As of
September 30, 2017 December 31, 2016
(Dollars In Thousands)
Assets

Fixed maturities, at fair value (amortized cost: 2017 - $40,887,859; 2016 - $39,645,111) $ 40,571,237
$ 37,996,577
Fixed maturities, at amortized cost (fair value: 2017 - $2,796,603; 2016 - $2,733,340) 2,730,995
2,770,177
Equity securities, at fair value (cost: 2017 - $726,605; 2016 - $729,951) 744,176
716,017
Mortgage loans (related to securitizations: 2017 - $245,202; 2016 - $277,964) 6,528,890
6,132,125
Investment real estate, net of accumulated depreciation (2017 - $113; 2016 - $252) 4,572
8,060
Policy loans 1,625,960
1,650,240
Other long-term investments 1,133,234
856,410
Short-term investments 422,685
315,834
Total investments 53,761,749
50,445,440
Cash 199,633
214,439
Accrued investment income 494,959
480,689
Accounts and premiums receivable 125,696
132,826
Reinsurance receivables 4,920,048
5,070,185
Deferred policy acquisition costs and value of business acquired 2,164,450
2,024,524
Goodwill 793,470
793,470
Other intangibles, net of accumulated amortization (2017 - $126,604; 2016 - $79,183) 672,912
687,348
Property and equipment, net of accumulated depreciation (2017 - $18,822; 2016 - $16,573) 107,779
103,706
Other assets 358,324
275,965
Income tax receivable 87,013
96,363
Assets related to separate accounts

Variable annuity 13,763,971
13,244,252
Variable universal life 996,375
895,925
Total assets $ 78,446,379
$ 74,465,132

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

~~(Unaudited)~~(continued)


	As of
	September 30, 2021		December 31, 2020
	(Unaudited)
	(Dollars In Millions)
Liabilities
Future policy benefits and claims	$	53,995	$	54,107
Unearned premiums	814		782
Total policy liabilities and accruals	54,809		54,889
Stable value product account balances	8,237		6,056
Annuity account balances	15,841		15,478
Other policyholders’ funds	1,798		1,865
Other liabilities	4,987		5,622

Deferred income taxes	1,483		1,779

Subordinated debt	110		110
Secured financing liabilities	1,270		496
Liabilities related to separate accounts
Variable annuity	13,112		12,378
Variable universal life	1,756		1,287
Reinsurance assumed	13,891		13,325
Total liabilities	117,294		113,285
Commitments and contingencies - Note 11	0		0
Shareowner’s equity
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2,000	—		—
Common Stock, $1 par value, shares authorized and issued: 2021 and 2020 - 5,000,000	5		5
Additional paid-in-capital	8,525		8,525
Retained earnings	1,860		1,547
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (2021 - $678; 2020 - $946)	2,552		3,558
Net unrealized gains (losses) on investments with an allowance for credit losses, net of income tax: (2021 - $(1); 2020 - $(1))	(3)		(2)
Accumulated gain (loss) - derivatives, net of income tax: (2021 - $(2); 2020 - $(2))	(6)		(8)
Total shareowner’s equity	12,933		13,625
Total liabilities and shareowner’s equity	$	130,227	$	126,910

~~(continued)~~

See Notes to Consolidated Condensed Financial Statements

As of
September 30, 2017 December 31, 2016
(Dollars In Thousands)
Liabilities

Future policy benefits and claims $ 30,800,565
$ 30,510,242
Unearned premiums 775,935
761,937
Total policy liabilities and accruals 31,576,500
31,272,179
Stable value product account balances 4,793,890
3,501,636
Annuity account balances 10,813,795
10,642,115
Other policyholders’ funds 1,265,500
1,165,749
Other liabilities 2,127,410
1,436,091
Deferred income taxes 2,173,504
1,790,961
Debt 1,495
—
Non-recourse funding obligations 2,938,005
2,973,829
Secured financing liabilities 599,556
802,721
Liabilities related to separate accounts

Variable annuity 13,763,971
13,244,252
Variable universal life 996,375
895,925
Total liabilities 71,050,001
67,725,458
Commitments and contingencies - Note 11

Shareowner’s equity

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 7,378,496
7,422,407
Retained earnings (deficit) 113,153
(32,695 )
Accumulated other comprehensive income (loss):

Net unrealized gains (losses) on investments, net of income tax: (2017 - $(54,512); 2016 - $(349,242)) (101,243 ) (648,592 )
Net unrealized losses relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2017 - $(27); 2016 - $(3,864)) (50 ) (7,175 )
Accumulated gain (loss) - derivatives, net of income tax: (2017 - $549; 2016 - $391) 1,020
727
Total shareowner’s equity 7,396,378
6,739,674
Total liabilities and shareowner’s equity $ 78,446,379
$ 74,465,132

Table of Contents

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
	(Dollars In Millions)





Balance, June 30, 2021	$	—	$	5	$	8,525	$	1,811	$	2,813	$	13,154
Net income							49				49
Other comprehensive loss									(270)		(270)
Comprehensive loss											(221)




Balance, September 30, 2021	$	—	$	5	$	8,525	$	1,860	$	2,543	$	12,933










	Preferred Stock		Common Stock		Additional Paid-In-Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareowner’s Equity
	(Dollars In Millions)
Balance, December 31, 2020	$	—	$	5	$	8,525	$	1,547	$	3,548	$	13,625
Net income							313				313
Other comprehensive loss									(1,005)		(1,005)
Comprehensive loss											(692)


Balance, September 30, 2021	$	—	$	5	$	8,525	$	1,860	$	2,543	$	12,933

See Notes to Consolidated Condensed Financial Statements

Table of Contents

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 nine months ended September 30, 2017

264,937

264,937
Other comprehensive income

554,767
554,767
Comprehensive income for the nine months ended September 30, 2017

819,704
Return of capital (43,911 ) (43,911 )
Dividends paid to the parent company (119,089 ) (119,089 )
Balance, September 30, 2017 $ 2
$ 5,000
$ 7,378,496
$ 113,153
$ (100,273 ) $ 7,396,378
PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY

(Unaudited)

(continued)


	Preferred Stock		Common Stock		Additional Paid-In-Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareowner’s Equity
	(Dollars In Millions)





Balance, June 30, 2020	$	—	$	5	$	8,505	$	1,326	$	2,225	$	12,061
Net income							131				131
Other comprehensive income									539		539
Comprehensive income											670




Balance, September 30, 2020	$	—	$	5	$	8,505	$	1,457	$	2,764	$	12,731










	Preferred Stock		Common Stock		Additional Paid-In-Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareowner’s Equity
	(Dollars In Millions)
Balance, December 31, 2019	$	—	$	5	$	8,405	$	1,451	$	1,413	$	11,274
Net income							144				144
Other comprehensive income									1,351		1,351
Comprehensive income											1,495
Capital contributions					100						100
Cumulative effect adjustments							(138)				(138)
Balance, September 30, 2020	$	—	$	5	$	8,505	$	1,457	$	2,764	$	12,731

See Notes to Consolidated Condensed Financial Statements

Table of Contents

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


	For The Nine Months Ended September 30,
	2021		2020
	(Dollars In Millions)
Cash flows from operating activities
Net income	$	313	$	144
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Realized (gains) losses	(161)		224
Amortization of deferred acquisition costs and value of business acquired	233		145
Capitalization of deferred acquisition costs	(400)		(354)
Depreciation and amortization expense	57		57
Deferred income tax	(44)		26
Accrued income tax	(104)		7
Interest credited to universal life and investment products	1,100		1,156
Policy fees assessed on universal life and investment products	(1,364)		(1,338)
Change in reinsurance receivables	(25)		45
Change in accrued investment income and other receivables	(58)		4
Change in policy liabilities and other policyholders’ funds of traditional life and health products	(373)		(748)
Trading securities:
Maturities and principal reductions of investments	122		69
Sale of investments	310		493
Cost of investments acquired	(467)		(720)
Other net change in trading securities	(5)		20
Amortization of premiums and accretion of discounts on investments and commercial mortgage loans	191		235
Change in other liabilities	(102)		481
Other, net	6		89
Net cash (used in) provided by operating activities	$	(771)	$	35

See Notes to Consolidated Condensed Financial Statements

Table of Contents

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(continued)


	For The Nine Months Ended September 30,
	2021		2020
	(Dollars In Millions)
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	$	4,919	$	3,259
Sale of investments, available-for-sale	2,644		2,610
Cost of investments acquired, available-for-sale	(10,455)		(7,394)

Commercial mortgage loans:
New lendings	(1,454)		(1,054)
Repayments	1,049		484

Change in policy loans, net	50		35
Change in other long-term investments, net	(179)		201
Change in short-term investments, net	(156)		95
Net unsettled security transactions	140		105
Purchase of property, equipment, and intangibles	(27)		(25)


Net cash used in investing activities	$	(3,469)	$	(1,684)
Cash flows from financing activities


Change in secured financing liabilities	774		(103)

Deposits to universal life and investment contracts	6,563		5,041
Withdrawals from universal life and investment contracts	(3,296)		(3,053)
Other financing activities, net	(48)		—
Net cash provided by financing activities	$	3,993	$	1,885
Change in cash	(247)		236
Cash at beginning of period	656		213
Cash at end of period	$	409	$	449

See Notes to Consolidated Condensed Financial Statements

For The
Nine Months Ended
September 30,
2017 2016
(Dollars In Thousands)
Cash flows from operating activities
Net income $ 264,937
$ 404,712
Adjustments to reconcile net income to net cash provided by operating activities:

Realized investment (gains) losses 33,125
(263,740 )
Amortization of DAC and VOBA 48,505
95,810
Capitalization of DAC (251,472 ) (246,073 )
Depreciation and amortization expense 48,591
37,974
Deferred income tax 82,835
231,631
Accrued income tax 9,350
(147,185 )
Interest credited to universal life and investment products 507,229
532,998
Policy fees assessed on universal life and investment products (1,004,829 ) (935,702 )
Change in reinsurance receivables 150,137
122,616
Change in accrued investment income and other receivables (1,498 ) (76,837 )
Change in policy liabilities and other policyholders’ funds of traditional life and health products (282,841 ) (171,016 )
Trading securities:

Maturities and principal reductions of investments 131,563
93,397
Sale of investments 195,733
390,412
Cost of investments acquired (277,423 ) (438,886 )
Other net change in trading securities 9,357
47,879
Amortization of premiums and accretion of discounts on investments and mortgage loans 232,694
308,030
Change in other liabilities 181,696
383,921
Other, net (61,295 ) (74,798 )
Net cash provided by operating activities $ 16,394
$ 295,143

~~PROTECTIVE LIFE INSURANCE COMPANY~~

~~CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(continued)~~

Table of Contents

For The
Nine Months Ended
September 30,
2017 2016
(Dollars In Thousands)
Cash flows from investing activities

Maturities and principal reductions of investments, available-for-sale $ 541,024
$ 984,510
Sale of investments, available-for-sale 1,302,130
1,541,458
Cost of investments acquired, available-for-sale (3,232,925 ) (3,839,376 )
Change in investments, held-to-maturity 36,000
(2,185,000 )
Mortgage loans:

New lendings (1,081,226 ) (944,025 )
Repayments 644,189
648,109
Change in investment real estate, net 3,679
2,905
Change in policy loans, net 24,280
43,425
Change in other long-term investments, net (282,688 ) (105,972 )
Change in short-term investments, net (106,888 ) 59,225
Net unsettled security transactions 349,544
52,292
Purchase of property, equipment, and intangibles (34,067 ) (8,891 )
Amounts received from reinsurance transaction —
325,800
Net cash used in investing activities $ (1,836,948 ) $ (3,425,540 )
Cash flows from financing activities

Issuance (repayment) of non-recourse funding obligations (35,984 ) 2,173,700
Secured financing liabilities (198,165 ) (218,728 )
Dividends/Return of capital to parent company (162,999 ) (420,000 )
Investment product deposits and change in universal life deposits 3,901,051
3,509,315
Investment product withdrawals (1,698,062 ) (1,718,670 )
Other financing activities, net (93 ) —
Net cash provided by financing activities $ 1,805,748
$ 3,325,617
Change in cash (14,806 ) 195,220
Cash at beginning of period 214,439
212,358
Cash at end of period $ 199,633
$ 407,578

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.~~is a wholly owned subsidiary of Dai-ichi Life merged with and into PLC. Prior to February 1, 2015, 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.Holdings, Inc., a kabushiki kaisha (“Dai-ichi Life”). 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.

These consolidated condensed 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 consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair ~~statement~~presentation of the results for the interim periods presented. Operating results for the three and nine months ended September 30, ~~2017,~~2021, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2017.~~2021. The year-end consolidated condensed financial data included herein was derived from audited financial statements but this report does not include all disclosures required by ~~GAAP within this report.~~GAAP. 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, ~~2016.~~2020.

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.

Shades Creek Captive Insurance Company (“Shades Creek”) was a direct wholly owned insurance subsidiary of PLC through December 31, 2020. On January 1, 2021, Shades Creek was merged with and into the Company, with the Company being the surviving entity. The Company accounted for the transaction pursuant to Accounting Standards Codification (“ASC”) 805-50 “Transactions between Entities under Common Control”. The transferred assets and liabilities of Shades Creek were recorded by the Company at their carrying value at the date of transfer. In accordance with ASC 805-50, all prior financial information has been recast to reflect this transaction as of the earliest period presented under common control, January 1, 2020.

Beginning in the first quarter of 2020, the outbreak of COVID-19 created significant economic and social disruption and impacted various operational and financial aspects of the Company’s business. The pandemic may continue to impact the Company’s earnings based on, amongst other factors, the volume and severity of claims related to COVID-19 and the financial disruption caused by the pandemic, which could impact the Company’s investment portfolio.

Entities Included

The consolidated condensed financial statements in this report include the accounts of Protective Life Insurance Company and its wholly owned subsidiaries and affiliate companies, which are consolidated in ~~which~~consideration of the ~~Company holds a majority~~Company’s voting interest or ~~economic interest.~~its power to direct the activities of the affiliate company. Intercompany balances and transactions have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

For a full description of the Company's significant accounting policies, ~~see~~refer to Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. There were no significant changes to the ~~Company's~~Company’s accounting policies during the nine months ended September 30, ~~2017.~~2021.

Table of Contents

Accounting Pronouncements Recently Adopted

~~ASU~~Accounting Standards Update (“ASU” or “Update”) No. ~~2017-04-Intangibles-Goodwill and Other~~2019-12 – Income Taxes (Topic ~~350)~~740): Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment.~~ This Update simplifies the goodwill impairment test by re-defining the concept of goodwill impairment as the condition that 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 reporting unit had been acquired in a business combination. The Company elected to adopt the amendments in the Update in the first quarter of 2017, and will apply the revised guidance to impairment tests conducted after January 1, 2017. Application of the revised guidance did not impact the Company’s financial position or results of operations and will simplify its annual goodwill impairment test, which is generally conducted in the fourth quarter. For more details regarding the Company’s goodwill assessment process, please refer to Note 9, ~~Goodwill~~.

~~ASU No. 2015-09 - Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts.~~ Income Taxes. 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 informationremove certain exceptions to the ~~statement of financial position. For accident years included~~general principles in ~~the development tables, the~~Topic 740 related to intraperiod tax allocations, interim tax calculations, and outside basis differences. The amendments also ~~require disclosure~~clarify and amend guidance in certain other areas 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 additional disclosures introducedTopic 740 in ~~this Update have not been provided, as the short-duration lines of business~~order to ~~which they apply are not material to 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 customerseliminate diversity 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 using the modified retrospective approach via a cumulative effect adjustment to retained earnings as of January 1, 2018. The amendments in the Update, along with clarifying updates issued subsequent to ASU 2014-09, will impact some of the Company's smaller lines of business, specifically revenues at the Company's affiliated broker dealers and insurance agency, and certain revenues associated with the Company's Asset Protection products. However, the cumulative effect adjustment related to the Company's adoption of the revised guidance is limited to the Company's Asset Protection segment. Based on its current projections, the Company estimates that the cumulative effect adjustment as of January 1, 2018 will result in a decrease in retained earnings between $68 million and $78 million. Several application questions remain outstanding, most notably interpretive positions regarding the Update's application to certain of the Company's warranty products. The Company will also implement minor changes to its accounting and disclosures with respect to the non-insurance lines of business referenced above to ensure compliance with 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.practice. The amendments in this Update are effective for ~~annual and interim periods~~public business entities in fiscal years beginning after December 15, 2017 and will be applied on a modified retrospective basis. The Company will record a cumulative-effect adjustment at the date of adoption (January 1, 2018) transferring unrealized gains and losses on available-for-sale equity securities to retained earnings from accumulated other comprehensive income. The impact of this adjustment (had it been recorded on September 30, 2017), net of income tax, would have resulted in a $11.4 million increase to retained earnings. The Company expects to complete its review of applicable policies and 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 annual2020, and interim periods ~~beginning after December 15, 2018~~within those fiscal years. The adoption of this Update did not have a material impact on ~~a modified retrospective basis. The Company has completed an inventory of all leases in~~ the ~~organization~~Company’s operations and ~~is currently assessing the impact of the Update and updating internal processes to ensure compliance with the revised guidance.~~financial results.

Accounting Pronouncements Not Yet Adopted

ASU No. ~~2016-13~~2018-12 - Financial ~~Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.~~ ~~The amendments in this Update introduce a new current expected credit loss (“CECL”) model~~Services - Insurance (Topic 944): Targeted Improvements to Accounting 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 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 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.Long-Duration Contracts. The amendments in this Update are designed to make improvements to the existing recognition, measurement, presentation, and disclosure requirements for certain long-duration contracts issued by an insurance company. The new amendments require insurance entities to provide a more current measure of the liability for future policy benefits for traditional and limited-payment contracts by regularly refining the liability for actual past experience and updated future assumptions. This differs from current requirements where assumptions are locked-in at contract issuance for these contract types. In addition, the updated liability will be discounted using an upper-medium grade (low-credit-risk) fixed income instrument yield that reflects the characteristics of the liability which differs from currently used rates based on the invested assets supporting the liability. In addition, the amendments introduce new requirements to assess market-based insurance contract options and guarantees for Market Risk Benefits and measure them at fair value. This Update also requires insurance entities to amortize deferred acquisition costs on a constant-level basis over the expected life of the contract. Finally, this Update requires new disclosures including liability rollforwards and information about significant inputs, judgments, assumptions, and methods used in the measurement. In November 2020, FASB issued ASU No. 2020-11 - Financial Services - Insurance (Topic 944); Effective Date and Early Application which deferred the effective ~~for annual and interim~~date to periods beginning after December 15, ~~2019 on a modified retrospective basis.~~2022. The Company is currently reviewing its policies, processes, and ~~processes~~applicable systems to ~~ensure compliance with the requirements in this Update, upon adoption, and assessing~~determine 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 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. 2016-18 - Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Task Force).~~ The amendments in this update provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing diversity in practice related to the presentation of these amounts. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Update is effective for 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, 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 and annual periods beginning after December 15, 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 its systems and processes to determine whether early adoption of the revised guidance is practicable.

~~ASU No. 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~ The amendments in this update are designed to permit hedge accounting to be applied to a broader range of hedging strategies as well as to more closely align hedge accounting and risk management objectives. Specific provisions include requiring changes in the fair value of a hedging instrument be recorded in the same income statement line as the hedged item when it affects earnings. In addition, after a hedge has initially qualified as an effective hedge the Update permits the use of a qualitative hedge effectiveness test in subsequent periods. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently assessing the impact this standard will have on its operations and financial results.

3.~~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.

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 30, 2017, and December 31, 2016 is as follows:~~

As of
September 30, 2017 December 31, 2016
(Dollars In Thousands)
Closed block liabilities

Future policy benefits, policyholders’ account balances and other policyholder liabilities $ 5,814,527
$ 5,896,355
Policyholder dividend obligation 136,004
31,932
Other liabilities 76,176
40,007
Total closed block liabilities 6,026,707
5,968,294
Closed block assets

Fixed maturities, available-for-sale, at fair value $ 4,549,322
$ 4,440,105
Mortgage loans on real estate 130,521
201,088
Policy loans 707,293
712,959
Cash 148,612
108,270
Other assets 141,740
135,794
Total closed block assets 5,677,488
5,598,216
Excess of reported closed block liabilities over closed block assets 349,219
370,078
Portion of above representing accumulated other comprehensive income:

Net unrealized investment gains (losses) net of policyholder dividend obligation: $(55,231) and $(197,450); and net of income tax: $19,331 and $69,107 —
—
Future earnings to be recognized from closed block assets and closed block liabilities $ 349,219
$ 370,078

~~Reconciliation of the policyholder dividend obligation is as follows:~~

For The
Nine Months Ended
September 30,
2017 2016
(Dollars In Thousands)
Policyholder dividend obligation, beginning of period $ 31,932
$ —
Applicable to net revenue (losses) (38,147 ) (36,707 )
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation 142,219
300,814
Policyholder dividend obligation, end of period $ 136,004
$ 264,107

~~Closed Block revenues and expenses were as follows:~~

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Revenues

Premiums and other income $ 40,962
$ 44,043
$ 128,697
$ 135,282
Net investment income 50,780
53,582
153,481
156,458
Net investment gains 341
326
448
963
Total revenues 92,083
97,951
282,626
292,703
Benefits and other deductions

Benefits and settlement expenses 81,721
88,143
249,319
260,227
Other operating expenses 621
537
1,216
2,214
Total benefits and other deductions 82,342
88,680
250,535
262,441
Net revenues before income taxes 9,741
9,271
32,091
30,262
Income tax expense 3,409
3,245
11,232
10,591
Net revenues $ 6,332
$ 6,026
$ 20,859
$ 19,671

4.INVESTMENT OPERATIONS

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

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Fixed maturities $ 1,042
$ 1,665
$ 10,482
$ 24,097
Equity securities (352 ) —
(1,398 ) 36
Impairments (273 ) (3,308 ) (8,259 ) (6,892 )
Modco trading portfolio 19,399
23,995
93,181
178,353
Other investments (1,939 ) (1,508 ) (7,739 ) (7,842 )
Total realized gains (losses) - investments $ 17,877
$ 20,844
$ 86,267
$ 187,752

~~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
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Gross realized gains $ 1,933
$ 3,223
$ 14,968
$ 31,004
Gross realized losses:
Impairment losses $ (273 ) $ (3,308 ) $ (8,259 ) $ (6,892 )
Other realized losses $ (1,243 ) $ (1,558 ) $ (5,884 ) $ (6,871 )


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Fixed maturities	$	5	$	3	$	44	$	45
Equity securities	—		16		3		(1)
Modco trading portfolios	(25)		45		(69)		108
Change in net expected credit losses - fixed maturities	—		(38)		5		(121)
Commercial mortgage loans	37		(2)		129		(101)
Other investments	(1)		(1)		(1)		(2)
Realized gains (losses) - investments	16		23		111		(72)
Realized gains (losses) - derivatives(1)	51		88		50		(152)
Realized gains (losses)	$	67	$	111	$	161	$	(224)

(1) See Note 5, Derivative Financial Instruments

The chart below summarizes the ~~fair value (proceeds)~~sales proceeds and ~~the~~ gains (losses) realized on securities ~~the Company sold that were in an unrealized gain position and an unrealized loss position.~~classified as available-for-sale (“AFS”).

Table of Contents

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Securities in an unrealized gain position:
Fair value (proceeds) $ 121,459
$ 167,272
$ 566,064
$ 987,048
Gains realized $ 1,933
$ 3,223
$ 14,967
$ 31,004

Securities in an unrealized loss position⁽¹⁾:

Fair value (proceeds) $ 37,186
$ 7,105
$ 121,450
$ 67,688
Losses realized $ (1,243 ) $ (1,558 ) $ (5,884 ) $ (6,871 )

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


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Securities in an unrealized gain position:
Sales proceeds	$	232	$	515	$	1,443	$	1,454
Realized gains	$	5	$	3	$	45	$	50

Securities in an unrealized loss position:
Sales proceeds	$	12	$	8	$	35	$	33
Realized losses	$	—	$	—	$	(1)	$	(5)

The net gains (losses) from equity securities still held at period end, was $(4) million and $17 million for the three months ended September 30, 2021 and 2020, respectively, and $(1) million and $(1) million for the nine months ended September 30, 2021 and 2020, respectively. The Company recognized gains of $4 million and $4 million on equity securities sold during the period for the three and nine months ended September 30, 2021, respectively, and immaterial gains (losses) on equity securities sold during the three and nine months ended September 30, 2020.

The amortized cost, gross unrealized gains, gross unrealized losses, allowance for expected credit losses, and fair value of the Company’s investments classified as ~~available-for-sale~~AFS are as follows:


As of September 30, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Expected Credit Losses		Fair Value
	(Dollars In Millions)
Fixed maturities:
Residential mortgage-backed securities	$	7,345	$	59	$	(58)	$	—	$	7,346
Commercial mortgage-backed securities	2,196		98		(6)		(1)		2,287
Other asset-backed securities	1,438		39		(1)		—		1,476
U.S. government-related securities	821		15		(24)		—		812
Other government-related securities	688		76		(2)		—		762
States, municipals, and political subdivisions	3,760		414		(1)		—		4,173
Corporate securities	48,935		4,808		(135)		(1)		53,607
Redeemable preferred stocks	297		13		—		—		310
	65,480		5,522		(227)		(2)		70,773
Short-term investments	542		—		—		—		542
	$	66,022	$	5,522	$	(227)	$	(2)	$	71,315

Table of Contents


As of September 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Total OTTI Recognized in OCI⁽¹⁾
As of December 31, 2020													As of December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Expected Credit Losses		Fair Value
	(Dollars In Thousands)													(Dollars In Millions)
Fixed maturities:													Fixed maturities:
Residential mortgage-backed securities	$	2,178,344	$	22,141	$	(17,116	)	$	2,183,369	$	16		Residential mortgage-backed securities	$	6,510	$	159	$	(1)	$	—	$	6,668
Commercial mortgage-backed securities	1,909,921		6,052		(23,920		)	1,892,053		—			Commercial mortgage-backed securities	2,429		128		(19)		(4)		2,534
Other asset-backed securities	1,186,463		17,692		(13,488		)	1,190,667		—			Other asset-backed securities	1,546		40		(7)		(1)		1,578
U.S. government-related securities	1,317,910		1,256		(26,333		)	1,292,833		—			U.S. government-related securities	1,492		26		(3)		—		1,515
Other government-related securities	251,040		8,075		(6,835		)	252,280		—			Other government-related securities	622		96		(1)		—		717
States, municipals, and political subdivisions	1,756,865		6,416		(59,272		)	1,704,009		(93		)	States, municipals, and political subdivisions	3,902		519		(1)		—		4,420
Corporate securities	29,511,875		475,788		(704,556		)	29,283,107		—			Corporate securities	46,150		6,074		(99)		(18)		52,107
Preferred stock	94,362		376		(2,898		)	91,840		—
Redeemable preferred stocks													Redeemable preferred stocks	183		11		—		—		194
	38,206,780		537,796		(854,418		)	37,890,158		(77		)		62,834		7,053		(131)		(23)		69,733
Equity securities	721,496		24,861		(7,291		)	739,066
Short-term investments	378,429		—		—			378,429					Short-term investments	386		—		—		—		386
	$	39,306,705	$	562,657	$	(861,709	)	$	39,007,653	$	(77	)		$	63,220	$	7,053	$	(131)	$	(23)	$	70,119

As of December 31, 2016	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	$	1,904,165	$	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.

For The
Three Months Ended
September 30,
For The
Nine Months Ended
September 30,
2017 2017

Fixed
Maturities

Equity
Securities

Total
Securities
Fixed Maturities Equity Securities Total Securities
(Dollars In Thousands)
Other-than-temporary impairments $ (366 ) $ —
$ (366 ) $ (494 ) $ —
$ (494 )
Non-credit impairment losses recorded in other comprehensive income 93
—
93
(7,765 ) —
(7,765 )
Net impairment losses recognized in earnings $ (273 ) $ —
$ (273 ) $ (8,259 ) $ —
$ (8,259 )

Table of Contents

For The
Three Months Ended
September 30,
For The
Nine Months Ended
September 30,
2016 2016

Fixed
Maturities

Equity
Securities

Total
Securities
Fixed Maturities Equity Securities Total Securities
(Dollars In Thousands)
Other-than-temporary impairments $ (1,898 ) $ —
$ (1,898 ) $ (10,194 ) $ —
$ (10,194 )
Non-credit impairment losses recorded in other comprehensive income (1,410 ) —
(1,410 ) 3,302
—
3,302
Net impairment losses recognized in earnings $ (3,308 ) $ —
$ (3,308 ) $ (6,892 ) $ —
$ (6,892 )

~~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 months ended September 30, 2017 and 2016.

