UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June 30, 2016~~March 31, 2017

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

For the transition period from to

Commission File Number 001-11339

PROTECTIVE LIFE CORPORATION

(Exact name of registrant as specified in its charter)



DELAWARE		95-2492236
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

2801 HIGHWAY 280 SOUTH

BIRMINGHAM, ALABAMA 35223

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code (205) 268-1000

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

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

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



Large accelerated filer o		Accelerated Filer o

Non-accelerated filer x		Smaller Reporting Company o

		Emerging Growth Company o

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

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

Number of shares of Common Stock, $0.01 Par Value, outstanding as of ~~July 25, 2016:~~April 24, 2017: 1,000

~~Table of Contents~~

PROTECTIVE LIFE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED ~~JUNE 30, 2016~~MARCH 31, 2017

TABLE OF CONTENTS

PART I



		Page
Item 1.	Financial Statements (unaudited):
	Consolidated Condensed Statements of Income For The Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2017 and 2016 (Successor Company), For The Three Months Ended June 30, 2015 and the Period of February 1, 2015 to June 30, 2015 (Successor Company), and the Period of January 1, 2015 to January 31, 2015 (Predecessor Company)	2
	Consolidated Condensed Statements of Comprehensive Income ~~(Loss) For The Three and Six Months Ended June 30, 2016 (Successor Company),~~ For The Three Months Ended ~~June 30, 2015~~March 31, 2017 and ~~the Period of February 1, 2015 to June 30, 2015 (Successor Company), and the Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~2016	43
	Consolidated Condensed Balance Sheets as of ~~June 30, 2016 (Successor Company)~~March 31, 2017 and December 31, ~~2015 (Successor Company)~~2016	54
	Consolidated Condensed Statement of Shareowner’s Equity For The ~~Six~~Three Months Ended ~~June 30, 2016 (Successor Company)~~March 31, 2017	76
	Consolidated Condensed Statements of Cash Flows For The ~~Six~~Three Months Ended ~~June 30,~~March 31, 2017 and 2016 ~~(Successor Company), the Period of February 1, 2015 to June 30, 2015 (Successor Company), and the Period of January 1, 2015 to January 31, 2015 (Predecessor Company)~~	87
	Notes to Consolidated Condensed Financial Statements	109
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6554
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~124~~99
Item 4.	Controls and Procedures	~~124~~99

PART II

Item 1A.	Risk Factors	~~124~~99
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~131~~103
Item 6.	Exhibits	~~132~~104
	Signature	~~133~~105

~~Table of Contents~~

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

Successor Company Predecessor Company

For The Three
Months Ended
June 30, 2016

For The Three
Months Ended
June 30, 2015

For The Six
Months Ended
June 30, 2016
February 1, 2015
to
June 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands)
(Dollars In Thousands,
Except Per Share
Amounts)
Revenues

Premiums and policy fees $ 857,948
$ 832,088
$ 1,710,743
$ 1,341,096
$ 261,866
Reinsurance ceded (336,605 ) (345,244 ) (646,932 ) (486,645 ) (89,956 )
Net of reinsurance ceded 521,343
486,844

1,063,811
854,451

171,910
Net investment income 488,460
436,291
963,577
725,163
175,180
Realized investment gains (losses):

Derivative financial instruments (83,366 ) 94,603
(156,865 ) 128,244
(123,274 )
All other investments 88,783
(102,337 ) 170,511
(137,393 ) 81,153
Other-than-temporary impairment losses (5,527 ) (13,395 ) (8,296 ) (13,395 ) (636 )
Portion recognized in other comprehensive income (before taxes) 4,560
7,661
4,712
7,661
155
Net impairment losses recognized in earnings (967 ) (5,734 )
(3,584 ) (5,734 )
(481 )
Other income 102,148
109,094
205,864
176,357
36,421
Total revenues 1,116,401
1,018,761

2,243,314
1,741,088

340,909
Benefits and expenses

Benefits and settlement expenses, net of reinsurance ceded: (three and six months: 2016 Successor - $276,294 and $576,167); (2015 Successor - $303,743 and $420,951) (2015 Predecessor - $87,674) 713,697
694,606
1,428,242
1,180,905
267,287
Amortization of deferred policy acquisition costs and value of business acquired 20,761
40,094
51,507
67,991
4,072
Other operating expenses, net of reinsurance ceded: (three and six months: 2016 Successor - $50,950 and $99,261); (2015 Successor - $49,741 and $84,777); (2015 Predecessor - $35,036) 213,282
187,151
423,062
302,455
68,368
Total benefits and expenses 947,740
921,851

1,902,811
1,551,351

339,727
Income before income tax 168,661
96,910
340,503
189,737
1,182
Income tax expense (benefit) 56,541
33,070
113,035
63,036
(327 )
Net income $ 112,120
$ 63,840

$ 227,468
$ 126,701

$ 1,509

Net income - basic

$ 0.02
Net income - diluted

$ 0.02
Cash dividends paid per share

$ —

Average shares outstanding - basic

80,452,848
Average shares outstanding - diluted

81,759,287

~~Table of Contents~~

~~See Notes to Consolidated Condensed Financial Statements~~

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Revenues
Premiums and policy fees	$	860,586		$	852,795
Reinsurance ceded	(316,076		)	(310,327		)
Net of reinsurance ceded	544,510			542,468
Net investment income	506,413			475,117
Realized investment gains (losses):
Derivative financial instruments	(69,878		)	(73,499		)
All other investments	22,841			81,728
Other-than-temporary impairment losses	(2,725		)	(2,769		)
Portion recognized in other comprehensive income (before taxes)	(5,106		)	152
Net impairment losses recognized in earnings	(7,831		)	(2,617		)
Other income	109,242			103,716
Total revenues	1,105,297			1,126,913
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (2017 -$263,377; 2016 -$299,873)	749,642			714,545
Amortization of deferred policy acquisition costs and value of business acquired	20,519			30,746
Other operating expenses, net of reinsurance ceded: (2017 -$51,017; 2016 -$48,311)	222,787			209,780
Total benefits and expenses	992,948			955,071
Income before income tax	112,349			171,842
Income tax expense	36,935			56,494
Net income	$	75,414		$	115,348

PROTECTIVE LIFE CORPORATION

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

(Unaudited)

Successor Company Predecessor Company

For The Three
Months Ended
June 30, 2016

For The Three
Months Ended
June 30, 2015

For The Six
Months Ended
June 30, 2016
February 1, 2015
to
June 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Net income $ 112,120
$ 63,840
$ 227,468
$ 126,701
$ 1,509
Other comprehensive income (loss):

Change in net unrealized gains (losses) on investments, net of income tax: (three and six months 2016 Successor - $314,161 and $550,511); (2015 Successor - $(324,302) and $(481,657)); (2015 Predecessor - $259,738) 583,441
(602,274 ) 1,022,377
(894,507 ) 482,370
Reclassification adjustment for investment amounts included in net income, net of income tax: (three and six months 2016 Successor - $(5,588) and $(6,616); (2015 Successor - $831 and $700); (2015 Predecessor - $(2,244)) (10,377 ) 1,543
(12,287 ) 1,301
(4,166 )
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three and six months 2016 Successor - $(1,543) and $(1,384)); (2015 Successor - $(2,458) and $(2,458)); (2015 Predecessor - $(131)) (2,866 ) (4,566 ) (2,572 ) (4,566 ) (243 )
Change in accumulated (loss) gain - derivatives, net of income tax: (2015 Successor - $12 and $0); (2015 Predecessor - $5) —
23
—
—
9
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2015 Successor - $(31) and $0); (2015 Predecessor - $13) —
(59 ) —
—
23
Change in postretirement benefits liability adjustment, net of income tax: (2015 Predecessor - $(6,475)) —
—
—
—
(12,025 )
Total other comprehensive income (loss) 570,198
(605,333 ) 1,007,518

(897,772 )
465,968
Total comprehensive income (loss) $ 682,318
$ (541,493 ) $ 1,234,986

$ (771,071 )
$ 467,477

~~See Notes to Consolidated Condensed Financial Statements~~

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Net income	$	75,414		$	115,348
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of income tax: (2017 - $85,962; 2016 - $236,350)	159,641			438,936
Reclassification adjustment for investment amounts included in net income, net of income tax: (2017 - $(578); 2016 - $(1,028))	(1,072		)	(1,910		)
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2017 - $1,995; 2016 - $159)	3,703			294
Change in accumulated (loss) gain - derivatives, net of income tax: (2017 - $(362); 2016 - $0)	(672		)	—
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2017 - $72; 2016 - $0)	133			—
Total other comprehensive income	161,733			437,320
Total comprehensive income	$	237,147		$	552,668

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

Successor Company
As of
June 30, 2016 As of
December 31, 2015
(Dollars In Thousands)
Assets

