	$	—	$	(1,997	)	$	—		$	—	$	—		$	392	$	3,911	—			$	—		$	86,094	$	—
Other liabilities⁽¹⁾	405,803		15,280		—		(142,240		)	—			—		—			—		—		—			—			532,763		(126,960		)
Total liabilities measured at fair value on a recurring basis	$	493,419	$	15,280	$	—	$	(144,237	)	$	—		$	—	$	—		$	392	$	3,911	$	—		$	—		$	618,857	$	(126,960	)

(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

For the six months ended June 30, 2017, there were an immaterial amount of securities transferred into Level 3.

For the six months ended June 30, 2017, $11.5 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods, but were priced by independent pricing services or brokers as of ~~September~~June 30, ~~2016 (Successor Company).~~

2017.

For the ~~three~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, there were no ~~transfers of~~ securities transferred from Level 2 to Level 1.

For the ~~three~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, there were no ~~transfers of securities~~securities transferred from Level 1.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the ~~nine~~three months ended ~~September~~June 30, 2016, ~~(Successor Company),~~ for which the Company has used significant unobservable inputs (Level 3):

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses

Total
Gains (losses)
included in

Beginning
Balance

Included
in
Earnings

Included
in
Other
Comprehensive
Income

Included
in
Earnings

Included
in
Other
Comprehensive
Income
Purchases Sales Issuances Settlements
Transfers
in/out of
Level 3
Other
Ending
Balance

Earnings
related to
Instruments
still held at
the Reporting
Date
(Dollars In Thousands)
Assets:

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Commercial mortgage-backed securities —
—
6
—
—
23,559
—
—
—
—
(6 ) 23,559
—
Other asset-backed securities 587,031
6,859
24,119
—
(21,426 ) 9,597
(58,461 ) —
—
7,457
(1,947 ) 553,229
—
Corporate securities 902,119
925
40,435
(4,135 ) (10,316 ) 53,885
(107,866 ) —
—
(114,189 ) (7,462 ) 753,396
—
Total fixed maturity securities - available-for-sale 1,489,153
7,784
64,560
(4,135 ) (31,742 ) 87,041
(166,327 ) —
—
(106,732 ) (9,415 ) 1,330,187
—
Fixed maturity securities - trading

Other asset-backed securities 152,912
5,310
—
(1,013 ) —
—
(11,578 ) —
—
172
30
145,833
4,294
Corporate securities 18,225
713
—
(259 ) —
10,908
(4,071 ) —
—
(19,722 ) (95 ) 5,699
283
Total fixed maturity securities - trading 171,137
6,023
—
(1,272 ) —
10,908
(15,649 ) —
—
(19,550 ) (65 ) 151,532
4,577
Total fixed maturity securities 1,660,290
13,807
64,560
(5,407 ) (31,742 ) 97,949
(181,976 ) —
—
(126,282 ) (9,480 ) 1,481,719
4,577
Equity securities 66,504
—
—
—
—
22
—
—
—
—
—
66,526
—
Other long-term investments⁽¹⁾
68,384
46,166
—
(28,830 ) —
1,429
—
—
—
—
—
87,149
17,336
Total investments 1,795,178
59,973
64,560
(34,237 ) (31,742 ) 99,400
(181,976 ) —
—
(126,282 ) (9,480 ) 1,635,394
21,913
Total assets measured at fair value on a recurring basis $ 1,795,178
$ 59,973
$ 64,560
$ (34,237 ) $ (31,742 ) $ 99,400
$ (181,976 ) $ —
$ —
$ (126,282 ) $ (9,480 ) $ 1,635,394
$ 21,913
Liabilities:

Annuity account balances⁽²⁾
$ 92,512
$ —
$ —
$ (1,831 ) $ —
$ —
$ —
$ 529
$ 7,264
$ —
$ 1,249
$ 88,857
$ —
Other liabilities⁽¹⁾
375,848
37,860
—
(266,839 ) —
—
—
—
—
—
—
604,827
(228,979 )
Total liabilities measured at fair value on a recurring basis $ 468,360
$ 37,860
$ —
$ (268,670 ) $ —
$ —
$ —
$ 529
$ 7,264
$ —
$ 1,249
$ 693,684
$ (228,979 )

~~(1)Represents certain freestanding and embedded derivatives.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	3	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	537,831		—		769		—			(8,350		)	9,597		(7,629		)	—		—		—			923			533,141		—
Corporate securities	833,737		925		16,189		—			(694		)	9,558		(57,123		)	—		—		(16,773		)	(2,676		)	783,143		—
Total fixed maturity securities - available-for-sale	1,371,571		925		16,958		—			(9,044		)	19,155		(64,752		)	—		—		(16,773		)	(1,753		)	1,316,287		—
Fixed maturity securities - trading
Other asset-backed securities	150,683		1,822		—		(8		)	—			—		(609		)	—		—		—			76			151,964		1,814
Corporate securities	5,677		24		—		—			—			10,908		1			—		—		—			(23		)	16,587		25
Total fixed maturity securities - trading	156,360		1,846		—		(8		)	—			10,908		(608		)	—		—		—			53			168,551		1,839
Total fixed maturity securities	1,527,931		2,771		16,958		(8		)	(9,044		)	30,063		(65,360		)	—		—		(16,773		)	(1,700		)	1,484,838		1,839
Equity securities	66,504		—		—		—			—			22		—			—		—		—			—			66,526		—
Other long-term investments⁽¹⁾	57,048		16,275		—		(10,403		)	—			—		—			—		—		—			—			62,920		5,872
Total investments	1,651,483		19,046		16,958		(10,411		)	(9,044		)	30,085		(65,360		)	—		—		(16,773		)	(1,700		)	1,614,284		7,711
Total assets measured at fair value on a recurring basis	$	1,651,483	$	19,046	$	16,958	$	(10,411	)	$	(9,044	)	$	30,085	$	(65,360	)	$	—	$	—	$	(16,773	)	$	(1,700	)	$	1,614,284	$	7,711
Liabilities:
Annuity account balances⁽²⁾	$	90,123	$	—	$	—	$	(530	)	$	—		$	—	$	—		$	63	$	1,896	$	—		$	—		$	88,820	$	—
Other liabilities⁽¹⁾	496,238		15,217		—		(100,025		)	—			—		—			—		—		—			—			581,046		(84,808		)
Total liabilities measured at fair value on a recurring basis	$	586,361	$	15,217	$	—	$	(100,555	)	$	—		$	—	$	—		$	63	$	1,896	$	—		$	—		$	669,866	$	(84,808	)

(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.

For the ~~nine~~three months ended ~~September~~June 30, 2016, ~~(Successor Company), $71.3~~$27.2 million of securities were transferred into Level 3.

For the ~~nine~~three months ended ~~September~~June 30, 2016, ~~(Successor Company), $197.6~~$44.0 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of ~~September~~June 30, ~~2016 (Successor Company).~~

2016.

For the ~~nine~~three months ended ~~September~~June 30, 2016, ~~(Successor Company), $12.2 million of~~there were no securities ~~were~~ transferred from Level 2 to Level 1.

For the ~~nine~~three months ended ~~September~~June 30, 2016, ~~(Successor Company), $0.1 million of~~there were no securities ~~were~~ transferred from Level 1.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the ~~three~~six months ended ~~September~~June 30, ~~2015 (Successor Company),~~2016, for which the Company has used significant unobservable inputs ~~(Level 3)~~(Level3):


			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in					Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance		Earnings related to Instruments still held at the Reporting Date			Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)																																(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	3	$	—		$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	3	$	—
Commercial mortgage-backed securities																																	—		—		0		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	590,885		—		—		—			(4,185		)	—		—			—		—		—			(949		)	585,751		—			587,031		6,859		769		—			(21,407		)	9,597		(58,449		)	—		—		7,457			1,284			533,141		—
Corporate securities	1,111,431		76		5,939		(164		)	(8,800		)	62,183		(101,161		)	—		—		(20,037		)	(729		)	1,048,738		—			902,119		925		31,111		(4,135		)	(6,981		)	25,558		(81,865		)	—		—		(77,952		)	(5,637		)	783,143		—
Total fixed maturity securities - available-for-sale	1,702,319		76		5,939		(164		)	(12,985		)	62,183		(101,161		)	—		—		(20,037		)	(1,678		)	1,634,492		—			1,489,153		7,784		31,880		(4,135		)	(28,388		)	35,155		(140,314		)	—		—		(70,495		)	(4,353		)	1,316,287		—
Fixed maturity securities - trading
Other asset-backed securities	160,594		83		—		(1,640		)	—			2,000		(6,001		)	—		—		—			117			155,153		(1,500		)	152,912		2,050		—		(942		)	—			—		(2,212		)	—		—		172			(16		)	151,964		1,105
Corporate securities	19,316		73		—		(970		)	—			—		(56		)	—		—		—			(44		)	18,319		(897		)	18,225		332		—		(259		)	—			10,908		(4,071		)	—		—		(8,479		)	(69		)	16,587		241
Total fixed maturity securities - trading	179,910		156		—		(2,610		)	—			2,000		(6,057		)	—		—		—			73			173,472		(2,397		)	171,137		2,382		—		(1,201		)	—			10,908		(6,283		)	—		—		(8,307		)	(85		)	168,551		1,346
Total fixed maturity securities	1,882,229		232		5,939		(2,774		)	(12,985		)	64,183		(107,218		)	—		—		(20,037		)	(1,605		)	1,807,964		(2,397		)	1,660,290		10,166		31,880		(5,336		)	(28,388		)	46,063		(146,597		)	—		—		(78,802		)	(4,438		)	1,484,838		1,346
Equity securities	66,460		—		44		—			—			—		—			—		—		—			—			66,504		—			66,504		—		—		—			—			22		—			—		—		—			—			66,526		—
Other long-term investments⁽¹⁾	100,519		—		—		(44,769		)	—			—		—			—		—		—			—			55,750		(44,769		)	68,384		20,492		—		(27,385		)	—			1,429		—			—		—		—			—			62,920		(6,893		)
Total investments	2,049,208		232		5,983		(47,543		)	(12,985		)	64,183		(107,218		)	—		—		(20,037		)	(1,605		)	1,930,218		(47,166		)	1,795,178		30,658		31,880		(32,721		)	(28,388		)	47,514		(146,597		)	—		—		(78,802		)	(4,438		)	1,614,284		(5,547		)
Total assets measured at fair value on a recurring basis	$	2,049,208	$	232	$	5,983	$	(47,543	)	$	(12,985	)	$	64,183	$	(107,218	)	$	—	$	—	$	(20,037	)	$	(1,605	)	$	1,930,218	$	(47,166	)	$	1,795,178	$	30,658	$	31,880	$	(32,721	)	$	(28,388	)	$	47,514	$	(146,597	)	$	—	$	—	$	(78,802	)	$	(4,438	)	$	1,614,284	$	(5,547	)
Liabilities:
Annuity account balances⁽²⁾	$	95,178	$	—	$	—	$	(3,173	)	$	—		$	—	$	—		$	93	$	3,246	$	—		$	—		$	95,198	$	—		$	92,512	$	—	$	—	$	(1,096	)	$	—		$	—	$	—		$	250	$	5,038	$	—		$	—		$	88,820	$	—
Other liabilities⁽¹⁾	342,945		17,329		—		(58,193		)	—			—		—			—		—		—			—			383,809		(40,864		)	375,848		15,585		—		(220,783		)	—			—		—			—		—		—			—			581,046		(205,198		)
Total liabilities measured at fair value on a recurring basis	$	438,123	$	17,329	$	—	$	(61,366	)	$	—		$	—	$	—		$	93	$	3,246	$	—		$	—		$	479,007	$	(40,864	)	$	468,360	$	15,585	$	—	$	(221,879	)	$	—		$	—	$	—		$	250	$	5,038	$	—		$	—		$	669,866	$	(205,198	)

(1) Represents certain freestanding and embedded derivatives.																																	(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.																																	(2) Represents liabilities related to fixed indexed annuities.

~~(1)Represents certain freestanding and embedded derivatives.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~

For the ~~three~~six months ended ~~September~~June 30, ~~2015 (Successor Company)~~2016, ~~there~~$71.3 million of securities were ~~no securities~~ transferred into Level 3.

For the ~~three~~six months ended ~~September~~June 30, ~~2015 (Successor Company)~~2016, ~~$20.0~~$150.1 million of securities were transferred into Level 2. This amount was transferred from Level 3. ~~These~~these transfers resulted from securities that were priced internally using significant ~~unobservable~~unobserable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of ~~September~~June 30, ~~2015 (Successor Company).~~2016.

For the ~~three~~six months ended ~~September~~June 30, ~~2015 (Successor Company)~~2016, ~~there were no securities transferred from Level 2 to Level 1.~~

~~For the three months ended September 30, 2015 (Successor Company), there were no securities transferred from Level 1.~~

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the period of February 1, 2015 to September 30, 2015 (Successor Company), for which the Company has used significant unobservable inputs (Level 3):

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses
Total
Gains (losses)
included in

Beginning
Balance

Included in
Earnings

Included in
Other
Comprehensive
Income

Included in
Earnings

Included in
Other
Comprehensive
Income
Purchases Sales Issuances Settlements
Transfers
in/out of
Level 3
Other
Ending
Balance
Earnings
related to
Instruments
still held at
the Reporting
Date
(Dollars In Thousands)
Assets:

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Other asset-backed securities 603,646
—
165
(92 ) (17,076 ) —
(127 ) —
—
—
(765 ) 585,751
—
States, municipals, and political subdivisions 3,675
—
—
—
—
—
(3,675 ) —
—
—
—
—
—
Corporate securities 1,307,259
4,367
21,558
(851 ) (33,047 ) 174,112
(356,096 ) —
—
(61,890 ) (6,674 ) 1,048,738
—
Total fixed maturity securities - available-for-sale 1,914,583
4,367
21,723
(943 ) (50,123 ) 174,112
(359,898 ) —
—
(61,890 ) (7,439 ) 1,634,492
—
Fixed maturity securities - trading

Other asset-backed securities 169,473
4,032
—
(6,813 ) —
2,000
(13,877 ) —
—
—
338
155,153
(6,896 )
Corporate securities 25,130
247
—
(1,269 ) —
—
(5,640 ) —
—
—
(149 ) 18,319
(1,546 )
Total fixed maturity securities - trading 194,603
4,279
—
(8,082 ) —
2,000
(19,517 ) —
—
—
189
173,472
(8,442 )
Total fixed maturity securities 2,109,186
8,646
21,723
(9,025 ) (50,123 ) 176,112
(379,415 ) —
—
(61,890 ) (7,250 ) 1,807,964
(8,442 )
Equity securities 66,691
—
44
—
—
—
(231 ) —
—
—
—
66,504
—
Other long-term investments(1)
64,200
40,032
—
(48,482 ) —
—
—
—
—
—
—
55,750
(8,450 )
Short-term investments —
—
—
—
—
—
—
—
—
—
—
—
—
Total investments 2,240,077
48,678
21,767
(57,507 ) (50,123 ) 176,112
(379,646 ) —
—
(61,890 ) (7,250 ) 1,930,218
(16,892 )
Total assets measured at fair value on a recurring basis $ 2,240,077
$ 48,678
$ 21,767
$ (57,507 ) $ (50,123 ) $ 176,112
$ (379,646 ) $ —
$ —
$ (61,890 ) $ (7,250 ) $ 1,930,218
$ (16,892 )
Liabilities:

Annuity account balances(2)
$ 98,279
$ —
$ —
$ (4,716 ) $ —
$ —
$ —
$ 179
$ 7,976
$ —
$ —
$ 95,198
$ —
Other liabilities(1)
530,118
230,183
—
(83,874 ) —
—
—
—
—
—
—
383,809
146,309
Total liabilities measured at fair value on a recurring basis $ 628,397
$ 230,183
$ —
$ (88,590 ) $ —
$ —
$ —
$ 179
$ 7,976
$ —
$ —
$ 479,007
$ 146,309

~~(1)Represents certain freestanding and embedded derivatives.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~

~~For the period of February 1, 2015 to September 30, 2015 (Successor Company), there were no transfers of securities into Level 3.~~

~~For the period of February 1, 2015 to September 30, 2015 (Successor Company), $61.9~~$12.2 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2015 (Successor Company).

~~For the period of February 1, 2015 to September 30, 2015 (Successor Company), $90.4 million~~ of securities were transferred from Level 2 to Level 1.

For the ~~period of February 1, 2015 to September~~six months ended June 30, ~~2015 (Successor Company)~~2016, ~~there were no transfers from Level 1.~~

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for period of January 1, 2015 to January 31, 2015 (Predecessor Company), for which the Company has used significant unobservable inputs (Level 3):

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses
Total
Gains (losses)
included in

Beginning
Balance

Included in
Earnings

Included in
Other
Comprehensive
Income

Included in
Earnings

Included in
Other
Comprehensive
Income
Purchases Sales Issuances Settlements
Transfers
in/out of
Level 3
Other
Ending
Balance
Earnings
related to
Instruments
still held at
the Reporting
Date
(Dollars In Thousands)
Assets:

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Other asset-backed securities 563,961
—
—
—
(3,867 ) —
(32 ) —
—
43,205
379
603,646
—
States, municipals, and political subdivisions 3,675
—
—
—
—
—
—
—
—
—
—
3,675
—
Corporate securities 1,325,683
—
12,282
—
(23,029 ) —
(7,062 ) —
—
—
(615 ) 1,307,259
—
Total fixed maturity securities - available-for-sale 1,893,322
—
12,282
—
(26,896 ) —
(7,094 ) —
—
43,205
(236 ) 1,914,583
—
Fixed maturity securities - trading

Other asset-backed securities 169,461
586
—
(139 ) —
—
(472 ) —
—
—
37
169,473
447
Corporate securities 24,744
602
—
(196 ) —
—
(20 ) —
—
—
—
25,130
406
Total fixed maturity securities - trading 194,205
1,188
—
(335 ) —
—
(492 ) —
—
—
37
194,603
853
Total fixed maturity securities 2,087,527
1,188
12,282
(335 ) (26,896 ) —
(7,586 ) —
—
43,205
(199 ) 2,109,186
853
Equity securities 66,691
—
—
—
—
—
—
—
—
—
—
66,691
—
Other long-term investments(1)
44,625
16,617
—
(15,166 ) —
—
—
—
—
—
—
46,076
1,451
Short-term investments —
—
—
—
—
—
—
—
—
—
—
—
—
Total investments 2,198,843
17,805
12,282
(15,501 ) (26,896 ) —
(7,586 ) —
—
43,205
(199 ) 2,221,953
2,304
Total assets measured at fair value on a recurring basis $ 2,198,843
$ 17,805
$ 12,282
$ (15,501 ) $ (26,896 ) $ —
$ (7,586 ) $ —
$ —
$ 43,205
$ (199 ) $ 2,221,953
$ 2,304
Liabilities:

Annuity account balances(2)
$ 97,825
$ —
$ —
$ (536 ) $ —
$ —
$ —
$ 7
$ 419
$ —
$ —
$ 97,949
$ —
Other liabilities(1)
506,343
61
—
(125,995 ) —
—
—
—
—
—
—
632,277
(125,934 )
Total liabilities measured at fair value on a recurring basis $ 604,168
$ 61
$ —
$ (126,531 ) $ —
$ —
$ —
$ 7
$ 419
$ —
$ —
$ 730,226
$ (125,934 )

~~(1)Represents certain freestanding and embedded derivatives.~~

~~(2)Represents liabilities related to fixed indexed annuities.~~

~~For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), $43.2~~$0.1 million of securities were transferred ~~into Level 3. This amount was transferred~~ from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods, using no significant unobservable inputs, but were priced internally using significant unobservable inputs where market observable inputs were no longer available as of January 31, 2015 (Predecessor Company). All transfers are recognized as of the end of the period.

~~For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), there were no transfers from Level 3 to Level 2.~~

~~For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), there were no transfers from Level 2 to Level 1 and there were no transfers out of Level~~ 1.

Total realized and unrealized gains (losses) on Level 3 assets and liabilities are primarily reported in either realized investment gains (losses) within the consolidated condensed statements of income (loss) or other comprehensive income (loss) within shareowner’s equity based on the appropriate accounting treatment for the item.

Purchases, sales, issuances, and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of fixed indexed annuities.

The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are

reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. The asset transfers

in the table(s) above primarily related to positions moved from Level 3 to Level 2 as the Company determined that certain inputs were observable.

The amount of total gains (losses) for assets and liabilities still held as of the reporting date primarily represents changes in fair value of trading securities and certain derivatives that exist as of the reporting date and the change in fair value of fixed indexed annuities.

Estimated Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments as of the periods shown below are as follows:

Successor Company
As of
September 30, 2016 As of
December 31, 2015

Fair Value
Level

Carrying
Amounts
Fair Values
Carrying
Amounts
Fair Values
(Dollars In Thousands)
Assets:

Mortgage loans on real estate 3 $ 5,912,683
$ 5,946,153
$ 5,662,812
$ 5,529,803
Policy loans 3 1,656,083
1,656,083
1,699,508
1,699,508
Fixed maturities, held-to-maturity(1)
3 2,775,230
2,894,615
593,314
515,000
Liabilities:

Stable value product account balances 3 $ 3,412,041
$ 3,436,797
$ 2,131,822
$ 2,124,712
Annuity account balances 3 10,679,011
10,288,929
10,719,862
10,274,571
Debt:

Non-recourse funding obligations(2)
3 $ 2,978,052
$ 3,093,432
$ 1,951,563
$ 1,621,773

~~Except as noted below, fair values were estimated using quoted market prices.~~

⁽¹⁾~~Securities purchased from unconsolidated affiliates, Red Mountain LLC and Steel City LLC.~~

⁽²⁾~~Of this carrying amount,~~ $2.7 billion, fair value of $2.9 billion, as of September 30, 2016 (Successor Company), and $500.0 million, fair value of $495.5 million, as of December 31, 2015 (Successor Company), relates to non-recourse funding obligations issued by Golden Gate and Golden Gate V.



		As of
		June 30, 2017				December 31, 2016
	Fair Value Level	Carrying Amounts		Fair Values		Carrying Amounts		Fair Values
		(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	6,472,861	$	6,424,394	$	6,132,125	$	5,930,992
Policy loans	3	1,634,809		1,634,809		1,650,240		1,650,240
Fixed maturities, held-to-maturity⁽¹⁾	3	2,747,077		2,805,107		2,770,177		2,733,340
Liabilities:
Stable value product account balances	3	$	4,023,790	$	4,022,120	$	3,501,636	$	3,488,877
Future policy benefits and claims⁽²⁾	3	220,616		220,616		221,634		221,658
Other policyholders' funds⁽³⁾	3	133,878		134,633		135,367		136,127

Debt:⁽⁴⁾
Non-recourse funding obligations⁽⁵⁾	3	$	2,952,877	$	3,008,783	$	2,973,829	$	2,939,387

Except as noted below, fair values were estimated using quoted market prices.
(1) Securities purchased from unconsolidated affiliates, Red Mountain LLC and Steel City LLC.
(2) Single premium immediate annuity without life contingencies.
(3) Supplementary contracts without life contingencies.
(4) Excludes capital lease obligations of $0.9 million.
(5) As of June 30, 2017, $2.7 billion in carrying amount and $2.8 billion in fair value related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2016, $2.7 billion in carrying amount and fair value related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.

Fair Value Measurements

Mortgage loans on real estate

The Company estimates the fair value of mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company’s current mortgage loan lending rate and an expected cash flow analysis based on a review of the mortgage loan terms. The model also contains the Company’s determined representative risk adjustment assumptions related to credit and liquidity risks.

Policy loans

The Company believes the fair value of policy loans approximates book value. Policy loans are funds provided to policy holders in return for a claim on the policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of repayments, the Company believes the fair value of policy loans approximates carrying value.

Fixed maturities, held-to-maturity

The Company estimates the fair value of its fixed maturity, held-to-maturity securities using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.

Stable ~~Value Product~~value product and ~~Annuity Account Balances~~other investment contract balances

The Company estimates the fair value of stable value product account balances and ~~annuity account~~other investment contract balances (included in Future policy benefits and claims as well as Other policyholder funds line items on our balance sheet) using models based on discounted expected cash flows. The discount rates used in the models are based on a current market rate for similar financial instruments.

Non-recourse Funding Obligations

The Company estimates the fair value of its non-recourse funding obligations using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.

8.6. DERIVATIVE FINANCIAL INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate ~~risk, inflation~~ risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through the Company’s analysis of data from financial simulation models and other internal and industry sources and are then incorporated into the Company’s risk management program.

Derivative instruments expose the Company to credit and market risk and could result in material changes from period to period. The Company attempts to minimize its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. The Company monitors its use of derivatives in connection with its overall asset/liability management programs and risk management strategies. In addition, all derivative programs are monitored by our risk management department.

Derivatives Related to Interest Rate Risk Management

Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate swaptions. ~~The Company’s inflation~~

Derivatives Related to Foreign Currency Exchange Risk Management

Derivative instruments that are used as part of the Company's foreign currency exchange risk management strategy ~~involves the use of~~include foreign currency swaps, ~~that requires the Company to pay a fixed rate~~foreign currency futures, foreign equity futures, and ~~receive a floating rate that is based on changes in the Consumer Price Index (“CPI”).~~

foreign equity options.

Derivatives Related to Risk Mitigation of Certain Annuity Contracts

The Company may use the following types of derivative contracts to mitigate its exposure to certain guaranteed benefits related to VA contracts and fixed indexed annuities:

•Foreign Currency Futures

•Variance Swaps

•Interest Rate Futures

•Equity Options

•Equity Futures

•Credit Derivatives

•Interest Rate Swaps

•Interest Rate Swaptions

•Volatility Futures

•Volatility Options

•Funds Withheld Agreement

•Total Return Swaps

Other Derivatives

The Company and certain of its subsidiaries have derivatives with PLC. These derivatives consist of an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC.

The Company has a funds withheld account that consists of various derivative instruments held by us that is used to hedge the ~~GMWB~~GLWB and GMDB riders. The economic performance of derivatives in the funds withheld account is ceded to Shades Creek. The funds withheld account is accounted for as a derivative financial instrument.

Accounting for Derivative Instruments

The Company records its derivative financial instruments in the consolidated balance sheet in “other long-term investments” and “other liabilities” in accordance with GAAP, which requires that all derivative instruments be recognized in the balance sheet at fair value. The change in the fair value of derivative financial instruments is reported either in the statement of income or in other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists.

For a derivative financial instrument to be accounted for as an accounting hedge, it must be identified and documented as such on the date of designation. For cash flow hedges, the effective portion of their realized gain or loss is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain attributable to the hedged risk of the hedged item is recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis.

The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship through earnings in the period of change. Changes in the fair value of derivatives that are recognized in current earnings are reported in “Realized investment gains (losses)-Derivative financial ~~instruments”.~~

instruments.”

Derivative Instruments Designated and Qualifying as Hedging Instruments

Cash-Flow Hedges

In connection with the issuance of inflation-adjusted funding agreements, the Company has entered into swaps to essentially convert the floating CPI-linked interest rate on these agreements to a fixed rate. The Company paysTo hedge a fixed rate note denominated in a foreign currency, the Company entered into a fixed-to-fixed foreign currency swap in order to hedge the foreign currency exchange risk associated with the note. The cash flows received on the swap ~~and receives a floating rate primarily determined by the period’s change in the CPI. The amounts that~~ are ~~received on the swaps are almost equal~~identical to the ~~amounts that are~~cash flow paid on the ~~agreements.~~ ~~None~~ ~~of these positions were held as of September 30, 2016 (Successor Company), as these funding agreements and correlating swaps matured in June of 2015.~~

note.

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments

The Company uses various other derivative instruments for risk management purposes that do not qualify for hedge accounting treatment. Changes in the fair value of these derivatives are recognized in earnings during the period of change.

Derivatives Related to Variable Annuity Contracts

The Company uses equity futures, equity options, total return swaps, interest rate futures, interest rate swaptions, currency ~~and~~futures, volatility futures, volatility options, and variance swaps to mitigate the risk related to certain guaranteed minimum benefits, including ~~GMWB,~~GLWB, within its VA products. In general, the cost of such benefits varies with the level of equity and interest rate markets, foreign currency levels, and overall volatility.

The Company uses equity options, variance swaps, and volatility options to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within its VA products. In general, the cost of such benefits varies with the level of equity markets and overall volatility.

~~The Company uses interest rate swaps and interest rate swaptions to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within its VA products.~~

~~The Company markets certain VA products with a GMWB rider. The GMWB component is considered an embedded derivative, not considered to be clearly and closely related to the host contract.~~

The Company has a funds withheld account that consists of various derivative instruments held by the Company that are used to hedge the ~~GMWB~~GLWB and GMDB riders. The economic performance of derivatives in the funds withheld account is ceded to Shades Creek. The funds withheld account is accounted for as a derivative financial instrument.

Derivatives Related to Fixed Annuity Contracts

The Company uses equity futures and options to mitigate the risk within its fixed indexed annuity products. In general, the cost of such benefits varies with the level of equity markets and overall volatility.

~~The Company uses equity options to mitigate the risk within its fixed indexed annuity products. In general, the cost of such benefits varies with the level of equity markets.~~

The Company markets certain fixed indexed annuity products. The FIA component is considered an embedded derivative as it is, not considered to be clearly and closely related to the host contract.

Derivatives Related to Indexed Universal Life Contracts

The Company uses equity, futures, and options to mitigate the risk within its indexed universal life products. In general, the cost of such benefits varies with the level of equity markets.

The Company markets certain IUL products. The IUL component is considered an embedded derivative as it is, not considered to be clearly and closely related to the host contract.

Other Derivatives

~~The Company uses certain interest rate swaps to mitigate the price volatility of fixed maturities.~~ ~~None~~ ~~of these positions were held as of September 30, 2016 (Successor Company).~~

The Company and certain of its subsidiaries have an interest support agreement, two YRT premium support agreements, and three portfolio maintenance agreements with PLC. The Company entered into three separate portfolio maintenance agreements, two in October 2012 and one in January 2016.

The Company uses various swaps and other types of derivatives to manage risk related to other exposures.

The Company is involved in various modified coinsurance and funds withheld arrangements which contain embedded derivatives. Changes in their fair value are recorded in current period earnings. The investment portfolios that support the related modified coinsurance reserves and funds withheld arrangements had fair value changes which substantially offset the gains or losses on these embedded derivatives.

The following table sets forth realized investments gains and losses for the periods shown:

Realized investment gains (losses) - derivative financial instruments



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Derivatives related to VA contracts:
Interest rate futures - VA	$	12,749		$	31,266		$	16,197		$	69,067
Equity futures - VA	(18,613		)	(21,328		)	(49,430		)	(24,556		)
Currency futures - VA	(10,018		)	11,112			(16,274		)	4,954
Equity options - VA	(12,884		)	(3,232		)	(53,069		)	13,072
Interest rate swaptions - VA	(662		)	(749		)	(2,131		)	(2,983		)
Interest rate swaps - VA	34,946			81,554			25,989			207,147
Total return swaps - VA	(1,618		)	—			(1,618		)	—
Embedded derivative - GLWB	(23,807		)	(66,019		)	(13,791		)	(132,695		)
Funds withheld derivative	20,456			17,850			67,925			10,052
Total derivatives related to VA contracts	549			50,454			(26,202		)	144,058
Derivatives related to FIA contracts:
Embedded derivative - FIA	(9,334		)	710			(21,745		)	(1,452		)
Equity futures - FIA	(202		)	651			95			2,033
Volatility futures - FIA	—			—			—			—
Equity options - FIA	7,569			735			18,269			(4,827		)
Total derivatives related to FIA contracts	(1,967		)	2,096			(3,381		)	(4,246		)
Derivatives related to IUL contracts:
Embedded derivative - IUL	(8,571		)	(96		)	(10,661		)	(834		)
Equity futures - IUL	(137		)	47			(936		)	(172		)
Equity options - IUL	1,571			241			4,462			214
Total derivatives related to IUL contracts	(7,137		)	192			(7,135		)	(792		)
Embedded derivative - Modco reinsurance treaties	(52,703		)	(22,820		)	(70,568		)	(81,175		)
Derivatives with PLC⁽¹⁾	(2,531		)	13,681			(17,406		)	17,711
Other derivatives	(5		)	(55		)	(2		)	(100		)
Total realized gains (losses) - derivatives	$	(63,794	)	$	43,548		$	(124,694	)	$	75,456

(1) These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

Successor Company Predecessor Company
For The Three Months Ended
September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Derivatives related to VA contracts:

Interest rate futures - VA $ (7,002 ) $ 12,140
$ 62,065
$ (2,091 ) $ 1,413
Equity futures - VA (41,836 ) 40,951
(66,392 ) 3,215
9,221
Currency futures - VA 934
4,000
5,888
1,428
7,778
Equity options - VA (36,482 ) 33,519
(23,410 ) 8,195
3,047
Interest rate swaptions - VA (229 ) (3,618 ) (3,212 ) (12,399 ) 9,268
Interest rate swaps - VA 14,737
101,808
221,884
(74,150 ) 122,710
Embedded derivative - GMWB 24,150
(71,296 ) (108,545 ) 10,543
(68,503 )
Funds withheld derivative 53,834
(52,872 ) 63,886
(8,301 ) (9,073 )
Total derivatives related to VA contracts 8,106
64,632
152,164
(73,560 ) 75,861
Derivatives related to FIA contracts:

Embedded derivative - FIA (14,486 ) 11,328
(15,938 ) 9,035
1,769
Equity futures - FIA 2,236
709
4,269
1,016
(184 )
Volatility futures - FIA —
(24 ) —
6
—
Equity options - FIA 6,583
(12,099 ) 1,756
(6,499 ) (2,617 )
Total derivatives related to FIA contracts (5,667 ) (86 ) (9,913 ) 3,558
(1,032 )
Derivatives related to IUL contracts:

Embedded derivative - IUL 7,136
1,287
6,302
3,082
(486 )
Equity futures - IUL 101
17
(71 ) 39
3
Equity options - IUL 1,607
(1,110 ) 1,821
(1,048 ) (115 )
Total derivatives related to IUL contracts 8,844
194
8,052
2,073
(598 )
Embedded derivative - Modco reinsurance treaties (24,187 ) (9,817 ) (105,362 ) 131,505
(68,026 )
Derivatives with PLC ⁽¹⁾
13,387
(12,978 ) 31,098
(16,096 ) 15,863
Other derivatives 49
(50 ) (51 ) 33
(37 )
Total realized gains (losses) - derivatives $ 532
$ 41,895
$ 75,988
$ 47,513
$ 22,031

~~(1)These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.~~

The following table sets forth realized investments gains and losses for the Modco trading portfolio that is included in realized investment gains (losses) — all other investments:

Realized investment gains (losses) - all other investments

~~(1)The Company elected to include the use of alternate disclosures for trading activities.~~



	For The Three Months Ended June 30,				For The Six Months Ended June 30,
	2017		2016		2017		2016
	(Dollars In Thousands)
Modco trading portfolio⁽¹⁾	$	55,230	$	76,201	$	73,782	$	154,355

(1) The Company elected to include the use of alternate disclosures for trading activities.

The following table presents the components of the gain or loss on derivatives that qualify as a cash flow hedging relationship. The Company did not have any derivatives that qualified as a cash flow hedging relationships for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company) and for the three months ended September 30, 2015 (Successor Company):~~

2016:

Gain (Loss) on Derivatives in Cash Flow Hedging Relationship

Amount of Gains (Losses)
Deferred in
Accumulated Other
Comprehensive Income
(Loss) on Derivatives

Amount and Location of
Gains (Losses)
Reclassified from
Accumulated Other
Comprehensive Income
(Loss) into Income (Loss)

Amount and Location of
(Losses) Recognized in
Income (Loss) on
Derivatives
(Effective Portion) (Effective Portion) (Ineffective Portion)

Benefits and settlement
expenses

Realized investment
gains (losses)
(Dollars In Thousands)
Successor Company

February 1, 2015 to September 30, 2015

Inflation $ (131 ) $ (131 ) $ 73
Total $ (131 ) $ (131 ) $ 73

Predecessor Company

January 1, 2015 to January 31, 2015

Inflation $ 13
$ (36 ) $ (7 )
Total $ 13
$ (36 ) $ (7 )



	Amount of Gains (Losses) Deferred in Accumulated Other Comprehensive Income (Loss) on Derivatives			Amount and Location of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)			Amount and Location of (Losses) Recognized in Income (Loss) on Derivatives
	(Effective Portion)			(Effective Portion)			(Ineffective Portion)
				Benefits and settlement expenses			Realized investment gains (losses)
	(Dollars In Thousands)
For The Three Months Ended June 30, 2017
Foreign currency swaps	$	(184	)	$	(153	)	$	—
Total	$	(184	)	$	(153	)	$	—

For The Six Months Ended June 30, 2017
Foreign currency swaps	$	(1,218	)	$	(358	)	$	—
Total	$	(1,218	)	$	(358	)	$	—

Based on expected cash flows of the underlying hedged items, the Company expects to reclassify $0.7 million out of accumulated other comprehensive income into earnings during the next twelve months.

The table below ~~present~~presents information about the nature and accounting treatment of the Company’s primary derivative financial instruments and the location in and effect on the consolidated condensed financial statements for the periods presented below:


	Successor Company								As of
	As of September 30, 2016				As of December 31, 2015				June 30, 2017				December 31, 2016
	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
	(Dollars In Thousands)				(Dollars In Thousands)				(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Foreign currency swaps									$	117,178	$	2,671	$	117,178	$	132
Derivatives not designated as hedging instruments:
Interest rate swaps	$	1,640,000	$	267,389	$	1,435,000	$	66,408	1,487,500		57,710		1,135,000		71,644
Total return swaps									122,207		398		—		—
Derivatives with PLC⁽¹⁾	2,881,274		50,687		1,619,200		18,161		2,792,930		31,473		2,808,807		48,878
Embedded derivative - Modco reinsurance treaties	64,411		2,787		64,593		1,215		64,255		676		64,123		2,573
Embedded derivative - GMWB	1,155,640		33,675		1,723,081		49,007
Embedded derivative - GLWB									1,968,811		61,096		2,045,529		64,064
Interest rate futures	796,694		2,256		282,373		1,537		1,009,166		8,208		102,587		894
Equity futures	45,261		556		262,485		1,275		683,430		3,963		654,113		5,805
Currency futures	321,917		4,735		226,936		2,499		74,783		1,833		340,058		7,883
Equity options	3,542,544		311,158		2,198,340		179,458		4,707,543		354,214		3,944,444		328,908
Interest rate swaptions	225,000		451		225,000		3,663		225,000		372		225,000		2,503
Other	212		123		242		347		157		149		212		149
	$	10,672,953	$	673,817	$	8,037,250	$	323,570	$	13,252,960	$	522,763	$	11,437,051	$	533,433
Other liabilities
Cash flow hedges:
Foreign currency swaps									$	—	$	—	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	$	70,000	$	1,658	$	475,000	$	16,579	375,000		573		575,000		10,208
Embedded derivative - Modco reinsurance treaties	2,455,121		254,285		2,473,427		178,362		2,417,531		196,882		2,450,692		141,301
Funds withheld derivative	1,625,725		112,344		1,149,664		102,378		1,667,044		69,777		1,557,237		91,267
Embedded derivative - GMWB	2,670,968		162,543		1,834,308		67,528
Embedded derivative - GLWB									2,014,469		81,908		1,849,400		71,082
Embedded derivative - FIA	1,408,469		141,651		1,110,790		100,329		1,737,505		191,226		1,496,346		147,368
Embedded derivative - IUL	90,848		46,348		57,760		29,629		133,556		62,747		103,838		46,051
Interest rate futures	480,897		7,419		793,763		1,539		490,873		2,524		993,842		6,611
Equity futures	862,034		9,504		233,412		2,599		1,816		1		102,667		2,907
Currency futures	81,768		447		46,692		1,115		228,612		3,587		—		—
Equity options	2,202,799		110,712		1,205,204		22,167		3,167,860		196,317		2,590,160		157,253
	$	11,948,629	$	846,911	$	9,380,020	$	522,225	$	12,234,266	$	805,542	$	11,719,182	$	674,048

(1) These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.									(1) These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.

~~(1)These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.~~

During the first quarter 2016, the Company revised its methodology for estimating notional amounts associated with the YRT Support Agreements among certain of its affiliates. The Company's revised approach reflects its position that no reasonably estimable notional amounts exist for the YRT Support Agreements, which contain payment positions based on the movement of the underlying premium rates, as described in Note 7, ~~Fair Value of Financial Instruments. Current period amounts disclosed above reflect this change in estimate, which did not impact the Company's financial position or results of operations.~~

9.7. OFFSETTING OF ASSETS AND LIABILITIES

Certain of the Company’s derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Company and a counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached. Additionally, certain of the Company’s repurchase agreements provide for net settlement on termination of the agreement. Refer to Note ~~12,~~10, Debt and Other Obligations for details of the Company’s repurchase agreement programs.

The tables below present the ~~derivative instruments by~~ assets and liabilities ~~for the Company~~subject to master netting agreements as of ~~September~~June 30, ~~2016 (Successor Company).~~

2017.


					Net Amounts								Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross		Gross Amounts Offset in the		of Assets Presented in the		Gross Amounts Not Offset in the Statement of Financial Position										Financial Instruments			Cash Collateral Received		Net Amount
	Amounts of Recognized Assets		Statement of Financial Position		Statement of Financial Position		Financial Instruments		Cash Collateral Received		Net Amount		(Dollars In Thousands)
	(Dollars In Thousands)
Offsetting of Derivative Assets
Offsetting of Assets
Derivatives:
Free-Standing derivatives	$	586,545	$	—	$	586,545	$	114,968	$	299,819	$	171,758	$	429,369	$	—		$	429,369	$	202,402	$	113,092	$	113,875
Total derivatives, subject to a master netting arrangement or similar arrangement	586,545		—		586,545		114,968		299,819		171,758		429,369		—			429,369		202,402		113,092		113,875
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	2,787		—		2,787		—		—		2,787		676		—			676		—		—		676
Embedded derivative - GMWB	33,675		—		33,675		—		—		33,675
Embedded derivative - GLWB													61,096		—			61,096		—		—		61,096
Derivatives with PLC	50,687		—		50,687		—		—		50,687		31,473		—			31,473		—		—		31,473
Other	123		—		123		—		—		123		149		—			149		—		—		149
Total derivatives, not subject to a master netting arrangement or similar arrangement	87,272		—		87,272		—		—		87,272		93,394		—			93,394		—		—		93,394
Total derivatives	673,817		—		673,817		114,968		299,819		259,030		522,763		—			522,763		202,402		113,092		207,269
Total Assets	$	673,817	$	—	$	673,817	$	114,968	$	299,819	$	259,030	$	522,763	$	—		$	522,763	$	202,402	$	113,092	$	207,269

Net Amounts
Gross
Gross
Amounts
Offset in the

of Liabilities
Presented in
the

Gross Amounts Not Offset
in the Statement of
Financial Position

Amounts of
Recognized
Liabilities

Statement of
Financial
Position

Statement of
Financial
Position

Financial
Instruments

Cash
Collateral
Paid
Net Amount
(Dollars In Thousands)
Offsetting of Derivative Liabilities

Derivatives:

Free-Standing derivatives $ 129,740
$ —
$ 129,740
$ 114,968
$ 14,772
$ —
Total derivatives, subject to a master netting arrangement or similar arrangement 129,740
—
129,740
114,968
14,772
—
Derivatives, not subject to a master netting arrangement or similar arrangement

Embedded derivative - Modco reinsurance treaties 254,285
—
254,285
—
—
254,285
Funds withheld derivative 112,344
—
112,344
—
—
112,344
Embedded derivative - GMWB 162,543
—
162,543
—
—
162,543
Embedded derivative - FIA 141,651
—
141,651
—
—
141,651
Embedded derivative - IUL 46,348
—
46,348
—
—
46,348
Total derivatives, not subject to a master netting arrangement or similar arrangement 717,171
—
717,171
—
—
717,171
Total derivatives 846,911
—
846,911
114,968
14,772
717,171
Repurchase agreements(1)
219,457
—
219,457
—
—
219,457
Total Liabilities $ 1,066,368
$ —
$ 1,066,368
$ 114,968
$ 14,772
$ 936,628

~~(1)~~ ~~Borrowings under repurchase agreements are for a term less than 90 days.~~



	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral Paid		Net Amount
	(Dollars In Thousands)
Offsetting of Liabilities
Derivatives:
Free-Standing derivatives	$	203,002	$	—	$	203,002	$	202,402	$	600	$	—
Total derivatives, subject to a master netting arrangement or similar arrangement	203,002		—		203,002		202,402		600		—
Derivatives, not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	196,882		—		196,882		—		—		196,882
Funds withheld derivative	69,777		—		69,777		—		—		69,777
Embedded derivative - GLWB	81,908		—		81,908		—		—		81,908
Embedded derivative - FIA	191,226		—		191,226		—		—		191,226
Embedded derivative - IUL	62,747		—		62,747		—		—		62,747
Total derivatives, not subject to a master netting arrangement or similar arrangement	602,540		—		602,540		—		—		602,540
Total derivatives	805,542		—		805,542		202,402		600		602,540
Repurchase agreements⁽¹⁾	413,589		—		413,589		—		—		413,589
Total Liabilities	$	1,219,131	$	—	$	1,219,131	$	202,402	$	600	$	1,016,129

(1) Borrowings under repurchase agreements are for a term less than 90 days.

The tables below present the derivative instruments by assets and liabilities for the Company as of December 31, ~~2015 (Successor Company).~~

2016.

Net Amounts
Gross
Gross
Amounts
Offset in the

of Assets
Presented in
the

Gross Amounts Not Offset
in the Statement of
Financial Position

Amounts of
Recognized
Assets

Statement of
Financial
Position

Statement of
Financial
Position

Financial
Instruments

Cash
Collateral
Received
Net Amount
(Dollars In Thousands)
Offsetting of Derivative Assets

Derivatives:

Free-Standing derivatives $ 254,840
$ —
$ 254,840
$ 42,382
$ 105,842
$ 106,616
Total derivatives, subject to a master netting arrangement or similar arrangement 254,840
—
254,840
42,382
105,842
106,616
Derivatives not subject to a master netting arrangement or similar arrangement

Embedded derivative - Modco reinsurance treaties 1,215
—
1,215
—
—
1,215
Embedded derivative - GMWB 49,007
—
49,007
—
—
49,007
Derivatives with PLC 18,161
—
18,161
—
—
18,161
Other 347
—
347
—
—
347
Total derivatives, not subject to a master netting arrangement or similar arrangement 68,730
—
68,730
—
—
68,730
Total derivatives 323,570
—
323,570
42,382
105,842
175,346
Total Assets $ 323,570
$ —
$ 323,570
$ 42,382
$ 105,842
$ 175,346



	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral Received		Net Amount
	(Dollars In Thousands)
Offsetting of Assets
Derivatives:
Free-Standing derivatives	$	417,769	$	—	$	417,769	$	171,384	$	100,890	$	145,495
Total derivatives, subject to a master netting arrangement or similar arrangement	417,769		—		417,769		171,384		100,890		145,495
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	2,573		—		2,573		—		—		2,573
Embedded derivative - GLWB	64,064		—		64,064		—		—		64,064
Derivatives with PLC	48,878		—		48,878		—		—		48,878
Other	149		—		149		—		—		149
Total derivatives, not subject to a master netting arrangement or similar arrangement	115,664		—		115,664		—		—		115,664
Total derivatives	533,433		—		533,433		171,384		100,890		261,159
Total Assets	$	533,433	$	—	$	533,433	$	171,384	$	100,890	$	261,159

Net Amounts
Gross
Gross
Amounts
Offset in the

of Liabilities
Presented in
the

Gross Amounts Not Offset
in the Statement of
Financial Position

Amounts of
Recognized
Liabilities

Statement of
Financial
Position

Statement of
Financial
Position

Financial
Instruments

Cash
Collateral
Paid
Net Amount
(Dollars In Thousands)
Offsetting of Derivative Liabilities

Derivatives:

Free-Standing derivatives $ 43,999
$ —
$ 43,999
$ 42,382
$ 1,617
$ —
Total derivatives, subject to a master netting arrangement or similar arrangement 43,999
—
43,999
42,382
1,617
—
Derivatives not subject to a master netting arrangement or similar arrangement

Embedded derivative - Modco reinsurance treaties 178,362
—
178,362
—
—
178,362
Funds withheld derivative 102,378
—
102,378
—
—
102,378
Embedded derivative - GMWB 67,528
—
67,528
—
—
67,528
Embedded derivative - FIA 100,329
—
100,329
—
—
100,329
Embedded derivative - IUL 29,629
—
29,629
—
—
29,629
Total derivatives, not subject to a master netting arrangement or similar arrangement 478,226
—
478,226
—
—
478,226
Total derivatives 522,225
—
522,225
42,382
1,617
478,226
Repurchase agreements⁽¹⁾
438,185
—
438,185
—
—
438,185
Total Liabilities $ 960,410
$ —
$ 960,410
$ 42,382
$ 1,617
$ 916,411

~~(1)~~ ~~Borrowings under repurchase agreements are for a term less than 90 days.~~



	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral Paid		Net Amount
	(Dollars In Thousands)
Offsetting of Liabilities
Derivatives:
Free-Standing derivatives	$	176,979	$	—	$	176,979	$	171,384	$	5,595	$	—
Total derivatives, subject to a master netting arrangement or similar arrangement	176,979		—		176,979		171,384		5,595		—
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	141,301		—		141,301		—		—		141,301
Funds withheld derivative	91,267		—		91,267		—		—		91,267
Embedded derivative - GLWB	71,082		—		71,082		—		—		71,082
Embedded derivative - FIA	147,368		—		147,368		—		—		147,368
Embedded derivative - IUL	46,051		—		46,051		—		—		46,051
Total derivatives, not subject to a master netting arrangement or similar arrangement	497,069		—		497,069		—		—		497,069
Total derivatives	674,048		—		674,048		171,384		5,595		497,069
Repurchase agreements⁽¹⁾	797,721		—		797,721		—		—		797,721
Total Liabilities	$	1,471,769	$	—	$	1,471,769	$	171,384	$	5,595	$	1,294,790

(1) Borrowings under repurchase agreements are for a term less than 90 days.

~~10.~~8. MORTGAGE LOANS

Mortgage Loans

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company’s mortgage loan holdings were approximately ~~$5.9 billion.~~$6.5 billion. The Company has specialized in making loans on ~~either~~ credit-oriented commercial properties, or credit-anchored strip shopping centers, senior living facilities, and apartments. The Company’s underwriting procedures relative to its commercial loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). The Company believes that these asset types tend to weather economic downturns better than other commercial asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history. The majority of the ~~Company’s~~Company's mortgage loans portfolio was underwritten by the Company. From time to time, the Company may acquire loans in conjunction with an acquisition.

The ~~Company’s~~Company's commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the ~~loan’s~~loan's contractual interest rate. Amortization of premiums and accretion of discounts is recorded using the effective yield method. Interest income, amortization of premiums and ~~accretion of~~ discounts and prepayment fees are reported in net investment ~~income.~~

As of February 1, 2015, all mortgage loans were measured at fair value. Each mortgage loan was individually analyzed to determine the fair value. Each loan was either analyzed and assigned a discount rate or given an impairment, based on whether facts and circumstances which, as of the acquisition date, indicated less than full projected collections of contractual principal and interest payments. Various market factors were considered in determining the net present value of the expected cash flow stream or underlying real estate collateral, including the characteristics of the borrower, the underlying collateral, underlying credit worthiness of the tenants, and tenant payment history. Known events and risks, such as refinancing risks, were also considered in the fair value determination. In certain cases, fair value was based on the net present value of the expected cash flow stream or the underlying value of the real estate collateral.

income.