The following chart is a rollforward of ~~available-for-sale~~the allowance for expected credit losses on fixed maturities ~~held by the Company for which a portion~~classified as available-for-sale:


	For The Three Months Ended September 30, 2021								For The Nine Months Ended September 30, 2021
	Corporate Securities		CMBS		ABS		Total		Corporate Securities		CMBS		ABS		Total
	(Dollars In Millions)
Beginning Balance	$	1	$	1	$	—	$	2	$	18	$	4	$	1	$	23
Additions for securities for which an allowance was not previously recorded	—		—		—		—		—		—		—		—
Adjustments on previously recorded allowances due to change in expected cash flows	—		—		—		—		(1)		(3)		—		(4)
Reductions on previously recorded allowances due to disposal of security in the current period	—		—		—		—		—		—		(1)		(1)
Write-offs of previously recorded allowances due to intent or requirement to sell	—		—		—		—		(16)		—		—		(16)
Ending Balance	$	1	$	1	$	—	$	2	$	1	$	1	$	—	$	2


	For The Three Months Ended September 30, 2020								For The Nine Months Ended September 30, 2020
	Corporate Securities		CMBS		ABS		Total		Corporate Securities		CMBS		ABS		Total
	(Dollars In Millions)
Beginning Balance	$	81	$	—	$	1	$	82	$	—	$	—	$	—	$	—
Additions for securities for which an allowance was not previously recorded	—		—		—		—		62		—		1		63
Adjustments on previously recorded allowances due to change in expected cash flows	1		—		—		1		20		—		—		20
Reductions on previously recorded allowances due to disposal of security in the current period	—		—		—		—		—		—		—		—
Write-offs of previously recorded allowances due to intent or requirement to sell	(64)		—		—		(64)		(64)		—		—		(64)
Ending Balance	$	18	$	—	$	1	$	19	$	18	$	—	$	1	$	19

Table of ~~an other-than-temporary impairment was recognized in other comprehensive income (loss):~~Contents

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Beginning balance $ 2,783
$ 964
$ 12,685
$ 22,761
Additions for newly impaired securities 266
1,721
266
4,777
Additions for previously impaired securities 6
1,521
2,791
2,046
Reductions for previously impaired securities due to a change in expected cash flows (37 ) (4 ) (12,724 ) (22,763 )
Reductions for previously impaired securities that were sold in the current period (600 ) —
(600 ) (2,619 )
Ending balance $ 2,418
$ 4,202
$ 2,418
$ 4,202

The following table includes the gross unrealized losses and fair value of the Company’s ~~investments that are~~AFS fixed maturities, for which an allowance for credit losses has not ~~deemed to be other-than-temporarily impaired,~~been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, ~~2017:~~2021:

Less Than 12 Months 12 Months or More Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss
(Dollars In Thousands)
Residential mortgage-backed securities $ 1,035,609
$ (14,979 ) $ 88,573
$ (2,137 ) $ 1,124,182
$ (17,116 )
Commercial mortgage-backed securities 1,262,495
(19,333 ) 155,628
(4,587 ) 1,418,123
(23,920 )
Other asset-backed securities 202,097
(5,064 ) 170,747
(8,424 ) 372,844
(13,488 )
U.S. government-related securities 1,090,531
(21,099 ) 85,948
(5,234 ) 1,176,479
(26,333 )
Other government-related securities 44,015
(287 ) 84,524
(6,548 ) 128,539
(6,835 )
States, municipalities, and political subdivisions 819,311
(22,392 ) 615,181
(36,880 ) 1,434,492
(59,272 )
Corporate securities 7,784,891
(150,955 ) 8,486,571
(553,601 ) 16,271,462
(704,556 )
Preferred stock 52,294
(806 ) 28,846
(2,092 ) 81,140
(2,898 )
Equities 108,502
(2,245 ) 55,006
(5,046 ) 163,508
(7,291 )
$ 12,399,745
$ (237,160 ) $ 9,771,024
$ (624,549 ) $ 22,170,769
$ (861,709 )

RMBS and CMBS had gross unrealized losses greater than twelve months of $2.1 million and $4.6 million, respectively, as of September 30, 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 $8.4 million as of September 30, 2017. This category predominately includes student loan backed auction rate securities whose underlying collateral 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 $6.5 million as of September 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 $36.9 million as of September 30, 2017. These declines were related to changes in interest rates.


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(Dollars In Millions)
Residential mortgage-backed securities	$	3,460	$	(58)	$	11	$	—	$	3,471	$	(58)
Commercial mortgage-backed securities	50		—		90		(6)		140		(6)
Other asset-backed securities	130		—		54		(1)		184		(1)
U.S. government-related securities	392		(21)		67		(3)		459		(24)
Other government-related securities	76		(2)		—		—		76		(2)
States, municipals, and political subdivisions	35		(1)		4		—		39		(1)
Corporate securities	3,978		(96)		496		(39)		4,474		(135)
Redeemable preferred stocks	20		—		—		—		20		—
	$	8,141	$	(178)	$	722	$	(49)	$	8,863	$	(227)

The corporate securities category had gross unrealized losses greater than twelve months of ~~$553.6~~$39 million as of September 30, ~~2017. The aggregate decline in market value~~2021, excluding losses of ~~these securities was~~$1 million that were considered credit related. These losses are 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, interest rate movement, and other pertinent ~~information~~information.

As of September 30, ~~2017,~~2021, the Company had a total of ~~1,742~~558 positions that were in an unrealized loss position, ~~but~~including 5 positions for which an allowance for credit losses was established. For unrealized losses for which an allowance for credit losses was not established, the Company does not consider these unrealized loss positions to be ~~other-than-temporary.~~credit-related. 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~~recover. 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.

Table of Contents


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(Dollars In Millions)
Residential mortgage-backed securities	$	386	$	(1)	$	9	$	—	$	395	$	(1)
Commercial mortgage-backed securities	263		(15)		30		(4)		293		(19)
Other asset-backed securities	146		(2)		326		(5)		472		(7)
U.S. government-related securities	311		(3)		1		—		312		(3)
Other government-related securities	19		—		7		(1)		26		(1)
States, municipals, and political subdivisions	34		(1)		5		—		39		(1)
Corporate securities	1,063		(33)		728		(66)		1,791		(99)
Redeemable preferred stocks	—		—		—		—		—		—
	$	2,222	$	(55)	$	1,106	$	(76)	$	3,328	$	(131)

Less Than 12 Months 12 Months or More Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss
(Dollars In Thousands)
Residential mortgage-backed securities $ 1,051,694
$ (21,178 ) $ 170,826
$ (4,117 ) $ 1,222,520
$ (25,295 )
Commercial mortgage-backed securities 1,426,252
(36,589 ) 100,475
(4,013 ) 1,526,727
(40,602 )
Other asset-backed securities 323,706
(9,291 ) 176,792
(11,407 ) 500,498
(20,698 )
U.S. government-related securities 1,237,942
(40,454 ) 3
(1 ) 1,237,945
(40,455 )
Other government-related securities 98,412
(2,907 ) 79,393
(11,890 ) 177,805
(14,797 )
States, municipalities, and political subdivisions 1,062,368
(63,809 ) 548,254
(41,749 ) 1,610,622
(105,558 )
Corporate securities 12,490,517
(467,463 ) 9,791,313
(1,114,635 ) 22,281,830
(1,582,098 )
Preferred stock 66,781
(6,642 ) 19,062
(1,877 ) 85,843
(8,519 )
Equities 411,845
(15,273 ) 69,497
(6,412 ) 481,342
(21,685 )
$ 18,169,517
$ (663,606 ) $ 10,955,615
$ (1,196,101 ) $ 29,125,132
$ (1,859,707 )

~~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 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 December 31, 2016. This category predominately includes student loan backed auction rate securities whose underlying collateral is at least 97% guaranteed by the 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 $11.9 million as of December 31, 2016. 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~~ ~~$41.7 million~~ ~~as of December 31, 2016. These declines were related to 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 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 30, ~~2017,~~2021, the Company had securities in its available-for-sale portfolio which were rated below investment grade of ~~$1.9~~$2.6 billion and had an amortized cost of ~~$1.9~~$2.4 billion. In addition, included in the Company’s trading portfolio, the Company held ~~$240.7~~$139 million of securities which were rated below investment grade. ~~Approximately $337.3~~The Company held $548 million of ~~the available-for-sale and trading securities that were~~ below investment grade securities that were not publicly traded.

The change in unrealized gains (losses), net of the allowance for expected credit losses and income ~~tax,~~taxes, on fixed matur~~ity and equity securities,~~ities, classified as available-for-sale is summarized as follows:


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Fixed maturities	$	(326)	$	787	$	(1,285)	$	2,158

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Fixed maturities $ 167,488
$ 294,917
$ 865,743
$ 1,771,567
Equity securities (913 ) (1,691 ) 20,478
7,749

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

As of September 30, 2017 Amortized
Cost
Gross
Unrecognized
Holding
Gains

Gross
Unrecognized
Holding
Losses
Fair
Value Total OTTI
Recognized
in OCI
(Dollars In Thousands)
Fixed maturities:

Securities issued by affiliates:
Red Mountain LLC $ 690,995
$ —
$ (17,305 ) $ 673,690
$ —
Steel City LLC 2,040,000
82,913
—
2,122,913
—
$ 2,730,995
$ 82,913
$ (17,305 ) $ 2,796,603
$ —

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)
Fixed maturities:

Securities issued by affiliates:
Red Mountain LLC $ 654,177
$ —
$ (67,222 ) $ 586,955
$ —
Steel City LLC 2,116,000
30,385
—
2,146,385
—
$ 2,770,177
$ 30,385
$ (67,222 ) $ 2,733,340
$ —

~~During the three and nine months ended September 30, 2017 and 2016, the Company recorded no other-than-temporary impairments on held-to-maturity securities.~~

~~The Company’s held-to-maturity securities had~~ $82.9 million of gross unrecognized holding gains and $17.3 million of gross unrecognized holding losses by maturity as of September 30, 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 $30.4 million of gross unrecognized holding gains and $67.2 million of gross unrecognized holding losses by maturity as of December 31, 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 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 30, 2017 and December 31, 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. 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 30, 2017, no payments have been made or required related to this guarantee.~~

5.4.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; and

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~~estimates 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 30, ~~2017:~~2021:


	Measurement Category	Level 1		Level 2		Level 3		Total
		(Dollars In Millions)
Assets:
Fixed maturity securities - AFS
Residential mortgage-backed securities	4	$	—	$	7,346	$	—	$	7,346
Commercial mortgage-backed securities	4	—		2,256		31		2,287
Other asset-backed securities	4	—		1,018		458		1,476
U.S. government-related securities	4	410		402		—		812
State, municipals, and political subdivisions	4	—		4,173		—		4,173
Other government-related securities	4	—		762		—		762
Corporate securities	4	—		51,972		1,635		53,607
Redeemable preferred stocks	4	310		—		—		310
Total fixed maturity securities - AFS		720		67,929		2,124		70,773
Fixed maturity securities - trading
Residential mortgage-backed securities	3	—		158		—		158
Commercial mortgage-backed securities	3	—		211		—		211
Other asset-backed securities	3	—		87		94		181
U.S. government-related securities	3	27		6		—		33
State, municipals, and political subdivisions	3	—		288		—		288
Other government-related securities	3	—		48		16		64
Corporate securities	3	—		1,885		15		1,900
Redeemable preferred stocks	3	8		—		—		8
Total fixed maturity securities - trading		35		2,683		125		2,843
Total fixed maturity securities		755		70,612		2,249		73,616
Equity securities	3	614		—		158		772
Other long-term investments(1)	3 & 4	65		917		299		1,281
Short-term investments	3	463		166		—		629
Total investments		1,897		71,695		2,706		76,298
Cash	3	409		—		—		409
Assets related to separate accounts
Variable annuity	3	13,112		—		—		13,112
Variable universal life	3	1,756		—		—		1,756
Total assets measured at fair value on a recurring basis		$	17,174	$	71,695	$	2,706	$	91,575
Liabilities:
Annuity account balances(2)	3	$	—	$	—	$	64	$	64
Other liabilities(1)	3 & 4	25		603		1,948		2,576
Total liabilities measured at fair value on a recurring basis		$	25	$	603	$	2,012	$	2,640

Measurement category 3 represents fair value through net income and 4 represents fair value through other comprehensive income (loss).
(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 $ —
$ 2,183,369
$ —
$ 2,183,369
Commercial mortgage-backed securities —
1,892,053
—
1,892,053
Other asset-backed securities —
637,518
553,149
1,190,667
U.S. government-related securities 1,009,225
283,608
—
1,292,833
State, municipalities, and political subdivisions —
1,704,009
—
1,704,009
Other government-related securities —
252,280
—
252,280
Corporate securities —
28,658,554
624,553
29,283,107
Preferred stock 72,942
18,898
—
91,840
Total fixed maturity securities - available-for-sale 1,082,167
35,630,289
1,177,702
37,890,158
Fixed maturity securities - trading

Residential mortgage-backed securities —
262,062
—
262,062
Commercial mortgage-backed securities —
145,653
—
145,653
Other asset-backed securities —
107,123
35,490
142,613
U.S. government-related securities 21,589
6,125
—
27,714
State, municipalities, and political subdivisions —
321,001
—
321,001
Other government-related securities —
64,067
—
64,067
Corporate securities —
1,709,216
5,524
1,714,740
Preferred stock 3,229
—
—
3,229
Total fixed maturity securities - trading 24,818
2,615,247
41,014
2,681,079
Total fixed maturity securities 1,106,985
38,245,536
1,218,716
40,571,237
Equity securities 678,660
—
65,516
744,176
Other long-term investments⁽¹⁾
61,072
380,511
149,734
591,317
Short-term investments 316,914
105,771
—
422,685
Total investments 2,163,631
38,731,818
1,433,966
42,329,415
Cash 199,633
—
—
199,633
Assets related to separate accounts

Variable annuity 13,763,971
—
—
13,763,971
Variable universal life 996,375
—
—
996,375
Total assets measured at fair value on a recurring basis $ 17,123,610
$ 38,731,818
$ 1,433,966
$ 57,289,394
Liabilities:

Annuity account balances⁽²⁾
$ —
$ —
$ 85,028
$ 85,028
Other liabilities⁽¹⁾
23,775
256,829
561,296
841,900
Total liabilities measured at fair value on a recurring basis $ 23,775
$ 256,829
$ 646,324
$ 926,928

(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, ~~2016:~~2020:


	Measurement Category	Level 1		Level 2		Level 3		Total
		(Dollars In Millions)
Assets:
Fixed maturity securities - AFS
Residential mortgage-backed securities	4	$	—	$	6,668	$	—	$	6,668
Commercial mortgage-backed securities	4	—		2,502		32		2,534
Other asset-backed securities	4	—		1,143		435		1,578
U.S. government-related securities	4	1,015		500		—		1,515
State, municipals, and political subdivisions	4	—		4,420		—		4,420
Other government-related securities	4	—		717		—		717
Corporate securities	4	—		50,675		1,432		52,107
Redeemable preferred stocks	4	125		69		—		194
Total fixed maturity securities - AFS		1,140		66,694		1,899		69,733
Fixed maturity securities - trading
Residential mortgage-backed securities	3	—		209		—		209
Commercial mortgage-backed securities	3	—		214		—		214
Other asset-backed securities	3	—		91		72		163
U.S. government-related securities	3	79		12		—		91
State, municipals, and political subdivisions	3	—		282		—		282
Other government-related securities	3	—		30		—		30
Corporate securities	3	—		1,843		17		1,860
Redeemable preferred stocks	3	13		—		—		13
Total fixed maturity securities - trading		92		2,681		89		2,862
Total fixed maturity securities		1,232		69,375		1,988		72,595
Equity securities	3	566		—		101		667
Other long-term investments(1)	3 & 4	52		1,285		299		1,636
Short-term investments	3	403		59		—		462
Total investments		2,253		70,719		2,388		75,360
Cash	3	656		—		—		656
Assets related to separate accounts
Variable annuity	3	12,378		—		—		12,378
Variable universal life	3	1,287		—		—		1,287
Total assets measured at fair value on a recurring basis		$	16,574	$	70,719	$	2,388	$	89,681
Liabilities:
Annuity account balances(2)	3	$	—	$	—	$	67	$	67
Other liabilities(1)	3 & 4	14		867		2,238		3,119
Total liabilities measured at fair value on a recurring basis		$	14	$	867	$	2,305	$	3,186

Measurement category 3 represents fair value through net income and 4 represents fair value through other comprehensive income (loss).
(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~~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~~For a full description of the Company’s fair value ~~of fixed maturity, short-term,~~calculations 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 approxi~~mately~~ ~~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 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 months ended September 30, 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 ofSeptember 30, 2017, the Company held~~ ~~$5.2 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.

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.

~~As of September 30, 2017, the Company held $588.6 million of Level 3 ABS, which included $553.1 million of other asset-backed securities classified as available-for-sale and $35.5 million of other 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.

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

As of September 30, 2017, the Company classified approximately $33.0 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 30, 2017, the Company classified approximately $630.1 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 30, 2017, the Company held approximately $65.5 million of equity securities classified as Level 2 and Level 3. Of this total, $65.5 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 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 30, 2017, ~~81.2% of derivat~~ives based upon notional values were priced using exchange prices or independent broker quotations. The remaining derivatives were priced by pricing valuation models, which utilize observable market data 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 swaps, options, and 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 6, ~~Derivative Financial Instruments~~ ~~for more information related to each embedded derivatives gains and losses~~.

The fair value of the 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 along with 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 ~~Ruark 2015 ALB table with attained age factors varying from 91.1% - 106.6%. The p~~resent 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 GLWB embedded derivative is categorized as Level 3. Policyholder assumptions are reviewed on 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 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 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 plus a credit spread (to represent the Company’s non-performance risk). 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 34% - 152%. The 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). 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~~accounting 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 reported in earnings. As of September 30, 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 $218.8 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 inv~~estments 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.~~

The Company and certain of 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 30, 2017 was $83.5 million and is included in Other long-term investments. For information regarding realized gains on these derivatives please refer to Note 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 defined5 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 withCompany’s Form 10-K for 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 $37.4 million as of September 30, 2017. As of September 30, 2017, no payments have been triggered under this agreement, however, certain interest support agreement obligations to Golden Gate II of approximately $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 30, 2017, no payments have been triggered under this agreement.year ended December 31, 2020.

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 30, 2017 was ~~$41.8 million. As of September 30, 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 30, 2017, was ~~$4.4 million. As of September 30, 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 30, 2017, was a liability of ~~$50.5 million~~.

~~Annuity Account Balances~~

The Company records a certain legacy block of 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 due to the unobservable nature of the fund values. The Level 3 fair value as of September 30, 2017 is $85.0 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~~tables present the valuation method for material AFS fixed maturity securities and embedded derivative financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial ~~instruments:~~instruments as of September 30, 2021 and December 31, 2020:

Fair Value
As of
September 30, 2017
Valuation
Technique

Unobservable
Input

Range
(Weighted Average)
(Dollars In Thousands)
Assets:
Other asset-backed securities $ 553,005
Liquidation Liquidation value $90 - $97 ($95.02)
Discounted cash flow Liquidity premium 0.51% - 1.29% (0.96%)
Paydown rate 10.75% - 12.75% (11.34%)
Corporate securities 615,576
Discounted cash flow Spread over treasury 0.35% - 4.35% (1.57%)
Liabilities:⁽¹⁾

Embedded derivatives - GLWB⁽²⁾
$ 20,336
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 0.12% - 0.86%
Embedded derivative - FIA 197,378
Actuarial cash flow model Expenses $146 per policy
Asset Earned Rate 4.08% - 4.66%

Withdrawal rate 1.5% prior to age 70, 100% of the RMD for ages 70+

Mortality 1994 MGDB table with company experience

Lapse 1.0% - 30.0%, depending on duration/surrender charge period

Nonperformance risk 0.12% - 0.86%
Embedded derivative - IUL 69,081
Actuarial cash flow model Mortality 34% - 152% of 2015
VBT Primary Tables

Lapse 0.5% - 10%, depending on
duration/distribution channel
and smoking class

Nonperformance risk 0.12% - 0.86%

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

September 30, 2021

Fair Value

Valuation
Technique

Unobservable
Input

Range
(Weighted Average)

(Dollars In Millions)

Assets:

Commercial mortgage-backed securities

Discounted cash flow

Spread over treasury

2.12% - 2.29% (2.23%)

Other asset-backed securities

458

Liquidation

Liquidation value

$97.00 - $99.75 ($98.77)

Discounted cash flow

Liquidity premium

0.84% - 2.31% (1.76%)

Paydown Rate

10.03% - 13.15% (11.95%)

Corporate securities

1,635

Discounted cash flow

Spread over treasury

0.00% - 4.00% (1.46%)

Liabilities:(1)

Embedded derivatives - GLWB(2)

535

Actuarial cash flow model

Mortality

88% to 100% of

Ruark 2015 ALB Table

Lapse

PL-RBA Predictive Model

Utilization

PL-RBA Predictive Model

Nonperformance risk

0.18% - 0.81%

Embedded derivative - FIA

570

Actuarial cash flow model

Expenses

$214 per policy

Withdrawal rate

0.4% - 2.4% prior to age 72, 100% of the RMD for ages 72+ or WB withdrawal rate. Assume underutilized RMD for non-WB policies ages 72-88.

Mortality

88% to 100% of Ruark 2015 ALB table

Lapse

0.2% - 50.0%, depending on duration/surrender charge period

Dynamically adjusted for WB moneyness and projected market rates vs credited rates

Nonperformance risk

0.18% - 0.81%

Embedded derivative - IUL

251

Actuarial cash flow model

Mortality

43% - 110% of base table (90%

of 2015 VBT Primary Tables adjusted for 5.5 years of 2020 SOA HMI)

94% - 248% of duration 8 point in scale 2015 VBT Primary Tables, depending on type of business

Lapse

0.375% - 7.5%, depending on

issue age and duration,

smoking class, and level of funding

Nonperformance risk

0.18% - 0.81%

(1) Excludes modified coinsurance arrangements.

(2) Fair value is presented as a net liability.

December 31, 2020

Fair Value

Valuation
Technique

Unobservable
Input

Range
(Weighted Average)

(Dollars In Millions)

Assets:

Commercial mortgage-backed securities

Discounted cash flow

Spread over treasury

2.78% - 2.92% (2.87%)

Other asset-backed securities

435

Liquidation

Liquidation value

$95 - $97 ($96.19)

Discounted cash flow

Liquidity premium

0.54% - 2.3% (1.63%)

Paydown Rate

8.79% - 12.49% (11.39%)

Corporate securities

1,432

Discounted cash flow

Spread over treasury

0.00% - 4.75% (1.89%)

Liabilities:(1)

Embedded derivatives - GLWB(2)

822

Actuarial cash flow model

Mortality

88% to 100% of

Ruark 2015 ALB Table

Lapse

PL-RBA Predictive Model

Utilization

PL-RBA Predictive Model

Nonperformance risk

0.19% - 0.81%

Embedded derivative - FIA

573

Actuarial cash flow model

Expenses

$207 per policy

Withdrawal rate

0.4% - 2.4% prior to age 70 RMD for

ages 70+

or WB withdrawal rate

Assume underutilized RMD

for non-WB policies age 72-88

Mortality

88% to 100% or Ruark 2015 ALB table

Lapse

0.2% - 50.0%, depending on duration/surrender charge period

Nonperformance risk

0.19% - 0.81%

Embedded derivative - IUL

201

Actuarial cash flow model

Mortality

36% - 161% of 2015

VBT Primary Tables

94% - 248% of duration

8 point in scale 2015

VBT Primary Tables,

depending on type of business

Lapse

0.375% - 10%, depending on duration/distribution channel and smoking class

Nonperformance risk

0.19% - 0.81%

(1) Excludes modified coinsurance arrangements.

(2) Fair value is presented as a net liability.

The ~~chart~~charts above ~~excludes~~exclude Level 3 financial instruments that are valued using broker quotes and for which book value approximates fair value. Unobservable inputs were weighted by the relative fair value of instruments, except for other asset-backed securities which were weighted by the relative par amounts.

The Company has considered all reasonably available quantitative inputs as of September 30, ~~2017, but the valuation techniques~~2021 and ~~inputs used by some~~ brokers in pricing certain financial instruments are not shared with the Company. This resulted in $50.2 million of financial instruments being classified as Level 3 as of September 30, 2017. Of the $50.2 million, $35.6 million are other asset-backed securities and $14.5 million are ~~corporate securities, and $0.5 millionare equity securities.~~

~~In certain cases the Company has determined that book value materially approximates fair value. As of September 30, 2017, the Company held~~ ~~$65.5 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:~~

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 for which book value approximates fair value.~~

~~The Company has considered all reasonably available quantitative inputs as of~~ December 31, ~~2016,~~2020, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in ~~$125.2~~$206 million and $116 million of financial instruments being classified as Level 3 as of September 30, 2021 and December 31, ~~2016. Of the $125.2~~2020, of which $148 million ~~$93.9~~and $88 million ~~are~~were other ~~asset backed~~asset-backed securities, $12 million and $17 million were corporate securities and ~~$31.3~~$46 million ~~are corporate securities.~~and $11 million were equity securities, respectively.

In certain cases the Company has determined that book value materially approximates fair value. As of September 30, 2021 and December 31, ~~2016,~~2020, the Company held ~~$65.7~~$112 million and $90 million of financial instruments, respectively, where book value approximates fair value which ~~are~~was 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 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 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 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 30, ~~2017,~~2021, 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 Operations related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Operations		Included in Other Comprehensive Income (Loss)		Included in Operations		Included in Other Comprehensive Income (Loss)		Purchases		Sales		Issuances		Settlements		Transfers in/out of Level 3		Other		Ending Balance
	(Dollars In Millions)
Assets:
Fixed maturity securities AFS

Commercial mortgage-backed securities	$	32	$	—	$	—	$	—	$	(1)	$	—	$	—	$	—	$	—	$	—	$	—	$	31	$	—
Other asset-backed securities	451		—		—		—		(2)		6		—		—		—		3		—		458		—



Corporate securities	1,553		—		8		—		(7)		79		(35)		—		—		37		—		1,635		—
Total fixed maturity securities - available-for-sale	2,036		—		8		—		(10)		85		(35)		—		—		40		—		2,124		—
Fixed maturity securities - trading


Other asset-backed securities	97		—		—		—		—		3		(6)		—		—		—		—		94		—


Other government-related securities	16		—		—		—		(1)		—		—		—		—		—		1		16		—
Corporate securities	11		—		—		—		—		4		—		—		—		—		—		15		—
Total fixed maturity securities - trading	124		—		—		—		(1)		7		(6)		—		—		—		1		125		—
Total fixed maturity securities	2,160		—		8		—		(11)		92		(41)		—		—		40		1		2,249		—
Equity securities	112		—		—		—		—		54		(8)		—		—		—		—		158		—
Other long-term investments(1)	307		98		—		(106)		—		—		—		—		—		—		—		299		(8)

Total investments	2,579		98		8		(106)		(11)		146		(49)		—		—		40		1		2,706		(8)
Total assets measured at fair value on a recurring basis	$	2,579	$	98	$	8	$	(106)	$	(11)	$	146	$	(49)	$	—	$	—	$	40	$	1	$	2,706	$	(8)
Liabilities:
Annuity account balances(2)	$	65	$	—	$	—	$	(1)	$	—	$	—	$	—	0		$	2	$	—	$	—	$	64	$	—
Other liabilities(1)	2,016		197		—		(129)		—		—		—		—		—		—		—		1,948		68
Total liabilities measured at fair value on a recurring basis	$	2,081	$	197	$	—	$	(130)	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	2,012	$	68

(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
$ —
$ 83
$ —
$ —
$ —
$ —
$ —
$ —
$ (11,944 ) $ (1 ) $ —
$ —
Commercial mortgage-backed securities —
—
—
—

—
—
—
—
—
—
—
—
Other asset-backed securities 552,963
—
1,682
—
(2,285 ) 100
(109 ) —
—
—
798
553,149
—
Corporate securities 662,654
—
8,301
—
(2,222 ) 5,071
(42,242 ) —
—
(5,486 ) (1,523 ) 624,553
—
Total fixed maturity securities - available-for-sale 1,227,479
—
10,066
—
(4,507 ) 5,171
(42,351 ) —
—
(17,430 ) (726 ) 1,177,702
—
Fixed maturity securities - trading

Other asset-backed securities 54,923
—
—
(353 ) —
—
(19,188 ) —
—
—
108
35,490
(209 )
Corporate securities 5,520
27
—
—
—
—
—
—
—
—
(23 ) 5,524
27
Total fixed maturity securities - trading 60,443
27
—
(353 ) —
—
(19,188 ) —
—
—
85
41,014
(182 )
Total fixed maturity securities 1,287,922
27
10,066
(353 ) (4,507 ) 5,171
(61,539 ) —
—
(17,430 ) (641 ) 1,218,716
(182 )
Equity securities 65,686
—
—
—
—
—
(170 ) —
—
—
—
65,516
—
Other long-term investments⁽¹⁾
93,245
56,491
—
(2 ) —
—
—
—
—
—
—
149,734
56,489
Total investments 1,446,853
56,518
10,066
(355 ) (4,507 ) 5,171
(61,709 ) —
—
(17,430 ) (641 ) 1,433,966
56,307
Total assets measured at fair value on a recurring basis $ 1,446,853
$ 56,518
$ 10,066
$ (355 ) $ (4,507 ) $ 5,171
$ (61,709 ) $ —
$ —
$ (17,430 ) $ (641 ) $ 1,433,966
$ 56,307
Liabilities:

Annuity account balances⁽²⁾
$ 86,094
$ —
$ —
$ (977 ) $ —
$ —
$ —
$ 9
$ 2,052
—
$ —
$ 85,028
$ —
Other liabilities⁽¹⁾
532,763
6,702
—
(35,235 ) —
—
—
—
—
—
—
561,296
(28,533 )
Total liabilities measured at fair value on a recurring basis $ 618,857
$ 6,702
$ —
$ (36,212 ) $ —
$ —
$ —
$ 9
$ 2,052
$ —
$ —
$ 646,324
$ (28,533 )

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

For the three months ended September 30, ~~2017,~~2021, there wereno $59 million of securities transferred into Level 3.

~~For the three months ended September 30, 2017,~~ ~~$17.4 million~~ ~~of securities were transferred into~~3 from Level 2. ~~This amount was transferred from Level 3.~~ These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available ~~in previous periods but~~as of September 30, 2021.

For the three months ended September 30, 2021, there were $19 million of securities transferred into Level 2 from Level 3.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2020, 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 Operations related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Operations		Included in Other Comprehensive Income (Loss)		Included in Operations		Included in Other Comprehensive Income (Loss)		Purchases		Sales		Issuances		Settlements		Transfers in/out of Level 3		Other		Ending Balance
	(Dollars In Millions)
Assets:
Fixed maturity securities AFS

Commercial mortgage-backed securities	$	10	$	—	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	11	$	—
Other asset-backed securities	431		—		4		—		(1)		—		(1)		—		—		0		—		433		—



Corporate securities	1,366		—		28		—		(3)		62		(125)		—		—		31		(1)		1,358		—
Total fixed maturity securities - available-for-sale	1,807		—		33		—		(4)		62		(126)		—		—		31		(1)		1,802		—
Fixed maturity securities - trading


Other asset-backed securities	60		3		—		—		—		1		(2)		—		—		—		—		62		3



Corporate securities	13		—		—		—		—		5		—		—		—		—		—		18		—
Total fixed maturity securities - trading	73		3		—		—		—		6		(2)		—		—		—		—		80		3
Total fixed maturity securities	1,880		3		33		—		(4)		68		(128)		—		—		31		(1)		1,882		3
Equity securities	78		2		—		—		—		7		—		—		—		—		—		87		1
Other long-term investments(1)	337		127		—		(73)		—		—		—		—		—		—		—		391		54

Total investments	2,295		132		33		(73)		(4)		75		(128)		—		—		31		(1)		2,360		58
Total assets measured at fair value on a recurring basis	$	2,295	$	132	$	33	$	(73)	$	(4)	$	75	$	(128)	$	—	$	—	$	31	$	(1)	$	2,360	$	58
Liabilities:
Annuity account balances(2)	$	68	$	—	$	—	$	(1)	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	68	$	—
Other liabilities(1)	2,423		301		—		(249)		—		—		—		—		—		—		—		2,371		(52)
Total liabilities measured at fair value on a recurring basis	$	2,491	$	301	$	—	$	(250)	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	2,439	$	(52)

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

For the three months ended September 30, 2020, there were $31 million of securities transferred into Level 3 from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available as of September 30, ~~2017.~~2020.