Fixed maturities, at fair value (amortized cost: Successor 2016 - $39,456,317; 2015 - $38,457,049) $ 38,852,025
$ 35,573,250
Fixed maturities, at amortized cost (fair value: Successor 2016 - $2,853,788; 2015 - $515,000) 2,779,280
593,314
Equity securities, at fair value (cost: Successor 2016 - $718,409; 2015 - $732,485) 739,709
739,263
Mortgage loans (related to securitizations: Successor 2016 - $305,373; 2015 - $359,181) 5,748,675
5,662,812
Investment real estate, net of accumulated depreciation (Successor 2016 - $173; 2015 - $133) 7,028
11,118
Policy loans 1,670,218
1,699,508
Other long-term investments 919,809
622,567
Short-term investments 286,201
268,718
Total investments 51,002,945

45,170,550
Cash 428,519
396,072
Accrued investment income 480,204
473,598
Accounts and premiums receivable 258,369
62,459
Reinsurance receivables 5,447,828
5,536,751
Deferred policy acquisition costs and value of business acquired 1,890,984
1,558,808
Goodwill 732,443
732,443
Other intangibles, net of accumulated amortization (Successor 2016 - $58,531; 2015 - $37,869) 625,143
645,131
Property and equipment, net of accumulated depreciation (Successor 2016 - $12,859; 2015 - $8,277) 103,466
102,865
Other assets 162,131
153,222
Income tax receivable 13,761
—
Assets related to separate accounts
Variable annuity 12,891,214
12,829,188
Variable universal life 831,818
827,610
Total assets $ 74,868,825

$ 68,488,697

~~See Notes to Consolidated Condensed Financial Statements~~

~~Table of Contents~~



	As of
	March 31, 2017		December 31, 2016
	(Dollars In Thousands)
Assets
Fixed maturities, at fair value (amortized cost: 2017 - $39,880,027; 2016 - $39,832,724)	$	38,575,433	$	38,183,337
Fixed maturities, at amortized cost (fair value: 2017 - $2,746,375; 2016 - $2,733,340)	2,758,137		2,770,177
Equity securities, at fair value (amortized cost: 2017 - $783,751; 2016 - $768,423)	792,231		754,489
Mortgage loans (related to securitizations: 2017 - $267,267; 2016 - $277,964)	6,311,822		6,132,125
Investment real estate, net of accumulated depreciation (2017 - $291; 2016 - $252)	7,149		8,060
Policy loans	1,635,511		1,650,240
Other long-term investments	879,418		865,304
Short-term investments	299,167		332,431
Total investments	51,258,868		50,696,163
Cash	409,377		348,182
Accrued investment income	493,634		482,388
Accounts and premiums receivable	129,443		118,303
Reinsurance receivables	5,308,627		5,323,846
Deferred policy acquisition costs and value of business acquired	2,065,274		2,019,829
Goodwill	793,470		793,470
Other intangibles, net of accumulated amortization (2017 - $89,573; 2016 - $79,226)	675,507		688,083
Property and equipment, net of accumulated depreciation (2017 - $19,973; 2016 - $17,450)	105,420		106,111
Other assets	213,899		170,004
Income tax receivable	110,086		116,823
Assets related to separate accounts
Variable annuity	13,512,921		13,244,252
Variable universal life	935,427		895,925
Total assets	$	76,011,953	$	75,003,379

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

~~(continued)~~(Unaudited)

~~(Unaudited)~~(continued)

Successor Company
As of
June 30, 2016 As of
December 31, 2015
(Dollars In Thousands)
Liabilities

Future policy benefits and claims $ 30,591,043
$ 29,703,897
Unearned premiums 745,312
723,536
Total policy liabilities and accruals 31,336,355
30,427,433
Stable value product account balances 2,838,674
2,131,822
Annuity account balances 10,678,701
10,719,862
Other policyholders’ funds 1,354,970
1,069,572
Other liabilities 2,636,695
1,693,310
Income tax payable —
49,957
Deferred income taxes 1,707,863
997,281
Non-recourse funding obligations 2,863,409
685,684
Repurchase program borrowings 160,000
438,185
Debt 1,397,236
1,588,806
Subordinated debt securities 445,023
448,763
Liabilities related to separate accounts

Variable annuity 12,891,214
12,829,188
Variable universal life 831,818
827,610
Total liabilities 69,141,958

63,907,473
Commitments and contingencies - Note 13 0
0
Shareowner’s equity

Common Stock, Successor: 2016 and 2015 - $0.01 par value; shares authorized: 5,000; shares issued: 1,000 —
—
Additional paid-in-capital 5,554,059
5,554,059
Treasury stock, at cost —
—
Retained earnings 406,424
268,299
Accumulated other comprehensive income (loss):

Net unrealized gains (losses) on investments, net of income tax: (Successor 2016 - $(127,390); 2015 - $(671,285)) (236,582 ) (1,246,672 )
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (Successor 2016 - $(1,596); 2015 - $(212)) (2,965 ) (393 )
Postretirement benefits liability adjustment, net of income tax: (Successor 2016 - $3,194; 2015 - $3,194) 5,931
5,931
Total shareowner’s equity 5,726,867

4,581,224
Total liabilities and shareowner’s equity $ 74,868,825

$ 68,488,697

~~See Notes to Consolidated Condensed Financial Statements~~

~~Table of Contents~~



	As of
	March 31, 2017			December 31, 2016
	(Dollars In Thousands)
Liabilities
Future policy benefits and claims	$	30,626,096		$	30,511,085
Unearned premiums	853,786			848,495
Total policy liabilities and accruals	31,479,882			31,359,580
Stable value product account balances	3,614,225			3,501,636
Annuity account balances	10,633,964			10,642,115
Other policyholders’ funds	1,181,951			1,165,749
Other liabilities	2,015,827			1,924,155
Deferred income taxes	1,715,987			1,599,764
Non-recourse funding obligations	2,785,056			2,796,474
Secured financing liabilities	827,225			797,721
Debt	1,305,408			1,163,285
Subordinated debt securities	439,260			441,202
Liabilities related to separate accounts
Variable annuity	13,512,921			13,244,252
Variable universal life	935,427			895,925
Total liabilities	70,447,133			69,531,858
Commitments and contingencies - Note 11	0			0
Shareowner’s equity
Common Stock: 2017 and 2016 - $0.01 par value; shares authorized: 5,000; shares issued: 1,000	—			—
Additional paid-in-capital	5,554,059			5,554,059
Retained earnings	503,551			571,985
Accumulated other comprehensive income (loss):
Net unrealized (losses) gains on investments, net of income tax: (2017 - $(264,157); 2016 - $(349,541))	(490,578		)	(649,147		)
Net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2017 - $(1,869); 2016 - $(3,864))	(3,472		)	(7,175		)
Accumulated loss - derivatives, net of income tax: (2017 - $101; 2016 - $391)	188			727
Postretirement benefits liability adjustment, net of income tax: (2017 - $578; 2016 - $578)	1,072			1,072
Total shareowner’s equity	5,564,820			5,471,521
Total liabilities and shareowner’s equity	$	76,011,953		$	75,003,379

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY

(Unaudited)

Common
Stock

Additional
Paid-In-
Capital

Treasury
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareowner’s
equity
(Dollars In Thousands)
Successor Company

Balance, December 31, 2015 $ —
$ 5,554,059
$ —
$ 268,299
$ (1,241,134 ) $ 4,581,224
Net income for the six months ended June 30, 2016

227,468

227,468
Other comprehensive income

1,007,518
1,007,518
Comprehensive income for the six months ended June 30, 2016

1,234,986
Dividends to parent (89,343 ) (89,343 )
Balance, June 30, 2016 $ —
$ 5,554,059
$ —
$ 406,424
$ (233,616 ) $ 5,726,867

~~See Notes to Consolidated Condensed Financial Statements~~

~~Table of Contents~~



	Common Stock		Additional Paid-In- Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareowner’s equity
	(Dollars In Thousands)
Balance, December 31, 2016	$	—	$	5,554,059	$	571,985		$	(654,523	)	$	5,471,521
Net income for the three months ended March 31, 2017					75,414						75,414
Other comprehensive income								161,733			161,733
Comprehensive income for the three months ended March 31, 2017											237,147
Dividends to parent					(143,848		)				(143,848		)
Balance, March 31, 2017	$	—	$	5,554,059	$	503,551		$	(492,790	)	$	5,564,820

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

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

Net income $ 227,468
$ 126,701
$ 1,509
Adjustments to reconcile net income to net cash provided by operating activities:

Realized investment (gains) losses (10,062 ) 14,883
42,602
Amortization of DAC and VOBA 51,507
67,991
4,072
Capitalization of DAC (162,363 ) (130,347 ) (22,489 )
Depreciation and amortization expense 27,008
20,922
820
Deferred income tax 168,049
16,056
30,791
Accrued income tax (63,718 ) 117,041
(32,803 )
Interest credited to universal life and investment products 365,702
422,093
79,088
Policy fees assessed on universal life and investment products (633,366 ) (491,769 ) (90,288 )
Change in reinsurance receivables 88,923
110,125
(85,081 )
Change in accrued investment income and other receivables (30,069 ) 15,831
(5,789 )
Change in policy liabilities and other policyholders’ funds of traditional life and health products (180,674 ) (153,073 ) 176,980
Trading securities:

Maturities and principal reductions of investments 54,710
40,104
17,946
Sale of investments 299,517
78,302
26,422
Cost of investments acquired (331,920 ) (135,770 ) (27,289 )
Other net change in trading securities 31,036
83,770
(26,901 )
Amortization of premiums and accretion of discounts on investments and mortgage loans 197,319
177,658
12,930
Change in other liabilities 274,971
(228,189 ) 238,592
Other, net (43,897 ) (27,763 ) (149,889 )
Net cash provided by operating activities $ 330,141
$ 124,566
$ 191,223

~~See Notes to Consolidated Condensed Financial Statements~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	75,414		$	115,348
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment losses (gains)	54,868			(5,612		)
Amortization of DAC and VOBA	20,519			30,746
Capitalization of DAC	(81,474		)	(80,228		)
Depreciation and amortization expense	15,474			13,829
Deferred income tax	29,133			111,312
Accrued income tax	6,737			(59,802		)
Interest credited to universal life and investment products	160,239			156,748
Policy fees assessed on universal life and investment products	(335,883		)	(314,612		)
Change in reinsurance receivables	15,219			21,203
Change in accrued investment income and other receivables	(9,368		)	(55,181		)
Change in policy liabilities and other policyholders’ funds of traditional life and health products	(94,234		)	(28,581		)
Trading securities:
Maturities and principal reductions of investments	44,041			23,280
Sale of investments	85,382			112,158
Cost of investments acquired	(114,390		)	(131,030		)
Other net change in trading securities	3,801			22,791
Amortization of premiums and accretion of discounts on investments and mortgage loans	142,613			97,131
Change in other liabilities	19,373			90,571
Other, net	2,554			(10,303		)
Net cash provided by operating activities	$	40,018		$	109,768

~~Table of Contents~~

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(continued)

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

Maturities and principal reductions of investments, available-for-sale $ 630,133
$ 202,371
$ 59,028
Sale of investments, available-for-sale 1,212,879
2,051,567
191,062
Cost of investments acquired, available-for-sale (2,852,940 ) (2,593,859 ) (149,887 )
Change in investments, held-to-maturity (2,188,000 ) (35,000 ) —
Mortgage loans:

New lendings (575,386 ) (637,908 ) (100,530 )
Repayments 457,181
510,580
45,741
Change in investment real estate, net 3,883
52
7
Change in policy loans, net 29,290
32,008
6,365
Change in other long-term investments, net (65,499 ) (154,537 ) (25,339 )
Change in short-term investments, net (41,017 ) 34,946
(40,314 )
Net unsettled security transactions 112,433
(46,266 ) 37,510
Purchase of property and equipment (8,282 ) (2,444 ) (649 )
Amounts received from reinsurance transaction 325,800
—
—
Net cash (used in) provided by investing activities $ (2,959,525 ) $ (638,490 ) $ 22,994
Cash flows from financing activities

Borrowings under line of credit arrangements and debt $ 100,000
$ 155,000
$ —
Principal payments on line of credit arrangement and debt (258,763 ) (119,399 ) (60,000 )
Issuance (repayment) of non-recourse funding obligations 2,176,700
35,000
—
Repurchase program borrowings (278,185 ) 552,213
—
Dividends to shareowners (89,343 ) —
—
Investment product deposits and change in universal life deposits 2,219,455
1,222,581
169,233
Investment product withdrawals (1,208,033 ) (1,225,576 ) (240,147 )
Other financing activities, net —
171
(4 )
Net cash provided by (used in) financing activities $ 2,661,831
$ 619,990
$ (130,918 )
Change in cash 32,447
106,066
83,299
Cash at beginning of period 396,072
462,710
379,411
Cash at end of period $ 428,519
$ 568,776
$ 462,710

~~See Notes to Consolidated Condensed Financial Statements~~

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	$	166,419		$	290,533
Sale of investments, available-for-sale	269,509			468,021
Cost of investments acquired, available-for-sale	(623,564		)	(1,348,046		)
Change in investments, held-to-maturity	11,000			(2,208,000		)
Mortgage loans:
New lendings	(373,108		)	(271,230		)
Repayments	177,142			226,869
Change in investment real estate, net	832			2,644
Change in policy loans, net	14,729			15,420
Change in other long-term investments, net	(33,832		)	7,648
Change in short-term investments, net	31,859			(199,246		)
Net unsettled security transactions	7,361			123,117
Purchase of property, equipment, and intangibles	(8,118		)	(3,649		)
Amounts received from reinsurance transaction	—			325,800
Net cash used in investing activities	$	(359,771	)	$	(2,570,119	)
Cash flows from financing activities
Borrowings under line of credit arrangements and debt	$	255,000		$	90,000
Principal payments on line of credit arrangement and debt	(98,498		)	(127,888		)
Issuance (repayment) of non-recourse funding obligations	(11,000		)	2,179,700
Secured financing liabilities	29,504			221,815
Dividends to shareowner	(143,848		)	(89,343		)
Investment product deposits and change in universal life deposits	901,387			697,099
Investment product withdrawals	(551,597		)	(552,960		)
Other financing activities, net	—			—
Net cash provided by financing activities	$	380,948		$	2,418,423
Change in cash	61,195			(41,928		)
Cash at beginning of period	348,182			396,072
Cash at end of period	$	409,377		$	354,144

PROTECTIVE LIFE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Basis of Presentation

On February 1, 2015, Protective Life Corporation (the “Company”) became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (“(now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc. a wholly owned subsidiary of Dai-ichi Life, merged with and into the ~~Company (the "Merger").~~Company. Prior to February 1, 2015, ~~and for the periods reported as “predecessor”,~~ the Company’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger date, the Company remains as an SEC registrant within the United States. The Company is a holding company with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products. 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. Founded in 1907, Protective Life Insurance Company (“PLICO”) is the Company’s largest operating subsidiary.

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

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

2016.

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

Entities Included

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

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

March 31, 2017.

Accounting Pronouncements Recently Adopted

~~Accounting Standards Update ("ASU")~~ASU No. ~~2015-02-Consolidation-Amendments to~~2017-04-Intangibles-Goodwill and Other (Topic 350): Simplifying the ~~Consolidation Analysis.~~Test for Goodwill Impairment. This Update ~~makes several targeted changes~~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 ~~generally accepted accounting principles, including a) eliminating~~determine goodwill impairment by calculating the ~~presumption~~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 ~~general partner should consolidate a limited partnership and b) eliminating~~business combination. The Company elected to adopt the ~~consolidation model specific to limited partnerships. The~~ amendments ~~also clarify when fees and related party relationships should be considered~~ in the ~~consolidation~~Update in the first quarter of ~~variable interest entities.~~ 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. The amendments in this Update ~~are~~require additional disclosures for short-duration contracts issued by insurance entities. The additional disclosures focus on the liability for unpaid claims and claim adjustment expenses and include incurred and paid claims development information by accident year in tabular form, along with a reconciliation of this information to the statement of financial position. For accident years included in the development tables, the amendments also require disclosure of the total incurred-but-not-reported liabilities and expected development on reported claims, along with claims frequency information unless impracticable. Finally, the amendments require disclosure of the historical average annual percentage payout of incurred claims. With the exception of the current reporting period, claims development information may be presented as supplementary information. The Update is effective for annual periods beginning after December 15, 2015 and interim periods beginning after December 15, ~~2015.~~2016. The additional disclosures introduced in this Update ~~did~~are not ~~impact the Company's financial position or results of operations, and~~required for the Company, ~~is prepared~~as the short-duration lines of business to ~~comply with~~which they apply are not material to the ~~revised guidance in future periods.~~Company’s financial statements.

~~ASU No. 2015-03-Interest-Imputation of Interest.~~ The objective of this Update is to eliminate diversity in practice related to the presentation of debt issuance costs. The amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the

~~Table of Contents~~

amendments in this Update. The Update is effective for fiscal years beginning after December 15, 2015, and requires revised presentation of debt issuance costs in all periods presented in the financial statements. The Update did not impact the Company's financial position or results of operations, and the Company is prepared to comply with the revised guidance in future periods.