Certain of the mortgage loans have call options that occur within the next 12 years. However, if interest rates were to significantly increase, wethe Company may be unable to exercise the call options on ~~our~~its existing mortgage loans commensurate with the

significantly ~~increased~~increased market rates. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, assuming the loans are called at their next call dates, approximately ~~$28.1~~$60.9 million of principal would become due for the remainder of ~~2016, $972.7~~2017, $1,010.2 million in ~~2017~~2018 through ~~2021, $235.0~~2022, $125.7 million in ~~2022~~2023 through ~~2026,~~2027, and ~~$11.0~~$10.0 million thereafter.

The Company offers a type of commercial mortgage loan under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of ~~September~~June 30, ~~2016 (Successor Company)~~2017, and December 31, ~~2015 (Successor Company), approximately $549.2~~2016, approximately $669.8 million and ~~$449.2~~$595.2 million, respectively, of the Company’s total mortgage ~~loan~~loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~January 1, 2015 to January 31, 2015~~ ~~(Predecessor Company),~~2016, the Company recognized ~~$3.3~~ $4.7 million, ~~$15.8~~$11.5 million ~~$3.3 million, $8.4~~, $5.7 million, and ~~$0.1~~$12.5 million, respectively, of participating mortgage loan income.

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, approximately ~~$1.0~~$3.5 million of invested assets consisted of nonperforming mortgage loans, restructured mortgage loans, or mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~ 2017, the Company ~~did not enter into any mortgage loan transactions that would have been accounted for as~~recognized a troubled debt ~~restructurings. If~~restructuring as a result of the Company ~~had troubled debt restructurings, these transactions would include either the acceptance of assets in satisfaction of principal during the respective periods or at~~granting a ~~future date, and were~~concession to a borrower which included loans terms unavailable from other lenders. This concession was the result of agreements between the creditor and the ~~debtor~~debtor.~~. During the nine months ended September 30, 2016 (Successor Company), the~~ The Company did not ~~accept or agree to accept assets in satisfaction of principal. As of September~~identify any loans whose principal was permanently impaired during the six months ended June 30, ~~2016 (Successor Company), the Company did not have any mortgage loan transactions accounted for as troubled debt restructurings.~~2017.

The Company’s mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those subject to a contractual pooling and servicing agreement. As of ~~September~~June 30, ~~2016 (Successor Company), $1.0~~2017, $3.5 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming mortgage loans, restructured, or mortgage loans that were foreclosed and were converted to real estate properties. The Company ~~foreclosed~~did not foreclose on ~~$1.0 million of~~any nonperforming loans not subject to a pooling and servicing agreement during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~2017.

As of ~~September~~June 30, ~~2016 (Successor Company)~~2017, none of the loans subject to a pooling and servicing agreement were nonperforming or restructured. The Company did not foreclose on any nonperforming loans subject to a pooling and servicing agreement during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~2017.

As of ~~September~~June 30, 2017, and December 31, 2016, ~~(Successor Company),~~ the Company had an allowance for mortgage loan credit losses of ~~$3.4~~$5.9 million and ~~no allowance as of December 31, 2015 (Successor Company).~~$0.7 million, respectively. Due to the Company’s loss experience and nature of the loan portfolio, the Company believes that a collectively evaluated allowance would be inappropriate. The Company believes an allowance calculated through an analysis of specific loans that are believed to have a higher risk of credit impairment provides a more accurate presentation of expected losses in the portfolio and is consistent with the applicable guidance for loan impairments in ASC Subtopic 310. Since the Company uses the specific identification method for calculating the allowance, it is necessary to review the economic situation of each borrower to determine those that have higher risk of credit impairment. The Company has a team of professionals that monitors borrower conditions such as payment practices, borrower credit, operating performance, and property conditions, as well as ensuring the timely payment of property taxes and insurance. Through this monitoring process, the Company assesses the risk of each loan. When issues are identified, the severity of the issues are assessed and reviewed for possible credit impairment. If a loss is probable, an expected loss calculation is performed and an allowance is established for that loan based on the expected loss. The expected loss is calculated as the excess carrying value of a loan over either the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the current estimated fair value of the loan’s underlying collateral. A loan may be subsequently charged off at such point that the Company no longer expects to receive cash payments, the present value of future expected payments of the renegotiated loan is less than the current principal balance, or at such time that the Company is party to foreclosure or bankruptcy proceedings associated with the borrower and does not expect to recover the principal balance of the loan.

A charge off is recorded by eliminating the allowance against the mortgage loan and recording the renegotiated loan or the collateral property related to the loan as investment real estate on the balance sheet, which is carried at the lower of the appraised fair value of the property or the unpaid principal balance of the loan, less estimated selling costs associated with the property.


	Successor Company						Predecessor Company			For The Six Months Ended
	As of September 30, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015			June 30, 2017
	(Dollars In Thousands)						(Dollars In Thousands)			(Dollars In Thousands)
Beginning balance	$	—		$	—		$	5,720
Beginning balance, December 31, 2016										$	724
Charge offs	(1,950		)	(2,561		)	(861		)	—
Recoveries	—			(638		)	(2,359		)	(724		)
Provision	5,396			3,199			—			5,915
Ending balance	$	3,446		$	—		$	2,500
Ending balance, June 30, 2017										$	5,915

It is the Company’s policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is the Company’s general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. For loans subject to a pooling and servicing agreement, there are certain additional restrictions and/or requirements related to workout proceedings, and as such, these loans may have different attributes and/or circumstances affecting the status of delinquency or categorization of those in nonperforming status. An analysis of the delinquent loans is shown in the following chart.


					Greater								Greater
Successor Company	30-59 Days		60-89 Days		than 90 Days		Total
As of September 30, 2016	Delinquent		Delinquent		Delinquent		Delinquent
									30-59 Days		60-89 Days		than 90 Days		Total
As of June 30, 2017									Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)								(Dollars In Thousands)
Commercial mortgage loans	$	2,894	$	—	$	—	$	2,894	$	5,440	$	—	$	2,805	$	8,245
Number of delinquent commercial mortgage loans	2		—		—		2		3		—		2		5

As of December 31, 2015
As of December 31, 2016
Commercial mortgage loans	$	6,002	$	1,033	$	—	$	7,035	$	3,669	$	—	$	—	$	3,669
Number of delinquent commercial mortgage loans	6		1		—		7		4		—		—		4

The Company’s commercial mortgage loan portfolio consists of mortgage loans that are collateralized by real estate. Due to the collateralized nature of the loans, any assessment of impairment and ultimate loss given a default on the loans is based upon a consideration of the estimated fair value of the real estate. The Company limits accrued interest income on impaired loans to 90 days of interest. Once accrued interest on the impaired loan is received, interest income is recognized on a cash basis. For information regarding impaired loans, please refer to the following chart:


			Unpaid				Average		Interest		Cash Basis				Unpaid				Average		Interest		Cash Basis
Successor Company	Recorded		Principal		Related		Recorded		Income		Interest
As of September 30, 2016	Investment		Balance		Allowance		Investment		Recognized		Income
													Recorded		Principal		Related		Recorded		Income		Interest
As of June 30, 2017													Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)												(Dollars In Thousands)
Commercial mortgage loans:
With no related allowance recorded	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
With an allowance recorded	10,693		11,060		3,446		3,564		352		343		12,721		12,672		5,915		4,240		254		229

As of December 31, 2015
As of December 31, 2016
Commercial mortgage loans:
With no related allowance recorded	$	1,694	$	1,728	$	—	$	847	$	104	$	117	$	—	$	—	$	—	$	—	$	—	$	—
With an allowance recorded	—		—		—		—		—		—		1,819		1,819		724		1,819		96		96

~~As of September 30, 2016 (Successor Company) and December 31, 2015 (Successor Company), the Company did not carry any mortgage~~Mortgage loans that ~~have been~~were modified in a troubled debt ~~restructuring.~~restructuring as of June 30, 2017 and December 31, 2016 were as follows:



	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars In Thousands)
As of June 30, 2017
Troubled debt restructuring:
Commercial mortgage loans	1	$	725	$	725

As of December 31, 2016
Troubled debt restructuring:
Commercial mortgage loans	1	$	468	$	468

~~11.~~9. GOODWILL

~~As permitted by ASC Topic 805,~~ ~~Business Combinations~~, the Company measured its assets and liabilities at fair value on the date of the Merger, February 1, 2015. The purchase price in excess of the fair value of PLC’s assets and liabilities resulted in the establishment of goodwill as of the date of the Merger. As of February 1, 2015 (Successor Company), the Company was allocated an aggregate goodwill balance of $735.7 million. During the measurement period subsequent to February 1, 2015, the Company has made adjustments to provisional amounts related to certain tax balances that resulted in a decrease to goodwill of $3.3 million from the amount recorded at the Merger date. This reduction in Goodwill was applied to the Life Marketing segment's goodwill. The balance of goodwill ~~associated with~~for the ~~Merger~~Company as of ~~September~~June 30, ~~2016 (Successor Company) and December 31, 2015 (Successor Company)~~2017 was ~~$732.4~~$793.5 million. There has been no change ~~in the~~to goodwill during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~

2017.

Accounting for goodwill requires an estimate of the future profitability of the associated lines of business to assess the recoverability of the capitalized acquisition goodwill. The Company evaluates the carrying value of goodwill at the segment (or reporting unit) level at least annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: 1) a significant adverse change in legal factors or in business climate, 2) unanticipated competition, or 3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If it is determined that it is more likely than not that impairment exists, the Company compares its estimate of the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The Company utilizes a fair value measurement (which includes a discounted cash flows analysis) to assess the carrying

value of the reporting units in consideration of the recoverability of the goodwill balance assigned to each reporting unit as of the measurement date. The Company’s material goodwill balances are attributable to certain of its operating segments (which are each considered to be reporting units). The cash flows used to determine the fair value of the Company’s reporting units are dependent on a number of significant assumptions. The Company’s estimates, which consider a market participant view of fair value, are subject to change given the inherent uncertainty in predicting future results and cash flows, which are impacted by such things as policyholder behavior, competitor pricing, capital limitations, new product introductions, and specific industry and market conditions.

The balance recognized as goodwill is not amortized, but is reviewed for impairment on an annual basis, or more frequently as events or circumstances may warrant, including those circumstances which would more likely than not reduce the fair value of the Company’s reporting units below its carrying amount. During the fourth quarter of ~~2015,~~2016, the Company performed its annual evaluation of goodwill based on information as of ~~September 30, 2015 (Successor Company)~~October 1, 2016, and determined that no adjustment to impair goodwill was necessary. During the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, the Company did not identify any events or circumstances which would indicate that the fair value of its operating segments would have declined below their book value, either individually or in the aggregate. ~~Accordingly, no impairment to the Company’s goodwill balance has been recorded.~~

~~12.~~10. DEBT AND OTHER OBLIGATIONS

In conjunction with the Merger and in accordance with ASC Topic 805, the Company adjusted the carrying value of debt to fair value as of the date of the Merger, February 1, 2015. This resulted in the Company establishing premiums and discounts on its outstanding debt, subordinated debentures and non-recourse funding obligations. The carrying value of the Company’s revolving line of credit approximates fair value due to the nature of the borrowings and the fact the Company pays a variable rate of interest that reflects current market conditions. The fair value of the Company’s senior notes, subordinated debt, non-recourse funding obligations associated with Golden Gate II Captive Insurance Company and MONY Life Insurance Company, were determined using market prices as of February 1, 2015. The fair value of the Golden Gate V non-recourse funding obligation was determined using a discounted cash flow model with inputs derived from comparable financial instruments. The premiums and discounts established as of February 1, 2015 are amortized over the expected life of the instruments using the effective interest method. The amortization of premiums and discounts are recorded as a component of interest expense and are recorded in “Other operating expenses” on the Company’s Consolidated Condensed Statements of Income.

~~On February 2, 2015, the Company and PLC amended and restated the Credit Facility (the “Credit Facility”). Under the Credit Facility, the~~ Company has the ability to borrow on an unsecured basis under a Credit Facility up to an aggregate principal amount of $1.0 billion. The Company has the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.25 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of PLC’s Senior Debt, or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s ~~prime~~Prime rate, (y) 0.50% above the Federal Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of PLC’s Senior Debt. The Credit Facility also provided for a facility fee at a rate that varies with the ratings of PLC’s Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The initial facility fee rate was 0.15% on February 2, 2015, and was adjusted to 0.125% upon PLC’s subsequent ratings upgrade on February 2, 2015. The Credit Facility provides that PLC is liable for the full amount of any obligations for borrowings or letters of credit, including those of the Company, under the Credit Facility. The maturity date of the Credit Facility is February 2, 2020. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of ~~September~~June 30, ~~2016(Successor Company).~~2017. PLC had an outstanding balance of ~~$385.0~~$205.0 million bearing interest at a rate of LIBOR plus 1.00% as ~~September 30, 2016 (Successor Company). As~~ of June 30, ~~2016 (Successor Company), the Company had used $30.0 million of borrowing capacity by executing a Letter of Credit under the Credit Facility for the benefit on an affiliated captive reinsurance subsidiary of the Company. This Letter of Credit was terminated during the period and no Letter of Credit was outstanding as of September 30, 2016 (Successor Company).~~2017.

Non-Recourse Funding Obligations

~~Golden Gate Captive Insurance Company~~

On January 15, 2016, Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of the Company, and Steel City, LLC (“Steel City”), a newly formed wholly owned subsidiary of PLC, entered into an 18-year transaction to finance $2.188 billion of “XXX” reserves related to the acquired GLAIC Block and the other term life insurance business reinsured to Golden Gate by the Company and WCL, a direct wholly owned subsidiary of the Company. Steel City issued notes (the "Steel City Notes") with an aggregate initial principal amount of $2.188 billion to Golden Gate in exchange for a surplus note issued by Golden Gate with an initial principal amount of $2.188 billion. Through the structure, Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and Nomura Americas Re Ltd. (collectively, the “Risk-Takers”) provide credit enhancement to the Steel City Notes for the 18-year term in exchange for credit enhancement fees. The transaction is “non-recourse” to PLC, WCL and the Company, meaning that none of these companies, other than Golden Gate, are liable to reimburse the Risk-Takers for any credit enhancement payments required to be made. As of September 30, 2016 (Successor Company), the aggregate principal balance of the Steel City Notes was $2.135 billion. In connection with this transaction, PLC has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate or Steel City. The support agreements provide that amounts would become payable by PLC if Golden Gate’s annual general corporate expenses were higher than modeled amounts, certain reinsurance rates applicable to the subject business increase beyond modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold levels. Additionally, PLC

has entered into a separate agreement to guarantee payment of certain fee amounts in connection with the credit enhancement of the Steel City Notes. As of September 30, 2016 (Successor Company), no payments have been made under these agreements.

In connection with the transaction outlined above, Golden Gate had a $2.135 billion outstanding non-recourse funding obligation as of September 30, 2016 (Successor Company). This non-recourse funding obligation matures in 2034 and accrues interest at a fixed annual rate of 4.75%.

Prior to this transaction Golden Gate had three series of non-recourse funding obligations with a total outstanding balance of $800 million. PLC held the entire outstanding balance of non-recourse funding obligations. Series A1 non-recourse funding obligations had a balance of $400 million and accrued interest at 7.375%, the Series A2 non-recourse funding obligations had a balance of $100 million and accrued interest at 8.00%, and the Series A3 non-recourse funding obligations had a balance of $300 million and accrued interest at 8.45%. As a result of the transaction described above, the $800 million of Golden Gate Series A Surplus Notes held by PLC were contributed to the Company and then subsequently contributed to Golden Gate, which resulted in the extinguishment of these notes. The contribution of the non-recourse funding obligations from PLC to the Company, and the subsequent contribution of the obligations by the Company to Golden Gate, was recognized based on the respective carrying value of the obligations, which was approximately $1.15 billion. This carrying value included a premium over the outstanding principal balance of the note issuances due to the effect of purchase accounting applied as a result of the Merger on February 1, 2015. As of the transaction date, the respective carrying value of the non-recourse funding obligation asset previously held by PLC was also approximately $1.15 billion; therefore this transaction did not result in the recognition of a gain or loss for PLC or the Company.

~~Golden Gate II Captive Insurance Company~~

Golden Gate II Captive Insurance Company (“Golden Gate II”), a South Carolina special purpose financial captive insurance company and wholly owned subsidiary, had $575 million of outstanding non-recourse funding obligations as of September 30, 2016 (Successor Company). These outstanding non-recourse funding obligations were issued to special purpose trusts, which in turn issued securities to third parties. Certain of our affiliates own a portion of these securities. As of September 30, 2016 (Successor Company), securities related to $58.6 million of the outstanding balance of the non-recourse funding obligations were held by external parties, securities related to $220.3 million of the non-recourse funding obligations were held by nonconsolidated affiliates, and $296.1 million were held by consolidated subsidiaries of the Company. PLC has entered into certain support agreements with Golden Gate II obligating it to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate II. These support agreements provide that amounts would become payable by PLC to Golden Gate II if its annual general corporate expenses were higher than modeled amounts or if Golden Gate II’s investment income on certain investments or premium income was below certain actuarially determined amounts. As of September 30, 2016 (Successor Company), no payments have been made under these agreements; however, certain support agreement obligations to Golden Gate II of approximately $1.5 million have been collateralized by PLC. Re-evaluation and, if necessary, adjustments of any support agreement collateralization amounts occur annually during the first quarter pursuant to the terms of the support agreements. There are no support agreements between the Company and Golden Gate II.

During the nine months ended September 30, 2016 (Successor Company), the Company and its affiliates repurchased $11.3 million of its outstanding non-recourse funding obligations, at a discount. These repurchases did not result in a material gain or loss for the Company. During the period of February 1, 2015 to September 30, 2015 (Successor Company) and the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the Company did not repurchase any of its outstanding non-recourse funding obligations.

~~Golden Gate V Vermont Captive Insurance Company~~

On October 10, 2012, Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”), a Vermont special purpose financial insurance company and Red Mountain, LLC (“Red Mountain”), both wholly owned subsidiaries, entered into a 20-year transaction to finance up to $945 million of “AXXX” reserves related to a block of universal life insurance policies with secondary guarantees issued by the Company and its subsidiary, West Coast Life Insurance Company (“WCL”). Golden Gate V issued non-recourse funding obligations to Red Mountain, and Red Mountain issued a note with an initial principal amount of $275 million, increasing to a maximum of $945 million in 2027, to Golden Gate V for deposit to a reinsurance trust supporting Golden Gate V’s obligations under a reinsurance agreement with WCL, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of the Company. Through the structure, Hannover Life Reassurance Company of America (“Hannover Re”), the ultimate risk taker in the transaction, provides credit enhancement to the Red Mountain note for the 20-year term in exchange for a fee. The transaction is “non-recourse” to Golden Gate V, Red Mountain, WCL, PLC, and the Company, meaning that none of these companies are liable for the reimbursement of any credit enhancement payments required to be made. As of September 30, 2016 (Successor Company), the principal balance of the Red Mountain note was $550 million. Future scheduled capital contributions to prefund credit enhancement fees amount to approximately $134.2 million and will be paid in annual installments through 2031. In connection with the transaction, PLC has entered into certain support agreements under which PLC guarantees or otherwise supports certain obligations of Golden Gate V or Red Mountain. The support agreements provide that amounts would become payable by PLC if Golden Gate V’s annual general corporate expenses were higher than modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold levels. Additionally, PLC has entered into separate agreements to indemnify Golden Gate V with respect to material adverse changes in non-guaranteed elements of insurance policies reinsured by Golden Gate V, and to guarantee payment of certain fee amounts in connection with the credit enhancement of the Red Mountain note. As of September 30, 2016 (Successor Company), no payments have been made under these agreements.

~~In connection with the transaction outlined above, Golden Gate V had a $550 million o~~utstanding non-recourse funding obligation as of September 30, 2016 (Successor Company). This non-recourse funding obligation matures in 2037, has scheduled increases in principal to a maximum of $945 million, and accrues interest at a fixed annual rate of 6.25%.

Non-recourse funding obligations outstanding as of ~~September~~June 30, ~~2016 (Successor Company),~~2017, on a consolidated basis, are shown in the following table:



Issuer	Outstanding Principal		Carrying Value⁽¹⁾		Maturity Year	Year-to-Date Weighted-Avg Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company⁽²⁾⁽³⁾	$	2,065,000	$	2,065,000	2039	4.75	%
Golden Gate II Captive Insurance Company	278,949		228,275		2052	2.79	%
Golden Gate V Vermont Captive Insurance Company⁽²⁾⁽³⁾	595,000		657,166		2037	5.12	%
MONY Life Insurance Company⁽³⁾	1,091		2,436		2024	6.19	%
Total	$	2,940,040	$	2,952,877

(1) Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of PLC. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of the Company.
(3) Fixed rate obligations.

Non-recourse funding obligations outstanding as of December 31, 2016, on a consolidated basis, are shown in the following table:


			Maturity	Year-to-Date Weighted-Avg
Issuer	Carrying Value⁽¹⁾		Year	Interest Rate			Outstanding Principal		Carrying Value⁽¹⁾		Maturity Year	Year-to-Date Weighted-Avg Interest Rate
	(Dollars In Thousands)						(Dollars In Thousands)
Golden Gate Captive Insurance Company⁽²⁾⁽³⁾	$	2,135,000	2039	4.75	%		$	2,116,000	$	2,116,000	2039	4.75	%
Golden Gate II Captive Insurance Company (outstanding principal - $278,949)	227,124		2052	1.28	%
Golden Gate V Vermont Captive Insurance Company⁽²⁾⁽³⁾(outstanding principal - $550,000)	613,447		2037	5.12	%
MONY Life Insurance Company⁽³⁾(outstanding principal - $1,091)	2,481		2024	6.19	%
Golden Gate II Captive Insurance Company							278,949		227,338		2052	1.30	%
Golden Gate V Vermont Captive Insurance Company⁽²⁾⁽³⁾							565,000		628,025		2037	5.12	%
MONY Life Insurance Company⁽³⁾							1,091		2,466		2024	6.19	%
Total	$	2,978,052					$	2,961,040	$	2,973,829

(1) Carrying values include premiums and discounts and do not represent unpaid principal balances.						(1) Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of PLC. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of the Company.						(2) Obligations are issued to non-consolidated subsidiaries of PLC. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of the Company.
(3) Fixed rate obligations.						(3) Fixed rate obligations.

~~(1) Carrying values include premiums and discounts and do not represent unpaid principal balances.~~

~~(2) Obligations are issued to non-consolidated subsidiaries of PLC. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of the Company.~~

~~(3) Fixed rate obligations.~~

~~Letters of Credit~~

~~Golden Gate III Vermont Captive Insurance Company~~

Secured Financing Transactions

Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a Vermont special purpose financial insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement (the “Reimbursement Agreement”) with UBS AG, Stamford Branch (“UBS”), as issuing lender. Under the original Reimbursement Agreement, dated April 23, 2010, UBS issued a letter of credit (the “LOC”) in the initial amount of $505 million to a trust for the benefit of WCL. The Reimbursement Agreement was subsequently amended and restated effective November 21, 2011 (the “First Amended and Restated Reimbursement Agreement”), to replace the existing LOC with one or more letters of credit from UBS, and to extend the maturity date from April 1, 2018, to April 1, 2022. On August 7, 2013, Golden Gate III entered into a Second Amended and Restated Reimbursement Agreement with UBS (the “Second Amended and Restated Reimbursement Agreement”), which amended and restated the First Amended and Restated Reimbursement Agreement. Under the Second and Amended and Restated Reimbursement Agreement a new LOC in an initial amount of $710 million was issued by UBS in replacement of the existing LOC issued under the First Amended and Restated Reimbursement Agreement. The term of the LOC was extended from April 1, 2022 to October 1, 2023, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $610 million to $720 million in 2016 if certain conditions had been met. On June 25, 2014, Golden Gate III entered into a Third Amended and Restated Reimbursement Agreement with UBS (the “Third Amended and Restated Reimbursement Agreement”), which amended and restated the Second Amended and Restated Reimbursement Agreement. Under the Third Amended and Restated Reimbursement Agreement, a new LOC in an initial amount of $915 million was issued by UBS in replacement of the existing LOC issued under the Second Amended and Restated Reimbursement Agreement. The term of the LOC was extended from October 1, 2023 to April 1, 2025, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $720 million to $935 million in 2015. The LOC is held in trust for the benefit of WCL, and supports certain obligations of Golden Gate III to WCL under an indemnity reinsurance agreement originally effective April 1, 2010, as amended and restated on November 21, 2011, and as further amended and restated on August 7, 2013 and on June 25, 2014 to include additional blocks of policies, and pursuant to which WCL cedes liabilities relating to the policies of WCL and retroc~~edes liabilities relating to the policies of the Company. The LOC balance reached its scheduled peak amount of$935 million~~ in 2015 and remained at this level as of September 30, 2016 (Successor Company). The term of the LOC is expected to be approximately 15 years from the original issuance date. This transaction is “non-recourse” to WCL, PLC, and the Company, meaning that none of these companies other than Golden Gate III are liable for reimbursement on a draw of the LOC. PLC has entered into certain support agreements with Golden Gate III obligating PLC to make capital contributions or provide support related to certain of Golden Gate III’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate III. Future scheduled capital contributions amount to approximately $122.5 million and will be paid in three installments with the last payment occurring in 2021, and these contributions may be subject to potential offset against dividend payments as permitted under the terms of the Third Amended and Restated Reimbursement Agreement. The support agreements provide that amounts would become payable by PLC to Golden Gate III if Golden Gate III’s annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate III. Pursuant to the terms of an amended and restated letter agreement with UBS, PLC has continued to guarantee the payment of fees to UBS as specified in the Third Amended and Restated Reimbursement Agreement. As of September 30, 2016 (Successor Company), no payments have been made under these agreements.

~~Golden Gate IV Vermont Captive Insurance Company~~

Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a Vermont special purpose financial insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL. The LOC balance, in accordance with the terms of the Reimbursement Agreement, reached its scheduled peak amount of $790 million during the second quarter of 2016 and remained at this level as of September 30, 2016 (Successor Company). The term of the LOC is expected to be 12 years from the original issuance date (stated maturity of December 30, 2022). The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of the Company. This transaction is “non-recourse” to WCL, PLC, and the Company, meaning that none of these companies other than Golden Gate IV are liable for reimbursement on a draw of the LOC. PLC has entered into certain support agreements with Golden Gate IV obligating PLC to make capital contributions or provide support related to certain of Golden Gate IV’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate IV. The support agreements provide that amounts would become payable by PLC to Golden Gate IV if Golden Gate IV’s annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate IV. PLC has also entered into a separate agreement to guarantee the payments of LOC fees under the terms of the Reimbursement Agreement. As of September 30, 2016 (Successor Company), no payments have been made under these agreements.

Repurchase Program Borrowings

While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed ~~maturity~~maturity securities, and the agreements provided for net settlement in the event of default or on termination of the agreements. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the fair value of securities pledged under the repurchase program was ~~$224.8~~$429.8 million, and the repurchase obligation of ~~$219.5~~$413.6 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 43124 basis points). During the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, the maximum balance outstanding at any one point in time related to these programs was ~~$725.0~~$981.3 million. The average daily balance was ~~$453.0~~$607.7 million (at an average borrowing rate of 4178 basis points) during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~2017. As of December 31, ~~2015 (Successor Company),~~2016, the fair value of securities pledged under the repurchase program ~~was $479.9~~was $861.7 million, and the repurchase obligation of ~~$438.2~~$797.7 million ~~was~~was included in the Company's consolidated condensed balance ~~sheets.~~sheets (at an average borrowing rate of 65 basis points). During ~~2015,~~2016, the maximum balance outstanding at any one point in time related to these programs ~~was $912.7 million.~~was $1,065.8 million. The average daily balance was ~~$540.3 million and $77.4~~$505.4 million (at an average borrowing rate of ~~20 and 16~~44 basis points) during the ~~period of February 1, 2015 to~~year ended December 31, ~~2015 (Successor Company)~~2016.

Securities Lending

The Company participates in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. The Company requires initial collateral of 102% of the market value of the loaned securities to be separately maintained. The loaned securities’ market value is monitored on a daily basis. As of June 30, 2017, securities with a market value of $25.6 million were loaned under this program. As collateral for the loaned securities, the Company receives short-term investments, which are recorded in “short-term investments” with a corresponding liability recorded in “secured financing liabilities” to account for its obligation to return the collateral. As of June 30, 2017, the fair value of the collateral related to this program was $26.5 million and the ~~period~~Company has an obligation to return $26.5 million of ~~January 1, 2015~~collateral to ~~January 31, 2015 (Predecessor Company).~~the securities borrowers.

The following table provides the amount by asset class of securities of collateral pledged for repurchase agreements ~~grouped by asset class,~~and securities that have been loaned as part of securities lending transactions as of ~~September~~June 30, ~~2016 (Successor Company):~~2017 and December 31, 2016:

Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions

Accounted for as Secured Borrowings


	Remaining Contractual Maturity of the Agreements										Remaining Contractual Maturity of the Agreements
	As of September 30, 2016 (Successor Company)										As of June 30, 2017
	(Dollars In Thousands)										(Dollars In Thousands)
	Overnight and Continuous		Up to 30 days		30-90 days		Greater Than 90 days		Total		Overnight and Continuous		Up to 30 days		30-90 days		Greater Than 90 days		Total
Repurchase agreements and repurchase-to-maturity transactions
U.S. Treasury and agency securities	$	—	$	—	$	—	$	—	$	—	$	336,859	$	66,340	$	—	$	—	$	403,199
State and municipal securities	—		—		—		—		—
Mortgage loans											26,620		—		—		—		26,620
Total repurchase agreements and repurchase-to-maturity transactions											363,479		66,340		—		—		429,819
Securities lending transactions
Corporate securities	—		—		—		—		—		14,886		—		—		—		14,886
Equity securities	—		—		—		—		—		10,209		—		—		—		10,209
Non-U.S. sovereign debt	—		—		—		—		—
Mortgage loans	224,767		—		—		—		224,767
Other asset-backed securities	—		—		—		—		—
Total borrowings	$	224,767	$	—	$	—	$	—	$	224,767
Preferred stock											526		—		—		—		526
Total securities lending transactions											25,621		—		—		—		25,621
Total securities											$	389,100	$	66,340	$	—	$	—	$	455,440

Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions

Accounted for as Secured Borrowings



	Remaining Contractual Maturity of the Agreements
	As of December 31, 2016
	(Dollars In Thousands)
	Overnight and Continuous		Up to 30 days		30-90 days		Greater Than 90 days		Total
Repurchase agreements and repurchase-to-maturity transactions
U.S. Treasury and agency securities	$	357,705	$	23,758	$	—	$	—	$	381,463
State and municipal securities	—		—		—		—		—
Other asset-backed securities	—		—		—		—		—
Corporate securities	—		—		—		—		—
Equity securities	—		—		—		—		—
Non-U.S. sovereign debt	—		—		—		—		—
Mortgage loans	480,269		—		—		—		480,269
Total securities	$	837,974	$	23,758	$	—	$	—	$	861,732

~~13.~~11. COMMITMENTS AND CONTINGENCIES

Under the insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. ~~In addition, from~~From time to time, companies may be asked to

contribute amounts beyond prescribed limits. ~~Most insurance~~It is possible that the Company could be assessed with respect to product lines not offered by the Company. In addition, legislation may be introduced in various states with respect to guaranty fund assessment laws ~~provide~~related to insurance products, including long term care insurance and other specialty products, that ~~an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.~~alters future premium tax offsets received in connection with guaranty fund assessments. The Company ~~does not believe its insurance guaranty fund~~cannot predict the amount, nature or timing of any future assessments ~~will be materially different from amounts already provided for in~~or legislation, any of which could have a material and adverse impact on the Company's financial ~~statements.~~condition or results of operations.

A number of civil jury verdicts have been returned against insurers, broker-dealers, and other providers of financial services involving sales, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Often these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. ~~Public companies in general and the~~The financial services and insurance industries in particular are also sometimes the target of law enforcement and regulatory investigations relating to the numerous laws and regulations that govern such companies. Some companies have been the subject of law enforcement or regulatory actions or other actions resulting from such investigations. The Company, in the ordinary course of business, is involved in such matters.

The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established. For such matters, the Company may provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis and updates its established liabilities, disclosures and estimates of reasonably possible losses or range of loss based on such reviews.

~~In 2012, the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable income.~~ The Company ~~protested~~and certain unfavorable adjustments and sought resolution at the IRS’ Appeals Division. In October 2015, Appeals accepted the Company’s earlier proposed settlement offer. In September 2015, the IRS proposed favorable and unfavorable adjustments to the Company’s 2008 through 2011 reported taxable income. The Company agreed to these adjustments. As a result, pending a routine review by Congress’ Joint Committee on Taxation, the Company expects to receive an approximate ~~$6.2 million~~ne~~t tax refund in a future period. This refund will not materially affect the Company’s effective tax rate.~~

~~Certain~~ of ~~the Company’s~~its insurance subsidiaries, as well as certain other insurance companies for which the Company has coinsured blocks of life insurance and annuity policies, are under audit for compliance with the unclaimed property laws of a number of states. The audits are being conducted on behalf of the treasury departments or unclaimed property administrators in such states. The focus of the audits is on whether there have been unreported deaths, maturities, or policies that have exceeded limiting age with respect to which death benefits or other payments under life insurance or annuity policies should be treated as unclaimed property that should be escheated to the state. The Company is presently unable to estimate the reasonably possible loss or range of loss that may result from the audits due to a number of factors, including uncertainty as to the legal theory or theories that may give rise to liability, the early stages of the audits being conducted, and, with respect to one block of life insurance policies that is co-insured by a subsidiary of the Company, uncertainty as to whether the Company or other companies are responsible for the liabilities, if any, arising in connection with such policies. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with the audits reasonably estimable.

~~Certain~~The Company and certain of ~~the Company’s~~its subsidiaries are under a targeted multi-state examination with respect to their claims paying practices and their use of the U.S. Social Security Administration’s Death Master File or similar databases (a “Death Database”) to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed, and substantial legal authority exists to support the position that the prevailing industry practice was lawful. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, escheating the benefits and interest to the state if the beneficiary could not be found, and paying penalties to the state, if required. It has been publicly reported that the life insurers have paid administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements. The Company believes ~~it is reasonably possible~~ that insurance regulators could demand from the Company administrative and/or examination fees relating to the targeted multi-state examination. Based on publicly reported payments by other life insurers, the Company ~~estimates the range of~~does not believe such fees, ~~to be from $0 to $4.5 million.~~if assessed, would have a material effect on its financial statements.

~~14.~~12. EMPLOYEE BENEFIT PLANS

Beginning with the December 31, 2015 measurement, PLC changed its method used to estimate the service and interest cost components of net periodic benefit cost for pension and other postretirement benefits by applying a spot rate approach. Historically, PLC utilized a single weighted average discount rate derived from a selected yield curve used to measure the benefit obligation as of the measurement date. Under the new spot rate approach, the actual calculation of service and interest cost will reflect an array of spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. PLC made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot rates from the selected yield curve. This new approach does not affect the measurement of the total benefit obligation.

Components of the net periodic benefit cost of PLC's defined benefit pension plan for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company),~~2016, are as follows:

Successor Company Predecessor Company
For The Three Months Ended September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015 January 1, 2015
to
January 31, 2015
Defined
Benefit
Pension
Plan

Excess
Benefit
Plan Defined
Benefit
Pension
Plan
Excess
Benefit
Plan Defined
Benefit
Pension
Plan Excess
Benefit
Plan
Defined
Benefit
Pension
Plan

Excess
Benefit
Plan

Defined
Benefit
Pension
Plan

Excess
Benefit
Plan
(Dollars In Thousands) (Dollars In Thousands)
Service cost — benefits earned during the period $ 2,906
$ 311
$ 2,973
$ 333
$ 8,717
$ 1,102
$ 7,928
$ 888
$ 974
$ 95
Interest cost on projected benefit obligation 2,737
299
2,433
408
8,210
1,054
6,488
1,088
1,002
140
Expected return on plan assets (3,605 ) —
(3,642 ) —
(10,816 ) —
(9,712 ) —
(1,293 ) —
Amortization of prior service cost —
—
—
—
—
—
—
—
(33 ) 1
Amortization of actuarial losses —
64
—
—
—
114
—
—
668
138
Preliminary net periodic benefit cost 2,038
674
1,764
741
6,111
2,270
4,704
1,976
1,318
374
Settlement/curtailment expense —
635
—
—
—
2,135
—
—
—
—
Total net periodic benefit costs $ 2,038
$ 1,309
$ 1,764
$ 741
$ 6,111
$ 4,405
$ 4,704
$ 1,976
$ 1,318
$ 374

On May 5, 2016, the Board of Directors of Protective Life Corporation decided to convert the accrued benefit payable under the excess benefit plan as of March 31, 2016 to John D. Johns, PLC's Chairman and Chief Executive Officer, into a lump sum amount. On September 30, 2016, the lump sum amount was allocated to a book entry account that will be treated as though it were a deferral account under PLC’s deferred compensation plan for officers. Mr. Johns will continue to accrue benefits with respect to his continued service as an employee of PLC after March 31, 2016 in a manner that is consistent with the provisions of the excess benefit plan. The conversion event required PLC to re-measure the excess benefit plan as of May 31, 2016 and resulted in the recognition of ~~$2.1 millionin settlement expense during the nine months ended September 30, 2016 (Successor Company).~~



	For The Three Months Ended June 30,										For The Six Months Ended June 30,
	2017					2016					2017					2016
	Defined Benefit Pension Plan			Excess Benefit Plan		Defined Benefit Pension Plan			Excess Benefit Plan		Defined Benefit Pension Plan			Excess Benefit Plan		Defined Benefit Pension Plan			Excess Benefit Plan
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	3,348		$	334	$	2,906		$	478	$	6,696		$	668	$	5,812		$	791
Interest cost on projected benefit obligation	2,191			297		2,737			317		4,382			594		5,474			755
Expected return on plan assets	(3,352		)	—		(3,605		)	—		(6,704		)	—		(7,211		)	—
Amortization of prior service cost	—			—		—			—		—			—		—			—
Amortization of actuarial losses	—			118		—			50		—			236		—			50
Preliminary net periodic benefit cost	2,187			749		2,038			845		4,374			1,498		4,075			1,596
Settlement/curtailment expense	—			—		—			1,500		—			—		—			1,500
Total net periodic benefit costs	$	2,187		$	749	$	2,038		$	2,345	$	4,374		$	1,498	$	4,075		$	3,096

During the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, PLC ~~contributed $1.9 million~~did not make a contribution to its defined benefit pension ~~plan for the 2015 plan year.~~plan. PLC will make contributions in future periods as necessary to at least satisfy minimum funding requirements. PLC may also make additional contributions in future periods to maintain an adjusted funding target attainment percentage (“AFTAP”) of at least 80% and to avoid certain Pension Benefit Guaranty Corporation (“PBGC”) reporting triggers.

~~15.~~13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) (“AOCI”) as of ~~September~~June 30, ~~2016 (Successor Company),~~2017 and December 31, ~~2015 (Successor Company), and January 31, 2015 (Predecessor Company).~~

2016.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Successor Company
Unrealized
Gains and Losses
on Investments(2)

Accumulated
Gain and Loss
Derivatives

Total
Accumulated
Other
Comprehensive
Income (Loss)
(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2015 $ (1,246,391 ) $ —
$ (1,246,391 )
Other comprehensive income (loss) before reclassifications 1,215,021
—
1,215,021
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings (198 ) —
(198 )
Amounts reclassified from accumulated other comprehensive income (loss)(1)
(11,206 ) —
(11,206 )
Net current-period other comprehensive income (loss) 1,203,617
—
1,203,617
Ending Balance, September 30, 2016 $ (42,774 ) $ —
$ (42,774 )

~~(1) See Reclassification table below for details.~~

~~(2) As of September 30, 2016 net unrealized losses reported in AOCI were~~ ~~offset by$47.3 million due to~~ ~~the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.~~



	Unrealized Gains and Losses on Investments⁽²⁾			Accumulated Gain and Loss Derivatives			Total Accumulated Other Comprehensive Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2016	$	(655,767	)	$	727		$	(655,040	)
Other comprehensive income (loss) before reclassifications	447,332			(792		)	446,540
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	6,286			—			6,286
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	(265		)	233			(32		)
Net current-period other comprehensive income (loss)	453,353			(559		)	452,794
Ending Balance, June 30, 2017	$	(202,414	)	$	168		$	(202,246	)

(1) See Reclassification table below for details.
(2) As of June 30, 2017, net unrealized losses reported in AOCI were offset by $158.5 million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Successor Company
Unrealized
Gains and Losses
on Investments(2)

Accumulated
Gain and Loss
Derivatives

Total
Accumulated
Other
Comprehensive
Income (Loss)
(Dollars In Thousands, Net of Tax)
Beginning Balance, February 1, 2015 $ —
$ —
$ —
Other comprehensive income (loss) before reclassifications (1,263,367 ) (86 ) (1,263,453 )
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings (393 ) —
(393 )
Amounts reclassified from accumulated other comprehensive income (loss)(1)
17,369
86
17,455
Net current-period other comprehensive income (loss) (1,246,391 ) —
(1,246,391 )
Ending Balance, December 31, 2015 $ (1,246,391 ) $ —
$ (1,246,391 )

~~(1) See Reclassification table below for details.~~

(2) As of December 31, 2015 net unrealized losses reported in AOCI were offset by $623.0 million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.

~~Changes in Accumulated Other Comprehensive Income (Loss) by Component~~

Predecessor Company
Unrealized
Gains and Losses
on Investments(2)

Accumulated
Gain and Loss
Derivatives

Total
Accumulated
Other
Comprehensive
Income (Loss)
(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2014 $ 1,483,293
$ (82 ) $ 1,483,211
Other comprehensive income (loss) before reclassifications 482,143
9
482,152
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings (243 ) —
(243 )
Amounts reclassified from accumulated other comprehensive income (loss)(1)
(4,166 ) 23
(4,143 )
Net current-period other comprehensive income (loss) 477,734
32
477,766
Ending Balance, January 31, 2015 $ 1,961,027
$ (50 ) $ 1,960,977

~~(1) See Reclassification table below for details.~~

(2) As of January 31, 2015 net unrealized losses reported in AOCI were offset by $(492.6) million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.



	Unrealized Gains and Losses on Investments⁽²⁾			Accumulated Gain and Loss Derivatives		Total Accumulated Other Comprehensive Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2015	$	(1,246,391	)	$	—	$	(1,246,391	)
Other comprehensive income (loss) before reclassifications	606,848			688		607,536
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	(6,782		)	—		(6,782		)
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	(9,442		)	39		(9,403		)
Net current-period other comprehensive income (loss)	590,624			727		591,351
Ending Balance, December 31, 2016	$	(655,767	)	$	727	$	(655,040	)

(1) See Reclassification table below for details.
(2) As of December 31, 2015 and December 31, 2016, net unrealized losses reported in AOCI were offset by $623.0 million and $424.1 million, respectively, due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.

The following tables summarize the reclassifications amounts out of AOCI for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~

2016.

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)


Successor Company	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Condensed Statements of Income
For the Three Months Ended September 30, 2016
For The Three Months Ended June 30, 2017						Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Condensed Statements of Income
						(Dollars In Thousands)
Gains and losses on derivative instruments
Net settlement (expense)/benefit⁽¹⁾						$	(153	)	Benefits and settlement expenses, net of reinsurance ceded
						(153		)	Total before tax
						53			Tax (expense) or benefit
	(Dollars In Thousands)					$	(100	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains (losses)	$	1,665		Realized investment gains (losses): All other investments		$	(1,087	)	Realized investment gains (losses): All other investments
Impairments recognized in earnings	(3,308		)	Net impairment losses recognized in earnings		(2,785		)	Net impairment losses recognized in earnings
	(1,643		)	Total before tax		(3,872		)	Total before tax
	575			Tax (expense) or benefit		1,355			Tax (expense) or benefit
	$	(1,068	)	Net of tax		$	(2,517	)	Net of tax

(1) See Note 6, Derivative Financial Instruments for additional information					(1) See Note 6, Derivative Financial Instruments for additional information

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)


Successor Company	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Condensed Statements of Income
For the Nine Months Ended September 30, 2016
For The Six Months Ended June 30, 2017						Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Condensed Statements of Income
						(Dollars In Thousands)
Gains and losses on derivative instruments
Net settlement (expense)/benefit⁽¹⁾						$	(358	)	Benefits and settlement expenses, net of reinsurance ceded
						(358		)	Total before tax
						125			Tax (expense) or benefit
	(Dollars In Thousands)					$	(233	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains (losses)	$	24,133		Realized investment gains (losses): All other investments		$	8,394		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(6,892		)	Net impairment losses recognized in earnings		(7,986		)	Net impairment losses recognized in earnings
	17,241			Total before tax		408			Total before tax
	(6,035		)	Tax (expense) or benefit		(143		)	Tax (expense) or benefit
	$	11,206		Net of tax		$	265		Net of tax

(1) See Note 6, Derivative Financial Instruments for additional information					(1) See Note 6, Derivative Financial Instruments for additional information

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

Successor Company
Amount
Reclassified
from Accumulated
Other Comprehensive
Income (Loss)
Affected Line Item in the
Consolidated Condensed Statements of Income
For The Three Months Ended September 30, 2015
(Dollars In Thousands)
Unrealized gains and losses on available-for-sale securities

Net investment gains (losses) $ (1,253 ) Realized investment gains (losses): All other investments
Impairments recognized in earnings (10,064 ) Net impairment losses recognized in earnings
(11,317 ) Total before tax
3,961
Tax (expense) or benefit
$ (7,356 ) Net of tax



For The Three Months Ended June 30, 2016	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Condensed Statements of Income
	(Dollars In Thousands)
Unrealized gains and losses on available-for-sale securities
Net investment gains (losses)	$	16,932		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(967		)	Net impairment losses recognized in earnings
	15,965			Total before tax
	(5,588		)	Tax (expense) or benefit
	$	10,377		Net of tax

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

Successor Company
Amount
Reclassified
from Accumulated
Other Comprehensive
Income (Loss)
Affected Line Item in the
Consolidated Condensed Statements of Income
February 1, 2015 to September 30, 2015
(Dollars In Thousands)
Gains and losses on derivative instruments

Net settlement (expense)/benefit(1)
$ (131 ) Benefits and settlement expenses, net of reinsurance ceded
(131 ) Total before tax
45
Tax (expense) or benefit
$ (86 ) Net of tax
Unrealized gains and losses on available-for-sale securities

Net investment gains (losses) $ 2,470
Realized investment gains (losses): All other investments
Impairments recognized in earnings (15,798 ) Net impairment losses recognized in earnings
(13,328 ) Total before tax
4,664
Tax (expense) or benefit
$ (8,664 ) Net of tax



For The Six Months Ended June 30, 2016	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Condensed Statements of Income
	(Dollars In Thousands)
Unrealized gains and losses on available-for-sale securities
Net investment gains (losses)	$	22,468		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(3,584		)	Net impairment losses recognized in earnings
	18,884			Total before tax
	(6,610		)	Tax (expense) or benefit
	$	12,274		Net of tax

~~(1) See Note 8,~~ ~~Derivative Financial Instruments~~ ~~for additional information.~~

~~Reclassifications Out of Accumulated Other Comprehensive Income (Loss)~~

Predecessor Company
January 1, 2015 to January 31, 2015
Amount
Reclassified
from Accumulated
Other Comprehensive
Income (Loss)

Affected Line Item in the
Consolidated Condensed Statements of Income
(Dollars In Thousands)
Gains and losses on derivative instruments

Net settlement (expense)/benefit(1)
$ (36 ) Benefits and settlement expenses, net of reinsurance ceded
(36 ) Total before tax
13
Tax (expense) or benefit
$ (23 ) Net of tax
Unrealized gains and losses on available-for-sale securities

Net investment gains (losses) $ 6,891
Realized investment gains (losses): All other investments
Impairments recognized in earnings (481 ) Net impairment losses recognized in earnings
6,410
Total before tax
(2,244 ) Tax (expense) or benefit
$ 4,166
Net of tax

~~(1) See Note 8,~~ ~~Derivative Financial Instruments~~ ~~for additional information.~~

~~16.~~14. INCOME TAXES

~~A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:~~

Successor Company Predecessor Company
As of
September 30, 2016 February 1, 2015
to
December 31, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Balance, beginning of period $ 8,937
$ 105,850
$ 168,076
Additions for tax positions of the current year 2,085
2,213
(5,010 )
Additions for tax positions of prior years 1,031
1,812
1,149
Reductions of tax positions of prior years: 0

Changes in judgment (687 ) (644 ) (58,365 )
Settlements during the period (1,546 ) (100,294 ) —
Lapses of applicable statute of limitations —
—
—
Balance, end of period $ 9,820
$ 8,937
$ 105,850

In 2012, the IRS proposed favorable and unfavorable adjustments to the Company's 2003 through 2007 reported taxable income. The Company protested certain unfavorable adjustments and sought resolution at the IRS' Appeals Division. In October 2015, Appeals accepted the Company's earlier proposed settlement offer. In September 2015, the IRS proposed favorable and unfavorable adjustments to the Company's 2008 through 2011 reported taxable income. The Company agreed to these adjustments. In April 2017, a routine review by Congress’ Joint Committee on Taxation, was finalized without change and the Company expects to receive an approximate $6.2 million net refund in a future period.

The resulting net adjustment to the Company's current income taxes for the years 2003 through 2011 will not materially affect the Company or its effective tax rate.

In July 2016, the IRS proposed favorable and unfavorable adjustments to the Company's 2012 and 2013 reported taxable income. The Company agreed to these adjustments. The resulting settlement paid in September 2016 did not materially impact the Company or its effective tax rate.

~~These agreements with~~There have been no material changes to the ~~IRS are the primary cause for the reductions~~balance of unrecognized tax benefits, ~~shown in~~where the ~~chart above.~~changes impact earnings, during the quarter ending June 30, 2017. The Company believes that in the next 12 months, none of the unrecognized tax benefits at ~~September~~June 30, ~~2016~~2017 will be significantly increased or reduced.

In general, the Company is no longer subject to income tax examinations by taxing authorities for tax years that began before ~~2013.~~2014. Nevertheless, certain of these ~~pre-2013~~pre-2014 years have pending U.S. tax refunds. Due to their size, these refunds ~~are being~~were reviewed by Congress' Joint Committee on Taxation. In April 2017, the Company received notification that the Joint Committee review was complete and that no changes were made. The underlying federal statutes of limitations are expected to close in due course on or before September 30, 2018. Furthermore, due to the aforementioned IRS adjustments to the Company's ~~pre-2013~~pre-2014 taxable income, the Company is amending certain of its 2003 through 2013 state income tax returns. Such amendments will cause such years to remain open, pending the states' acceptances of the returns. ~~At this time,~~

During the Company believes that the Joint Committee's review of its U.S. tax refunds and the states' acceptance of its amending returns will be completed next year. The underlying statutes of limitations are expected to close in due course on or beforeyear ended December 31, ~~2017.~~

~~During the nine months ended September 30,~~ 2016, ~~(Successor Company),~~ the Company entered into a reinsurance ~~transaction, as discussed in Note 3,~~ ~~Reinsurance and Financing Transactions~~.transaction. This transaction is expected to generate an operating loss on the Company’s consolidated 2016 USU.S. income tax return. The Company has evaluated

its ability to carry this loss back to receive refunds of previously-paid taxes, plus utilize the remaining loss in future years. The Company expects to receive refunds for substantially all of the USU.S. income taxes that it paid in 2014 and 2015, as well as fully utilize the remaining operating loss carryforward during the carryforward period. Based on the Company’s current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that it will generate sufficient taxable income to realize all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of ~~September~~June 30, 2017 and December 31, 2016.