~~For the three months ended September 30, 2017, there were~~ ~~no securities transferred from Level 2 to Level 1.~~

~~For the three months ended September 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 nine months ended September 30, ~~2017,~~2021, 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 Operations related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Operations		Included in Other Comprehensive Income (Loss)		Included in Operations		Included in Other Comprehensive Income (Loss)		Purchases		Sales		Issuances		Settlements		Transfers in/out of Level 3		Other		Ending Balance
	(Dollars In Millions)
Assets:
Fixed maturity securities AFS

Commercial mortgage-backed securities	$	32	$	—	$	—	$	—	$	(1)	$	—	$	—	$	—	$	—	$	—	$	—	$	31	—
Other asset-backed securities	435		—		5		—		(1)		6		(2)		—		—		14		1		458		—



Corporate securities	1,432		—		7		—		(21)		240		(168)		—		—		146		(1)		1,635		—
Total fixed maturity securities-AFS	1,899		—		12		—		(23)		246		(170)		—		—		160		—		2,124		—
Fixed maturity securities - trading


Other asset-backed securities	71		—		2		—		1		14		(10)		—		—		16		—		94		—


Other government-related securities	—		—		—		—		—		—		—		—		—		16		—		16		—
Corporate securities	18		—		—		—		(1)		4		(1)		—		—		(5)		—		15		—
Total fixed maturity securities - trading	89		—		2		—		—		18		(11)		—		—		27		—		125		—
Total fixed maturity securities	1,988		—		14		—		(23)		264		(181)		—		—		187		—		2,249		—
Equity securities	101		—		—		—		—		94		(32)		—		—		(5)		—		158		—
Other long-term investments(1)	298		169		—		(168)		—		—		—		—		—		—		—		299		1

Total investments	2,387		169		14		(168)		(23)		358		(213)		—		—		182		—		2,706		1
Total assets measured at fair value on a recurring basis	$	2,387	$	169	$	14	$	(168)	$	(23)	$	358	$	(213)	$	—	$	—	$	182	$	—	$	2,706	$	1
Liabilities:
Annuity account balances(2)	$	67	$	—	$	—	$	(2)	$	—	$	—	$	—	$	—	$	5	$	—	$	—	$	64	$	—
Other liabilities(1)	2,239		784		—		(493)		—		—		—		—		—		—		—		1,948		291
Total liabilities measured at fair value on a recurring basis	$	2,306	$	784	$	—	$	(495)	$	—	$	—	$	—	$	—	$	5	$	—	$	—	$	2,012	$	291

(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
$ —
$ 83
$ —
$ —
$ 11,862
$ (3 ) $ —
$ —
$ (11,944 ) $ (1 ) $ —
$ —
Commercial mortgage-backed securities —
—
—
—
—
—
—
—
—
—
—
—
—
Other asset-backed securities 562,604
—
5,212
—
(7,374 ) 100
(2,135 ) —
—
(6,643 ) 1,385
553,149
—
Corporate securities 664,046
—
26,099
—
(2,764 ) 85,822
(135,192 ) —
—
(10,353 ) (3,105 ) 624,553
—
Total fixed maturity securities - available-for-sale 1,226,653
—
31,394
—
(10,138 ) 97,784
(137,330 ) —
—
(28,940 ) (1,721 ) 1,177,702
—
Fixed maturity securities - trading

Other asset-backed securities 84,563
3,679
—
(1,154 ) —
—
(52,516 ) —
—
—
918
35,490
3,397
Corporate securities 5,492
101
—
—
—
—
—
—
—
—
(69 ) 5,524
101
Total fixed maturity securities - trading 90,055
3,780
—
(1,154 ) —
—
(52,516 ) —
—
—
849
41,014
3,498
Total fixed maturity securities 1,316,708
3,780
31,394
(1,154 ) (10,138 ) 97,784
(189,846 ) —
—
(28,940 ) (872 ) 1,218,716
3,498
Equity securities 65,786
1
—
—
—
—
(274 ) —
—
3
—
65,516
2
Other long-term investments⁽¹⁾
115,516
62,467
—
(28,249 ) —
—
—
—
—
—
—
149,734
34,218
Total investments 1,498,010
66,248
31,394
(29,403 ) (10,138 ) 97,784
(190,120 ) —
—
(28,937 ) (872 ) 1,433,966
37,718
Total assets measured at fair value on a recurring basis $ 1,498,010
$ 66,248
$ 31,394
$ (29,403 ) $ (10,138 ) $ 97,784
$ (190,120 ) $ —
$ —
$ (28,937 ) $ (872 ) $ 1,433,966
$ 37,718
Liabilities:

Annuity account balances⁽²⁾
$ 87,616
$ —
$ —
$ (2,973 ) $ —
$ —
$ —
$ 402
$ 5,963
—
$ —
$ 85,028
$ —
Other liabilities⁽¹⁾
405,803
21,982
—
(177,475 ) —
—
—
—
—
—
—
561,296
(155,493 )
Total liabilities measured at fair value on a recurring basis $ 493,419
$ 21,982
$ —
$ (180,448 ) $ —
$ —
$ —
$ 402
$ 5,963
$ —
$ —
$ 646,324
$ (155,493 )

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

For the nine months ended September 30, ~~2017,~~2021, there were ~~an immaterial amount~~$199 million of securities transferred into Level 3.

~~For the nine months ended September 30, 2017, $28.9 million of securities were transferred into Level 2. This amount was transferred from Level 3.~~ These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available ~~in the previous periods, but were priced by independent pricing services or brokers~~ as of September 30, ~~2017.~~2021.

For the nine months ended September 30, ~~2017,~~2021, there were ~~no securities transferred from Level 2 to Level 1.~~

~~For the nine months ended September 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 three months ended September 30, 2016, 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
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 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
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.

~~For the three months ended September 30, 2016, there were no securities transferred into Level 3.~~

~~For the three months ended September 30, 2016, there were $47.5~~$17 million of securities transferred into Level ~~2. This amount was transferred~~2 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, 2016.

~~For the three months ended September 30, 2016, there were no securities transferred from Level 2 to Level 1.~~

~~For the three months ended September 30, 2016, 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 nine months ended September 30, ~~2016,~~2020, for which the Company has used significant unobservable inputs ~~(Level3)~~(Level 3):


			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																		Total Gains (losses) included in Operations related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Operations		Included in Other Comprehensive Income (Loss)		Included in Operations		Included in Other Comprehensive Income (Loss)		Purchases		Sales		Issuances		Settlements		Transfers in/out of Level 3		Other		Ending Balance
	(Dollars In Millions)
Assets:
Fixed maturity securities AFS

Commercial mortgage-backed securities	$	10	$	—	$	2	$	—	$	(1)	$	—	$	—	$	—	$	—	$	—	$	—	$	11	—
Other asset-backed securities	421		—		4		—		(13)		—		(1)		—		—		22		—		433		—



Corporate securities	1,374		—		113		—		(82)		365		(498)		—		—		88		(2)		1,358		—
Total fixed maturity securities - AFS	1,805		—		119		—		(96)		365		(499)		—		—		110		(2)		1,802		—
Fixed maturity securities - trading


Other asset-backed securities	65		4		—		(8)		—		4		(2)		—		—		(1)		—		62		3



Corporate securities	11		1		—		—		—		8		(2)		—		—		—		—		18		—
Total fixed maturity securities - trading	76		5		—		(8)		—		12		(4)		—		—		(1)		—		80		3
Total fixed maturity securities	1,881		5		119		(8)		(96)		377		(503)		—		—		109		(2)		1,882		3
Equity securities	74		1		—		(1)		—		8		—		—		—		5		—		87		1
Other long-term investments(1)	292		228		—		(166)		—		41		—		—		(4)		—		—		391		58

Total investments	2,247		234		119		(175)		(96)		426		(503)		—		(4)		114		(2)		2,360		62
Total assets measured at fair value on a recurring basis	$	2,247	$	234	$	119	$	(175)	$	(96)	$	426	$	(503)	$	—	$	(4)	$	114	$	(2)	$	2,360	$	62
Liabilities:
Annuity account balances(2)	$	70	$	—	$	—	$	(2)	$	—	$	—	$	—	$	—	$	4	$	—	$	—	$	68	$	—
Other liabilities(1)	1,332		649		—		(1,688)		—		—		—		—		—		—		—		2,371		(1,039)
Total liabilities measured at fair value on a recurring basis	$	1,402	$	649	$	—	$	(1,690)	$	—	$	—	$	—	$	—	$	4	$	—	$	—	$	2,439	$	(1,039)

(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 —
—
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.

For the nine months ended September 30, ~~2016~~,2020, there were ~~$71.3~~$115 million of securities transferred into Level 3.

~~For the~~ ~~nine months ended September 30, 2016~~, ~~$197.6 million~~ ~~of securities were transferred into Level 2. This amount was transferred from Level 3.~~ These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but 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, ~~2016.~~2020.

For the nine months ended September 30, ~~2016~~, ~~$12.2~~2020, there were $1 million of securities ~~were~~ transferred into Level 2 from Level ~~2 to Level 1.~~3.

~~For the~~ ~~nine months ended September 30, 2016~~, ~~$0.1 million~~ ~~of securities were transferred from 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:


		As of
		September 30, 2021				December 31, 2020
	Fair Value Level	Carrying Amounts		Fair Values		Carrying Amounts		Fair Values
		(Dollars In Millions)
Assets:
Commercial mortgage loans(1)	3	$	10,506	$	11,153	$	10,006	$	10,788
Policy loans	3	1,543		1,543		1,593		1,593
Other long-term investments(2)	2	1,412		1,487		1,186		1,283
Liabilities:
Stable value product account balances	3	$	8,237	$	8,373	$	6,056	$	6,231
Future policy benefits and claims(3)	3	1,482		1,528		1,580		1,603
Other policyholders’ funds(4)	3	99		106		102		108
Debt:(5)
Subordinated funding obligations	3	$	110	$	116	$	110	$	121

Except as noted below, fair values were estimated using quoted market prices.
(1) The carrying amount is net of allowance for credit losses.
(2) Other long-term investments represents a Modco receivable, which is related to invested assets such as fixed income and structured securities, which are legally owned by the ceding company. The fair value is determined in a manner consistent with other similar invested assets held by the Company.
(3) Single premium immediate annuity and structured annuities without life contingencies.
(4) Supplementary contracts without life contingencies.
(5) Excludes immaterial capital lease obligations.

As of
September 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 $ 6,528,890
$ 6,486,449
$ 6,132,125
$ 5,930,992
Policy loans 3 1,625,960
1,625,960
1,650,240
1,650,240
Fixed maturities, held-to-maturity⁽¹⁾
3 2,730,995
2,796,603
2,770,177
2,733,340
Liabilities:

Stable value product account balances 3 $ 4,793,890
$ 4,816,919
$ 3,501,636
$ 3,488,877
Future policy benefits and claims⁽²⁾
3 222,079
222,079
221,634
221,658
Other policyholders' funds⁽³⁾
3 132,565
133,347
135,367
136,127

Debt:⁽⁴⁾

Non-recourse funding obligations⁽⁵⁾
3 $ 2,938,005
$ 3,000,293
$ 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 $1.5 million.
(5) As of September 30, 2017, $2.7 billion in carrying amount and 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 and other investment contract balances~~

~~The Company estimates the fair value of stable value product account balances and 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.

6.5.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, 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~~For a full description of the Company’s ~~interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate swaptions.~~

~~Derivatives Related~~derivatives accounting policies, refer to ~~Foreign Currency Exchange Risk Management~~

Derivative instruments that are used as part of the Company's foreign currency exchange risk management strategy include foreign currency swaps, foreign currency futures, foreign equity futures, and 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 GLWB and GMDB riders. The economic performance of derivatives~~Note 6 in the ~~funds withheld account is ceded to Shades Creek. The funds withheld account is accounted~~Company’s Form 10-K 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.”year ended December 31, 2020.

Derivative Instruments Designated and Qualifying as Hedging Instruments

Cash-Flow Hedges

•To 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 are identical to the cash ~~flow~~flows paid on the note.

•To hedge a floating rate note, the Company entered into an interest rate swap to exchange the floating rate on the note for a fixed rate in order to hedge the interest rate risk associated with the note. The cash flows received on the swap are identical to the cash flow variability paid on the note.

Table of Contents

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~~ realized gains (losses) 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 swaps, interest rate swaptions, currency futures, volatility futures, volatility options, and variance swaps to mitigate the risk related to certain guaranteed minimum benefits, including 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 markets certain VA products with a GLWB rider. The GLWB 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 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 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 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~~(losses) - derivatives for the periods shown:

Realized ~~investment~~ gains (losses) - derivative financial instruments


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Derivatives related to VA contracts:
Interest rate futures	$	—	$	2	$	8	$	(3)
Equity futures	2		(1)		(10)		132
Currency futures	4		(9)		9		1
Equity options	1		(42)		(81)		67

Interest rate swaps	(24)		(58)		(167)		364
Total return swaps	6		(31)		(119)		30
Embedded derivative - GLWB	(15)		190		287		(681)

Total derivatives related to VA contracts	(26)		51		(73)		(90)
Derivatives related to FIA contracts:
Embedded derivative	61		(9)		25		(38)
Funds withheld derivative	—		(3)		(5)		(10)
Equity futures	—		1		3		(7)
Equity options	(3)		25		45		15
Other derivatives	—		—		(2)		—
Total derivatives related to FIA contracts	58		14		66		(40)
Derivatives related to IUL contracts:					—
Embedded derivative	(3)		16		(15)		1
Equity futures	—		—		—		(2)
Equity options	1		6		9		1
Total derivatives related to IUL contracts	(2)		22		(6)		—
Embedded derivative - Modco reinsurance treaties	19		(25)		66		(56)
Derivatives with PLC(1)	—		20		—		22
Other derivatives	2		6		(3)		12
Total realized gains (losses) - derivatives	$	51	$	88	$	50	$	(152)

(1) The Company and certain of its subsidiaries had an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC through October 1, 2020. These agreements were terminated and a new portfolio maintenance agreement was entered into with PLC on that date.

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Derivatives related to VA contracts:

Interest rate futures - VA $ 549
$ (7,002 ) $ 16,746
$ 62,065
Equity futures - VA (25,959 ) (41,836 ) (75,389 ) (66,392 )
Currency futures - VA (6,092 ) 934
(22,366 ) 5,888
Equity options - VA (23,307 ) (36,482 ) (76,376 ) (23,410 )
Interest rate swaptions - VA (292 ) (229 ) (2,423 ) (3,212 )
Interest rate swaps - VA 5,342
14,737
31,331
221,884
Total return swaps - VA (8,057 ) —
(9,675 ) —
Embedded derivative - GLWB 485
24,150
(13,306 ) (108,545 )
Funds withheld derivative 35,821
53,834
103,746
63,886
Total derivatives related to VA contracts (21,510 ) 8,106
(47,712 ) 152,164
Derivatives related to FIA contracts:

Embedded derivative - FIA (18,606 ) (14,486 ) (40,351 ) (15,938 )
Equity futures - FIA 66
2,236
161
4,269
Volatility futures - FIA —
—
—
—
Equity options - FIA 11,242
6,583
29,511
1,756
Total derivatives related to FIA contracts (7,298 ) (5,667 ) (10,679 ) (9,913 )
Derivatives related to IUL contracts:

Embedded derivative - IUL (297 ) 7,136
(10,958 ) 6,302
Equity futures - IUL 58
101
(878 ) (71 )
Equity options - IUL 1,975
1,607
6,437
1,821
Total derivatives related to IUL contracts 1,736
8,844
(5,399 ) 8,052
Embedded derivative - Modco reinsurance treaties (19,746 ) (24,187 ) (90,314 ) (105,362 )
Derivatives with PLC⁽¹⁾
52,077
13,387
34,671
31,098
Other derivatives 43
49
41
(51 )
Total realized gains (losses) - derivatives $ 5,302
$ 532
$ (119,392 ) $ 75,988

(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 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 months ended September 30, 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)
For The Three Months Ended September 30, 2017

Foreign currency swaps $ 1,273
$ (38 ) $ —
Total $ 1,273
$ (38 ) $ —

For The Nine Months Ended September 30, 2017

Foreign currency swaps $ 55
$ (396 ) $ —
Total $ 55
$ (396 ) $ —

Based on expected cash flows of the underlying hedged items, the Company expects to reclassify ~~$0.5~~$1 million out of accumulated other comprehensive income (loss) into ~~earnings~~ realized gains (losses) during the next twelve months.

Table of Contents

The table below 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:


	As of
	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
	(Dollars In Millions)
Other long-term investments



Derivatives not designated as hedging instruments:
Interest rate swaps	$	1,478	$	75	$	1,478	$	185
Total return swaps	1,120		27		158		2
Derivatives with PLC(1)	4,161		—		4,076		—
Embedded derivative - Modco reinsurance treaties	1,271		77		1,249		101
Embedded derivative - GLWB	2,871		161		2,067		138
Embedded derivative - FIA	383		61		335		60
Interest rate futures	893		8		690		4
Equity futures	82		3		203		4
Currency futures	216		5		—		—
Equity options	8,949		864		7,208		1,142


	$	21,424	$	1,281	$	17,464	$	1,636
Other liabilities
Cash flow hedges:

Foreign currency swaps	$	117	$	10	$	117	$	10
Derivatives not designated as hedging instruments:
Interest rate swaps	1,354		—		1,354		—
Total return swaps	229		6		1,003		15
Embedded derivative - Modco reinsurance treaties	2,996		294		2,911		389
Funds withheld derivative	833		11		661		10
Embedded derivative - GLWB	7,006		696		7,749		960
Embedded derivative - FIA	4,299		631		3,889		633
Embedded derivative - IUL	429		251		357		201
Interest rate futures	242		8		415		3
Equity futures	214		5		190		5
Currency futures	—		—		264		4
Equity options	6,628		588		5,499		834
Other	406		76		304		55
	$	24,753	$	2,576	$	24,713	$	3,119

(1) The Company and certain of its subsidiaries had an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC through October 1, 2020. These agreements were terminated and a new portfolio maintenance agreement was entered into with PLC on that date.

As of
September 30, 2017 December 31, 2016

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value
(Dollars In Thousands)
Other long-term investments

Cash flow hedges:
Foreign currency swaps $ 117,178
$ 10,125
$ 117,178
$ 132
Derivatives not designated as hedging instruments:

Interest rate swaps 1,365,000
59,641
1,135,000
71,644
Total return swaps —
—
—
—
Derivatives with PLC⁽¹⁾
2,839,296
83,549
2,808,807
48,878
Embedded derivative - Modco reinsurance treaties 64,444
1,008
64,123
2,573
Embedded derivative - GLWB 2,023,387
65,176
2,045,529
64,064
Interest rate futures 531,447
2,267
102,587
894
Equity futures 46,334
333
654,113
5,805
Currency futures 186,047
4,010
340,058
7,883
Equity options 4,846,984
364,936
3,944,444
328,908
Interest rate swaptions 225,000
81
225,000
2,503
Other 157
191
212
149
$ 12,245,274
$ 591,317
$ 11,437,051
$ 533,433
Other liabilities

Cash flow hedges:
Foreign currency swaps $ 497,500
$ 267
$ —
$ —
Derivatives not designated as hedging instruments:

Interest rate swaps 347,330
3,151
575,000
10,208
Embedded derivative - Modco reinsurance treaties 2,408,832
209,334
2,450,692
141,301
Funds withheld derivative 1,762,013
50,523
1,557,237
91,267
Embedded derivative - GLWB 1,958,688
85,502
1,849,400
71,082
Embedded derivative - FIA 1,845,942
197,378
1,496,346
147,368
Embedded derivative - IUL 150,277
69,081
103,838
46,051
Interest rate futures 606,501
6,401
993,842
6,611
Equity futures 340,041
14,854
102,667
2,907
Currency futures 115,382
1,958
—
—
Equity options 3,055,206
203,451
2,590,160
157,253
$ 13,087,712
$ 841,900
$ 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.

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7.6. 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 10, Debt and Other Obligations for details of the Company’s repurchase agreement programs.

Collateral received includes both cash and non-cash collateral. Cash collateral received by the Company is recorded on the consolidated condensed balance sheet as “cash”, with a corresponding amount recorded in “other liabilities” to represent the Company’s obligation to return the collateral. Non-cash collateral received by the Company is not recognized on the consolidated condensed balance sheet unless the Company exercises its right to sell or re-pledge the underlying asset. There was no fair value of non-cash collateral received as of September 30, 2021 and December 31, 2020.

The tables below present the derivative instruments by assets and liabilities ~~subject to master netting agreements~~for the Company as of September 30, ~~2017.~~2021:


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheets		Net Amounts of Assets Presented in the Balance Sheets		Gross Amounts Not Offset in the Balance Sheets
							Financial Instruments		Collateral Received		Net Amount
	(Dollars In Millions)
Offsetting of Assets
Derivatives:
Free-Standing derivatives	$	982	$	—	$	982	$	604	$	211	$	167
Total derivatives, subject to a master netting arrangement or similar arrangement	982		—		982		604		211		167
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	77		—		77		—		—		77
Embedded derivative - GLWB	161		—		161		—		—		161
Embedded derivative - FIA	61		—		61		—		—		61

Total derivatives, not subject to a master netting arrangement or similar arrangement	299		—		299		—		—		299
Total derivatives	1,281		—		1,281		604		211		466
Total Assets	$	1,281	$	—	$	1,281	$	604	$	211	$	466

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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

Financial
Instruments

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

Derivatives:

Free-Standing derivatives $ 441,393
$ —
$ 441,393
$ 211,435
$ 102,913
$ 127,045
Total derivatives, subject to a master netting arrangement or similar arrangement 441,393
—
441,393
211,435
102,913
127,045
Derivatives not subject to a master netting arrangement or similar arrangement

Embedded derivative - Modco reinsurance treaties 1,008
—
1,008
—
—
1,008
Embedded derivative - GLWB 65,176
—
65,176
—
—
65,176
Derivatives with PLC 83,549
—
83,549
—
—
83,549
Other 191
—
191
—
—
191
Total derivatives, not subject to a master netting arrangement or similar arrangement 149,924
—
149,924
—
—
149,924
Total derivatives 591,317
—
591,317
211,435
102,913
276,969
Total Assets $ 591,317
$ —
$ 591,317
$ 211,435
$ 102,913
$ 276,969


	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 Balance Sheets		Net Amounts of Liabilities Presented in the Balance Sheets			Gross Amounts Not Offset in the Balance Sheets
					Financial Instruments			Collateral Posted		Net Amount									Financial Instruments					Collateral Posted			Net Amount
	(Dollars In Thousands)																	(Dollars In Millions)
Offsetting of Liabilities																	Offsetting of Liabilities
Derivatives:														Derivatives:
Free-Standing derivatives	$	230,082	$	—		$	230,082	$	211,435	$	18,647	$	—	Free-Standing derivatives	$	617				$	—	$	617		$	604		$	13	$	—
Total derivatives, subject to a master netting arrangement or similar arrangement	230,082		—			230,082		211,435		18,647		—		Total derivatives, subject to a master netting arrangement or similar arrangement	617					—		617			604			13		—
Derivatives, not subject to a master netting arrangement or similar arrangement														Derivatives, not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	209,334		—			209,334		—		—		209,334		Embedded derivative - Modco reinsurance treaties	294					—		294			—			—		294
Funds withheld derivative	50,523		—			50,523		—		—		50,523		Funds withheld derivative	11					—		11			—			—		11
Embedded derivative - GLWB	85,502		—			85,502		—		—		85,502		Embedded derivative - GLWB	696					—		696			—			—		696
Embedded derivative - FIA	197,378		—			197,378		—		—		197,378		Embedded derivative - FIA	631					—		631			—			—		631
Embedded derivative - IUL	69,081		—			69,081		—		—		69,081		Embedded derivative - IUL	251					—		251			—			—		251
Other														Other	76					—		76			—			—		76
Total derivatives, not subject to a master netting arrangement or similar arrangement	611,818		—			611,818		—		—		611,818		Total derivatives, not subject to a master netting arrangement or similar arrangement	1,959					—		1,959			—			—		1,959
Total derivatives	841,900		—			841,900		211,435		18,647		611,818		Total derivatives	2,576					—		2,576			604			13		1,959
Repurchase agreements⁽¹⁾	493,785		—			493,785		—		—		493,785		Repurchase agreements(1)	1,104					—		1,104			—			—		1,104
Total Liabilities	$	1,335,685	$	—		$	1,335,685	$	211,435	$	18,647	$	1,105,603	Total Liabilities	$	3,680				$	—	$	3,680		$	604		$	13	$	3,063

(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, ~~2016.~~2020.


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheets		Net Amounts of Assets Presented in the Balance Sheets		Gross Amounts Not Offset in the Balance Sheets
							Financial Instruments		Collateral Received		Net Amount
	(Dollars In Millions)
Offsetting of Assets
Derivatives:
Free-Standing derivatives	$	1,337	$	—	$	1,337	$	865	$	290	$	182
Total derivatives, subject to a master netting arrangement or similar arrangement	1,337		—		1,337		865		290		182
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	101		—		101		—		—		101
Embedded derivative - GLWB	138		—		138		—		—		138

Embedded derivative - FIA	60		—		60		—		—		60
Total derivatives, not subject to a master netting arrangement or similar arrangement	299		—		299		—		—		299
Total derivatives	1,636		—		1,636		865		290		481
Total Assets	$	1,636	$	—	$	1,636	$	865	$	290	$	481

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															Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheets			Net Amounts of Liabilities Presented in the Balance Sheets		Gross Amounts Not Offset in the Balance Sheets
	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											Financial Instruments			Collateral Posted		Net Amount
					Financial Instruments			Collateral Received		Net Amount			(Dollars In Millions)
	(Dollars In Thousands)
Offsetting of Assets
Offsetting of Liabilities														Offsetting of Liabilities
Derivatives:														Derivatives:
Free-Standing derivatives	$	417,769	$	—		$	417,769	$	171,384	$	100,890	$	145,495	Free-Standing derivatives	$	871	$	—		$	871	$	865	$	4	$	2
Total derivatives, subject to a master netting arrangement or similar arrangement	417,769		—			417,769		171,384		100,890		145,495		Total derivatives, subject to a master netting arrangement or similar arrangement	871		—			871		865		4		2
Derivatives not subject to a master netting arrangement or similar arrangement														Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	2,573		—			2,573		—		—		2,573		Embedded derivative - Modco reinsurance treaties	389		—			389		—		—		389
Funds withheld derivative														Funds withheld derivative	10		—			10		—		—		10
Embedded derivative - GLWB	64,064		—			64,064		—		—		64,064		Embedded derivative - GLWB	960		—			960		—		—		960
Derivatives with PLC	48,878		—			48,878		—		—		48,878
Embedded derivative - FIA														Embedded derivative - FIA	633		—			633		—		—		633
Embedded derivative - IUL														Embedded derivative - IUL	201		—			201		—		—		201
Other	149		—			149		—		—		149		Other	55		—			55		—		—		55
Total derivatives, not subject to a master netting arrangement or similar arrangement	115,664		—			115,664		—		—		115,664		Total derivatives, not subject to a master netting arrangement or similar arrangement	2,248		—			2,248		—		—		2,248
Total derivatives	533,433		—			533,433		171,384		100,890		261,159		Total derivatives	3,119		—			3,119		865		4		2,250
Total Assets	$	533,433	$	—		$	533,433	$	171,384	$	100,890	$	261,159
Repurchase agreements(1)														Repurchase agreements(1)	437		—			437		—		—		437
Total Liabilities														Total Liabilities	$	3,556	$	—		$	3,556	$	865	$	4	$	2,687

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

Financial
Instruments

Collateral
Posted
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.

8.7.COMMERCIAL MORTGAGE LOANS

~~Mortgage Loans~~

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of September 30, ~~2017,~~2021, the Company’s commercial mortgage loan holdings were ~~approximately$6.5~~$10.6 billion,. or $10.5 billion net of allowance for credit losses. The Company ~~has specialized~~specializes in making commercial mortgage loans on credit-oriented commercial ~~properties, credit-anchored strip shopping centers, senior living facilities, and apartments.~~properties. The Company’s underwriting procedures relative to its commercial mortgage 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,~~(grocery anchored and credit tenant retail, industrial, multi-family, senior living, ~~professional office buildings,~~ and ~~warehouses)~~credit tenant and medical office). 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 commercial 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.~~the allowance for credit losses. 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 discounts and prepayment fees are reported in net investment ~~income~~.income.

Certain of the commercial mortgage loans have call options that occur within the next ~~12 years~~.9 years. However, if interest rates were to significantly increase, the Company may be unable to exercise the call options on its existing commercial mortgage loans commensurate with the significantly increased market rates. As of September 30, ~~2017,~~2021, assuming the loans are called at their next call dates, ~~approximately $54.7~~$54 million of principal would become due for the remainder of ~~2017, $976.2~~2021, $450 million in ~~2018~~2022 through ~~2022, $124.6~~2026 and $12 million in ~~2023~~2027 through ~~2027, and $9.9 million thereafter.~~2029.

Table of Contents

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~~participation interest in the cash flows from the underlying real estate. As of September 30, ~~2017,~~2021 and December 31, ~~2016, approximately $715.2~~2020, $620 million and ~~$595.2~~$806 million,, respectively, of the Company’s total commercial 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 months ended September 30, ~~2017~~2021 and ~~2016,~~2020, the Company recognized ~~$14.2~~ $32 million, ~~$25.7~~$46 million,, ~~$3.3~~ $1 million, and ~~$15.8~~$17 million,, respectively, of ~~participating~~participation commercial mortgage loan income.

As of September 30, ~~2017, approximately~~ ~~$3.1~~2021, the Company did not have any commercial mortgage loans that were nonperforming, restructured or foreclosed. As of December 31, 2020, $3 million of invested assets consisted of ~~nonperforming mortgage loans, restructured mortgage loans, or~~commercial mortgage loans that were nonperforming, restructured or 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~~For all commercial mortgage loans, the impact of ~~assets~~troubled debt restructurings is reflected in our investment balance and ~~liabilities.~~ in the allowance for commercial mortgage loan credit losses.

During the nine months ended September 30, ~~2017,~~2021, the Company recognized ~~two~~one troubled debt ~~restructurings~~restructuring transaction as a result of ~~the Company~~ granting a concession to a borrower which included loan terms unavailable from other lenders. ~~These concessions were~~This concession was the result of ~~agreements~~an agreement between the creditor and the debtor. The Company did not identify any loans whose principal was permanently impaired during the nine months ended September 30, ~~2017.~~2021.