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

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

Accounting Pronouncements Not Yet Adopted

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

~~ASU No. 2014-15-Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.~~ This Update will require management to assess an entity’s ability to continue as a going concern, and will require footnote disclosures in certain circumstances. Under the updated guidance, management should consider relevant conditions and evaluate whether it is probable that the entity will be unable to meet its obligations within one year after the issuance dateseveral of the ~~financial statements. The Update is effective for annual periods ending December 31, 2016~~Company's non-core lines of business, specifically revenues at the Company's affiliated broker dealers and ~~for annual and interim periods thereafter, with early adoption permitted. The amendments in this Update will not impact~~insurance agency. Additionally, certain non-insurance products sold from the ~~Company’s financial position or results of operations. However, the new guidance will require a formal assessment of going concern by management based on criteria prescribed~~Asset Protection Division, such as fee-for-service arrangements, may be in the ~~new guidance. The Company is reviewing its policies and processes to ensure compliance with the new guidance.~~

~~ASU No. 2015-09 - Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts.~~ The amendments in this Update require additional disclosures for short-duration contracts issued by insurance entities. The additional disclosures focus on the liability for unpaid claims and claim adjustment expenses and include incurred and paid claims development information by accident year in tabular form, along with a reconciliation of this information to the statement of financial position. For accident years included in the development tables, the amendments also require disclosurescope of the ~~total incurred-but-not-reported liabilities~~revised guidance. Several application questions remain outstanding, most notably interpretive positions from the AICPA regarding the Update's application to insurance companies 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.products. The Company does not anticipate ~~that~~material financial impact from the ~~additional disclosures introduced in this Update will be material~~implementation of the revised guidance. However, the Company is assessing whether changes are needed to its ~~financial statements.~~accounting policies, contracts, processes, or disclosures with respect to the non-insurance lines of business referenced above.

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

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

~~Table of Contents~~

ASU No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this Update introduce a new ~~impairment~~current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be ~~collected.~~collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been ~~incurred.~~incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. The Update also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets. Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in this Update are effective for annual and interim periods beginning after December 15, ~~2019.~~2019 on a modified retrospective basis. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption, and assessing the impact this standard will have on its operations and financial results.

3.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: ~~REINSURANCE AND FINANCING TRANSACTIONS~~

~~On January 15, 2016, PLICO completed~~Debt prepayment/extinguishment costs, contingent consideration payments, proceeds from the transaction contemplated by the Master Agreement, dated September 30, 2015 (the “Master Agreement”), with Genworth Life and Annuity Insurance Company (“GLAIC”). Pursuant to the Master Agreement, effective January 1, 2016, PLICO entered into a reinsurance agreement (the “Reinsurance Agreement”) under the termssettlement of ~~which PLICO coinsures certain term~~corporate-owned life insurance ~~business of GLAIC (the “GLAIC Block”). In connection~~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. The Company is reviewing its policies and processes to ensure compliance with the ~~reinsurance transaction, on January 15, 2016, Golden Gate Captive Insurance Company (“Golden Gate”), a wholly owned subsidiary~~requirements in this Update, upon adoption.

ASU No. 2016-18 - Statement of ~~PLICO, and Steel City, LLC (“Steel City”), a newly formed wholly owned subsidiary~~Cash Flows (Topic 230): Restricted Cash (a consensus of the ~~Company, entered into an 18-year transaction to finance $2.188 billion~~FASB Emerging Task Force). The amendments in this update provide guidance on the presentation of ~~“XXX” reserves~~restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing diversity in practice related to the acquired GLAIC Block and the other term life insurance business reinsured to Golden Gate by PLICO and West Coast Life Insurance Company (“WCL”), a direct wholly owned subsidiary of PLICO. Steel City issued notes with an aggregate initial principal amount of $2.188 billion to Golden Gate in exchange for a surplus note issued by Golden Gate with an initial principal amount of $2.188 billion. Through the structure, Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and Nomura Americas Re Ltd. (collectively, the “Risk-Takers”) provide credit enhancement to the Steel City notes for the 18-year term in exchange for credit enhancement fees. The transaction is “non-recourse” to PLICO, WCL and the Company, meaning that nonepresentation of these ~~companies are liable~~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 is reviewing its policies and processes to ~~reimburse the Risk-Takers for any credit enhancement payments required to be made. In connection~~ensure compliance with the transaction, the Company has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate or Steel City, including a guarantee of the fees to the Risk-Takers. As a result of the financing transaction described above, the $800 million of Golden Gate Series A Surplus Notes held by the Company were contributed to PLICO and then subsequently contributed to Golden Gate, which resultedrequirements in ~~the extinguishment of these notes. Also on January 15, 2016, Golden Gate paid an extraordinary dividend of $300 million to PLICO as approved by the Vermont Department of Financial Regulation.~~

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

ASU No. 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. The ~~Company considered whether~~purpose of this update is to clarify the ~~Reinsurance Agreement constituted the purchase~~definition of a business ~~for accounting and reporting purposes pursuant to ASC 805, Business Combinations. While the transaction included a continuation of the revenue-producing activities associated~~ with the ~~reinsured policies, it did not result~~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 ofinvolves a market distribution system, sales force or production techniques. Based on Management’s decision not to pursue distribution opportunities or future sales related to the reinsured policies, the Company accounted for the transaction as a reinsurance agreement under ASC 944, Insurance Contracts and asset acquisition under ASC 805. Accordingly, the Company recorded the assets and liabilities acquired under the reinsurance agreement at fair value and recognized an intangible asset (value of business acquired or “VOBA”) equal to the excess of the fair valueset of assets ~~acquired over liabilities assumed, measured in accordance with the Company's accounting policies for insurance and reinsurance contracts that it issues~~ or ~~holds pursuant to ASC 944.~~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.

4.~~DAI-ICHI MERGER~~

~~On February 1, 2015~~ ASU No. 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the ~~Company, subsequent~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this update require entities to ~~required approvals~~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. The Update will not impact the Company’s ~~shareholders~~financial position or results of operations. The Company is reviewing its policies and relevant regulatory authorities, became a wholly owned subsidiary of Dai-ichi Life as contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) with Dai-ichi Life and DL Investment (Delaware), Inc., a Delaware corporation and wholly owned subsidiary of Dai-ichi Life, which provided for the Merger of DL Investment (Delaware), Inc. with and into the Company,processes to ensure compliance with the Company surviving the Merger as a wholly owned subsidiary of Dai-ichi Life. On February 1, 2015 each share of the Company’s common stock outstanding was converted into the right to receive $70 per share, without interest (the “Per Share Merger Consideration”). 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 ~~aggregate cash consideration paid~~amendments in ~~connection with the Merger for the outstanding shares of common stock was approximately $5.6 billion and paid directly~~this update require that premiums on callable debt securities be amortized to the ~~shareowners of record by Dai-ichi Life. The Merger provided Dai-ichi Life with~~first call date. This is a ~~platform for growth in~~change from current guidance, under which premiums are amortized to the United States, where it did not previously have a significant presence. In connection with the completion of the Merger, the Company’s previously publicly traded equity was delisted from the NYSE, although the Company remains an SEC registrant for financial reporting purposes in the United States.

The Merger was accounted for under the acquisition method of accounting under ASC Topic 805. In accordance with ASC Topic 805-20-30, all identifiable assets acquired and liabilities assumed were measured at fair value as of the acquisition date. On thematurity date of the ~~Merger, goodwill~~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 ~~$735.7 million represented~~application is recorded to retained earnings at the ~~cost in excess~~beginning of the ~~fair value of net assets acquired (including identifiable intangibles)~~annual period in which an entity adopts the ~~Merger,~~revised guidance. The Company is currently reviewing its systems and ~~reflected the Company’s assembled workforce, future growth potential and other sources of value not associated with identifiable assets. During the measurement period subsequent~~processes to February 1, 2015, the Company made adjustments to provisional amounts related to certain tax balances that resulted in a decrease to goodwill of $3.3 million from the amount recorded at the Merger date. The balance of goodwill associated with the Merger as of December 31, 2015 (Successor Company) and June 30, 2016 (Successor Company) was $732.4 million. Nonedetermine whether early adoption of the ~~goodwill~~revised guidance is ~~tax deductible.~~

~~Table of Contents~~

~~The following table summarizes the consideration paid for the acquisition and the preliminary determination of the fair value of assets acquired and liabilities assumed at the acquisition date:~~

Fair Value
As of
February 1, 2015
(Dollars In Thousands)
Assets
Fixed maturities $ 38,363,025
Equity securities 745,512
Mortgage loans 5,580,229
Investment real estate 7,456
Policy loans 1,751,872
Other long-term investments 686,507
Short-term investments 316,167
Total investments 47,450,768
Cash 462,710
Accrued investment income 484,021
Accounts and premiums receivable 112,182
Reinsurance receivables 5,724,020
Value of business acquired 1,276,886
Goodwill 735,712
Other intangibles 683,000
Property and equipment 104,364
Other assets 120,762
Income tax receivable 15,458
Assets related to separate accounts
Variable annuity 12,970,587
Variable universal life 819,188
Total assets $ 70,959,658
Liabilities
Future policy and benefit claims $ 30,195,841
Unearned premiums 682,183
Total policy liabilities and accruals 30,878,024
Stable value product account balances 1,932,277
Annuity account balances 10,941,661
Other policyholders’ funds 1,388,083
Other liabilities 2,188,863
Deferred income taxes 1,535,556
Non-recourse funding obligations 621,798
Repurchase program borrowings 50,000
Debt 1,519,211
Subordinated debt securities 560,351
Liabilities related to separate accounts
Variable annuity 12,970,587
Variable universal life 819,188
Total liabilities 65,405,599
Net assets acquired $ 5,554,059

~~Table of Contents~~

~~Treatment of certain acquisition related costs~~

The Company recorded costs related to the Merger in either the predecessor or successor periods based on the specific facts and circumstances underlying each individual transaction. Certain of these costs were fully contingent on the consummation of the Merger on February 1, 2015 (Successor Company). These costs are not expensed in either the Predecessor or Successor Company Statement of Comprehensive Income (Loss). Liabilities for payment of these contingent costs are included in the opening balance sheet as of February 1, 2015 (Successor Company), and the nature and amount of the costs are discussed below.