The Company used its respective estimates of its annual ~~2016~~2017 and ~~2015~~2016 incomes in computing its effective income tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~2016. The effective tax rates for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, ~~(Successor Company)~~were 32.8% and 32.7%, ~~the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~33.7% and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company) were 22.2%, 31.4%,~~ ~~27.3%, 28.0%, and~~ ~~32.8%~~,33.1% respectively.

~~17.~~15. OPERATING SEGMENTS

The Company has several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. The Company periodically evaluates its operating segments, as prescribed in the ASC Segment Reporting Topic, and makes adjustments to its segment reporting as needed. ~~There were no~~

~~changes to the Company’s operating segments made or required to be made as a result of the Merger on February 1, 2015.~~ A brief description of each segment follows.

The Life Marketing segment markets fixed universal life (“UL”), indexed universal life ("IUL"), variable universal life (“VUL”), bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent marketing organizations, and affinity groups.

The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed. Therefore earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.

The Annuities segment markets fixed and VA products. These products are primarily sold through broker-dealers, financial institutions, and independent agents and brokers.

The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. This segment also issues funding agreements to the FHLB, and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. The Company also has an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.

The Asset Protection segment markets extended service contracts, ~~and~~guaranteed asset protection (“GAP”) products, credit life and disability insurance, and specialized ancillary products to protect consumers’ investments in automobiles and recreational vehicles. ~~In addition, the segment markets a guaranteed asset protection (“GAP”) product.~~ GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss.

Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.

The Corporate and Other segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead and expenses not attributable to the segments above. This segment includes earnings from several non-strategic or runoff lines of business, various financing and investment-related transactions, and the operations of several small ~~subsidiaries, and the repurchase of non-recourse funding obligations.~~

subsidiaries.

The Company's management and ~~PLC's~~ Board of Directors analyzes and assesses the operating performance of each segment using "pre-tax adjusted operating income (loss)" and "after-tax adjusted operating income (loss)". Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is the Company's measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting "income (loss) before income ~~tax,"~~tax", by excluding the following items:

realized gains and losses on investments and derivatives,

changes in the ~~GMWB~~GLWB embedded derivatives exclusive of the portion attributable to the economic cost of the ~~GMWB,~~GLWB,

actual ~~GMWB~~GLWB incurred claims, and

the amortization of DAC, VOBA, and certain policy liabilities that is impacted by the exclusion of these items.

~~These~~The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. Pre-tax adjusted operating income (loss) isand after-tax adjusted operating income (loss) are not ~~a substitute~~substitutes for income before income taxes or net income (loss), ~~and~~respectively. These measures may not be comparable to similarly titled measures reported by other companies. The Company believes that pre-tax and after-tax adjusted operating income (loss) enhances management's and the Board of Directors' understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.

segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities net of associated statutory policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.

In filings prior to the Company's 2016 Form 10-K, "Pre-tax adjusted operating income (loss)" was referred to as "Pre-tax operating income", "Operating income before tax", or "Segment operating income". In addition, we referred to "After-tax adjusted operating income (loss)" as "After-tax operating income" or "Operating earnings". The definition of these labels remains unchanged, but the Company has modified the labels to provide further clarity that these measures are non-GAAP measures.

There were no significant intersegment transactions during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~

2016.

The following tables ~~summarize financial information for the Company’s segments (Predecessor~~presents a summary of results and ~~Successor periods are not comparable):~~

reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net income:

Successor Company Predecessor Company
For The Three Months Ended September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Revenues

Life Marketing $ 382,224
$ 358,194
$ 1,148,121
$ 960,807
$ 133,361
Acquisitions 391,017
352,141
1,269,672
974,915
139,761
Annuities 139,265
200,798
546,378
293,610
130,918
Stable Value Products 27,380
17,065
83,519
44,063
8,181
Asset Protection 79,030
77,476
229,128
204,397
24,566
Corporate and Other 34,872
997
111,714
32,793
22,859
Total revenues $ 1,053,788
$ 1,006,671
$ 3,388,532
$ 2,510,585
$ 459,646
Pre-tax Operating Income (Loss)

Life Marketing $ (512 ) 18,758
37,712
$ 28,711
$ (2,271 )
Acquisitions 70,157
59,016
184,095
132,962
20,134
Annuities 43,033
37,090
135,789
108,976
11,363
Stable Value Products 14,700
12,785
44,326
28,249
4,529
Asset Protection 4,099
4,415
12,496
12,938
1,907
Corporate and Other (46,509 ) (34,557 ) (111,499 ) (84,888 ) (16,662 )
Pre-tax operating income 84,968
97,507
302,919
226,948
19,000
Realized investment (losses) gains - investments⁽¹⁾
(688 ) 8,586
183,343
(150,063 ) 89,414
Realized investment (losses) gains - derivatives 9,987
50,028
103,564
68,205
24,433
Income before income tax 94,267
156,121
589,826
145,090
132,847
Income tax expense (20,965 ) (42,542 ) (185,114 ) (40,667 ) (44,325 )
Net income $ 73,302
$ 113,579
$ 404,712
$ 104,423
$ 88,522

All other investment gains (losses) $ 20,844
$ (4,755 ) $ 187,752
$ (147,892 ) $ 80,672
Less: amortization related to DAC/VOBA and benefits and settlement expenses 21,532
(13,341 ) 4,409
2,171
(8,742 )
Realized investment gains (losses) - investments $ (688 ) $ 8,586
$ 183,343
$ (150,063 ) $ 89,414

Derivative financial instruments gains (losses) $ 532
$ 41,895
$ 75,988
$ 47,513
$ 22,031
Less: VA GMWB economic cost (9,455 ) (8,133 ) (27,576 ) (20,692 ) (2,402 )
Realized investment gains (losses) - derivatives $ 9,987
$ 50,028
$ 103,564
$ 68,205
$ 24,433

~~(1) Includes credit related other-than-temporary impairments of $3.3 million,$6.9 million~~, $10.1 million, $15.8 million, and $0.5 million for the three and nine months ended September 30, 2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Revenues
Life Marketing	$	379,880		$	384,823		$	776,952		$	765,897
Acquisitions	387,464			453,848			788,831			878,655
Annuities	136,863			188,597			246,719			407,113
Stable Value Products	42,087			26,237			82,930			56,139
Asset Protection	93,290			76,419			183,634			150,098
Corporate and Other	23,879			44,918			31,753			76,842
Total revenues	$	1,063,463		$	1,174,842		$	2,110,819		$	2,334,744
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	24,342		25,098			44,419			$	38,224
Acquisitions	68,278			45,285			121,945			113,938
Annuities	36,288			47,480			78,349			92,756
Stable Value Products	22,367			15,178			46,266			29,626
Asset Protection	4,674			4,141			8,624			8,397
Corporate and Other	(35,325		)	(30,248		)	(69,686		)	(64,990		)
Pre-tax adjusted operating income	120,624			106,934			229,917			217,951
Realized (losses) gains on investments and derivatives	12,662			153,646			(9,987		)	277,608
Income before income tax	133,286			260,580			219,930			495,559
Income tax expense	(43,654		)	(87,787		)	(71,959		)	(164,149		)
Net income	$	89,632		$	172,793		$	147,971		$	331,410

Pre-tax adjusted operating income	$	120,624		$	106,934		$	229,917		$	217,951
Adjusted operating income tax (expense) benefit	(39,222		)	(34,011		)	(75,454		)	(66,986		)
After-tax adjusted operating income	81,402			72,923			154,463			150,965
Realized (losses) gains on investments and derivatives	12,662			153,646			(9,987		)	277,608
Income tax benefit (expense) on adjustments	(4,432		)	(53,776		)	3,495			(97,163		)
Net income	$	89,632		$	172,793		$	147,971		$	331,410

Realized investment (losses) gains:
Derivative financial instruments	$	(63,794	)	$	43,548		$	(124,694	)	$	75,456
All other investments	53,535			88,783			76,376			170,492
Net impairment losses recognized in earnings	(2,785		)	(967		)	(7,986		)	(3,584		)
Less: related amortization⁽¹⁾	(15,703		)	(13,073		)	(26,447		)	(17,123		)
Less: VA GLWB economic cost	(10,003		)	(9,209		)	(19,870		)	(18,121		)
Realized (losses) gains on investments and derivatives	$	12,662		$	153,646		$	(9,987	)	$	277,608

(1) Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).


	Operating Segment Assets As of September 30, 2016 (Successor Company)								Operating Segment Assets As of June 30, 2017
	(Dollars In Thousands)								(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products		Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,171,442	$	19,986,370	$	20,166,335	$	3,283,420	$	14,508,254	$	19,543,986	$	20,605,767	$	3,896,076
Deferred policy acquisition costs and value of business acquired	1,155,759		82,803		634,820		5,919
DAC and VOBA									1,265,342		91,168		704,256		5,512
Other intangibles	305,403		37,741		186,781		8,889		291,184		35,825		176,782		8,389
Goodwill	200,274		14,524		336,677		113,813		200,274		14,524		336,677		113,813
Total assets	$	15,832,878	$	20,121,438	$	21,324,613	$	3,412,041	$	16,265,054	$	19,685,503	$	21,823,482	$	4,023,790

Asset
Protection

Corporate
and Other

Total
Consolidated
Investments and other assets $ 828,946
$ 13,876,152
$ 72,312,665
Deferred policy acquisition costs and value of business acquired 35,087
—
1,914,388
Other intangibles 75,333
—
614,147
Goodwill 67,155
—
732,443
Total assets $ 1,006,521
$ 13,876,152
$ 75,573,643



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	887,196	$	13,462,362	$	72,903,641
DAC and VOBA	33,508		—		2,099,786
Other intangibles	138,557		14,474		665,211
Goodwill	128,182		—		793,470
Total assets	$	1,187,443	$	13,476,836	$	76,462,108


	Operating Segment Assets As of December 31, 2015 (Successor Company)									Operating Segment Assets As of December 31, 2016
	(Dollars In Thousands)									(Dollars In Thousands)
	Life Marketing		Acquisitions			Annuities		Stable Value Products		Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	13,258,639	$	19,879,988		$	19,715,901	$	2,006,263	$	14,050,905	$	19,679,690	$	20,076,818	$	3,373,646
Deferred policy acquisition costs and value of business acquired	1,119,515		(178,662		)	578,742		2,357
DAC and VOBA										1,218,944		106,532		655,618		5,455
Other intangibles	319,623		39,658			196,780		9,389		300,664		37,103		183,449		8,722
Goodwill	200,274		14,524			336,677		113,813		200,274		14,524		336,677		113,813
Total assets	$	14,898,051	$	19,755,508		$	20,828,100	$	2,131,822	$	15,770,787	$	19,837,849	$	21,252,562	$	3,501,636


	Asset Protection		Corporate and Other		Total Consolidated		Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	766,294	$	9,464,906	$	65,091,991	$	858,648	$	12,920,083	$	70,959,790
Deferred policy acquisition costs and value of business acquired	40,421		—		1,562,373
DAC and VOBA							37,975		—		2,024,524
Other intangibles	79,681		—		645,131		143,865		13,545		687,348
Goodwill	67,155		—		732,443		128,182		—		793,470
Total assets	$	953,551	$	9,464,906	$	68,031,938	$	1,168,670	$	12,933,628	$	74,465,132

~~18.~~16. SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to ~~September~~June 30, ~~2016 (Successor Company),~~2017, and through the date we filed our consolidated condensed financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in our consolidated condensed financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, ~~2015 (Successor Company),~~2016, included in our Annual Report on Form 10-K.

For a more complete understanding of our business and current period results, please read the following MD&A in conjunction with our latest Annual Report on Form 10-K and other filings with the United States Securities and Exchange Commission (the “SEC”).

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior period amounts comparable to those of the current period. Such reclassifications had no effect on previously reported net income or shareowner’s equity.

FORWARD-LOOKING STATEMENTS — CAUTIONARY LANGUAGE

This report reviews our financial condition and results of operations, including our liquidity and capital resources. Historical information is presented and discussed, and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results, performance, or achievements instead of historical facts and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and we cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. For more information about the risks, uncertainties, and other factors that could affect our future results, please refer to Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A, Risk Factors, of this report, as well as Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015 (Successor Company).~~2016.

IMPORTANT INVESTOR INFORMATION

We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports as required. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains an internet site at www.sec.gov that contains these reports and other information filed electronically by us. We make available through our website, www.protective.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. We will furnish such documents to anyone who requests such copies in writing. Requests for copies should be directed to: Financial Information, Protective Life ~~Insurance Company,~~Corporation, P. O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 268-3912, Fax (205) 268-3642.

We also make available to the public current information, including financial information, regarding the Company and our affiliates on the Financial Information page of our website, www.protective.com. We encourage investors, the media and others interested in us and our affiliates to review the information we post on our website. The information found on our website is not part of this or any other report filed with or furnished to the SEC.

OVERVIEW

Our Business

We are a wholly owned subsidiary of Protective Life Corporation (“PLC”). Founded in 1907, we are the largest operating subsidiary of PLC. On February 1, 2015, PLC became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (“(now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into ~~PLC (the “Merger”).~~PLC. Prior to February 1, 2015, PLC’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, PLC and the Company remain SEC registrants for financial reporting purposes in the United States. We provide financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, the “Company,” “we,” “us,” or “our” refers to the consolidated group of Protective Life Insurance Company and our subsidiaries.

We have several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. We periodically evaluate our operating segments ~~as prescribed in the Accounting Standards Codification (“ASC”) Segment Reporting Topic,~~ and make adjustments to our segment reporting as needed. ~~There were no changes to our operating segments made or required to be made as a result of the Merger on February 1, 2015.~~

Our operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, Asset Protection, and Corporate and Other.

Life Marketing - We market fixed universal life (“UL”), indexed universal life (“IUL”), variable universal life (“VUL”), bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent marketing organizations, and affinity groups.

Acquisitions - We focus on acquiring, converting, ~~and~~and/or servicing policies and contracts from other companies. This segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed. Therefore earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.

Annuities - We market fixed and variable annuity (“VA”) products. These products are primarily sold through broker-dealers, financial institutions, and independent agents and brokers.

Stable Value Products - We sell fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. We also have an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.

Asset Protection - We market extended service contracts, ~~and~~guaranteed asset protection ("GAP") products, credit life and disability insurance, and specialized ancillary products to protect consumers’ investments in automobiles and recreational vehicles. ~~In addition, this segment markets a guaranteed asset protection (“GAP”) product.~~ GAP ~~coverage~~ covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss. Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.

Corporate and Other - This segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead, and expenses not attributable to the segments above. This segment includes earnings from several non-strategic or runoff lines of business, ~~various~~financing and investment-related transactions, and the operations of several small ~~subsidiaries, and the repurchase of non-recourse funding obligations.~~subsidiaries.

~~RECENT DEVELOPMENTS~~

On January 15, 2016, we completed the transaction contemplated by the Master Agreement, dated September 30, 2015 (the “Master Agreement”), with Genworth Life and Annuity Insurance Company (“GLAIC”), as previously reported in our Current Reports on Form 8-K filed October 1, 2015 and January 15, 2016. Pursuant to the Master Agreement, effective January 1, 2016, we entered into a reinsurance agreement (the “Reinsurance Agreement”) under the terms of which we coinsure certain term life insurance business of GLAIC (the “GLAIC Block”). In connection with the reinsurance transaction, on January 15, 2016, Golden Gate Captive Insurance Company (“Golden Gate”), a wholly owned subsidiary of the Company, and Steel City, LLC (“Steel City��), a newly formed wholly owned subsidiary of PLC, entered into an 18-year transaction to finance $2.188 billion of “XXX” reserves related to the acquired GLAIC Block and the other term life insurance business reinsured to Golden Gate by the Company and West Coast Life Insurance Company (“WCL”), a direct wholly owned subsidiary of the Company. Steel City issued notes with an aggregate initial principal amount of $2.188 billion to Golden Gate in exchange for a surplus note issued by Golden Gate with an initial principal amount of $2.188 billion. Through the structure, Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and Nomura Americas Re Ltd. (collectively, the “Risk-Takers”) provide credit enhancement to the Steel City notes for the 18-year term in exchange for credit enhancement fees. The transaction is “non-recourse” to PLC, WCL and the Company, meaning that none of these companies are liable to reimburse the Risk-Takers for any credit enhancement payments required to be made. In connection with the transaction, PLC has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate or Steel City, including a guarantee of the fees to the Risk-Takers. The estimated average annual expense of the credit enhancement under generally accepted accounting principles is approximately $3.1 million, after-tax. As a result of the financing transaction described above, the $800 million of Golden Gate Series A Surplus Notes held by PLC were contributed to the Company and then subsequently contributed to Golden Gate, which resulted in the extinguishment of these notes. Also on January 15, 2016, Golden Gate paid an extraordinary dividend of $300 million to the Company as approved by the Vermont Department of Regulation.

In August 2016, PLC reached an agreement through the Company to acquire USWC Holding Company and its affiliated operating subsidiaries ("USWC") via a stock purchase agreement (the "Acquisition"). The Acquisition is subject to receipt of standard regulatory approvals and satisfaction of customary closing conditions. USWC, whose primary operating subsidiary is United States Warranty Corp., currently markets vehicle service contracts, GAP coverage, and a suite of ancillary automotive maintenance and protection products nationwide. The Acquisition is expected to provide the combined entities with expanded market reach, enhanced product and operational capabilities, and higher collective growth potential.

RISKS AND UNCERTAINTIES

The factors which could affect our future results include, but are not limited to, general economic conditions and the following risks and uncertainties:

General

exposure to the risks of natural and man-made disasters, ~~and~~ catastrophes, diseases, epidemics, pandemics, malicious acts, ~~cyber-attacks,~~ terrorist acts and climate change could adversely affect our operations and results;

a disruption affecting the electronic systems of the Company or those on whom the Company relies could adversely affect our business, financial condition and results of operations;

confidential information maintained in the systems of the Company or other parties upon which the Company relies could be compromised or misappropriated, damaging our business and reputation and adversely affecting our financial condition and results of operations;

our results and financial condition may be negatively affected should actual experience differ from management’s assumptions and estimates;

we may not realize our anticipated financial results from our acquisitions strategy;

assets allocated to the MONY Closed Block benefit only the holders of certain policies; adverse performance of Closed Block assets or adverse experience of Closed Block liabilities may negatively affect us;

we are dependent on the performance of others;

our risk management policies, practices, and procedures could leave us exposed to unidentified or unanticipated risks, which could negatively affect our business or result in losses;

our strategies for mitigating risks arising from our day-to-day operations may prove ineffective resulting in a material adverse effect on our results of operations and financial condition;

events that damage our reputation could adversely impact our business, results of operations, or financial condition;

Financial Environment

interest rate fluctuations ~~and~~or sustained periods of high or low interest rates could negatively affect our interest earnings and spread income, or otherwise impact our business;

our investments are subject to market and credit risks, which could be heightened during periods of extreme volatility or disruption in financial and credit markets;

equity market volatility could negatively impact our business;

our use of derivative financial instruments within our risk management strategy may not be effective or sufficient;

credit market volatility or disruption could adversely impact our financial condition or results from operations;

our ability to grow depends in large part upon the continued availability of capital;

we could be adversely affected by a ratings downgrade or other negative action by a ratings organization;

we could be forced to sell investments at a loss to cover policyholder withdrawals;

disruption of the capital and credit markets could negatively affect our ability to meet our liquidity and financing needs;

difficult general economic conditions could materially adversely affect our business and results of operations;

we may be required to establish a valuation allowance against our deferred tax assets, which could ~~materially adversely affect~~have a material adverse effect on our results of operations, financial condition, and capital position;

we could be adversely affected by an inability to access our credit facility;

we could be adversely affected by an inability to access FHLB lending;

our securities lending program may subject us to liquidity and other risks;

our financial condition or results of operations could be adversely impacted if our assumptions regarding the fair value and future performance of our investments differ from actual experience;

adverse actions of certain funds or their advisers could have a detrimental impact on our ability to sell our variable life and annuity products, or maintain current levels of assets in those products;

the amount of statutory capital or risk-based capital that we have and the amount of statutory capital or risk-based capital that we must hold to maintain our financial strength and credit ratings and meet other requirements can vary significantly from time to time and is sensitive to a number of factors outside of our control;

Industry and Regulation

we are highly regulated and are subject to routine audits, examinations, and actions by regulators, law enforcement agencies, and self-regulatory organizations;

we may be subject to regulations of, or regulations influenced by, ~~or related to~~ international regulatory authorities or initiatives;

we are subject to the laws, rules, and regulations of state, federal, and foreign regulators that could adversely affect our financial condition or results of operations;

NAIC actions, pronouncements and initiatives may affect our product profitability, reserve and capital requirements, financial condition or results of operations;

regulatory actions, interpretations and pronouncements related to Actuarial Guidelines XXXVIII may have an adverse effect on our ability to sell certain universal life products and reserving requirements;

our use of captive reinsurance companies to finance statutory reserves related to our term and universal life products and to reduce volatility affecting our variable annuity products, may be limited or adversely affected by regulatory action, pronouncements and interpretations;

laws, regulations and initiatives related to unreported deaths and unclaimed property and death benefits may result in operational burdens, fines, unexpected payments or escheatments;

we are subject to insurance guaranty ~~fund and~~laws which could adversely affect our financial condition or results of operations;

we are subject to insurable interest laws ~~and the laws, rules and regulations of state, federal and foreign regulators that~~which could adversely affect our financial condition or results of operations;

the Healthcare Act and related regulations could adversely affect our results of operations or financial condition;

laws, rules and regulations promulgated in connection with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act may adversely affect our results of operations or financial condition;

regulations issued by the Department of Labor on April 6, 2016, expanding the definition of "investment advice fiduciary" under ERISA and creating and revising several prohibited transactions exemptions for investment activities

in light of that expanded definition, may have a material adverse impact on our ability to sell annuities and other products, to retain in-force business and on our financial condition or results of operations;

we may be subject to regulation, investigations, enforcement actions, fines and penalties imposed by the SEC, FINRA and other federal and international regulators in connection with our business operations;

changes to tax law or interpretations of existing tax law could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products;

financial services companies are frequently the targets of legal proceedings, including class action litigation, which could result in substantial judgments;

the financial services and insurance industries are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny;

new accounting rules, changes to existing accounting rules, or the grant of permitted accounting practices to competitors could negatively impact us;

if our business does not perform well, we may be required to recognize an impairment of our goodwill and indefinite lived intangible assets which could adversely affect our results of operations or financial condition;

use of reinsurance introduces variability in our statements of income;

our reinsurers could fail to meet assumed obligations, increase rates, terminate agreements, or be subject to adverse developments that could affect us;

our policy claims fluctuate from period to period resulting in earnings volatility;

we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry and negatively affect profitability;

our ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business; and

we may not be able to protect our intellectual property and may be subject to infringement claims.

For more information about the risks, uncertainties, and other factors that could affect our future results, please see Part II, Item 1A of this report and our Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

Our accounting policies require the use of judgments relating to a variety of assumptions and estimates, including, but not limited to expectations of current and future mortality, morbidity, persistency, expenses, and interest rates, as well as expectations around the valuations of securities. Because of the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could be materially different from those reported in the

consolidated condensed financial statements. For a complete listing of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2015 (Successor Company).~~

2016.

RESULTS OF OPERATIONS

Our management and ~~PLC's~~ Board of Directors analyzes and assesses the operating performance of each segment using "pre-tax adjusted operating income (loss)" and "after-tax adjusted operating income (loss)". Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is our measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting "income (loss) before income tax," by excluding the following items:

realized gains and losses on investments and derivatives,

changes in the ~~GMWB~~GLWB embedded derivatives exclusive of the portion attributable to the economic cost of the ~~GMWB,~~GLWB,

actual ~~GMWB~~GLWB incurred claims, and

the amortization of DAC, VOBA, and certain policy liabilities that is impacted by the exclusion of these items.

~~These~~After-tax adjusted operating income (loss) is derived from pre-tax adjusted operating income (loss) with the inclusion of income tax expense or benefits associated with pre-tax adjusted operating income. Income tax expense or benefits is allocated to the items excluded from pre-tax adjusted operating income (loss) at the statutory federal income tax rate of thirty five percent. Income tax expense or benefits allocated to after-tax adjusted operating income (loss) can vary period to period based on changes in the Company's effective income tax rate.

The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. Pre-tax adjusted operating income (loss) isand after-tax adjusted operating income (loss) are not a ~~substitute~~substitutes for income before income taxes or net income (loss), ~~and~~respectively. These measures may not be comparable to similarly titled measures reported by other companies. Our belief is that pre-tax and after-tax adjusted operating income (loss) enhances management's and the Board of Directors' understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.

In determining the components of the pre-tax adjusted operating income (loss) for each segment, premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC and VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities net of associated statutory policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.

During 2016, we modified our labeling of our non-GAAP measures presented herein as "Adjusted operating income (loss)" or "Pre-tax adjusted operating income (loss)". In previous filings, we referred to "Pre-tax adjusted operating income (loss)" as "Pre-tax operating income", "Operating income before tax", or "Segment operating income". In addition, we previously referred to "After-tax adjusted operating income (loss)" as "After-tax operating income" or "Operating earnings". The definition of these labels remains unchanged, but we have modified the labels to provide further clarity that these measures are non-GAAP measures.

We periodically review and update as appropriate our key assumptions used to measure certain balances related to insurance products, including future mortality, expenses, lapses, premium persistency, benefit utilization, investment yields, interest rates, and ~~equity market~~separate account fund returns. Changes to these assumptions result in adjustments which increase or decrease DAC and VOBA amortization and/or benefits and expenses. The periodic review and updating of assumptions is referred to as ~~“unlocking”.~~“unlocking.” When referring to unlocking the reference is to changes in all balance sheet components ~~amortized over estimated gross profits or revenues.~~

associated with these assumption changes.

The following table presents a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net ~~income (Predecessor and Successor periods are not comparable):~~

income:

Successor Company Predecessor Company
For The Three Months Ended September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Pre-tax Operating Income (Loss)

Life Marketing $ (512 ) $ 18,758
$ 37,712
$ 28,711
$ (2,271 )
Acquisitions 70,157
59,016
184,095
132,962
20,134
Annuities 43,033
37,090
135,789
108,976
11,363
Stable Value Products 14,700
12,785
44,326
28,249
4,529
Asset Protection 4,099
4,415
12,496
12,938
1,907
Corporate and Other (46,509 ) (34,557 ) (111,499 ) (84,888 ) (16,662 )
Pre-tax operating income 84,968
97,507
302,919
226,948
19,000
Realized investment gains (losses) - investments ⁽¹⁾
(688 ) 8,586
183,343
(150,063 ) 89,414
Realized investment gains (losses) - derivatives 9,987
50,028
103,564
68,205
24,433
Income before income tax 94,267
156,121
589,826
145,090
132,847
Income tax expense (20,965 ) (42,542 ) (185,114 ) (40,667 ) (44,325 )
Net income $ 73,302
$ 113,579
$ 404,712
$ 104,423
$ 88,522

All other investment gains (losses) $ 20,844
$ (4,755 ) $ 187,752
$ (147,892 ) $ 80,672
Less: amortization related to DAC/VOBA and benefits and settlement expenses 21,532
(13,341 ) 4,409
2,171
(8,742 )
Realized investment gains (losses) - investments $ (688 ) $ 8,586
$ 183,343
$ (150,063 ) $ 89,414

Derivative financial instruments gains (losses) $ 532
$ 41,895
$ 75,988
$ 47,513
$ 22,031
Less: VA GMWB economic cost (9,455 ) (8,133 ) (27,576 ) (20,692 ) (2,402 )
Realized investment gains (losses) - derivatives $ 9,987
$ 50,028
$ 103,564
$ 68,205
$ 24,433

~~(1)~~ ~~Includes credit related other-than-temporary impairments of~~ $3.3 million, $6.9 million, $10.1 million, $15.8 million, and $0.5 million for the three and nine months ended September 30, 2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	24,342		$	25,098		$	44,419		$	38,224
Acquisitions	68,278			45,285			121,945			113,938
Annuities	36,288			47,480			78,349			92,756
Stable Value Products	22,367			15,178			46,266			29,626
Asset Protection	4,674			4,141			8,624			8,397
Corporate and Other	(35,325		)	(30,248		)	(69,686		)	(64,990		)
Pre-tax adjusted operating income	120,624			106,934			229,917			217,951
Realized (losses) gains on investments and derivatives	12,662			153,646			(9,987		)	277,608
Income before income tax	133,286			260,580			219,930			495,559
Income tax expense	(43,654		)	(87,787		)	(71,959		)	(164,149		)
Net income	$	89,632		$	172,793		$	147,971		$	331,410

Pre-tax adjusted operating income	$	120,624		$	106,934		$	229,917		$	217,951
Adjusted operating income tax (expense) benefit	(39,222		)	(34,011		)	(75,454		)	(66,986		)
After-tax adjusted operating income	81,402			72,923			154,463			150,965
Realized (losses) gains on investments and derivatives	12,662			153,646			(9,987		)	277,608
Income tax benefit (expense) on adjustments	(4,432		)	(53,776		)	3,495			(97,163		)
Net income	$	89,632		$	172,793		$	147,971		$	331,410

Realized investment (losses) gains:
Derivative financial instruments	$	(63,794	)	$	43,548		$	(124,694	)	$	75,456
All other investments	53,535			88,783			76,376			170,492
Net impairment losses recognized in earnings	(2,785		)	(967		)	(7,986		)	(3,584		)
Less: related amortization⁽¹⁾	(15,703		)	(13,073		)	(26,447		)	(17,123		)
Less: VA GLWB economic cost	(10,003		)	(9,209		)	(19,870		)	(18,121		)
Realized (losses) gains on investments and derivatives	$	12,662		$	153,646		$	(9,987	)	$	277,608

(1) Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).

For The Three Months Ended ~~September~~June 30, ~~2016~~2017 as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~2016

Net income for the three months ended June 30, 2017 included a $13.7 million, or 12.8%, increase in pre-tax adjusted operating income. The increase consisted of a $23.0 million increase in the Acquisitions segment, a $7.2 million increase in the Stable Value Products segment, and a $0.5 million increase in the Asset Protection segment. These increases were partially offset by a $0.8 million decrease in the Life Marketing segment, a $11.2 million decrease in the Annuities segment, and a decrease of $5.1 million in the Corporate and Other segment.

Net realized gains on investments and derivatives for the three months ended June 30, 2017, was ~~$73.3~~$12.7 million. These gains were primarily due to net gains associated with the Annuities segment (after adjusting for economic cost and amortization) of $19.0 million which is primarily due to the impact of VA GLWB derivatives. Additionally, we had net gains of $2.5 million

related to the Modco trading portfolio and the associated embedded derivative. These gains were partially offset by impairment losses on available-for-sale securities of $2.8 million, net losses from IUL derivatives of $1.4 million, net losses from sales of securities of $1.1 million, and net losses on derivatives with PLC of $2.5 million.

Life Marketing segment pre-tax adjusted operating income was ~~$85.0~~$24.3 million for the three months ended ~~September~~June 30, 2017, representing a decrease of $0.8 million from the three months ended June 30, 2016. The decrease was primarily due to an increase in universal life claims and lower traditional life premiums, mostly offset by higher universal life policy fees and investment income.

~~We experienced net realized gains of $21.4~~Acquisitions segment pre-tax adjusted operating income was $68.3 million for the three months ended ~~September~~June 30, 2016. The gains realized were primarily related to $1.7 million of gains related to investment securities sale activity, $13.4 million of gains related to the derivatives with PLC, net gains of $8.1 million of derivatives related to variable annuity contracts, and net gains of $8.8 million of derivatives related to IUL contracts. Partially offsetting these gains were $3.3 million of other-than-temporary impairment

credit-related losses, net losses of $5.7 million of derivatives related to FIA contracts, net losses of $1.5 million loss related to other investment and derivative activity, and $0.2 million of losses related to the net activity of the modified coinsurance portfolio.

~~Life Marketing~~ ~~segment~~ ~~pre-tax~~ ~~operating loss was $0.5 million for the three months ended~~September 30, 2016, representing a decrease of $19.3 million from the three months ended September 30, 2015. The decrease was primarily due to the impact of prospective unlocking during the current quarter and unfavorable traditional mortality. The segment recorded an unfavorable $18.3 million of prospective unlocking for the three months ended September 30, 2016, as compared to an unfavorable $2.3 million of prospective unlocking for th three months ended September 30, 2015.

~~Acquisitions segment pre-tax operating income was $70.2 million for the three months ended September 30, 2016,~~2017, an increase of ~~$11.1~~$23.0 million as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to decreases in life insurance claims and lower amortization of VOBA, partially offset by the ~~addition~~expected runoff of the ~~GLAIC reinsurance transaction completed on January 15, 2016. The GLAIC transaction added $16.7 million to~~in-force blocks of business.

Annuities segment pre-tax operating income for the three months ended September 30, 2016. For the three months ended September 30, 2016, the segment recorded favorable prospective unlocking of $1.2 million as compared to favorable $0.3 million of prospective unlocking for the three months ended September 30, 2015.

~~Annuities segment~~ ~~pre-tax~~ adjusted operating income was ~~$43.0 million for the three months endedSeptember 30, 2016, as compared to $37.1~~$36.3 million for the three months ended ~~September~~June 30, ~~2015, an increase~~2017, as compared to $47.5 million for the three months ended June 30, 2016, a decrease of ~~$5.9~~$11.2 million, or ~~16.0%~~23.6%. This variance was primarily the result of ~~lower credited interest, higher investment income, and higher fees and other income on the variable annuities ("VA") line of business offset by~~an unfavorable change in single premium immediate annuities (“SPIA”) ~~mortality.~~mortality and higher non-deferred expenses, partially offset by increased interest spreads and growth in the variable annuities ("VA") fee income. Segment results were positively impacted by ~~$5.7 million of~~ ~~favorable unlocking for the three months ended September 30, 2016 as compared to $0.9~~$0.3 million of favorable unlocking for the three months ended ~~September~~June 30, ~~2015.~~

2017, as compared to $0.6 million of favorable unlocking for the three months ended June 30, 2016.

Stable Value ~~Products~~ segment pre-tax adjusted operating income was ~~$14.7~~$22.4 million and increased ~~$1.9~~$7.2 million, or ~~15.0%~~47.4%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. The increase in adjusted operating earnings primarily resulted from ~~increased~~a 61.4% increase in average account values ~~and other income offset by a decrease~~in addition to an increase in participating mortgage ~~income and lower operating spreads.~~income. Participating mortgage income for the three months ended ~~September~~June 30, ~~2016~~2017, was ~~$1.3~~$4.4 million as compared to ~~$1.8~~$3.9 million for the three months ended ~~September~~June 30, ~~2015.~~2016. The adjusted operating spread, which excludes participating income, ~~and other income,~~ decreased by 45one basis ~~points~~point for the three months ended ~~September~~June 30, ~~2016~~2017, over the prior year, due primarily to an increase in credited interest.

Asset Protection segment pre-tax adjusted operating income was ~~$4.1~~$4.7 million, representing ~~a decrease~~an increase of ~~$0.3~~$0.5 million, or ~~7.2%~~12.9%, for the three months ended~~September~~ June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. Service contract earnings increased ~~$1.7~~$1.6 million primarily due to favorable loss ratios and the acquisition of US Warranty in the fourth quarter of 2016. Credit insurance earnings increased $0.3 million primarily due to lower loss ratios. Earnings from the guaranteed asset protection (“GAP”) product line decreased ~~$1.5~~$1.4 million primarily resulting from higher ~~losses. Credit insurance earnings decreased $0.5 million primarily due to higher losses.~~

loss ratios.

The Corporate and Other segment pre-tax adjusted operating loss was ~~$46.5~~$35.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to ana pre-tax adjusted operating loss of ~~$34.6~~$30.2 million for the three months ended ~~September~~June 30, ~~2015.~~2016. The decrease was primarily due to a ~~$11.3~~decrease in core investment income.

For The Six Months Ended June 30, 2017 as compared to The Six Months Ended June 30, 2016

Net income for the six months ended June 30, 2017 included a $12.0 million, or 5.5% increase in pre-tax adjusted operating income. The increase consisted of a $6.2 million increase in ~~interest expense. Partially offsetting these decreases was~~the Life Marketing segment, a ~~$2.2~~$8.0 million increase in ~~net investment income.~~

~~For The Nine Months Ended September 30, 2016 (Successor Company)~~

the Acquisitions segment, a $0.2 million increase in the Asset Protection segment, and a $16.6 million increase in the Stable Value Products segment. These increases were partially offset by a $14.4 million decrease in the Annuities segment and a $4.7 million decrease in the Corporate and Other Segment.

Net ~~income~~realized losses on investments and derivatives for the six months ended June 30, 2017, was ~~$404.7~~$10.0 million. These losses were primarily due to impairment losses on available-for-sale securities of $8.0 million, net losses from IUL derivatives of $1.4 million, mortgage loan losses of $5.0 million, and net losses on derivatives with PLC of $17.4 million. These losses were partially offset by net gains in the Annuities segment (after adjusting for economic cost and amortization) of $11.4 million which is primarily due to the impact of VA GLWB derivatives, net gains of $3.2 million related to the Modco trading portfolio and the associated embedded derivative, and net gains from the sale of securities of $8.4 million.

Life Marketing segment pre-tax adjusted operating income was ~~$302.9~~$44.4 million for the ~~nine~~six months ended ~~September~~June 30, 2017, representing an increase of $6.2 million from the six months ended June 30, 2016. The increase was primarily due to higher universal life policy fees and investment income, mostly offset by lower traditional life premiums and an increase in universal life claims.

~~We experienced net realized gains of $263.7~~Acquisitions segment pre-tax adjusted operating income was $121.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The gains realized were primarily related to $73.0~~2017, an increase of $8.0 million ~~of gains related~~as compared to the ~~net activity~~six months ended June 30, 2016, primarily due to decreases in life insurance claims and lower amortization of VOBA, partially offset by the modified coinsurance portfolio, $24.1 million of gains related to investment securities sale activity, $31.1 million related to derivatives with PLC, net gains of $8.1 million of derivatives related to IUL contracts, and $152.2 million of derivatives related to variable annuity contracts. Partially offsetting these gains were $6.9 million of other-than-temporary impairment credit-related losses, net losses of $7.9 million loss related to other investment and derivative activity, and net losses of $9.9 million of derivatives related to FIA contracts.

~~Life Marketing segment~~ ~~pre-tax~~ operating income was $37.7 million which consisted of universal life operating income of $39.0 million, traditional life operating income of $7.8 million, and an operating loss of $9.1 million in other lines.

~~Acquisitions segment pre-tax operating income was $184.1 million. This included~~ expected runoff of the in-force blocks of business and $34.5 million in operating income associated with the GLAIC reinsurance transaction that was completed on January 15, 2016. In addition, the increase included a $0.9 million favorable variance related to prospective unlocking. For the nine months ended September 30, 2016, thebusiness.

Annuities segment ~~recorded favorable prospective unlocking of $1.2 million~~.

~~Annuities segment~~pre-tax adjusted operating income was ~~$135.8~~$78.3 million ~~which included $82.3~~for the six months ended June 30, 2017, as compared to $92.8 million for the six months ended June 30, 2016, a decrease of ~~fixed annuity operating earnings, $67.1~~$14.4 million, or 15.5%. This variance was primarily the result of ~~variable annuity operating earnings,~~an unfavorable change in SPIA mortality and ~~a $13.6 million loss~~higher non-deferred expenses, partially offset by increased interest spreads and growth in ~~other annuity~~

~~earnings.~~VA fee income. Segment ~~operating~~ results were positively impacted by ~~$6.7~~$1.9 million of favorable unlocking ~~and $6.3~~for the six months ended June 30, 2017, as compared to $1.0 million of favorable ~~SPIA mortality.~~unlocking for the six months ended June 30, 2016.

Stable Value ~~Products~~ segment pre-tax adjusted operating income ~~of $44.3~~was $46.3 million ~~was~~and increased $16.6 million, or 56.2%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. The increase in adjusted operating earnings primarily ~~due to activity~~resulted from a 64.9% increase in average account values ~~operating spread, and~~in addition to an increase in participating mortgage income. Participating mortgage income for the six months ended June 30, 2017, was ~~$10.5~~$11.2 million ~~and~~as compared to $9.2 million for the six months ended June 30, 2016. The adjusted operating spread, which excludes participating income, ~~other income, was 178~~increased by seven basis ~~points.~~points for the six months ended June 30, 2017, over the prior year, due primarily to higher investment yields.

Asset Protection segment pre-tax adjusted operating income was ~~$12.5~~$8.6 million, ~~which consisted~~representing an increase of ~~service~~$0.2 million, or 2.7%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Service contract earnings increased $3.7 million primarily due to favorable loss ratios and the acquisition of ~~$8.9~~US Warranty in the fourth quarter of 2016. Credit insurance earnings increased $0.4 million primarily due to lower loss ratios. Earnings from the GAP product ~~earnings of $2.3~~line decreased $3.9 million ~~and credit insurance earnings of $1.3 million.~~

primarily resulting from higher loss ratios, somewhat offset by additional income provided by US Warranty.

The Corporate and Other ~~segment’s $111.5~~segment pre-tax adjusted operating loss was $69.7 million for the six months ended June 30, 2017, as compared to a pre-tax adjusted operating loss of $65.0 million for the six months ended June 30, 2016. The decrease was primarily due to ~~$179.7~~a $7.2 million ~~of other operating expense which is primarily interest expense and~~decrease in net investment income. Partially offsetting these decreases was a decrease in corporate overhead expenses. ~~These expenses were partially offset by $71.4 million of investment income which represents income on assets supporting our equity capital and held-to-maturity notes.~~

~~For The Period of February 1, 2015 to September 30, 2015 (Successor Company)~~

~~Net income was $104.4 million and pre-tax operating income was $226.9 million for the period of February 1, 2015 to September 30, 2015.~~

We experienced net realized losses of $100.4 million for the period of February 1, 2015 to September 30, 2015. The losses realized were primarily related to net losses of $73.6 million of derivatives related to variable annuity contracts, $15.8 million of other-than-temporary impairment credit-related losses, $16.1 million of losses related to derivatives with PLC, $2.0 million of losses related to the net activity of the modified coinsurance portfolio, and net losses of $1.0 million related to other investment and derivative activity. The impact of derivatives related to VA contracts in addition to capital market impacts were affected by the lowering of assumed lapses used to value the GMWB embedded derivatives. Partially offsetting these losses were net gains of $3.6 million of derivatives related to FIA contracts, net gains of $2.1 million related to IUL contracts, and $2.4 million of gains related to investment securities sale activity.

Life Marketing segment pre-tax operating income was $28.7 million which consisted of universal life operating income of $23.4 million, traditional life operating income of $8.8 million, and an operating loss of $3.5 million in other lines.

~~Acquisitions segment pre-tax operating income was $133.0 million. This included expected runoff of the in force blocks of business.~~

Annuities segment pre-tax operating income was $109.0 million which included $63.9 million of fixed annuity operating earnings, $56.1 million of variable annuity operating earnings, and a $11.0 million loss in other annuity earnings. The fixed annuity results were positively impacted by $1.8 million of favorable SPIA mortality. The segment recorded $1.3 million of favorable unlocking.

Stable Value Products segment pre-tax operating income of $28.2 million was primarily due to activity in average account values, operating spread, and participating mortgage income. Participating mortgage income was $3.5 million and the adjusted operating spread, which excludes participating income and other income, was 190 basis points.

Asset Protection segment pre-tax operating income was $12.9 million which consisted of service contract earnings of $6.1 million, GAP product earnings of $4.8 million, and credit insurance earnings of $2.0 million.

The Corporate and Other segment’s $84.9 million pre-tax operating loss was primarily due to $126.0 million of other operating expense which is primarily interest expense and corporate overhead expenses. These expenses were partially offset by $40.8 million of investment income which represents income on assets supporting our equity capital.

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Net income was $88.5 million and pre-tax operating income was $19.0 million for the period of January 1, 2015 to January 31, 2015.~~

We experienced net realized gains of $102.7 million for the period of January 1, 2015 to January 31, 2015. The gains realized for the period of January 1, 2015 to January 31, 2015, were primarily related to net gains of $75.9 million of derivatives related to variable annuity contracts, $15.9 million of gains related to derivatives with PLC, $6.9 million of gains related to investment securities sale activity, $5.0 million of gains related to the net activity of the modified coinsurance portfolio, and net gains of $1.2 million related to other investment and derivative activity. Partially offsetting these gains were net losses of $1.0 million of derivatives related to FIA contracts, net losses of $0.6 million of derivatives related to IUL contracts, and $0.5 million for other-than-temporary impairment credit-related losses.

Life Marketing segment pre-tax operating loss was $2.3 million. Included in that amount was a traditional life operating loss of $3.4 million, universal life earnings of $1.2 million, and operating earnings of $0.1 million in other lines.

~~Acquisitions segment pre-tax operating income was $20.1 million. This included expected runoff of the in force blocks of business.~~

Annuities segment pre-tax operating income was $11.4 million for the period of January 1, 2015 to January 31, 2015. Included in that amount was $2.8 million of favorable SPIA mortality results and $2.6 million of unfavorable unlocking.

Stable Value Products segment pre-tax operating income of $4.5 million was primarily due activity in average account values, operating spread, and participating mortgage income. Participating mortgage income was $0.1 million and the adjusted operating spread, which excludes participating income and other income, was 276 basis points.

Asset Protection segment pre-tax operating income was $1.9 million which consisted of $0.8 million in service contract earnings, $0.9 million in GAP product earnings, and credit insurance earnings of $0.2 million.

The Corporate and Other segment’s $16.7 million pre-tax operating loss was primarily due to $18.3 million of total benefits and expenses offset by $0.3 million of net investment income and $1.3 million of premiums and policy fees.

Life Marketing

Segment Results of Operations

Segment results were as follows:


	Successor Company												Predecessor Company			For The Three Months Ended June 30,						For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	439,290		$	415,673		$	1,329,030		$	1,099,068		$	136,068		$	461,261		$	448,991		$	914,396		$	889,740
Reinsurance ceded	(198,301		)	(175,652		)	(586,182		)	(455,331		)	(51,142		)	(210,888		)	(204,157		)	(401,223		)	(387,881		)
Net premiums and policy fees	240,989			240,021			742,848			643,737			84,926			250,373			244,834			513,173			501,859
Net investment income	131,603			122,344			391,205			320,603			47,622			137,644			131,340			274,254			259,602
Other income	703			397			1,803			1,337			414			676			769			1,037			1,100
Total operating revenues	373,295			362,762			1,135,856			965,677			132,962			388,693			376,943			788,464			762,561
Realized gains (losses) - investments	85			(4,762		)	4,212			(6,944		)	997			(1,675		)	7,687			(4,375		)	4,127
Realized gains (losses) - derivatives	8,844			194			8,053			2,074			(598		)	(7,138		)	193			(7,137		)	(791		)
Total revenues	382,224			358,194			1,148,121			960,807			133,361			379,880			384,823			776,952			765,897
BENEFITS AND EXPENSES
Benefits and settlement expenses	325,947			298,981			949,926			813,330			123,525			315,865			303,136			647,923			623,979
Amortization of deferred policy acquisition costs and value of business acquired	33,560			27,060			97,300			80,635			4,584
Amortization of DAC/VOBA																29,535			31,024			59,950			63,740
Other operating expenses	14,300			17,963			50,918			43,001			7,124			18,951			17,685			36,172			36,618
Operating benefits and settlement expenses	373,807			344,004			1,098,144			936,966			135,233			364,351			351,845			744,045			724,337
Amortization related to benefits and settlement expenses	6,122			120			4,282			1,639			(346		)	(6,689		)	3,331			(9,854		)	(1,840		)
Amortization of DAC/VOBA related to realized gains (losses) - investments	401			(264		)	431			(223		)	229			167			284			511			30
Total benefits and expenses	380,330			343,860			1,102,857			938,382			135,116			357,829			355,460			734,702			722,527
INCOME (LOSS) BEFORE INCOME TAX	1,894			14,334			45,264			22,425			(1,755		)
INCOME BEFORE INCOME TAX																22,051			29,363			42,250			43,370
Less: realized gains (losses)	8,929			(4,568		)	12,265			(4,870		)	399			(8,813		)	7,880			(11,512		)	3,336
Less: amortization related to benefits and settlement expenses	(6,122		)	(120		)	(4,282		)	(1,639		)	346			6,689			(3,331		)	9,854			1,840
Less: related amortization of DAC/VOBA	(401		)	264			(431		)	223			(229		)	(167		)	(284		)	(511		)	(30		)
PRE-TAX OPERATING INCOME (LOSS)	$	(512	)	$	18,758		$	37,712		$	28,711		$	(2,271	)
PRE-TAX ADJUSTED OPERATING INCOME																$	24,342		$	25,098		$	44,419		$	38,224

The following table summarizes key data for the Life Marketing segment:

~~(1)~~ ~~Amounts are not adjusted for reinsurance ceded.~~



	For The Three Months Ended June 30,				For The Six Months Ended June 30,
	2017		2016		2017		2016
	(Dollars In Thousands)
Sales By Product⁽¹⁾
Traditional life	$	422	$	268	$	604	$	671
Universal life	43,310		41,770		86,499		81,277
BOLI	—		—		—		—
	$	43,732	$	42,038	$	87,103	$	81,948
Sales By Distribution Channel
Traditional brokerage	$	37,378	$	36,541	$	74,746	$	70,742
Institutional	3,984		3,884		7,803		8,015
Direct	2,370		1,613		4,554		3,191
	$	43,732	$	42,038	$	87,103	$	81,948
Average Life Insurance In-force⁽²⁾
Traditional	$	347,456,008	$	366,712,353	$	349,941,348	$	371,454,097
Universal life	249,590,163		205,932,631		243,626,567		195,945,075
	$	597,046,171	$	572,644,984	$	593,567,915	$	567,399,172
Average Account Values
Universal life	$	7,599,281	$	7,410,278	$	7,570,399	$	7,382,726
Variable universal life	705,918		597,855		692,521		586,026
	$	8,305,199	$	8,008,133	$	8,262,920	$	7,968,752

(1) Sales data for traditional life insurance is based on annualized premiums. Universal life sales are based on annualized planned premiums, or "target" premiums if lesser, plus 6% of amounts received in excess of target premiums and 10% of single premiums. "Target" premiums for universal life are those premiums upon which full first year commissions are paid.
(2) Amounts are not adjusted for reinsurance ceded.

Operating expenses detail

Other operating expenses for the segment were as follows:


	Successor Company												Predecessor Company			For The Three Months Ended June 30,						For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Insurance companies:
First year commissions	$	46,553		$	45,672		$	142,896		$	117,093		$	14,108		$	48,427		$	48,216		$	98,964		$	96,343
Renewal commissions	9,645			8,335			27,713			21,732			2,513			9,588			9,325			19,429			18,067
First year ceding allowances	(875		)	(831		)	(2,663		)	(2,267		)	(49		)	(336		)	(939		)	(1,037		)	(1,788		)
Renewal ceding allowances	(39,160		)	(39,316		)	(117,716		)	(107,457		)	(12,364		)	(43,851		)	(40,347		)	(86,274		)	(78,556		)
General & administrative	50,087			52,506			156,022			137,268			17,466			59,910			53,529			115,394			105,936
Taxes, licenses, and fees	8,316			7,675			23,981			20,585			2,509			8,212			8,234			16,677			15,665
Other operating expenses incurred	74,566			74,041			230,233			186,954			24,183			81,950			78,018			163,153			155,667
Less: commissions, allowances & expenses capitalized	(60,266		)	(56,078		)	(179,315		)	(143,953		)	(17,059		)	(62,999		)	(60,333		)	(126,981		)	(119,049		)
Other operating expenses	$	14,300		$	17,963		$	50,918		$	43,001		$	7,124		$	18,951		$	17,685		$	36,172		$	36,618

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~

2016

Pre-tax adjusted operating income

Pre-tax adjusted operating income ~~(loss)~~

~~Pre-tax operating loss~~ was ~~$0.5~~$24.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, representing a decrease of ~~$19.3~~$0.8 million from the three months ended ~~September~~June 30, ~~2015.~~2016. The decrease was primarily due to ~~the impact of prospective unlocking during the current quarter~~an increase in universal life claims and ~~unfavorable~~lower traditional mortality. The segment recorded an unfavorable $18.3 million of prospective unlocking for the three months ended September 30, 2016, as compared to an unfavorable $2.3 million of prospective unlocking for the three months ended September 30,~~2015.~~

life premiums, mostly offset by higher universal life policy fees and investment income.