~~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 30, 2017, $3.1 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 ~~did not foreclose on any nonperforming loans not subject to a pooling~~provides certain relief under the Coronavirus Aid Relief, and ~~servicing agreement during~~Economic Security Act (the “CARES Act”) under its COVID-19 Commercial Mortgage Loan Program (the “Loan Modification Program”). During the nine months ended September 30, ~~2017.~~

2021, the Company modified 23 loans under the Loan Modification Program, representing $475 million in unpaid principal balance. As of September 30, ~~2017, none~~2021, since the inception of the CARES Act, there were 277 total 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~~modified under the ~~nine months ended~~Loan Modification Program, representing $2.1 billion in unpaid principal balance. At September 30, ~~2017.~~2021, $1.7 billion of these loans have resumed regular principal and interest payments in accordance with the terms of the modification agreements and we expect the remaining $0.4 billion loans to resume scheduled payments in accordance with the agreed upon terms. The modifications under this program include agreements to defer principal payments only and/or to defer principal and interest payments for a specified period of time. None of these modifications were considered troubled debt restructurings.

The amortized cost basis of the Company's commercial mortgage loan receivables by origination year, net of the allowance, for credit losses is as follows:


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Total
	(Dollars In Millions)
As of September 30, 2021
Commercial mortgage loans:
Performing	$	1,362	$	1,448	$	2,066	$	1,483	$	1,309	$	2,941	$	10,609
Non-performing	—		—		—		—		—		—		—
Amortized cost	1,362		1,448		2,066		1,483		1,309		2,941		10,609
Allowance for credit losses	(8)		(13)		(22)		(18)		(16)		(26)		(103)
Total commercial mortgage loans	$	1,354	$	1,435	$	2,044	$	1,465	$	1,293	$	2,915	$	10,506


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Total
	(Dollars In Millions)
As of December 31, 2020
Commercial mortgage loans:
Performing	$	1,463	$	2,442	$	1,577	$	1,344	$	943	$	2,458	$	10,227
Non-performing	—		—		—		—		—		1		1
Amortized cost	1,463		2,442		1,577		1,344		943		2,459		10,228
Allowance for credit losses	(21)		(46)		(55)		(37)		(25)		(38)		(222)
Total commercial mortgage loans	$	1,442	$	2,396	$	1,522	$	1,307	$	918	$	2,421	$	10,006

Table of Contents

The following tables provide a comparative view of the key credit quality indicators of the Loan-to-Value and Debt Service Coverage Ratio (“DSCR”):


	As of September 30, 2021					As of December 31, 2020
	Amortized Cost		% of Total		DSCR (2)	Amortized Cost		% of Total		DSCR (2)
	(Dollars In Millions)					(Dollars In Millions)
Loan-to-Value(1)
Greater than 75%	$	308	3	%	1.32	$	399	4	%	1.29
50% - 75%	6,946		65	%	1.60	6,557		64	%	1.61
Less than 50%	3,355		32	%	2.03	3,272		32	%	2.01
Total commercial mortgage loans	$	10,609	100	%		$	10,228	100	%

(1) The loan-to-value ratio compares the current unpaid principal of the loan to the estimated fair value of the underlying property collateralizing the loan. Our weighted average loan-to-value ratio was 54% and 54% at September 30, 2021 and December 31, 2020, respectively.
(2) The debt service coverage ratio compares a property’s net operating income to its debt service payments, including principal and interest. Our weighted average debt service coverage ratio for September 30, 2021 and December 31, 2020 was 1.73x and 1.72x, respectively.

Table of Contents

The following provides a summary of the rollforward of the allowance for credit losses for funded commercial mortgage loans and unfunded commercial mortgage loan commitments for the periods indicated.


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Allowance for Funded Commercial Mortgage Loan Credit Losses
Beginning balance	$	136	$	173	$	222	$	5
Cumulative effect adjustment	—		—		—		80
Charge offs	—		—		—		—
Recoveries	—		—		(7)		(2)
Provision	(33)		2		(112)		92
Ending balance	$	103	$	175	$	103	$	175

Allowance for Unfunded Commercial Mortgage Loan Commitments Credit Losses
Beginning balance	$	12	$	20	$	22	$	—
Cumulative effect adjustment	—		—		—		11
Charge offs	—		—		—		—
Recoveries	—		—		—		—
Provision	(3)		—		(13)		9
Ending balance	$	9	$	20	$	9	$	20

As of September 30, ~~2017, and~~2021, the Company did not have any loans that were delinquent. As of December 31, ~~2016,~~2020, the Company had ~~an allowance for mortgage~~a total of 1 loan ~~credit losses~~ of ~~$1.1~~$1 million ~~and $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.

For The Nine Months Ended
September 30, 2017
(Dollars In Thousands)
Beginning balance, December 31, 2016 $ 724
Charge offs (5,653 )
Recoveries (731 )
Provision 6,715
Ending balance, September 30, 2017 $ 1,055

~~It is the Company’s policy to cease to carry accrued interest on loans that are over 90~~was 60-89 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
30-59 Days 60-89 Days than 90 Days Total
As of September 30, 2017 Delinquent Delinquent Delinquent Delinquent
(Dollars In Thousands)
Commercial mortgage loans $ 2,293
$ —
$ 869
$ 3,162
Number of delinquent commercial mortgage loans 2
—
1
3

As of December 31, 2016
Commercial mortgage loans $ 3,669
$ —
$ —
$ 3,669
Number of delinquent commercial mortgage loans 4
—
—
4

The Company’s commercial mortgage loan portfolio consists of commercial 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 90ninety days of interest. ~~Once accrued interest on the impaired loan is received,~~For loans in nonaccrual status, interest income is recognized on a cash basis. For ~~information regarding impaired loans, please refer~~the nine months ended September 30, 2021, no accrued interest was excluded from the amortized cost basis pursuant to the ~~following chart:~~ Company's nonaccrual policy.

As of September 30, 2021, the Company had no loans in nonaccrual status. As of December 31, 2020, the Company had 1 loan in nonaccrual status with no related allowance recorded. The recorded investment, unpaid principal balance, and average recorded investment was $1 million.

8.MONY CLOSED BLOCK OF BUSINESS

Unpaid Average Interest Cash Basis
Recorded Principal Related Recorded Income Interest
As of September 30, 2017 Investment Balance Allowance Investment Recognized Income
(Dollars In Thousands)
Commercial mortgage loans:

With no related allowance recorded $ —
$ —
$ —
$ —
$ —
$ —
With an allowance recorded 1,924
1,924
1,055
1,924
18
27

As of December 31, 2016

Commercial mortgage loans:

With no related allowance recorded $ —
$ —
$ —
$ —
$ —
$ —
With an allowance recorded 1,819
1,819
724
1,819
96
96
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.

~~Mortgage loans that were modified~~Assets allocated to the Closed Block inure solely to the benefit of the 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 ~~a troubled debt restructuring~~the general account.

Summarized financial information for the Closed Block as of September 30, ~~2017~~2021 and December 31, ~~2016~~2020 is as follows:

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	As of
	September 30, 2021		December 31, 2020
	(Dollars In Millions)
Closed block liabilities
Future policy benefits, policyholders’ account balances and other policyholder liabilities	$	5,313	$	5,406
Policyholder dividend obligation	406		580
Other liabilities	14		7
Total closed block liabilities	5,733		5,993
Closed block assets
Fixed maturities, available-for-sale, at fair value	4,720		4,903

Commercial mortgage loans	68		68
Policy loans	571		596
Cash and other invested assets	12		46
Other assets	92		91
Total closed block assets	5,463		5,704
Excess of reported closed block liabilities over closed block assets	270		289
Portion of above representing accumulated other comprehensive income:
Net unrealized gains (losses) - net of policyholder dividend obligation: 2021 - $327 and 2020 - $493; and net of income tax: 2021 - $(69) and 2020 - $(104)	—		—
Future earnings to be recognized from closed block assets and closed block liabilities	$	270	$	289

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Reconciliation of the policyholder dividend obligation is as follows:


	For The Nine Months Ended September 30,
	2021		2020
	(Dollars In Millions)
Policyholder dividend obligation, beginning balance	$	580	$	279
Applicable to net revenue (losses)	(8)		(21)
Change in net unrealized gains (losses) - allocated to the policyholder dividend obligation	(166)		216
Policyholder dividend obligation, ending balance	$	406	$	474

Closed Block revenues and expenses were as follows:


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Revenues
Premiums and other income	$	35	$	36	$	102	$	109
Net investment income	47		51		143		153
Net realized gains (losses)	3		(1)		27		(1)
Total revenues	85		86		272		261
Benefits and other deductions
Benefits and settlement expenses	82		81		248		242
Other operating expenses	—		—		1		1
Total benefits and other deductions	82		81		249		243
Net revenues before income taxes	3		5		23		18
Income tax expense	1		1		5		3
Net revenues	$	2	$	4	$	18	$	15

9.REINSURANCE

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment
(Dollars In Thousands)
As of September 30, 2017
Troubled debt restructuring:
Commercial mortgage loans 2 $ 1,134
$ 1,134

As of December 31, 2016

Troubled debt restructuring:
Commercial mortgage loans 1 $ 468
$ 468
Allowance for Credit Losses – Reinsurance Receivables

9.~~GOODWILL~~

The ~~balance~~Company establishes an allowance for current expected credit losses related to amounts receivable from reinsurers (the “Reinsurance ACL”). Changes in the Reinsurance ACL are recognized as a component of ~~goodwill for~~benefits and settlement expenses. The Reinsurance ACL is remeasured on a quarterly basis using an internally developed probability of default (“PD”) and loss given default (“LGD”) model. Key inputs to the calculation are a conditional probability of insurer liquidation by issuer credit rating and exposure at default derived from a runoff projection of ceded reserves by reinsurer to forecast future loss amounts. Management’s position is that the rate of return implicit in the financial asset (i.e. the ceded reserves) is associated with the discount rate used to value the underlying insurance reserves; that is, the rate of return on the asset portfolio(s) supporting the reserves. For reinsurance receivable exposures that do not share similar risk characteristics with other receivables, including those associated with counterparties that have experienced significant credit deterioration, the Company asmeasures the allowance for credit losses individually, based on facts and circumstances associated with the specific reinsurer or transaction.

As of September 30, ~~2017~~2021 and December 31, 2020, the Reinsurance ACL was ~~$793.5 million.~~$91 million and $94 million respectively. There ~~has been~~were no ~~change to goodwill~~write-offs or recoveries during the nine months ended September 30, ~~2017.~~2021 and 2020.

~~Accounting for goodwill requires an estimate~~

Table of ~~the future profitability of the associated lines of business to assess the recoverability of the capitalized acquisition goodwill.~~ Contents

The Company ~~evaluates~~had total reinsurance receivables of $4.6 billion as of September 30, 2021, which includes both ceded policy benefit reserves and receivables for claims. Receivables for claims represented 12% of total reinsurance receivables as of September 30, 2021. Receivables for claims are short-term in nature, and generally carry minimal credit risk. Of reserves ceded as of September 30, 2021, 92% were receivables from reinsurers rated by A.M. Best Company. Of the ~~carrying value~~total rated by A.M. Best Company, 56% were rated A+ or better, 19% were rated A, and 25% were rated A- or lower. The Company monitors the concentration 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,credit risk 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~~has with any reinsurer, as ofwell as 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 certainfinancial condition of its ~~operating segments (which are each considered to be reporting units). The cash flows used to determine the fair value~~reinsurers, on an ongoing basis. Certain of the Company’s ~~reporting units~~reinsurance receivables are ~~dependent on a number~~supported by letters 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.credit, funds held or trust agreements.

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 2016, the Company performed its annual evaluation of goodwill based on information as of October 1, 2016, and determined that no adjustment to impair goodwill was necessary. During the nine months ended September 30, 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.

10.DEBT AND OTHER OBLIGATIONS

~~The~~Under a revolving line of credit arrangement (the “Credit Facility”), PLC and the Company ~~has~~have the ability to borrow on an unsecured basis ~~under a Credit Facility~~ up to ana combined aggregate principal amount of ~~$1.0~~$1 billion. ~~The Company has the right in~~Under certain circumstances tothe Credit Facility allows for a request that the commitment ~~under the Credit Facility~~ be increased up to a maximum principal amount of ~~$1.25~~$1.5 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the option of the ~~Borrowers,~~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 rate, (y) 0.50% above the Funds ~~rate,~~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 annual facility fee rate is 0.125% of the aggregate principal amount. 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.~~May 3, 2023. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of September 30, ~~2017.~~2021. The Company had no outstanding balances drawn on the Credit Facility as of September 30, 2021 or December 31, 2020. PLC had an outstanding balance of ~~$170.0~~$305 million ~~bearing interest at a rate of LIBOR plus 1.00%~~and $190 million as of September 30, ~~2017.~~

~~Non-RecourseFunding Obligations~~

~~Non-recourse funding obligations outstanding as of September 30, 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⁾
$ 2,040,000
$ 2,040,000
2039 4.75 %
Golden Gate II Captive Insurance Company 278,949
228,855
2052 2.92 %
Golden Gate V Vermont Captive Insurance Company⁽²⁾⁽³⁾
605,000
666,729
2037 5.12 %
MONY Life Insurance Company⁽³⁾
1,091
2,421
2024 6.19 %
Total $ 2,925,040
$ 2,938,005

(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~~2021 and December 31, ~~2016, 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⁾
$ 2,116,000
$ 2,116,000
2039 4.75 %
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 $ 2,961,040
$ 2,973,829

(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.
2020, respectively.

Secured Financing Transactions

Repurchase Program Borrowings

While the Company anticipates that its cash flows and 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 securities, and the agreements ~~provided~~provide for net settlement in the event of default or on termination of the agreements. As of September 30, ~~2017,~~2021, the fair value of securities pledged under the repurchase program was ~~$549.8~~$1,124 million, and the repurchase obligation of ~~$493.8~~$1,104 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of ~~118~~12 basis points). During the nine months ended September 30, ~~2017,~~2021, the maximum balance outstanding at any one point in time related to these programs was ~~$981.3~~$1,289 million. The average daily balance was ~~$546.2~~$537 million (at an average borrowing rate of 8912 basis points) during the nine months ended September 30, ~~2017.~~2021. As of December 31, ~~2016,~~2020, the fair value of securities pledged under the repurchase program wa~~s $861.7~~was $452 million, and the repurchase obligation of ~~$797.7~~$437 million waswas included in the ~~Company's~~Company’s consolidated condensed balance sheets (at an average borrowing rate of 6515 basis points). During ~~2016,~~2020, the maximum balance outstanding at any one point in time related to these programs w~~as $1,065.8 million~~.was $825 million. The average daily balance was ~~$505.4~~$143 million (at an average borrowing rate of 4433 basis points) during the year ended December 31, ~~2016.~~2020.

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 ofat least equal to 102% of the ~~market~~fair value of the loaned securities to be separately maintained. The loaned securities’ ~~market~~fair value is monitored on a daily ~~basis.~~basis and collateral is adjusted accordingly. The Company maintains ownership of the securities at all times and is entitled to receive from the borrower any payments for interest received on such securities during the loan term. Securities lending transactions are accounted for as secured borrowings. As of September 30, ~~2017,~~2021 and December 31, 2020, securities with a ~~market~~fair value of ~~$100.2~~$160 million and $57 million, respectively, were loaned under this program. As collateral for the loaned securities, the Company receives cash which is primarily reinvested in short-term ~~investments,~~repurchase agreements, which are also collateralized by U.S. Government or U.S. Government Agency securities, and government money market funds. These investments are

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recorded in ~~“short-term investments”~~short-term investments with a corresponding liability recorded in ~~“secured~~secured financing ~~liabilities”~~liabilities to account for its obligation to return the collateral. As of September 30, ~~2017,~~2021 and December 31, 2020, the fair value of the collateral related to this program was ~~$105.8~~$166 million and $59 million and the Company has an obligation to return ~~$105.8~~$166 million and $59 million of collateral to the securities ~~borrowers.~~borrowers, respectively.

The following table provides the ~~amount by asset class of securities~~fair value of collateral pledged for repurchase agreements, ~~and securities that have been loaned as part of securities lending transactions~~grouped by asset class as of September 30, ~~2017~~2021 and December 31, ~~2016:~~2020:

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

Accounted for as Secured Borrowings


	Remaining Contractual Maturity of the Agreements
	As of September 30, 2021
	(Dollars In Millions)
	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	$	1,091	$	—	$	—	$	—	$	1,091

Corporate securities	33		—		—		—		33




Total repurchase agreements and repurchase-to-maturity transactions	1,124		—		—		—		1,124
Securities lending transactions



Corporate securities	156		—		—		—		156
Equity securities	1		—		—		—		1
Redeemable preferred stocks	3		—		—		—		3


Total securities lending transactions	160		—		—		—		160
Total securities	$	1,284	$	—	$	—	$	—	$	1,284

Remaining Contractual Maturity of the Agreements
As of September 30, 2017
(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 $ 322,986
$ 20,006
$ —
$ —
$ 342,992
Mortgage loans 206,796
—
—
—
206,796
Total repurchase agreements and repurchase-to-maturity transactions 529,782
20,006
—
—
549,788
Securities lending transactions
Corporate securities 97,385
—
—
—
97,385
Equity securities 2,621
—
—
—
2,621
Preferred stock 174
—
—
—
174
Total securities lending transactions 100,180
—
—
—
100,180
Total securities $ 629,962
$ 20,006
$ —
$ —
$ 649,968

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, 2020
	(Dollars In Millions)
	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	$	366	$	86	$	—	$	—	$	452






Total repurchase agreements and repurchase-to-maturity transactions	366		86		—		—		452
Securities lending transactions



Fixed maturity securities	49		—		—		—		49
Equity securities	7		—		—		—		7
Redeemable preferred stocks	1		—		—		—		1


Total securities lending transactions	57		—		—		—		57
Total securities	$	423	$	86	$	—	$	—	$	509

Golden Gate Captive Insurance Company

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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
On October 1, 2020, Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of the Company, entered into a transaction with a term of 20 years, that may be extended to a maximum of 25 years, to finance up to $5 billion of “XXX” and “AXXX” reserves related to the term life insurance business and universal life insurance with secondary guarantee business that is reinsured to Golden Gate by the Company and West Coast Life Insurance Company (“WCL”), a wholly owned subsidiary of the Company, pursuant to an Excess of Loss Reinsurance Agreement (the “XOL Agreement”) with Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and RGA Reinsurance Company (Barbados) Ltd. (collectively, the “Retrocessionaires”). The transaction is “non-recourse” to the Company, WCL, and PLC, meaning that none of these companies are liable to reimburse the Retrocessionaires for any XOL payments required to be made. As of September 30, 2021, the XOL Asset backing the difference in statutory and economic reserve liabilities was $4.343 billion.

11.COMMITMENTS AND CONTINGENCIES

The Company leases administrative and marketing office space as well as various office equipment. Most leases have terms ranging from two years to twenty-five years. Leases with an initial term of 12 months or less are not recorded on the consolidated condensed balance sheet. The Company accounts for lease components separately from non-lease components (e.g., common area maintenance). Certain of the Company’s lease agreements include options to renew at the Company’s discretion. Management has concluded that the Company is not reasonably certain to elect any of these renewal options. The Company will use the interest rates received on its funding agreement backed notes as the collateralized discount rate when calculating the present value of remaining lease payments when the rate implicit in the lease is unavailable.

Under the insurance guaranty fund laws in most states, insurance companies doing business ~~therein~~in those states 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. In addition, legislation may be introduced in various states with respect to guaranty fund assessment laws related to insurance products, including long term care insurance and other specialty products, that increases the cost of future assessments or alters future premium tax offsets received in connection with guaranty fund assessments. The Company cannot predict the amount, nature or timing of any future assessments or legislation, any of which could have a material and adverse impact on the ~~Company's~~Company’s financial 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. 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.

Advance Trust & Life Escrow Services, LTA, as Securities Intermediary of Life Partners Position Holder Trust v. Protective Life Insurance Company, Case No. 2:18-CV-01290, is a putative class action that was filed on August 13, 2018 in the United States District Court for the Northern District of Alabama. Plaintiff alleges that the Company required policyholders to pay unlawful and excessive cost of insurance charges. Plaintiff seeks to represent all owners of universal life and variable universal life policies issued or administered by the Company or its predecessors that provide that cost of insurance rates are to be determined based on expectations of future mortality experience. The plaintiff seeks class certification, compensatory damages, pre-judgment and post-judgment interest, costs, and other unspecified relief. The Company is vigorously defending this matter and cannot predict the outcome of or reasonably estimate the possible loss or range of loss that might result from this litigation.

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The Company is currently defending three cases, including one putative class action (Beverly Allen v. Protective Life Insurance Company, Civil Action No. 1:20-cv-00530-JLT) where the plaintiffs generally allege that the defendants failed to comply with certain California statutes which address contractual grace periods and lapse notice requirements for certain life insurance policies. Plaintiffs claim that these statutes apply to life insurance policies that existed before the statutes’ effective date. The plaintiffs seek damages and injunctive relief. No class has been certified in Beverly Allen v. Protective Life Insurance Company. In August 2021, the California Supreme Court determined in McHugh v. Protective Life Insurance Company, Case No. D072863,that the statutory requirements apply to life insurance policies issued before the statutes’ effective date. In continuing to defend these matters, the Company maintains various defenses to the merits of the plaintiffs’ claims and to class certification. However, the Company cannot predict the outcome of or reasonably estimate the possible loss or range of loss that might result from this litigation.

Scottish Re (U.S.), Inc. ("SRUS") was placed in rehabilitation on March 6, 2019 by the State of Delaware. Under the related order, the Insurance Commissioner of the State of Delaware has been appointed the receiver of SRUS (the “Receiver”) and provided with authority to conduct and continue the business of SRUS in the interest of its ~~insurance subsidiaries, as well as~~cedents, creditors, and stockholder. The order was accompanied by an injunction requiring the continued payment of reinsurance premiums to SRUS and temporarily prohibiting cedents, including the Company, from offsetting premiums payable against receivables from SRUS. On June 20, 2019, the Delaware Court of Chancery (the “Court”) entered an order approving a Revised Offset Plan, which allows cedents, including the Company, to offset premiums under certain ~~other~~circumstances.

A proposed Rehabilitation Plan (“Original Rehabilitation Plan”) was filed by the Receiver on June 30, 2020. The Original Rehabilitation Plan presents the following two options to each cedent: 1) remain in business with SRUS and be governed by the Rehabilitation Plan, or 2) recapture business ceded to SRUS. Due to SRUS’s financial status, neither option would pay 100% of the Company’s outstanding claims. The Original Rehabilitation Plan would impose certain financial terms and conditions on the cedents based on the election made, the type of business ceded, the manner in which the business is collateralized, and the amount of losses sustained by the cedent. On October 9, 2020, the Receiver filed a proposed order setting forth a schedule to present the Original Rehabilitation Plan for Court approval, which order contemplated possible modifications to the Rehabilitation Plan to be filed with the Court by March 16, 2021. The Court approved the order. On March 16, 2021, the Receiver filed a draft Amended Rehabilitation Plan (“Amended Plan”). The majority of the substance and form of the original Rehabilitation Plan, including its two option structure described above, remained in place.

For much of 2020 and into early 2021, a group of interested parties collectively requested certain information and financial data from the Receiver that would allow them to more fully evaluate first the Original Rehabilitation Plan and then the Amended Plan. This group also had a number of conversations with counsel for the Receiver regarding concerns over the Plan. On July 26, 2021, the Receiver shared with interested parties an outline of a Modified Plan, along with a liquidation analysis. While there are significant changes proposed in the Modified Plan (as compared to the Original Rehabilitation Plan and the Amended Plan), much of the economic substance (including not paying claims in full) of the Original Rehabilitation Plan and the Amended Rehabilitation Plan are likely to be included in the Modified Plan.

The Court has yet to rule further or to re-establish a schedule for pre-confirmation procedures or a hearing on confirmation.

The Company continues to monitor SRUS and the actions of the Receiver through discussions with legal counsel and review of publicly available information. An allowance for credit losses related to SRUS is included in the overall reinsurance allowance for credit losses. As of September 30, 2021, management does not believe that the ultimate outcome of the rehabilitation process will have a material impact on our financial position or results of operations.

Certain 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~~certain co-insured policies. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with the audits reasonably estimable.

The Company and certain of 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 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 does not believe such fees, if assessed, would have a material effect on its financial statements.

~~12.EMPLOYEE BENEFIT PLANS~~

~~Components of the net periodic benefit cost of PLC's defined benefit pension plan for the three and nine months ended September 30, 2017 and 2016, are as follows:~~

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 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
$ 311
$ 10,044
$ 1,002
$ 8,717
$ 1,102
Interest cost on projected benefit obligation 2,191
297
2,737
299
6,573
891
8,210
1,054
Expected return on plan assets (3,352 ) —
(3,605 ) —
(10,056 ) —
(10,816 ) —
Amortization of prior service cost —
—
—
—
—
—
—
—
Amortization of actuarial losses —
118
—
64
—
354
—
114
Preliminary net periodic benefit cost 2,187
749
2,038
674
6,561
2,247
6,111
2,270
Settlement/curtailment expense —
—
—
635
—
—
—
2,135
Total net periodic benefit costs $ 2,187
$ 749
$ 2,038
$ 1,309
$ 6,561
$ 2,247
$ 6,111
$ 4,405

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During the nine months ended September 30, 2017, PLC contributed $43.5 million to its defined benefit pension plan for the 2016 plan year. 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.

~~13.~~12.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 and for the three and nine months ended September 30, ~~2017~~2021 and ~~December 31, 2016.~~2020.

Changes in Accumulated Other Comprehensive Income (Loss) by Component


	Unrealized Gains and Losses on Investments(2)		Accumulated Gain and Loss on Derivatives		Total Accumulated Other Comprehensive Income (Loss)
	(Dollars In Millions, Net of Tax)
Balance, June 30, 2021	$	2,818	$	(5)	$	2,813
Other comprehensive income (loss) before reclassifications	(263)		(2)		(265)
Other comprehensive income (loss) on investments in net expected credit losses	(1)		—		(1)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	(5)		1		(4)
Balance, September 30, 2021	$	2,549	$	(6)	$	2,543

Balance, December 31, 2020	$	3,556	$	(8)	$	3,548
Other comprehensive income (loss) before reclassifications	(967)		1		(966)
Other comprehensive income (loss) on investments in net expected credit losses	(1)		0		(1)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	(39)		1		(38)

Balance, September 30, 2021	$	2,549	$	(6)	$	2,543


	Unrealized Gains and Losses on Investments(2)		Accumulated Gain and Loss on Derivatives		Total Accumulated Other Comprehensive Income (Loss)
	(Dollars In Millions, Net of Tax)
Balance, June 30, 2020	$	2,233	$	(8)	$	2,225
Other comprehensive income (loss) before reclassifications	482		1		483
Other comprehensive income (loss) on investments in net expected credit losses	28		—		28
Amounts reclassified from accumulated other comprehensive income (loss)(1)	28		—		28

Balance, September 30, 2020	$	2,771	$	(7)	$	2,764

Balance, December 31, 2019	$	1,421	$	(8)	$	1,413
Other comprehensive income (loss) before reclassifications	1,264		(1)		1,263
Other comprehensive income (loss) on investments in net expected credit losses	26		—		26
Amounts reclassified from accumulated other comprehensive income (loss)(1)	60		2		62

Balance, September 30, 2020	$	2,771	$	(7)	$	2,764

(1) See Reclassifications Out of Accumulated Other Comprehensive Income (Loss) table below for details.
(2) Net unrealized gains reported in AOCI were offset by $(1.7) billion and $(2.0) billion as of September 30, 2021 and December 31, 2020, respectively, and $(1.6) billion and $(777) million as of September 30, 2020 and December 31, 2019, 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.

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 547,885
36
547,921
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings 7,125
—
7,125
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾
(536 ) 257
(279 )
Net current-period other comprehensive income (loss) 554,474
293
554,767
Ending Balance, September 30, 2017 $ (101,293 ) $ 1,020
$ (100,273 )

(1) See Reclassification table below for details.
(2) As of September 30, 2017, net unrealized losses reported in AOCI were offset by $93.6 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.

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

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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 (loss) 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 months ended September 30, ~~2017~~2021 and ~~2016.~~2020.

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)


		For The Three Months Ended September 30,				For The Nine Months Ended September 30,
Gains (losses) in net income:	Affected Line Item in the Consolidated Condensed Statements of Income	2021		2020		2021		2020
		(Dollars In Millions)

Derivative instruments	Benefits and settlement expenses, net of reinsurance ceded(1)	$	1	$	—	$	1	$	(3)
	Tax (expense) benefit	—		—		—		1
		$	1	$	—	$	1	$	(2)

Unrealized gains and losses on available-for-sale securities	Realized gains (losses) - investments	$	5	$	3	$	44	$	45
	Change in net expected credit losses - fixed maturities	—		(38)		5		(121)

	Tax (expense) benefit	(1)		7		(10)		16
		$	4	$	(28)	$	39	$	(60)

(1) See Note 5, Derivative Financial Instruments for additional information

For The Three Months Ended September 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⁾
$ (38 ) Benefits and settlement expenses, net of reinsurance ceded
(38 ) Total before tax
14
Tax (expense) or benefit
$ (24 ) Net of tax
Unrealized gains and losses on available-for-sale securities

Net investment gains (losses) $ 690
Realized investment gains (losses): All other investments
Impairments recognized in earnings (273 ) Net impairment losses recognized in earnings
417
Total before tax
(146 ) Tax (expense) or benefit
$ 271
Net of tax

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

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

For The Nine Months Ended September 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⁾
$ (396 ) Benefits and settlement expenses, net of reinsurance ceded
(396 ) Total before tax
139
Tax (expense) or benefit
$ (257 ) Net of tax
Unrealized gains and losses on available-for-sale securities

Net investment gains (losses) $ 9,084
Realized investment gains (losses): All other investments
Impairments recognized in earnings (8,259 ) Net impairment losses recognized in earnings
825
Total before tax
(289 ) Tax (expense) or benefit
$ 536
Net of tax

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

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

For The Three Months Ended September 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) $ 1,665
Realized investment gains (losses): All other investments
Impairments recognized in earnings (3,308 ) Net impairment losses recognized in earnings
(1,643 ) Total before tax
575
Tax (expense) or benefit
$ (1,068 ) Net of tax

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

For The Nine Months Ended September 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) $ 24,133
Realized investment gains (losses): All other investments
Impairments recognized in earnings (6,892 ) Net impairment losses recognized in earnings
17,241
Total before tax
(6,035 ) Tax (expense) or benefit
$ 11,206
Net of tax

~~14.INCOME TAXES~~

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.