Fees in the amount of $28.8 million which were paid to the Company’s financial advisor related to the Merger were recorded as liabilities as of the acquisition date. In accordance with the terms of the contract, payment of these fees was contingent on the successful closing of the Merger, and became payable on the date thereof.

Certain of the Company’s stock-based compensation arrangements provided for acceleration of benefits on the completion of a change-in-control event. Upon the completion of the Merger, benefits in the amount of $138.2 million became payable to eligible employees under these arrangements. Such accounts were recorded as liabilities as of the acquisition closing date. The portion of this payable that represented expense accelerated on the merger date was $25.4 million.

~~Treatment of Benefit Plans~~

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

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

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

5.3. 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. Pursuant to the acquisition of the Company by Dai-ichi Life, this actuarial calculation of the expected timing of MONY’s Closed Block earnings was recalculated and reset as of February 1, 2015, along with the establishment of a policyholder dividend obligation as of such date.

If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in the Company’s net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below

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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 ~~June 30, 2016 (Successor Company)~~March 31, 2017, and December 31, ~~2015 (Successor Company)~~2016, is as follows:


	Successor Company					As of
	As of June 30, 2016		As of December 31, 2015			March 31, 2017		December 31, 2016
	(Dollars In Thousands)					(Dollars In Thousands)
Closed block liabilities
Future policy benefits, policyholders’ account balances and other policyholder liabilities	$	5,939,342	$	6,010,520		$	5,868,104	$	5,896,355
Policyholder dividend obligation	232,422		—			41,180		31,932
Other liabilities	13,268		24,539			46,257		40,007
Total closed block liabilities	6,185,032		6,035,059			5,955,541		5,968,294
Closed block assets
Fixed maturities, available-for-sale, at fair value	$	4,677,305	$	4,426,090		$	4,508,439	$	4,440,105
Mortgage loans on real estate	245,997		247,162			196,295		201,088
Policy loans	726,563		746,102			705,640		712,959
Cash	—		34,420			47,203		108,270
Other assets	148,763		162,640			136,975		135,794
Total closed block assets	5,798,628		5,616,414			5,594,552		5,598,216
Excess of reported closed block liabilities over closed block assets	386,404		418,645			360,989		370,078
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses) net of policyholder dividend obligation of $(9,488) (Successor) and $(179,360) (Successor)	—		(18,597		)
Net unrealized investment gains (losses) net of policyholder dividend obligation: $(171,450) and $(197,450); and net of income tax: $60,008 and $69,107						—		—
Future earnings to be recognized from closed block assets and closed block liabilities	$	386,404	$	400,048		$	360,989	$	370,078

Reconciliation of the policyholder dividend obligation is as follows:

Successor Company Predecessor Company
For The Six Months Ended June 30, 2016 February 1, 2015
to
June 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Policyholder dividend obligation, beginning of period $ —
$ 323,432
$ 366,745
Applicable to net revenue (losses) (28,921 ) (15,096 ) (1,369 )
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation; includes deferred tax benefits of $5,109 (Successor); $89,618 (2015 - Successor); $47,277 (2015 - Predecessor) 261,343
(256,053 ) 135,077
Policyholder dividend obligation, end of period $ 232,422
$ 52,283
$ 500,453

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	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Policyholder dividend obligation, beginning of period	$	31,932		$	—
Applicable to net revenue (losses)	(16,753		)	(19,572		)
Change in net unrealized investment gains (losses) allocated to the policyholder dividend obligation	26,001			116,080
Policyholder dividend obligation, end of period	$	41,180		$	96,508

Closed Block revenues and expenses were as follows:


	Successor Company								Predecessor Company		For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016		For The Three Months Ended June 30, 2015		For The Six Months Ended June 30, 2016		February 1, 2015 to June 30, 2015		January 1, 2015 to January 31, 2015		2017		2016
	(Dollars In Thousands)								(Dollars In Thousands)		(Dollars In Thousands)
Revenues
Premiums and other income	$	47,320	$	49,998	$	91,239	$	81,669	$	15,065	$	42,836	$	43,919
Net investment income	52,008		54,833		102,875		87,681		19,107		51,359		50,867
Net investment gains	450		2,216		637		2,850		568		63		187
Total revenues	99,778		107,047		194,751		172,200		34,740		94,258		94,973
Benefits and other deductions
Benefits and settlement expenses	92,029		98,975		172,084		154,746		31,152		80,108		80,055
Other operating expenses	653		263		1,677		474		—		166		1,025
Total benefits and other deductions	92,682		99,238		173,761		155,220		31,152		80,274		81,080
Net revenues before income taxes	7,096		7,809		20,990		16,980		3,588		13,984		13,893
Income tax expense	2,484		2,733		7,346		5,943		1,256		4,895		4,863
Net revenues	$	4,612	$	5,076	$	13,644	$	11,037	$	2,332	$	9,089	$	9,030

6.4. INVESTMENT OPERATIONS

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


	Successor Company												Predecessor Company			For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Fixed maturities	$	16,730		$	3,339		$	22,451		$	3,712		$	6,891		$	9,490		$	5,721
Equity securities	202			21			36			21			—			(9		)	(166		)
Impairments on corporate securities	(964		)	(5,734		)	(3,581		)	(5,734		)	(481		)
Impairments																(7,831		)	(2,617		)
Modco trading portfolio	76,201			(108,741		)	154,355			(141,901		)	73,062			18,552			78,154
Other investments	(4,353		)	3,044			(6,334		)	775			1,200			(5,192		)	(1,981		)
Total realized gains (losses) - investments	$	87,816		$	(108,071	)	$	166,927		$	(143,127	)	$	80,672		$	15,010		$	79,111

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

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	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Gross realized gains	$	10,738		$	9,048
Gross realized losses:
Impairment losses	$	(7,831	)	$	(2,617	)
Realized losses from sales	$	(1,257	)	$	(3,493	)

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

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	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Securities in an unrealized gain position:
Fair value (proceeds)	$	169,134		$	309,249
Gains realized	$	10,738		$	9,048

Securities in an unrealized loss position⁽¹⁾:
Fair value (proceeds)	$	12,452		$	53,687
Losses realized	$	(1,257	)	$	(3,493	)

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

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



As of March 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Total OTTI Recognized in OCI⁽¹⁾
	(Dollars In Thousands)
Fixed maturities:
Residential mortgage-backed securities	$	1,988,289	$	11,023	$	(29,120	)	$	1,970,192	$	(3	)
Commercial mortgage-backed securities	1,850,816		3,225		(39,378		)	1,814,663		—
Other asset-backed securities	1,177,426		22,172		(17,148		)	1,182,450		—
U.S. government-related securities	1,310,138		401		(35,744		)	1,274,795		—
Other government-related securities	253,129		4,130		(12,058		)	245,201		—
States, municipals, and political subdivisions	1,776,716		1,811		(105,803		)	1,672,724		—
Corporate securities	28,785,229		213,518		(1,316,535		)	27,682,212		(5,338		)
Preferred stock	94,362		316		(5,404		)	89,274		—
	37,236,105		256,596		(1,561,190		)	35,931,511		(5,341		)
Equity securities	778,213		16,706		(8,226		)	786,693		—
Short-term investments	247,918		—		—			247,918		—
	$	38,262,236	$	273,302	$	(1,569,416	)	$	36,966,122	$	(5,341	)

As of December 31, 2016
Fixed maturities:
Residential mortgage-backed securities	$	1,913,413	$	10,737	$	(25,667	)	$	1,898,483	$	(9	)
Commercial mortgage-backed securities	1,850,620		2,528		(41,678		)	1,811,470		—
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	253,182		1,536		(14,797		)	239,921		—
States, municipals, and political subdivisions	1,760,837		1,224		(105,558		)	1,656,503		—
Corporate securities	28,801,768		153,715		(1,583,918		)	27,371,565		(11,030		)
Preferred stock	94,362		—		(8,519		)	85,843		—
	37,192,864		191,903		(1,841,290		)	35,543,477		(11,039		)
Equity securities	761,340		7,751		(21,685		)	747,406		—
Short-term investments	279,782		—		—			279,782		—
	$	38,233,986	$	199,654	$	(1,862,975	)	$	36,570,665	$	(11,039	)