Operating revenues

Total operating revenues for the three months ended ~~September~~June 30, ~~2016,~~2017, increased ~~$10.5~~$11.8 million, or ~~3.0%~~3.1%, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. This increase was driven by higher policy fees and higher investment income due to increases in net in-force reserves and ~~yields.~~

yield improvement, primarily in the traditional life block.

Net premiums and policy fees

Net premiums and policy fees increased by ~~$1.0~~$5.5 million, or ~~0.4%~~2.3%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, due to an increase in policy fees associated with continued growth in universal life business. ~~This~~Offsetting this was a decrease in traditional life premiums.

Net investment income

Net investment income in the segment increased $6.3 million, or 4.8%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016. Of the increase ~~is almost entirely~~in net investment income, $5.0 million resulted from growth in the universal life block of business. Traditional life investment income increased $1.0 million primarily due to higher yields.

Other income

Other income remained consistent for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016.

Benefits and settlement expenses

Benefits and settlement expenses increased by $12.7 million, or 4.2%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, due primarily to an increase in universal life claims, partly offset by a decrease in traditional life ~~premiums.~~reserves. For the three months ended June 30, 2017, universal life unlocking decreased policy benefits and settlement expenses $1.0 million, as compared to a decrease of $0.9 million for the three months ended June 30, 2016.

Amortization of DAC/VOBA

~~Net investment income~~

~~Net investment income in the segment increased $9.3~~DAC/VOBA amortization decreased $1.5 million, or ~~7.6%~~4.8%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~ Of the increase in net investment income, $5.8 million was the result of an increase in universal life due to higher yields and universal life reserves. Traditional life investment income increased $2.8 million primarily2016, due to lower ~~funding costs and higher yields.~~

~~Other income~~

~~Other income~~VOBA amortization in the traditional blocks resulting from decreased lapses. For the three months ended June 30, 2017, universal life unlocking increased ~~$0.3~~amortization $0.1 million, as compared to a decrease of $0.6 million for the three months ended ~~September~~June 30, ~~2016,~~2016.

Other operating expenses

Other operating expenses increased $1.3 million for the three months ended June 30, 2017, as compared to the three months ended ~~September~~June 30, ~~2015, primarily due to fees on variable universal life funds.~~2016. This increase was driven by higher general and administrative expenses, offset by lower new business acquisition costs after capitalization and higher reinsurance allowances.

Sales

~~Benefits and settlement expenses~~

~~Benefits and settlement expenses~~Sales for the segment increased ~~by $27.0~~$1.7 million ~~or 9.0%,~~ for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~ due mostly to the impact of prospective unlocking and an increase in reserves and claims from growth in retained universal life insurance in-force, partly offset by a decrease in traditional reserves. For the three months ended September 30, 2016, universal life and BOLI prospective unlocking increased policy benefits and settlement expenses $20.5 million, as compared to an increase of $3.3 million for the three months ended September 30, 2015. Unlocking in 2016 was largely driven by assumption changes to reinsurance and yields. Assumption changes to lapses and yields contributed to the unlocking in 2015.

~~Amortization of DAC/VOBA~~

~~DAC/VOBA amortization increased $6.5 million, or 24.0%, for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015,~~ due to higher VOBA amortization in traditional business as a result of higher lapses, partially offset by the impact of prospective unlocking. For the three months ended September 30, 2016, universal life and BOLI prospective unlocking decreased amortization $2.2 million, as compared to a decrease of $1.1 million for the three months ended September 30, 2015.

~~Other operating expenses~~

~~Other operating expenses decreased $3.7 million for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015.~~ This decrease reflects lower new business costs after capitalization and lower general and administrative expenses of $2.4 million, largely offset by higher renewal commissions of $1.3 million along with an increase in taxes, license and fees of $0.6 million.

~~Sales~~

~~Sales for the segment increased $0.6 million for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015.~~2016. Universal life sales increased ~~$0.6~~$1.5 million primarily due to an expansion in distribution partners and focused efforts with existing partners.

For The ~~Nine~~Six Months Ended ~~September~~June 30, 2017, as compared to The Six Months Ended June 30, 2016 ~~(Successor Company)~~

Pre-tax adjusted operating income

Pre-tax adjusted operating income was ~~$37.7~~$44.4 million ~~which consisted~~for the six months ended June 30, 2017, representing an increase of $6.2 million from the six months ended June 30, 2016. The increase was primarily due to higher universal life ~~operating~~policy fees and investment income, ~~of $39.0 million,~~mostly offset by lower traditional life ~~operating income of $7.8 million,~~premiums and an increase in universal life claims.

Operating revenues

Total operating ~~loss of $9.1~~revenues for the six months ended June 30, 2017, increased $25.9 million, or 3.4%, as compared to the six months ended June 30, 2016. This increase was driven by higher policy fees and higher investment income due to increases in ~~other lines.~~net in-force reserves and yield improvement, primarily in the traditional life block.

Net premiums and policy fees

Net premiums and policy fees ~~were $742.8~~increased by $11.3 million, or 2.3%, for the ~~nine~~six months ended ~~September~~June 30, ~~2016. Included~~2017, as compared to the six months ended June 30, 2016, due to an increase in policy fees associated with continued growth in universal life business. Offsetting this ~~amount are~~was a decrease in traditional life ~~net premiums of $307.4 million and universal life policy fees of $434.5 million.~~

premiums.

Net investment income

Net investment income ~~was $391.2~~in the segment increased $14.7 million, or 5.6%, for the ~~nine~~six months ended ~~September~~June 30, 2017, as compared to the six months ended June 30, 2016. ~~Included~~Of the increase in ~~this amount is traditional life~~ net investment income, $11.9 million resulted from growth in the universal life block of ~~$58.0 million and universal~~business. Traditional life investment income ~~of $322.7 million.~~

increased $1.9 million primarily due to higher yields.

Other income

Other income ~~was $1.8 million~~remained consistent for the ~~nine~~six months ended ~~September~~June 30, ~~2016, primarily due~~2017, as compared to ~~fees on variable universal life funds.~~

the six months ended June 30, 2016.

Benefits and settlement expenses

~~Benefit~~Benefits and settlement expenses ~~were $949.9~~increased by $23.9 million, or 3.8%, for the ~~nine~~six months ended ~~September~~June 30, ~~2016. This amount includes traditional life benefit and settlement expenses of $247.6 million and~~2017, as compared to the six months ended June 30, 2016, due primarily to an increase in universal life ~~benefit and settlement expenses of $702.9 million, including $233.9 million of interest on funds for~~claims. For the six months ended June 30, 2017, universal life ~~policies.~~ ~~For the nine months ended September 30, 2016, universal life and BOLI prospective~~ unlocking ~~increased~~decreased policy benefits and settlement expenses ~~$20.5~~$0.5 million, ~~and was largely driven by assumption changes~~as compared to ~~yields and reinsurance.~~a decrease of $2.0 million for the six months ended June 30, 2016.

Amortization of DAC/VOBA

~~Amortization of DAC and VOBA~~

~~DAC and~~ DAC/VOBA amortization ~~was $97.3~~decreased $3.8 million, or 5.9%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, due to lower VOBA amortization in the traditional blocks resulting from decreased lapses. For the six months ended June 30, 2017, universal life unlocking decreased amortization $0.8 million, as compared to a decrease of $0.3 million for the ~~nine~~six months ended ~~September~~June 30, 2016. ~~For the nine months ended September 30, 2016, universal life and BOLI prospective unlocking decreased amortization $2.2 million.~~

Other operating expenses

Other operating expenses ~~were $50.9~~decreased $0.4 million for the ~~nine~~six months ended ~~September~~June 30, 2017, as compared to the six months ended June 30, 2016. ~~Other operating expenses for the insurance companies reflect~~This decrease was driven by lower new business acquisition costs after capitalization and higher reinsurance allowances, offset by higher commissions ~~of $170.6 million,~~and general and administrative ~~expenses of $156.0 million, and taxes, licenses, and fees of $24.0 million, partly offset by ceding allowances of $120.4 million and capitalization of $179.3 million.~~

expenses.

Sales

Sales for the segment ~~were $123.0~~increased $5.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, comprised primarily of universal~~2017, as compared to the six months ended June 30, 2016. Universal life ~~sales.~~

~~For The Period of February 1, 2015 to September 30, 2015 (Successor Company)~~

~~Pre-tax operating income~~

~~Segment~~ ~~pre-tax~~ operating income was $28.7 million which consisted of universal life operating income of $23.4 million, traditional life operating income of $8.8 million, and an operating loss of $3.5 million in other lines.

~~Net premiums and policy fees~~

~~Net premiums and policy fees were $643.7 million~~sales accounted for the ~~period of February 1, 2015 to September 30, 2015. Included in this amount are traditional life net premiums of $328.1 million~~full increase and ~~universal life policy fees of $315.2 million.~~

~~Net investment income~~

~~Net investment income~~ was $320.6 million for the period of February 1, 2015 to September 30, 2015. Included in this amount is traditional life net investment income of $42.6 million and universal life investment income of $270.1 million.

~~Other income~~

~~Other income was $1.3 million for the period of February 1, 2015 to September 30, 2015,~~ primarily due to ~~fees on variable universal life funds.~~

~~Benefits~~an expansion in distribution partners and ~~settlement expenses~~

Benefit and settlement expenses were $813.3 million for the period of February 1, 2015 to September 30, 2015. This amount includes traditional life benefit and settlement expenses of $268.3 million and universal life benefit and settlement expenses of $544.1 million, including $212.7 million of interest on funds for universal life policies. For the period of February 1, 2015 to September 30, 2015, universal life and BOLI unlocking increased policy benefits and settlement expenses $1.3 million and was largely driven by assumption changes to lapses and yields.

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization was $80.6 million for the period of February 1, 2015 to September 30, 2015. For the period of February 1, 2015 to September 30, 2015, universal life and BOLI unlocking decreased amortization $1.6 million.

~~Other operating expenses~~

Other operating expenses were $43.0 million for the period of February 1, 2015 to September 30, 2015. Other operating expenses for the insurance companies reflect commissions of $138.8 million, general and administrative expenses of $137.3 million, and taxes, licenses, and fees of $20.6 million, partly offset by ceding allowances of $109.7 million and capitalization of $144.0 million.

~~Sales~~

~~Sales for the segment were $104.1 million for the period of February 1, 2015 to September 30, 2015, comprised primarily of universal life sales.~~

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Pre-tax operating income~~

~~Segment~~ ~~pre-tax~~ operating loss was $2.3 million. Included in that amount was a traditional life operating loss of $3.4 million, universal life earnings of $1.2 million, and an operating loss of $0.1 million in other lines.

~~Net premiums and policy fees~~

Net premiums and policy fees were $84.9 million for the period of January 1, 2015 to January 31, 2015. This amount is comprised of traditional life net premiums of $41.8 million and universal life policy fees of $43.1 million.

~~Net investment income~~

Net investment income was $47.6 million for the period of January 1, 2015 to January 31, 2015. Included in this amount is traditional life net investment income of $6.3 million and universal life investment income of $40.1 million.

~~Other income~~

~~Other income was $0.4 million for the period of January 1, 2015 to January 31, 2015 primarily due to fees on variable universal life funds.~~

~~Benefits and settlement expenses~~

Benefit and settlement expenses were $123.5 million for the period of January 1, 2015 to January 31, 2015. This amount includes traditional life benefit and settlement expenses of $44.7 million, including an elevated level of claims and universal life benefit and settlement expenses of $77.7 million, partly comprised of $25.7 million of interest on funds for universal life policies.

~~Amortization of DAC and VOBA~~

~~DAC and VOBA amortization was $4.6 million for the period of January 1, 2015 to January 31, 2015.~~

~~Other operating expenses~~

Other operating expenses were $7.1 million for the period of January 1, 2015 to January 31, 2015. Other operating expenses for the insurance companies reflect commissions of $16.6 million, general and administrative expenses of $17.5 million, and taxes of $2.5 million, partly offset by ceding allowances of $12.4 million and capitalization of $17.1 million.

~~Sales~~

~~Sales for the segment were $11.5 million for the period of January 1, 2015 to January 31, 2015, almost entirely comprised of universal life sales.~~

focused efforts with existing partners.

Reinsurance

Currently, the Life Marketing segment reinsures significant amounts of its life insurance in-force. Pursuant to the underlying reinsurance contracts, reinsurers pay allowances to the segment as a percentage of both first year and renewal premiums. Reinsurance allowances represent the amount the reinsurer is willing to pay for reimbursement of acquisition costs incurred by the direct writer of the business. A portion of reinsurance allowances received is deferred as part of DAC and a portion is recognized immediately as a reduction of other operating expenses. As the non-deferred portion of allowances reduces operating expenses in the period received, these amounts represent a net increase to adjusted operating income during that period.

Reinsurance allowances do not affect the methodology used to amortize DAC or the period over which such DAC is amortized. However, they do affect the amounts recognized as DAC amortization. DAC on universal life-type, limited-payment long duration, and investment contracts business is amortized based on the estimated gross profits of the policies in-force. Reinsurance allowances are considered in the determination of estimated gross profits, and therefore, impact DAC amortization on these lines of business. Deferred reinsurance allowances on level term business are recorded as ceded DAC, which is amortized over estimated ceded premiums of the policies in-force. Thus, deferred reinsurance allowances may impact DAC amortization. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015 (Successor Company).~~2016.

Impact of reinsurance

Reinsurance impacted the Life Marketing segment line items as shown in the following table:

Life Marketing Segment

Line Item Impact of Reinsurance

~~(1)~~ ~~Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.~~



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(210,888	)	$	(204,157	)	$	(401,223	)	$	(387,881	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(168,691		)	(172,367		)	(334,184		)	(375,732		)
Amortization of DAC/VOBA	(1,437		)	(1,735		)	(2,853		)	(3,380		)
Other operating expenses⁽¹⁾	(42,333		)	(39,425		)	(83,671		)	(76,111		)
Total benefits and expenses	(212,461		)	(213,527		)	(420,708		)	(455,223		)

NET IMPACT OF REINSURANCE	$	1,573		$	9,370		$	19,485		$	67,342

Allowances received	$	(44,187	)	$	(41,286	)	$	(87,311	)	$	(80,344	)
Less: Amount deferred	1,854			1,861			3,640			4,233
Allowances recognized (ceded other operating expenses)⁽¹⁾	$	(42,333	)	$	(39,425	)	$	(83,671	)	$	(76,111	)

(1) Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.

The table above does not reflect the impact of reinsurance on our net investment income. By ceding business to the assuming companies, we forgo investment income on the reserves ceded. Conversely, the assuming companies will receive investment income on the reserves assumed, which will increase the assuming companies’ profitability on the business that we cede. The net investment income impact to us and the assuming companies has not been quantified. The impact of including foregone investment income would be to substantially reduce the favorable net impact of reinsurance reflected above. We estimate that the impact of foregone investment income would be to reduce the net impact of reinsurance presented in the table above by ~~100%~~120% to ~~340%~~320%. The Life Marketing segment’s reinsurance programs do not materially impact the “other income” line of our income statement.

As shown above, reinsurance had a favorable impact on the Life Marketing segment’s operating income for the periods presented above. The impact of reinsurance is largely due to our quota share coinsurance program in place prior to mid-2005. Under that program, generally 90% of the segment’s traditional new business was ceded to reinsurers. Since mid-2005, a much smaller percentage of overall term business has been ceded due to a change in reinsurance strategy on traditional business. In addition, since 2012, a much smaller percentage of the segment’s new universal life business has been ceded. As a result of that change, the relative impact of reinsurance on the Life Marketing segment’s overall results is expected to decrease over time. While the significance of reinsurance is expected to decline over time, the overall impact of reinsurance for a given period may fluctuate due to variations in mortality, ~~and~~the unlocking of ~~balances.~~

balances, and the impact of term policies in the post-level period.

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~

2016

The higher ceded premium and policy fees for the three months ended ~~September~~June 30, ~~2016~~2017, as compared to the three months ended ~~September~~June 30, ~~2015~~2016, was caused primarily by ~~higher ceded traditional life premiums of $18.2 million and~~ higher universal life policy fees of ~~$5.3~~$10.2 million, slightly offset by lower ceded traditional life premiums of $3.4 million. Ceded traditional life premiums for the three months ended ~~September~~June 30, ~~2016, increased~~2017, decreased from the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to post level term activity.

Ceded benefits and settlement expenses were ~~higher~~lower for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, due to ~~higher~~lower universal life ceded claims ~~partially offset by net decreases~~and a decrease in ceded reserves. Traditional ceded benefits ~~increased $5.5~~decreased $0.2 million for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to ~~an increase in post level~~lower ceded reserves, ~~partially~~mostly offset by ~~lower~~higher ceded ~~death benefits.~~claims. Universal life ceded benefits ~~increased $22.0~~decreased $3.8 million for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, due to ~~an increase~~a decrease in ceded claims, partially offset by ~~a decrease~~an increase in ceded reserves. Ceded universal life claims were ~~$33.9~~$6.3 million lower and ceded traditional life claims were $7.9 million higher for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~

2016.

Ceded amortization of DAC and VOBA decreased slightly for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September 30, 2015, primarily due to the differences in unlocking between the two periods.~~

~~Ceded other operating expenses reflect the impact of reinsurance allowances on net income.~~

~~For The Nine Months Ended September 30, 2016 (Successor Company)~~

~~The ceded premiums were primarily comprised of ceded traditional life premiums of $274.3 million and universal life premiums of $310.6 million.~~

Ceded benefits and settlement expenses were $556.0 million for the nine months ended September 30, 2016. This amount is driven by ceded claims. Traditional life ceded benefits activity of $290.2 million was due to ceded death benefits, slightly offset by ceded reserves. Universal life ceded benefits of $266.8 million were largely comprised of $277.9 million in ceded universal life claims during the period.

~~Ceded amortization of DAC and VOBA activity was $4.6 million for the nine months ended September~~June 30, 2016.

Ceded other operating expenses reflect the impact of reinsurance allowances on net ~~income.~~of amounts deferred.

For The Six Months Ended June 30, 2017, as compared to The Six Months Ended June 30, 2016

The higher ceded premium and policy fees for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was caused primarily by higher universal life policy fees of $20.8 million, offset by lower ceded traditional life premiums of $6.5 million. Ceded traditional life premiums for the six months ended June 30, 2017, decreased from the six months ended June 30, 2016, primarily due to post level term activity.

Ceded benefits and settlement expenses were lower for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, due to lower ceded claims and reserves. Traditional ceded benefits decreased $13.5 million for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily due to lower ceded reserves. Universal life ceded benefits decreased $26.9 million for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, due to a decrease in ceded claims, partially offset by an increase in ceded reserves. Ceded universal life claims were $31.2 million lower for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, driven by fewer high dollar claims during the current year.

Ceded amortization of DAC and VOBA decreased slightly for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016.

Ceded other operating expenses reflect the impact of reinsurance allowances on net ~~income.~~

~~For The Period~~ of ~~February 1, 2015 to September 30, 2015 (Successor Company)~~amounts deferred.

~~The ceded premiums were primarily comprised of ceded traditional life premiums of $188.0 million and universal life premiums of $266.0 million.~~

Ceded benefits and settlement expenses were $403.5 million for the period of February 1, 2015 to September 30, 2015. This amount is driven by ceded claims, partly offset by change in ceded reserves. Traditional life ceded benefits activity of $203.4 million was due to ceded death benefits, partly offset by ceded reserves. Universal life ceded benefits of $200.5 million were largely comprised of $181.9 million in ceded universal life claims during the period.

~~Ceded amortization of DAC and VOBA activity was $3.8 million for the period of February 1, 2015 to September 30, 2015.~~

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

The ceded premiums were primarily comprised of ceded traditional life premiums of $22.6 million and universal life premiums of $27.2 million. Traditional life ceded premiums for the period January 1, 2015 to January 31, 2015 were impacted by runoff and a number of policies with post level activity.

Ceded benefits and settlement expenses were $58.5 million for the period of January 1, 2015 to January 31, 2015. This amount is driven by ceded claims, partly offset by change in ceded reserves. Traditional life ceded benefits activity of $29.3 million was due to ceded death benefits, partly offset by ceded reserves. Universal life ceded benefits of $30.0 million were mainly comprised of $30.4 million in ceded universal life claims during the period.

~~Ceded amortization of DAC and VOBA activity was $3.8 million for the period of January 1, 2015 to January 31, 2015.~~

~~Ceded other operating expenses reflect the impact of reinsurance allowances on net income.~~

Acquisitions

Segment Results of Operations

Segment results were as follows:

Successor Company Predecessor Company
For The Three Months Ended September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
REVENUES

Gross premiums and policy fees $ 280,598
$ 269,715
$ 877,215
$ 742,187
$ 88,855
Reinsurance ceded (81,457 ) (91,358 ) (259,284 ) (236,076 ) (26,512 )
Net premiums and policy fees 199,141
178,357
617,931
506,111
62,343
Net investment income 190,890
175,928
567,559
465,435
71,088
Other income 2,771
2,218
8,223
7,582
1,240
Total operating revenues 392,802
356,503
1,193,713
979,128
134,671
Realized gains (losses) - investments 22,825
4,575
182,428
(136,049 ) 73,601
Realized gains (losses) - derivatives (24,610 ) (8,937 ) (106,469 ) 131,836
(68,511 )
Total revenues 391,017
352,141
1,269,672
974,915
139,761
BENEFITS AND EXPENSES

Benefits and settlement expenses 293,616
274,470
913,344
780,653
100,693
Amortization of VOBA (836 ) (967 ) 8,256
(129 ) 4,803
Other operating expenses 29,865
23,984
88,018
65,642
9,041
Operating benefits and expenses 322,645
297,487
1,009,618
846,166
114,537
Amortization related to benefits and settlement expenses 2,807
2,752
8,495
10,020
1,233
Amortization of VOBA related to realized gains (losses) - investments (44 ) (2 ) (40 ) (30 ) 230
Total benefits and expenses 325,408
300,237
1,018,073
856,156
116,000
INCOME BEFORE INCOME TAX 65,609
51,904
251,599
118,759
23,761
Less: realized gains (losses) (1,785 ) (4,362 ) 75,959
(4,213 ) 5,090
Less: amortization related to benefits and settlement expenses (2,807 ) (2,752 ) (8,495 ) (10,020 ) (1,233 )
Less: related amortization of VOBA 44
2
40
30
(230 )
PRE-TAX OPERATING INCOME $ 70,157
$ 59,016
$ 184,095
$ 132,962
$ 20,134



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	276,499		$	296,109		$	557,949		$	596,617
Reinsurance ceded	(80,888		)	(91,405		)	(161,138		)	(177,827		)
Net premiums and policy fees	195,611			204,704			396,811			418,790
Net investment income	188,949			189,014			379,918			376,669
Other income	3,047			2,721			5,835			5,452
Total operating revenues	387,607			396,439			782,564			800,911
Realized gains (losses) - investments	52,555			81,478			75,460			159,603
Realized gains (losses) - derivatives	(52,698		)	(24,069		)	(69,193		)	(81,859		)
Total revenues	387,464			453,848			788,831			878,655
BENEFITS AND EXPENSES
Benefits and settlement expenses	292,106			312,194			608,474			619,728
Amortization of VOBA	176			10,185			(2,909		)	9,092
Other operating expenses	27,047			28,775			55,054			58,153
Operating benefits and expenses	319,329			351,154			660,619			686,973
Amortization related to benefits and settlement expenses	2,058			2,957			4,506			5,688
Amortization of VOBA related to realized gains (losses) - investments	(169		)	2			(156		)	4
Total benefits and expenses	321,218			354,113			664,969			692,665
INCOME BEFORE INCOME TAX	66,246			99,735			123,862			185,990
Less: realized gains (losses)	(143		)	57,409			6,267			77,744
Less: amortization related to benefits and settlement expenses	(2,058		)	(2,957		)	(4,506		)	(5,688		)
Less: related amortization of VOBA	169			(2		)	156			(4		)
PRE-TAX ADJUSTED OPERATING INCOME	$	68,278		$	45,285		$	121,945		$	113,938

The following table summarizes key data for the Acquisitions segment:

~~(1)~~ ~~Amounts are not adjusted for reinsurance ceded.~~

~~(2)~~ ~~Includes general account balances held within variable annuity products and is net of coinsurance ceded.~~

~~(3)~~ ~~Earned rates exclude portfolios supporting modified coinsurance and crediting rates exclude 100% cessions.~~



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Average Life Insurance In-Force⁽¹⁾
Traditional	$	229,345,711		$	245,874,701		$	231,309,540		$	227,143,714
Universal life	27,718,134			29,853,251			27,980,811			30,094,770
	$	257,063,845		$	275,727,952		$	259,290,351		$	257,238,484
Average Account Values
Universal life	$	4,204,227		$	4,272,980		$	4,208,042		$	4,293,031
Fixed annuity⁽²⁾	3,501,498			3,567,836			3,512,583			3,575,371
Variable annuity	1,181,048			1,173,275			1,174,076			1,190,594
	$	8,886,773		$	9,014,091		$	8,894,701		$	9,058,996
Interest Spread - Fixed Annuities
Net investment income yield	4.01		%	3.97		%	4.00		%	3.98		%
Interest credited to policyholders	3.22		%	3.26		%	3.26		%	3.30		%
Interest spread⁽³⁾	0.79		%	0.71		%	0.74		%	0.68		%

(1) Amounts are not adjusted for reinsurance ceded.
(2) Includes general account balances held within variable annuity products and is net of coinsurance ceded.
(3) Earned rates exclude portfolios supporting modified coinsurance and crediting rates exclude 100% cessions.

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~

2016

Pre-tax adjusted operating income

Pre-tax adjusted operating income was ~~$70.2~~$68.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, an increase of ~~$11.1~~$23.0 million as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to decreases in life insurance claims and lower amortization of VOBA, partially offset by the ~~addition~~expected runoff of the GLAIC reinsurance transaction completed on January 15, 2016. The GLAIC transaction added $16.7 million to pre-tax operating income for the three months ended September 30, 2016. For the three months ended September 30, 2016, the segment recorded favorable prospective unlockingin-force blocks of ~~$1.2 million as compared to favorable $0.3 million of prospective unlocking for the three months ended September 30, 2015.~~

business.

Operating revenues

Net premiums and policy fees ~~increased $20.8~~decreased $9.1 million, or ~~11.7%~~4.4%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to expected runoff of the in-force blocks of business. Net investment income decreased $0.1 million for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016.

Total benefits and expenses

Total benefits and expenses decreased $32.9 million, or 9.3%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016. The decrease was primarily due to improved mortality experience and lower amortization of VOBA, as well as the expected runoff of the in-force blocks of business.

For The Six Months Ended June 30, 2017, as compared to The Six Months Ended June 30, 2016

Pre-tax adjusted operating income

Pre-tax adjusted operating income was $121.9 million for the six months ended June 30, 2017, an increase of $8.0 million as compared to the six months ended June 30, 2016, primarily due to decreases in life insurance claims and lower amortization of VOBA, partially offset by the expected runoff of the in-force blocks of business.

Operating revenues

Net premiums and policy fees decreased $22.0 million, or 5.2%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily due to the ~~premiums associated with the GLAIC reinsurance transaction more than offsetting~~ expected runoff ~~related to other~~of the in-force blocks of business. Net investment income increased ~~$15.0~~$3.2 million, or ~~8.5%~~0.9%, for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2015,~~2016, primarily due to ~~the $14.1 million impact of the GLAIC reinsurance transaction.~~

~~Total benefits and expenses~~

Total benefits and expenses increased $25.2 million, or 8.4%, for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015. The increase was primarily due to the GLAIC reinsurance transaction, which increased operating benefits and expenses $29.4 million. This washigher interest spreads partly offset by ~~expected runoff of the in-force business.~~

~~For The Nine Months Ended September 30, 2016 (Successor Company)~~

~~Pre-tax operating income~~

Pre-tax operating income was $184.1 million. This included expected runoff of the in-force blocks of business and $34.5 million in operating income associated with the GLAIC reinsurance transaction that was completed on January 15, 2016. In

addition, the increase included a $0.9 million favorable variance related to prospective unlocking. For the nine months ended September 30, 2016, the segment recorded favorable prospective unlocking of $1.2 million.

~~Operating revenues~~

Operating revenues for the segment were $1.2 billion and included net premiums and policy fees of $617.9 million, net investment income of $567.6 million, and other income of $8.2 million. The segment experienced expected runoff in the current period.

~~Operating revenues from the GLAIC transaction were $140.9 million and included net premiums and policy fees of $98.0 million and net investment income of $42.9 million.~~

~~Total benefits and expenses~~

Total benefits and expenses were $1.0 billion. Operating benefits and expenses of $1.0 billion included benefits and settlement expenses of $913.3 million, amortization of VOBA of $8.3 million, and other operating expenses of $88.0 million. The net impact of amortization related to benefits and settlement expenses and amortization of VOBA related to realized gains (losses) on investments contributed $8.5 million to total benefits and expenses.

Total benefits and expenses from the GLAIC transaction were $106.4 million. Operating benefits and expenses included benefits and settlement expenses of $84.6 million, amortization of VOBA of $8.6 million, and other operating expenses of $13.3 million from this transaction.

~~For The Period of February 1, 2015 to September 30, 2015 (Successor Company)~~

~~Pre-tax operating income~~

~~Pre-tax operating income was $133.0 million. This included~~ expected runoff of the in-force blocks of business.

~~Operating revenues~~

Operating revenues for the segment were $979.1 million and included net premiums and policy fees of $506.1 million, net investment income of $465.4 million, and other income of $7.6 million. The segment experienced expected runoff in the current period.

Total benefits and expenses

Total benefits and expenses ~~were $856.2~~decreased $27.7 million, or 4.0%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. The decrease was primarily due to ~~operating benefits~~improved mortality experience and ~~expenses of $846.2 million. Operating benefits and expenses included benefits and settlement expenses of $780.7 million,~~lower amortization of VOBA, of $(0.1) million, and other operating expenses of $65.6 million. The net impact of amortization related to benefits and settlement expenses and amortization of VOBA related to realized gains (losses) on investments contributed $10.0 million to total benefits and expenses.

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Pre-tax operating income~~

~~Pre-tax operating income was $20.1 million. This included~~as well as the expected runoff of the ~~in force~~in-force blocks of business.

~~Operating revenues~~

Operating revenues for the segment were $134.7 million and included net premiums and policy fees of $62.3 million, net investment income of $71.1 million, and other income of $1.2 million. The segment experienced expected runoff in the current period.

~~Total benefits and expenses~~

Total benefits and expenses were $116.0 million, primarily due to operating benefits and expenses of $114.5 million. Operating benefits and expenses included benefits and settlement expenses of $100.7 million, amortization of VOBA of $4.8 million, and other operating expenses of $9.0 million. The net impact of amortization related to benefits and settlement expenses and amortization of VOBA related to realized gains (losses) on investments contributed $1.5 million to total benefits and expenses.

Reinsurance

The Acquisitions segment currently reinsures portions of both its life and annuity in-force. The cost of reinsurance to the segment is reflected in the chart shown below. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015 (Successor Company).~~2016.

Impact of reinsurance

Reinsurance impacted the Acquisitions segment line items as shown in the following table:

Acquisitions Segment

Line Item Impact of Reinsurance

~~(1)~~ ~~Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.~~



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(80,888	)	$	(91,405	)	$	(161,138	)	$	(177,827	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(85,896		)	(69,700		)	(154,106		)	(134,223		)
Amortization of value of business acquired	(140		)	(77		)	(257		)	(195		)
Other operating expenses	(10,440		)	(10,902		)	(19,562		)	(21,989		)
Total benefits and expenses	(96,476		)	(80,679		)	(173,925		)	(156,407		)

NET IMPACT OF REINSURANCE⁽¹⁾	$	15,588		$	(10,726	)	$	12,787		$	(21,420	)

(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.

The segment’s reinsurance programs do not materially impact the other income line of the income statement. In addition, net investment income generally has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgo investment income on the reserves ceded to the assuming companies. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on business assumed from the Company. For business ceded under modified coinsurance arrangements, the amount of investment income attributable to the assuming company is included as part of the overall change in policy reserves and, as such, is reflected in benefit and settlement expenses. The net investment income impact to us and the assuming companies has not been quantified as it is not fully reflected in our consolidated financial statements.

The net impact of reinsurance ~~is less~~was more favorable by ~~$8.2~~$26.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to ~~lower~~higher ceded claims. In the three months ended ~~September~~June 30, ~~2016,~~2017, ceded revenues decreased by ~~$9.9~~$10.5 million, while ceded benefits and expenses ~~decreased~~increased by ~~$18.1~~$15.8 million primarily due to ~~lower~~higher claims.

The net impact of reinsurance ~~activity~~was more favorable by $34.2 million for the ~~nine~~six months ended ~~September~~June 30, 2017, as compared to the six months ended June 30, 2016, ~~(Successor Company) was~~ primarily due to higher ceded ~~premiums in relation to~~claims and lower ceded revenues. In the six months ended June 30, 2017, ceded revenues decreased by $16.7 million, while ceded benefits and ~~settlement expenses. Ceded benefits and settlement~~ expenses ~~were primarily driven~~increased by ~~ceded claims.~~

~~The net impact of reinsurance activity for the period of February 1, 2015 to September 30, 2015 (Successor Company) was~~$17.5 million primarily due to ~~ceded premiums in relation to ceded benefits and settlement expenses. Ceded benefits and settlement expenses were primarily driven by~~higher ceded claims.

The net impact of reinsurance activity for the period of January 1, 2015 to January 31, 2015 (Predecessor Company) was primarily due to ceded premiums in relation to ceded benefits and settlement expenses. Ceded benefits and settlement expenses were primarily driven by ceded claims.

Annuities

Segment Results of Operations

Segment results were as follows:


	Successor Company												Predecessor Company			For The Three Months Ended June 30,						For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	37,560		$	37,836		$	109,571		$	101,055		$	12,473		$	38,152		$	36,455		$	76,035		$	72,011
Reinsurance ceded	(20,138		)	(20,507		)	(60,232		)	(55,091		)	(6,118		)	(19,775		)	(19,964		)	(39,877		)	(40,094		)
Net premiums and policy fees	17,422			17,329			49,339			45,964			6,355			18,377			16,491			36,158			31,917
Net investment income	81,747			80,395			239,668			214,180			37,189			78,889			79,169			156,565			157,921
Realized gains (losses) - derivatives	(9,455		)	(8,133		)	(27,576		)	(20,692		)	(2,402		)	(10,003		)	(9,209		)	(19,870		)	(18,121		)
Other income	41,312			40,222			118,477			107,194			12,690			41,681			39,516			83,970			77,165
Total operating revenues	131,026			129,813			379,908			346,646			53,832			128,944			125,967			256,823			248,882
Realized gains (losses) - investments	(3,655		)	(1,694		)	(3,357		)	(3,726		)	(145		)	(666		)	871			(391		)	298
Realized gains (losses) - derivatives, net of economic cost	11,894			72,679			169,827			(49,310		)	77,231			8,585			61,759			(9,713		)	157,933
Total revenues	139,265			200,798			546,378			293,610			130,918			136,863			188,597			246,719			407,113
BENEFITS AND EXPENSES
Benefits and settlement expenses	60,199			66,459			157,735			161,838			26,919			55,557			47,570			106,457			97,536
Amortization of DAC/VOBA	(6,913		)	(7,472		)	(15,211		)	(13,196		)	6,217			653			(3,212		)	94			(8,298		)
Other operating expenses	34,707			33,736			101,595			89,028			9,333			36,446			34,129			71,923			66,888
Operating benefits and expenses	87,993			92,723			244,119			237,670			42,469			92,656			78,487			178,474			156,126
Amortization related to benefits and settlement expenses	220			(22		)	3,190			(1,371		)	3,128			1,096			3,228			2,412			2,970
Amortization of DAC/VOBA related to realized gains (losses) - investments	12,026			(15,925		)	(11,949		)	(7,864		)	(13,216		)	(12,166		)	(22,875		)	(23,866		)	(23,975		)
Total benefits and expenses	100,239			76,776			235,360			228,435			32,381			81,586			58,840			157,020			135,121
INCOME BEFORE INCOME TAX	39,026			124,022			311,018			65,175			98,537			55,277			129,757			89,699			271,992
Less: realized gains (losses) - investments	(3,655		)	(1,694		)	(3,357		)	(3,726		)	(145		)	(666		)	871			(391		)	298
Less: realized gains (losses) - derivatives, net of economic cost	11,894			72,679			169,827			(49,310		)	77,231			8,585			61,759			(9,713		)	157,933
Less: amortization related to benefits and settlement expenses	(220		)	22			(3,190		)	1,371			(3,128		)	(1,096		)	(3,228		)	(2,412		)	(2,970		)
Less: related amortization of DAC/VOBA	(12,026		)	15,925			11,949			7,864			13,216			12,166			22,875			23,866			23,975
PRE-TAX OPERATING INCOME	$	43,033		$	37,090		$	135,789		$	108,976		$	11,363
PRE-TAX ADJUSTED OPERATING INCOME																$	36,288		$	47,480		$	78,349		$	92,756

The following tables summarize key data for the Annuities segment:

~~(1)~~ ~~Includes general account balances held within VA products.~~

~~(2)~~ ~~Interest spread on average general account values.~~



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017				2016
	(Dollars In Thousands)
Sales⁽¹⁾
Fixed annuity	$	362,901		$	171,231		$	559,518			$	380,536
Variable annuity	123,044			151,583			236,605				325,097
	$	485,945		$	322,814		$	796,123		��	$	705,633
Average Account Values
Fixed annuity⁽²⁾	$	8,249,924		$	8,210,847		$	8,204,565			$	8,245,283
Variable annuity	12,994,971			12,282,904			12,925,275				12,305,789
	$	21,244,895		$	20,493,751		$	21,129,840			$	20,551,072
Interest Spread - Fixed Annuities⁽³⁾
Net investment income yield	3.67		%	3.65		%	3.66		%		3.64		%
Interest credited to policyholders	2.52			2.65			2.52				2.68
Interest spread	1.15		%	1.00		%	1.14		%		0.96		%

(1) Sales are measured based on the amount of purchase payments received less surrenders occurring within twelve months of the purchase payments.
(2) Includes general account balances held within VA products.
(3) Interest spread on average general account values.

~~(1)~~ ~~Includes impact of nonperformance risk of~~ ~~$(1.7) million, $9.2 million, $~~11.5 million, $10.1 million, and $3.1 million for the three and nine months ended September 30, 2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), for the period of February 1, 2015 to September 30, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.

~~(2)~~ Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.).



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Derivatives related to VA contracts:
Interest rate futures - VA	$	12,749		$	31,266		$	16,197		$	69,067
Equity futures - VA	(18,613		)	(21,328		)	(49,430		)	(24,556		)
Currency futures - VA	(10,018		)	11,112			(16,274		)	4,954
Equity options - VA	(12,884		)	(3,232		)	(53,069		)	13,072
Interest rate swaptions - VA	(662		)	(749		)	(2,131		)	(2,983		)
Interest rate swaps - VA	34,946			81,554			25,989			207,147
Total return swaps - VA	(1,618		)	—			(1,618		)	—
Embedded derivative - GLWB⁽¹⁾	(23,807		)	(66,019		)	(13,791		)	(132,695		)
Funds withheld derivative	20,456			17,850			67,925			10,052
Total derivatives related to VA contracts	549			50,454			(26,202		)	144,058
Derivatives related to FIA contracts:
Embedded derivative - FIA	(9,334		)	710			(21,745		)	(1,452		)
Equity futures - FIA	(202		)	651			95			2,033
Volatility futures - FIA	—			—			—			—
Equity options - FIA	7,569			735			18,269			(4,827		)
Total derivatives related to FIA contracts	(1,967		)	2,096			(3,381		)	(4,246		)
VA GLWB economic cost⁽²⁾	10,003			9,209			19,870			18,121
Realized gains (losses) - derivatives, net of economic cost	$	8,585		$	61,759		$	(9,713	)	$	157,933

(1) Includes impact of nonperformance risk of $(6.7) million and $(11.9) million for the three and six months ended June 30, 2017 and $0.1 million and $10.9 million for the three and six months ended June 30, 2016.
(2) Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.).

Successor Company
As of
September 30, 2016
As of
December 31, 2015
(Dollars In Thousands)
GMDB - Net amount at risk⁽¹⁾
$ 118,289
$ 166,765
GMDB Reserves 25,846
26,646
GMWB and GMAB Reserves 128,868
18,522
Account value subject to GMWB rider 9,466,240
9,306,644
GMWB Benefit Base 10,540,731
10,304,939
GMAB Benefit Base 4,007
4,323
S&P 500® Index 2,168
2,044

~~(1)~~ ~~Guaranteed benefits in excess of contract holder account balance.~~



	As of
	June 30, 2017		December 31, 2016
	(Dollars In Thousands)
GMDB - Net amount at risk⁽¹⁾	$	78,236	$	102,710
GMDB Reserves	24,437		24,734
GLWB and GMAB Reserves	20,812		7,018
Account value subject to GLWB rider	9,623,629		9,486,773
GLWB Benefit Base	10,577,891		10,559,907
GMAB Benefit Base	3,324		3,770
S&P 500® Index	2,423		2,239

(1) Guaranteed benefits in excess of contract holder account balance.

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~2016

Pre-tax adjusted operating income

Pre-tax adjusted operating income was ~~$43.0~~$36.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared ~~$37.1~~to $47.5 million for the three months ended ~~September~~June 30, ~~2015, an increase~~2016, a decrease of ~~$5.9~~$11.2 million, or ~~16.0%~~23.6%. This variance was primarily the result of ~~lower credited interest, higher investment income,~~an unfavorable change in SPIA mortality and higher ~~fees and other income on the variable annuities (“VA”) line of business~~non-deferred expenses, partially offset by ~~unfavorable single premium immediate annuities (“SPIA”) mortality.~~increased interest spreads and growth in VA fee income. Segment results were positively impacted by ~~$5.7~~$0.3 million of favorable unlocking for the three months ended ~~September~~June 30, ~~2016~~2017 as compared to ~~$0.9~~$0.6 million of favorable unlocking for the three months ended ~~September~~June 30, ~~2015.~~2016.

Operating revenues

Segment operating revenues increased ~~$1.2~~$3.0 million, or ~~0.9%~~2.4%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to ~~increases in~~higher policy fees and other income from the VA line of ~~business and increases in investment income.~~business. Those increases were partially offset by ~~an unfavorable change~~higher GLWB economic cost in the ~~GMWB economic cost.~~VA line of business. Average fixed account balances ~~decreased 1.2%~~increased 0.5% and average variable account balances increased ~~0.7%~~5.8% for the three months ended ~~September~~June 30, ~~2016,~~2017 as compared to the three months ended ~~September~~June 30, ~~2015.~~

2016.

Benefits and settlement expenses

Benefits and settlement expenses ~~decreased $6.3~~increased $8.0 million, or ~~9.4%~~16.8%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. This ~~decrease~~increase was primarily the result of unfavorable SPIA mortality partially offset by lower credited ~~interest offset by a $2.0 million unfavorable change in SPIA mortality results.~~interest. Included in benefits and settlement expenses was ~~$0.9~~$0.1 million of unfavorable unlocking for the three months ended ~~September~~June 30, ~~2016~~2017, as compared to ~~$1.9~~$0.3 million of ~~unfavorable~~favorable unlocking for the three months ended ~~September~~June 30, ~~2015.~~

2016.

Amortization of DAC and VOBA

DAC and VOBA amortization unfavorably changed by ~~$0.6~~$3.9 million ~~or 7.5%,~~ for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. The unfavorable changes in normal DAC and VOBA amortization were primarily due to higher fee income in the VA line of business. DAC and VOBA unlocking for the three months ended June 30, 2017, was $0.4 million favorable as compared to $0.3 million favorable for the three months ended June 30, 2016.

Other operating expenses

Other operating expenses increased $2.3 million, or 6.8%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016. Increases in non-deferred acquisition expense and commission expenses were partially offset by lower non-deferred maintenance and overhead expense.

Sales

Total sales increased $163.1 million, or 50.5%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016. Sales of variable annuities decreased $28.5 million, or 18.8%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, primarily due to disruptions in the broader market driven by regulatory rule changes and the relative competitiveness of our product within the market. Sales of fixed annuities increased by $191.7 million, or 111.9%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, primarily due to an increase in single premium deferred annuities (“SPDA”) sales.

For The Six Months Ended June 30, 2017, as compared to The Six Months Ended June 30, 2016

Pre-tax adjusted operating income

Pre-tax adjusted operating income was $78.3 million for the six months ended June 30, 2017, as compared to $92.8 million for the six months ended June 30, 2016, a decrease of $14.4 million, or 15.5%. This variance was primarily the result of an unfavorable change in SPIA mortality and higher non-deferred expenses, partially offset by increased interest spreads and growth in VA fee income. Segment results were positively impacted by $1.9 million of favorable unlocking for the six months ended June 30, 2017 as compared to $1.0 million of favorable unlocking for the six months ended June 30, 2016.

Operating revenues

Segment operating revenues increased $7.9 million, or 3.2%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily due to higher policy fees and other income from the VA line of business. Those increases were partially offset by higher GLWB economic cost in the VA line of business. Average fixed account balances decreased 0.5% and average variable account balances increased 5.0% for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016.

Benefits and settlement expenses

Benefits and settlement expenses increased $8.9 million, or 9.1%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. This increase was primarily the result of unfavorable SPIA mortality partially offset by lower credited interest. Included in benefits and settlement expenses was $0.1 million of favorable unlocking for the six months ended June 30, 2017, as compared to $0.8 million of favorable unlocking for the six months ended June 30, 2016.

Amortization of DAC and VOBA

DAC and VOBA amortization unfavorably changed by $8.4 million, or 101.1%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. The unfavorable changes in normal DAC and VOBA amortization were primarily due to higher fee income in the VA line of business partially offset by a favorable change in unlocking. DAC and VOBA unlocking for the ~~three~~six months ended ~~September~~June 30, ~~2016~~2017, was ~~$6.6~~$1.8 million favorable as compared to ~~$2.9~~$0.2 million favorable for the ~~three~~six months ended ~~September~~June 30, ~~2015.~~2016.

Other operating expenses

Other operating expenses increased ~~$1.0~~$5.0 million, or ~~2.9%~~7.5%, for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2015.~~2016. Increases in non-deferred acquisition ~~maintenance,~~expense and ~~overhead~~commission expenses were offset by lower non-deferred ~~commission~~maintenance and overhead expense.

Sales

Total sales ~~decreased $150.6~~increased $90.5 million, or ~~31.0%~~12.8%, for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2015.~~2016. Sales of variable annuities decreased ~~$156.6~~$88.5 million, or ~~50.3%~~27.2% for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2015~~2016, primarily due to disruptions in the broader market ~~driver~~driven by regulatory rule changes and the ~~proposed DOL rule changes.~~relative competitiveness of our product within the market. Sales of fixed annuities increased by ~~$6.0~~$179.0 million, or ~~3.4%~~47.0%, for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2015, driven by~~2016, primarily due to an increase in ~~FIA~~SPDA sales.

~~For The Nine Months Ended September 30, 2016 (Successor Company)~~

~~Pre-tax operating income~~

P~~re-tax~~ operating income was $135.8 million which included $82.3 million of fixed annuity operating earnings, $67.1 million of variable annuity operating earnings, and a $13.6 million loss in other annuity earnings. Segment results were positively impacted by $6.7 million of favorable unlocking and $6.3 million of favorable SPIA mortality.

~~Operating revenues~~

Segment operating revenues were $379.9 million for the nine months ended September 30, 2016. Operating revenue consisted of $239.7 million of net investment income, $49.3 million of policy fees, $118.5 million of other income, and $27.6 million of losses related to GMWB economic cost from the VA line of business.

~~Benefits and settlement expenses~~

Benefits and settlement expenses were $157.7 million for the nine months ended September 30, 2016. Included in that amount was $6.3 million of favorable SPIA mortality results and $0.1 million of unfavorable unlocking.

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization was $15.2 million favorable for the nine months ended September 30, 2016 due to negative VOBA assigned to some of the products within the segment. There was $6.8 million of favorable unlocking recorded by the segment during the nine months ended September 30, 2016.

~~Other operating expenses~~

Other operating expenses were $101.6 million for the nine months ended September 30, 2016. Operating expenses consisted of $28.0 million in acquisition expenses, $37.9 million in maintenance and overhead expenses, and $35.7 million in commission expenses.

~~Sales~~

~~Total sales were $1.0 billion for the nine months ended September 30, 2016. Fixed annuity sales were $561.4 million and variable annuity sales were $479.8 million.~~

~~For The Period of February 1, 2015 to September 30, 2015 (Successor Company)~~

~~Pre-tax operating income~~

P~~re-tax~~ operating income was $109.0 million which included $63.9 million of fixed annuity operating earnings, $56.1 million of variable annuity operating earnings, and a $11.0 million loss in other annuity earnings. The fixed annuity results were positively impacted by $1.8 million of favorable SPIA unlocking. The segment recorded $1.3 million of favorable unlocking.

~~Operating revenues~~

Operating revenues were $346.6 million for the period of February 1, 2015 to September 30, 2015. Operating revenue consisted of $214.2 million of net investment income, $101.1 million of policy fees, $55.1 million of ceded premiums, $107.2 million in other income, and $20.7 million related to GMWB economic cost from the VA line of business.

~~Benefits and settlement expenses~~

Benefits and settlement expenses were $161.8 million for the period of February 1, 2015 to September 30, 2015. Included in that amount was $1.8 million in favorable SPIA mortality results, an increase in guaranteed benefit reserves of $3.4 million from the VA line of business, and $1.9 million of unfavorable unlocking.

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization was $13.2 million favorable for the period of February 1, 2015 to September 30, 2015 due to the allocation of negative VOBA to some of the products within the segment. There was $3.2 million of favorable unlocking recorded by the segment during the period of February 1, 2015 to September 30, 2015.

~~Other operating expenses~~

Other operating expenses were $89.0 million for the period of February 1, 2015 to September 30, 2015. Operating expenses consisted of $22.8 million in acquisition expenses, $32.6 million in maintenance and overhead expenses, and $33.6 million in commission expenses.

~~Sales~~

~~Total sales were $1.2 billion for the period of February 1, 2015 to September 30, 2015. Fixed annuity sales were $328.5 million and variable annuity sales were $857.0 million.~~

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Pre-tax operating income~~

~~Segment~~ ~~pre-tax~~ operating income was $11.4 million for the period of January 1, 2015 to January 31, 2015. Included in that amount was $2.8 million of favorable SPIA mortality results and $2.6 million of unfavorable unlocking.

~~Operating revenues~~

Segment operating revenues were $53.8 million for the period of January 1, 2015 to January 31, 2015. Operating revenue consisted of $37.2 million of net investment income, $12.5 million of gross policy fees, $6.1 million of ceded premiums, $12.7 million in other income and $2.4 million of losses related to GMWB economic cost from the VA line of business.

~~Benefits and settlement expenses~~

Benefits and settlement expenses were $26.9 million for the period of January 1, 2015 to January 31, 2015. Included in that amount was $2.8 million of unfavorable SPIA mortality results and a $2.1 million increase in guaranteed benefit reserves from the VA line of business.