There have been no material changes to the balance of unrecognized tax benefits, where the changes impact earnings, during the quarter ending September 30, 2017. The Company believes that in the next twelve months, none of the unrecognized tax benefits at September 30, 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 2014. Nevertheless, certain of these pre-2014 years have pending U.S. tax refunds. Due to their size, these refunds 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-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.

During the year ended December 31, 2016, the Company entered into a reinsurance transaction. This transaction generated an operating loss on the Company’s consolidated 2016 U.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 U.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 30, 2017 and December 31, 2016.

The Company used its respective estimates of its annual 2017 and 2016 incomes in computing its effective income tax rates for the three and nine months ended September 30, 2017 and 2016. The effective tax rates for the three and nine months ended September 30, 2017 and 2016, were 29.5% and 31.4%, 22.2% and 31.4% respectively.

~~15.~~13.OPERATINGSEGMENTS

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. A brief description of each segment follows.

•The Retail Life ~~Marketing~~and Annuity segment primarily markets fixed universal life (“UL”), indexed universal life ~~("IUL"~~(“IUL”), variable universal life (“VUL”), level premium term insurance (“traditional”), bank-owned life insurance (“BOLI”), ~~and level premium term~~corporate-owned life insurance (“~~traditional”~~COLI”), fixed annuity, and variable annuity (“VA”) 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 and contracts 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~~Additionally, this 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~~marketed, however, some recent acquisitions have included ongoing new business activities. Ongoing new product sales written by the Company from these acquisitions are included in the Retail Life and Annuity segment. As a result, 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.

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•The Asset Protection segment markets extended service contracts, ~~guaranteed asset protection (“GAP”)~~GAP products, ~~credit life and disability insurance,~~ and other specialized ancillary products to protect consumers’ investments in automobiles and recreational vehicles. GAP ~~covers~~products are designed to cover the difference between the scheduled 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.

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

•realized gains and losses on investments and derivatives,

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

•actual GLWB incurred claims,

•immediate impacts from changes in current market conditions on estimates of future profitability on variable annuity and variable universal life products, including impacts on deferred acquisition cost (“DAC”), value of business acquired (“VOBA”), reserves and other items, and

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

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 for the associated period. 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.

Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) presented below are non-GAAP financial measures. The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. During Q1 2021, the Company began excluding from pre-tax and after-tax adjusted operating income (loss) the impacts on DAC, VOBA, reserves and other items due to changes in estimated profitability of variable annuity and variable universal life products as a result of changes in current market conditions. Management believes this change enhances the understanding of the underlying performance trends of these products. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), 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~~management’s and the Board of ~~Directors'~~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.

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 months ended September 30, ~~2017~~2021 and ~~2016.~~

2020.

The following tables present a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net income:

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For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Revenues

Life Marketing $ 397,096
$ 382,224
$ 1,174,048
$ 1,148,121
Acquisitions 375,819
391,017
1,164,650
1,269,672
Annuities 110,870
139,265
357,589
546,378
Stable Value Products 49,933
27,380
132,863
83,519
Asset Protection 93,799
79,030
277,433
229,128
Corporate and Other 77,875
34,872
109,628
111,714
Total revenues $ 1,105,392
$ 1,053,788
$ 3,216,211
$ 3,388,532
Pre-tax Adjusted Operating Income (Loss)

Life Marketing $ 10,798
(512 ) 55,217
$ 37,712
Acquisitions 62,880
70,157
184,825
184,095
Annuities 51,779
43,033
130,128
135,789
Stable Value Products 27,992
14,700
74,258
44,326
Asset Protection 5,187
4,099
13,812
12,496
Corporate and Other (38,054 ) (46,509 ) (107,741 ) (111,499 )
Pre-tax adjusted operating income 120,582
84,968
350,499
302,919
Realized (losses) gains on investments and derivatives 45,400
9,299
35,413
286,907
Income before income tax 165,982
94,267
385,912
589,826
Income tax expense (49,016 ) (20,965 ) (120,975 ) (185,114 )
Net income $ 116,966
$ 73,302
$ 264,937
$ 404,712

Pre-tax adjusted operating income $ 120,582
$ 84,968
$ 350,499
$ 302,919
Adjusted operating income tax (expense) benefit (33,126 ) (17,710 ) (108,580 ) (84,697 )
After-tax adjusted operating income 87,456
67,258
241,919
218,222
Realized (losses) gains on investments and derivatives 45,400
9,299
35,413
286,907
Income tax benefit (expense) on adjustments (15,890 ) (3,255 ) (12,395 ) (100,417 )
Net income $ 116,966
$ 73,302
$ 264,937
$ 404,712

Realized investment (losses) gains:
Derivative financial instruments $ 5,302
$ 532
$ (119,392 ) $ 75,988
All other investments 18,150
24,152
94,526
194,644
Net impairment losses recognized in earnings (273 ) (3,308 ) (8,259 ) (6,892 )
Less: related amortization⁽¹⁾
(12,123 ) 21,532
(38,570 ) 4,409
Less: VA GLWB economic cost (10,098 ) (9,455 ) (29,968 ) (27,576 )
Realized (losses) gains on investments and derivatives $ 45,400
$ 9,299
$ 35,413
$ 286,907

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


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Revenues
Retail Life and Annuity	$	740	$	757	$	2,125	$	1,808
Acquisitions	749		802		2,282		2,399
Stable Value Products	106		48		275		137
Asset Protection	66		68		205		209
Corporate and Other	(9)		49		(13)		80
Total revenues	$	1,652	$	1,724	$	4,874	$	4,633
Pre-tax Adjusted Operating Income (Loss)			s
Retail Life and Annuity	$	(85)	$	23	$	(63)	$	47
Acquisitions	42		65		255		238
Stable Value Products	63		20		128		61
Asset Protection	9		8		31		33
Corporate and Other	(26)		(35)		(120)		(108)
Pre-tax adjusted operating income (loss)	3		81		231		271
Non-operating income (loss)	56		79		156		(96)
Income before income tax	59		160		387		175
Income tax expense	(10)		(29)		(74)		(31)
Net income	$	49	$	131	$	313	$	144

Pre-tax adjusted operating income (loss)	$	3	$	81	$	231	$	271
Adjusted operating income tax expense	1		(13)		(41)		(52)
After-tax adjusted operating income (loss)	4		68		190		219
Non-operating income (loss)	56		79		156		(96)
Income tax expense on adjustments	(11)		(16)		(33)		21
Net income	$	49	$	131	$	313	$	144

Non-operating income (loss)
Derivative gains (losses)	$	51	$	88	$	50	$	(152)
Investment gains (losses)	16		23		111		(72)
VA/VUL market impacts(1)	(6)		—		13		—
Less: related amortization(2)	31		55		93		(59)
Less: VA GLWB economic cost	(26)		(23)		(75)		(69)
Total non-operating income (loss)	$	56	$	79	$	156	$	(96)

(1) Represents the immediate impacts on DAC, VOBA, reserves, and other non-cash items in current period results due to changes in current market conditions on estimates of profitability, which are excluded from pre-tax and after-tax adjusted operating income (loss) beginning in Q1 of 2021.
(2) Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).

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Operating Segment Assets
As of September 30, 2017
(Dollars In Thousands)

Life
Marketing
Acquisitions Annuities
Stable Value
Products
Investments and other assets $ 14,700,306
$ 19,681,306
$ 20,442,345
$ 4,664,251
DAC and VOBA 1,295,708
77,157
752,540
7,605
Other intangibles 286,444
35,187
173,450
8,222
Goodwill 200,274
14,524
336,677
113,813
Total assets $ 16,482,732
$ 19,808,174
$ 21,705,012
$ 4,793,891


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Net investment income
Retail Life and Annuity	$	277	$	252	$	819	$	754
Acquisitions	393		406		1,192		1,235
Stable Value Products	97		54		228		169
Asset Protection	5		5		16		19
Corporate and Other	(19)		23		(40)		59
Total net investment income	$	753	$	740	$	2,215	$	2,236

Amortization of DAC and VOBA
Retail Life and Annuity	$	61	$	77	$	168	$	70
Acquisitions	11		14		14		24
Stable Value Products	2		1		4		3
Asset Protection	17		18		47		48
Corporate and Other	—		—		—		—
Total amortization of DAC and VOBA	$	91	$	110	$	233	$	145


	Operating Segment Assets
	As of September 30, 2021
	(Dollars In Millions)
	Retail Life & Annuity		Acquisitions		Stable Value Products
Investments and other assets	$	43,415	$	54,949	$	8,101
DAC and VOBA	2,690		851		16
Other intangibles	342		30		6
Goodwill	559		24		114
Total assets	$	47,006	$	55,854	$	8,237


	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	928	$	17,771	$	125,164
DAC and VOBA	176		—		3,733
Other intangibles	92		34		504
Goodwill	129		—		826
Total assets	$	1,325	$	17,805	$	130,227


	Operating Segment Assets
	As of December 31, 2020
	(Dollars In Millions)
	Retail Life & Annuity		Acquisitions		Stable Value Products
Investments and other assets	$	39,874	$	55,628	$	5,928
DAC and VOBA	2,480		762		8
Other intangibles	367		33		6
Goodwill	559		24		114
Total assets	$	43,280	$	56,447	$	6,056

Table of Contents


	Asset Protection		Corporate and Other		Total Consolidated			Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	735,538	$	14,591,801	$	74,815,547	Investments and other assets	$	881	$	19,813	$	122,124
DAC and VOBA	31,440		—		2,164,450		DAC and VOBA	170		—		3,420
Other intangibles	135,895		33,714		672,912		Other intangibles	101		33		540
Goodwill	128,182		—		793,470		Goodwill	129		—		826
Total assets	$	1,031,055	$	14,625,515	$	78,446,379	Total assets	$	1,281	$	19,846	$	126,910

Table 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, 2016.~~ Contents

Impact of reinsurance

Reinsurance impacted the Retail Life ~~Marketing~~and Annuity segment line items as shown in the following table:

Retail Life ~~Marketing~~and Annuity Segment

Line Item Impact of Reinsurance

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Reinsurance ceded $ (200,616 ) $ (198,301 ) $ (601,839 ) $ (586,182 )
BENEFITS AND EXPENSES

Benefits and settlement expenses (170,468 ) (180,232 ) (504,652 ) (555,964 )
Amortization of DAC/VOBA (1,418 ) (1,230 ) (4,270 ) (4,610 )
Other operating expenses⁽¹⁾
(46,756 ) (38,149 ) (130,426 ) (114,260 )
Total benefits and expenses (218,642 ) (219,611 ) (639,348 ) (674,834 )

NET IMPACT OF REINSURANCE $ 18,026
$ 21,310
$ 37,509
$ 88,652

Allowances received $ (48,948 ) $ (40,035 ) $ (136,258 ) $ (120,379 )
Less: Amount deferred 2,192
1,886
5,832
6,119
Allowances recognized (ceded other operating expenses)⁽¹⁾
$ (46,756 ) $ (38,149 ) $ (130,426 ) $ (114,260 )

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


	For The Three Months Ended September 30,				Percent	For The Nine Months Ended September 30,
	2021		2020		Change	2021		2020		Change
	(Dollars In Millions)					(Dollars In Millions)
REVENUES
Reinsurance ceded	(203)		$	(176)	15.3%	$	(619)	$	(381)	62.5%
Other income	(4)		(1)		n/m	(4)		(2)		n/m
Total operating revenues	(207)		(177)		16.9	(623)		(383)		62.7
Realized gains (losses)	(4)		—		n/m	(7)		(1)		n/m
Total revenues	(211)		(177)		19.2	(630)		(384)		64.1
BENEFITS AND EXPENSES
Benefits and settlement expenses	(317)		(154)		n/m	(799)		(333)		n/m
Amortization of DAC/VOBA	(2)		(1)		n/m	(5)		(3)		66.7
Other operating expenses	(45)		(44)		2.3	(138)		(145)		(4.8)
Operating benefits and expenses	(364)		(199)		82.9	(942)		(481)		95.8
Benefits and settlement expenses related to realized gains (losses)	(2)		1		n/m	(2)		(1)		n/m
Amortization of DAC/VOBA related to realized gains (losses)	(1)		2		n/m	(1)		5		n/m
Total benefits and expenses	(367)		(196)		87.2%	(945)		(477)		98.1%
NET IMPACT OF REINSURANCE	$	156	$	19	n/m	$	315	$	96	n/m

n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

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 170% to 380%.~~ The Retail Life ~~Marketing~~and Annuity 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~~Three Month Comparison. The change in the ~~Life Marketing segment’s operating income for the periods presented above. The~~net impact of reinsurance ~~is largely~~was favorable by $137 million primarily driven by:

•Higher ceded benefits and settlement expenses due to ~~our quota share coinsurance program in place prior to mid-2005. Under that program, generally 90%~~the impact 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~~prospective unlocking on UL excess benefit reserves and higher life claims primarily due to athe impact of COVID-19

•Higher ceded net premiums driven by higher ceded traditional life premiums.

Nine Month Comparison. The 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~~net impact of reinsurance onwas favorable by $219 million primarily driven by:

•Higher ceded benefits and settlement expenses primarily due to fluctuations in the ~~Life Marketing segment’s overall results is~~number of policies entering their post level period at the end of 2019, due to accruals within benefits and settlement expense to adjust for the income effect of policies expected to ~~decrease over time. While~~lapse in the ~~significance of reinsurance is expected to decline over time, the overall~~next period

•Higher impact of ~~reinsurance for a given period may fluctuate~~prospective unlocking on UL excess benefit reserves and higher ceded life claims primarily due to ~~variations in mortality, the unlocking of balances, and~~ the impact of ~~term policies in the post-level period.~~COVID-19

~~For The Three Months Ended September 30, 2017, as compared to The Three Months Ended September 30, 2016~~

The higher ceded premium and policy fees for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was caused primarily by higher universal life policy fees of $12.3 million, slightly offset by lower•Higher ceded traditional life premiums of ~~$10.4 million. Ceded traditional life premiums for the three months ended September 30, 2017, decreased from the three months ended September 30, 2016,~~$238 million primarily due to fluctuations in the number of policies entering their post level ~~term activity.~~period at the end of 2019. These post levels policies cause fluctuations in reinsurance premiums between periods for those contracts that enter the grace period and subsequently lapse.

Ceded benefits and settlement expenses were lower for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, due to lower traditional life ceded claims and a decrease in ceded reserves, partially offset by higher universal life ceded claims. Traditional ceded benefits and settlement expenses decreased $23.4 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to lower ceded reserves and claims. Universal life ceded benefits increased $12.9 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, due to an increase in ceded claims.

~~Ceded amortization~~

Table of ~~DAC and VOBA increased slightly for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016.~~Contents

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

~~For The Nine Months Ended September 30, 2017, as compared to The Nine Months Ended September 30, 2016~~

The higher ceded premium and policy fees for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was caused primarily by higher universal life policy fees of $33.1 million, offset by lower ceded traditional life premiums of $16.9 million. Ceded traditional life premiums for the nine months ended September 30, 2017, decreased from the nine months ended September 30, 2016, primarily due to post level term activity.

Ceded benefits and settlement expenses were lower for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, due to lower ceded claims and reserves. Traditional ceded benefits decreased $36.3 million for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to lower ceded reserves. Universal life ceded benefits decreased $14.1 million for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, due to a decrease in ceded claims, partially offset by an increase in ceded reserves. Ceded universal life claims were $18.0 million lower for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, driven by fewer high dollar claims during the current year.

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

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

Acquisitions

Segment Results of Operations

Segment results were as follows:


	For The Three Months Ended September 30,				Percent	For The Nine Months Ended September 30,				Percent
	2021		2020		Change	2021		2020		Change
	(Dollars In Millions)					(Dollars In Millions)
REVENUES
Gross premiums and policy fees	$	408	$	405	0.7%	$	1,213	$	1,161	4.5%
Reinsurance ceded	(58)		(63)		(7.9)	(191)		(162)		17.9
Net premiums and policy fees	350		342		2.3	1,022		999		2.3
Net investment income	393		406		(3.2)	1,192		1,235		(3.5)
Realized gains (losses)	(3)		(3)		—	(9)		(9)		—
Other income	6		37		(83.8)	27		124		(78.2)
Total operating revenues	746		782		(4.6)	2,232		2,349		(5.0)
BENEFITS AND EXPENSES
Benefits and settlement expenses	637		645		(1.2)	1,796		1,906		(5.8)
Amortization of DAC/VOBA	9		7		28.6	7		13		(46.2)
Other operating expenses	58		65		(10.8)	174		192		(9.4)
Total operating benefits and expenses	704		717		(1.8)	1,977		2,111		(6.3)
PRE-TAX ADJUSTED OPERATING INCOME	42		65		(35.4)	255		238		7.1
Non-operating income (loss)
Realized gains	3		20		(85.0)	50		50		—
Related benefits and settlement expenses	(3)		(1)		n/m	(35)		(8)		n/m
Related amortization of VOBA	(2)		(7)		(71.4)	(9)		(11)		(18.2)
VA/VUL market impacts(1)	(1)		—		n/m	5		—		n/m
Total non-operating income	(3)		12		n/m	11		31		(64.5)
INCOME BEFORE INCOME TAX	$	39	$	77	(49.4)%	$	266	$	269	(1.1)%

(1) Represents the immediate impacts on DAC, VOBA, reserves and other non-cash items in current period results due to changes in current market conditions on estimates of profitability, which are excluded from pre-tax and after-tax adjusted operating income (loss) beginning in Q1 of 2021.
n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

Table of Contents

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Gross premiums and policy fees $ 270,303
$ 280,598
$ 828,252
$ 877,215
Reinsurance ceded (78,647 ) (81,457 ) (239,785 ) (259,284 )
Net premiums and policy fees 191,656
199,141
588,467
617,931
Net investment income 181,714
190,890
561,632
567,559
Other income 2,515
2,771
8,350
8,223
Total operating revenues 375,885
392,802
1,158,449
1,193,713
Realized gains (losses) - investments 19,675
22,825
95,135
182,428
Realized gains (losses) - derivatives (19,741 ) (24,610 ) (88,934 ) (106,469 )
Total revenues 375,819
391,017
1,164,650
1,269,672
BENEFITS AND EXPENSES

Benefits and settlement expenses 286,035
293,616
894,509
913,344
Amortization of VOBA (453 ) (836 ) (3,362 ) 8,256
Other operating expenses 27,423
29,865
82,477
88,018
Operating benefits and expenses 313,005
322,645
973,624
1,009,618
Amortization related to benefits and settlement expenses 2,603
2,807
7,109
8,495
Amortization of VOBA related to realized gains (losses) - investments (27 ) (44 ) (183 ) (40 )
Total benefits and expenses 315,581
325,408
980,550
1,018,073
INCOME BEFORE INCOME TAX 60,238
65,609
184,100
251,599
Less: realized gains (losses) (66 ) (1,785 ) 6,201
75,959
Less: amortization related to benefits and settlement expenses (2,603 ) (2,807 ) (7,109 ) (8,495 )
Less: related amortization of VOBA 27
44
183
40
PRE-TAX ADJUSTED OPERATING INCOME $ 62,880
$ 70,157
$ 184,825
$ 184,095

The following table summarizes key data for the Acquisitions segment:


	For The Three Months Ended September 30,						Percent	For The Nine Months Ended September 30,						Percent
	2021			2020			Change	2021			2020			Change
	(Dollars In Millions)							(Dollars In Millions)
Average Life Insurance In-Force(1)
Traditional	$	218,982		$	242,435		(9.7)%	$	225,485		$	247,093		(8.7)%
Universal life	67,665			67,638			—	67,901			67,953			(0.1)
	$	286,647		$	310,073		(7.6)%	$	293,386		$	315,046		(6.9)%
Average Account Values
Universal life(2)	$	15,121		$	15,571		(2.9)%	$	15,339		$	15,612		(1.7)%
Variable universal life	9,323			7,869			18.5	9,092			7,702			18.0
Fixed annuity(2)	9,375			10,219			(8.3)	9,544			10,362			(7.9)
Variable annuity	5,626			4,859			15.8	5,493			4,946			11.1
	$	39,445		$	38,518		2.4%	$	39,468		$	38,622		2.2%
Interest Spread - Fixed Annuities
Net investment income yield	3.97		%	3.91		%		3.94		%	3.96		%
Interest credited to policyholders	3.39		%	3.35		%		3.36		%	3.30		%
Interest spread(3)	0.58		%	0.56		%		0.58		%	0.66		%

(1) Amounts are not adjusted for coinsurance ceded.
(2) Includes general account balances held within variable products and is net of non-affiliate reinsurance ceded. Excludes structured annuity products.
(3) Interest spread on average general account values
n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

Pre-Tax Adjusted Operating Income

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Average Life Insurance In-Force⁽¹⁾

Traditional $ 225,506,328
$ 241,585,970
$ 229,375,136
$ 231,957,799
Universal life 27,216,155
29,401,602
27,725,925
29,863,714
$ 252,722,483
$ 270,987,572
$ 257,101,061
$ 261,821,513
Average Account Values

Universal life $ 4,194,821
$ 4,253,363
$ 4,203,635
$ 4,279,809
Fixed annuity⁽²⁾
3,545,906
3,550,366
3,523,691
3,567,036
Variable annuity 1,194,958
1,174,310
1,181,037
1,185,166
$ 8,935,685
$ 8,978,039
$ 8,908,363
$ 9,032,011
Interest Spread - Fixed Annuities

Net investment income yield 3.97 % 3.95 % 3.99 % 3.97 %
Interest credited to policyholders 3.29 % 3.25 % 3.27 % 3.28 %
Interest spread⁽³⁾
0.68 % 0.70 % 0.72 % 0.69 %

(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 30, 2017, as compared to The Three Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Month Comparison. Pre-tax adjusted operating income ~~was $62.9~~decreased $23 million ~~for the three months ended September 30, 2017, a decrease of $7.3 million as compared to the three months ended September 30, 2016,~~ primarily driven by:

•Unfavorable mortality experience

•Lower net investment income and interest spread due to ~~the~~ expected ~~runoff~~run off of the in-force blocks of ~~business. For~~business

•Lower expenses related to system conversions and integration of acquired blocks

•Favorable prospective unlocking

Nine Month Comparison. Pre-tax adjusted operating income increased $17 million primarily driven by:

•Favorable mortality experience in the ~~three months ended September 30, 2017,~~payout annuity block, partially offset by unfavorable mortality experience in the ~~segment recorded unfavorable prospective unlocking of $3.7 million as compared to favorable $1.2 million of prospective unlocking for the three months ended September 30, 2016.~~life products

~~Operating revenues~~

~~Net premiums~~•Lower net investment income and ~~policy fees decreased $7.5 million, or 3.8%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily~~interest spread due to ~~the~~ expected ~~runoff~~run off of the in-force blocks of ~~business. Net~~business

•Lower benefits on participating policies, primarily related to a reduction in the policyholder dividend obligation associated with policies in the regulatory closed block

•Lower expenses related to system conversions and integration of acquired blocks

•Favorable prospective unlocking

•Other income received in the first quarter of 2020 related to the final settlement of a prior acquisition

Operating Revenues

Three Month Comparison. Operating revenues decreased $36 million primarily driven by:

•Lower net investment income ~~decreased $9.2 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016.~~

~~Total benefits and expenses~~

~~Total benefits and expenses decreased $9.8 million, or 3.0%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The decrease was primarily~~ due to ~~the~~ expected ~~runoff~~run off of the in-force blocks of business ~~partly~~

•Lower other income and higher premiums and policy fees due to a change in 2021 of the classification of certain policy fees

Nine Month Comparison. Operating revenues decreased $117 million primarily driven by:

•Lower net investment income due to expected run off of the in-force blocks of business

Table of Contents

•Other income of $15 million received the first quarter of 2020 related to the final settlement of a prior acquisition

•Lower other income and higher premiums and policy fees due to a change in 2021 of the classification of certain policy fees

The major categories of net investment income are summarized as follows:


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)				(Dollars In Millions)
Net Investment Income
Fixed maturities	$	362	$	367	$	1,065	$	1,096
Commercial mortgage loans	15		20		52		58
Other, net	16		19		75		81
Total net investment income	$	393	$	406	$	1,192	$	1,235

Operating Benefits and Expenses

Three Month Comparison. Operating benefits and expenses decreased $13 million primarily driven by:

•Unfavorable mortality experience

•Lower annuity interest credited primarily due to lower fixed annuity account balances

•Lower expenses of $8 million related to system conversions and integration of acquired blocks

•Higher prospective unlocking of $6 million due to annual assumption updates

Nine Month Comparison. Operating benefits and expenses decreased $134 million primarily driven by:

•Favorable mortality experience on payout annuity block, partially offset by unfavorable mortality experience in the life products

•Lower benefits on participating policies of $15 million, primarily related to a reduction in the policyholder dividend obligation associated with policies in the regulatory closed block

•Lower expenses of $14 million related to system conversions and ~~higher amortization~~integration of ~~VOBA.~~acquired blocks

~~For The Nine Months Ended September 30, 2017, as compared to The Nine Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Pre-tax adjusted operating income was $184.8 million for the nine months ended September 30, 2017, an increase of $0.7 million as compared to the nine months ended September 30, 2016, primarily due to lower operating expenses and VOBA amortization, partially offset by the expected runoff of the in-force blocks of business. For the nine months ended September 30, 2017, the segment recorded unfavorable•Favorable prospective unlocking of ~~$3.7 million.~~

~~Operating revenues~~

~~Net premiums and policy fees decreased $29.5~~$6 million ~~or 4.8%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily~~ due to the expected runoff of the in-force blocks of business. Net investment income decreased $5.9 million, or 1.0%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to expected runoff of the in-force blocks of business.annual assumption updates

~~Total benefits and expenses~~

Total benefits and expenses decreased $37.5 million, or 3.7%, for the nine months ended September 30, 2017, as compared to the nine months ended September 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 Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)				(Dollars In Millions)
Benefit and settlement expense
Death claims	$	321	$	279	$	927	$	863
Change in life reserves	(11)		(9)		(109)		(102)
Life surrenders	47		59		154		198
Payout annuities mortality variance	(7)		4		(33)		5
Accident & Health benefit and settlement expense	14		14		42		45
Interest credited and other expenses	273		298		815		897
Total benefits and settlement expenses	$	637	$	645	$	1,796	$	1,906

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, ~~2016.~~2020.

Table of Contents

Impact of reinsurance

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

Acquisitions Segment

Line Item Impact of Reinsurance


	For The Three Months Ended September 30,				Percent	For The Nine Months Ended September 30,
	2021		2020		Change	2021		2020		Change
	(Dollars In Millions)					(Dollars In Millions)
REVENUES
Reinsurance ceded	$	(58)	$	(63)	(7.9)%	$	(191)	$	(162)	17.9%
BENEFITS AND EXPENSES
Benefits and settlement expenses	(48)		(65)		(26.2)	(191)		(148)		29.1
Amortization of DAC/VOBA	—		—		n/m	(1)		—
Other operating expenses	(7)		(6)		16.7	(20)		(21)		(4.8)
Total benefits and expenses	(55)		(71)		(22.5)	(212)		(169)		25.4

NET IMPACT OF REINSURANCE(1)	$	(3)	$	8	n/m	$	21	$	7	n/m

(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.
n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Reinsurance ceded $ (78,647 ) $ (81,457 ) $ (239,785 ) $ (259,284 )
BENEFITS AND EXPENSES

Benefits and settlement expenses (53,233 ) (65,188 ) (207,339 ) (199,412 )
Amortization of value of business acquired (183 ) (130 ) (440 ) (325 )
Other operating expenses (9,710 ) (10,389 ) (29,272 ) (32,379 )
Total benefits and expenses (63,126 ) (75,707 ) (237,051 ) (232,116 )

NET IMPACT OF REINSURANCE⁽¹⁾
$ (15,521 ) $ (5,750 ) $ (2,734 ) $ (27,168 )

(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~~our 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.

Three Month Comparison.The change in the net impact of reinsurance was ~~less favorable~~unfavorable by $9.8 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to lower ceded benefits and expenses. For the three months ended September 30, 2017, ceded revenues decreased by $2.8 million, while ceded benefits and expenses decreased by $12.6$11 million primarily ~~due to lower~~driven by:

•Lower ceded ~~claims.~~

The net impact of reinsurance was more favorable by $24.4 million for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to lower ceded revenuestraditional life premiums and higher ceded benefits and expenses. For the nine months ended September 30, 2017, ceded revenues decreased by $19.5 million, while ceded benefits and expenses increased by $4.9 million primarily due to higher ceded claims.

~~Annuities~~

~~Segment Results of Operations~~

~~Segment results were as follows:~~

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Gross premiums and policy fees $ 38,259
$ 37,560
$ 114,294
$ 109,571
Reinsurance ceded (19,569 ) (20,138 ) (59,446 ) (60,232 )
Net premiums and policy fees 18,690
17,422
54,848
49,339
Net investment income 78,903
81,747
235,468
239,668
Realized gains (losses) - derivatives (10,098 ) (9,455 ) (29,968 ) (27,576 )
Other income 41,950
41,312
125,920
118,477
Total operating revenues 129,445
131,026
386,268
379,908
Realized gains (losses) - investments 135
(3,655 ) (256 ) (3,357 )
Realized gains (losses) - derivatives, net of economic cost (18,710 ) 11,894
(28,423 ) 169,827
Total revenues 110,870
139,265
357,589
546,378
BENEFITS AND EXPENSES

Benefits and settlement expenses 52,889
60,199
159,346
157,735
Amortization of DAC/VOBA (11,741 ) (6,913 ) (11,647 ) (15,211 )
Other operating expenses 36,518
34,707
108,441
101,595
Operating benefits and expenses 77,666
87,993
256,140
244,119
Amortization related to benefits and settlement expenses 1,157
220
3,569
3,190
Amortization of DAC/VOBA related to realized gains (losses) - investments (15,887 ) 12,026
(39,753 ) (11,949 )
Total benefits and expenses 62,936
100,239
219,956
235,360
INCOME BEFORE INCOME TAX 47,934
39,026
137,633
311,018
Less: realized gains (losses) - investments 135
(3,655 ) (256 ) (3,357 )
Less: realized gains (losses) - derivatives, net of economic cost (18,710 ) 11,894
(28,423 ) 169,827
Less: amortization related to benefits and settlement expenses (1,157 ) (220 ) (3,569 ) (3,190 )
Less: related amortization of DAC/VOBA 15,887
(12,026 ) 39,753
11,949
PRE-TAX ADJUSTED OPERATING INCOME $ 51,779
$ 43,033
$ 130,128
$ 135,789

~~The following tables summarize key data for the Annuities segment:~~

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Sales⁽¹⁾

Fixed annuity $ 246,914
$ 180,889
$ 806,432
$ 561,425
Variable annuity 87,045
154,731
323,650
479,828
$ 333,959
$ 335,620
$ 1,130,082
$ 1,041,253
Average Account Values

Fixed annuity⁽²⁾
$ 8,297,792
$ 8,162,296
$ 8,188,092
$ 8,202,283
Variable annuity 13,082,417
12,534,520
12,977,656
12,261,077
$ 21,380,209
$ 20,696,816
$ 21,165,748
$ 20,463,360
Interest Spread - Fixed Annuities⁽³⁾

Net investment income yield 3.73 % 3.76 % 3.68 % 3.69 %
Interest credited to policyholders 2.53
2.66
2.52
2.67
Interest spread 1.20 % 1.10 % 1.16 % 1.02 %

(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.