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

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

Successor Company Amortized
Cost
Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

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

Residential mortgage-backed securities $ 1,900,934
$ 50,003
$ (9,253 ) $ 1,941,684
$ (1 )
Commercial mortgage-backed securities 1,570,208
30,278
(3,726 ) 1,596,760
—
Other asset-backed securities 1,151,430
5,267
(36,055 ) 1,120,642
—
U.S. government-related securities 1,350,769
21,232
(205 ) 1,371,796
—
Other government-related securities 18,348
332
—
18,680
—
States, municipals, and political subdivisions 1,727,664
31,429
(21,594 ) 1,737,499
—
Corporate securities 28,883,011
380,022
(1,052,087 ) 28,210,946
(4,560 )
Preferred stock 64,362
1,732
(1,667 ) 64,427
—
36,666,726
520,295
(1,124,587 ) 36,062,434
(4,561 )
Equity securities 710,361
26,392
(5,092 ) 731,661
—
Short-term investments 247,995
—
—
247,995
—
$ 37,625,082
$ 546,687
$ (1,129,679 ) $ 37,042,090
$ (4,561 )

As of December 31, 2015
Fixed maturities:

Residential mortgage-backed securities $ 1,773,099
$ 9,286
$ (17,112 ) $ 1,765,273
$ —
Commercial mortgage-backed securities 1,328,317
428
(41,858 ) 1,286,887
—
Other asset-backed securities 813,056
2,758
(18,763 ) 797,051
—
U.S. government-related securities 1,566,260
449
(34,532 ) 1,532,177
—
Other government-related securities 18,483
—
(743 ) 17,740
—
States, municipals, and political subdivisions 1,729,732
682
(126,814 ) 1,603,600
—
Corporate securities 28,499,691
26,369
(2,682,274 ) 25,843,786
(605 )
Preferred stock 64,362
192
(1,867 ) 62,687
—
35,793,000
40,164
(2,923,963 ) 32,909,201
(605 )
Equity securities 724,226
13,255
(6,477 ) 731,004
—
Short-term investments 206,991
—
—
206,991
—
$ 36,724,217
$ 53,419
$ (2,930,440 ) $ 33,847,196
$ (605 )

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

~~As of June 30,~~ 2016, ~~(Successor Company) and December 31, 2015 (Successor Company),~~ the Company had an additional ~~$2.8~~$2.6 billion and ~~$2.7~~$2.6 billion of fixed maturities, ~~$8.0~~$5.5 million and ~~$8.3~~$7.1 million of equity securities, and ~~$38.2~~$51.2 million and ~~$61.7~~$52.6 million of short-term investments classified as trading securities, respectively.

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The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of ~~June 30, 2016 (Successor Company),~~March 31, 2017, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.


	Successor Company
	Available-for-sale				Held-to-maturity				Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars In Thousands)				(Dollars In Thousands)				(Dollars In Thousands)
Due in one year or less	$	750,175	$	750,605	$	—	$	—	$	583,614	$	584,526	$	—	$	—
Due after one year through five years	6,892,759		6,932,132		—		—		6,534,001		6,533,496		—		—
Due after five years through ten years	7,793,745		7,908,634		—		—		7,847,205		7,767,967		—		—
Due after ten years	21,230,047		20,471,063		2,779,280		2,853,788		22,271,285		21,045,522		2,758,137		2,746,375
	$	36,666,726	$	36,062,434	$	2,779,280	$	2,853,788	$	37,236,105	$	35,931,511	$	2,758,137	$	2,746,375

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


																For The Three Months Ended March 31,
	Successor Company												Predecessor Company			2017
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			Fixed Maturities			Equity Securities			Total Securities
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Other-than-temporary impairments	$	(5,527	)	$	(13,395	)	$	(8,296	)	$	(13,395	)	$	(636	)	$	(95	)	$	(2,630	)	$	(2,725	)
Non-credit impairment losses recorded in other comprehensive income	4,560			7,661			4,712			7,661			155			(5,106		)	—			(5,106		)
Net impairment losses recognized in earnings	$	(967	)	$	(5,734	)	$	(3,584	)	$	(5,734	)	$	(481	)	$	(5,201	)	$	(2,630	)	$	(7,831	)



	For The Three Months Ended March 31,
	2016
	Fixed Maturities			Equity Securities		Total Securities
	(Dollars In Thousands)
Other-than-temporary impairments	$	(2,769	)	$	—	$	(2,769	)
Non-credit impairment losses recorded in other comprehensive income	152			—		152
Net impairment losses recognized in earnings	$	(2,617	)	$	—	$	(2,617	)

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 six~~ months ended ~~June 30, 2016 (Successor Company), for the three months ended June 30, 2015 (Successor Company), for the period of February 1, 2015 to June 30, 2015 (Successor Company),~~March 31, 2017 and ~~for the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~

2016.

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

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	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Beginning balance	$	12,685		$	22,761
Additions for newly impaired securities	—			2,092
Additions for previously impaired securities	—			525
Reductions for previously impaired securities due to a change in expected cash flows	(12,685		)	(22,759		)
Reductions for previously impaired securities that were sold in the current period	—			—
Ending balance	$	—		$	2,619

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

March 31, 2017:


	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars In Thousands)															(Dollars In Thousands)
Residential mortgage-backed securities	$	192,301	$	(3,103	)	$	152,965	$	(6,150	)	$	345,266	$	(9,253	)	$	1,137,748	$	(25,086	)	$	159,309	$	(4,034	)	$	1,297,057	$	(29,120	)
Commercial mortgage-backed securities	43,965		(283		)	194,550		(3,443		)	238,515		(3,726		)	1,444,322		(35,054		)	97,152		(4,324		)	1,541,474		(39,378		)
Other asset-backed securities	90,316		(1,188		)	550,860		(34,867		)	641,176		(36,055		)	260,723		(5,836		)	173,891		(11,312		)	434,614		(17,148		)
U.S. government-related securities	1,283		(5		)	57,372		(200		)	58,655		(205		)	1,214,007		(35,744		)	2		—			1,214,009		(35,744		)
Other government-related securities																71,542		(1,267		)	80,422		(10,791		)	151,964		(12,058		)
States, municipalities, and political subdivisions	34,112		(274		)	718,798		(21,320		)	752,910		(21,594		)	1,030,078		(63,063		)	546,377		(42,740		)	1,576,455		(105,803		)
Corporate securities	2,342,859		(128,963		)	13,483,925		(923,124		)	15,826,784		(1,052,087		)	11,292,276		(393,211		)	9,399,889		(923,324		)	20,692,165		(1,316,535		)
Preferred stock	—		—			19,271		(1,667		)	19,271		(1,667		)	59,654		(3,446		)	18,980		(1,958		)	78,634		(5,404		)
Equities	55,137		(1,225		)	87,602		(3,867		)	142,739		(5,092		)	148,787		(2,702		)	70,384		(5,524		)	219,171		(8,226		)
	$	2,759,973	$	(135,041	)	$	15,265,343	$	(994,638	)	$	18,025,316	$	(1,129,679	)	$	16,659,137	$	(565,409	)	$	10,546,406	$	(1,004,007	)	$	27,205,543	$	(1,569,416	)

RMBS and CMBS had gross unrealized losses greater than twelve months of ~~$6.2~~$4.0 million and ~~$3.4~~$4.3 million, respectively, as of ~~June 30, 2016 (Successor Company).~~March 31, 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 ~~$34.9~~$11.3 million as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.

The ~~U.S.~~other government-related securities ~~and the states, municipalities, and political subdivisions categories~~ had gross unrealized losses greater than twelve months of ~~$0.2~~$10.8 million ~~and $21.3 million, respectively,~~ as of ~~June 30, 2016 (Successor Company).~~March 31, 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 $42.7 million as of March 31, 2017. These declines were related to changes in interest rates.

The corporate securities category had gross unrealized losses greater than twelve months of ~~$923.1~~$923.3 million as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company had a total of ~~1,414~~2,171 positions that were in an unrealized loss position, but the Company does not consider these unrealized loss positions to be other-than-temporary. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and the Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.