~~Amortization of DAC and VOBA~~

~~DAC and VOBA amortization was $6.2 million unfavorable for the period of January 1, 2015 to January 31, 2015. The segment recorded $2.6 million in unfavorable unlocking.~~

~~Other operating expenses~~

Other operating expenses were $9.3 million for the period of January 1, 2015 to January 31, 2015. Operating expenses consisted of $2.8 million in acquisition expenses, $2.8 million in maintenance and overhead expenses, and $3.7 million in commission expenses.

~~Sales~~

~~Total sales were $87.5 million for the period of January 1, 2015 to January 31, 2015. Fixed annuity sales were $28.3 million and variable annuity sales were $59.1 million.~~

Reinsurance

During the year ended December 31, ~~2012 (Predecessor Company),~~2013, the Annuity segment began reinsuring certain risks associated with the ~~GMWB~~GLWB and GMDB riders to Shades Creek Captive Insurance Company (“Shades Creek”), a direct wholly owned subsidiary of PLC. The cost of reinsurance to the segment is reflected in the chart shown below. The impact of the Shades Creek reinsurance arrangement for the three month period ending March 31, 2013, was eliminated in consolidation. Prior to April 1, 2013, we paid as a dividend all of Shades Creek’s outstanding common stock to its parent, PLC. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015 (Successor Company).~~2016.

Impact of reinsurance

Reinsurance impacted the Annuities segment line items as shown in the following table:

Annuities Segment

Line Item Impact of Reinsurance


	Successor Company												Predecessor Company			For The Three Months Ended June 30,						For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(20,138	)	$	(20,507	)	$	(60,232	)	$	(55,091	)	$	(6,118	)	$	(19,775	)	$	(19,964	)	$	(39,877	)	$	(40,094	)
Realized gains (losses) - derivatives	11,298			11,285			33,834			30,050			3,754			11,183			11,278			22,399			22,536
Total operating revenues	(8,840		)	(9,222		)	(26,398		)	(25,041		)	(2,364		)	(8,592		)	(8,686		)	(17,478		)	(17,558		)
Realized gains (losses) - derivatives, net of economic costs	(24,268		)	118,177			167,805			(20,095		)	125,688
Realized gains (losses) - derivatives, net of economic cost																35,742			101,955			48,378			192,073
Total revenues	(33,108		)	108,955			141,407			(45,136		)	123,324			27,150			93,269			30,900			174,515
BENEFITS AND EXPENSES
Benefits and settlement expenses	(8		)	(574		)	(1,412		)	(1,549		)	(567		)	(164		)	(420		)	26			(1,404		)
Amortization of DAC/VOBA	—			—			—			—			304			—			—			—			—
Other operating expenses	(481		)	(505		)	(1,461		)	(1,011		)	(523		)	(460		)	(487		)	(927		)	(981		)
Operating benefits and expenses	(489		)	(1,079		)	(2,873		)	(2,560		)	(786		)	(624		)	(907		)	(901		)	(2,385		)
Amortization of deferred policy acquisition costs related to realized gain (loss) investments	—			—			—			—			402			—			—			—			—
Total benefit and expenses	(489		)	(1,079		)	(2,873		)	(2,560		)	(384		)	(624		)	(907		)	(901		)	(2,385		)
NET IMPACT OF REINSURANCE	$	(32,619	)	$	110,034		$	144,280		$	(42,576	)	$	123,708		$	27,774		$	94,176		$	31,801		$	176,900

The table above does not reflect the impact of reinsurance on our net investment income. The net investment income impact to us and the assuming company has been quantified and is immaterial. The Annuities segment’s reinsurance programs do not materially impact the “other income” line of our income statement.

The net impact of reinsurance ~~is unfavorable~~was favorable by ~~$32.6~~$27.8 million for the three months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, as compared to the favorable net impact of ~~$110.0~~$94.2 million for the three months ended ~~September~~June 30, ~~2015 (Successor Company).~~2016.

The net impact of reinsurance iswas favorable by ~~$144.3~~ $31.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~

2017, as compared to the favorable net impact of $176.9 million for the six months ended June 30, 2016.

Stable Value Products

Segment Results of Operations

Segment results were as follows:



	For The Three Months Ended June 30,				For The Six Months Ended June 30,
	2017		2016		2017		2016
	(Dollars In Thousands)
REVENUES
Net investment income	$	41,508	$	25,908	$	80,854	$	48,975
Total operating revenues	41,508		25,908		80,854		48,975
Realized gains (losses)	579		329		2,076		7,164
Total revenues	42,087		26,237		82,930		56,139
BENEFITS AND EXPENSES
Benefits and settlement expenses	17,505		9,752		31,953		17,720
Amortization of deferred policy acquisition costs	550		242		1,006		354
Other operating expenses	1,086		736		1,629		1,275
Total benefits and expenses	19,141		10,730		34,588		19,349
INCOME BEFORE INCOME TAX	22,946		15,507		48,342		36,790
Less: realized gains (losses)	579		329		2,076		7,164
PRE-TAX ADJUSTED OPERATING INCOME	$	22,367	$	15,178	$	46,266	$	29,626

The following table summarizes key data for the Stable Value Products segment:


	Successor Company												Predecessor Company			For The Three Months Ended June 30,						For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Sales(1)
GIC	$	4,800		$	6,800		$	61,800		$	112,700		$	—		$	2,000		$	7,000		$	57,000		$	57,000
GFA - Direct Institutional	650,000			150,000			1,550,000			300,000			—
GFA																550,000			900,000			750,000			900,000
	$	654,800		$	156,800		$	1,611,800		$	412,700		$	—		$	552,000		$	907,000		$	807,000		$	957,000

Average Account Values	$	2,928,148		$	1,952,113		$	2,524,249		$	1,921,035		$	1,932,722		$	4,057,056		$	2,513,097		$	3,826,188		$	2,320,707
Ending Account Values	$	3,412,041		$	1,914,093		$	3,412,041		$	1,914,093		$	1,911,751		$	4,023,790		$	2,838,674		$	4,023,790		$	2,838,674

Operating Spread
Net investment income yield	3.71		%	3.53		%	4.08		%	3.38		%	4.28		%	4.10		%	4.15		%	4.25		%	4.26		%
Other income yield	0.02			—			0.01			0.01			—
Interest credited	1.56			0.66			1.55			1.04			1.40			1.73			1.56			1.67			1.54
Operating expenses	0.15			0.23			0.14			0.15			0.07			0.16			0.16			0.14			0.14
Operating spread	2.02		%	2.64		%	2.40		%	2.20		%	2.81		%	2.21		%	2.43		%	2.44		%	2.58		%

Adjusted operating spread⁽¹⁾	1.82		%	2.27		%	1.78		%	1.90		%	2.76		%
Adjusted operating spread⁽²⁾																1.78		%	1.79		%	1.84		%	1.77		%

(1) Sales are measured at the time the purchase payments are received.																(1) Sales are measured at the time the purchase payments are received.
(2) Excludes participating mortgage loan income.

~~(1)~~ ~~Excludes participating mortgage loan income and other income.~~

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~

2016

Pre-tax adjusted operating income

Pre-tax adjusted operating income was ~~$14.7~~$22.4 million and increased ~~$1.9~~$7.2 million, or ~~15.0%~~47.4%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. The increase in adjusted operating earnings primarily resulted from ~~increased~~a 61.4% increase in average account values ~~and other income offset by a decrease~~in addition to an increase in participating mortgage ~~income and lower operating spreads.~~income. Participating mortgage income for the three months ended ~~September~~June 30, ~~2016~~2017, was ~~$1.3~~$4.4 million as compared to ~~$1.8~~$3.9 million for the three months ended ~~September~~June 30, ~~2015.~~2016. The adjusted operating spread, which excludes participating income, ~~and other income,~~ decreased by 45one basis ~~points~~point for the three months ended ~~September~~June 30, ~~2016~~2017, over the prior year, due primarily to an increase in credited interest.

For The ~~Nine~~Six Months Ended ~~September~~June 30, 2017, as compared to The Six Months Ended June 30, 2016 ~~(Successor Company)~~

Pre-tax adjusted operating income

Pre-tax o~~perating~~adjusted operating income ~~of $44.3~~was $46.3 million ~~was~~and increased $16.6 million, or 56.2%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. The increase in adjusted operating earnings primarily ~~due to activity~~resulted from a 64.9% increase in average account values ~~operating spread, and~~in addition to an increase in participating mortgage income. Participating mortgage income for the six months ended June 30, 2017, was ~~$10.5~~$11.2 million ~~and~~as compared to $9.2 million for the six months ended June 30, 2016. The adjusted operating spread, which excludes participating income, ~~and other income, was 178~~increased by seven basis ~~points.~~

~~For The Period of February 1, 2015~~points for the six months ended June 30, 2017, over the prior year, due primarily to ~~September 30, 2015 (Successor Company)~~

~~Pre-tax operating income~~

Pre-tax operating income of $28.2 million was primarily due to activity in average account values, operating spread, and participating mortgage income. Participating mortgage income was $3.5 million and the adjusted operating spread, which excludes participating income and other income, was 190 basis points.

higher investment yields.

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Pre-tax operating income~~

Pre-tax operating income of $4.5 million was primarily due to activity in average account values, operating spread, and participating mortgage income. Participating mortgage income was $0.1 million and the adjusted operating spread, which excludes participating income and other income, was 276 basis points.

Asset Protection

Segment Results of Operations

Segment results were as follows:



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	83,881		$	68,264		$	163,565		$	136,146
Reinsurance ceded	(32,635		)	(24,986		)	(60,944		)	(49,525		)
Net premiums and policy fees	51,246			43,278			102,621			86,621
Net investment income	5,511			4,353			10,710			8,513
Other income	36,533			28,788			70,303			54,964
Total operating revenues	93,290			76,419			183,634			150,098
BENEFITS AND EXPENSES
Benefits and settlement expenses	30,987			25,727			62,410			51,111
Amortization of DAC and VOBA	4,708			5,414			9,608			11,158
Other operating expenses	52,921			41,137			102,992			79,432
Total benefits and expenses	88,616			72,278			175,010			141,701
INCOME BEFORE INCOME TAX	4,674			4,141			8,624			8,397
PRE-TAX ADJUSTED OPERATING INCOME	$	4,674		$	4,141		$	8,624		$	8,397

The following table summarizes key data for the Asset Protection segment:

~~(1)~~ ~~Incurred claims as a percentage of earned premiums~~



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Sales⁽¹⁾
Credit insurance	$	3,805		$	5,954		$	7,879		$	11,531
Service contracts	112,210			88,909			212,199			166,184
GAP	28,253			26,534			59,600			52,095
	$	144,268		$	121,397		$	279,678		$	229,810
Loss Ratios⁽²⁾
Credit insurance	20.7		%	33.0		%	23.6		%	32.7		%
Service contracts	38.6			46.5			38.6			45.9
GAP	121.5			103.9			122.2			105.4

(1) Sales are based on the amount of single premiums and fees received
(2) Incurred claims as a percentage of earned premiums

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~

2016

Pre-tax adjusted operating income

Pre-tax adjusted operating income was ~~$4.1~~$4.7 million, representing ~~a decrease~~an increase of ~~$0.3~~$0.5 million, or ~~7.2%~~12.9%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. Service contract earnings increased ~~$1.7~~$1.6 million primarily due to favorable loss ratios and the acquisition of US Warranty in the fourth quarter of 2016. Credit insurance earnings increased $0.3 million primarily due to lower loss ratios. Earnings from the GAP product line decreased ~~$1.5~~$1.4 million primarily resulting from higher ~~losses. Credit insurance earnings decreased $0.5 million primarily due to higher losses.~~loss ratios.

Net premiums and policy fees

Net premiums and policy fees increased ~~$1.6~~$8.0 million, or ~~3.8%~~18.4%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. Service contract premiums increased $4.9 million primarily due to the addition of US Warranty business, somewhat offset by higher ceded premiums in existing distribution channels. GAP premiums increased ~~$2.8~~$3.6 million primarily due to higher ~~volume. Service contract premiums decreased $1.0 million primarily due to higher ceded premiums~~premium rates on existing business and ~~credit~~the addition of US Warranty business. Credit insurance premiums decreased ~~$0.2~~$0.5 million as a result of lower sales.

Other income

Other income ~~decreased $0.6~~increased $7.7 million, or ~~2.0%~~26.9%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015~~2016 primarily due to ~~lower sales volume~~the addition of US Warranty business in the service contract ~~line.~~

and GAP lines.

Benefits and settlement expenses

Benefits and settlement expenses increased ~~$1.8~~$5.3 million, or ~~7.4%~~20.4%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. GAP claims increased ~~$4.8~~$6.2 million due to a higher loss ~~ratio~~ratios and ~~increased volume. Credit insurance~~the acquisition of US Warranty. Service contract claims ~~increased~~decreased $0.4 million due to ~~a higher~~lower loss ~~ratio. The increases were partially~~ratios, somewhat offset by ~~a decrease in service contract~~additional claims ~~of $3.4~~from the US Warranty line. Credit insurance claims decreased $0.5 million due primarily to lower loss ratios and lower volume.

Amortization of DAC and VOBA and Other operating expenses

Amortization of DAC and VOBA was ~~$1.4~~$0.7 million, or ~~21.3%~~13.0%, lower for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, primarily due to decreased amortization of in-force VOBA in the GAP product line ~~due to runoff of in-force VOBA~~ and lower volume in the credit product line. Other operating expenses were ~~$1.4 million higher than the prior year primarily due to higher sales volume in the GAP product line.~~

~~Sales~~

~~Total segment sales decreased $3.0~~$11.8 million, or ~~2.3%~~28.6%, higher for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016, primarily due to the acquisition of US Warranty.

Sales

Total segment sales increased $22.9 million, or 18.8%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016. Service contract sales ~~decreased $4.5 million.~~increased $23.3 million due to the additional volume provided by US Warranty. GAP sales increased $1.7 million due to additional sales in existing distribution channels and US Warranty. Credit insurance sales decreased ~~$1.3~~$2.1 million due to decreasing demand for the product. ~~The decreases were partially offset by an increase in GAP sales of $2.8 million.~~

For The ~~Nine~~Six Months Ended ~~September~~June 30, 2017, as compared to The Six Months Ended June 30, 2016 ~~(Successor Company)~~

Pre-tax adjusted operating income

Pre-tax adjusted operating income was ~~$12.5~~$8.6 million, ~~which consisted~~representing an increase of ~~service~~$0.2 million, or 2.7%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Service contract earnings increased $3.7 million primarily due to favorable loss ratios and the acquisition of ~~$8.9~~US Warranty in the fourth quarter of 2016. Credit insurance earnings increased $0.4 million primarily due to lower loss ratios. Earnings from the GAP product ~~earnings of $2.3~~line decreased $3.9 million ~~and credit insurance earnings of $1.3 million.~~

primarily resulting from higher loss ratios, somewhat offset by additional income provided by US Warranty.

Net premiums and policy fees

Net premiums and policy fees ~~were $130.2~~increased $16.0 million, ~~which consisted of service~~or 18.5%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Service contract premiums increased $9.1 million primarily due to the addition of ~~$89.1 million,~~US Warranty business, somewhat offset by higher ceded premiums in existing distribution channels. GAP premiums increased $7.7 million primarily due to higher premium rates on existing business and the addition of ~~$31.4 million, and credit~~US Warranty business. Credit insurance premiums decreased $0.8 million as a result of ~~$9.7 million.~~

lower sales.

Other income

Other income ~~activity consisted~~increased $15.3 million, or 27.9%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily due to the addition of ~~$71.0 million from~~US Warranty business in the service contract ~~line~~ and ~~$15.0 million from the~~ GAP ~~product line.~~

lines.

Benefits and settlement expenses

Benefits and settlement expenses ~~activity was $41.2~~increased $11.3 million, ~~in service~~or 22.1%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. GAP claims increased $12.9 million due to higher loss ratios and the acquisition of US Warranty. Service contract claims ~~$33.3~~decreased $0.8 million ~~in GAP~~due to lower loss ratios, somewhat offset by the addition of claims from the US Warranty line. Credit insurance claims decreased $0.8 million due primarily to lower loss ratios and ~~$3.2 million in credit insurance claims.~~

lower volume.

Amortization of DAC and VOBA and Other operating expenses

Amortization of DAC and VOBA ~~consisted of $9.6 million in the credit insurance line, $5.1 million in the GAP line, and~~was $1.6 million, inor 13.9%, lower for the ~~service contract line,~~six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily ~~resulting from~~due to decreased amortization of in-force VOBA ~~activity. Other operating expenses were $122.6 million including activity in all product lines.~~

~~Sales~~

~~Total segment sales consisted of $259.7 million in the service contract line, $79.5 million~~ in the GAP product line and ~~credit insurance sales of $17.0 million.~~

~~For The Period of February 1, 2015 to September 30, 2015 (Successor Company)~~

~~Net premiums and policy fees~~

~~Net premiums and policy fees were $111.9 million which consisted of service contract premiums of $82.2 million, GAP premiums of $20.4 million, and credit insurance premiums of $9.3 million.~~

~~Other income~~

~~Other income activity consisted of $69.3 million from the service contract line and $13.2 million from the GAP product line.~~

~~Benefits and settlement expenses~~

~~Benefits and settlement expenses activity was $44.9 million in service contract claims, $16.8 million in GAP claims and $2.7 million in credit insurance claims.~~

~~Amortization of DAC and VOBA and Other operating expenses~~

~~Amortization of DAC and VOBA consisted of $9.7 million~~lower volume in the credit insurance line, $7.4 million in the GAP line, and $1.0 million in the service contract line, primarily resulting from amortization of VOBA activity. Other operating expenses were $108.9 million including activity in all product ~~lines.~~

~~Sales~~

~~Total segment sales consisted of $258.8 million in the service contract line, $63.5 million in the GAP product line, and credit insurance sales of $18.0 million.~~

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Pre-tax operating income~~

~~Pre-tax operating income was $1.9 million which consisted of $0.8 million in service contract earnings, $0.9 million in GAP product earnings, and credit insurance earnings of $0.2 million.~~

~~Net premiums and policy fees~~

~~Net premiums and policy fees consisted of service contract premiums of $10.4 million, GAP premiums of $2.4 million, and $1.2 million of credit insurance premiums.~~

~~Other income~~

~~Other income consisted of $7.7 million from the service contract line and $1.4 million from the GAP product line.~~

~~Benefits and settlement expenses~~

~~Benefits and settlement expenses was primarily due to service contract claims of $5.6 million, GAP claims of $1.5 million, and credit insurance claims of $0.3 million.~~

~~Amortization of DAC and VOBA and Other operating expenses~~

~~Amortization of DAC consisted of $1.1 million in the credit insurance line, $0.5 million in the service contract line, and $0.2 million in the GAP~~ line. Other operating expenses were ~~$13.4~~$23.6 million ~~including activity in all product lines.~~

higher for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily due to the acquisition of US Warranty.

Sales

Total segment sales ~~consisted of $26.6~~increased $49.9 million, or 21.7%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. Service contract sales increased $46.0 million due to additional volume provided by US Warranty.

GAP sales increased $7.5 million due to higher sales in ~~the service contract line, $6.3 million in the GAP product line~~existing distribution channels and ~~credit~~US Warranty. Credit insurance sales ~~of $2.1 million.~~

decreased $3.6 million due to decreasing demand for the product.

Reinsurance

The majority of the Asset Protection segment’s reinsurance activity relates to the cession of single premium credit life and credit accident and health insurance, vehicle service contracts, and guaranteed asset protection insurance to producer affiliated reinsurance companies (“PARCs”). These arrangements are coinsurance contracts ceding the business on a first dollar quota share basis at 100% to limit our exposure and allow the PARCs to share in the underwriting income of the product. Reinsurance contracts do not relieve us from our obligations to our policyholders. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015 (Successor Company).~~2016.

Impact of Reinsurance

Reinsurance impacted the Asset Protection segment line items as shown in the following table:

Asset Protection Segment

Line Item Impact of Reinsurance

~~(1)~~ ~~Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.~~



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(32,635	)	$	(24,986	)	$	(60,944	)	$	(49,525	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(18,167		)	(16,737		)	(34,748		)	(34,379		)
Amortization of DAC/VOBA	(512		)	(208		)	(978		)	(397		)
Other operating expenses	(1,440		)	(1,471		)	(2,926		)	(2,980		)
Total benefits and expenses	(20,119		)	(18,416		)	(38,652		)	(37,756		)
NET IMPACT OF REINSURANCE⁽¹⁾	$	(12,516	)	$	(6,570	)	$	(22,292	)	$	(11,769	)

(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~

2016

Reinsurance premiums ceded increased ~~$0.8~~$7.6 million, or ~~3.2%~~30.6%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. The increase was primarily due to an increase in ceded service contract and GAP premiums.

Benefits and settlement expenses ceded increased ~~$0.1~~$1.4 million, or ~~0.4%~~8.5%, for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015.~~2016. The increase was primarily due to higher ceded losses in the service contract and GAP product lines, somewhat offset by a decrease in ceded losses in the credit product line.

Amortization of DAC and VOBA ceded increased $0.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015,~~2016, as the result of ceded activity in all product lines. Other operating expenses ceded ~~decreased $0.6 million~~were relatively unchanged for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to the three months ended ~~September~~June 30, ~~2015, primarily due to ceded activity in the GAP product and credit insurance lines.~~

2016.

Net investment income has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgo investment income on the reserves ceded. Conversely, the assuming companies will receive investment income on the reserves assumed which generally will increase the assuming companies’ profitability on business we cede. The net investment income impact to us and the assuming companies has not been quantified as it is not reflected in our consolidated financial statements.

For The ~~Nine~~Six Months Ended ~~September~~June 30, 2017, as compared to The Six Months Ended June 30, 2016 ~~(Successor Company)~~

Reinsurance premiums ceded ~~of $74.9~~increased $11.4 million, ~~consisted of~~or 23.1%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. The increase was primarily due to an increase in ceded ~~premiums in the~~ service contract ~~line of $48.4 million, ceded premiums in the~~and GAP ~~product line of $14.9 million, and ceded premiums in the credit insurance line of $11.6 million.~~

premiums.

Benefits and settlement expenses ceded ~~consisted of $38.6~~increased $0.4 million, or 1.1%, for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016. The increase was primarily due to higher ceded losses in the service contract and GAP product lines, somewhat offset by a decrease in ceded ~~claims, $10.1 million~~losses in ~~GAP ceded claims, and $2.4 million in~~the credit ~~insurance ceded claims.~~product line.

Amortization of DAC and VOBA ceded ~~of $0.7~~increased $0.6 million ~~was mainly due~~for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, as the result of ceded activity in ~~the service contract and GAP~~all product lines. Other operating expenses ceded ~~of $4.4 million was mainly due~~were relatively unchanged for the six months ended June 30, 2017, as compared to ~~ceded activity in~~ the ~~credit insurance product line.~~

six months ended June 30, 2016.

~~For The Period of February 1, 2015 to September 30, 2015 (Successor Company)~~

Reinsurance premiums ceded of $63.6 million consisted of ceded premiums in the service contract line of $39.3 million, ceded premiums in the GAP product line of $12.7 million, and ceded premiums in the credit insurance line of $11.6 million.

~~Benefits and settlement expenses consisted of $33.2 million in service contract ceded claims, $5.9 million in GAP ceded claims, and $2.5 million in credit insurance ceded claims.~~

~~Other operating expenses ceded of $5.5 million were mainly due to ceded activity in the credit insurance and GAP product lines.~~

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Reinsurance premiums ceded of $7.9 million consisted of ceded premiums in all product lines.~~

~~Benefits and settlement expenses ceded of $4.2 million was primarily due to losses on ceded business in the service contract and GAP product lines.~~

Amortization of DAC ceded of $0.5 million was primarily the result of ceded activity in the GAP and credit product lines. Other operating expenses ceded of $0.7 million were mainly due to ceded activity in the credit and GAP product lines.

Corporate and Other

Segment Results of Operations

Segment results were as follows:


	Successor Company												Predecessor Company			For The Three Months Ended June 30,						For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015			2017			2016			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	3,400		$	3,755		$	10,606		$	10,189		$	1,343		$	3,113		$	3,532		$	6,540		$	7,206
Reinsurance ceded	(60		)	(120		)	(201		)	(137		)	—			(22		)	(82		)	(81		)	(141		)
Net premiums and policy fees	3,340			3,635			10,405			10,052			1,343			3,091			3,450			6,459			7,065
Net investment income	16,114			13,950			71,446			40,827			278			23,221			28,999			48,130			55,332
Other income	141			179			576			588			1			150			144			325			435
Total operating revenues	19,595			17,764			82,427			51,467			1,622			26,462			32,593			54,914			62,832
Realized gains (losses) - investments	1,418			(2,859		)	(2,866		)	(2,206		)	4,919			(43		)	(2,549		)	(4,380		)	(4,284		)
Realized gains (losses) - derivatives	13,859			(13,908		)	32,153			(16,468		)	16,318			(2,540		)	14,874			(18,781		)	18,294
Total revenues	34,872			997			111,714			32,793			22,859			23,879			44,918			31,753			76,842
BENEFITS AND EXPENSES
Benefits and settlement expenses	5,404			4,082			14,180			10,347			1,721			3,159			4,752			6,813			8,776
Amortization of deferred policy acquisition costs and value of business acquired	—			—			—			26			87
Amortization of DAC and VOBA																—			—			—			—
Other operating expenses	60,700			48,239			179,746			125,982			16,476			58,628			58,089			117,787			119,046
Total benefits and expenses	66,104			52,321			193,926			136,355			18,284			61,787			62,841			124,600			127,822
INCOME (LOSS) BEFORE INCOME TAX	(31,232		)	(51,324		)	(82,212		)	(103,562		)	4,575			(37,908		)	(17,923		)	(92,847		)	(50,980		)
Less: realized gains (losses) - investments	1,418			(2,859		)	(2,866		)	(2,206		)	4,919			(43		)	(2,549		)	(4,380		)	(4,284		)
Less: realized gains (losses) - derivatives	13,859			(13,908		)	32,153			(16,468		)	16,318			(2,540		)	14,874			(18,781		)	18,294
PRE-TAX OPERATING INCOME (LOSS)	$	(46,509	)	$	(34,557	)	$	(111,499	)	$	(84,888	)	$	(16,662	)
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)																$	(35,325	)	$	(30,248	)	$	(69,686	)	$	(64,990	)

For The Three Months Ended ~~September~~June 30, ~~2016~~2017, as compared to The Three Months Ended ~~September~~June 30, ~~2015 (Successor Company)~~

2016

Pre-tax adjusted operating income (loss)

Pre-tax adjusted operating loss was ~~$46.5~~$35.3 million for the three months ended ~~September~~June 30, ~~2016,~~2017, as compared to ana pre-tax adjusted operating loss of ~~$34.6~~$30.2 million for the three months ended ~~September~~June 30, ~~2015.~~2016. The decrease was primarily due to a ~~$11.3~~decrease in core investment income.

Operating revenues

Net investment income for the segment decreased $5.8 million ~~increase~~or 19.9% for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016. The decrease in ~~interest expense.~~net investment income was primarily due to a decrease in asset balances.

Total benefits and expenses

Total benefits and expenses decreased $1.1 million, or 1.7%, for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, primarily due to decreases in corporate overhead expenses.

For The Six Months Ended June 30, 2017, as compared to The Six Months Ended June 30, 2016

Pre-tax adjusted operating income (loss)

Pre-tax adjusted operating loss was $69.7 million for the six months ended June 30, 2017, as compared to a pre-tax adjusted operating loss of $65.0 million for the six months ended June 30, 2016. The decrease was primarily due to a $7.2 million decrease in net investment income. Partially offsetting these decreases was a ~~$2.2 million increase~~decrease in ~~net investment income.~~corporate overhead expenses.

Operating revenues

Net investment income for the segment ~~increase $2.2~~decreased $7.2 million or ~~15.5%~~13.0% for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2015.~~2016. The ~~increase~~decrease in net investment income was primarily due to $23.7 million of income related to additional held to maturity securities issued by affiliates of the Company which are considered variable interest entities (“VIE’s”). These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company. Interest expense related to the non-recourse funding obligations is recognized in an equal and offsetting amount to the investment income. Offsetting this increase was a ~~$21.5 million~~ decrease in ~~core net investment income.~~

asset balances.

Total benefits and expenses

Total benefits and expenses ~~increased $13.8~~decreased $3.2 million or ~~26.3%~~2.5%, for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to the ~~three~~six months ended ~~September~~June 30, ~~2015,~~2016, primarily due to ~~$23.7 million of increased interest expense related to the Golden Gate Captive non-recourse funding obligations.~~

~~For The Nine Months Ended September 30, 2016 (Successor Company)~~

~~Pre-tax operating income (loss)~~

~~The segment’s $111.5 million pre-tax operating loss was primarily due to $179.7 million of other operating expense which is primarily interest expense and~~a decrease in corporate overhead expenses. ~~These expenses were partially offset by $71.4 million of investment income which represents income on assets supporting our equity capital and held-to-maturity notes.~~

~~Operating revenues~~

~~Operating revenues of $82.4 million were primarily due to $71.4 million of investment income which represents income on assets supporting our equity capital.~~

~~Total benefits and expenses~~

~~Total benefits and expenses of $193.9 million were primarily due to $179.7 million of other operating expenses which included corporate overhead expenses and $94.3 million of interest expense.~~

~~For The Period of February 1, 2015 to September 30, 2015 (Successor Company)~~

~~Pre-tax operating income (loss)~~

The segment’s $84.9 million pre-tax operating loss was primarily due to $126.0 million of other operating expense which is primarily interest expense and corporate overhead expenses. These expenses were partially offset by $40.8 million of investment income which represents income on assets supporting our equity capital.

~~Operating revenues~~

~~Operating revenues of $51.5 million were primarily due to $40.8 million of investment income, which represents income on assets supporting our equity capital.~~

~~Total benefits and expenses~~

~~Total benefits and expenses of $136.4 million were primarily due to $126.0 million of other operating expenses which included corporate overhead expenses and $54.8 million of interest expense.~~

~~For The Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~

~~Pre-tax operating income (loss)~~

The segment’s $16.7 million pre-tax operating loss was primarily due to $18.3 million of total benefits and expenses offset by $0.3 million of net investment income and $1.3 million of premiums and policy fees.

~~Operating revenues~~

~~Operating revenues of $1.6 million were primarily due to $1.3 million of premium and policy fees and $0.3 million of net investment income.~~

~~Total benefits and expenses~~

~~Total benefits and expenses of $18.3 million was primarily due to $16.5 million of other operating expenses which included corporate overhead expenses and $2.8 million of charitable contributions.~~

CONSOLIDATED INVESTMENTS

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, our investment portfolio was approximately ~~$51.6~~$52.0 billion. The types of assets in which we may invest are influenced by various state insurance laws which prescribe qualified investment assets. Within the parameters of these laws, we invest in assets giving consideration to such factors as liquidity and capital needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure.

~~The following table presents the reported values of our invested assets:~~

Successor Company
As of
September 30, 2016
As of
December 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Publicly issued bonds (amortized cost: 2016 - $30,317,541; 2015 - $29,849,592) $ 30,130,476
58.4 % $ 27,396,560
60.8 %
Privately issued bonds (amortized cost: 2016 - $11,951,874; 2015 - $9,065,023) 11,982,256
23.2
8,636,970
19.2
Preferred stock (amortized cost: 2016 - $98,152; 2015 - $68,558) 97,562
0.2
66,882
0.1
Fixed maturities 42,210,294
81.8 % 36,100,412
80.1 %
Equity securities (cost: 2016 - $680,987; 2015 - $693,147) 699,686
1.4
699,925
1.6
Mortgage loans 5,912,683
11.5
5,662,812
12.6
Investment real estate 8,006
—
11,118
—
Policy loans 1,656,083
3.2
1,699,508
3.8
Other long-term investments 950,261
1.8
594,036
1.3
Short-term investments 168,552
0.3
263,837
0.6
Total investments $ 51,605,565
100.0 % $ 45,031,648
100.0 %

Included in the preceding table are $2.8 billion and $2.7 billion of fixed maturities and $25.7 million and $61.7 million of short-term investments classified as trading securities as of September 30, 2016 (Successor Company) and December 31, 2015 (Successor Company), respectively. All of the fixed maturities in the trading portfolio are invested assets that are held pursuant to modified coinsurance (“Modco”) arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers. Also included above are $2.8 billion and $593.3 million of securities classified as held-to-maturity as of September 30, 2016 (Successor Company) and December 31, 2015 (Successor Company), respectively.

~~Fixed Maturity Investments~~

As of September 30, 2016 (Successor Company), our fixed maturity investment holdings were approximately $42.2 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:

Successor Company
As of As of
Rating September 30, 2016 December 31, 2015
(Dollars In Thousands)
AAA $ 5,224,124
12.4 % $ 5,223,656
14.5 %
AA 3,565,141
8.4
2,864,706
7.9
A 13,146,654
31.1
11,564,843
32.0
BBB 15,316,964
36.3
14,076,212
39.0
Below investment grade 2,182,181
5.2
1,777,681
4.9
Not rated⁽¹⁾
2,775,230
6.6
593,314
1.7
$ 42,210,294
100.0 % $ 36,100,412
100.0 %

(1) Our "not rated" securities are $2.8 billion or 6.6% of our fixed maturity investments, of held-to-maturity securities issued by affiliates of the Company. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company.

~~assigning the rating. When there are no such published ratings, we assign a rating based on the statutory accounting rating system if such ratings are available.~~

We do not have material exposure to financial guarantee insurance companies with respect to our investment portfolio.

Within our fixed maturity investments, we maintain portfolios classified as “available-for-sale”, “trading”, and “held-to-maturity”. We purchase our available-for-sale investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, we may sell any of our available-for-sale and trading investments to maintain proper matching of assets and liabilities. Accordingly, we classified $36.5 billion, or 87.0%, of our fixed maturities as “available-for-sale” as of June 30, 2017. These securities are carried at fair value on our consolidated condensed balance sheets. Changes in fair value for our available-for-sale portfolio, net of tax and the related impact on certain insurance assets and liabilities are recorded directly to shareowner’s equity. Declines in fair value that are other-than-temporary are recorded as realized losses in the consolidated condensed statements of income, net of any applicable non-credit component of the loss, which is recorded as an adjustment to other comprehensive income (loss).

~~The distribution of our fixed maturity investments by type is as follows:~~

Successor Company
As of As of
Type September 30, 2016 December 31, 2015
(Dollars In Thousands)
Corporate securities $ 30,385,533
$ 27,119,158
Residential mortgage-backed securities 2,150,855
2,051,931
Commercial mortgage-backed securities 1,840,378
1,432,607
Other asset-backed securities 1,465,129
1,072,474
U.S. government-related securities 1,348,057
1,770,524
Other government-related securities 79,306
76,567
States, municipals, and political subdivisions 2,068,244
1,916,954
Preferred stock 97,562
66,883
Securities issued by affiliates 2,775,230
593,314
Total fixed income portfolio $ 42,210,294
$ 36,100,412

~~The industry segment composition of our fixed maturity securities is presented in the following table:~~

Successor Company
As of
September 30, 2016
% Fair
Value

As of
December 31, 2015

% Fair
Value
(Dollars In Thousands) (Dollars In Thousands)
Banking $ 3,811,953
9.0 % $ 3,359,169
9.3 %
Other finance 425,656
1.0
482,147
1.3
Electric utility 4,054,833
9.6
3,707,729
10.3
Energy and natural gas 4,618,954
10.9
3,940,588
10.9
Insurance 3,245,966
7.7
2,924,523
8.1
Communications 1,445,210
3.4
1,338,544
3.7
Basic industrial 1,679,057
4.0
1,480,354
4.1
Consumer noncyclical 3,781,481
9.0
3,134,732
8.7
Consumer cyclical 1,706,333
4.0
1,712,862
4.7
Finance companies 122,347
0.3
118,214
0.3
Capital goods 1,469,917
3.5
1,418,653
3.9
Transportation 1,082,890
2.6
969,329
2.7
Other industrial 372,807
0.9
313,957
0.9
Brokerage 631,873
1.5
546,726
1.5
Technology 1,626,270
3.9
1,315,958
3.6
Real estate 156,364
0.4
189,955
0.5
Other utility 251,184
0.6
232,601
0.6
Commercial mortgage-backed securities 1,840,378
4.4
1,432,607
4.0
Other asset-backed securities 1,465,129
3.5
1,072,474
3.0
Residential mortgage-backed non-agency securities 1,369,709
3.2
1,102,310
3.1
Residential mortgage-backed agency securities 781,146
1.9
949,621
2.6
U.S. government-related securities 1,348,057
3.2
1,770,524
4.9
Other government-related securities 79,306
0.2
76,567
0.2
State, municipals, and political divisions 2,068,244
4.9
1,916,954
5.3
Securities issued by affiliates 2,775,230
6.4
593,314
1.8
Total $ 42,210,294
100.0 % $ 36,100,412
100.0 %

Fixed maturities with respect to which we have both the positive intent and ability to hold to maturity are classified as “held-to-maturity”. We classified $2.8 billion, or 6.6%, of our fixed maturities as “held-to-maturity” as of September 30, 2016 (Successor Company). These securities are carried at amortized cost on our consolidated condensed balance sheets.

Trading securities are carried at fair value and changes in fair value are recorded on the income statement as they occur. Our trading portfolio accounted for ~~$2.8~~$2.7 billion, or ~~6.6%,~~6.4 %, of our fixed maturities and ~~$25.7~~$45.8 million of short-term investments as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. Changes in fair value on the Modco trading ~~portfolio,~~portfolios, including gains and losses from sales, are passed to ~~the~~third party reinsurers through the contractual terms of the related reinsurance arrangements. Partially offsetting these amounts are corresponding changes in the fair value of the embedded derivative associated with the underlying reinsurance arrangement. ~~The total Modco trading portfolio fixed~~

Fixed maturities ~~by rating is as follows:~~

Successor Company
As of As of
Rating September 30, 2016 December 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
AAA $ 362,879
$ 542,080
AA 361,689
309,852
A 885,086
752,419
BBB 912,408
771,501
Below investment grade 266,379
288,197
Total Modco trading fixed maturities $ 2,788,441
$ 2,664,049

A portion of our bond portfolio is invested in residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). ABS are securities that are backed by a pool of assets. These holdings as of September 30, 2016 (Successor Company), were approximately $5.5 billion. Mortgage-backed securities (“MBS”) are constructed from pools of mortgages and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to which we have both the ~~underlying loans. Excluding limitations on access~~positive intent and ability to ~~lending and other extraordinary economic conditions, prepayments of principal on the underlying loans can be expected~~hold to ~~accelerate with decreases in market interest rates and diminish with increases in interest rates.~~

~~The following tables include the percentage~~maturity are classified as “held-to-maturity”. We classified $2.7 billion, or 6.6 %, of our ~~collateral grouped by rating category and categorizes the estimated fair value by year of security origination for our Prime, Non-Prime, Commercial, and Other asset-backed securities~~fixed maturities as “held-to-maturity” as of ~~September~~June 30, ~~2016 (Successor Company) and December 31, 2015 (Successor Company):~~

As of September 30, 2016 (Successor Company)

Prime⁽¹⁾

Non-Prime⁽¹⁾
Commercial Other asset-backed Total
Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized
Value Cost Value Cost Value Cost Value Cost Value Cost
(Dollars In Millions)
Rating $
AAA $ 1,748.1
$ 1,701.3
$ —
$ —
$ 1,103.8
$ 1,085.4
$ 735.9
$ 744.7
$ 3,587.8
$ 3,531.4
AA 1.1
1.1
—
—
449.0
441.5
168.4
163.3
618.5
605.9
A 3.1
3.1
0.5
0.5
276.8
273.6
424.9
423.2
705.3
700.4
BBB 2.3
2.3
1.9
1.9
10.8
10.8
34.9
34.9
49.9
49.9
Below 127.1
126.4
266.8
269.5
—
—
101.0
100.1
494.9
496.0
$ 1,881.7
$ 1,834.2
$ 269.2
$ 271.9
$ 1,840.4
$ 1,811.3
$ 1,465.1
$ 1,466.2
$ 5,456.4
$ 5,383.6

Rating %
AAA 92.9 % 92.8 % — % — % 60.0 % 59.9 % 50.2 % 50.8 % 65.5 % 65.3 %
AA 0.1
0.1
—
—
24.4
24.4
11.5
11.1
11.6
11.5
A 0.2
0.2
0.2
0.2
15.0
15.1
29.0
28.9
13.0
13.1
BBB 0.1
0.1
0.7
0.7
0.6
0.6
2.4
2.4
0.9
0.9
Below 6.7
6.8
99.1
99.1
—
—
6.9
6.8
9.0
9.2
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Estimated Fair Value of Security by Year of Security Origination
2012 and prior $ 907.9
$ 894.1
$ 269.2
$ 271.9
$ 848.6
$ 841.0
$ 891.4
$ 898.3
$ 2,917.1
$ 2,905.3
2013 180.4
174.2
—
—
226.1
223.9
121.1
120.6
527.6
518.7
2014 183.9
177.5
—
—
240.5
238.3
183.8
182.5
608.2
598.3
2015 474.3
456.3
—
—
222.2
211.4
70.6
68.9
767.1
736.6
2016 135.2
132.1
—
—
303.0
296.7
198.2
195.9
636.4
624.7
Total $ 1,881.7
$ 1,834.2
$ 269.2
$ 271.9
$ 1,840.4
$ 1,811.3
$ 1,465.1
$ 1,466.2
$ 5,456.4
$ 5,383.6

(1)Included in Residential Mortgage-Backed securities.

As of December 31, 2015 (Successor Company)

Prime⁽¹⁾

Non-Prime⁽¹⁾
Commercial Other asset-backed Total
Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized
Value Cost Value Cost Value Cost Value Cost Value Cost
(Dollars In Millions)
Rating $
AAA $ 1,585.4
$ 1,589.2
$ —
$ —
$ 1,002.4
$ 1,033.9
$ 595.2
$ 608.3
$ 3,183.0
$ 3,231.4
AA 1.4
1.4
—
—
252.5
261.0
197.1
194.5
451.0
456.9
A 3.5
3.5
—
—
164.5
165.9
153.8
159.2
321.8
328.6
BBB 2.8
2.8
2.8
2.8
13.2
13.2
13.5
13.5
32.3
32.3
Below 152.9
153.1
303.1
306.9
—
—
112.9
113.0
568.9
573.0
$ 1,746.0
$ 1,750.0
$ 305.9
$ 309.7
$ 1,432.6
$ 1,474.0
$ 1,072.5
$ 1,088.5
$ 4,557.0
$ 4,622.2

Rating %
AAA 90.8 % 90.8 % — % — % 70.0 % 70.1 % 55.5 % 55.9 % 69.8 % 69.9 %
AA 0.1
0.1
—
—
17.6
17.7
18.4
17.9
9.9
9.9
A 0.2
0.2
—
—
11.5
11.3
14.3
14.6
7.1
7.1
BBB 0.2
0.2
0.9
0.9
0.9
0.9
1.3
1.2
0.7
0.7
Below 8.7
8.7
99.1
99.1
—
—
10.5
10.4
12.5
12.4
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Estimated Fair Value of Security by Year of Security Origination
2011 and prior $ 894.3
$ 896.2
$ 305.9
$ 309.7
$ 480.1
$ 491.0
$ 826.4
$ 838.0
$ 2,506.7
$ 2,534.9
2012 74.2
75.2
—
—
369.5
381.1
136.6
138.8
580.3
595.1
2013 157.2
160.3
—
—
198.2
203.8
48.9
49.9
404.3
414.0
2014 161.6
160.6
—
—
216.6
228.3
43.1
44.3
421.3
433.2
2015 458.7
457.7
—
—
168.2
169.8
17.5
17.5
644.4
645.0
Total $ 1,746.0
$ 1,750.0
$ 305.9
$ 309.7
$ 1,432.6
$ 1,474.0
$ 1,072.5
$ 1,088.5
$ 4,557.0
$ 4,622.2

(1) Included in Residential Mortgage-Backed securities

~~The majority of our RMBS holdings as of September 30, 2016 (Successor Company) were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 5.0 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of September 30, 2016 (Successor Company):~~



		~~Weighted-Average~~
~~Non-agency portfolio~~		~~Life~~

~~Prime~~		~~5.22~~
~~Alt-A~~		~~3.76~~
~~Sub-prime~~		~~3.02~~

~~Our investments classified as available-for-sale and trading in debt and equity~~2017. These securities are ~~reported at fair value. Our investments classified as held-to-maturity are reported~~carried at amortized ~~cost. As of September 30, 2016 (Successor Company),~~cost on our fixed maturity investments (bonds and redeemable preferred stocks) had a fair value of $42.2 billion, which was 0.5% below amortized cost of $42.4 billion. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.consolidated condensed balance sheets.

Fair values for private, non-traded securities are determined as follows: 1) we obtain estimates from independent pricing services and 2) we estimate fair value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics. We analyze the independent pricing services valuation methodologies and related inputs, including an assessment of the observability of market inputs. Upon obtaining this information related to fair value, management makes a determination as to the appropriate valuation amount. For more information about the fair values of our investments please refer to Note 5, Fair Value of Financial Instruments, to the financial statements.

The following table presents the reported values of our invested assets:



	As of
	June 30, 2017				December 31, 2016
	(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2017 - $30,275,131; 2016 - $30,387,712)	$	29,747,547	57.3	%	$	29,049,505	57.6	%
Privately issued bonds (amortized cost: 2017 - $12,123,791; 2016 - $11,929,228)	12,078,374		23.2		11,627,422		23.0
Preferred stock (amortized cost: 2017 - $97,476; 2016 - $98,348)	96,181		0.2		89,827		0.3
Fixed maturities	41,922,102		80.7	%	40,766,754		80.9	%
Equity securities (cost: 2017 - $731,168; 2016 - $729,951)	750,141		1.4		716,017		1.4
Mortgage loans	6,472,861		12.5		6,132,125		12.2
Investment real estate	6,705		—		8,060		—
Policy loans	1,634,809		3.1		1,650,240		3.3
Other long-term investments	809,457		1.6		856,410		1.7
Short-term investments	362,048		0.7		315,834		0.5
Total investments	$	51,958,123	100.0	%	$	50,445,440	100.0	%

Included in the preceding table are $2.7 billion and $2.6 billion of fixed maturities and $45.8 million and $52.6 million of short-term investments classified as trading securities as of June 30, 2017 and December 31, 2016, respectively. All of the fixed maturities in the trading portfolio are invested assets that are held pursuant to Modco arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers. Also included above are $2.7 billion and $2.8 billion of securities classified as held-to-maturity as of June 30, 2017 and December 31, 2016, respectively.

Fixed Maturity Investments

As of June 30, 2017, our fixed maturity investment holdings were approximately $41.9 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:



	As of
Rating	June 30, 2017				December 31, 2016
	(Dollars In Thousands)
AAA	$	5,418,947	12.9	%	$	5,230,763	12.8	%
AA	3,476,949		8.3		3,473,989		8.5
A	13,174,148		31.4		12,663,569		31.1
BBB	14,988,097		35.8		14,408,537		35.4
Below investment grade	2,116,884		5.0		2,219,719		5.4
Not rated⁽¹⁾	2,747,077		6.6		2,770,177		6.8
	$	41,922,102	100.0	%	$	40,766,754	100.0	%

(1) Our "not rated" securities are $2.7 billion or 6.6% of our fixed maturity investments, of held-to-maturity securities issued by affiliates of the Company which are considered variable interest entities ("VIE's") and are discussed in Note 4, Investment Operations, to the consolidated condensed financial statements. We are not the primary beneficiary of these entities and thus these securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company.

We use various Nationally Recognized Statistical Rating Organizations’ (“NRSRO”) ratings when classifying securities by quality ratings. When the various NRSRO ratings are not consistent for a security, we use the second-highest convention in assigning the rating. When there are no such published ratings, we assign a rating based on the statutory accounting rating system if such ratings are available.

The distribution of our fixed maturity investments by type is as follows:



	As of
Type	June 30, 2017		December 31, 2016
	(Dollars In Thousands)
Corporate securities	$	29,870,871	$	28,849,238
Residential mortgage-backed securities	2,256,424		2,144,634
Commercial mortgage-backed securities	1,955,300		1,932,180
Other asset-backed securities	1,347,778		1,411,617
U.S. government-related securities	1,322,209		1,295,120
Other government-related securities	313,221		300,938
States, municipals, and political subdivisions	2,013,041		1,973,022
Preferred stock	96,181		89,828
Securities issued by affiliates	2,747,077		2,770,177
Total fixed income portfolio	$	41,922,102	$	40,766,754

The industry segment composition of our fixed maturity securities is presented in the following table:



	As of June 30, 2017		% Fair Value		As of December 31, 2016		% Fair Value
	(Dollars In Thousands)
Banking	$	4,096,583	9.9	%	$	3,811,588	9.3	%
Other finance	62,984		0.1		83,895		0.2
Electric utility	3,981,666		9.7		3,925,147		9.6
Energy	3,898,380		9.4		3,887,736		9.5
Natural gas	682,686		1.6		603,149		1.5
Insurance	3,450,472		8.2		3,185,237		7.8
Communications	1,648,931		3.9		1,651,600		4.1
Basic industrial	1,562,012		3.7		1,533,516		3.8
Consumer noncyclical	3,607,319		8.6		3,465,299		8.5
Consumer cyclical	1,049,945		2.5		1,041,805		2.6
Finance companies	147,164		0.3		139,050		0.3
Capital goods	1,799,324		4.3		1,773,467		4.4
Transportation	1,139,282		2.7		1,136,666		2.7
Other industrial	207,983		0.5		200,605		0.5
Brokerage	794,425		1.9		760,585		1.9
Technology	1,663,361		4.0		1,534,297		3.8
Real estate	91,088		0.2		122,058		0.3
Other utility	83,447		0.2		83,366		0.2
Commercial mortgage-backed securities	1,955,300		4.7		1,932,180		4.7
Other asset-backed securities	1,347,778		3.2		1,411,617		3.5
Residential mortgage-backed non-agency securities	1,569,617		3.7		1,414,859		3.5
Residential mortgage-backed agency securities	686,807		1.6		729,775		1.8
U.S. government-related securities	1,322,209		3.1		1,295,120		3.2
Other government-related securities	313,221		0.7		300,938		0.7
State, municipals, and political divisions	2,013,041		4.8		1,973,022		4.8
Securities issued by affiliates	2,747,077		6.5		2,770,177		6.8
Total	$	41,922,102	100.0	%	$	40,766,754	100.0	%

The total Modco trading portfolio fixed maturities by rating is as follows:



	As of
Rating	June 30, 2017		December 31, 2016
	(Dollars In Thousands)
AAA	$	357,429	$	341,364
AA	309,086		301,258
A	868,226		849,286
BBB	918,157		884,850
Below investment grade	240,201		263,102
Total Modco trading fixed maturities	$	2,693,099	$	2,639,860

A portion of our bond portfolio is invested in residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). ABS are securities that are backed by a pool of assets. These holdings as of June 30, 2017, were approximately $5.6 billion. Mortgage-backed securities (“MBS”) are constructed from pools of mortgages and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Excluding limitations on access to lending and other extraordinary economic conditions, prepayments of principal on the underlying loans can be expected to accelerate with decreases in market interest rates and diminish with increases in interest rates.