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Derivatives related to VA contracts:

Interest rate futures - VA $ 549
$ (7,002 ) $ 16,746
$ 62,065
Equity futures - VA (25,959 ) (41,836 ) (75,389 ) (66,392 )
Currency futures - VA (6,092 ) 934
(22,366 ) 5,888
Equity options - VA (23,307 ) (36,482 ) (76,376 ) (23,410 )
Interest rate swaptions - VA (292 ) (229 ) (2,423 ) (3,212 )
Interest rate swaps - VA 5,342
14,737
31,331
221,884
Total return swaps - VA (8,057 ) —
(9,675 ) —
Embedded derivative - GLWB⁽¹⁾
485
24,150
(13,306 ) (108,545 )
Funds withheld derivative 35,821
53,834
103,746
63,886
Total derivatives related to VA contracts (21,510 ) 8,106
(47,712 ) 152,164
Derivatives related to FIA contracts:

Embedded derivative - FIA (18,606 ) (14,486 ) (40,351 ) (15,938 )
Equity futures - FIA 66
2,236
161
4,269
Volatility futures - FIA —
—
—
—
Equity options - FIA 11,242
6,583
29,511
1,756
Total derivatives related to FIA contracts (7,298 ) (5,667 ) (10,679 ) (9,913 )
VA GLWB economic cost⁽²⁾
10,098
9,455
29,968
27,576
Realized gains (losses) - derivatives, net of economic cost $ (18,710 ) $ 11,894
$ (28,423 ) $ 169,827

(1) Includes impact of nonperformance risk of $0.3 million and $(11.6) million for the three and nine months ended September 30, 2017 and $(1.7) million and $9.2 million for the three and nine months ended September 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.).

As of
September 30, 2017 December 31, 2016
(Dollars In Thousands)
GMDB - Net amount at risk⁽¹⁾
$ 72,809
$ 102,710
GMDB Reserves 24,118
24,734
GLWB and GMAB Reserves 20,326
7,018
Account value subject to GLWB rider 9,657,797
9,486,773
GLWB Benefit Base 10,566,159
10,559,907
GMAB Benefit Base 3,313
3,770
S&P 500® Index 2,519
2,239

(1) Guaranteed benefits in excess of contract holder account balance.

~~For The Three Months Ended September 30, 2017, as compared to The Three Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Pre-tax adjusted operating income was $51.8 million for the three months ended September 30, 2017, as compared to $43.0 million for the three months ended September 30, 2016, an increase of $8.7 million, or 20.3%. This variance was primarily the result of favorable unlocking, growth in VA fee income, and a favorable change in SPIA mortality. Segment results were positively impacted by $13.0 million of favorable unlocking for the three months ended September 30, 2017, as compared to $5.7 million of favorable unlocking for the three months ended September 30, 2016.

~~Operating revenues~~

Segment operating revenues decreased $1.6 million, or 1.2%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to lower investment income and higher GLWB economic cost in the VA line of business. Those impacts were partially offset by higher policy fees ~~and other income from~~driven by expected run off of the ~~VA line~~in-force blocks of business. Average fixed account balances increased 1.7% and average variable account balances increased 4.4% for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.business

~~Benefits and settlement expenses~~

Benefits and settlement expenses decreased $7.3 million, or 12.1%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. This decrease was primarily the result of a favorable change in SPIA mortality, lower credited interest and a favorable change in unlocking. Included in•Lower ceded benefits and settlement expenses ~~was $0.1 million of favorable unlocking for the three months ended September 30, 2017, as compared to $0.9 million of unfavorable unlocking for the three months ended September 30, 2016.~~

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization favorably changed by $4.8 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The favorable changes in DAC and VOBA amortization were primarily due to favorable unlocking from lower lapse assumptions. DAC and VOBA unlocking for the three months ended September 30, 2017, was $12.9 million favorable as compared to $6.6 million favorable for the three months ended September 30, 2016.

~~Other operating expenses~~

Other operating expenses increased $1.8 million, or 5.2%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016 due to higher non-deferred acquisition expense, maintenance and overhead, and non-deferred commission expense.

~~Sales~~

Total sales decreased $1.7 million, or 0.5%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. Sales of variable annuities decreased $67.7 million, or 43.7%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to disruptions in the broader market driven by ~~regulatory rule changes and~~expected run off of the ~~relative competitiveness~~in-force blocks of ~~our product within the market. Sales of fixed annuities increased by $66.0 million, or 36.5%, for the three months ended September 30, 2017,~~business as ~~compared to the three months ended September 30, 2016, primarily due to an increase in single premium deferred annuities (“SPDA”) sales.~~well as lower ceded claims

~~For~~Nine Month Comparison. The ~~Nine Months Ended September 30, 2017, as compared to The Nine Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Pre-tax adjusted operating income was $130.1 million for the nine months ended September 30, 2017, as compared to $135.8 million for the nine months ended September 30, 2016, a decrease of $5.7 million, or 4.2%. This variance was primarily the result of an unfavorable change in SPIA mortality and higher non-deferred expenses, partially offset by increased interest spreads, growth in VA fee income, and favorable unlocking. Segment results were positively impacted by $14.9 million of favorable unlocking for the ~~nine months ended September 30, 2017, as compared to $6.7 million of favorable unlocking for the nine months ended September 30, 2016.~~

~~Operating revenues~~

Segment operating revenues increased $6.4 million, or 1.7%, for the nine months ended September 30, 2017, as compared to the nine months ended September 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 and lower investment income. Average fixed account balances decreased 0.2% and average variable account balances increased 5.8% for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

~~Benefits and settlement expenses~~

Benefits and settlement expenses increased $1.6 million, or 1.0%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. This increase was primarily the result of an unfavorable change in SPIA mortality partially offset by lower credited interest. Included in benefits and settlement expenses was $0.2 million of favorable unlocking for the nine months ended September 30, 2017, as compared to $0.1 million of unfavorable unlocking for the nine months ended September 30, 2016.

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization unfavorably changed by $3.6 million, or 23.4%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. The unfavorable changes in normal DAC and VOBA amortization were primarily due to higher fee income in the VA line of business and the runoff of negative VOBA in the fixed annuity lines of business. These changes were partially offset by a favorable change in unlocking. DAC and VOBA unlocking for the nine months ended September 30, 2017, was $14.7 million favorable as compared to $6.8 million favorable for the nine months ended September 30, 2016.

~~Other operating expenses~~

Other operating expenses increased $6.8 million, or 6.7%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. Increases in non-deferred acquisition expense and commission expenses were offset by lower non-deferred maintenance and overhead expense.

~~Sales~~

Total sales increased $88.8 million, or 8.5%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. Sales of variable annuities decreased $156.2 million, or 32.5% for the nine months ended September 30, 2017, as compared to the nine months ended September 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 $245.0 million, or 43.6%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to an increase in SPDA sales.

~~Reinsurance~~

During the year ended December 31, 2013, the Annuity segment began reinsuring certain risks associated with the 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, 2016.~~

~~Impact of reinsurance~~

~~Reinsurance impacted the Annuities segment line items as shown in the following table:~~

~~Annuities Segment~~

~~Line Item Impact of Reinsurance~~

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Reinsurance ceded $ (19,569 ) $ (20,138 ) $ (59,446 ) $ (60,232 )
Realized gains (losses) - derivatives 11,161
11,298
33,560
33,834
Total operating revenues (8,408 ) (8,840 ) (25,886 ) (26,398 )
Realized gains (losses) - derivatives, net of economic cost 24,406
(24,268 ) 72,784
167,805
Total revenues 15,998
(33,108 ) 46,898
141,407
BENEFITS AND EXPENSES

Benefits and settlement expenses (217 ) (8 ) (191 ) (1,412 )
Amortization of DAC/VOBA —
—
—
—
Other operating expenses (453 ) (481 ) (1,379 ) (1,461 )
Operating benefits and expenses (670 ) (489 ) (1,570 ) (2,873 )
Amortization of deferred policy acquisition costs related to realized gain (loss) investments —
—
—
—
Total benefit and expenses (670 ) (489 ) (1,570 ) (2,873 )
NET IMPACT OF REINSURANCE $ 16,668
$ (32,619 ) $ 48,468
$ 144,280

~~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 was~~ ~~favorable by $16.7 million for the three months ended September 30, 2017, as compared to the unfavorable net impact of $32.6 million for the three months ended September 30, 2016.~~

~~The~~ net impact of reinsurance was favorable by ~~$48.5~~ $14 million primarily driven by:

•Higher ceded traditional life premiums primarily due to fluctuations in the number of policies entering their post level period at the end of 2019. These post level policies cause fluctuations in reinsurance premiums between periods for those contracts that enter the grace period and subsequently lapse

•Higher ceded benefits and settlement expenses primarily due to fluctuations in the number of policies entering their post level period at the end of 2019, due to accruals within benefits and settlement expense to adjust for the ~~nine months ended~~ ~~September~~ ~~30, 2017, as compared~~income effect of policies expected to lapse in the ~~favorable net impact~~next period

Table of ~~$144.3 million for the nine months ended~~ ~~September~~ ~~30, 2016.~~Contents

Stable Value Products

Segment Results of Operations

Segment results were as follows:

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Net investment income $ 49,962
$ 27,033
$ 130,816
$ 76,008
Other income —
176
—
176
Total operating revenues 49,962
27,209
130,816
76,184
Realized gains (losses) (29 ) 171
2,047
7,335
Total revenues 49,933
27,380
132,863
83,519
BENEFITS AND EXPENSES

Benefits and settlement expenses 19,121
11,413
51,074
29,133
Amortization of deferred policy acquisition costs 607
359
1,613
713
Other operating expenses 2,242
737
3,871
2,012
Total benefits and expenses 21,970
12,509
56,558
31,858
INCOME BEFORE INCOME TAX 27,963
14,871
76,305
51,661
Less: realized gains (losses) (29 ) 171
2,047
7,335
PRE-TAX ADJUSTED OPERATING INCOME $ 27,992
$ 14,700
$ 74,258
$ 44,326


	For The Three Months Ended September 30,				Percent	For The Nine Months Ended September 30,		Percent
	2021		2020		Change	2021	2020	Change
	(Dollars In Millions)					(Dollars In Millions)
REVENUES
Net investment income	$	97	$	54	79.6%	228	169	34.9%

Total operating revenues	97		54		79.6	228	169	34.9
BENEFITS AND EXPENSES
Benefits and settlement expenses	31		32		(3.1)	93	102	(8.8)
Amortization of DAC	2		1		n/m	4	3	n/m
Other operating expenses	1		1		n/m	3	3	n/m
Total benefits and expenses	34		34		—	100	108	(7.4)
PRE-TAX ADJUSTED OPERATING INCOME	63		20		n/m	128	61	n/m
Add: realized gains (losses)	9		(6)		n/m	47	(32)	n/m
INCOME BEFORE INCOME TAX	$	72	$	14	n/m	175	29	n/m

n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

The following table summarizes key data for the Stable Value Products segment:


	For The Three Months Ended September 30,						Percent	For The Nine Months Ended September 30,						Percent
	2021			2020			Change	2021			2020			Change
	(Dollars In Millions)							(Dollars In Millions)
Sales(1)
GIC	$	—		$	75		n/m	$	—		$	78		n/m
GFA	1,200			750			60.0%	3,910			1,750			n/m
	$	1,200		$	825		45.5%	$	3,910		$	1,828		n/m

Average Account Values	$	8,110		$	6,074		33.5%	$	7,412		$	5,807		27.6%
Ending Account Values	$	8,237		$	6,017		36.9%	$	8,237		$	6,017		36.9%

Operating Spread
Net investment income yield	4.77		%	3.56		%		4.07		%	3.89		%

Interest credited	1.53			2.13				1.68			2.35
Operating expenses	0.11			0.11				0.11			0.11
Operating spread	3.13		%	1.32		%		2.28		%	1.43		%

Adjusted operating spread(2)	1.54		%	1.31		%		1.56		%	1.25		%

(1) Sales are measured at the time the purchase payments are received.
(2) Excludes participation commercial mortgage loan income, accelerated discount accretion from called securities, and the impact of commercial mortgage loan prepayments.
n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Sales⁽¹⁾

GIC $ 50,000
$ 4,800
$ 107,000
$ 61,800
GFA 900,000
650,000
1,650,000
1,550,000
$ 950,000
$ 654,800
$ 1,757,000
$ 1,611,800

Average Account Values $ 4,184,418
$ 2,928,148
$ 3,947,056
$ 2,524,249
Ending Account Values $ 4,793,890
$ 3,412,041
$ 4,793,890
$ 3,412,041

Operating Spread

Net investment income yield 4.79 % 3.71 % 4.43 % 4.08 %
Other income yield —
0.02
—
0.01
Interest credited 1.83
1.56
1.73
1.55
Operating expenses 0.28
0.15
0.18
0.14
Operating spread 2.68 % 2.02 % 2.52 % 2.40 %

Adjusted operating spread⁽²⁾
1.49 % 1.82 % 1.73 % 1.78 %

(1) Sales are measured at the time the purchase payments are received.
(2) Excludes participating mortgage loan income.
Pre-Tax Adjusted Operating Income

~~For The~~ Three ~~Months Ended September 30, 2017, as compared to The Three Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Month Comparison.Pre-tax adjusted operating income ~~was $28.0~~increased $43 million ~~and increased $13.3~~primarily driven by:

Table of Contents

•Increase in net investment income of $32 million or 90.4%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The increase in adjusted operating earnings primarily resulted from an increase in average account values in additiondue to an increase in ~~participating~~participation income on commercial mortgage ~~income. Participating mortgage~~loans and income ~~for the three months ended September 30, 2017, was $12.4~~on called securities and prepayments

•Increase in net investment income of $8 million as compared to $1.3 million for the three months ended September 30, 2016. The adjusted operating spread, which excludes participating income, decreased by 33 basis points for the three months ended September 30, 2017, from the prior year, due ~~primarily~~ to an increase in ~~credited interest.~~the average balance

~~For The~~ Nine ~~Months Ended September 30, 2017, as compared to The Nine Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Month Comparison.Pre-tax adjusted operating income ~~was $74.3~~increased $67 million ~~and increased $29.9~~primarily driven by:

•Increase in net investment income of $34 million or 67.5%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. The increase in adjusted operating earnings primarily resulted from an increase in average account values in additiondue to an increase in ~~participating~~participation income on commercial mortgage ~~income. Participating mortgage~~loans and income ~~for the nine months ended September 30, 2017, was $23.6~~on called securities and prepayments

•Increase in net investment income of $19 million as compared to $10.5 million for the nine months ended September 30, 2016. The adjusted operating spread, which excludes participating income, decreased by five basis points for the nine months ended September 30, 2017, from the prior year, due ~~primarily~~ to an increase in ~~credited interest.~~the average balance


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)				(Dollars In Millions)
Net Investment Income
Fixed maturities	$	33	$	25	$	92	$	81
Participation commercial mortgage loan income	29		—		35		7
Commercial mortgage loan income	36		30		103		82
Other income and expenses	(1)		(1)		(2)		(1)
Total net investment income	$	97	$	54	$	228	$	169

Table of Contents

Asset Protection

Segment Results of Operations

Segment results were as follows:


	For The Three Months Ended September 30,						For The Nine Months Ended September 30,							For The Three Months Ended September 30,				Percent	For The Nine Months Ended September 30,				Percent
	2017			2016			2017			2016				2021		2020		Change	2021		2020		Change
	(Dollars In Thousands)													(Dollars In Millions)					(Dollars In Millions)
REVENUES													REVENUES
Gross premiums and policy fees	$	79,595		$	68,987		$	243,160		$	205,133		Gross premiums and policy fees	$	73	$	74	(1.4)%	$	219	$	222	(1.4)%
Reinsurance ceded	(27,751		)	(25,417		)	(88,695		)	(74,942		)	Reinsurance ceded	(50)		(48)		4.2	(144)		(140)		2.9
Net premiums and policy fees	51,844			43,570			154,465			130,191			Net premiums and policy fees	23		26		(11.5)	75		82		(8.5)
Net investment income	5,642			4,431			16,352			12,944			Net investment income	5		5		—	16		19		(15.8)
Other income	36,319			31,029			106,622			85,993			Other income	38		37		2.7	114		108		5.6

Total operating revenues	93,805			79,030			277,439			229,128			Total operating revenues	66		68		(2.9)	205		209		(1.9)
Realized gains (losses) - investments	(6		)	—			(6		)	—
Total revenues	93,799			79,030			277,433			229,128
BENEFITS AND EXPENSES													BENEFITS AND EXPENSES
Benefits and settlement expenses	31,608			26,611			94,017			77,722			Benefits and settlement expenses	14		21		(33.3)	47		59		(20.3)
Amortization of DAC/VOBA	4,357			5,152			13,965			16,310			Amortization of DAC/VOBA	17		18		(5.6)	47		48		(2.1)
Other operating expenses	52,653			43,168			155,645			122,600			Other operating expenses	26		21		23.8	80		69		15.9
Total benefits and expenses	88,618			74,931			263,627			216,632			Total benefits and expenses	57		60		(5.0)	174		176		(1.1)
PRE-TAX ADJUSTED OPERATING INCOME													PRE-TAX ADJUSTED OPERATING INCOME	9		8		12.5	31		33		(6.1)

INCOME BEFORE INCOME TAX	5,181			4,099			13,806			12,496			INCOME BEFORE INCOME TAX	$	9	$	8	12.5%	$	31	$	33	(6.1)%
Less: realized gains (losses) - investments	(6		)	—			(6		)	—
PRE-TAX ADJUSTED OPERATING INCOME	$	5,187		$	4,099		$	13,812		$	12,496

n/m - we define n/m as not meaningful for increases or decreases greater than 100%.													n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

The following table summarizes key data for the Asset Protection segment:


	For The Three Months Ended September 30,						Percent		For The Nine Months Ended September 30,						Percent
	2021			2020			Change		2021			2020			Change
	(Dollars In Millions)								(Dollars In Millions)
Sales(1)
Credit insurance	$	—		$	2		n/m		$	—		$	4		n/m
Service contracts	134			114			17.5	%	383			294			30.3	%
GAP	22			21			4.8		66			57			15.8
	$	156		$	137		13.9	%	$	449		$	355		26.5	%
Loss Ratios(2)
Credit insurance	88.5		%	37.0		%			47.5		%	32.1		%
Service contracts	63.5			65.9					58.7			62.0
GAP	40.2			132.1					74.9			114.3

(1) Sales are based on the amount of single premiums and fees received
(2) Incurred claims as a percentage of earned premiums

Table of Contents

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
Sales⁽¹⁾

Credit insurance $ 3,880
$ 5,444
$ 11,759
$ 16,975
Service contracts 113,508
93,569
325,707
259,753
GAP 26,965
27,413
86,565
79,508
$ 144,353
$ 126,426
$ 424,031
$ 356,236
Loss Ratios⁽²⁾

Credit insurance 9.8 % 33.5 % 19.2 % 32.9 %
Service contracts 39.3
47.1
38.8
46.3
GAP 123.1
107.5
122.5
106.1

(1) Sales are based on the amount of single premiums and fees received
(2) Incurred claims as a percentage of earned premiums
Pre-Tax Adjusted Operating Income

~~For The~~ Three ~~Months Ended September 30, 2017, as compared to The Three Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Month Comparison.Pre-tax adjusted operating income ~~was $5.2 million, representing an increase of $1.1 million, or 26.5%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. Service contract earnings~~ increased ~~$2.1~~$1 million primarily ~~due to favorable~~driven by:

•Favorable impact of lower 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 $1.3 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 increased $8.3 million, or 19.0%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. Service contract premiums increased $5.3 million primarily due to the addition of US Warranty business, somewhat offset by higher ceded premiums in existing distribution channels. GAP premiums increased $3.5 million primarily due to higher ~~premium rates on existing business and the addition of US Warranty business. Credit insurance premiums decreased $0.5 million as a result of lower sales.~~used car values

~~Other income~~

~~Other income increased $5.3 million, or 17.0%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016 primarily~~•Higher expenses due to ~~the addition of US Warranty business~~higher sales and commissions in the service contract ~~and GAP lines.~~line

~~Benefits and settlement expenses~~

Benefits and settlement expenses increased $5.0 million, or 18.8%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. GAP claims increased $6.0 million due to higher loss ratios and the acquisition of US Warranty. Credit insurance claims decreased $0.8 million due primarily to lower loss ratios and lower volume. Service contract claims decreased $0.2 million due to lower loss ratios, mostly offset by the addition of claims from the US Warranty line.

~~Amortization of DAC and VOBA and Other operating expenses~~

Amortization of DAC and VOBA was $0.8 million, or 15.4%, lower for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to decreased amortization of in-force VOBA•Increase in the GAP product line and lower volume in the credit product line. Other operating expenses were $9.5 million, or 22.0%, higher for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarilysales due to the ~~acquisition~~positive impact of ~~US Warranty.~~increased industry auto sales

~~Sales~~

Total segment sales increased $17.9 million, or 14.2%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. Service contract sales increased $19.9 million due to the additional volume provided by US Warranty. Credit insurance sales decreased $1.6 million due to decreasing demand for the product. GAP sales decreased $0.4 million due to lower production in existing distribution channels offset by additional sales from US Warranty.

~~For The~~ Nine ~~Months Ended September 30, 2017, as compared to The Nine Months Ended September 30, 2016~~

~~Pre-tax adjusted operating income~~

Month Comparison.Pre-tax adjusted operating income was $13.8 million, representing an increase of $1.3 million, or 10.5%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. Service contract earnings increased $5.8decreased $2 million primarily ~~due to favorable~~driven by:

•Favorable impact of lower loss ratios ~~and the acquisition of US Warranty in the fourth quarter of 2016. Credit insurance earnings increased $0.7 million primarily due to lower loss ratios. Earnings~~ from the GAP product line, ~~decreased $5.2 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 increased $24.3 million, or 18.6%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. Service contract premiums increased $14.4 million primarily due to the addition of US Warranty business, somewhat offset by higher ceded premiums in existing distribution channels. GAP premiums increased $11.2 million primarily due to higher ~~premium rates on existing business and the addition of US Warranty business. Credit insurance premiums decreased $1.3 million as a result of lower sales.~~used car values

~~Other~~•Lower net investment income

~~Other income increased $20.6 million, or 24.0%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily~~ due to ~~the addition of US Warranty business~~lower investment yields

•Higher expenses due to higher sales and commissions in the service contract ~~and GAP lines.~~line

~~Benefits and settlement expenses~~

Benefits and settlement expenses increased $16.3 million, or 21.0%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. GAP claims increased $18.9 million due to higher loss ratios and the acquisition of US Warranty. Credit insurance claims decreased $1.6 million due primarily to lower loss ratios and lower volume. Service contract claims decreased $1.0 million primarily due to lower loss ratios, somewhat offset by the addition of claims from the US Warranty line.

~~Amortization of DAC and VOBA and Other operating expenses~~

Amortization of DAC and VOBA was $2.3 million, or 14.4%, lower for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to decreased amortization of in-force VOBA•Increase in the GAP product line and lower volume in the credit product line. Other operating expenses were $33.0 million higher for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarilysales due to the ~~acquisition~~positive impact of ~~US Warranty.~~increased industry auto sales

~~Sales~~

Total segment sales increased $67.8 million, or 19.0%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. Service contract sales increased $66.0 million due to additional volume provided by US Warranty. GAP sales increased $7.1 million due to higher sales in existing distribution channels and US Warranty. Credit insurance sales decreased $5.2 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~~the segment’s exposure and allow the PARCs to share in the underwriting income of the product. Reinsurance contracts do not relieve usthe Asset Protection segment from ~~our~~ obligations to ~~our~~ policyholders. We also carry a catastrophic reinsurance policy for our GAP program. Losses incurred as a result of the recent hurricanes are covered under this policy. We believe losses from these catastrophes, net of reinsurance, will have an immaterial impact on our results of operations. 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~~the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2020.

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


	For The Three Months Ended September 30,				Percent	For The Nine Months Ended September 30,				Percent
	2021		2020		Change	2021		2020		Change
	(Dollars In Millions)					(Dollars In Millions)
REVENUES
Reinsurance ceded	$	(50)	$	(48)	4.2%	$	(144)	$	(140)	2.9%
BENEFITS AND EXPENSES
Benefits and settlement expenses	(19)		(22)		(13.6)	(59)		(63)		(6.3)
Amortization of DAC/VOBA	(1)		(1)		—	(4)		(3)		33.3
Other operating expenses	(1)		(1)		—	(4)		(3)		33.3
Total benefits and expenses	(21)		(24)		(12.5)	(67)		(69)		(2.9)
NET IMPACT OF REINSURANCE(1)	$	(29)	$	(24)	20.8%	$	(77)	$	(71)	8.5%

(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.
n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

Three Month Comparison. The change in the net impact of reinsurance was unfavorable by $5 million primarily driven by:

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Reinsurance ceded $ (27,751 ) $ (25,417 ) $ (88,695 ) $ (74,942 )
BENEFITS AND EXPENSES

Benefits and settlement expenses (22,428 ) (16,717 ) (57,176 ) (51,096 )
Amortization of DAC/VOBA (566 ) (272 ) (1,545 ) (669 )
Other operating expenses (1,064 ) (1,452 ) (3,990 ) (4,432 )
Total benefits and expenses (24,058 ) (18,441 ) (62,711 ) (56,197 )
NET IMPACT OF REINSURANCE⁽¹⁾
$ (3,693 ) $ (6,976 ) $ (25,984 ) $ (18,745 )

(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.
•Decrease in ceded GAP losses as a result of lower loss ratios driven by higher used car prices

~~For~~Nine Month Comparison. The ~~Three Months Ended September 30, 2017,~~change in the net impact of reinsurance was unfavorable by $6 million primarily driven by:

•Decrease in ceded GAP losses as ~~compared to The Three Months Ended September 30, 2016~~a result of lower loss ratios driven by higher used car prices

Reinsurance premiums ceded increased $2.3 million, or 9.2%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The increase was primarily due to an increase•Increase in ceded service contract ~~and GAP premiums.~~

Benefits and settlement expenses ceded increased $5.7 million, or 34.2%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The increase was primarily duepremiums related to higher ~~ceded losses in the 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 30, 2017, as compared to the three months ended September 30, 2016, primarily as the result of ceded activity in the GAP product lines. Other operating expenses ceded decreased $0.4 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 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 Months Ended September 30, 2017, as compared to The Nine Months Ended September 30, 2016~~

Reinsurance premiums ceded increased $13.8 million, or 18.4%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. The increase was primarily due to an increase in ceded service contract ~~and GAP premiums, partially offset by lower ceded premiums in the credit product line.~~premium volume

Benefits and settlement expenses ceded increased $6.1 million, or 11.9%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. The increase was primarily due to higher ceded losses in the GAP product lines, somewhat offset by a decrease in ceded losses in the service contract and credit product line.

~~Amortization~~

Table of DAC and VOBA ceded increased $0.9 million for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, as the result of ceded activity in all product lines. Other operating expenses ceded decreased $0.4 million for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016.Contents

Corporate and Other

Segment Results of Operations

Segment results were as follows:


	For The Three Months Ended September 30,				Percent	For The Nine Months Ended September 30,				Percent
	2021		2020		Change	2021		2020		Change
	(Dollars In Millions)					(Dollars In Millions)
REVENUES
Gross premiums and policy fees	$	3	$	2	50.0%	$	8	$	8	—%
Reinsurance ceded	—		—		n/m	—		—		n/m
Net premiums and policy fees	3		2		50.0	8		8		—
Net investment income(1)	(19)		23		n/m	(40)		59		n/m
Other income	—		1		—	—		1		n/m
Total operating revenues	(16)		26		n/m	(32)		68		n/m
BENEFITS AND EXPENSES
Benefits and settlement expenses	1		4		(75.0)	8		10		(20.0)
Amortization of DAC/VOBA	—		—		n/m	—		—		n/m
Other operating expenses(1)	9		57		(84.2)	80		166		(51.8)
Total benefits and expenses	10		61		(83.6)	88		176		(50.0)
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)	(26)		(35)		(25.7)	(120)		(108)		11.1
Add: realized gains (losses)	7		23		(69.6)	19		12		58.3
INCOME (LOSS) BEFORE INCOME TAX	$	(19)	$	(12)	n/m	$	(101)	$	(96)	5.2%

(1) The net investment income and other operating expenses lines decreased $30 million and $33 million, respectively, in the three month comparison and $90 million and $100 million, respectively, in the nine month comparison as a result of the impacts of a captive reinsurance company reorganization that occurred during 2020. See the Company’s Annual Report on Form 10-K, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2020 for additional information on this transaction.
n/m - we define n/m as not meaningful for increases or decreases greater than 100%.

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
2017 2016 2017 2016
(Dollars In Thousands)
REVENUES

Gross premiums and policy fees $ 3,118
$ 3,400
$ 9,658
$ 10,606
Reinsurance ceded 11
(60 ) (70 ) (201 )
Net premiums and policy fees 3,129
3,340
9,588
10,405
Net investment income 24,385
16,114
72,515
71,446
Other income 479
141
804
576
Total operating revenues 27,993
19,595
82,907
82,427
Realized gains (losses) - investments (2,232 ) 1,418
(6,612 ) (2,866 )
Realized gains (losses) - derivatives 52,114
13,859
33,333
32,153
Total revenues 77,875
34,872
109,628
111,714
BENEFITS AND EXPENSES

Benefits and settlement expenses 4,271
5,404
11,085
14,180
Amortization of DAC/VOBA —
—
—
—
Other operating expenses 61,776
60,700
179,563
179,746
Total benefits and expenses 66,047
66,104
190,648
193,926
INCOME (LOSS) BEFORE INCOME TAX 11,828
(31,232 ) (81,020 ) (82,212 )
Less: realized gains (losses) - investments (2,232 ) 1,418
(6,612 ) (2,866 )
Less: realized gains (losses) - derivatives 52,114
13,859
33,333
32,153
PRE-TAX ADJUSTED OPERATING INCOME (LOSS) $ (38,054 ) $ (46,509 ) $ (107,741 ) $ (111,499 )

~~For~~Three Month Comparison. The ~~Three Months Ended September 30, 2017, as compared to The Three Months Ended September 30, 2016~~

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

~~Pre-tax~~decreased pre-tax adjusted operating loss was ~~$38.1 million for the three months ended September 30, 2017, as compared~~primarily due to a decrease in corporate overhead expense, partially offset by unfavorable portfolio yields.