~~Table of Contents~~

2016:


	Less Than 12 Months					12 Months or More				Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars In Thousands)														(Dollars In Thousands)
Residential mortgage-backed securities	$	977,433	$	(17,112	)	$	—	$	—	$	977,433	$	(17,112	)	$	1,060,569	$	(21,550	)	$	170,826	$	(4,117	)	$	1,231,395	$	(25,667	)
Commercial mortgage-backed securities	1,233,518		(41,858		)	—		—		1,233,518		(41,858		)	1,452,146		(37,665		)	100,475		(4,013		)	1,552,621		(41,678		)
Other asset-backed securities	633,274		(18,763		)	—		—		633,274		(18,763		)	323,706		(9,291		)	176,792		(11,407		)	500,498		(20,698		)
U.S. government-related securities	1,291,476		(34,532		)	—		—		1,291,476		(34,532		)	1,237,942		(40,454		)	3		(1		)	1,237,945		(40,455		)
Other government-related securities	17,740		(743		)	—		—		17,740		(743		)	98,412		(2,907		)	79,393		(11,890		)	177,805		(14,797		)
States, municipalities, and political subdivisions	1,566,752		(126,814		)	—		—		1,566,752		(126,814		)	1,062,368		(63,809		)	548,254		(41,749		)	1,610,622		(105,558		)
Corporate securities	24,283,448		(2,682,274		)	—		—		24,283,448		(2,682,274		)	12,553,514		(469,189		)	9,793,579		(1,114,729		)	22,347,093		(1,583,918		)
Preferred stock	34,685		(1,867		)	—		—		34,685		(1,867		)	66,781		(6,642		)	19,062		(1,877		)	85,843		(8,519		)
Equities	248,493		(6,477		)	—		—		248,493		(6,477		)	411,845		(15,273		)	69,497		(6,412		)	481,342		(21,685		)
	$	30,286,819	$	(2,930,440	)	$	—	$	—	$	30,286,819	$	(2,930,440	)	$	18,267,283	$	(666,780	)	$	10,957,881	$	(1,196,195	)	$	29,225,164	$	(1,862,975	)

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

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

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

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

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company had securities in its available-for-sale portfolio which were rated below investment grade of ~~$1.8~~$2.0 billion and had an amortized cost of ~~$1.9~~$2.0 billion. In addition, included in the Company’s trading portfolio, the Company held ~~$270.8~~$259.8 million of securities which were rated below investment grade. Approximately ~~$325.5~~$361.0 million of the available-for-sale and trading securities that were below investment grade were not publicly traded.

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

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017		2016
	(Dollars In Thousands)
Fixed maturities	$	224,115	$	632,685
Equity securities	14,569		(70		)

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

Successor Company Amortized
Cost
Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Total OTTI
Recognized
in OCI
As of June 30, 2016
(Dollars In Thousands)
Fixed maturities:

Securities issued by affiliates:
Red Mountain LLC $ 626,280
$ —
$ (22,879 ) $ 603,401
$ —
Steel City LLC 2,153,000
97,387
—
2,250,387
—
$ 2,779,280
$ 97,387
$ (22,879 ) $ 2,853,788
$ —


Successor Company	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Total OTTI Recognized in OCI
As of December 31, 2015				Gross Unrealized Gains
As of March 31, 2017													Amortized Cost			Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Fair Value		Total OTTI Recognized in OCI
	Amortized Cost		(Dollars In Thousands)												(Dollars In Thousands)
Fixed maturities:						Gross Unrealized Losses					Total OTTI Recognized in OCI
Securities issued by affiliates:									Fair Value
Red Mountain LLC	$	593,314		$	—	$	(78,314	)	$	515,000	$	—	$	668,137		$	—	$	(55,005	)	$	613,132	$	—
Steel City LLC													2,090,000			43,243		—			2,133,243		—
	$	593,314		$	—	$	(78,314	)	$	515,000	$	—	$	2,758,137		$	43,243	$	(55,005	)	$	2,746,375	$	—

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

The Company’s held-to-maturity securities had ~~$97.4~~$43.2 million of gross ~~unrealized~~unrecognized holding gains and ~~$22.9~~$55.0 million of gross unrecognized holding losses by maturity as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information. These held-to-maturity securities are issued by affiliates of the Company which are considered variable interest entities ("VIE's"). The Company is not the primary beneficiary of these entities and thus the securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are affiliates of the Company.

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

Variable Interest Entities

The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC” or “Codification”) (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a 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 two subsidiaries as of ~~June 30, 2016 (Successor Company),~~March 31, 2017, Red Mountain LLC ("Red Mountain") and Steel City LLC ("Steel City"), that were determined to be VIEs. As of December 31, ~~2015 (Successor Company),~~2016, the Company had an interest in ~~one subsidiary,~~two subsidiaries, Red Mountain LLC ("Red Mountain") and Steel City LLC ("Steel City"), that ~~was~~were determined to be ~~a VIE.~~

VIEs.

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”) in which Golden Gate V issued non-recourse funding obligations to Red Mountain and Red Mountain issued a note (the "Red Mountain Note") to Golden Gate V. For details of this transaction, see Note ~~12,~~10, Debt and Other Obligations. The Company had the power, via its 100% ownership through an affiliate, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third party in its function as provider of credit enhancement on the Red Mountain Note. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The

~~Table of Contents~~

Company’s risk of loss related to the VIE is limited to its investment, through an affiliate, 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 ~~June 30, 2016 (Successor Company),~~March 31, 2017, no payments have been made or required related to this guarantee.

Steel City, a newly formed wholly owned subsidiary of the Company, entered into a financing agreement on January 15, 2016 involving Golden Gate Captive Insurance Company, in which Golden Gate issued non-recourse funding obligations to Steel City and Steel City issued three notes (the “Steel City Notes”) to Golden Gate. Credit enhancement on the Steel City Notes is provided by unrelated third parties. For details of the financing transaction, see Note ~~12,~~10, Debt and Other Obligations. The activity most significant to Steel City is the issuance of the Steel City Notes. The Company had the power, via its 100% ownership, 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 parties in their function as providers of credit enhancement on the Steel City Notes. 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 Steel City’s payment obligation for the credit enhancement fee to the unrelated third party providers. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, no payments have been made or required related to this guarantee.

7.5. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

c.Inputs other than quoted market prices that are observable


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

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

~~Table of Contents~~

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

March 31, 2017:

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

Fixed maturity securities - available-for-sale

Residential mortgage-backed securities $ —
$ 1,941,681
$ 3
$ 1,941,684
Commercial mortgage-backed securities —
1,596,760
—
1,596,760
Other asset-backed securities —
587,501
533,141
1,120,642
U.S. government-related securities 1,108,503
263,293
—
1,371,796
State, municipalities, and political subdivisions —
1,737,499
—
1,737,499
Other government-related securities —
18,680
—
18,680
Corporate securities —
27,427,803
783,143
28,210,946
Preferred stock 45,155
19,272
—
64,427
Total fixed maturity securities - available-for-sale 1,153,658
33,592,489
1,316,287
36,062,434
Fixed maturity securities - trading

Residential mortgage-backed securities —
271,994
—
271,994
Commercial mortgage-backed securities —
157,176
—
157,176
Other asset-backed securities —
123,076
151,964
275,040
U.S. government-related securities 41,639
4,868
—
46,507
State, municipalities, and political subdivisions —
362,504
—
362,504
Other government-related securities —
60,261
—
60,261
Corporate securities —
1,595,943
16,587
1,612,530
Preferred stock 3,432
147
—
3,579
Total fixed maturity securities - trading 45,071
2,575,969
168,551
2,789,591
Total fixed maturity securities 1,198,729
36,168,458
1,484,838
38,852,025
Equity securities 669,924
35
69,750
739,709
Other long-term investments(1)
311,141
266,478
48,999
626,618
Short-term investments 279,453
6,748
—
286,201
Total investments 2,459,247
36,441,719
1,603,587
40,504,553
Cash 428,519
—
—
428,519
Other assets 19,171
—
—
19,171
Assets related to separate accounts

Variable annuity 12,891,214
—
—
12,891,214
Variable universal life 831,818
—
—
831,818
Total assets measured at fair value on a recurring basis $ 16,629,969
$ 36,441,719
$ 1,603,587
$ 54,675,275
Liabilities:

Annuity account balances(2)
$ —
$ —
$ 88,820
$ 88,820
Other liabilities (1)
59,711
13,321
972,084
1,045,116
Total liabilities measured at fair value on a recurring basis $ 59,711
$ 13,321
$ 1,060,904
$ 1,133,936

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

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

~~Table of Contents~~



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,970,192	$	—	$	1,970,192
Commercial mortgage-backed securities	—		1,814,663		—		1,814,663
Other asset-backed securities	—		625,514		556,936		1,182,450
U.S. government-related securities	1,009,732		265,063		—		1,274,795
State, municipalities, and political subdivisions	—		1,672,724		—		1,672,724
Other government-related securities	—		245,201		—		245,201
Corporate securities	—		27,015,507		666,705		27,682,212
Preferred stock	70,294		18,980		—		89,274
Total fixed maturity securities - available-for-sale	1,080,026		33,627,844		1,223,641		35,931,511
Fixed maturity securities - trading
Residential mortgage-backed securities	—		255,779		—		255,779
Commercial mortgage-backed securities	—		154,760		—		154,760
Other asset-backed securities	—		112,548		68,752		181,300
U.S. government-related securities	44,458		4,517		—		48,975
State, municipalities, and political subdivisions	—		312,095		—		312,095
Other government-related securities	—		63,369		—		63,369
Corporate securities	—		1,618,360		5,504		1,623,864
Preferred stock	3,780		—		—		3,780
Total fixed maturity securities - trading	48,238		2,521,428		74,256		2,643,922
Total fixed maturity securities	1,128,264		36,149,272		1,297,897		38,575,433
Equity securities	725,811		36		66,384		792,231
Other long-term investments⁽¹⁾	57,787		354,430		133,428		545,645
Short-term investments	255,251		43,916		—		299,167
Total investments	2,167,113		36,547,654		1,497,709		40,212,476
Cash	409,377		—		—		409,377
Other assets	27,784		—		—		27,784
Assets related to separate accounts
Variable annuity	13,512,921		—		—		13,512,921
Variable universal life	935,427		—		—		935,427
Total assets measured at fair value on a recurring basis	$	17,052,622	$	36,547,654	$	1,497,709	$	55,097,985
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	86,415	$	86,415
Other liabilities⁽¹⁾	12,152		203,267		587,074		802,493
Total liabilities measured at fair value on a recurring basis	$	12,152	$	203,267	$	673,489	$	888,908