The following tables include the percentage of our collateral grouped by rating category and categorizes the estimated fair value by year of security origination for our Prime, Non-Prime, Commercial, and Other asset-backed securities as of June 30, 2017, and December 31, 2016:



	As of June 30, 2017
	Prime⁽¹⁾						Non-Prime⁽¹⁾						Commercial						Other asset-backed						Total
	Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized
	Value			Cost			Value			Cost			Value			Cost			Value			Cost			Value			Cost
	(Dollars In Millions)
Rating $
AAA	$	1,904.0		$	1,909.7		$	—		$	—		$	1,196.0		$	1,205.0		$	678.5		$	684.5		$	3,778.5		$	3,799.2
AA	1.7			1.7			—			—			504.7			514.3			134.8			126.8			641.2			642.8
A	5.9			6.2			22.8			23.0			251.1			252.3			436.5			436.5			716.3			718.0
BBB	1.7			1.8			3.2			3.3			3.5			3.5			19.6			19.5			28			28.1
Below	98.5			97.7			218.6			218.0			—			—			78.4			77.8			395.5			393.5
	$	2,011.8		$	2,017.1		$	244.6		$	244.3		$	1,955.3		$	1,975.1		$	1,347.8		$	1,345.1		$	5,559.5		$	5,581.6

Rating %
AAA	94.6		%	94.7		%	—		%	—		%	61.2		%	61.0		%	50.3		%	50.9		%	68.0		%	68.1		%
AA	0.1			0.1			—			—			25.8			26.0			10.0			9.4			11.5			11.5
A	0.3			0.3			9.3			9.4			12.8			12.8			32.4			32.5			12.9			12.9
BBB	0.1			0.1			1.3			1.4			0.2			0.2			1.5			1.4			0.5			0.5
Below	4.9			4.8			89.4			89.2			—			—			5.8			5.8			7.1			7.0
	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

Estimated Fair Value of Security by Year of Security Origination
2013 and prior	$	946.0		$	947.6		$	244.6		$	244.3		$	1,056.1		$	1,065.5		$	856.9		$	857.7		$	3,103.6		$	3,115.1
2014	197.9			196.7			—			—			234.8			240.4			62.1			63.2			494.8			500.3
2015	454.9			454.9			—			—			212.8			210.9			62.3			61.0			730.0			726.8
2016	212.7			218.0			—			—			449.5			456.2			255.3			252.7			917.5			926.9
2017	200.3			199.9			—			—			2.1			2.1			111.2			110.5			313.6			312.5
Total	$	2,011.8		$	2,017.1		$	244.6		$	244.3		$	1,955.3		$	1,975.1		$	1,347.8		$	1,345.1		$	5,559.5		$	5,581.6

(1) Included in Residential Mortgage-Backed securities.



	As of December 31, 2016
	Prime⁽¹⁾						Non-Prime⁽¹⁾						Commercial						Other asset-backed						Total
	Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized
	Value			Cost			Value			Cost			Value			Cost			Value			Cost			Value			Cost
	(Dollars In Millions)
Rating $
AAA	$	1,758.6		$	1,770.6		$	—		$	—		$	1,165.8		$	1,184.6		$	727.3		$	732.6		$	3,651.7		$	3,687.8
AA	3.1			3.1			—			—			500.7			515.8			125.2			117.8			629.0			636.7
A	2.8			2.9			0.5			0.5			255.9			260.1			426.4			428.6			685.6			692.1
BBB	2.2			2.2			1.8			1.9			9.8			9.8			34.6			34.7			48.4			48.6
Below	118.1			117.9			257.5			260.1			—			—			98.1			96.9			473.7			474.9
	$	1,884.8		$	1,896.7		$	259.8		$	262.5		$	1,932.2		$	1,970.3		$	1,411.6		$	1,410.6		$	5,488.4		$	5,540.1

Rating %
AAA	93.3		%	93.4		%	—		%	—		%	60.3		%	60.1		%	51.5		%	51.9		%	66.5		%	66.3		%
AA	0.2			0.2			—			—			25.9			26.2			8.9			8.4			11.5			11.7
A	0.1			0.1			0.2			0.2			13.3			13.2			30.2			30.4			12.5			12.6
BBB	0.1			0.1			0.7			0.7			0.5			0.5			2.5			2.5			0.9			0.9
Below	6.3			6.2			99.1			99.1			—			—			6.9			6.8			8.6			8.5
	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

Estimated Fair Value of Security by Year of Security Origination
2012 and prior	$	845.2		$	845.2		$	259.8		$	262.5		$	825.5		$	837.1		$	828.7		$	828.9		$	2,759.2		$	2,773.7
2013	166.5			168.0			—			—			226.5			230.9			98.6			98.8			491.6			497.7
2014	203.8			203.8			—			—			234.1			242.7			168.4			168.4			606.3			614.9
2015	461.2			464.6			—			—			209.9			210.5			66.2			64.6			737.3			739.7
2016	208.1			215.1			—			—			436.2			449.1			249.7			249.9			894.0			914.1
Total	$	1,884.8		$	1,896.7		$	259.8		$	262.5		$	1,932.2		$	1,970.3		$	1,411.6		$	1,410.6		$	5,488.4		$	5,540.1

(1) Included in Residential Mortgage-Backed securities

The majority of our RMBS holdings as of June 30, 2017, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 9.26 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of June 30, 2017:



		Weighted-Average
Non-agency portfolio		Life

Prime		12.26
Alt-A		3.44
Sub-prime		2.67

Mortgage Loans

We invest a portion of our investment portfolio in commercial mortgage loans. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, our mortgage loan holdings were approximately ~~$5.9~~$6.5 billion. We have specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers and apartments. Our underwriting procedures relative to our commercial loan portfolio are based, in our view, on a conservative and disciplined approach. We concentrate on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). We believe that these asset types tend to weather economic downturns better than other commercial asset classes in which we have chosen not to participate. We believe this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout our history. The majority of our mortgage loans portfolio was underwritten and funded by us. From time to time, we may acquire loans in conjunction with an acquisition.

Our commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income.

Certain of the mortgage loans have call options that occur within the next 12 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options on our existing mortgage loans commensurate with the significantly increased market rates. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, assuming the loans are called at their next call dates, approximately ~~$28.1~~$60.9 million of principal would become due for the remainder of ~~2016, $972.7~~2017, $1,010.2 million in ~~2017~~2018 through ~~2021, $235.0~~2022, $125.7 million in ~~2022~~2023 through ~~2026,~~2027, and ~~$11.0~~$10.0 million thereafter.

We offer a type of commercial mortgage loan under which we will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of ~~September~~June 30, ~~2016 (Successor Company)~~2017 and December 31, ~~2015 (Successor Company),~~2016, approximately ~~$549.2~~$669.8 million and ~~$449.2~~$595.2 million, respectively, of our total mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company),~~2017 and ~~January 1, 2015 to January 31, 2015 (Predecessor Company),~~2016, we recognized ~~$3.3~~$4.7 million, ~~$15.8~~$11.5 million, ~~$3.3 million, $8.4~~$5.7 million, and ~~$0.1~~$12.5 million respectively, of participating mortgage loan income.

We record mortgage loans net of an allowance for credit losses. This allowance is calculated through analysis of specific loans that have indicators of potential impairment based on current information and events. As of ~~September~~June 30, 2017 and December 31, 2016, ~~(Successor Company)~~ there were ~~$3.4~~$5.9 million and $0.7 million of allowances for mortgage loan credit losses, ~~and as of December 31, 2015 (Successor Company), there were no allowances for mortgage loan credit losses.~~respectively. While our mortgage loans do not have quoted market values, as of ~~September~~June 30, ~~2016 (Successor Company),~~2017, we estimated the fair value of our mortgage loans to be ~~$5.9~~$6.4 billion (using an internal fair value model which calculates the value of most loans by using the loan's discounted cash flows to the loan's call or maturity date), which was approximately ~~1.0% greater~~0.7% less than the amortized cost, less any related loan loss reserve.

At the time of origination, our mortgage lending criteria targets that the loan-to-value ratio on each mortgage is 75% or less. We target projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) of 70% of the property’s projected operating expenses and debt service.

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, approximately ~~$1.0~~$3.5 million of invested assets consisted of nonperforming mortgage loans, restructured mortgage loans, or mortgage loans that were foreclosed and were converted to real estate properties. We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities. During the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company), we did not enter into any~~2017, certain mortgage loan transactions occurred that would have been accounted for as troubled debt restructurings. For all mortgage loans, the impact of troubled debt restructurings is ~~generally~~ reflected in our investment balance and in the allowance for mortgage loan credit losses. IfDuring the six months ended June 30, 2017, we ~~had~~recognized a troubled debt ~~restructurings, these transactions would include either~~restructuring as a result of the ~~acceptance of assets in satisfaction of principal during the respective periods or at~~Company granting a ~~future date and were~~concession to a borrower which included loans terms unavailable from other lenders. This concession was the result of agreements between the creditor and the debtor. ~~During~~We did not identify any loans whose principal was permanently impaired during the ~~nine~~six months ended ~~September~~June 30, 2016 (Successor Company), we did not accept or agree to accept assets in satisfaction of principal. As of September 30, 2016 (Successor Company), we did not have any mortgage loan transactions accounted for as troubled debt restructurings.

2017.

Our mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those subject to a contractual pooling and servicing agreement. As of ~~September~~June 30, ~~2016 (Successor Company), $1.0~~2017, $3.5 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming mortgage loans, restructured, or mortgage loans that were foreclosed and were converted to real estate properties. We ~~foreclosed~~did not foreclose on ~~$1.0 million of~~any nonperforming loans not subject to a pooling and servicing agreement during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~

2017.

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, none of the loans subject to a pooling and servicing agreement were nonperforming or restructured. We did not foreclose on any nonperforming loans subject to a pooling and servicing agreement during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~

2017.

We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities.

It is our policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. For loans subject to a pooling and servicing agreement, there are certain additional restrictions and/or requirements related to workout proceedings, and as such, these loans may have different attributes and/or circumstances affecting the status of delinquency or categorization of those in nonperforming status.

Unrealized Gains and Losses — Available-for-Sale Securities

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after June 30, 2017, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is other-than-temporary, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine other-than-temporary impairments. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine if an other-than-temporary impairment has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain/(loss) position of the portfolio. We had an overall net unrealized loss of $555.3 million, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of June 30, 2017, and an overall net unrealized loss of $1.7 billion as of December 31, 2016.

For fixed maturity and equity securities held that are in an unrealized loss position as of June 30, 2017, the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position are presented in the table below:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
<= 90 days	$	2,656,233	11.5	%	$	2,677,568	11.1	%	$	(21,335	)	2.1	%
>90 days but <= 180 days	300,793		1.3		310,260		1.3		(9,467		)	0.9
>180 days but <= 270 days	9,428,331		40.8		9,663,916		40.0		(235,585		)	23.3
>270 days but <= 1 year	774,177		3.3		813,605		3.4		(39,428		)	3.9
>1 year but <= 2 years	267,294		1.2		281,221		1.2		(13,927		)	1.4
>2 years but <= 3 years	9,702,278		41.9		10,393,037		43.0		(690,759		)	68.4
>3 years but <= 4 years	—		—		—		—		—			—
>4 years but <= 5 years	—		—		—		—		—			—
>5 years	—		—		—		—		—			—
Total	$	23,129,106	100.0	%	$	24,139,607	100.0	%	$	(1,010,501	)	100.0	%

The book value of our investment portfolio was marked to fair value as of February 1, 2015, in conjunction with the Dai-ichi Merger which resulted in the elimination of previously unrealized gains and losses from accumulated other comprehensive income. The level of interest rates as of February 1, 2015, resulted in an increase in the carrying value of our investments. Since February 1, 2015 interest rates have increased resulting in net unrealized losses in our investment portfolio.

As of June 30, 2017, the Barclays Investment Grade Index was priced at 105 bps versus a 10 year average of 179 bps. Similarly, the Barclays High Yield Index was priced at 390 bps versus a 10 year average of 658 bps. As of June 30, 2017, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 1.9%, 2.3%, and 2.8%, as compared to 10 year averages of 1.8%, 2.7%, and 3.6%, respectively.

As of June 30, 2017, 92.3% of the unrealized loss was associated with securities that were rated investment grade. We have examined the performance of the underlying collateral and cash flows and expect that our investments will continue to perform in accordance with their contractual terms. Factors such as credit enhancements within the deal structures and the underlying collateral performance/characteristics support the recoverability of the investments. Based on the factors discussed, we do not consider these unrealized loss positions to be other-than-temporary. However, from time to time, we may sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield enhancement, asset/liability management, and liquidity requirements.

Expectations that investments in mortgage-backed and asset-backed securities will continue to perform in accordance with their contractual terms are based on assumptions that a market participant would use in determining the current fair value. It is reasonably possible that the underlying collateral of these investments will perform worse than current market expectations and that such an event may lead to adverse changes in the cash flows on our holdings of these types of securities. This could lead to potential future write-downs within our portfolio of mortgage-backed and asset-backed securities. Expectations that our investments in corporate securities and/or debt obligations will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process. Although we do not anticipate such events, it is reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize potential future write-downs within our portfolio of corporate securities. It is also possible that such unanticipated events would lead us to dispose of those certain holdings and recognize the effects of any such market movements in our financial statements.

As of June 30, 2017, there were estimated gross unrealized losses of $1.6 million related to our mortgage-backed securities collateralized by Alt-A mortgage loans. Gross unrealized losses in our securities collateralized by Alt-A residential mortgage loans as of June 30, 2017, were primarily the result of continued widening spreads, representing marketplace uncertainty arising from higher defaults in Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by Alt-A residential mortgage loans.

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of June 30, 2017, is presented in the following table:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
Banking	$	1,709,571	7.4	%	$	1,741,061	7.2	%	$	(31,490	)	3.1	%
Other finance	49,167		0.2		51,638		0.2		(2,471		)	0.2
Electric utility	3,150,081		13.6		3,352,093		13.9		(202,012		)	20.0
Energy	1,931,862		8.4		2,053,146		8.5		(121,284		)	12.0
Natural gas	559,654		2.4		592,406		2.5		(32,752		)	3.2
Insurance	2,156,308		9.3		2,248,695		9.3		(92,387		)	9.1
Communications	1,225,727		5.3		1,311,060		5.4		(85,333		)	8.4
Basic industrial	883,903		3.8		923,394		3.8		(39,491		)	3.9
Consumer noncyclical	2,099,058		9.1		2,180,851		9.0		(81,793		)	8.1
Consumer cyclical	609,000		2.6		638,409		2.6		(29,409		)	2.9
Finance companies	27,008		0.1		29,414		0.1		(2,406		)	0.2
Capital goods	1,054,250		4.6		1,096,195		4.5		(41,945		)	4.2
Transportation	763,336		3.3		796,048		3.3		(32,712		)	3.2
Other industrial	165,704		0.7		175,967		0.7		(10,263		)	1.0
Brokerage	422,019		1.8		433,528		1.8		(11,509		)	1.1
Technology	618,820		2.7		642,221		2.7		(23,401		)	2.3
Real estate	58,535		0.5		59,206		0.2		(671		)	0.1
Other utility	17,512		0.1		18,426		0.1		(914		)	0.1
Commercial mortgage-backed securities	1,379,988		6.0		1,405,702		5.8		(25,714		)	2.5
Other asset-backed securities	384,632		1.7		401,625		1.7		(16,993		)	1.7
Residential mortgage-backed non-agency securities	817,320		3.5		831,904		3.4		(14,584		)	1.4
Residential mortgage-backed agency securities	277,576		1.2		282,239		1.2		(4,663		)	0.5
U.S. government-related securities	1,182,819		5.1		1,209,349		5.0		(26,530		)	2.6
Other government-related securities	127,308		0.6		135,469		0.6		(8,161		)	0.8
States, municipals, and political divisions	1,457,948		6.0		1,529,561		6.5		(71,613		)	7.4
Total	$	23,129,106	100.0	%	$	24,139,607	100.0	%	$	(1,010,501	)	100.0	%

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of December 31, 2016, is presented in the following table:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
Banking	$	3,085,937	10.6	%	$	3,193,541	10.3	%	$	(107,604	)	5.8	%
Other finance	65,883		0.2		69,729		0.2		(3,846		)	0.2
Electric utility	3,412,425		11.7		3,727,811		12.0		(315,386		)	16.9
Energy	2,710,110		9.3		2,888,563		9.3		(178,453		)	9.6
Natural gas	542,654		1.9		593,355		1.9		(50,701		)	2.7
Insurance	2,857,406		9.8		3,094,076		10.0		(236,670		)	12.7
Communications	1,463,373		5.0		1,604,670		5.2		(141,297		)	7.6
Basic industrial	1,149,208		3.9		1,236,848		4.0		(87,640		)	4.7
Consumer noncyclical	2,626,590		9.0		2,811,825		9.1		(185,235		)	10.0
Consumer cyclical	764,236		2.6		808,112		2.6		(43,876		)	2.4
Finance companies	64,490		0.2		69,077		0.2		(4,587		)	0.2
Capital goods	1,392,879		4.8		1,479,146		4.8		(86,267		)	4.6
Transportation	948,991		3.3		1,012,504		3.3		(63,513		)	3.4
Other industrial	163,993		0.6		176,558		0.6		(12,565		)	0.7
Brokerage	512,377		1.8		546,116		1.8		(33,739		)	1.8
Technology	946,890		3.2		1,001,064		3.2		(54,174		)	2.9
Real estate	126,156		0.5		131,715		0.4		(5,559		)	0.3
Other utility	17,326		0.1		18,516		0.1		(1,190		)	0.1
Commercial mortgage-backed securities	1,526,727		5.3		1,567,329		5.1		(40,602		)	2.2
Other asset-backed securities	500,497		1.7		521,195		1.7		(20,698		)	1.1
Residential mortgage-backed non-agency securities	956,524		3.3		975,895		3.2		(19,371		)	1.1
Residential mortgage-backed agency securities	265,996		0.9		271,920		0.9		(5,924		)	0.3
U.S. government-related securities	1,237,945		4.2		1,278,400		4.1		(40,455		)	2.2
Other government-related securities	177,805		0.6		192,602		0.6		(14,797		)	0.8
States, municipals, and political divisions	1,610,621		5.5		1,716,179		5.4		(105,558		)	5.7
Total	$	29,127,039	100.0	%	$	30,986,746	100.0	%	$	(1,859,707	)	100.0	%

The range of maturity dates for securities in an unrealized loss position as of June 30, 2017, varies, with 16.1% maturing in less than 5 years, 16.5% maturing between 5 and 10 years, and 67.4% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of June 30, 2017:



S&P or Equivalent	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
Designation	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
AAA/AA/A	$	14,242,628	61.6	%	$	14,756,604	61.1	%	$	(513,976	)	50.9	%
BBB	8,136,027		35.2		8,554,675		35.4		(418,648		)	41.4
Investment grade	22,378,655		96.8	%	23,311,279		96.5	%	(932,624		)	92.3	%
BB	398,199		1.7		429,585		1.8		(31,386		)	3.1
B	238,234		1.0		280,093		1.2		(41,859		)	4.1
CCC or lower	114,018		0.5		118,650		0.5		(4,632		)	0.5
Below investment grade	750,451		3.2	%	828,328		3.5	%	(77,877		)	7.7	%
Total	$	23,129,106	100.0	%	$	24,139,607	100.0	%	$	(1,010,501	)	100.0	%

As of June 30, 2017, we held a total of 1,846 positions that were in an unrealized loss position. Included in that amount were 102 positions of below investment grade securities with a fair value of $750.5 million that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $77.9 million, $69.0 million of which had been in an

unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 1.4% of invested assets.

As of June 30, 2017, securities in an unrealized loss position that were rated as below investment grade represented 3.2% of the total fair value and 7.7% of the total unrealized loss. We have the ability and intent to hold these securities to maturity. After a review of each security and its expected cash flows, we believe the decline in market value to be temporary.

The following table includes the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position for all below investment grade securities as of June 30, 2017:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
<= 90 days	$	154,641	20.6	%	$	160,816	19.4	%	$	(6,175	)	7.9	%
>90 days but <= 180 days	11,814		1.6		12,442		1.5		(628		)	0.8
>180 days but <= 270 days	72,515		9.7		74,624		9.0		(2,109		)	2.7
>270 days but <= 1 year	999		0.1		1,007		0.1		(8		)	—
>1 year but <= 2 years	61,006		8.1		67,383		8.1		(6,377		)	8.2
>2 years but <= 3 years	449,476		59.9		512,056		61.9		(62,580		)	80.4
>3 years but <= 4 years	—		—		—		—		—			—
>4 years but <= 5 years	—		—		—		—		—			—
>5 years	—		—		—		—		—			—
Total	$	750,451	100.0	%	$	828,328	100.0	%	$	(77,877	)	100.0	%

Risk Management and Impairment Review

We monitor the overall credit quality of our portfolio within established guidelines. The following table includes our available-for-sale fixed maturities by credit rating as of ~~September~~June 30, ~~2016 (Successor Company):~~2017:


			Percent of				Percent of
Rating	Fair Value		Fair Value		Fair Value		Fair Value
	(Dollars In Thousands)				(Dollars In Thousands)
AAA	$	4,861,245	13.3	%	$	5,061,518	13.9	%
AA	3,203,452		8.7		3,167,863		8.7
A	12,261,568		33.5		12,305,922		33.7
BBB	14,404,556		39.3		14,069,940		38.5
Investment grade	34,730,821		94.8		34,605,243		94.8
BB	1,217,288		3.3		1,302,422		3.6
B	418,057		1.1		295,045		0.8
CCC or lower	280,457		0.8		279,216		0.8
Below investment grade	1,915,802		5.2		1,876,683		5.2
Total	$	36,646,623	100.0	%	$	36,481,926	100.0	%

Not included in the table above are $2.5 billion of investment grade and ~~$266.4~~$240.2 million of below investment grade fixed maturities classified as trading securities and ~~$2.8~~$2.7 billion of fixed maturities classified as held-to-maturity.

Limiting bond exposure to any creditor group is another way we manage credit risk. We held no credit default swaps on the positions listed below as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. The following table summarizes our ten largest fixed maturity exposures to an individual creditor group as of ~~September~~June 30, ~~2016 (Successor Company):~~2017:


	Fair Value of						Fair Value of
	Funded		Unfunded		Total		Funded		Unfunded		Total
Creditor	Securities		Exposures		Fair Value		Securities		Exposures		Fair Value
	(Dollars In Millions)						(Dollars In Thousands)
The Southern Co.	$	242.9	$	—	$	242.9
Federal Home Loan Bank							$	230.8	$	—	$	230.8
JP Morgan Chase & Co							199.0		7.3		206.3
Duke Energy Corp							206.1		—		206.1
MetLife Inc							205.0		—		205.0
The Southern Co							203.8		—		203.8
AT&T Inc.	213.2		—		213.2		202.3		—		202.3
Federal Home Loan Bank	208.7		—		208.7
Wells Fargo & Co.							199.1		—		199.1
Exelon Corp	206.6		—		206.6		199.0		—		199.0
Wells Fargo & Co.	205.6		—		205.6
Duke Energy Corp	198.6		—		198.6
Goldman Sachs Group	191.2		—		191.2
HSBC Holdings PLC	185.3		—		185.3		197.5		—		197.5
Berkshire Hathaway	166.3		16.7		183.0
Nextera Energy Inc	181.9		—		181.9
Anheuser Busch Inbev NV							192.4		—		192.4
Total	$	2,000.3	$	16.7	$	2,017.0	$	2,035.0	$	7.3	$	2,042.3

Determining whether a decline in the current fair value of invested assets is an other-than-temporary decline in value is both objective and subjective, and can involve a variety of assumptions and estimates, particularly for investments that are not actively traded in established markets. We review our positions on a monthly basis for possible credit concerns and review our current exposure, credit enhancement, and delinquency experience.

Management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Since it is possible for the impairment of one investment to affect other investments, we engage in ongoing risk management to safeguard against and limit any further risk to our investment portfolio. Special attention is given to correlative risks within specific industries, related parties, and business markets.

For certain securitized financial assets with contractual cash flows, including RMBS, CMBS, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”), GAAP requires us to periodically update our best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the expected cash flows since the last revised estimate, considering both timing and amount, an other-than-temporary impairment charge is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. In addition, we consider our intent and ability to retain a temporarily depressed security until recovery.

Securities in an unrealized loss position are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors. We consider a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of our intent to sell the security (including a more likely than not assessment of whether we will be required to sell the security) before recovering the security’s amortized cost, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security-by-security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered, along with an analysis regarding our expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows. Based on our analysis, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, we ~~concluded that~~recognized approximately ~~$3.3~~$2.8 million and ~~$6.9~~$8.0 million, respectively, of credit related impairments on investment securities in an unrealized loss position that were other-than-temporarily impaired ~~due to credit related factors,~~ resulting in a charge to earnings. ~~Additionally, we recognized $1.4 million of non-credit gains and $3.3 million of non-credit losses in other comprehensive income (loss), respectively.~~

There are certain risks and uncertainties associated with determining whether declines in fair values are other-than-temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud, and legislative actions. We continuously monitor these factors as they relate to the investment portfolio in determining the status of each investment.

During 2015 and 2016, the energy and natural gas sector experienced increased volatility due to the decline in oil prices. A prolonged decline in oil prices could have a broad economic impact and put financial stress on companies in this sector. We continue to monitor our exposure to companies within and exposed to this sector closely. Our current exposure is predominantly with investment grade securities of companies with ample liquidity to weather a prolonged decline in oil prices. Many of these companies have displayed financial discipline by reducing capital expenditures to conserve cash and maintain their credit ratings. For the three and nine months ended September 30, 2016 (Successor Company), we did not recognized an other-than-temporary impairment.

~~The energy and natural gas sector securities as of September 30, 2016 (Successor Company) are presented in the following tables.~~

Energy and Natural Gas

Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Midstream $ 1,776,398
$ 1,835,697
$ (59,299 ) 42.3 %
Integrated 842,005
857,161
(15,156 ) 10.8
Distributors 734,574
749,929
(15,355 ) 11.0
Independent 575,237
577,040
(1,803 ) 1.3
Oil Field Services 515,144
560,904
(45,760 ) 32.6
Refining 175,596
178,442
(2,846 ) 2.0
Total $ 4,618,954
$ 4,759,173
$ (140,219 ) 100.0 %

Energy and Natural Gas
Rating Issuer Type
Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
AAA/AA/A Distributors $ 386,411
$ 387,259
$ (848 ) 0.6 %
Independent 81,848
78,051
3,797
(2.7 )
Integrated 363,320
364,628
(1,308 ) 0.9
Midstream 170,118
170,039
79
—
Oil Field Services 81,964
80,866
1,098
(0.8 )

BBB Distributors 321,100
335,519
(14,419 ) 10.3
Independent 437,499
447,985
(10,486 ) 7.5
Integrated 342,255
357,861
(15,606 ) 11.1
Midstream 1,423,404
1,485,896
(62,492 ) 44.7
Oil Field Services 217,905
221,954
(4,049 ) 2.8
Refining 165,211
168,082
(2,871 ) 2.0
Total investment grade 3,991,035
4,098,140
(107,105 ) 76.4

Below investment grade Distributors 27,063
27,151
(88 ) 0.1
Independent 55,890
51,004
4,886
(3.5 )
Integrated 136,430
134,672
1,758
(1.3 )
Midstream 182,876
179,762
3,114
(2.3 )
Oil Field Services 215,275
258,084
(42,809 ) 30.6
Refining 10,385
10,360
25
—
Total below investment grade 627,919
661,033
(33,114 ) 23.6
Total energy and natural gas $ 4,618,954
$ 4,759,173
$ (140,219 ) 100.0 %

During 2015, the metals and mining sector (a sub-sector of the basic industrial sector) experienced increased volatility due to the decline in precious and base metal prices. A prolonged decline in these prices could have a broad economic impact and put financial stress on companies in this sector. We continue to monitor our exposure to companies within and exposed to this sector closely. Our current exposure is predominantly with investment grade securities of companies with ample liquidity to weather a prolonged decline in these prices. Many of these companies have displayed financial discipline by reducing capital expenditures and reducing dividends to conserve cash and maintain their credit ratings.

~~The basic industrial sector securities as of September 30, 2016 (Successor Company) are presented in the following tables:~~

Basic Industrial

Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Chemicals $ 774,920
$ 799,525
$ (24,605 ) 170.1 %
Metals and Mining 772,367
760,875
11,492
(79.5 )
Paper 131,770
133,118
(1,348 ) 9.4
Total $ 1,679,057
$ 1,693,518
$ (14,461 ) 100.0 %

Basic Industrial
Rating Issuer Type
Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
AAA/AA/A Chemicals $ 277,628
$ 283,548
$ (5,920 ) 40.9 %
Metals and Mining 228,591
231,865
(3,274 ) 22.6

BBB Chemicals 495,002
513,457
(18,455 ) 127.6
Metals and Mining 231,650
232,738
(1,088 ) 7.5
Paper 131,770
133,118
(1,348 ) 9.4
Total investment grade 1,364,641
1,394,726
(30,085 ) 208.0

Below investment grade Chemicals 2,290
2,520
(230 ) 1.6
Metals and Mining 312,126
296,272
15,854
(109.6 )
Total below investment grade 314,416
298,792
15,624
(108.0 )
Total basic industrial $ 1,679,057
$ 1,693,518
$ (14,461 ) 100.0 %

We have deposits with certain financial institutions which exceed federally insured limits. We have reviewed the creditworthiness of these financial institutions and believe that there is minimal risk of a material loss.

Certain European countries have experienced varying degrees of financial stress. Risks from the debt crisis in Europe could continue to disrupt the financial markets, which could have a detrimental impact on global economic conditions and on sovereign and non-sovereign obligations. There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets.

The chart shown below includes our non-sovereign fair value exposures in these countries as of ~~September~~June 30, ~~2016 (Successor Company).~~2017. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, we had no unfunded exposure and had no direct sovereign ~~fair value~~ exposure.


					Total Gross						Total Gross
	Non-sovereign Debt				Funded		Non-sovereign Debt				Funded
Financial Instrument and Country	Financial		Non-financial		Exposure		Financial		Non-financial		Exposure
	(Dollars In Millions)						(Dollars In Thousands)
Securities:
United Kingdom	$	556.1	$	915.8	$	1,471.9	$	609.1	$	787.1	$	1,396.2
Netherlands	179.4		254.0		433.4		213.7		246.7		460.4
France							133.9		221.2		355.1
Switzerland	192.2		140.9		333.1		208.8		113.8		322.6
France	106.5		210.2		316.7
Germany							145.3		148.4		293.7
Spain	22.9		226.6		249.5		22.9		225.9		248.8
Germany	150.1		83.0		233.1
Belgium	—		207.9		207.9		—		199.8		199.8
Sweden	132.4		34.0		166.4		129.2		20.6		149.8
Norway							—		98.6		98.6
Italy	42.2		96.1		138.3		—		93.9		93.9
Norway	—		102.5		102.5
Luxembourg							—		59.5		59.5
Ireland	11.4		58.7		70.1		—		57.7		57.7
Luxembourg	—		59.7		59.7
Total securities	1,393.2		2,389.4		3,782.6		1,462.9		2,273.2		3,736.1
Derivatives:
Germany	67.9		—		67.9		32.7		—		32.7
United Kingdom	25.9		—		25.9		14.1		—		14.1
Switzerland	22.0		—		22.0		4.7		—		4.7
France	5.1		—		5.1		2.6		—		2.6
Total derivatives	120.9		—		120.9		54.1		—		54.1
Total securities	$	1,514.1	$	2,389.4	$	3,903.5	$	1,517.0	$	2,273.2	$	3,790.2

Realized Gains and Losses

The following table sets forth realized investment gains and losses for the periods shown:

Successor
Company

Predecessor
Company
For The Three Months Ended September 30, 2016 For The Three Months Ended September 30, 2015 For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015
January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Fixed maturity gains - sales $ 3,223
$ 663
$ 30,684
$ 7,551
$ 6,920
Fixed maturity losses - sales (1,558 ) (1,967 ) (6,587 ) (5,153 ) (29 )
Equity gains - sales —
51
320
95
—
Equity losses - sales —
—
(284 ) (23 ) —
Impairments on corporate securities (3,308 ) (10,064 ) (6,892 ) (15,798 ) (481 )
Modco trading portfolio 23,995
8,377
178,353
(133,524 ) 73,062
Other (1,508 ) (1,815 ) (7,842 ) (1,040 ) 1,200
Total realized gains (losses) - investments $ 20,844
$ (4,755 ) $ 187,752
$ (147,892 ) $ 80,672
Derivatives related to VA contracts:

Interest rate futures - VA $ (7,002 ) $ 12,140
$ 62,065
$ (2,091 ) $ 1,413
Equity futures - VA (41,836 ) 40,951
(66,392 ) 3,215
9,221
Currency futures - VA 934
4,000
5,888
1,428
7,778
Equity options - VA (36,482 ) 33,519
(23,410 ) 8,195
3,047
Interest rate swaptions - VA (229 ) (3,618 ) (3,212 ) (12,399 ) 9,268
Interest rate swaps - VA 14,737
101,808
221,884
(74,150 ) 122,710
Embedded derivative - GMWB 24,150
(71,296 ) (108,545 ) 10,543
(68,503 )
Funds withheld derivative 53,834
(52,872 ) 63,886
(8,301 ) (9,073 )
Total derivatives related to VA contracts 8,106
64,632
152,164
(73,560 ) 75,861
Derivatives related to FIA contracts:

Embedded derivative - FIA (14,486 ) 11,328
(15,938 ) 9,035
1,769
Equity futures - FIA 2,236
709
4,269
1,016
(184 )
Volatility futures - FIA —
(24 ) —
6
—
Equity options - FIA 6,583
(12,099 ) 1,756
(6,499 ) (2,617 )
Total derivatives related to FIA contracts (5,667 ) (86 ) (9,913 ) 3,558
(1,032 )
Derivatives related to IUL contracts:

Embedded derivative - IUL 7,136
1,287
6,302
3,082
(486 )
Equity futures - IUL 101
17
(71 ) 39
3
Equity options - IUL 1,607
(1,110 ) 1,821
(1,048 ) (115 )
Total derivatives related to IUL contracts 8,844
194
8,052
2,073
(598 )
Embedded derivative - Modco reinsurance treaties (24,187 ) (9,817 ) (105,362 ) 131,505
(68,026 )
Derivatives with PLC⁽¹⁾
13,387
(12,978 ) 31,098
(16,096 ) 15,863
Other derivatives 49
(50 ) (51 ) 33
(37 )
Total realized gains (losses) - derivatives $ 532
$ 41,895
$ 75,988
$ 47,513
$ 22,031

(1) These derivatives include the interest support agreement, two early renewable term ("YRT") premium support agreements, and three portfolio maintenance agreements between certain of our subsidiaries and PLC.



	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Fixed maturity gains - sales	$	2,297		$	18,553		$	13,035		$	27,464
Fixed maturity losses - sales	(2,347		)	(1,820		)	(3,595		)	(5,029		)
Equity gains - sales	—			202			—			320
Equity losses - sales	(1,037		)	—			(1,046		)	(284		)
Impairments	(2,785		)	(967		)	(7,986		)	(3,584		)
Modco trading portfolio	55,230			76,201			73,782			154,355
Other	(608		)	(4,353		)	(5,800		)	(6,334		)
Total realized gains (losses) - investments	$	50,750		$	87,816		$	68,390		$	166,908
Derivatives related to VA contracts:
Interest rate futures - VA	$	12,749		$	31,266		$	16,197		$	69,067
Equity futures - VA	(18,613		)	(21,328		)	(49,430		)	(24,556		)
Currency futures - VA	(10,018		)	11,112			(16,274		)	4,954
Equity options - VA	(12,884		)	(3,232		)	(53,069		)	13,072
Interest rate swaptions - VA	(662		)	(749		)	(2,131		)	(2,983		)
Interest rate swaps - VA	34,946			81,554			25,989			207,147
Total return swaps - VA	(1,618		)	—			(1,618		)	—
Embedded derivative - GLWB	(23,807		)	(66,019		)	(13,791		)	(132,695		)
Funds withheld derivative	20,456			17,850			67,925			10,052
Total derivatives related to VA contracts	549			50,454			(26,202		)	144,058
Derivatives related to FIA contracts:
Embedded derivative - FIA	(9,334		)	710			(21,745		)	(1,452		)
Equity futures - FIA	(202		)	651			95			2,033
Volatility futures - FIA	—			—			—			—
Equity options - FIA	7,569			735			18,269			(4,827		)
Total derivatives related to FIA contracts	(1,967		)	2,096			(3,381		)	(4,246		)
Derivatives related to IUL contracts:
Embedded derivative - IUL	(8,571		)	(96		)	(10,661		)	(834		)
Equity futures - IUL	(137		)	47			(936		)	(172		)
Equity options - IUL	1,571			241			4,462			214
Total derivatives related to IUL contracts	(7,137		)	192			(7,135		)	(792		)
Embedded derivative - Modco reinsurance treaties	(52,703		)	(22,820		)	(70,568		)	(81,175		)
Derivatives with PLC⁽¹⁾	(2,531		)	13,681			(17,406		)	17,711
Other derivatives	(5		)	(55		)	(2		)	(100		)
Total realized gains (losses) - derivatives	$	(63,794	)	$	43,548		$	(124,694	)	$	75,456

(1) These derivatives include the interest support agreement, two early renewable term ("YRT") premium support agreements, and three portfolio maintenance agreements between certain of our subsidiaries and PLC.

Realized gains and losses on investments reflect portfolio management activities designed to maintain proper matching of assets and liabilities and to enhance long-term investment portfolio performance. The change in net realized investment gains (losses), excluding impairments and Modco trading portfolio activity during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, primarily reflects the normal operation of our asset/liability program within the context of the changing interest rate and spread environment, as well as tax planning strategies designed to utilize capital loss carryforwards.

Realized losses are comprised ~~of both write-downs~~ of other-than-temporary impairments and actual sales of investments. For the three and nine months ended September 30, 2016 (Successor Company) we concluded that approximately $3.3 million and $6.9 million, respectively, of investment securities in an unrealized loss position were other-than-temporarily impaired, due to credit related factors, resulting in a charge to earnings. Additionally, $1.4 million of non-credit gains and $3.3 million of non-credit losses was recorded in other comprehensive income (loss), respectively.

For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), we recognized pre-tax other-than-temporary impairments of $0.5 million due to credit-related factors, resulting in a charge to earnings. Of the credit losses, $0.1 million were non-credit losses previously recorded in other comprehensive income.

These other-than-temporary impairments resulted from our analysis of circumstances and our belief that credit events, loss severity, changes in credit enhancement, and/or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency in the contractual cash flows related to these investments. These other-than-temporary impairments ~~net of Modco recoveries,~~ are presented in the chart below:


	Successor Company								Predecessor Company		For The Three Months Ended June 30,				For The Six Months Ended June 30,
	For The Three Months Ended September 30, 2016		For The Three Months Ended September 30, 2015		For The Nine Months Ended September 30, 2016		February 1, 2015 to September 30, 2015		January 1, 2015 to January 31, 2015		2017		2016		2017		2016
	(Dollars In Millions)								(Dollars In Millions)		(Dollars In Thousands)
Alt-A MBS	$	—	$	—	$	—	$	—	$	0.3	$	—	$	—	$	—	$	—
Other MBS	0.2		—		0.2		0.1		0.2		—		—		—		—
Corporate securities	3.1		9.9		6.7		15.5		—		2,785		967		7,986		3,584
Other	—		0.2		—		0.2		—
Equities											—		—		—		—
Total	$	3.3	$	10.1	$	6.9	$	15.8	$	0.5	$	2,785	$	967	$	7,986	$	3,584

As previously discussed, management considers several factors when determining other-than-temporary impairments. Although we purchase securities with the intent to hold them until maturity, we may change our position as a result of a change in circumstances. Any such decision is consistent with our classification of all but a specific portion of our investment portfolio as available-for-sale. For the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, we sold securities in an unrealized loss position with a fair value of ~~$67.7~~$84.3 million. For such securities, the proceeds, realized loss, and total time period that the security had been in an unrealized loss position are presented in the table ~~below for the nine months ended September 30, 2016 (Successor Company):~~below:


	Proceeds		% Proceeds		Realized Loss			% Realized Loss		Proceeds		% Proceeds		Realized Loss			% Realized Loss
	(Dollars In Thousands)									(Dollars In Thousands)
<= 90 days	$	56,579	83.6	%	$	(4,316	)	62.8	%	$	29,309	34.8	%	$	(2,314	)	49.9	%
>90 days but <= 180 days	2,253		3.3		(433		)	6.3		25,426		30.2		(212		)	4.6
>180 days but <= 270 days	1,512		2.2		(650		)	9.5		5,734		6.8		(159		)	3.4
>270 days but <= 1 year	1,505		2.2		(328		)	4.8		528		0.6		(65		)	1.4
>1 year	5,839		8.7		(1,144		)	16.6		23,268		27.6		(1,891		)	40.7
Total	$	67,688	100.0	%	$	(6,871	)	100.0	%	$	84,265	100.0	%	$	(4,641	)	100.0	%

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company)~~2017, we sold securities in an unrealized loss position with a fair value (proceeds) of ~~$7.1~~$71.8 million and ~~$67.7~~$84.3 million, respectively. The losses realized on the sale of these securities were ~~$1.6~~$3.4 million and ~~$6.9~~$4.6 million, respectively. We made the decision to exit these holdings in conjunction with our overall asset liability management process.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, we sold securities in an unrealized gain position with a fair value of ~~$167.3~~$275.5 million and ~~$987.0~~$444.6 million, respectively. The gains realized on the sale of these securities were ~~$3.2~~$2.3 million and ~~$31.0~~$13.0 million, respectively.

The ~~$1.5~~$0.6 million of other realized losses recognized for the three months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, consisted of ~~a decrease in mortgage loan reserves of $0.4 million and mortgage loan losses of $1.9 million.~~

~~The $7.8 million of other realized losses recognized for the nine months ended September 30, 2016 (Successor Company), consisted realized losses related to mortgage loans of $1.6 million,~~ an increase in mortgage loan reserves of ~~$3.5 million, partnership losses of $2.5~~$0.8 million and ~~real estate realized losses~~partnership gains of $0.2 ~~million.~~

million,

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company)~~2017, net gains of ~~$24.0~~$55.2 million and ~~$178.4~~$73.8 million, ~~respectively,~~ primarily related to changes in fair value on our Modco trading portfolios, were included in realized gains and losses. Of the ~~$178.4~~$73.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, approximately ~~$2.0~~$3.0 million of losses were realized through the sale of certain securities, which will be ~~reimbursed~~returned to us from our reinsurance partners over time through the reinsurance settlement process for this block of business.

The Modco embedded derivative associated with the trading portfolios had realized pre-tax losses of ~~$24.2~~$52.7 million and ~~$105.4~~$70.6 million ~~respectively,~~ during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~2017, respectively. The losses during the three and six months ended ~~September~~June 30, ~~2016 (Successor Company)~~2017, were due to ~~lower treasury yields.~~

the tightening of credit spreads.

Realized investment gains and losses related to derivatives represent changes in their fair value during the period and termination gains/(losses) on those derivatives that were closed during the period.

We use various derivative instruments to manage risks related to certain life insurance and annuity products. We can use these derivatives as economic hedges against risks inherent in the products. These risks have a direct impact on the cost of these products and are correlated with the equity markets, interest rates, foreign currency levels, and overall volatility. The hedged risks are recorded through the recognition of embedded derivatives associated with the products. These products include the ~~GMWB~~GLWB rider associated with the variable annuity, fixed indexed annuity products as well as indexed universal life products. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company)~~2017, we experienced net realized gains of $0.5 million and losses of $26.2 million, respectively on derivatives related to VA ~~contracts of approximately $8.1 million and $152.2 million, respectively.~~contracts. These net gains and losses on derivatives related to VA contracts were affected by capital market impacts.

The Funds Withheld derivative associated with Shades Creek had pre-tax realized gains of ~~$53.8~~$20.5 million and ~~$63.9~~$67.9 million ~~respectively,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~

2017.

Certain of our subsidiaries have derivatives with PLC. These derivatives consist of an interest support agreement, two YRT premium support agreements, and three portfolio maintenance agreements with PLC. We recognized ~~gains~~losses of ~~$14.8~~$3.2 million and ~~$28.6~~$18.1 million ~~respectively~~ related to the interest support agreement for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~2017. We recognized ~~losses~~gains of ~~$0.6~~$0.1 million ~~and $1.1 million, respectively,~~ related to the YRT premium support agreements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~ 2017.

We entered into two separate portfolio maintenance agreements in October 2012 and one portfolio maintenance agreement in January 2016. We recognized ~~pre-tax losses~~gains of ~~$0.8~~$0.6 million for the three and six months ended ~~September~~June 30, ~~2016 (Successor Company) and pre-tax gains of $3.6 million for the nine months ended September 30, 2016 (Successor Company).~~

2017.

We also use various swaps and other types of derivatives to mitigate risk related to other exposures. These contracts generated ~~gains of $0.1 million~~immaterial losses for the three and six months ended ~~September~~June 30, ~~2016 (Successor Company) and losses of $0.1 million for the nine months ended September 30, 2016 (Successor Company).~~

~~Unrealized Gains and Losses — Available-for-Sale Securities~~

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after September 30, 2016 (Successor Company), the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is other-than-temporary, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine other-than-temporary impairments. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine if an other-than-temporary impairment has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain/(loss) position of the portfolio. We had an overall net unrealized loss of $138.6 million, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of September 30, 2016 (Successor Company), and an overall net unrealized loss of $2.9 billion as of December 31, 2015 (Successor Company).

For fixed maturity and equity securities held that are in an unrealized loss position as of September 30, 2016 (Successor Company), the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position are presented in the table below:

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
<= 90 days $ 3,214,934
20.3 % $ 3,250,310
19.4 % $ (35,376 ) 4.5 %
>90 days but <= 180 days 75,744
0.5
76,590
0.5
(846 ) 0.1
>180 days but <= 270 days 132,578
0.8
142,246
0.9
(9,668 ) 1.2
>270 days but <= 1 year 183,599
1.2
191,951
1.2
(8,352 ) 1.1
>1 year but <= 2 years 12,268,217
77.2
13,001,795
78.0
(733,578 ) 93.1
>2 years but <= 3 years —
—
—
—
—
—
>3 years but <= 4 years —
—
—
—
—
—
>4 years but <= 5 years —
—
—
—
—
—
>5 years —
—
—
—
—
—
Total $ 15,875,072
100.0 % $ 16,662,892
100.0 % $ (787,820 ) 100.0 %

The book value of our investment portfolio was marked to fair value as of February 1, 2015 (Successor Company), in conjunction with the Dai-ichi Merger which resulted in the elimination of previously unrealized gains and losses from accumulated other comprehensive income. The level of interest rates as of February 1, 2015 (Successor Company), resulted in an increase in

~~the carrying value of our investments. Since February 1, 2015 (Successor Company) interest rates have increased resulting in net unrealized losses in our investment portfolio.~~

As of September 30, 2016 (Successor Company), the Barclays Investment Grade Index was priced at 133.0 bps versus a 10 year average of 176.1 bps. Similarly, the Barclays High Yield Index was priced at 508.7 bps versus a 10 year average of 647.0 bps. As of September 30, 2016 (Successor Company), the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 1.150%, 1.595%, and 2.316%, as compared to 10 year averages of 2.003%, 2.875%, and 3.696%, respectively.

As of September 30, 2016 (Successor Company), 83.8% of the unrealized loss was associated with securities that were rated investment grade. We have examined the performance of the underlying collateral and cash flows and expect that our investments will continue to perform in accordance with their contractual terms. Factors such as credit enhancements within the deal structures and the underlying collateral performance/characteristics support the recoverability of the investments. Based on the factors discussed, we do not consider these unrealized loss positions to be other-than-temporary. However, from time to time, we may sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield enhancement, asset/liability management, and liquidity requirements.

As of September 30, 2016 (Successor Company), there were estimated gross unrealized losses of $3.5 million related to our mortgage-backed securities collateralized by Alt-A mortgage loans. Gross unrealized losses in our securities collateralized by Alt-A residential mortgage loans as of September 30, 2016 (Successor Company), were primarily the result of continued widening spreads, representing marketplace uncertainty arising from higher defaults in Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by Alt-A residential mortgage loans.

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of September 30, 2016 (Successor Company) is presented in the following table:

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Banking $ 1,266,368
8.0 % $ 1,318,435
7.9 % $ (52,067 ) 6.6 %
Other finance 104,405
0.7
106,482
0.6
(2,077 ) 0.3
Electric utility 2,495,386
15.7
2,628,939
15.8
(133,553 ) 17.0
Energy and natural gas 2,714,485
17.1
2,905,322
17.4
(190,837 ) 24.2
Insurance 2,051,456
12.9
2,168,178
13.0
(116,722 ) 14.8
Communications 889,981
5.6
947,917
5.7
(57,936 ) 7.4
Basic industrial 906,826
5.7
954,365
5.7
(47,539 ) 6.0
Consumer noncyclical 916,861
5.8
952,223
5.7
(35,362 ) 4.5
Consumer cyclical 565,496
3.6
585,974
3.5
(20,478 ) 2.6
Finance companies 29,993
0.2
31,876
0.2
(1,883 ) 0.2
Capital goods 489,503
3.1
507,131
3.0
(17,628 ) 2.2
Transportation 469,868
3.0
490,619
2.9
(20,751 ) 2.6
Other industrial 155,349
1.0
160,921
1.0
(5,572 ) 0.7
Brokerage 226,633
1.4
239,325
1.4
(12,692 ) 1.6
Technology 448,820
2.8
470,115
2.8
(21,295 ) 2.7
Real estate 15,441
0.5
15,856
0.1
(415 ) 0.1
Other utility 115,772
0.7
118,784
0.7
(3,012 ) 0.4
Commercial mortgage-backed securities 280,140
1.8
282,772
1.7
(2,632 ) 0.3
Other asset-backed securities 533,826
3.4
549,517
3.3
(15,691 ) 2.0
Residential mortgage-backed non-agency securities 245,899
1.5
250,392
1.5
(4,493 ) 0.6
Residential mortgage-backed agency securities 21,777
0.1
21,842
0.1
(65 ) —
U.S. government-related securities 128,227
0.8
130,016
0.8
(1,789 ) 0.2
Other government-related securities 1,927
—
1,929
—
(2 ) —
States, municipals, and political divisions 800,633
4.6
823,962
5.2
(23,329 ) 3.0
Total $ 15,875,072
100.0 % $ 16,662,892
100.0 % $ (787,820 ) 100.0 %

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of December 31, 2015 (Successor Company) is presented in the following table:

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Banking $ 2,898,187
9.6 % $ 3,013,605
9.1 % $ (115,418 ) 3.9 %
Other finance 437,409
1.4
452,946
1.4
(15,537 ) 0.5
Electric utility 3,394,404
11.2
3,788,969
11.4
(394,565 ) 13.5
Energy and natural gas 3,717,401
12.3
4,408,415
13.3
(691,014 ) 23.6
Insurance 2,695,639
8.9
2,981,123
9.0
(285,484 ) 9.7
Communications 1,207,228
4.0
1,396,152
4.4
(188,924 ) 6.4
Basic industrial 1,403,081
4.6
1,657,297
5.0
(254,216 ) 8.7
Consumer noncyclical 2,777,167
9.2
3,033,358
9.1
(256,191 ) 8.7
Consumer cyclical 1,509,609
5.0
1,624,305
4.9
(114,696 ) 3.9
Finance companies 102,526
0.3
111,112
0.3
(8,586 ) 0.3
Capital goods 1,265,004
4.2
1,364,376
4.1
(99,372 ) 3.4
Transportation 856,118
2.8
942,135
2.8
(86,017 ) 2.9
Other industrial 273,473
0.9
299,859
0.9
(26,386 ) 0.9
Brokerage 478,551
1.6
514,350
1.6
(35,799 ) 1.2
Technology 1,146,636
3.7
1,241,127
3.6
(94,491 ) 3.5
Real estate 139,853
0.5
142,483
0.4
(2,630 ) 0.1
Other utility 216,013
0.7
236,051
0.7
(20,038 ) 0.7
Commercial mortgage-backed securities 1,232,495
4.1
1,274,347
3.8
(41,852 ) 1.4
Other asset-backed securities 633,274
2.1
652,037
2.0
(18,763 ) 0.6
Residential mortgage-backed non-agency securities 562,686
1.9
572,327
1.7
(9,641 ) 0.3
Residential mortgage-backed agency securities 414,747
1.4
422,218
1.3
(7,471 ) 0.3
U.S. government-related securities 1,291,476
4.3
1,326,008
4.0
(34,532 ) 1.2
Other government-related securities 17,740
0.1
18,483
0.1
(743 ) —
States, municipals, and political divisions 1,566,752
5.2
1,693,566
5.1
(126,814 ) 4.3
Total $ 30,237,469
100.0 % $ 33,166,649
100.0 % $ (2,929,180 ) 100.0 %

The range of maturity dates for securities in an unrealized loss position as of September 30, 2016 (Successor Company) varies, with 10.2% maturing in less than 5 years, 10.4% maturing between 5 and 10 years, and 79.4% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of September 30, 2016 (Successor Company):

S&P or Equivalent Fair % Fair Amortized % Amortized Unrealized % Unrealized
Designation Value Value Cost Cost Loss Loss
(Dollars In Thousands)
AAA/AA/A $ 6,778,615
42.7 % $ 7,007,015
42.1 % $ (228,400 ) 29.0 %
BBB 7,946,015
50.1
8,378,019
50.3
(432,004 ) 54.8
Investment grade 14,724,630
92.8 % 15,385,034
92.4 % (660,404 ) 83.8 %
BB 649,772
4.1
708,184
4.3
(58,412 ) 7.4
B 353,884
2.2
417,493
2.5
(63,609 ) 8.1
CCC or lower 146,786
0.9
152,181
0.8
(5,395 ) 0.7
Below investment grade 1,150,442
7.2 % 1,277,858
7.6 % (127,416 ) 16.2 %
Total $ 15,875,072
100.0 % $ 16,662,892
100.0 % $ (787,820 ) 100.0 %

As of September 30, 2016 (Successor Company), we held a total of 1,230 positions that were in an unrealized loss position. Included in that amount were 144 positions of below investment grade securities with a fair value of $1.2 billion that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $127.4 million, $112.4 million

~~of which had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 2.2% of invested assets.~~

As of September 30, 2016 (Successor Company), securities in an unrealized loss position that were rated as below investment grade represented 7.2% of the total fair value and 16.2% of the total unrealized loss. We have the ability and intent to hold these securities to maturity. After a review of each security and its expected cash flows, we believe the decline in market value to be temporary.