Nine Month Comparison. The increased pre-tax adjusted operating loss ~~of $46.5 million for the three months ended September 30, 2016. The increase~~ was primarily due to an increase in ~~invested assets and investment yields.~~

~~Operating revenues~~

Net investment income for the segment increased $8.3 million or 51.3% for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The increase in net investment income was primarily due to an increase in invested assets and investment yields.

~~Total benefits and expenses~~

~~Total benefits and expenses decreased $0.1 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to increases in~~ corporate overhead ~~expenses, offset by a decrease in benefits and settlement expenses.~~expense.

~~For The Nine Months Ended September 30, 2017, as compared to The Nine Months Ended September 30, 2016~~

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

~~Pre-tax adjusted operating loss was $107.7 million for the nine months ended September 30, 2017, as compared to a pre-tax adjusted operating loss~~

Table of ~~$111.5 million for the nine months ended September 30, 2016. The increase was primarily due to a $3.1 million decrease in benefits and settlement expenses.~~Contents

~~Operating revenues~~

Net investment income for the segment increased $1.1 million or 1.5% for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. The increase in net investment income was primarily due to an increase in invested assets and investment yields.

~~Total benefits and expenses~~

Total benefits and expenses decreased $3.3 million or 1.7%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to a decrease in benefits and settlement expenses.

CONSOLIDATED INVESTMENTS

As of September 30, ~~2017,~~2021, our investment portfolio was ~~approximately $53.8~~$90.0 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. ~~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”, and “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 ~~$37.9~~$70.8 billion, or ~~87.5%~~96.1%, of our fixed maturities as “available-for-sale” as of September 30, ~~2017.~~2021. 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~~due to credit losses are recorded as realized ~~losses~~gains (losses) in the consolidated condensed statements of ~~income, net of any applicable non-credit component~~income. Credit losses are recorded in realized gains (losses) with a corresponding adjustment to the allowance for credit losses, except that the credit losses recognized cannot exceed the difference between the book value and fair value of the ~~loss, which is~~security as of the date of the analysis. In future periods, recoveries in the present value of expected cash flows are recorded as a reversal of the previously recognized allowance for credit losses with an offsetting adjustment to ~~other comprehensive income (loss)~~ realized gains (losses).

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 ~~$2.7~~$2.8 billion, or ~~6.2%~~3.9%, of our fixed maturities and ~~$44.3~~$87 million of short-term investments as of September 30, ~~2017.~~2021. Changes in fair value on the Modco trading portfolios, including gains and losses from sales, are passed to 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.

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 $2.7 billion, or 6.3%, of our fixed maturities as “held-to-maturity” as of September 30, 2017. These securities are carried at amortized cost on our 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, 4, Fair Value of Financial Instruments, to the financial statements.

The following table presents the reported values of our invested assets:


										As of
	As of									September 30, 2021				December 31, 2020
	September 30, 2017				December 31, 2016					(Dollars In Millions)
	(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2017 - $31,112,813; 2016 - $30,387,712)	$	30,792,711	57.3	%	$	29,049,505	57.6	%
Privately issued bonds (amortized cost: 2017 - $12,408,451; 2016 - $11,929,228)	12,414,452		23.1		11,627,422		23.0
Preferred stock (amortized cost: 2017 - $97,590; 2016 - $98,348)	95,069		0.2		89,827		0.3
Publicly issued bonds (amortized cost: 2021 - $44,577; 2020 - $44,169)									Publicly issued bonds (amortized cost: 2021 - $44,577; 2020 - $44,169)	$	48,741	54.1	%	$	49,571	56.0	%
Privately issued bonds (amortized cost: 2021 - $23,441; 2020 - $21,332)									Privately issued bonds (amortized cost: 2021 - $23,441; 2020 - $21,332)	24,557		27.3		22,817		25.8
Redeemable preferred stocks (amortized cost: 2021 - $305; 2020 - $196)									Redeemable preferred stocks (amortized cost: 2021 - $305; 2020 - $196)	318		0.4		207		0.2
Fixed maturities	43,302,232		80.6	%	40,766,754		80.9	%	Fixed maturities	73,616		81.8	%	72,595		82.0	%
Equity securities (cost: 2017 - $726,605; 2016 - $729,951)	744,176		1.4		716,017		1.4
Mortgage loans	6,528,890		12.2		6,132,125		12.2
Equity securities (cost: 2021 - $740; 2020 - $635)									Equity securities (cost: 2021 - $740; 2020 - $635)	772		0.9		667		0.8
Commercial mortgage loans									Commercial mortgage loans	10,506		11.7		10,006		11.3
Investment real estate	4,572		—		8,060		—		Investment real estate	10		—		10		—
Policy loans	1,625,960		3.0		1,650,240		3.3		Policy loans	1,543		1.7		1,593		1.8
Other long-term investments	1,133,234		2.0		856,410		1.7		Other long-term investments	2,916		3.2		3,241		3.7
Short-term investments	422,685		0.8		315,834		0.5		Short-term investments	629		0.7		462		0.4
Total investments	$	53,761,749	100.0	%	$	50,445,440	100.0	%	Total investments	$	89,992	100.0	%	$	88,574	100.0	%

Included in the preceding table are ~~$2.7~~$2.8 billion and ~~$2.6~~$2.9 billion of fixed maturities and ~~$44.3~~$87 million and ~~$52.6~~$76 million of short-term investments classified as trading securities as of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, 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~~

Table of ~~securities classified as held-to-maturity as of September 30, 2017 and December 31, 2016, respectively.~~Contents

Fixed Maturity Investments

As of September 30, ~~2017,~~2021, our fixed maturity investment holdings were ~~approximately $43.3~~$73.6 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:


	As of									As of
Rating	September 30, 2017				December 31, 2016				Rating	September 30, 2021				December 31, 2020
	(Dollars In Thousands)									(Dollars In Millions)
AAA	$	5,629,870	13.0	%	$	5,230,763	12.8	%	AAA	$	9,592	13.0	%	$	9,497	13.1	%
AA	3,574,375		8.3		3,473,989		8.5		AA	7,131		9.7		7,337		10.1
A	13,525,368		31.2		12,663,569		31.1		A	23,057		31.3		24,372		33.6
BBB	15,692,234		36.2		14,408,537		35.4		BBB	31,122		42.3		28,654		39.5
Below investment grade	2,149,390		5.0		2,219,719		5.4		Below investment grade	2,714		3.7		2,735		3.7
Not rated⁽¹⁾	2,730,995		6.3		2,770,177		6.8
	$	43,302,232	100.0	%	$	40,766,754	100.0	%		$	73,616	100.0	%	$	72,595	100.0	%

(1) Our "not rated" securities are $2.7 billion or 6.3% 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	September 30, 2021				December 31, 2020
	(Dollars In Millions)
Corporate securities	$	55,507	75.4	%	$	53,967	74.3	%
Residential mortgage-backed securities	7,504		10.2		6,877		9.5
Commercial mortgage-backed securities	2,498		3.4		2,748		3.8
Other asset-backed securities	1,657		2.3		1,741		2.4
U.S. government-related securities	845		1.1		1,606		2.2
Other government-related securities	826		1.1		747		1.0
States, municipals, and political subdivisions	4,461		6.1		4,702		6.5
Redeemable preferred stocks	318		0.4		207		0.3
Total fixed income portfolio	$	73,616	100.0	%	$	72,595	100.0	%

Table of Contents

As of
Type September 30, 2017 December 31, 2016
(Dollars In Thousands)
Corporate securities $ 30,997,847
$ 28,849,238
Residential mortgage-backed securities 2,445,431
2,144,634
Commercial mortgage-backed securities 2,037,706
1,932,180
Other asset-backed securities 1,333,280
1,411,617
U.S. government-related securities 1,320,547
1,295,120
Other government-related securities 316,347
300,938
States, municipals, and political subdivisions 2,025,010
1,973,022
Preferred stock 95,069
89,828
Securities issued by affiliates 2,730,995
2,770,177
Total fixed income portfolio $ 43,302,232
$ 40,766,754

The industry segment composition of our fixed maturity securities is presented in the following table:

As of
September 30, 2017
% Fair
Value
As of
December 31, 2016
% Fair
Value
(Dollars In Thousands)
Banking $ 4,325,558
10.0 % $ 3,811,588
9.3 %
Other finance 78,844
0.2
83,895
0.2
Electric utility 3,971,429
9.2
3,925,147
9.6
Energy 3,954,918
9.1
3,887,736
9.5
Natural gas 720,472
1.6
603,149
1.5
Insurance 3,633,259
8.4
3,185,237
7.8
Communications 1,706,316
3.9
1,651,600
4.1
Basic industrial 1,618,765
3.7
1,533,516
3.8
Consumer noncyclical 3,806,559
8.8
3,465,299
8.5
Consumer cyclical 1,136,256
2.6
1,041,805
2.6
Finance companies 146,817
0.3
139,050
0.3
Capital goods 1,847,034
4.3
1,773,467
4.4
Transportation 1,163,590
2.7
1,136,666
2.7
Other industrial 224,436
0.5
200,605
0.5
Brokerage 842,474
2.0
760,585
1.9
Technology 1,766,941
4.1
1,534,297
3.8
Real estate 83,513
0.2
122,058
0.3
Other utility 65,735
0.2
83,366
0.2
Commercial mortgage-backed securities 2,037,706
4.8
1,932,180
4.7
Other asset-backed securities 1,333,280
3.1
1,411,617
3.5
Residential mortgage-backed non-agency securities 1,690,281
3.9
1,414,859
3.5
Residential mortgage-backed agency securities 755,150
1.7
729,775
1.8
U.S. government-related securities 1,320,547
3.0
1,295,120
3.2
Other government-related securities 316,347
0.7
300,938
0.7
State, municipals, and political divisions 2,025,010
4.7
1,973,022
4.8
Securities issued by affiliates 2,730,995
6.3
2,770,177
6.8
Total $ 43,302,232
100.0 % $ 40,766,754
100.0 %


	As of September 30, 2021		% Fair Value		As of December 31, 2020		% Fair Value
	(Dollars In Millions)
Banking	$	8,306	11.3	%	$	7,752	10.7	%
Other finance	989		1.3		959		1.3
Electric utility	5,736		7.8		5,792		8.0
Energy	4,661		6.3		4,756		6.6
Natural gas	1,289		1.8		1,275		1.8
Insurance	6,416		8.7		6,022		8.3
Communications	2,918		4.0		2,967		4.1
Basic industrial	2,727		3.7		2,532		3.5
Consumer noncyclical	7,329		9.9		7,374		10.2
Consumer cyclical	2,837		3.9		2,833		3.9
Finance companies	509		0.7		319		0.4
Capital goods	3,575		4.9		3,648		5.0
Transportation	2,064		2.8		2,236		3.1
Other industrial	710		1.0		691		1.0
Brokerage	2,021		2.7		1,786		2.5
Technology	3,121		4.2		2,596		3.6
Real estate	552		0.7		587		0.8
Other utility	65		0.1		48		—
Commercial mortgage-backed securities	2,498		3.4		2,748		3.8
Other asset-backed securities	1,657		2.3		1,741		2.4
Residential mortgage-backed non-agency securities	6,193		8.4		5,607		7.7
Residential mortgage-backed agency securities	1,311		1.8		1,270		1.8
U.S. government-related securities	845		1.1		1,607		2.0
Other government-related securities	826		1.1		747		1.0
State, municipals, and political divisions	4,461		6.1		4,702		6.5
Total	$	73,616	100.0	%	$	72,595	100.0	%

The total Modco trading portfolio fixed maturities by rating is as follows:


	As of					As of
Rating	September 30, 2017		December 31, 2016		Rating	September 30, 2021				December 31, 2020
	(Dollars In Thousands)					(Dollars In Millions)
AAA	$	351,042	$	341,364	AAA	$	272	9.6	%	$	340	11.9	%
AA	293,864		301,258		AA	272		9.5		268		9.4
A	867,936		849,286		A	921		32.4		909		31.8
BBB	927,524		884,850		BBB	1,239		43.6		1,205		42.1
Below investment grade	240,713		263,102		Below investment grade	139		4.9		140		4.8
Total Modco trading fixed maturities	$	2,681,079	$	2,639,860
						$	2,843	100.0	%	$	2,862	100.0	%

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, ~~2017,~~2021, were ~~approximately $5.8~~$11.7 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.

Table of Contents

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 September 30, ~~2017~~2021 and December 31, ~~2016~~:2020.


	As of September 30, 2021
	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	$	6,137		$	6,129		$	1		$	1		$	1,389		$	1,328		$	542		$	525		$	8,069		$	7,983
AA	—			—			—			—			572			551			272			262			844			813
A	1,312			1,316			6			6			396			377			675			667			2,389			2,366
BBB	5			5			2			2			124			122			149			143			280			272
Below	17			18			24			22			17			22			19			20			77			82
	$	7,471		$	7,468		$	33		$	31		$	2,498		$	2,400		$	1,657		$	1,617		$	11,659		$	11,516

Rating %
AAA	82.2		%	82.1		%	3.7		%	4.0		%	55.6		%	55.3		%	32.7		%	32.5		%	69.2		%	69.3		%
AA	—			—			0.2			0.2			22.9			23.0			16.4			16.2			7.2			7.1
A	17.5			17.6			19.7			18.4			15.8			15.7			40.7			41.3			20.5			20.5
BBB	0.1			0.1			4.7			5.9			5.0			5.1			9.0			8.8			2.4			2.4
Below	0.2			0.2			71.7			71.5			0.7			0.9			1.2			1.2			0.7			0.7
	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
2017 and prior	$	1,474		$	1,440		$	33		$	31		$	2,252		$	2,169		$	1,354		$	1,318		$	5,113		$	4,958
2018	386			379			—			—			146			134			128			127			660			640
2019	470			465			—			—			74			71			41			40			585			576
2020	1,415			1,421			—			—			16			16			33			31			1,464			1,468
2021	3,726			3,763			—			—			10			10			101			101			3,837			3,874
Total	$	7,471		$	7,468		$	33		$	31		$	2,498		$	2,400		$	1,657		$	1,617		$	11,659		$	11,516

(1) Included in Residential Mortgage-Backed securities.

Table of Contents


		As of September 30, 2017																															As of December 31, 2020
		Prime⁽¹⁾						Non-Prime⁽¹⁾						Commercial						Other asset-backed						Total							Prime(1)						Non-Prime(1)						Commercial						Other asset-backed						Total
		Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized				Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized
		Value			Cost			Value			Cost			Value			Cost			Value			Cost			Value			Cost				Value			Cost			Value			Cost			Value			Cost			Value			Cost			Value			Cost
		(Dollars In Millions)																															(Dollars In Millions)
Rating $																																Rating $
AAA		$	2,106.0		$	2,103.2		$	—		$	—		$	1,240.2		$	1,248.7		$	643.4		$	648.4		$	3,989.6		$	4,000.3		AAA	$	5,541		$	5,420		$	2		$	2		$	1,596		$	1,514		$	543		$	527		$	7,682		$	7,463
AA		1.6			1.6			—			—			518.2			526.8			115.2			108.2			635			636.6			AA	—			—			—			—			587			570			277			268			864			838
A		2.4			2.4			21.8			22.0			275.9			276.7			478.1			476.5			778.2			777.6			A	1,268			1,228			8			7			469			449			731			727			2,476			2,411
BBB		1.6			1.6			3.0			3.1			3.4			3.4			19.8			19.8			27.8			27.9			BBB	4			4			1			1			85			86			164			158			254			249
Below		96.5			95.6			212.4			211.0			—			—			76.8			76.2			385.7			382.8			Below	24			24			29			27			11			19			26			29			90			99
		$	2,208.1		$	2,204.4		$	237.2		$	236.1		$	2,037.7		$	2,055.6		$	1,333.3		$	1,329.1		$	5,816.3		$	5,825.2			$	6,837		$	6,676		$	40		$	37		$	2,748		$	2,638		$	1,741		$	1,709		$	11,366		$	11,060

Rating %																																Rating %
AAA		95.3		%	95.4		%	—		%	—		%	60.9		%	60.7		%	48.2		%	48.8		%	68.6		%	68.7		%	AAA	81.1		%	81.2		%	5.3		%	5.6		%	58.1		%	57.4		%	31.2		%	30.8		%	67.6		%	67.5		%
AA		0.1			0.1			—			—			25.4			25.6			8.6			8.1			10.9			10.9			AA	—			—			0.2			0.2			21.4			21.6			15.9			15.7			7.6			7.6
A		0.1			0.1			9.2			9.3			13.5			13.5			35.9			35.9			13.4			13.3			A	18.5			18.3			19.7			18.2			17.0			17.0			42.0			42.6			21.8			21.7
BBB		0.1			0.1			1.3			1.3			0.2			0.2			1.5			1.5			0.5			0.5			BBB	0.1			0.1			2.8			2.9			3.1			3.3			9.4			9.2			2.2			2.3
Below		4.4			4.3			89.5			89.4			—			—			5.8			5.7			6.6			6.6			Below	0.3			0.4			72.0			73.1			0.4			0.7			1.5			1.7			0.8			0.9
		100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%		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	Estimated Fair Value of Security by Year of Security Origination																															Estimated Fair Value of Security by Year of Security Origination
2013 and prior		$	930.0		$	925.1		$	237.2		$	236.1		$	1,041.9		$	1,050.9		$	819.6		$	820.1		$	3,028.7		$	3,032.2
2014		196.4			193.9			—			—			235.3			240.0			31.8			32.4			463.5			466.3
2015		463.0			462.6			—			—			213.2			211.1			53.6			52.2			729.8			725.9
2016		228.3			232.8			—			—			449.7			455.7			249.0			246.1			927.0			934.6
2016 and prior																																2016 and prior	$	1,701		$	1,647		$	38		$	35		$	2,238		$	2,167		$	1,069		$	1,044		$	5,046		$	4,893
2017		390.4			390.0			—			—			97.6			97.9			179.3			178.3			667.3			666.2			2017	737			711			2			2			270			249			402			397			1,411			1,359
2018																																2018	1,001			970			—			—			151			136			148			148			1,300			1,254
2019																																2019	1,070			1,045			—			—			75			71			92			91			1,237			1,207
2020																																2020	2,328			2,303			—			—			14			15			30			29			2,372			2,347
Total		$	2,208.1		$	2,204.4		$	237.2		$	236.1		$	2,037.7		$	2,055.6		$	1,333.3		$	1,329.1		$	5,816.3		$	5,825.2		Total	$	6,837		$	6,676		$	40		$	37		$	2,748		$	2,638		$	1,741		$	1,709		$	11,366		$	11,060

(1) Included in Residential Mortgage-Backed securities.
(1) Included in Residential Mortgage-Backed securities																																(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 September 30, ~~2017,~~2021, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average ~~lif~~elife of ~~10.15~~7.5 years. TheThe following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of September 30, ~~2017:~~

2021:


		Weighted-Average
Non-agency portfolio		Life

Prime		7.59

Sub-prime		~~Weighted-Average~~
~~Non-agency portfolio~~	~~Life~~

~~Prime~~	~~10.83~~
~~Alt-A~~	~~2.63~~
~~Sub-prime~~	~~2.27~~1.61

Commercial Mortgage Loans

We invest a portion of our investment portfolio in commercial mortgage loans. As of September 30, ~~2017,~~2021 our commercial mortgage loan holdings were ~~approximately $6.5 billion.~~$10.6 billion, or $10.5 billion net of allowance for credit losses. We ~~have specialized~~specialize in making commercial mortgage loans on ~~either~~ credit-oriented commercial ~~properties or credit-anchored strip shopping centers and apartments.~~properties. Our underwriting procedures relative to our commercial mortgage 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,~~(grocery anchored and credit tenant retail, industrial, multi-family, senior living, ~~professional office buildings,~~ and ~~warehouses)~~credit tenant and medical office). 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 commercial mortgage ~~loans~~loan portfolio was underwritten ~~and funded~~ by us. From time to time, we may acquire loans in conjunction with an acquisition.

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Our commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of ~~valuation allowances.~~the allowance for credit losses. 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 commercial mortgage loans have call options that occur within the next 129 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options on our existing commercial mortgage loans commensurate with the significantly increased market rates. As of September 30, ~~2017,~~2021, assuming the loans are called at their next call dates, ~~approximately $54.7~~$54 million of principal would become due for the remainder of ~~2017, $976.2~~2021, $450 million in ~~2018~~2022 through ~~2022, $124.6~~2026, and $12 million in ~~2023~~2027 through ~~2027, and $9.9 million thereafter.~~2029.

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~~participation interest in the cash flows from the underlying real estate. As of September 30, ~~2017~~2021 and December 31, ~~2016, approximately $715.2~~2020, $620 million and ~~$595.2~~$806 million, respectively, of our total commercial 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 months ended September 30, ~~2017~~2021 and ~~2016, we~~2020, the Company recognized ~~$14.2 million, $25.7 million, $3.3~~$32 million and ~~$15.8~~$46 million, and $1 million and $17 million respectively, of ~~participating~~participation commercial mortgage loan income.

The following table includes a breakdown of our commercial mortgage loan portfolio:


Commercial Mortgage Loan Portfolio Profile
	As of September 30, 2021			As of December 31, 2020
	(Dollars In Millions)
Number of commercial mortgage loans	1,789			1,827
Amortized cost	$	10,609		$	10,228
Unpaid principal balance	$	10,556		$	10,148
Allowance for funded commercial mortgage loan credit losses	$	(103)		$	(222)
Average commercial mortgage loan size	$	6		$	6

Weighted-average amortization	22.2 years			21.4 years
Weighted-average coupon	4.13		%	4.34		%
Weighted-average LTV	54.15		%	53.91		%
Weighted-average debt coverage ratio	1.73			1.72

Number of unfunded commercial mortgage loan commitments	126			117
Unfunded commercial mortgage loan commitments	$	1,294		$	801
Allowance for unfunded commercial mortgage commitment credit losses	$	(9)		$	(22)

We record commercial mortgage loans net of an allowance for credit losses. This allowance is calculated ~~through analysis of specific loans that have indicators of potential impairment~~and recorded at a loan level, based on ~~current information~~analysis and ~~events.~~input data for loans with similar risk characteristics. As of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, there were ~~$1.1~~allowances for funded commercial mortgage loan and unfunded commercial mortgage loan commitments credit losses of $112 million and ~~$0.7~~$245 million, ~~of allowances for mortgage loan credit losses,~~ respectively.

While our commercial mortgage loans do not have quoted market values, as of September 30, ~~2017,~~2021 we estimated the fair value of our commercial mortgage loans to be ~~$6.5~~$11.2 billion (using an internal fair value model which calculates the value of most loans by using the ~~loan's~~loan’s discounted cash flows to the ~~loan's~~loan’s call or maturity date), which was ~~approximately 0.63% less~~5.12% more than the amortized ~~cost, less any related loan loss reserve.~~cost.

At the time of origination, our commercial mortgage lending criteria targets that the loan-to-value ratio on each commercial mortgage loan 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 30, ~~2017, approximately $3.1~~2021, we did not have any commercial mortgage loans that were nonperforming, restructured, or foreclosed. As of December 31, 2020 we had $3 million of invested assets that consisted of ~~nonperforming mortgage loans, restructured mortgage loans, or~~commercial mortgage loans that were nonperforming, restructured or 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 months ended September 30, 2017, certain mortgage loan transactions occurred that would have been accounted for as troubled debt restructurings. For all commercial mortgage loans, the

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impact of troubled debt restructurings is reflected in our investment balance and in the allowance for commercial mortgage loan credit losses.

During the nine months ended September 30, ~~2017,~~2021, we recognized ~~two~~one troubled debt ~~restructurings~~restructuring transaction as a result of ~~the Company~~ granting ~~concessions~~a concession to ~~borrowers~~a borrower which included loan terms unavailable from other lenders. ~~These concessions were~~This concession was the result of ~~agreements~~an agreement between the creditor and the debtor. WeThe Company did not identify any loans whose principal was permanently impaired during the nine months ended September 30, ~~2017.~~2021.

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 30, 2017, $3.1 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 did not foreclose on any nonperforming loans not subject to a pooling and servicing agreement during the nine months ended September 30, 2017.

As of September 30, 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 months ended September 30, 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~~

We use the same methodology and assumptions to estimate the allowance for unfunded commercial mortgage loan commitments credit losses as for funded commercial mortgage loans. As of September 30, 2021, the allowance for unfunded commercial mortgage loan commitments credit losses was $9 million, which was 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 affectingslight decrease of $3 million from the ~~status~~second quarter of ~~delinquency or categorization of those in nonperforming status.~~2021.

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, ~~2017,~~2021, 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,~~related to a credit loss, 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.~~whether a credit loss has occurred. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine ~~if an other-than-temporary impairment~~whether a credit loss 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~~gain of ~~$299.1 million,~~$5.3 billion, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of September 30, ~~2017,~~2021, and an overall net unrealized ~~loss~~gain of ~~$1.7~~$6.9 billion as of December 31, ~~2016.~~2020.

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For fixed maturity ~~and equity~~ securities held that are in an unrealized loss position as of September 30, ~~2017,~~2021, the fair value, amortized cost, unrealized loss, allowance for expected credit losses (“ACL”), 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		ACL		% ACL		Unrealized Loss		% Unrealized Loss
	(Dollars In Millions)
<= 90 days	$	4,739	53.5	%	$	4,802	52.8	%	$	—	—	%	$	(63)	27.8	%
>90 days but <= 180 days	379		4.3		385		4.2		—		—		(6)		2.6
>180 days but <= 270 days	2,825		31.8		2,922		32.2		—		—		(97)		42.8
>270 days but <= 1 year	198		2.2		210		2.4		—		—		(12)		5.3
>1 year but <= 2 years	298		3.4		315		3.5		(1)		50.0		(16)		7.0
>2 years but <= 3 years	105		1.2		110		1.2		—		—		(5)		2.2
>3 years but <= 4 years	97		1.1		104		1.1		—		—		(7)		3.1
>4 years but <= 5 years	48		0.5		49		0.5		—		—		(1)		0.4
>5 years	174		2.0		195		2.1		(1)		50.0		(20)		8.8
Total	$	8,863	100.0	%	$	9,092	100.0	%	$	(2)	100.0	%	$	(227)	100.0	%

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
<= 90 days $ 5,209,656
23.5 % $ 5,245,600
22.8 % $ (35,944 ) 4.2 %
>90 days but <= 180 days 228,235
1.0
233,182
1.0
(4,947 ) 0.6
>180 days but <= 270 days 266,193
1.2
274,333
1.2
(8,140 ) 0.9
>270 days but <= 1 year 6,695,661
30.2
6,883,790
29.9
(188,129 ) 21.8
>1 year but <= 2 years 788,434
3.6
827,655
3.6
(39,221 ) 4.6
>2 years but <= 3 years 8,982,590
40.5
9,567,918
41.5
(585,328 ) 67.9
>3 years but <= 4 years —
—
—
—
—
—
>4 years but <= 5 years —
—
—
—
—
—
>5 years —
—
—
—
—
—
Total $ 22,170,769
100.0 % $ 23,032,478
100.0 % $ (861,709 ) 100.0 %

The ~~book value~~range of ~~our investment portfolio was marked to fair value~~maturity dates for securities in an unrealized loss position as of ~~February 1, 2015,~~September 30, 2021, varies, with 6.6% maturing in ~~conjunction with~~less than 5 years, 30.7% maturing between 5 and 10 years, and 62.7% maturing after 10 years. The following table shows the ~~Dai-ichi Merger which resulted~~credit rating of securities in ~~the elimination of previously~~an unrealized ~~gains and losses from accumulated other comprehensive income. The level of interest rates~~loss position 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.September 30, 2021:


							%								%
S&P or Equivalent	Fair		%		Amortized		Amortized						Unrealized		Unrealized
Designation	Value		Fair Value		Cost		Cost		ACL		% ACL		Loss		Loss
	(Dollars In Millions)
AAA/AA/A	$	5,489	61.9	%	$	5,618	61.8	%	$	—	—	%	$	(129)	56.8	%
BBB	2,988		33.7		3,059		33.6		—		—		(71)		31.3
Investment grade	8,477		95.6	%	8,677		95.4	%	—		—	%	(200)		88.1	%
BB	380		4.3		407		4.5		(1)		50.0		(26)		11.5
B	6		0.1		8		0.1		(1)		50.0		(1)		0.4
CCC or lower	—		—		—		—		—		—		—		—
Below investment grade	386		4.4	%	415		4.6	%	(2)		100.0	%	(27)		11.9	%
Total	$	8,863	100.0	%	$	9,092	100.0	%	$	(2)	100.0	%	$	(227)	100.0	%

As of September 30, ~~2017,~~2021, the Barclays Investment Grade Index was priced at 9887 bps versus a 10 year average of ~~178~~135 bps. Similarly, the Barclays High Yield Index was priced at ~~370~~332 bps versus a 10 year average of ~~656~~488 bps. As of September 30, ~~2017,~~2021, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of ~~1.9%~~1.0%, ~~2.3%~~1.5%, and ~~2.9%~~2.0%, as compared to 10 year averages of ~~1.7%~~1.4%, ~~2.6%~~2.0%, and ~~3.5%~~2.8%, respectively.

As of September 30, ~~2017, 93.2%~~2021, 88.1% 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 doconcluded that an allowance for credit losses was not ~~consider these unrealized loss positions to be other-than-temporary.~~necessary. 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.

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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 September 30, ~~2017, there~~2021, we held a total of 558 positions that were ~~estimated gross~~in an unrealized loss position. Included in that amount were 40 positions of below investment grade securities with a fair value of $386 million that were in an unrealized loss position. Total unrealized losses ~~of $1.6 million~~ related to ~~our mortgage-backed~~below investment grade securities ~~collateralized by Alt-A mortgage loans.~~were $27 million, $23 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 0.4% of invested assets.

As of September 30, 2021, securities in an unrealized loss position that were rated as below investment grade represented 4.4% of the total fair value and 11.9% 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 fair value to be non-credit related.