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
<= 90 days $ 90,081
7.8 % $ 91,837
7.2 % $ (1,756 ) 1.4 %
>90 days but <= 180 days 16,900
1.5
17,099
1.3
(199 ) 0.2
>180 days but <= 270 days 69,275
6.0
75,575
5.9
(6,300 ) 4.9
>270 days but <= 1 year 66,469
5.8
73,217
5.8
(6,748 ) 5.3
>1 year but <= 2 years 907,717
78.9
1,020,130
79.8
(112,413 ) 88.2
>2 years but <= 3 years —
—
—
—
—
—
>3 years but <= 4 years —
—
—
—
—
—
>4 years but <= 5 years —
—
—
—
—
—
>5 years —
—
—
—
—
—
Total $ 1,150,442
100.0 % $ 1,277,858
100.0 % $ (127,416 ) 100.0 %

2017.

LIQUIDITY AND CAPITAL RESOURCES

The Holding Company

Overview

Our primary sources of funding are from our insurance operations and revenues from investments. These sources of cash support our operations and are used to pay dividends to PLC.

The states in which we and our insurance subsidiaries are domiciled impose certain restrictions on the ability to pay dividends. These restrictions are based in part on the prior year’s statutory income and/or surplus.

Debt and other capital resources

Our primary sources of capital are from retained income from our insurance operations and capital infusions from our parent, PLC. Additionally, we have access to the Credit Facility discussed below.

We have the ability to borrow under a Credit Facility arrangement on an unsecured basis up to an aggregate principal amount of $1.0 billion. We have the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.25 billion. We are not aware of any non-compliance with the financial debt covenants of the Credit Facility as of June 30, 2017. PLC had an outstanding balance of $205.0 million bearing interest at a rate of LIBOR plus 1.00% as of June 30, 2017.

Liquidity

Liquidity refers to a company’s ability to generate adequate amounts of cash to meet its needs. We meet our liquidity requirements primarily through positive cash flows from our operating subsidiaries. Primary sources of cash from the operating subsidiaries are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash include benefit payments, withdrawals from policyholder accounts, investment purchases, policy acquisition costs, interest payments, and other operating expenses. We believe that we have sufficient liquidity to fund our cash needs under normal operating scenarios.

In the event of significant unanticipated cash requirements beyond our normal liquidity needs, we have additional sources of liquidity available depending on market conditions and the amount and timing of the liquidity need. These additional sources of liquidity include cash flows from operations, the sale of liquid assets, accessing our credit facility, and other sources described herein.

Our decision to sell investment assets could be impacted by accounting rules, including rules relating to the likelihood of a requirement to sell securities before recovery of our cost basis. Under stressful market and economic conditions, liquidity may broadly deteriorate, which could negatively impact our ability to sell investment assets. If we require on short notice significant amounts of cash in excess of normal requirements, we may have difficulty selling investment assets in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.

Our liquidity requirements primarily relate to the liabilities associated with our various insurance and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans, and obligations to redeem funding agreements.

We maintain investment strategies intended to provide adequate funds to pay benefits and expected surrenders, withdrawals, loans, and redemption obligations without forced sales of investments. In addition, our insurance subsidiaries hold highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities to fund our expected operating expenses, surrenders, and withdrawals. We were committed as of June 30, 2017, to fund mortgage loans in the amount of $713.1 million.

Our positive cash flows from operations are used to fund an investment portfolio that provides for future benefit payments. We employ a formal asset/liability program to manage the cash flows of our investment portfolio relative to our long-term benefit obligations. As of June 30, 2017, we held cash and short-term investments of approximately $606.2 million.

The following chart includes the cash flows provided by or used in operating, investing, and financing activities for the following periods:



	For The Six Months Ended June 30,
	2017			2016
	(Dollars In Thousands)
Net cash provided by operating activities	$	62,402		$	270,017
Net cash used in investing activities	(642,903		)	(2,817,169		)
Net cash provided by financing activities	610,259			2,629,937
Total	$	29,758		$	82,785

For The Six Months Ended June 30, 2017 as compared to the Six Months Ended June 30, 2016

Net cash provided by operating activities - Cash flows from operating activities are affected by the timing of premiums received, fees received, investment income, and expenses paid. Principal sources of cash include sales of our products and services. We typically generate positive cash flows from operating activities, as premiums and policy fees collected from our insurance and investment products exceed benefit payments and redemptions, and we invest the excess. Accordingly, in analyzing our cash flows we focus on the amount of cash provided by or used in investing and financing activities.

Net cash used in investing activities - Changes in cash from investing activities primarily related to the activity in our investment portfolio.

Net cash provided by financing activities - Changes in cash from financing activities included $357.6 million of outflows from secured financing liabilities for the six months ended June 30, 2017, as compared to the $278.2 million of outflows for the six months ended June 30, 2016 and $1.1 billion million of inflows of investment product and universal life net activity as compared to $1.0 billion in the prior year. Net repayment of non-recourse funding obligations equaled $21.0 million during the six months ended June 30, 2017 as compared to net issuances of $2.2 billion during the six months ended June 30, 2016. We paid a dividend of $140.0 million for the six months ended June 30, 2017.

Through our subsidiaries, we are members of the FHLB of Cincinnati and the FHLB of New York. FHLB advances provide an attractive funding source for short-term borrowing and for the sale of funding agreements. Membership in the FHLB requires that we purchase FHLB capital stock based on a minimum requirement and a percentage of the dollar amount of advances outstanding. Our borrowing capacity is determined by criteria established by each respective bank. In addition, our obligations under the advances must be collateralized. We maintain control over any such pledged assets, including the right of substitution. As of June 30, 2017, we had $695.9 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

While we anticipate that the cash flows of our operating subsidiaries will be sufficient to meet our investment commitments and operating cash needs in a normal credit market environment, we recognize that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, we have established repurchase agreement programs for certain of our insurance subsidiaries to provide liquidity when needed. We expect that the rate received on its investments will equal or exceed its borrowing rate. Under this program, we may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements provided for net settlement in the event of default or on termination of the agreements. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, the fair value of securities pledged under the repurchase program was ~~$224.8~~$429.8 million and the repurchase obligation of ~~$219.5~~$413.6 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 43124 basis points). During the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, the maximum balance outstanding at any one point in time related to these programs was ~~$725.0~~$981.3 million. The average daily balance was ~~$453.0~~$607.7 million (at an average borrowing rate of 4178 basis points) during the ~~nine~~six months ended ~~September~~June 30, ~~2016 (Successor Company).~~2017. As of December 31, ~~2015 (Successor Company),~~2016, the fair value of securities pledged under the repurchase program was ~~$479.9~~$861.7 million and the repurchase obligation of ~~$438.2~~$797.7 million was included in our consolidated condensed balance ~~sheets.~~sheets (at an average borrowing rate of 65 basis points). During ~~2015,~~2016, the maximum balance outstanding at any one point in time related to these programs was ~~$912.7~~$1,065.8 million. The average daily balance was ~~$540.3~~$505.4 million ~~and $77.4 million~~ (at

an average borrowing rate of ~~20 and 16~~44 basis points) during the ~~period of February 1, 2015 to~~year ended December 31, ~~2015 (Successor Company)~~2016.

We participate in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. We require initial collateral of 102% of the market value of the loaned securities to be separately maintained. The loaned securities’ market value is monitored on a daily basis. As of June 30, 2017, securities with a market value of $25.6 million were loaned under this program. As collateral for the loaned securities, we receive short-term investments, which are recorded in “short-term investments” with a corresponding liability recorded in “other liabilities” to account for its obligation to return the collateral. As of June 30, 2017 the fair value of the collateral related to this program was $26.5 million and we have an obligation to return $26.5 million of collateral to the ~~period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~securities borrowers.

Additionally, we may, from time to time, sell short-duration stable value products to complement our cash management practices. Depending on market conditions, we may also use securitization transactions involving our commercial mortgage loans to increase liquidity for the operating subsidiaries.

Statutory Capital

~~Credit Facility~~

~~On February 2, 2015, we~~A life insurance company’s statutory capital is computed according to rules prescribed by the NAIC, as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and ~~PLC amended~~are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and ~~restated~~report information under a risk-based capital formula. The achievement of long-term growth will require growth in the ~~Credit Facility (the “Credit Facility”). Under the Credit Facility, we have the ability to borrow on an unsecured basis~~statutory capital of our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our equity contributions. In general, dividends up to ~~an aggregate principal amount of $1.0 billion. We have~~specified levels are considered ordinary and may be paid thirty days after written notice to the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.25 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the optioninsurance commissioner of the ~~Borrowers, (i) LIBOR plus a spread based on the ratings~~state of ~~PLC’s Senior Debt, or (ii) the sum of (A) a rate equal~~domicile unless such commissioner objects to the ~~highest~~dividend prior to the expiration of ~~(x) the Administrative Agent’s prime rate, (y) 0.50% above the Federal Funds rate, or (z) the one-month LIBOR plus 1.00%~~such period. Dividends in larger amounts are considered extraordinary and ~~(B) a spread based on the ratings of PLC's Senior Debt.~~are subject to affirmative prior approval by such commissioner. The ~~Credit Facility also provided for a facility fee at a rate~~maximum amount that varies with the ratings of PLC’s Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The initial facility fee rate was 0.15% on February 2, 2015, and was adjusted to 0.125% upon PLC’s subsequent ratings upgrade on February 2, 2015. The Credit Facility provides that PLC is liable for the full amount of any obligations for borrowings or letters of credit, including those of the Company, under the Credit Facility. The maturity date of the Credit Facility is February 2, 2020. We are not aware of any non-compliance with the financial debt covenants of the Credit Facilitywould qualify as ~~of September 30, 2016 (Successor Company). PLC had~~ an outstanding balance of $385.0 million bearing interest at a rate of LIBOR plus 1.00% as of September 30, 2016 (Successor Company). As of June 30, 2016 (Successor Company), we had used $30.0 million of borrowing capacity by executing a Letter of Credit under the Credit Facility for the benefit on an affiliated captive reinsurance subsidiary of the Company. This Letter of Credit was terminated during the period and no Letter of Credit was outstanding as of September 30, 2016 (Successor Company).

~~Sources and Use of Cash~~

~~Our primary sources of funding are~~ordinary dividend from our insurance subsidiaries in 2017 is approximately $201.8 million.

State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and ~~revenues from investments. These sources~~risk profile. A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of ~~cash support~~a company’s statutory surplus by comparing it to RBC. We manage our ~~operations~~capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators.

Statutory reserves established for VA contracts are sensitive to changes in the equity and bond markets and are ~~used~~affected by the level of account values relative to ~~pay dividends~~the level of any guarantees and product design. As a result, the relationship between reserve changes and market performance may be non-linear during any given reporting period. Market conditions greatly influence the capital required due to ~~PLC. The states in which we and our insurance subsidiaries are domiciled impose certain restrictions~~their impact on the ~~ability to pay dividends. These restrictions are based~~valuation of reserves and derivative investments mitigating the risk in ~~part~~these reserves. Risk mitigation activities may result in material and sometimes counterintuitive impacts on statutory surplus and RBC ratio. Notably, as changes in these market and non-market factors occur, both our potential obligation and the ~~prior year’s~~related statutory ~~income~~reserves and/or ~~surplus.~~required capital can vary at a non-linear rate.

~~We are~~Our statutory surplus is impacted by credit spreads as a ~~member~~result of ~~the FHLB of Cincinnati and FHLB of New York. FHLB advances provide an attractive funding source for short-term borrowing and~~accounting for the ~~sale of funding agreements. Membership in~~assets and liabilities on our fixed MVA annuities. Statutory separate account assets supporting the ~~FHLB requires that~~fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we ~~purchase FHLB capital stock~~are required to use current crediting rates based on ~~a minimum requirement and a percentage of the dollar amount of advances outstanding. Our borrowing capacity is determined by criteria established by each respective bank.~~

~~We held $65.7 million of FHLB common stock as of September 30, 2016 (Successor Company), which is included in equity securities.~~U.S. Treasuries. In addition, our obligations under the advances must be collateralized. We maintain control over any such pledged assets, including the right of substitution. As of September 30, 2016 (Successor Company), we had $822.3 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

As of September 30, 2016 (Successor Company), we reported approximately $544.2 million (fair value) of Auction Rate Securities (“ARS”) in non-Modco portfolios. As of September 30, 2016 (Successor Company), 100% of these ARS were rated Aaa/AA+. While the auction ratemany capital market ~~has experienced liquidity constraints, we believe that~~scenarios, current crediting rates based on ~~our current liquidity position and our operating cash flows, any lack of liquidity~~U.S. Treasuries are highly correlated with market rates implicit in ~~the ARS market will not have a material impact on our liquidity, financial condition, or cash flows. For information on how we determine~~ the fair value of ~~these securities refer~~statutory separate account assets. As a result, the change in the statutory reserve from period to ~~Note 7,~~ ~~Fair Value of Financial Instruments~~,period will likely substantially offset the change in the fair value of the ~~consolidated condensed~~statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase or decrease sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value gains or losses. As actual credit spreads are not fully reflected in current crediting rates based on U.S. Treasuries, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in a change in statutory surplus.

~~The liquidity requirements~~condition of our ~~regulated insurance subsidiaries primarily relate~~reinsurers and monitor the associated concentration of credit risk. For three and six months ended June 30, 2017, we ceded premiums to ~~the liabilities associated with their various insurance~~third party reinsurers amounting to $344.2 and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans, and obligations to redeem funding agreements.

Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits and expected surrenders, withdrawals, loans, and redemption obligations without forced sales of investments.$663.3 million. In addition, ~~our insurance subsidiaries hold highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities~~we had receivables from reinsurers amounting to ~~fund our expected operating expenses, surrenders, and withdrawals. We were committed~~$5.0 billion as of ~~September~~June 30, ~~2016 (Successor Company), to fund mortgage loans in the amount of $726.2 million.~~

~~Our positive cash flows from operations are used to fund an investment portfolio that provides~~2017. We review reinsurance receivable amounts for future benefit payments. We employ a formal asset/liability program to manage the cash flows of our investment portfolio relative to our long-term benefit obligations. As of September 30, 2016 (Successor Company), we held cashcollectability and ~~short-term investments of approximately $576.1 million.~~

~~The following chart includes the cash flows provided by or used in operating, investing, and financing activities for the following periods:~~

Successor Company Predecessor Company
For The Nine Months Ended September 30, 2016 February 1, 2015
to
September 30, 2015
January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Net cash provided by operating activities $ 295,143
$ 393,160
$ 148,060
Net cash (used in) provided by investing activities (3,425,540 ) (710,602 ) 33,475
Net cash provided by (used in) financing activities 3,325,617
456,439
(70,918 )
Total $ 195,220
$ 138,997
$ 110,617

~~For The Nine Months Ended September 30, 2016 (Successor Company)~~

~~Net cash provided by operating activities~~ - Cash flows from operating activities are affected by the timing of premiums received, fees received, investment income, and expenses paid. Principal sources of cash include sales of our products and services. We typically generate positive cash flows from operating activities, as premiums and policy fees collected from our insurance and investment products exceed benefit payments and redemptions, and we invest the excess. Accordingly, in analyzing our cash flows we focus on the amount of cash provided by or used in investing and financing activities.

~~Net cash (used in) provided by investing activities~~ - Changes in cash from investing activities primarily related to the activity in our investment portfolio and the purchase of $2.2 billion of held-to-maturity securities issued by affiliates in conjunction with the GLAIC reinsurance transaction. See Note 3, ~~Reinsurance and Financing Transactions~~ ~~and Note 12,~~ ~~Debt and Other Obligations~~ ~~for additional information on the transaction.~~

~~Net cash provided by (used in) financing activities~~ - Changes in cash from financing activities included $218.7 million of outflows from repurchase program borrowings for the nine months ended September 30, 2016 (Successor Company) and $1.8 billion of inflows of investment product and universal life net activity for the nine months ended September 30, 2016 (Successor Company). Net issuance of non-recourse funding obligations was $2.2 billion during the nine months ended September 30, 2016 (Successor Company), which occurred in conjunction with the GLAIC reinsurance transaction. See Note 3, ~~Reinsurance and Financing Transactions~~ ~~and Note 12,~~ ~~Debt and Other Obligations~~ ~~for additional information on the transaction.~~

establish bad debt reserves if deemed appropriate.

~~Capital Resources~~

~~Our primary sources of capital are from retained income from our insurance operations and capital infusions from our parent, PLC. Additionally, we have access to the Credit Facility discussed above.~~

Captive Reinsurance Companies

~~Our~~The Company and our life insurance subsidiaries are subject to a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline AXXX.” The regulation and supporting guideline require insurers to establish statutory reserves for term and universal life insurance policies with long-term premium guarantees that are consistent with the statutory reserves required for other individual life insurance policies with similar guarantees. Many market participants believe that these levels of reserves are non-economic. We use captive reinsurance companies to implement reinsurance and capital management actions to satisfy these reserve requirements by financing the non-economic reserves either through the issuance of non-recourse funding obligations by the captives or obtaining Letters of Credit from third-party financial institutions. ~~For more information regarding our use of captives and their impact on our financial statements, please refer to Note 12,~~ ~~Debt and Other Obligations~~.

Our captive reinsurance companies assume business from affiliates only. Our captives are capitalized to a level we believe is sufficient to support the contractual risks and other general obligations of the respective captive entity. All of our captive reinsurance companies are wholly owned subsidiaries and are located domestically. The captive insurance companies are subject to regulations in the state of domicile.

The National Association of Insurance Commissioners (“NAIC”), through various committees, subgroups and dedicated task forces, is reviewing the use of captives and special purpose vehicles used to transfer insurance risk in relation to existing state laws and regulations, and several committees have adopted or exposed for comment white papers and reports that, if or when implemented, could impose additional requirements on the use of captives and other reinsurers. The Financial Condition (E) Committee of the NAIC recently established a Variable Annuity Issues Working Group to examine company use of variable annuity captives. The Committee has proposed changes in the regulation of variable annuities and variable annuity captives could adversely affect our future financial condition and results of operations.

The Principles Based Reserving Implementation (EX) Task Force of the NAIC, charged with analysis of the adoption of a principles-based reserving methodology, adopted the “conceptual framework” contained in a report issued by Rector & Associates, Inc., dated June 4, 2014 (as modified or supplemented, the “Rector Report”), that contains numerous recommendations

pertaining to the regulation and use of certain captive reinsurers. Certain high-level recommendations have been adopted and assigned to various NAIC working groups, which working groups are in various stages of discussions regarding recommendations. One recommendation of the Rector Report was adopted as Actuarial Guideline XLVIII (“AG48”). AG48 sets more restrictive standards on the permitted collateral utilized to back reserves of a captive. In September 2016, the Financial Condition (E) Committee of the NAIC adopted the Term and Universal Life Insurance Reserve Financing Model Regulation (the "Reserve Model") which is substantially similar to AG48. AG48 and the Reserve Model will likely make it difficult for the Company to establish new captive financing arrangements on a basis consistent with past practices. As a result of AG48 and the Reserve Model, the implementation of new captive structures in the future may be less capital efficient, may lead to lower product returns and/or increased product pricing or result in reduced sales of certain products. In some circumstances, AG48 and the Reserve Model could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.

We also use a captive reinsurance company to reinsure risks associated with ~~GMWB~~GLWB and GMDB riders which helps us to manage those risks on an economic basis. In an effort to mitigate the equity market risks relative to our RBC ratio, ~~in the fourth quarter of 2012, PLC established a direct wholly owned subsidiary,~~we reinsure these risks to Shades Creek Captive Insurance Company (“Shades Creek”)~~, to which we have reinsured GMWB and GMDB riders related to its VA contracts.~~. The purpose of Shades Creek is to reduce the volatility in RBC due to non-economic variables included within the RBC calculation.

During 2012, PLC entered into an intercompany capital support agreement with Shades Creek. The agreement provides through a guarantee that PLC will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as defined by the agreement. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, Shades Creek maintained capital levels in excess of the required minimum thresholds. The maximum potential future payment amount which could be required under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.

~~Statutory Capital~~

A life insurance company’s statutory capital is computed according to rules prescribed by the NAIC, as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our equity contributions. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as an ordinary dividend from our insurance subsidiaries in 2016 is approximately $165.6 million.

State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile. A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to RBC. We manage our capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators.

Statutory reserves established for VA contracts are sensitive to changes in the equity markets and are affected by the level of account values relative to the level of any guarantees and product design. As a result, the relationship between reserve changes and equity market performance may be non-linear during any given reporting period. Market conditions greatly influence the capital required due to their impact on the valuation of reserves and derivative investments mitigating the risk in these reserves. Risk mitigation activities may result in material and sometimes counterintuitive impacts on statutory surplus and RBC ratio. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can vary at a non-linear rate.

Our statutory surplus is impacted by credit spreads as a result of accounting for the assets and liabilities on our fixed MVA annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are required to use current crediting rates based on U.S. Treasuries. In many capital market scenarios, current crediting rates based on U.S. Treasuries are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in the statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase or decrease sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value gains or losses. As actual credit spreads are not fully reflected in current crediting rates based on U.S. Treasuries, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in a change in statutory surplus.

On January 15, 2016, we closed the reinsurance transaction with GLAIC. We currently estimate that the total capital investment was approximately $589 million, instead of $661 million, as previously estimated and disclosed. The estimated total

~~capital investment decreased primarily due to lower initial risk-based capital than previously estimated and our ability to utilize certain tax benefits sooner than expected.~~

We cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets, we remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations that it assumed. We evaluate the financial condition of our reinsurers and monitor the associated concentration of credit risk. For three and nine months ended September 30, 2016 (Successor Company), we ceded premiums to third party reinsurers amounting to $325.4 million and $980.8 million. In addition, we had receivables from reinsurers amounting to $5.2 billion as of September 30, 2016 (Successor Company). We review reinsurance receivable amounts for collectability and establish bad debt reserves if deemed appropriate.

Ratings

Various Nationally Recognized Statistical Rating Organizations (“rating organizations”) review the financial performance and condition of insurers, including us and our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in an insurer’s products, its ability to market its products and its competitive position. The following table summarizes the current financial strength ratings of our significant member companies from the major independent rating organizations:



			Standard &
Ratings	A.M. Best	Fitch	Poor’s	Moody’s

Insurance company financial strength rating:
Protective Life Insurance Company	A+	A+	AA-	A2
West Coast Life Insurance Company	A+	A+	AA-	A2
Protective Life and Annuity Insurance Company	A+	A+	AA-	—
~~Lyndon~~Protective Property & Casualty Insurance Company	A-	—	—	—
MONY Life Insurance Company	A+	A+	A+	A2

Our ratings are subject to review and change by the rating organizations at any time and without notice. A downgrade or other negative action by a ratings organization with respect to the financial strength ratings of us and our insurance subsidiaries could adversely affect sales, relationships with distributors, the level of policy surrenders and withdrawals, competitive position in the marketplace, and the cost or availability of reinsurance. The rating agencies may take various actions, positive or negative, with respect to the debt and financial strength ratings of PLC and its subsidiaries, including as a result of PLC’s status as a subsidiary of Dai-ichi Life.

LIABILITIES

Many of our products contain surrender charges and other features that are designed to reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect us against investment losses if interest rates are higher at the time of surrender than at the time of issue.

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, we had policy liabilities and accruals of approximately ~~$31.4~~$31.5 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately ~~3.49%~~3.48%.

Contractual Obligations

We enter into various obligations to third parties in the ordinary course of our operations. However, we do not believe that our cash flow requirements can be assessed solely based upon an analysis of these obligations. The most significant factors affecting our future cash flows are our ability to earn and collect cash from our customers, and the cash flows arising from our investment program. Future cash outflows, whether they are contractual obligations or not, will also vary based upon our future needs. Although some outflows are fixed, others depend on future events. Examples of fixed obligations include our obligations to pay principal and interest on fixed-rate borrowings. Examples of obligations that will vary include obligations to pay interest on variable-rate borrowings and insurance liabilities that depend on future interest rates, market performance, or surrender provisions. Many of our obligations are linked to cash-generating contracts. In addition, our operations involve significant expenditures that are not based upon contractual obligations. These include expenditures for income taxes and payroll.

As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, we carried a ~~$9.8~~$10.8 million liability for uncertain tax positions. These amounts are not included in the long-term contractual obligations table because of the difficulty in making reasonably reliable estimates of the occurrence or timing of cash settlements with the respective taxing authorities.

The table below sets forth future maturities of our contractual obligations:

Payments due by period
Total
Less than
1 year
1-3 years 3-5 years
More than
5 years
(Dollars In Thousands)
Non-recourse funding obligations⁽¹⁾
$ 5,193,490
$ 236,700
$ 555,056
$ 664,704
$ 3,737,030
Stable value products⁽²⁾
3,596,495
807,698
1,755,747
1,015,361
17,689
Operating leases⁽³⁾
29,784
4,257
7,642
7,197
10,688
Home office lease⁽⁴⁾
78,389
1,509
76,880
—
—
Mortgage loan and investment commitments 912,729
771,695
141,034
—
—
Repurchase program borrowings⁽⁵⁾
219,463
219,463
—
—
—
Policyholder obligations⁽⁶⁾
42,043,255
1,664,185
3,562,961
3,454,756
33,361,353
Total $ 52,073,605
$ 3,705,507
$ 6,099,320
$ 5,142,018
$ 37,126,760

~~(1)~~

Non-recourse funding obligations include all undiscounted principal amounts owed and expected future interest payments due over the term of the notes. Of the total undiscounted cash flows, $1.8 billion relates to the Golden Gate V transaction. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate V receives from notes issued by a nonconsolidated variable interest entity. Additionally, $3.0 billion relates to the Golden Gate transaction that occurred in Q1 2016. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate receives from notes issued by nonconsolidated entity and third parties. The remaining amounts are associated with the Golden Gate II notes held by third parties as well as certain obligations assumed with the acquisition of MONY Life Insurance Company.


~~(2)~~	~~Anticipated stable value products cash flows including interest.~~


~~(3)~~	~~Includes all lease payments required under operating lease agreements.~~


~~(4)~~	The lease payments shown assume we exercise our option to purchase the building at the end of the lease term. Additionally, the payments due by the periods above were computed based on the terms of the renegotiated lease agreement, which was entered in December 2013.


~~(5)~~	~~Represents secured borrowings as part of our repurchase program as well as related interest.~~

~~(6)~~

Estimated contractual policyholder obligations are based on mortality, morbidity, and lapse assumptions comparable to our historical experience, modified for recent observed trends. These obligations are based on current balance sheet values and include expected interest crediting, but do not incorporate an expectation of future market growth, or future deposits. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. As variable separate account obligations are legally insulated from general account obligations, the variable separate account obligations will be fully funded by cash flows from variable separate account assets. We expect to fully fund the general account obligations from cash flows from general account investments.



			Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(Dollars In Thousands)
Non-recourse funding obligations⁽¹⁾	$	5,051,724	$	256,666	$	602,426	$	673,096	$	3,519,536
Stable value products⁽²⁾	4,227,022		940,549		1,967,812		1,169,872		148,789
Operating leases⁽³⁾	31,218		4,478		8,584		7,475		10,681
Home office lease⁽⁴⁾	77,989		1,999		75,990		—		—
Mortgage loan and investment commitments	898,126		841,088		57,038		—		—
Secured financing liabilities⁽⁵⁾	440,143		440,143		—		—		—
Policyholder obligations⁽⁶⁾	42,269,381		1,553,088		3,460,359		3,414,701		33,841,233
Total	$	52,995,603	$	4,038,011	$	6,172,209	$	5,265,144	$	37,520,239

(1) Non-recourse funding obligations include all undiscounted principal amounts owed and expected future interest payments due over the term of the notes. Of the total undiscounted cash flows, $1.8 billion relates to the Golden Gate V transaction. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate V receives from notes issued by a nonconsolidated variable interest entity. Additionally, $2.8 billion relates to the Golden Gate transaction that occurred in Q1 2016. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate receives from notes issued by nonconsolidated entity and third parties. The remaining amounts are associated with the Golden Gate II notes held by third parties as well as certain obligations assumed with the acquisition of MONY Life Insurance Company.
(2) Anticipated stable value products cash flows including interest.
(3) Includes all lease payments required under operating lease agreements.
(4) The lease payments shown assume we exercise our option to purchase the building at the end of the lease term. Additionally, the payments due by the periods above were computed based on the terms of the renegotiated lease agreement, which was entered in December 2013.
(5) Represents secured borrowings and accrued interest as part of our repurchase program as well as liabilities associated with securities lending transactions.
(6) Estimated contractual policyholder obligations are based on mortality, morbidity, and lapse assumptions comparable to our historical experience, modified for recent observed trends. These obligations are based on current balance sheet values and include expected interest crediting, but do not incorporate an expectation of future market growth, or future deposits. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. As variable separate account obligations are legally insulated from general account obligations, the variable separate account obligations will be fully funded by cash flows from variable separate account assets. We expect to fully fund the general account obligations from cash flows from general account investments.

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

FASB guidance defines fair value for GAAP and establishes a framework for measuring fair value as well as a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The term “fair value” in this document is defined in accordance with GAAP. The standard describes three levels of inputs that may be used to measure fair value. For more information, see Note 7, ~~Fair Value of Financial Instruments.~~

OFF-BALANCE SHEET ARRANGEMENTS

We have entered into operating leases that do not result in an obligation being recorded on the balance sheet. Refer to Note ~~13,~~11, Commitments and Contingencies, of the consolidated condensed financial statements for more information.

MARKET RISK EXPOSURES

Our financial position and earnings are subject to various market risks including changes in interest rates, the yield curve, spreads between risk-adjusted and risk-free interest rates, foreign currency rates, used vehicle prices, and equity price risks and issuer defaults. We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, through an integrated asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and

the continuous rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, ~~inflation risk,~~ currency exchange risk, volatility risk, and equity market risk. See Note 8,6, Derivative Financial Instruments, to the consolidated condensed financial statements included in this report for additional information on our financial instruments.

The primary focus of our asset/liability program is the management of interest rate risk within the insurance operations. This includes monitoring the duration of both investments and insurance liabilities to maintain an appropriate balance between risk and profitability for each product category, and for us as a whole. It is our policy to maintain asset and liability durations within one year of one another, although, from time to time, a broader interval may be allowed.

We are exposed to credit risk within our investment portfolio and through derivative counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. We manage credit risk through established investment policies which attempt to address quality of obligors and counterparties, credit concentration limits, diversification requirements, and acceptable risk levels under expected and stressed scenarios. Derivative counterparty credit risk is measured as the amount owed to us, net of collateral held, based upon current market conditions. In addition, we periodically assess exposure related to potential payment obligations between us and our counterparties. We minimize the credit risk in derivative financial instruments by entering into transactions with high quality counterparties, (A-rated or higher at the time we enter into the contract), and we maintain credit support annexes with certain of those counterparties.

We utilize a risk management strategy that includes the use of derivative financial instruments. Derivative instruments expose us to credit market and basis risk. Such instruments can change materially in value from period- to-period. We minimize our credit risk by entering into transactions with highly rated counterparties. We manage the market and basis risks by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. We monitor our use of derivatives in connection with our overall asset/liability management programs and procedures. In addition, all derivative programs are monitored by our risk management department.

Derivative instruments that are used as part of our interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate options. ~~Our inflation~~

Derivative instruments that are used as part of the Company's foreign currency exchange risk management strategy ~~involves the use of~~include foreign currency swaps, ~~that require us to pay a fixed rate~~foreign currency futures, foreign equity futures, and ~~receive a floating rate that is based on changes in the Consumer Price Index (“CPI”).~~

foreign equity options.

We may use the following types of derivative contracts to mitigate our exposure to certain guaranteed benefits related to variable annuity, fixed indexed annuity, and indexed universal life contracts:

•Foreign Currency Futures

•Variance Swaps

•Interest Rate Futures

•Equity Options

•Equity Futures

•Credit Derivatives

•Interest Rate Swaps

•Interest Rate Swaptions

•Volatility Futures

•Volatility Options

•Funds Withheld Agreement

•Total Return Swaps

Other Derivatives

~~Certain~~The Company and certain of our subsidiaries have derivatives with PLC. These derivatives consist of an interest support agreement, YRT premium support arrangements, and portfolio maintenance agreements with PLC.

We have a funds withheld account that consists of various derivative instruments held by us that is used to hedge the ~~GMWB~~GLWB and GMDB riders. The economic performance of derivatives in the funds withheld account is ceded to Shades Creek. The funds withheld account is accounted for as a derivative financial instrument.

We believe that our asset/liability management programs and procedures and certain product features provide protection against the effects of changes in interest rates under various scenarios. Additionally, we believe our asset/liability management programs and procedures provide sufficient liquidity to enable us to fulfill our obligation to pay benefits under our various insurance and deposit contracts. However, our asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, spread movements, implied volatility, policyholder behavior, and other factors, and the effectiveness of our asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions.

In the ordinary course of our commercial mortgage lending operations, we may commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in our financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest, which may be different than prevailing interest rates. As of ~~September~~June 30, ~~2016 (Successor Company),~~2017, we had outstanding mortgage loan commitments of ~~$726.2~~$713.1 million at an average rate of ~~4.2%~~4.3%.

Impact of continued low interest rate environment

Significant changes in interest rates expose us to the risk of not realizing anticipated spreads between the interest rate earned on investments and the interest rate credited to in-force policies and contracts. In addition, certain of our insurance and investment products guarantee a minimum guaranteed interest rate (“MGIR”). In periods of prolonged low interest rates, the interest spread earned may be negatively impacted to the extent our ability to reduce policyholder crediting rates is limited by the guaranteed minimum credited interest rates. Additionally, those policies without account values may exhibit lower profitability in periods of prolonged low interest rates due to reduced investment income.

The table below presents account values by range of current minimum guaranteed interest rates and current crediting rates for our universal life and deferred fixed annuity products as of ~~September~~June 30, ~~2016 (Successor Company)~~2017 and December 31, ~~2015 (Successor Company):~~

2016:

Credited Rate Summary

As of ~~September~~June 30, ~~2016 (Successor Company)~~2017


				1-50 bps			More than									1-50 bps			More than
Minimum Guaranteed Interest Rate	At			above			50 bps						At			above			50 bps
Account Value	MGIR			MGIR			above MGIR			Total			MGIR			MGIR			above MGIR			Total
	(Dollars In Millions)												(Dollars In Millions)
Universal Life Insurance
>2% - 3%	$	201		$	1,109		$	2,009		$	3,319		$	203		$	1,168		$	2,035		$	3,406
>3% - 4%	4,016			1,191			11			5,218			4,086			1,091			8			5,185
>4% - 5%	1,941			14			—			1,955			2,015			14			1			2,030
>5% - 6%	210			—			—			210			203			—			—			203
Subtotal	6,368			2,314			2,020			10,702			6,507			2,273			2,044			10,824
Fixed Annuities
1%	$	667		$	162		$	124		$	953		$	645		$	178		$	274		$	1,097
>1% - 2%	554			484			110			1,148			544			371			70			985
>2% - 3%	2,105			100			7			2,212			1,992			65			6			2,063
>3% - 4%	270			—			—			270			247			—			—			247
>4% - 5%	281			—			—			281			274			—			—			274
>5% - 6%	3			—			—			3			3			—			—			3
Subtotal	3,880			746			241			4,867			3,705			614			350			4,669
Total	$	10,248		$	3,060		$	2,261		$	15,569		$	10,212		$	2,887		$	2,394		$	15,493

Percentage of Total	66		%	20		%	14		%	100		%	66		%	19		%	15		%	100		%

Credited Rate Summary

As of December 31, ~~2015 (Successor Company)~~

2016


				1-50 bps			More than									1-50 bps			More than
Minimum Guaranteed Interest Rate	At			above			50 bps						At			above			50 bps
Account Value	MGIR			MGIR			above MGIR			Total			MGIR			MGIR			above MGIR			Total
	(Dollars In Millions)												(Dollars In Millions)
Universal Life Insurance
>2% - 3%	$	197		$	1,033		$	2,016		$	3,246		$	202		$	1,133		$	2,023		$	3,358
>3% - 4%	3,648			1,603			27			5,278			4,001			1,191			11			5,203
>4% - 5%	1,983			14			—			1,997			1,928			14			—			1,942
>5% - 6%	215			—			—			215			208			—			—			208
Subtotal	6,043			2,650			2,043			10,736			6,339			2,338			2,034			10,711
Fixed Annuities
1%	$	663		$	169		$	138		$	970		$	670		$	153		$	114		$	937
>1% - 2%	569			496			131			1,196			535			463			103			1,101
>2% - 3%	2,083			248			11			2,342			2,056			68			7			2,131
>3% - 4%	278			—			—			278			267			—			—			267
>4% - 5%	287			—			—			287			281			—			—			281
>5% - 6%	3			—			—			3			3			—			—			3
Subtotal	3,883			913			280			5,076			3,812			684			224			4,720
Total	$	9,926		$	3,563		$	2,323		$	15,812		$	10,151		$	3,022		$	2,258		$	15,431

Percentage of Total	63		%	23		%	14		%	100		%	66		%	19		%	15		%	100		%

We are active in mitigating the impact of a continued low interest rate environment through product design, as well as adjusting crediting rates on current in-force policies and contracts. We also manage interest rate and reinvestment risks through our asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations; cash flow testing under various interest rate scenarios; and the regular rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk.

IMPACT OF INFLATION

Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefit and protection. Higher interest rates may result in higher sales of certain of our investment products.

The higher interest rates that have traditionally accompanied inflation could also affect our operations. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase. The market value of our fixed-rate, long-term investments may decrease, we may be unable to implement fully the interest rate reset and call provisions of our mortgage loans, and our ability to make attractive mortgage loans, including participating mortgage loans, may decrease. In addition, participating mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates. During the periods covered by this report, we believe inflation has not had a material impact on our business.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2, Summary of Significant Accounting Policies, to the consolidated condensed financial statements for information regarding recently issued accounting standards.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources” and Part II, Item 1A, Risk Factors, of this report for market risk disclosures.

Item 4. Controls and Procedures

(a)Disclosure controls and procedures

In order to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))., except as otherwise noted below. Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective. It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of any control system is based in part upon certain judgments, including the costs and benefits of controls and the likelihood of future events. Because of these and other inherent limitations of control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.

~~As described in Note 3~~In conducting our evaluation of the effectiveness of internal control over financial reporting as of June 30, 2017, we have excluded USWC Holding Company and its subsidiaries ("US Warranty") and the internal controls relating to the consolidated condensed financial statements set forth in this periodic report on Form 10-Q, the Company entered into a reinsurance transaction with Genworth Life and Annuity Insurance Company effective January 1, 2016. The Company performed due diligence on this transaction prior to the effective date and developed a reasonable level of assurance that the disclosure controls and procedures for the related administrative systems and processes being provided by third parties for the acquired business. US Warranty was acquired on December 1, 2016 and its revenues and income were ~~effective.~~

immaterial to the Company's results of operations for the six month period ended June 30, 2017.

(b) Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the ~~three~~six months ended ~~September~~June 30, ~~2016 (Successor Company),~~2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.

PART II

Item 1A. Risk Factors

The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and known trends and uncertainties. In addition to other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015 (Successor Company),~~2016, which could materially affect the Company’s business, financial condition, or future results of ~~operations.~~operations which are discussed more fully below.

The Company is exposed to risks related to natural and man-made disasters and catastrophes, diseases, epidemics, pandemics, malicious acts, cyber-attacks, terrorist acts and climate change, which could adversely affect the Company’s operations and results.

While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no predictions of specific scenarios can be made nor can assurance be given that there are not scenarios that could have an adverse effect on the Company. A natural or man-made disaster or catastrophe, including a severe weather or geological event such as a storm, tornado, fire, flood, or earthquake, disease, epidemic, pandemic, malicious act,cyber-attack, terrorist act, or the occurrence of climate change, could cause the Company’s workforce to be unable to engage in operations at one or more of its facilities or result in short- or long-term interruptions in the Company’s business operations, any of which could be material to the Company’s operating results for a particular period. In addition, certain of these events could adversely affect the mortality, morbidity, or other experience of the Company or its reinsurers and have a significant negative impact on the Company. In addition, claims arising from the occurrence of such events or conditions could have a material adverse effect on the Company’s financial condition and results of operations. Such events or conditions could also have an adverse effect on lapses and surrenders of existing policies, as well as sales of new policies. The Company’s risk management efforts and other precautionary plans and activities may not adequately predict the impact on the Company from such events.

In addition, such events or conditions could result in a decrease or halt in economic activity in large geographic areas, adversely affecting the marketing or administration of the Company’s business within such geographic areas and/or the general economic climate, which in turn could have an adverse effect on the Company. Such events or conditions could also result in additional regulation or restrictions on the Company in the conduct of its business. The possible macroeconomic effects of such events or conditions could also adversely affect the Company’s asset portfolio, as well as many other aspects of the Company’s business, financial condition, and results of operations.

Confidential information maintained in the systems of the Company or other parties upon which the Company relies could be compromised or misappropriated, damaging the Company’s business and reputation and adversely affecting its financial condition and results of operations.

In the course of conducting its business, the Company retains confidential information, including information about its customers and proprietary business information. The Company retains confidential information in various electronic systems, including computer systems, data processing and administrative systems, and communication systems. The Company maintains

physical, administrative, and technical safeguards to protect the information and it relies on commercial technologies to maintain the security of its systems and to maintain the security of its transmission of such information to other parties, including its business partners, counterparties and service providers. The Company’s business partners, counter parties and service providers likewise maintain confidential information, including, in some cases, customer information, on behalf of the Company. An intentional or unintentional breach or compromise of the security measures of the Company or such other parties could result in the disclosure, misappropriation, misuse, alteration or destruction of the confidential information retained by or on behalf of the Company, or the inability of the Company to conduct business for an indeterminate amount of time. Any of these events or circumstances could damage the Company’s business and reputation, and adversely affect its financial condition and results of operations by, among other things, causing harm to the Company’s business operations and customers, deterring customers and others from doing business with the Company, subjecting the Company to significant regulatory, civil, and criminal liability, and requiring the Company to incur significant legal and other expenses.

Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate and implement effective preventative measures against security breaches of all types because the techniques used change frequently or are not recognized until launched and because cyber-attacks can originate from a wide variety of sources or parties. Those parties may also attempt to fraudulently induce employees, customers or other users of our system to disclose sensitive information in order to gain access to our data or that of our customers or clients.

Cyber threats and related legal and regulatory standards applicable to our business are rapidly evolving and may subject the Company to heightened legal standards, new theories of liability and material claims and penalties that we cannot currently predict or anticipate. As cyber threats and applicable legal standards continue to evolve, the Company may be required to expend significant additional resources to continue to modify or enhance our protective measures, to investigate and remediate any information security vulnerabilities and to pay claims, fines or penalties. While the Company has experienced cyber-attacks in the past, and to date the Company has not suffered any material harm or loss relating to cyber-attacks or other information security breaches at the Company or its counterparties, there can be no assurance that the Company will not suffer such losses in the future.General Risk Factors

The ~~Company’s~~Company's results and financial condition may be negatively affected should actual experience differ from ~~management’s~~management's assumptions and estimates.

In the conduct of business, the Company makes certain assumptions regarding mortality, morbidity, persistency, expenses, interest rates, equity ~~market volatility,~~markets, tax, ~~liability,~~ business mix, ~~frequency and severity of claims,~~casualty, contingent liabilities, investment performance, and other factors appropriate to the type of business it expects to experience in future periods. These assumptions are ~~also~~ used to estimate the amounts of deferred policy acquisition costs, policy liabilities and accruals, future earnings, and various components of the ~~Company’s~~Company's balance sheet. These assumptions are also used in the operation of the ~~Company’s~~Company's business in making decisions crucial to the success of the Company, including the pricing of ~~products~~acquisitions and ~~expense structures relating to~~ products. The ~~Company’s~~Company's actual experience, as well as changes in estimates, is used to prepare the ~~Company’s~~Company's financial statements. To the extent the ~~Company’s~~Company's actual experience and changes in estimates differ from original estimates, the ~~Company’s~~Company's financial condition may be adversely affected.

Mortality, morbidity, and casualty ~~expectations~~assumptions incorporate underlying assumptions about many factors. Such factors ~~including~~may include, for example, how a product is distributed, for what purpose the product is purchased, the mix of customers purchasing the products, persistency and lapses, future progress in the fields of health and medicine, and the projected level of used vehicle values. Actual mortality, morbidity, and/or casualty experience may differ from expectations. In addition, continued activity in the viatical, stranger-owned, and/or life settlement industry could cause the ~~Company’s~~Company's level of lapses to differ from its assumptions about premium persistency and lapses, which could negatively impact the ~~Company’s~~Company's performance.

The calculations the Company uses to estimate various components of its balance sheet and statements of income are necessarily complex and involve analyzing and interpreting large quantities of data. The Company currently employs various techniques for such calculations and relies, in certain instances, on third parties to make or assist in making such calculations. From time to time it develops and implements more sophisticated administrative systems and procedures capable of facilitating the calculation of more precise estimates. The systems and procedures that the Company develops and the Company's reliance upon third parties could result in errors in the calculations that impact our financial statements or affect our financial condition.

Assumptions and estimates involve judgment, and by their nature are imprecise and subject to changes and revisions over time. Accordingly, the Company’s results may be affected, positively or negatively, from time to time, by actual results

differing from assumptions, by changes in estimates, and by changes resulting from implementing more sophisticated administrative systems and procedures that facilitate the calculation of more precise estimates.

The Company may not realize its anticipated financial results from its acquisitions strategy.

The Company’s Acquisitions segment focuses on the acquisitions of companies and business operations, and the coinsurance of blocks of insurance business, all of which have increased ~~its~~the Company’s earnings. However, there can be no assurance that the Company will have future suitable opportunities for, or sufficient capital available to fund, such transactions. If our competitors have access to capital on more favorable terms or at a lower cost, our ability to compete for acquisitions may be diminished. In addition, there can be no assurance that the Company will be able to realize any projected operating efficiencies or ~~realize~~achieve the anticipated financial results from such transactions.

The Company may be unable to complete an acquisition transaction. Completion of an acquisition transaction may be more costly or take longer than expected, or may have a different or more costly financing structure than initially contemplated. In addition, the Company may not be able to complete or manage multiple acquisition transactions at the same time, or the completion of such transactions may be delayed or be more costly than initially contemplated. The Company, its affiliates, or other parties to

the transaction may be unable to obtain regulatory approvals required to complete an acquisition transaction. If the Company identifies and completes suitable acquisitions, it may not be able to successfully integrate the business in a timely or cost-effective manner, or retain key personnel and business relationships necessary to achieve anticipated financial results. In addition, there may be unforeseen liabilities that arise in connection with businesses or blocks of insurance business that the Company ~~acquires.~~acquires or reinsures. Additionally, in connection with its acquisition transactions that involve reinsurance, the Company assumes, or otherwise becomes responsible for, the obligations of policies and other liabilities of other insurers. Any regulatory, legal, financial, or other adverse development affecting the other insurer could also have an adverse effect on the Company.

Risks Related to the Financial Environment

The ~~Company’s~~Company's use of derivative financial instruments within its risk management strategy may not be effective or sufficient.

The Company uses derivative financial instruments within its risk management strategy to mitigate risks to which it is exposed, including ~~the adverse effects of domestic and/or international~~risks related to credit and/or equity market and/or interest rate levels, foreign exchange, ~~risks,~~ or volatility on its fixed indexed annuity and variable annuity products ~~with~~and associated guaranteed benefit features. The Company may also use derivative financial instruments within its risk management strategy to mitigate risks arising from its exposure to investments in individual issuers or sectors of issuers and to mitigate the adverse effects of interest rate levels or volatility on its overall financial condition or results of operations.

These derivative financial instruments may not effectively offset the changes in the carrying value of the ~~guarantees~~exposures due to, among other things, the time lag between changes in the value of such ~~guarantees~~exposures and the changes in the value of the derivative financial instruments purchased by the Company, extreme credit and/or equity market and/or interest rate levels or volatility, contract holder behavior that differs from the Company’s expectations, and divergence between the performance of the underlying funds of such variable annuity products with guaranteed benefit features and the indices utilized by the Company in estimating its exposure to such guarantees.

The Company may also use derivative financial instruments within its risk management strategy to mitigate risks arising from its exposure to investments in individual issuers or sectors of issuers and to mitigate the adverse effects of distressed domestic and/or international credit and/or equity markets and/or interest rate levels or volatility on its overall financial condition or results of operations.basis risk.

The use of derivative financial instruments by the Company generally to hedge various risks that impact GAAP earnings may have an adverse impact on the level of statutory capital and ~~the~~ risk-based capital ratios, ofbecause earnings under the ~~Company’s insurance subsidiaries. The Company employs strategies in the use of derivative financial instruments that~~Company's hedging program are ~~intended to mitigate such adverse impacts, but the Company’s strategies may not be effective.~~recognized differently under GAAP and statutory accounting methods.

The Company may also choose not to hedge, in whole or in part, these or other risks that it has identified, due to, for example, the availability and/or cost of a suitable derivative financial instrument or, in reaction to extreme credit, equity market and/or interest rate levels or volatility. Additionally, the Company’s estimates and assumptions made in connection with its use of any derivative financial instrument may fail to reflect or correspond to its actual long-term exposure in respect to identified risks. Derivative financial instruments held or purchased by the Company may also otherwise be insufficient to hedge the risks in relation to the Company’s obligations.instrument. In addition, the Company may fail to identify risks, or the magnitude thereof, to which it is exposed. The Company is also exposed to the risk that its use of derivative financial instruments within its risk management strategy may not be properly designed and/or may not be properly implemented as designed.

The Company is ~~also~~ subject to the risk that its derivative counterparties or clearinghouse may fail or refuse to meet their obligations to the Company ~~under~~which may result in associated derivative financial instruments. If the Company’s derivative counterparties or clearinghouse fail or refuse to meet their obligations to the Company in this regard, the Company’s efforts to mitigate risks to which it is subject through the use of such derivative financial instruments ~~may prove~~ to be ineffective or inefficient.

The above factors, either alone or in combination, may have a material adverse effect on the ~~Company’s financial condition and results of operations.~~

~~Disruption of the capital and credit markets could negatively affect the Company’s ability to meet its liquidity and financing needs.~~

The Company needs liquidity to meet its obligations to its policyholders and its debt holders, and to pay its operating expenses. The Company’s sources of liquidity include insurance premiums, annuity considerations, deposit funds, cash flow from investments and assets, and other income from its operations. In normal credit and capital market conditions, the Company’s sources of liquidity also include a variety of short and long-term borrowing arrangements, including issuing debt securities.

The Company’s business is dependent on the capital and credit markets, including confidence in such markets. When the credit and capital markets are disrupted and confidence is eroded the Company may not be able to borrow money, including through the issuance of debt securities, or the cost of borrowing or raising capital may be prohibitively high. If the Company’s internal sources of liquidity are inadequate during such periods, the Company could suffer negative effects from not being able to borrow money, or from having to do so on unfavorable terms. The negative effects could include being forced to sell assets at a loss, a lowering of the Company’s credit ratings and the financial strength ratings of its insurance subsidiaries, and the possibility that customers, lenders, ratings agencies, or regulators develop a negative perception of the Company’s financial prospects, which could lead to further adverse effects on the Company.

~~The Company could be adversely affected by an inability to access its credit facility.~~

The Company relies on its credit facility as a potential source of liquidity. The availability of these funds could be critical to the Company’s credit and financial strength ratings and its ability to meet obligations, particularly when alternative sources of credit or liquidity are either difficult to access or costly. The availability of the Company’s credit facility is dependent in part on the ability of the lenders to provide funds under the facility. The Company’s credit facility contains various affirmative and negative covenants and events of default, including covenants requiring the Company to maintain a specified minimum consolidated net

worth. The Company’s right to make borrowings under the facility is subject to the fulfillment of certain conditions, including its compliance with all covenants. The Company’s failure to comply with the covenants in the credit facility could restrict its ability to access this credit facility when needed. The Company’s inability to access some or all of the line of credit under the credit facility could have a material adverse effect on itsCompany's financial condition and results of operations.

The Company's securities lending program may subject it to liquidity and other risks.

The Company ~~could~~maintains a securities lending program in which securities are loaned to third parties, including brokerage firms and commercial banks. The borrowers of the Company's securities provide the Company with collateral, typically in cash, which it separately maintains. The Company invests the collateral in other securities, including primarily short-term government repo and money market funds. Securities loaned under the program may be ~~adversely affected~~returned to the Company by ~~an inability~~the borrower at any time, requiring the Company to ~~access FHLB lending.~~return the related cash collateral. In some cases, the Company may use the cash collateral provided to purchase other securities to be held as invested collateral, and the maturity of such securities may exceed the term of the securities loaned under the program and/or the market value of such securities may fall below the amount of cash collateral that the Company is obligated to return to the borrower of the Company's loaned securities. If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell the securities held as invested collateral to meet the obligation, the Company may have difficulty selling such securities in a timely manner and/or the Company may be forced to sell the securities in a volatile or illiquid market for less than it otherwise would have been able to realize under normal market conditions. In addition, the Company's ability to sell securities held as invested collateral may be restricted under stressful market and economic conditions in which liquidity deteriorates.

Industry and Regulatory Related Risks

The business of the Company is highly regulated and is subject to routine audits, examinations and actions by regulators, law enforcement agencies and self-regulatory organizations.

The Company is ~~a member~~subject to government regulation in each of the ~~Federal Home Loan Bank (the “FHLB”)~~states in which it conducts business. In many instances, the regulatory models emanate from the National Association of ~~Cincinnati~~Insurance Commissioners (“NAIC”). Such regulation is vested in state agencies having broad administrative and in some instances discretionary power dealing with many aspects of the Company’s business, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements, marketing practices, advertising, privacy, cybersecurity, policy forms, reinsurance reserve requirements, insurer use of captive reinsurance companies, acquisitions, mergers, capital adequacy, claims practices and the ~~FHLB~~remittance of ~~New York. Membership provides~~unclaimed property. In addition, some state insurance departments may enact rules or regulations with extra-territorial application, effectively extending their jurisdiction to areas such as permitted insurance company investments that are normally the province of an insurance company’s domiciliary state regulator.

At any given time, a number of financial, market conduct, or other examinations or audits of the Company with access to FHLB financial services, including advances that provide an attractive funding source for short-term borrowing and for the sale of funding agreements. In recent years, the Federal Housing Finance Agency (“FHFA”) has released advisory bulletins addressing concerns associated with insurance company (as opposed to federally-backed bank) access to FHLB financial services, the state insurance regulatory framework and FHLB creditor status in the event of member insurer insolvency. In response to FHFA actions, FHLB members, the NAIC and trade groups developed model legislation that would subject insurers accessing FHLB funding to collateral requirements similar to those applicable to federally insured depository institutions. While members of the FHLB and NAIC were not able to agree on certain points, legislation based on this model has been introduced and adopted in several states and is not being opposed by the NAIC.and/or its subsidiaries may be ongoing. It is ~~unclear at this time whether~~possible that any examination or audit may result in payments of fines and penalties, payments to ~~what extent additional~~customers, or ~~new legislation~~both, as well as changes in systems or ~~regulatory action regarding continued access to FHLB financial services will be enacted or adopted. Any developments that limit access to FHLB financial services~~procedures, any of which could have a material adverse effect on the ~~Company.~~Company’s financial condition or results of operations.

The amount of statutory capital or risk-based capital that the Company has and the amount of statutory capital or risk-based capital that it must hold to maintain its financial strength and credit ratings and meet other requirements can vary significantly from time to time and such amounts are sensitive to a number of factors outside of the Company’s control.

Insurance regulators have established regulations that provide minimum capitalization requirements based on risk-based capital formulas for life and property and casualty companies. The risk-based capital formula for life insurance companies establishes capital requirements relating to insurance, business, asset, interest rate, and certain other risks.

In any particular year, statutory surplus amounts and risk-based capital ratios may increase or decrease depending on a variety of factors including the following: the amount of statutory income or losses generated by the Company and its insurance subsidiaries ~~(which itself is sensitive~~are required to ~~equity market~~obtain state regulatory approval for rate increases for certain health insurance products. The Company’s profits may be adversely affected if the requested rate increases are not approved in full by regulators in a timely fashion.

State insurance regulators and credit market conditions); the amount of additional capital which the Company and its insurance subsidiaries must hold to support business growth; changes in the Company’s reserve requirements; the Company’s ability to secure capital market solutions to provide reserve relief; changes in equity market levels; the value of certain fixed-income and equity securities in its investment portfolio; the credit ratings of investments held in its portfolio, including those issued by, or explicitly or implicitly guaranteed by, a government; the value of certain derivative instruments; changes in interest rates and foreign currency exchange rates; credit market volatility; changes in consumer behavior; and changes to the NAIC ~~risk-based capital formula. Most of~~regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these ~~factors~~laws and regulations, or in interpretations thereof, are ~~outside~~often made for the benefit of the ~~Company’s control. The Company’s financial strength~~consumer and ~~credit ratings are significantly influenced by its statutory surplus amounts~~may lead to additional expense for the insurer and, risk-based capital ratios and those of its insurance company subsidiaries. Rating agencies may implement changes to their internal models that have the effect of increasing or decreasing the amount of statutory capital the Company must hold in order to maintain its current ratings. In addition, rating agencies may downgrade the investments held in the Company’s portfolio, whichthus, could ~~result in a reduction of the Company’s capital and surplus and/or its risk-based capital ratio.~~

In scenarios of equity market declines, the amount of additional statutory reserves or risk-based capital the Company is required to hold for its variable product guarantees may increase at a rate greater than the rate of change of the markets. Increases in reserves or risk-based capital could result in a reduction to the Company’s capital, surplus, and/or risk-based capital ratio. Also, in environments where there is not a correlative relationship between interest rates and spreads, the Company’s market value adjusted annuity product can have a material adverse effect on the Company’s ~~statutory surplus position.~~financial condition and results of operations. At the federal level, the executive branch may issue executive orders or take other action with respect to life insurance matters, and bills are routinely introduced in both chambers of the United States Congress that could affect life insurers. In the past, Congress has considered legislation that would impact insurance companies in numerous ways, such as providing for an optional federal charter or a federal presence for insurance, preempting state law in certain respects regarding the regulation of reinsurance, increasing federal oversight in areas such as consumer protection and solvency regulation, setting tax rates, and other matters. The Company cannot predict whether or in what form legislation will be enacted and, if so, whether the enacted legislation will positively or negatively affect the Company or whether any effects will be material.

The Company may be subject to regulations of, or regulations influenced by, ~~or related to~~ international regulatory authorities or initiatives.

The NAIC and the Company’s state regulators may be influenced by the initiatives of international regulatory bodies, and those initiatives may not translate readily into the legal system under which U.S. insurers must operate. There is increasing pressure to conform to international standards due to the globalization of the business of insurance and the most recent financial crisis. In addition to developments at the NAIC and in the United States, the Financial Stability Board (“FSB”), consisting of representatives of national financial authorities of the G20 nations, and the G20 have issued a series of proposals intended to produce significant changes in how financial companies, particularly companies that are members of large and complex financial groups, should be regulated.

The International Association of Insurance Supervisors (“IAIS”), at the direction of the FSB, has published aan evolving methodology for identifying “global systemically important insurers” (“G-SIIs”) and ~~high level~~high-level policy measures that will apply to G-SIIs. The FSB, working with national authorities and the IAIS, has designated nine insurance groups as G-SIIs. The IAIS is working on the policy measures which include higher capital requirements and enhanced supervision. Although neither the Company nor Dai-ichi Life has been designated as a G-SII, the list of designated insurers will be updated annually by the FSB. It is possible that the greater size and reach of the combined group as a result of the Company becoming a subsidiary of Dai-ichi Life, or a change in the methodologies or their application, could lead to the combined group’s designation as a G-SII.

The IAIS is also in the process of developing a common framework for the supervision of internationally active insurance groups (“IAIGs”), which is targeted to be implemented in 2019. ~~Under the proposed~~The framework, which is currently under discussion, may include a global capital measurement standard for insurance groups deemed to be IAIGs ~~may be required by their regulators to comply with new global capital requirements, which may~~that could exceed the sum of state or other local capital requirements. In addition, the IAIS is developing a model framework for the supervision of IAIGs that

contemplates “group wide supervision” across national boundaries, which ~~requires~~could require each IAIG to conduct its own risk and solvency assessment to monitor and manage its overall solvency. It is likely that, as a result of the Merger, the combined group will be deemed an IAIG, in which case it may be subject to supervision requirements and capital ~~requirements~~measurement standards beyond those applicable to any competitors who are not designated as an IAIG.

The Company’s sole stockholder, Dai-ichi Life, is also subject to regulation by the Japanese Financial Services Authority (“JFSA”). Under applicable laws and regulations, Dai-ichi Life is required to provide notice to or obtain the consent of the JFSA prior to taking certain actions or engaging in certain transactions, either directly or indirectly through its subsidiaries, including the Company and its consolidated subsidiaries, which could limit the ability of the Company to engage in certain transactions or business initiatives.

While it is not yet known how or ~~if these actions will impact~~the extent to which the Company ~~such regulation could result in~~will be impacted by these regulations, the Company may experience increased costs of compliance, increased disclosure, less flexibility in capital management, and more burdensome regulation and capital requirements for specific lines of ~~business, and~~business. In addition, such regulations could impact the business of the Company and its reserve and capital requirements, financial condition or results of operations.

NAIC actions, pronouncements and initiatives may affect the Company’s product profitability, reserve and capital requirements, financial condition or results of operations.

Although some NAIC pronouncements, particularly as they affect accounting, reserving and risk-based capital issues, may take effect automatically without affirmative action taken by the states, the NAIC is not a governmental entity and its processes and procedures do not comport with those to which governmental entities typically adhere. Therefore, it is possible that actions could be taken by the NAIC that become effective without the procedural safeguards that would be present if governmental action was required. In addition, with respect to some financial regulations and guidelines, states sometimes defer to the interpretation of the insurance department of a non-domiciliary state. Neither the action of the domiciliary state nor the action of the NAIC is binding on a non-domiciliary state. Accordingly, a state could choose to follow a different interpretation. The Company is also subject to the risk that compliance with any particular regulator’s interpretation of a legal, accounting or actuarial issue may result in non-compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. There is an additional risk that any particular regulator’s interpretation of a legal, accounting or actuarial issue may change over time to the Company’s detriment, or that changes to the overall legal or market environment may cause the Company to change its practices in ways that may, in some cases, limit its growth or profitability. Statutes, regulations, interpretations, and instructions may be applied with retroactive impact, particularly in areas such as accounting, reserve and risk-based capital requirements. Also, regulatory actions with prospective impact can potentially have a significant impact on currently sold products.

The NAIC has announced more focused inquiries on certain matters that could have an impact on the Company’s financial condition and results of operations. Such inquiries concern, for example, examination of statutory accounting disclosures for separate accounts, insurer use of captive reinsurance companies, variable annuity reserves and capital treatment, certain aspects of insurance holding company reporting and disclosure, ~~reserving for universal life products with secondary guarantees,~~ reinsurance, cybersecurity practices, and risk-based capital calculations. In addition, the NAIC continues to consider various initiatives to change and modernize its financial and solvency requirements and regulations. It has adopted principles-based reserving methodologies for life insurance and annuity reserves, but additional formulas and/or guidance relevant to the new standard are being developed. The NAIC is also considering changes to accounting and risk-based capital regulations, risk-based capital calculations, governance practices of insurers, and other items. ~~Some of these proposed changes will require~~Additionally, the ~~approval of state legislatures.~~NAIC is studying a group capital calculation that would aggregate required capital across U.S.-based insurance groups. The Company cannot currently estimate what impact these more focused inquiries or proposed changes, if they occur, will have on its product mix, product profitability, reserve and capital requirements, financial condition or results of operations.

The Company’s use of captive reinsurance companies to finance statutory reserves related to its term and universal life products and to reduce volatility affecting its variable annuity products may be limited or adversely affected by regulatory action, pronouncements and interpretations.

The Company currently uses affiliated captive reinsurance companies in various structures to finance certain statutory reserves based on a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline ~~AXXX”,~~AXXX,” which are associated with term life insurance and universal life insurance with secondary guarantees, respectively, as well as to reduce the volatility in statutory risk-based capital associated with certain guaranteed minimum withdrawal and death benefit riders associated with certain of the Company’s variable annuity products. The NAIC, through various committees, subgroups and dedicated task forces, is reviewing the use of captives and special purpose vehicles used to transfer insurance risk in relation to existing state laws and regulations, and could impose additional requirements on the use of captives and other reinsurers (including traditional reinsurers) (the “Affected Business”). In addition, the Principles Based Reserving Implementation (EX) Task Force of the NAIC, charged with analysis of the adoption of a principles-based reserving methodology, adopted the “conceptual framework” contained in a report issued by Rector & Associates, Inc., dated June 4, 2014 (as modified or supplemented, the “Rector Report”), that includes numerous recommendations pertaining to the regulation and use of certain captive reinsurers. Certain high-level recommendations have been adopted and assigned to various NAIC working groups, which working groups are in various stages of discussions regarding recommendations.

~~One recommendation of the Rector Report was~~The NAIC has adopted as Actuarial Guideline XLVIII ~~(“AG48”~~("AG48")~~. AG48 sets more restrictive standards on~~ and the ~~permitted collateral utilized to back reserves of a captive. In September 2016, the Financial Condition (E) Committee of the NAIC adopted the Term~~substantially similar "Term and Universal Life Insurance Reserve Financing Model ~~Regulation~~Regulation" (the ~~“Reserve Model”~~"Reserve Model") which ~~is substantially similar to AG48.~~establish national standards for new reserve financing arrangements for term life insurance and universal life insurance with secondary guarantees. AG48 and the Reserve Model ~~will likely make it difficult~~govern collateral requirements for captive reinsurance arrangements. In order to obtain reserve credit, AG48 and the ~~Company~~Reserve Model require a minimum level of funds, consisting of primary and other securities, to ~~establish new~~be held by or on behalf of ceding insurers as security under each captive ~~financing arrangements on a basis consistent with past practices.~~life reinsurance treaty. As a result of AG48 and the Reserve Model, the implementation of new captive structures in the future may be less capital efficient, ~~may~~ lead to lower product returns and/or increased product pricing, or result in reduced sales of certain products. In some circumstances, AG48 and the Reserve Model could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.

The Financial Condition (E) Committee of the NAIC established a Variable Annuity Issues Working Group ("VAIWG") in 2015 to oversee the NAIC’s efforts to study and address regulatory issues resulting in variable annuity captive reinsurance

transactions. The VAIWG developed a Framework for Change (the “Framework”) which was adopted in 2015. The Framework suggests numerous changes to current NAIC rules and regulations that are intended to decrease incentives for insurers to establish variable annuities captives, which changes could potentially be applied to both in-force and new business. The Framework proposes that various NAIC groups consider and adopt recommended changes to current rules and regulations (with a ~~targeted~~likely effective date in ~~2018)~~2019) and that, upon adoption, domestic regulators request that insurers ceding business to variable annuity captives recapture such business and dissolve such captives. The VAIWG received a draft proposal for changes in late ~~2016.~~2016 and is reviewing the proposal’s possible impact. If the proposal is adopted, changes in the regulation of variable annuities and variable annuity captives could adversely affect our future financial condition and results of operations.

The NAIC adopted revisions to the Part A Laws and Regulations Preamble (the "Preamble") of the NAIC Financial Regulation Standards and Accreditation Program that ~~will include~~includes within the definition of “multi-state insurer” certain insurer-owned captives and special purpose vehicles that are single-state licensed but assume reinsurance from cedants operating in multiple

states. The revised definition ~~will subject~~subjects certain captives, including XXX/AXXX captives, variable annuity and long-term care captives, to all of the accreditation standards applicable to other traditional multi-state insurers, including standards related to capital and surplus requirements, risk-based capital requirements, investment laws and credit for reinsurance laws. Although we do not expect the revised definition to affect our existing life insurance captives (or our ability to engage in life insurance captive transactions in the future), such application will likely prevent us from engaging in variable annuity captive transactions on the same or a similar basis as in the past and, if applied retroactively, would likely cause us to recapture business from and unwind our existing variable annuity captive (“VA Captive”).

While the recapture of business from our existing VA Captive, caused either by actions of the VAIWG or the effect of the Preamble, would not have a material adverse effect on the Company given current market conditions, in the future the Company could experience fluctuations in its risk-based capital ratio due to market volatility if it were prohibited from engaging in similar transactions or required to unwind its existing VA Captive, which could adversely affect our future financial condition and results of operations.

Any regulatory action or change in interpretation that materially adversely affects the Company’s use or materially increases the Company’s cost of using captives or reinsurers for the Affected Business, either retroactively or prospectively, could have a material adverse impact on the Company’s financial condition or results of operations. If the Company were required to discontinue its use of captives for intercompany reinsurance transactions on a retroactive basis, adverse impacts would include early termination fees payable to third party finance providers with respect to certain structures, diminished capital position and higher cost of capital. Additionally, finding alternative means to support policy liabilities efficiently is an unknown factor that would be dependent, in part, on future market conditions and the Company’s ability to obtain required regulatory approvals. On a prospective basis, discontinuation of the use of captives could impact the types, amounts and pricing of products offered by the Company’s insurance subsidiaries.

~~Laws, regulations and initiatives related to unreported deaths and unclaimed property and death benefits may result in operational burdens, fines, unexpected payments or escheatments.~~

Since 2012, various states have enacted laws that require life insurers to search for unreported deaths. The National Conference of Insurance Legislators (“NCOIL”) has adopted the Model Unclaimed Life Insurance Benefits Act (the “Unclaimed Benefits Act”) and legislation or regulations have been enacted in numerous states that are similar to the Unclaimed Benefits Act, although each state’s version differs in some respects. The Unclaimed Benefits Act, if adopted by any state, imposes new requirements on insurers to periodically compare their life insurance and annuity contracts and retained asset accounts against the U.S. Social Security Administration's Death Master File or similar databases (a "Death Database"), investigate any potential matches to confirm the death and determine whether benefits are due, and to attempt to locate the beneficiaries of any benefits that are due or, if no beneficiary can be located, escheat the benefit to the state as unclaimed property. Other states in which the Company does business may also consider adopting legislation similar to the Unclaimed Benefits Act. The Company cannot predict whether such legislation will be proposed or enacted in additional states. Additionally, the NAIC Unclaimed Life Insurance Benefits (A) Working Group is developing a model unclaimed property law that overlaps with the NCOIL-based laws already adopted in numerous states.

The Uniform Laws Commission has adopted revisions to the Uniform Unclaimed Property Act in a manner likely to impact state unclaimed property laws and requirements, though it is not clear at this time to what extent or whether requirements will conflict with otherwise imposed search requirements. Other life insurance industry associations and regulatory associations are also considering these matters. Certain states have amended or may amend their unclaimed property laws to require insurers to compare in-force and certain terminated life insurance policies, annuity contracts, and retained asset accounts against a Death Database, to investigate potential matches to determine whether the named insured is deceased, to attempt to locate and pay beneficiaries any unclaimed benefits required to be paid, and, if no beneficiary can be located, to escheat policy benefits to the appropriate state as unclaimed property. The enactment of such unclaimed property laws may require the Company to incur significant expenses, including benefits with respect to terminated policies for which no reserves are currently held and unanticipated operational expenses. Any of the foregoing could have a material adverse effect on the Company's financial condition and results of operations.

A number of state treasury departments and administrators of unclaimed property have audited life insurance companies for compliance with unclaimed property laws. The focus of the audits has been to determine whether there have been maturities of policies or contracts, or policies that have exceeded limiting age with respect to which death benefits or other payments under the policies should be treated as unclaimed property that should be escheated to the state. In addition, the audits have sought to identify unreported deaths of insureds. There is no clear basis in previously existing law for treating an unreported death as giving rise to a policy benefit that would be subject to unclaimed property procedures. A number of life insurers, however, have entered into resolution agreements with state treasury departments and administrators of unclaimed property under which the life insurers

agreed to procedures for comparing their previously issued life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, escheating the benefits and interest, in some cases at a negotiated rate, to the state if the beneficiary could not be found, and paying penalties to the state, if required. The amounts publicly reported to have been paid to beneficiaries and/or escheated to the states have been substantial.

The NAIC has established an Investigations of Life/Annuity Claims Settlement Practices (D) Task Force to coordinate targeted multi-state examinations of life insurance companies on claims settlement practices. The state insurance regulators on the Task Force have initiated targeted multi-state examinations of life insurance companies with respect to the companies’ claims paying practices and use of a Death Database to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement systems and procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, escheating the benefits and interest to the state if the beneficiary could not be found, and paying penalties to the state, if required. It has been publicly reported that the life insurers have paid substantial administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements.

The Company and certain of its subsidiaries as well as certain other insurance companies from whom the Company has coinsured blocks of life insurance and annuity policies are subject to unclaimed property audits and/or targeted multi-state examinations by insurance regulators similar to those described above. It is possible that the audits, examinations and/or the enactment of state laws similar to the Unclaimed Benefits Act could result in additional payments to beneficiaries, additional escheatment of funds deemed abandoned under state laws, payment of administrative penalties and/or examination fees to state authorities, and changes to the Company’s procedures for identifying unreported deaths and escheatment of abandoned property. It is possible any such additional payments and any costs related to changes in Company procedures could materially impact the Company’s financial results from operations. It is also possible that life insurers, including the Company, may be subject to claims, regulatory actions, law enforcement actions, and civil litigation arising from their prior business practices, unclaimed property practices or related audits and examinations. Any resulting liabilities, payments or costs, including initial and ongoing costs of changes to the Company’s procedures or systems, could be significant and could have a material adverse effect on the Company’s financial condition or results of operations.

During December 2012, the West Virginia Treasurer filed actions against the Company and one of its subsidiaries West Coast Life Insurance Company, in West Virginia state court (State of West Virginia ex rel. John D. Perdue v. Protective Life Insurance Company, State of West Virginia ex rel. John D. Perdue v. West Coast Life Insurance Company; Defendants’ Motions to Dismiss granted on December 27, 2013; Notice of Appeal filed on January 27, 2014; dismissal reversed by the West Virginia Supreme Court of Appeals on June 16, 2015; Petition for Rehearing filed by Defendant insurance companies denied on September 21, 2015). The actions, which also name numerous other life insurance companies, allege that the companies violated the West Virginia Uniform Unclaimed Property Act, seek to compel compliance with the Act, and seek payment of unclaimed property, interest, and penalties. While the legal theory or theories that may give rise to liability in the West Virginia Treasurer litigation are uncertain, it is possible that other jurisdictions may pursue similar actions. The Company does not currently believe that losses, if any, arising from the West Virginia Treasurer litigation will be material. The Company cannot, however, predict whether other jurisdictions will pursue similar actions or, if they do, whether such actions will have a material impact on the Company’s financial results from operations.

~~The Company is subject to insurance guaranty fund and insurable interest laws which could result in assessments that adversely affect the Company's financial condition or results of operations.~~

Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. From time to time, companies may be asked to contribute amounts beyond prescribed limits. It is possible that the Company could be assessed with respect to product lines not offered by the Company. The Company cannot predict the amount of timing of any future assessments, any of which could have a material and adverse impact on the Company's financial condition or results of operations.

Laws, rules and regulations promulgated in connection with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act may adversely affect the results of operations or financial condition of the Company.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) enacted in July 2010 made sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of Dodd-Frank are or may become applicable to the Company, its competitors or those entities with which the Company does business. Such provisions include, but are not limited ~~to the following:~~to: the establishment of consolidated federal regulation and resolution authority over systemically important financial services firms, the establishment of the Federal Insurance Office, changes to the regulation and standards applicable to broker-dealers and investment advisors, changes to the regulation of reinsurance, changes to regulations affecting the rights of shareowners, and the imposition of additional regulation over credit rating agencies, and the imposition of concentration limits on financial institutions that restrict the amount of credit that may be extended to a single person or entity. Since the enactment of Dodd-Frank, many regulations have been enacted and others are likely to be adopted in the future that will have an impact upon the Company. Dodd-Frank also created the Financial Stability Oversight Council (the “FSOC”), which has issued a final rule and interpretive guidance setting forth the methodology by which it will determine whether a non-bank financial company is a systemically important financial institution (“SIFI”). A ~~non- bank~~non-bank financial company, such as the Company, that is designated as a SIFI by the FSOC will become subject to supervision by the Board of Governors of the Federal Reserve System (the “Federal

Reserve”). The Company is not currently supervised by the Federal Reserve as a SIFI. Such supervision could impact the Company’s requirements relating to capital, liquidity, stress testing, limits on counterparty credit exposure, compliance and governance, early remediation in the event of financial weakness and other prudential matters, and in other ways the Company currently cannot anticipate. FSOC-designated non-bank financial companies will also be required to prepare resolution plans, so-called “living wills,” that set out how they could most efficiently be liquidated if they endangered the U.S. financial system or the broader economy. The FSOC has conducted multiple rounds of SIFI designation ~~consideration. However, this process is still new,~~consideration and ~~the FSOC~~ continues to make changes to its process for designating a company as a SIFI. The FSOC has made ~~its initial~~ SIFI designations, and the Company was not designated as such. However, the Company could be considered and designated at any time. ~~Because the process is in its initial stages, the~~The Company is at this time unable to predict the impact on an entity that is supervised as a SIFI by the Federal Reserve Board. The Company is not able to predict whether the capital requirements or other requirements imposed on SIFIs may impact the requirements applicable to the Company even if it is not designated as a SIFI. The uncertainty about regulatory requirements could influence the Company’s product line or other business decisions with respect to some product lines.

There is a similarly uncertain international designation process. The Financial Stability Board, appointed by the G-20 Summit, recently designated nine insurers as “G-SIIs,” or global systemically-important insurers. The insurers designated as G-SIIs to date represent organizations larger than the Company, but the possibility remains that the Company could be so designated. As with the designation of SIFIs, it is unclear at this time how additional capital, use of potentially systemic non-insurance activities and product features, and other requirements affect the insurance and financial industries.

Additionally, Dodd-Frank created the Consumer Financial Protection Bureau (“CFPB”), an independent division of the Department of Treasury with jurisdiction over credit, savings, payment, and other consumer financial products and services, ~~other than~~but excluding investment products already regulated by the United States Securities and Exchange Commission (the “SEC”) or the U.S. Commodity Futures Trading Commission. The CFPB has supervisory authority over certain non-banks whose activities or products it determines pose risks to consumers, and ~~recently~~ issued a rule in 2016 amending regulations under the Home Mortgage Disclosure Act that ~~will require~~requires the Company to, among other things, collect and disclose extensive data related to its lending practices. At this time, the rule relates to reporting data relative to Company loans made on multi-family apartments, seniors living housing, manufactured housing communities and any mixed-use properties which contain a residential component. It is unclear at this time ~~the extent to which the Company or its activities or products will be impacted by~~how burdensome compliance with this ~~rule~~ or other rules promulgated byunder the ~~CFPB, or how burdensome compliance~~Home Mortgage Disclosure Act will become.

Certain of the Company’s subsidiaries sell products that may be regulated by the CFPB. CFPB continues to bring enforcement actions involving a growing number of issues, including actions brought jointly with state Attorneys General, which could directly or indirectly affect the Company or any of its subsidiaries. Additionally, the CFPB is exploring the possibility of helping Americans manage their retirement savings and is considering the extent of its authority in that area. The Company is unable at this time to predict the impact of these activities on the Company.

Dodd-Frank includes a framework of regulation of over-the-counter (“OTC”) derivatives markets ~~which~~that requires clearing of certain types of transactions which have been or are currently traded OTC by the Company. The types of transactions required to be cleared are expected to increase in the future. In addition, new variation margin requirements applicable to derivatives transactions that are not required to be cleared are expected to become effective in September 2017. The increase of transactions required to be cleared and the application of new ~~framework could potentially impose~~margin requirements for uncleared derivatives transactions may result in additional costs ~~including increased margin requirements and additional regulation on~~to the Company. Increased margin requirements on the Company’s part, combined with restrictions on securities that will qualify as eligible collateral, could continue to reduce its liquidity and require an increase in its holdings of cash and government securities with lower yields causing a reduction in income. The Company uses derivative financial instruments to mitigate a wide range of risks in connection with its businesses, including those arising from its fixed and variable annuity products with guaranteed benefit features. The derivative clearing requirements of Dodd-Frank could continue to increase the cost of the Company’s risk mitigation and expose it to the risk of a default by a clearinghouse with respect to the Company’s cleared derivative transactions.

Numerous provisions of Dodd-Frank require the adoption of implementing rules and/or regulations. The process of adopting such implementing rules and/or regulations have in some instances been delayed beyond the timeframes imposed by Dodd-Frank. Until the various final regulations are promulgated pursuant to Dodd-Frank, the full impact of the regulations on the Company will remain unclear. In addition, Dodd-Frank mandates multiple studies, which could result in additional legislation or regulation applicable to the insurance industry, the Company, its competitors or the entities with which the Company does business. Legislative or regulatory requirements imposed by or promulgated in connection with Dodd-Frank may impact the Company in many ways, including but not ~~limited to the following:~~limited: placing the Company at a competitive disadvantage relative to its competition or other financial services entities, changing the competitive landscape of the financial services sector and/or the insurance industry, making it more expensive for the Company to conduct its business, requiring the reallocation of significant company resources to government affairs, legal and compliance-related activities, or causing historical market behavior or statistics utilized by the Company in connection with its efforts to manage risk and exposure to no longer be predictive of future risk and exposure or otherwise have a material adverse effect on the overall business climate as well as the Company’s financial condition and results of operations.

Regulations issued by the Department of Labor on April 6, 2016, expanding the definition of “investment advice fiduciary” under ERISA and creating and revising several prohibited transaction exemptions for investment activities in light of that expanded definition, may have a material adverse impact on our ability to sell annuities and other products, to retain in-force business and on our financial condition or results of ~~operation.~~operations.

Broker-dealers, insurance agencies and other financial institutions sell the Company’s annuities to employee benefit plans governed by provisions of the Employee Retirement Income Security Act (“ERISA”) and Individual Retirement Accounts (“IRAs”) that are governed by similar provisions under the Internal Revenue Code (the “Code”). Consequently, our activities and those of the firms that sell the Company’s products are subject to restrictions that require ERISA fiduciaries to perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that prohibit ERISA fiduciaries from causing a covered plan or

retirement account to engage in certain prohibited transactions absent an exemption. In general, the prohibited transaction provisions of ERISA and the Code restrict the receipt of compensation from third parties in connection with the provision of investment advice to ERISA plans and participants and IRAs.

On April 6, 2016, the Department of Labor issued new regulations expanding the definition of “investment advice fiduciary” under ERISA. These new regulations ~~increase~~increased the number of circumstances in which the Company and broker-dealers, insurance agencies and other financial institutions that sell the Company’s products could be deemed a fiduciary when providing investment advice with respect to ERISA plans or IRAs. The Department of Labor also issued amendments to long-standing exemptions from the provisions of ERISA and the Code that ~~prohibit~~permit fiduciaries ~~from engaging~~to engage in certain types of transactions (“Prohibited Transaction Exemptions”) and adopted new Prohibited Transaction Exemptions. These amended and new Prohibited Transaction Exemptions appear to increase significantly the conditions that must be satisfied by fiduciaries in order to receive traditional forms of commission, such as sales commissions, for sales of insurance products to ERISA plans, plan participants and IRAs.

~~Although it is expected~~The expanded definition of “investment advice fiduciary” and certain regulations related to new and revised Prohibited Transaction Exemptions went into effect on June 9, 2017, allowing fiduciaries to rely on the Prohibited Transaction Exemptions provided that ~~that~~they adhere to certain required Impartial Conduct Standards. Additional conditions applicable to the Prohibited Transaction Exemptions with which fiduciaries must comply will be delayed until July 1, 2019 and may be impacted, along with the current definition of “investment advice fiduciary”, by public comments solicited pursuant to the Department of ~~Labor~~Labor’s Request for Information. Responses to the Request for Information may ~~provide~~also result in the adoption of new Prohibited Transaction Exemptions or additional ~~interpretive guidance with respect~~conditions applicable to existing exemption requirements.

There remains significant uncertainty surrounding the final form that these ~~new~~ regulations ~~it appears that sales of certain of our products~~ may ~~be materially and adversely affected and our~~take. Our current distributors may continue to move forward with their plans to limit the number of products they offer, including the types of products offered by the Company. The Company may find it necessary to change sales representative and/or broker compensation, to limit the assistance or advice it can provide to owners of the Company’s annuities, to replace or engage additional distributors, or otherwise change the manner in which it designs and supports sales of its annuities. In addition, the Company ~~may~~continues to incur ~~significant~~ expenses in connection with initial and ongoing compliance obligations with respect to such ~~rules.~~rules, and in the aggregate these expenses may be significant. The foregoing could have a material adverse impact on our ability to sell annuities and other products, to retain in-force business, and on our financial condition or results of operations.

~~Changes~~

The Company may be subject to ~~tax law or interpretations of existing tax law could adversely affect~~regulation, investigations, enforcement actions, fines and penalties imposed by the SEC, FINRA and other federal and international regulators in connection with its business operations.

Certain life insurance policies, contracts, and annuities offered by the Company are subject to regulation under the federal securities laws administered by the SEC. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions. From time to time, the SEC and the Financial Industry Regulatory Authority (“FINRA”) examine or investigate the activities of broker-dealers and investment advisors, including the Company’s affiliated broker-dealers and investment advisors. These examinations or investigations often focus on the activities of the registered representatives and registered investment advisors doing business through such entities and the entities’ supervision of those persons. It is possible that any examination or investigation could lead to enforcement action by the regulator and/or may result in payments of fines and penalties, payments to customers, or both, as well as changes in systems or procedures of such entities, any of which could have a material adverse effect on the Company’s financial condition or results of operations.

In June of 2017, the Chairman of the SEC requested public comments on a series of questions focused on (1) the current regulatory framework for broker-dealers and investment advisers, (2) the current state of the market for retail advice, and (3) market trends. The SEC will consider these views as it determines future steps, including potential rulemaking, related to standards of conduct applicable to broker-dealers and investment advisers. In this request the Chairman also welcomed the opportunity to engage with the Department of Labor as the SEC moves forward with its ~~ability~~examination of the standards of conduct applicable to ~~compete with non-insurance~~broker-dealers, investment advisers and matters related thereto.

FINRA has also issued a report addressing how its member firms might identify and address conflicts of interest including conflicts related to the introduction of new products ~~or reduce~~and services and the ~~demand for certain insurance~~compensation of the member firms’ associated persons. These regulatory initiatives could have an impact on Company operations and the manner in which broker-dealers and investment advisers distribute the Company’s products.

~~Under the Internal Revenue Code of 1986, as amended (the “Code”), income taxes payable~~The Company may also be subject to regulation by ~~policyholders on investment earnings on most life insurance and annuity products are deferred during their accumulation period. This favorable tax treatment provides some~~governments of the ~~Company’s products with a competitive advantage over products offered~~countries in which it currently does, or may in the future, do, business, as well as regulation by ~~non-insurance companies. To~~ the extent that the Code is revised to either reduce the tax-deferred status of life insurance and annuity products, or to establish the tax-deferred status of competing products, then all life insurance companies, including the Company’s subsidiaries, would be adversely affectedU.S. Government with respect to ~~their ability~~its operations in foreign countries, such as the Foreign Corrupt Practices Act. Penalties for violating the various laws governing the Company’s business in other countries may include restrictions upon business operations, fines and imprisonment, both within the U.S. and abroad. U.S. enforcement of anti-corruption laws continues to ~~sell their products. Furthermore, depending upon grandfathering provisions, such changes could cause increased surrenders of existing life insurance~~increase in magnitude, and annuity products. For example, future legislation that further restricts the deductibility of interest on funds borrowed to purchase corporate-owned life insurance products could result in increased surrenders of these products.penalties may be substantial.

The Company is subject to ~~the federal corporate income tax~~conditions and requirements set forth in the ~~U.S. Certain tax provisions, such as~~Telephone Consumer Protection Act (“TCPA”), which places restrictions on the ~~dividends-received deduction, the deferral~~use of ~~current taxation on derivatives’~~automated telephone and securities’ economic income, and the deduction for future policy benefits and claims, are beneficial to the Company. The Obama Administration and Congress have each made proposals that either materially change or eliminate these benefits. Mostfacsimile machines. Class action lawsuits alleging violations of the ~~foregoing proposals would cause~~act have been filed against a number of companies, including life insurance carriers. These class action lawsuits contain allegations that defendant carriers were vicariously liable for the alleged wrongful conduct of agents who violated the TCPA. Some of the class actions have resulted in substantial settlements against other insurers. Any such actions against the Company ~~to pay higher current taxes, offset (in whole~~could result in a material adverse effect upon our financial condition or in part) by a reduction in its deferred taxes. However, the proposal regarding the dividends-received deduction would cause the Company’s net income to decrease. Whether these proposals will be enacted, and if so, whether they will be enacted as described above, is uncertain.results of operations.

~~The Company’s mid-2005 transition from relying on reinsurance for newly-written traditional life products to reinsuring some~~Other types of these products’ reserves into its captive insurance companies resulted in a net reduction in its current taxes, offset by an increase in its deferred taxes. The resulting benefit of reduced current taxes is attributed to the applicable life products and is an important component of the profitability of these products. The profitability and competitive position of these products is dependent on the continuation of current tax law and the ability to generate taxable income.

~~There is general uncertainty regarding the taxes to which~~regulation that could affect the Company and its ~~products will~~subsidiaries include, but are not limited to, insurance company investment laws and regulations, state statutory accounting and reserving practices, antitrust laws, minimum solvency requirements, enterprise risk requirements, state securities laws, federal privacy laws, cybersecurity regulation, technology and data regulations, insurable interest laws, federal anti-money laundering and anti-terrorism laws, employment and immigration laws (including laws in Alabama where over half of the Company’s employees are located), and because the Company owns and operates real property, state, federal, and local environmental laws. Under some circumstances, severe penalties may be ~~subject in the future.~~ imposed for breach of these laws.

The Company cannot predict what form any future changes to ~~tax law~~ laws and/or ~~interpretations of existing tax law may ultimately be enacted~~ regulations affecting participants in the financial services sector and/or ~~adopted, or whether such changes will adversely affect~~insurance industry, including the ~~Company.~~

~~The Company’s reinsurers could fail to meet assumed obligations, increase rates, terminate agreements or be subject to adverse developments that could affect the Company.~~

~~The~~ Company and its ~~insurance subsidiaries cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets~~competitors or ~~other issues, the Company remains liable~~those entities with ~~respect to ceded insurance should~~which it does business, may take, or what effect, if any, reinsurer fail to meet the assumed obligations. Therefore, the failure, insolvency, or inability or unwillingness to pay under the terms of the reinsurance agreement with the Company of one or more of the Company’s reinsurers could negatively impact the Company’s earnings and financial position.

The Company’s results and its ability to compete are affected by the availability and cost of reinsurance. Premium rates charged by the Company are based, in part, on the assumption that reinsurance will be available at a certain cost. Certain reinsurerssuch changes may attempt to increase the rates they charge the Company for reinsurance, including rates for new policies the Company is issuing and rates related to policies that the Company has already issued. The Company may not be able to increase the premium rates it charges for policies it has already issued, and for competitive reasons it may not be able to raise the premium rates it charges for new policies to offset the increase in rates charged by reinsurers. If the cost of reinsurance were to increase, if reinsurance werehave.

~~to become unavailable, if alternatives to reinsurance were not available to the Company, or if a reinsurer should fail to meet its obligations, the Company could be adversely affected.~~

Over the last several years, the number of life reinsurers has decreased as the reinsurance industry has consolidated. The decreased number of participants in the life reinsurance market over time has resulted in increased concentration of risk for insurers, including the Company. If the reinsurance market further contracts, the Company’s ability to continue to offer its products on terms favorable to it could be adversely impacted.

In addition, reinsurers face challenges regarding illiquid credit and/or capital markets, investment downgrades, rating agency downgrades, deterioration of general economic conditions, and other factors negatively impacting the financial services industry. If reinsurers, including those with significant exposure to international markets and European Union member states, are unable to meet their obligations, the Company would be adversely impacted.

The Company has implemented a reinsurance program through the use of captive reinsurers. Under these arrangements, a captive owned by the Company serves as the reinsurer, and the consolidated books and tax returns of the Company reflects a liability consisting of the full reserve amount attributable to the reinsured business. The success of the Company’s captive reinsurance program is dependent on a number of factors outside the control of the Company, including continued access to financial solutions, a favorable regulatory environment, and the overall tax position of the Company. If the captive reinsurance program is not successful, the Company’s financial condition could be adversely impacted.

Item 6. Exhibits



Exhibit
Number		Document
3(a)*		2011 Amended and Restated Charter of Protective Life Insurance Company dated as of June 27, 2011, incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed March 29, 2012 (No. 001-31901).
3(b)*		2011 Amended and Restated By-Laws of Protective Life Insurance Company dated as of June 27, 2011, incorporated by reference to Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed March 29, 2012 (No. 001-31901).
12		Consolidated Earnings Ratio.
31(a)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(a)		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Financial statements from the quarterly report on Form 10-Q of Protective Life Insurance Company for the quarter ended ~~September~~June 30, ~~2016,~~2017, filed on ~~November~~August 10, ~~2016,~~2017 formatted in XBRL: (i) the Consolidated Condensed Statements of Income, ~~(Loss),~~ (ii) the Consolidated Condensed Statements of Comprehensive Income, ~~(Loss),~~ (iii) the Consolidated Condensed Balance Sheets, (iv) the Consolidated Condensed Statements of Shareowner’s Equity, (v) the Consolidated Condensed Statements of Cash Flows, and (iv) the Notes to Consolidated Condensed Financial Statements.

*Incorporated by Reference.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	PROTECTIVE LIFE INSURANCE COMPANY


Date: ~~November~~August 10, ~~2016~~2017		By:	/s/ ~~Steven G. Walker~~PAUL R. WELLS
			~~Steven G. Walker~~Paul R. Wells
			~~Executive~~Senior Vice President, Chief Accounting Officer,
			~~Chief Financial Officer~~ and Controller

115



	Fair Value
	As of
	February 1, 2015
	(Dollars In Thousands)
Assets
Fixed maturities	$	38,342,948
Equity securities	699,081
Mortgage loans	5,580,229
Investment real estate	7,456
Policy loans	1,751,872
Other long-term investments	657,346
Short-term investments	311,236
Total investments	47,350,168
Cash	378,903
Accrued investment income	483,691
Accounts and premiums receivable	104,260
Reinsurance receivables	5,538,637
Value of business acquired	1,278,064
Goodwill	735,712
Other intangibles	683,000
Property and equipment	102,736
Other assets	224,555
Income tax receivable	50,117
Assets related to separate accounts
Variable annuity	12,970,587
Variable universal life	819,188
Total assets	$	70,719,618
Liabilities
Future policy and benefit claims	$	30,195,397
Unearned premiums	622,278
Total policy liabilities and accruals	30,817,675
Stable value product account balances	1,932,277
Annuity account balances	10,941,661
Other policyholders’ funds	1,388,083
Other liabilities	1,533,666
Deferred income taxes	1,861,632
Non-recourse funding obligations	1,895,636
Repurchase program borrowings	50,000
Liabilities related to separate accounts
Variable annuity	12,970,587
Variable universal life	819,188
Total liabilities	64,210,405
Net assets acquired	$	6,509,213



	Successor Company
	Fair Value As of September 30, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	554,230	Discounted cash flow	Liquidity premium	0.44% - 1.19% (0.70%)
				Paydown rate	10.90% - 11.83% (11.18%)
Corporate securities	726,890		Discounted cash flow	Spread over treasury	0.97% - 5.10% (2.11%)
Liabilities:
Embedded derivatives - GMWB(1)	$	128,877	Actuarial cash flow model	Mortality	91.1% to 106.6% of
					Ruark 2015 ALB Table
				Lapse	0.3% - 15%, depending on
					product/duration/funded
					status of guarantee
				Utilization	99%. 10% of policies have
					a one-time over-utilization
					of 400%
				Nonperformance risk	0.20% - 1.19%
Annuity account balances(2)	88,857		Actuarial cash flow model	Asset earned rate	4.02% - 5.76%
				Expenses	$126 per policy
				Withdrawal rate	2.20%
				Mortality	1994 MGDB table with
					company experience
				Lapse	2.2% - 33.0%, depending
					on duration/surrender
					charge period
				Return on assets	1.50% - 1.85% depending on
					duration/surrender charge period
				Nonperformance risk	0.20% - 1.19%
Embedded derivative - FIA	141,651		Actuarial cash flow model	Expenses	$126 per policy
				Withdrawal rate	1% prior to age 70, 100%
					of the RMD for ages 70+
				Mortality	1994 MGDB table with
					company experience
				Lapse	2.0% - 40.0%, depending on
					on duration/surrender
					charge period
				Nonperformance risk	0.20% - 1.19%
Embedded derivative - IUL	46,348		Actuarial cash flow model	Mortality	38% - 153% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending on
					duration/distribution channel
					and smoking class
				Nonperformance risk	0.20% - 1.19%



	Successor Company
	Fair Value As of December 31, 2015		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	587,031	Discounted cash flow	Liquidity premium	0.27% - 1.49% (0.42%)
				Paydown rate	10.20% - 14.72% (13.11%)
Corporate securities	875,810		Discounted cash flow	Spread over	0.10% - 19.00% (2.61%)
				treasury
Liabilities:
Embedded derivatives - GMWB(1)	$	18,511	Actuarial cash flow model	Mortality	1994 MGDB table with
					company experience
				Lapse	0.3% - 15%, depending on
					product/duration/funded
					status of guarantee
				Utilization	99%. 10% of policies have
					a one-time over-utilization
					of 400%
				Nonperformance risk	0.18% - 1.04%
Annuity account balances(2)	92,512		Actuarial cash flow model	Asset earned rate	4.53% - 5.67%
				Expenses	$81 per policy
				Withdrawal rate	2.20%
				Mortality	1994 MGDB table with
					company experience
				Lapse	2.2% - 33.0%, depending
					on duration/surrender
					charge period
				Return on assets	1.50% - 1.85% depending on
					surrender charge period
				Nonperformance risk	0.18% - 1.04%
Embedded derivative - FIA	100,329		Actuarial cash flow model	Expenses	$81.50 per policy
				Withdrawal rate	1.1% - 4.5% depending on
					duration and tax qualification
				Mortality	1994 MGDB table with
					company experience
				Lapse	2.5% - 40.0%, depending
					on duration/surrender
					charge period
				Nonperformance risk	0.18% - 1.04%
Embedded derivative - IUL	29,629		Actuarial cash flow model	Mortality	38% - 153% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending
					on duration/distribution
					channel and smoking class
				Nonperformance risk	0.18% - 1.04%



Energy and Natural Gas
	Fair Value		Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
Midstream	$	1,776,398	$	1,835,697	$	(59,299	)	42.3	%
Integrated	842,005		857,161		(15,156		)	10.8
Distributors	734,574		749,929		(15,355		)	11.0
Independent	575,237		577,040		(1,803		)	1.3
Oil Field Services	515,144		560,904		(45,760		)	32.6
Refining	175,596		178,442		(2,846		)	2.0
Total	$	4,618,954	$	4,759,173	$	(140,219	)	100.0	%



Energy and Natural Gas
Rating	Issuer Type	Fair Value		Amortized Cost		Unrealized Loss			% Unrealized Loss
		(Dollars In Thousands)
AAA/AA/A	Distributors	$	386,411	$	387,259	$	(848	)	0.6	%
	Independent	81,848		78,051		3,797			(2.7	)
	Integrated	363,320		364,628		(1,308		)	0.9
	Midstream	170,118		170,039		79			—
	Oil Field Services	81,964		80,866		1,098			(0.8	)

BBB	Distributors	321,100		335,519		(14,419		)	10.3
	Independent	437,499		447,985		(10,486		)	7.5
	Integrated	342,255		357,861		(15,606		)	11.1
	Midstream	1,423,404		1,485,896		(62,492		)	44.7
	Oil Field Services	217,905		221,954		(4,049		)	2.8
	Refining	165,211		168,082		(2,871		)	2.0
Total investment grade		3,991,035		4,098,140		(107,105		)	76.4

Below investment grade	Distributors	27,063		27,151		(88		)	0.1
	Independent	55,890		51,004		4,886			(3.5	)
	Integrated	136,430		134,672		1,758			(1.3	)
	Midstream	182,876		179,762		3,114			(2.3	)
	Oil Field Services	215,275		258,084		(42,809		)	30.6
	Refining	10,385		10,360		25			—
Total below investment grade		627,919		661,033		(33,114		)	23.6
Total energy and natural gas		$	4,618,954	$	4,759,173	$	(140,219	)	100.0	%