The following table includes the fair value, amortized cost, unrealized loss, ACL, and total time period that the security has been in an unrealized loss position for all below investment grade securities as of September 30, 2021:


	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		ACL		% ACL		Unrealized Loss		% Unrealized Loss
	(Dollars In Millions)
<= 90 days	$	46	11.9	%	$	47	11.3	%	$	—	—	%	$	(1)	3.7	%
>90 days but <= 180 days	—		—		—		—		—		—		—		—
>180 days but <= 270 days	53		13.7		56		13.5		—		—		(3)		11.1
>270 days but <= 1 year	—		—		—		—		—		—		—		—
>1 year but <= 2 years	48		12.4		54		13.0		(1)		50.0		(5)		18.5
>2 years but <= 3 years	38		9.8		39		9.4		—		—		(1)		3.7
>3 years but <= 4 years	40		10.4		45		10.8		—		—		(5)		18.5
>4 years but <= 5 years	20		5.2		21		5.1		—		—		(1)		3.7
>5 years	141		36.6		153		36.9		(1)		50.0		(11)		40.8
Total	$	386	100.0	%	$	415	100.0	%	$	(2)	100.0	%	$	(27)	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 September 30, ~~2017,~~2021, is presented in the following table:

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	Fair Value			% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss			Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		ACL		% ACL		Unrealized Loss		% Unrealized Loss
	(Dollars In Thousands)															(Dollars In Millions)
Banking	$	1,429,518		6.4	%	$	1,454,211	6.3	%	$	(24,693	)	2.9	%	Banking	$	851	9.7	%	$	869	9.6	%	$	—	—	%	$	(18)	8.0	%
Other finance	64,248			0.3		67,224		0.3		(2,976		)	0.3		Other finance	136		1.5		145		1.6		—		—		(9)		4.0
Electric utility	3,042,067			13.7		3,209,920		13.9		(167,853		)	19.6		Electric utility	393		4.4		406		4.5		—		—		(13)		5.7
Energy	1,593,681			7.2		1,678,339		7.3		(84,658		)	9.8		Energy	348		3.9		363		4.0		—		—		(15)		6.6
Natural gas	588,544			2.7		619,028		2.7		(30,484		)	3.5		Natural gas	48		0.5		49		0.5		—		—		(1)		0.4
Insurance	2,233,906			10.1		2,309,425		10.1		(75,519		)	8.8		Insurance	397		4.5		410		4.5		—		—		(13)		5.7
Communications	1,193,926			5.4		1,271,226		5.5		(77,300		)	9.0		Communications	267		3.0		276		3.0		(1)		50.0		(8)		3.5
Basic industrial	722,518			3.3		756,203		3.3		(33,685		)	3.9		Basic industrial	224		2.5		229		2.5		—		—		(5)		2.2
Consumer noncyclical	2,084,423			9.4		2,159,773		9.4		(75,350		)	8.7		Consumer noncyclical	586		6.6		603		6.6		—		—		(17)		7.5
Consumer cyclical	638,620			2.9		664,752		2.9		(26,132		)	3.0		Consumer cyclical	370		4.2		384		4.2		—		—		(14)		6.2
Finance companies	27,413			0.1		29,411		0.1		(1,998		)	0.2		Finance companies	109		1.2		111		1.2		—		—		(2)		0.9
Capital goods	1,021,495			4.6		1,062,302		4.6		(40,807		)	4.7		Capital goods	174		2.0		178		2.0		—		—		(4)		1.8
Transportation	709,108			3.2		741,336		3.2		(32,228		)	3.7		Transportation	80		0.9		81		0.9		—		—		(1)		0.4
Other industrial	151,884			0.7		161,350		0.7		(9,466		)	1.1		Other industrial	40		0.5		41		0.5		—		—		(1)		0.4
Brokerage	356,436			1.6		364,591		1.6		(8,155		)	0.9		Brokerage	146		1.6		151		1.7		—		—		(5)		2.2
Technology	606,540			2.7		628,821		2.7		(22,281		)	2.6		Technology	325		3.7		334		3.7		—		—		(9)		4.0
Real estate	35,526			0.5		35,851		0.2		(325		)	—
Other utility	16,257			0.1		17,094		0.1		(837		)	0.1

Commercial mortgage-backed securities	1,418,123			6.4		1,442,043		6.3		(23,920		)	2.8		Commercial mortgage-backed securities	140		1.6		147		1.6		(1)		50.0		(6)		2.6
Other asset-backed securities	372,844			1.7		386,332		1.7		(13,488		)	1.6		Other asset-backed securities	184		2.1		185		2.0		—		—		(1)		0.4
Residential mortgage-backed non-agency securities	789,874			3.6		802,612		3.5		(12,738		)	1.5		Residential mortgage-backed non-agency securities	2,733		30.8		2,765		30.4		—		—		(32)		14.1
Residential mortgage-backed agency securities	334,309			1.5		338,686		1.5		(4,377		)	0.5		Residential mortgage-backed agency securities	738		8.3		764		8.4		—		—		(26)		11.5
U.S. government-related securities	1,176,479			5.3		1,202,812		5.2		(26,333		)	3.1		U.S. government-related securities	459		5.2		483		5.3		—		—		(24)		10.6
Other government-related securities	128,539			0.6		135,374		0.6		(6,835		)	0.8		Other government-related securities	76		0.9		78		0.9		—		—		(2)		0.9
States, municipals, and political divisions	1,434,491			6.0		1,493,762		6.3		(59,271		)	6.9		States, municipals, and political divisions	39		0.4		40		0.4		—		—		(1)		0.4
Total	$	22,170,769	��	100.0	%	$	23,032,478	100.0	%	$	(861,709	)	100.0	%	Total	$	8,863	100.0	%	$	9,092	100.0	%	$	(2)	100.0	%	$	(227)	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,~~2020, is presented in the following table:

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	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss			Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		ACL		% ACL		Unrealized Loss		% Unrealized Loss
	(Dollars In Thousands)														(Dollars In Millions)
Banking	$	3,085,937	10.6	%	$	3,193,541	10.3	%	$	(107,604	)	5.8	%	Banking	$	163	5.1	%	$	165	5.0	%	$	—	—	%	$	(2)	1.2	%
Other finance	65,883		0.2		69,729		0.2		(3,846		)	0.2		Other finance	95		3.0		103		3.1		—		—		(8)		6.3
Electric utility	3,412,425		11.7		3,727,811		12.0		(315,386		)	16.9		Electric utility	221		7.0		231		6.9		—		0.6		(10)		7.6
Energy	2,710,110		9.3		2,888,563		9.3		(178,453		)	9.6		Energy	431		13.7		482		14.6		(16)		68.2		(35)		26.9
Natural gas	542,654		1.9		593,355		1.9		(50,701		)	2.7		Natural gas	14		0.4		14		0.4		—		1.0		—		0.2
Insurance	2,857,406		9.8		3,094,076		10.0		(236,670		)	12.7		Insurance	87		2.8		100		3.1		—		—		(13)		10.0
Communications	1,463,373		5.0		1,604,670		5.2		(141,297		)	7.6		Communications	54		1.6		56		1.6		(2)		8.3		—		(0.4)
Basic industrial	1,149,208		3.9		1,236,848		4.0		(87,640		)	4.7		Basic industrial	—		—		—		—		—		—		—		—
Consumer noncyclical	2,626,590		9.0		2,811,825		9.1		(185,235		)	10.0		Consumer noncyclical	188		5.9		193		5.8		—		—		(5)		3.9
Consumer cyclical	764,236		2.6		808,112		2.6		(43,876		)	2.4		Consumer cyclical	243		7.6		256		7.6		—		—		(13)		10.4
Finance companies	64,490		0.2		69,077		0.2		(4,587		)	0.2		Finance companies	1		0.1		2		0.1		—		—		(1)		0.7
Capital goods	1,392,879		4.8		1,479,146		4.8		(86,267		)	4.6		Capital goods	32		1.0		33		1.0		—		—		(1)		1.0
Transportation	948,991		3.3		1,012,504		3.3		(63,513		)	3.4		Transportation	153		4.8		161		4.8		—		—		(8)		5.1
Other industrial	163,993		0.6		176,558		0.6		(12,565		)	0.7		Other industrial	18		0.6		18		0.5		—		—		—		0.1
Brokerage	512,377		1.8		546,116		1.8		(33,739		)	1.8		Brokerage	39		1.2		41		1.2		—		—		(2)		1.3
Technology	946,890		3.2		1,001,064		3.2		(54,174		)	2.9		Technology	52		1.6		55		1.6		—		—		(3)		1.9
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		Commercial mortgage-backed securities	293		9.2		316		9.5		(4)		15.7		(19)		15.1
Other asset-backed securities	500,497		1.7		521,195		1.7		(20,698		)	1.1		Other asset-backed securities	472		14.9		480		14.4		(1)		6.2		(7)		5.1
Residential mortgage-backed non-agency securities	956,524		3.3		975,895		3.2		(19,371		)	1.1		Residential mortgage-backed non-agency securities	292		9.2		293		8.8		—		—		(1)		0.9
Residential mortgage-backed agency securities	265,996		0.9		271,920		0.9		(5,924		)	0.3		Residential mortgage-backed agency securities	103		3.2		103		3.1		—		—		—		—
U.S. government-related securities	1,237,945		4.2		1,278,400		4.1		(40,455		)	2.2		U.S. government-related securities	312		5.1		315		5.0		—		—		(3)		1.3
Other government-related securities	177,805		0.6		192,602		0.6		(14,797		)	0.8		Other government-related securities	26		0.8		27		0.8		—		—		(1)		0.8
States, municipals, and political divisions	1,610,621		5.5		1,716,179		5.4		(105,558		)	5.7		States, municipals, and political divisions	39		1.2		39		1.1		—		—		—		0.6
Total	$	29,127,039	100.0	%	$	30,986,746	100.0	%	$	(1,859,707	)	100.0	%	Total	$	3,328	100.0	%	$	3,483	100.0	%	$	(23)	100.0	%	$	(132)	100.0	%



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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A



				Page
			PART I

Item 1.			Financial Statements (unaudited):
			Consolidated Condensed Statements of Income For The Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	2
			Consolidated Condensed Statements of Comprehensive Income (Loss) For The Three and Nine Months Ended September 30, 2021 and 2020	3
			Consolidated Condensed Balance Sheets as of September 30, 2021 and December 31, 20 20	4
			Consolidated Condensed Statements of Shareowner’s Equity For The Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	36
			~~Consolidated Condensed Balance Sheets as of September 30, 2017 and December 31, 2016~~	4
	~~Consolidated Condensed Statement of Shareowner’s Equity For The Nine Months Ended September 30, 2017~~	6
	Consolidated Condensed Statements of Cash Flows For The Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	78
			Notes to Consolidated Condensed Financial Statements	910
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	5648
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	~~106~~95
Item 4.			Controls and Procedures	~~107~~95

			PART II

Item 1.			Legal Proceedings	95
Item 1A.			Risk Factors	~~107~~96
Item 6.			Exhibits	~~115~~103
			Signature	~~116~~104


	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars In Millions)
Due in one year or less	$	1,566	$	1,581
Due after one year through five years	11,358		11,900
Due after five years through ten years	14,469		15,365
Due after ten years	38,087		41,927
	$	65,480	$	70,773



	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars In Thousands)
Due in one year or less	$	772,655	$	773,331	$	—	$	—
Due after one year through five years	6,278,517		6,310,854		—		—
Due after five years through ten years	7,537,131		7,567,040		—		—
Due after ten years	23,618,477		23,238,933		2,730,995		2,796,603
	$	38,206,780	$	37,890,158	$	2,730,995	$	2,796,603



As of September 30, 2017	Amortized Cost		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Fair Value		Total OTTI Recognized in OCI
	(Dollars In Thousands)
Fixed maturities:
Securities issued by affiliates:
Red Mountain LLC	$	690,995	$	—	$	(17,305	)	$	673,690	$	—
Steel City LLC	2,040,000		82,913		—			2,122,913		—
	$	2,730,995	$	82,913	$	(17,305	)	$	2,796,603	$	—

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)
Fixed maturities:
Securities issued by affiliates:
Red Mountain LLC	$	654,177	$	—	$	(67,222	)	$	586,955	$	—
Steel City LLC	2,116,000		30,385		—			2,146,385		—
	$	2,770,177	$	30,385	$	(67,222	)	$	2,733,340	$	—



	Fair Value As of September 30, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	553,005	Liquidation	Liquidation value	$90 - $97 ($95.02)
			Discounted cash flow	Liquidity premium	0.51% - 1.29% (0.96%)
				Paydown rate	10.75% - 12.75% (11.34%)
Corporate securities	615,576		Discounted cash flow	Spread over treasury	0.35% - 4.35% (1.57%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	20,336	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	0.12% - 0.86%
Embedded derivative - FIA	197,378		Actuarial cash flow model	Expenses	$146 per policy
				Asset Earned Rate	4.08% - 4.66%
				Withdrawal rate	1.5% prior to age 70, 100% of the RMD for ages 70+
				Mortality	1994 MGDB table with company experience
				Lapse	1.0% - 30.0%, depending on duration/surrender charge period
				Nonperformance risk	0.12% - 0.86%
Embedded derivative - IUL	69,081		Actuarial cash flow model	Mortality	34% - 152% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10%, depending on
					duration/distribution channel
					and smoking class
				Nonperformance risk	0.12% - 0.86%

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



	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.



			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	$	—	$	83	$	—		$	—		$	—	$	—		$	—	$	—	$	(11,944	)	$	(1	)	$	—	$	—
Commercial mortgage-backed securities	—		—		—		—						—		—			—		—		—			—			—		—
Other asset-backed securities	552,963		—		1,682		—			(2,285		)	100		(109		)	—		—		—			798			553,149		—
Corporate securities	662,654		—		8,301		—			(2,222		)	5,071		(42,242		)	—		—		(5,486		)	(1,523		)	624,553		—
Total fixed maturity securities - available-for-sale	1,227,479		—		10,066		—			(4,507		)	5,171		(42,351		)	—		—		(17,430		)	(726		)	1,177,702		—
Fixed maturity securities - trading
Other asset-backed securities	54,923		—		—		(353		)	—			—		(19,188		)	—		—		—			108			35,490		(209		)
Corporate securities	5,520		27		—		—			—			—		—			—		—		—			(23		)	5,524		27
Total fixed maturity securities - trading	60,443		27		—		(353		)	—			—		(19,188		)	—		—		—			85			41,014		(182		)
Total fixed maturity securities	1,287,922		27		10,066		(353		)	(4,507		)	5,171		(61,539		)	—		—		(17,430		)	(641		)	1,218,716		(182		)
Equity securities	65,686		—		—		—			—			—		(170		)	—		—		—			—			65,516		—
Other long-term investments⁽¹⁾	93,245		56,491		—		(2		)	—			—		—			—		—		—			—			149,734		56,489
Total investments	1,446,853		56,518		10,066		(355		)	(4,507		)	5,171		(61,709		)	—		—		(17,430		)	(641		)	1,433,966		56,307
Total assets measured at fair value on a recurring basis	$	1,446,853	$	56,518	$	10,066	$	(355	)	$	(4,507	)	$	5,171	$	(61,709	)	$	—	$	—	$	(17,430	)	$	(641	)	$	1,433,966	$	56,307
Liabilities:
Annuity account balances⁽²⁾	$	86,094	$	—	$	—	$	(977	)	$	—		$	—	$	—		$	9	$	2,052	—			$	—		$	85,028	$	—
Other liabilities⁽¹⁾	532,763		6,702		—		(35,235		)	—			—		—			—		—		—			—			561,296		(28,533		)
Total liabilities measured at fair value on a recurring basis	$	618,857	$	6,702	$	—	$	(36,212	)	$	—		$	—	$	—		$	9	$	2,052	$	—		$	—		$	646,324	$	(28,533	)

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



	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 September 30, 2017
Foreign currency swaps	$	1,273	$	(38	)	$	—
Total	$	1,273	$	(38	)	$	—

For The Nine Months Ended September 30, 2017
Foreign currency swaps	$	55	$	(396	)	$	—
Total	$	55	$	(396	)	$	—



	For The Nine Months Ended
	September 30, 2017
	(Dollars In Thousands)
Beginning balance, December 31, 2016	$	724
Charge offs	(5,653		)
Recoveries	(731		)
Provision	6,715
Ending balance, September 30, 2017	$	1,055



					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
As of September 30, 2017	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	2,293	$	—	$	869	$	3,162
Number of delinquent commercial mortgage loans	2		—		1		3

As of December 31, 2016
Commercial mortgage loans	$	3,669	$	—	$	—	$	3,669
Number of delinquent commercial mortgage loans	4		—		—		4



			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
As of September 30, 2017	Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)
Commercial mortgage loans:
With no related allowance recorded	$	—	$	—	$	—	$	—	$	—	$	—
With an allowance recorded	1,924		1,924		1,055		1,924		18		27

As of December 31, 2016
Commercial mortgage loans:
With no related allowance recorded	$	—	$	—	$	—	$	—	$	—	$	—
With an allowance recorded	1,819		1,819		724		1,819		96		96



	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars In Thousands)
As of September 30, 2017
Troubled debt restructuring:
Commercial mortgage loans	2	$	1,134	$	1,134

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



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⁾	$	2,040,000	$	2,040,000	2039	4.75	%
Golden Gate II Captive Insurance Company	278,949		228,855		2052	2.92	%
Golden Gate V Vermont Captive Insurance Company⁽²⁾⁽³⁾	605,000		666,729		2037	5.12	%
MONY Life Insurance Company⁽³⁾	1,091		2,421		2024	6.19	%
Total	$	2,925,040	$	2,938,005

(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.



	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	547,885			36		547,921
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	7,125			—		7,125
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	(536		)	257		(279		)
Net current-period other comprehensive income (loss)	554,474			293		554,767
Ending Balance, September 30, 2017	$	(101,293	)	$	1,020	$	(100,273	)

(1) See Reclassification table below for details.
(2) As of September 30, 2017, net unrealized losses reported in AOCI were offset by $93.6 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.



For The Three Months Ended September 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⁾	$	(38	)	Benefits and settlement expenses, net of reinsurance ceded
	(38		)	Total before tax
	14			Tax (expense) or benefit
	$	(24	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains (losses)	$	690		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(273		)	Net impairment losses recognized in earnings
	417			Total before tax
	(146		)	Tax (expense) or benefit
	$	271		Net of tax

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



	Operating Segment Assets As of September 30, 2017
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,700,306	$	19,681,306	$	20,442,345	$	4,664,251
DAC and VOBA	1,295,708		77,157		752,540		7,605
Other intangibles	286,444		35,187		173,450		8,222
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	16,482,732	$	19,808,174	$	21,705,012	$	4,793,891



	Operating Segment Assets As of December 31, 2016
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,050,905	$	19,679,690	$	20,076,818	$	3,373,646
DAC and VOBA	1,218,944		106,532		655,618		5,455
Other intangibles	300,664		37,103		183,449		8,722
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	15,770,787	$	19,837,849	$	21,252,562	$	3,501,636


	As of or For The Three Months Ended September 30,				As of or For The Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars In Millions)
Variable Account Value
Beginning balance	$	12,599	$	10,684	$	11,763	$	12,162
Increase (decrease) in VA account values:
Deposits	217		50		635		114
Surrenders	(254)		(230)		(770)		(739)
Contract holder assessments	(60)		(56)		(178)		(169)
Change in market value and other activity	(14)		463		1,038		(457)
Ending balance	$	12,488	$	10,911	$	12,488	$	10,911



	As of September 30, 2017		% Fair Value		As of December 31, 2016		% Fair Value
	(Dollars In Thousands)
Banking	$	4,325,558	10.0	%	$	3,811,588	9.3	%
Other finance	78,844		0.2		83,895		0.2
Electric utility	3,971,429		9.2		3,925,147		9.6
Energy	3,954,918		9.1		3,887,736		9.5
Natural gas	720,472		1.6		603,149		1.5
Insurance	3,633,259		8.4		3,185,237		7.8
Communications	1,706,316		3.9		1,651,600		4.1
Basic industrial	1,618,765		3.7		1,533,516		3.8
Consumer noncyclical	3,806,559		8.8		3,465,299		8.5
Consumer cyclical	1,136,256		2.6		1,041,805		2.6
Finance companies	146,817		0.3		139,050		0.3
Capital goods	1,847,034		4.3		1,773,467		4.4
Transportation	1,163,590		2.7		1,136,666		2.7
Other industrial	224,436		0.5		200,605		0.5
Brokerage	842,474		2.0		760,585		1.9
Technology	1,766,941		4.1		1,534,297		3.8
Real estate	83,513		0.2		122,058		0.3
Other utility	65,735		0.2		83,366		0.2
Commercial mortgage-backed securities	2,037,706		4.8		1,932,180		4.7
Other asset-backed securities	1,333,280		3.1		1,411,617		3.5
Residential mortgage-backed non-agency securities	1,690,281		3.9		1,414,859		3.5
Residential mortgage-backed agency securities	755,150		1.7		729,775		1.8
U.S. government-related securities	1,320,547		3.0		1,295,120		3.2
Other government-related securities	316,347		0.7		300,938		0.7
State, municipals, and political divisions	2,025,010		4.7		1,973,022		4.8
Securities issued by affiliates	2,730,995		6.3		2,770,177		6.8
Total	$	43,302,232	100.0	%	$	40,766,754	100.0	%



S&P or Equivalent	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
Designation	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
AAA/AA/A	$	13,603,854	61.4	%	$	14,042,579	61.0	%	$	(438,725	)	50.9	%
BBB	7,911,314		35.6		8,275,499		35.8		(364,185		)	42.3
Investment grade	21,515,168		97.0	%	22,318,078		96.8	%	(802,910		)	93.2	%
BB	351,575		1.6		377,677		1.6		(26,102		)	3.0
B	220,235		1.0		249,675		1.1		(29,440		)	3.4
CCC or lower	83,791		0.4		87,048		0.5		(3,257		)	0.4
Below investment grade	655,601		3.0	%	714,400		3.2	%	(58,799		)	6.8	%
Total	$	22,170,769	100.0	%	$	23,032,478	100.0	%	$	(861,709	)	100.0	%


			Percent of					Percent of
Rating	Fair Value		Fair Value		Rating	Fair Value		Fair Value
	(Dollars In Thousands)					(Dollars In Millions)
AAA	$	5,278,828	13.9	%	AAA	$	9,320	13.2	%
AA	3,280,511		8.7		AA	6,859		9.7
A	12,657,431		33.4		A	22,136		31.2
BBB	14,764,710		39.0		BBB	29,883		42.2
Investment grade	35,981,480		95.0		Investment grade	68,198		96.3
BB	1,362,934		3.6		BB	2,453		3.5
B	301,763		0.8		B	119		0.2
CCC or lower	243,981		0.6		CCC or lower	3		—
Below investment grade	1,908,678		5.0		Below investment grade	2,575		3.7
Total	$	37,890,158	100.0	%	Total	$	70,773	100.0	%



	Fair Value of
	Funded		Unfunded		Total
Creditor	Securities		Exposures		Fair Value
	(Dollars In Millions)
Federal Home Loan Bank	$	230.3	$	—	$	230.3
The Southern Co.	215.7		—		215.7
Duke Energy Corp	207.3		—		207.3
AT&T Inc.	206.7		—		206.7
JP Morgan Chase & Co	199.5		6.6		206.1
Wells Fargo & Co.	200.3		—		200.3
Morgan Stanley	198.5		—		198.5
Exelon Corp	196.7		—		196.7
Goldman Sachs Group	195.3		—		195.3
HSBC Holdings PLC	194.3		—		194.3
Total	$	2,044.6	$	6.6	$	2,051.2


					Total Gross							Total Gross
	Non-sovereign Debt				Funded			Non-sovereign Debt				Funded
Financial Instrument and Country	Financial		Non-financial		Exposure		Financial Instrument and Country	Financial		Non-financial		Exposure
	(Dollars In Millions)							(Dollars In Millions)
Securities:							Securities:
United Kingdom	$	623.4	$	768.5	$	1,391.9	United Kingdom	$	1,304	$	1,456	$	2,760
France							France	749		410		1,159
Netherlands	227.6		249.0		476.6		Netherlands	346		354		700
France	134.4		226.5		360.9
Germany							Germany	249		836		1,085
Switzerland	220.3		112.2		332.5		Switzerland	459		156		615
Germany	149.9		150.4		300.3
Spain	22.7		228.2		250.9		Spain	245		359		604
Belgium	—		202.9		202.9		Belgium	—		209		209
Sweden	129.1		20.6		149.7
Norway	—		99.3		99.3		Norway	—		126		126
Luxembourg	—		61.3		61.3
Finland							Finland	109		—		109
Ireland	—		58.2		58.2		Ireland	72		126		198
Italy	—		41.3		41.3		Italy	75		175		250
Luxembourg							Luxembourg	—		34		34
Sweden							Sweden	—		53		53
Denmark							Denmark	57		—		57
Portugal							Portugal	—		25		25
Austria							Austria	—		21		21
Total securities	1,507.4		2,218.4		3,725.8		Total securities	3,665		4,340		8,005
Derivatives:							Derivatives:
Germany	41.4		—		41.4

United Kingdom	12.5		—		12.5		United Kingdom	125		—		125
Switzerland	3.9		—		3.9		Switzerland	26		—		26
France	1.7		—		1.7		France	53		—		53
Total derivatives	59.5		—		59.5		Total derivatives	204		—		204
Total securities	$	1,566.9	$	2,218.4	$	3,785.3	Total securities	$	3,869	$	4,340	$	8,209


	Proceeds		% Proceeds		Realized Loss			% Realized Loss			Proceeds		% Proceeds		Realized Loss		% Realized Loss
	(Dollars In Thousands)										(Dollars In Millions)
<= 90 days	$	33,154	27.3	%	$	(2,872	)	48.8	%	<= 90 days	$	20	57.1	%	$	—	—	%
>90 days but <= 180 days	25,614		21.1		(225		)	3.8		>90 days but <= 180 days	—		—		—		—
>180 days but <= 270 days	5,888		4.8		(173		)	2.9		>180 days but <= 270 days	—		—		—		—
>270 days but <= 1 year	14,560		12.0		(524		)	8.9		>270 days but <= 1 year	—		—		—		—
>1 year	42,234		34.8		(2,090		)	35.6		>1 year	15		42.9		(1)		100.0
Total	$	121,450	100.0	%	$	(5,884	)	100.0	%	Total	$	35	100.0	%	$	(1)	100.0	%


								For The Nine Months Ended September 30,
	For The Nine Months Ended September 30,							2021		2020
	2017			2016				(Dollars In Millions)
	(Dollars In Thousands)
Net cash provided by operating activities	$	16,394		$	295,143
Net cash (used in) provided by operating activities							Net cash (used in) provided by operating activities	$	(771)	$	35
Net cash used in investing activities	(1,836,948		)	(3,425,540		)	Net cash used in investing activities	(3,469)		(1,684)
Net cash provided by financing activities	1,805,748			3,325,617			Net cash provided by financing activities	3,993		1,885
Total	$	(14,806	)	$	195,220		Total	$	(247)	$	236



			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⁾	$	5,025,873	$	265,022	$	619,962	$	671,297	$	3,469,592
Stable value products⁽²⁾	5,069,209		963,785		2,262,606		1,693,271		149,547
Operating leases⁽³⁾	30,270		4,621		8,450		7,367		9,832
Home office lease⁽⁴⁾	77,552		2,048		75,504		—		—
Mortgage loan and investment commitments	852,091		759,062		93,029		—		—
Secured financing liabilities⁽⁵⁾	599,593		599,593		—		—		—
Policyholder obligations⁽⁶⁾	42,259,849		1,593,574		3,431,619		3,439,037		33,795,619
Total	$	53,914,437	$	4,187,705	$	6,491,170	$	5,810,972	$	37,424,590

(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.


				1-50 bps			More than
	At			above			50 bps
	MGIR			MGIR			above MGIR			Total
	(Account Value In Millions)
Crediting Rate
Universal Life Insurance
2%	$	15		$	908		$	2,560		$	3,483
>2% - 3%	5,505			747			1,098			7,350
>3% - 4%	7,378			386			36			7,800
>4% - 5%	2,192			478			84			2,754
>5% - 6%	311			—			—			311
Subtotal	15,401			2,519			3,778			21,698
Fixed Annuities
1%	$	308		$	1,027		$	1,753		$	3,088
>1% - 2%	493			197			2,171			2,861
>2% - 3%	1,369			47			2			1,418
>3% - 4%	257			—			—			257
>4% - 5%	247			—			—			247
>5% - 6%	—			—			—			—
Subtotal	2,674			1,271			3,926			7,871
Total	$	18,075		$	3,790		$	7,704		$	29,569

Percentage of Total	61		%	13		%	26		%	100		%



				1-50 bps			More than
Minimum Guaranteed Interest Rate	At			above			50 bps
Account Value	MGIR			MGIR			above MGIR			Total
	(Dollars In Millions)
Universal Life Insurance
>2% - 3%	$	203		$	1,197		$	2,044		$	3,444
>3% - 4%	4,160			997			8			5,165
>4% - 5%	2,001			13			1			2,015
>5% - 6%	201			—			—			201
Subtotal	6,565			2,207			2,053			10,825
Fixed Annuities
1%	$	614		$	205		$	360		$	1,179
>1% - 2%	500			358			72			930
>2% - 3%	1,939			64			5			2,008
>3% - 4%	257			—			—			257
>4% - 5%	274			—			—			274
>5% - 6%	3			—			—			3
Subtotal	3,587			627			437			4,651
Total	$	10,152		$	2,834		$	2,490		$	15,476

Percentage of Total	66		%	18		%	16		%	100		%



Exhibit
Number		Document
~~3(a)~~*3.1		~~2011~~2020 Amended and Restated Charter of Protective Life Insurance Company dated as of ~~June 27, 2011, incorporated by reference to~~December 30, 2020, filed as Exhibit ~~3(a)~~3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2011~~2020, filed March ~~29, 2012~~30, 2021 (No. 001-31901).
~~3(b)~~*3.2		~~2011~~2020 Amended and Restated By-Laws of Protective Life Insurance Company dated as of ~~June 27, 2011, incorporated by reference to~~December 30, 2020, filed as Exhibit ~~3(b)~~3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2011~~2020, filed March ~~29, 2012~~30, 2021 (No. 001-31901).
1231.1		~~Consolidated Earnings Ratio.~~
~~31(a)~~	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31(b)~~31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32(a)~~32.1		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32(b)~~32.2		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101~~101.INS		~~Financial statements from~~XBRL Instance Document - the ~~quarterly report on Form 10-Q of Protective Life Insurance Company for~~instance document does not appear in the ~~quarter ended September 30, 2017, filed on November 14, 2017 formatted~~Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in XBRL: (i) the Consolidated Condensed Statements of Income, (ii) the Consolidated Condensed Statements of Comprehensive Income, (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.Exhibit 101)

*		Incorporated by Reference.



	PROTECTIVE LIFE INSURANCE COMPANY


Date: November ~~14, 2017~~12, 2021		By:	/s/ PAUL R. WELLS
			Paul R. Wells
			~~Senior Vice President,~~ Chief Accounting Officer
			~~and Controller~~