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

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

2016:

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

Fixed maturity securities - available-for-sale

Residential mortgage-backed securities $ —
$ 1,765,270
$ 3
$ 1,765,273
Commercial mortgage-backed securities —
1,286,887
—
1,286,887
Other asset-backed securities —
210,020
587,031
797,051
U.S. government-related securities 1,054,353
477,824
—
1,532,177
State, municipalities, and political subdivisions —
1,603,600
—
1,603,600
Other government-related securities —
17,740
—
17,740
Corporate securities 83
24,941,584
902,119
25,843,786
Preferred stock 43,073
19,614
—
62,687
Total fixed maturity securities - available-for-sale 1,097,509
30,322,539
1,489,153
32,909,201
Fixed maturity securities - trading

Residential mortgage-backed securities —
286,658
—
286,658
Commercial mortgage-backed securities —
146,743
—
146,743
Other asset-backed securities —
122,511
152,912
275,423
U.S. government-related securities 233,592
4,755
—
238,347
State, municipalities, and political subdivisions —
313,354
—
313,354
Other government-related securities —
58,827
—
58,827
Corporate securities —
1,322,276
18,225
1,340,501
Preferred stock 2,794
1,402
—
4,196
Total fixed maturity securities - trading 236,386
2,256,526
171,137
2,664,049
Total fixed maturity securities 1,333,895
32,579,065
1,660,290
35,573,250
Equity securities 656,437
13,063
69,763
739,263
Other long-term investments ⁽¹⁾
113,699
141,487
96,830
352,016
Short-term investments 261,947
6,771
—
268,718
Total investments 2,365,978
32,740,386
1,826,883
36,933,247
Cash 396,072
—
—
396,072
Other assets 19,099
—
—
19,099
Assets related to separate accounts

Variable annuity 12,829,188
—
—
12,829,188
Variable universal life 827,610
—
—
827,610
Total assets measured at fair value on a recurring basis $ 16,437,947
$ 32,740,386
$ 1,826,883
$ 51,005,216
Liabilities:

Annuity account balances ⁽²⁾
$ —
$ —
$ 92,512
$ 92,512
Other liabilities ⁽¹⁾
40,067
3,932
585,556
629,555
Total liabilities measured at fair value on a recurring basis $ 40,067
$ 3,932
$ 678,068
$ 722,067

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

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

~~Table of Contents~~



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,898,480	$	3	$	1,898,483
Commercial mortgage-backed securities	—		1,811,470		—		1,811,470
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	—		239,921		—		239,921
Corporate securities	—		26,707,519		664,046		27,371,565
Preferred stock	66,781		19,062		—		85,843
Total fixed maturity securities - available-for-sale	1,068,801		33,248,023		1,226,653		35,543,477
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		35,771,419		1,316,708		38,183,337
Equity securities	685,443		36		69,010		754,489
Other long-term investments⁽¹⁾⁽³⁾	82,420		335,498		124,325		542,243
Short-term investments	328,829		3,602		—		332,431
Total investments	2,191,902		36,110,555		1,510,043		39,812,500
Cash	348,182		—		—		348,182
Other assets	23,830		—		—		23,830
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	$	16,704,091	$	36,110,555	$	1,510,043	$	54,324,689
Liabilities:
Annuity account balances⁽²⁾	$	—	$	—	$	87,616	$	87,616
Other liabilities⁽¹⁾⁽³⁾	13,004		163,974		571,843		748,821
Total liabilities measured at fair value on a recurring basis	$	13,004	$	163,974	$	659,459	$	836,437

(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) During 2016, the Company revised its methodology for assessing inputs to its valuation of certain centrally cleared derivatives. This change in estimate resulted in a transfer of $169.4 million in other long-term investments and $120.0 million in other liabilities from Level 1 to Level 2 of the fair value hierarchy.

Determination of fair values

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

The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price approximately ~~90%~~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~~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 ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~

March 31, 2017.

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

Asset-Backed Securities

This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company held ~~$4.7~~$4.9 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.

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 ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company held ~~$685.1~~$625.7 million of Level 3 ABS, which included ~~$533.1~~$556.9 million of other asset-backed securities classified as available-for-sale and ~~$152.0~~$68.8 million of other asset-backed securities classified

~~Table of Contents~~

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 ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company classified approximately ~~$31.5~~$31.2 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 ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company classified approximately ~~$799.7~~$672.2 million of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.

Equities

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company held approximately ~~$69.8~~$66.4 million of equity securities classified as Level 2 and Level 3. Of this total, $65.7 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value.

Other Long-Term Investments and Other Liabilities

Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 8,6, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of ~~June 30, 2016 (Successor Company),~~March 31, 2017, 100% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.

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

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

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

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

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

The fair value of the ~~GMWB~~GLWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions.

~~Table of Contents~~

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~~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 ~~National Association of Insurance Commissioners 1994 Variable Annuity MGDB Mortality Table with company experience,~~Ruark 2015 ALB table with attained age factors varying from ~~44.5%~~91.1% - ~~100%~~106.6%. 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). As a result of using significant unobservable inputs, the ~~GMWB~~GLWB embedded derivative is categorized as Level 3. These assumptions are reviewed on a quarterly 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 ~~49%~~46% - ~~80%~~113%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.

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

The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements are designated as “trading securities”; therefore changes in their fair value are also reported in earnings. As of ~~June 30, 2016 (Successor Company),~~March 31, 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 ~~$253.2~~$158.2 million. As a result, changes in the fair value of the embedded derivatives are largely offset by the changes in fair value of the related investments 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.

Annuity Account Balances

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

fund values. The ~~discount rate for the fixed indexed annuities~~Level 3 fair value as of March 31, 2017 is based on an upward sloping rate curve which is updated each quarter. The discount rates for June 30, 2016 (Successor Company), ranged from a one month rate of 0.68%, a 5 year rate of 1.82%, and a 30 year rate of 3.03%. A credit spread component is also included in the calculation to accommodate non-performance risk.

$86.4 million.

Separate Accounts

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

~~Table of Contents~~

Valuation of Level 3 Financial Instruments

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

Successor
Company

Fair Value
As of
June 30, 2016
Valuation
Technique

Unobservable
Input

Range
(Weighted Average)
(Dollars In Thousands)
Assets:
Other asset-backed securities $ 524,166
Discounted cash flow Liquidity premium 0.24% - 1.14% (0.55%)

Paydown rate 9.37% - 11.91% (10.16%)
Corporate securities 758,312
Discounted cash flow Spread over
Treasury 0.70% - 6.25% (2.45%)
Liabilities:

Embedded derivatives - GMWB(1)
$ 518,871
Actuarial cash flow model Mortality 1994 MGDB table with

company experience

Lapse 0.3% - 15%, depending on

product/duration/funded

status of guarantee

Utilization 99%. 10% of policies have a

one-time over-utilization of

400%

Nonperformance risk 0.22% - 1.20%
Annuity account balances(2)
88,820
Actuarial cash flow model Asset earned rate 4.53% - 5.67%

Expenses $83 per policy

Withdrawal rate 2.20%

Mortality 1994 MGDB table with

company experience

Lapse 2.2% - 33.0%, depending

on duration/surrender

charge period

Return on assets 1.50% - 1.85% depending on

duration/surrender

charge period

Nonperformance risk 0.22% - 1.20%
Embedded derivative - FIA 119,997
Actuarial cash flow model Expenses $83 per policy

Withdrawal rate 1.1% - 4.5% depending on

duration and tax qualification

Mortality 1994 MGDB table with

company experience

Lapse 2.5% - 40.0%, depending

on duration/surrender

charge period

Nonperformance risk 0.22% - 1.20%
Embedded derivative - IUL 46,711
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 0.22% - 1.20%

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

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



	Fair Value As of March 31, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	556,782	Liquidation	Liquidation value	$88 - $97.26 ($94.97)
			Discounted cash flow	Liquidity premium	0.46% - 1.15% (0.75%)
				Paydown rate	11.06% - 12.19% (11.41%)
Corporate securities	639,904		Discounted cash flow	Spread over treasury	0.88% - 4.55% (1.85%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	81,738	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	0.14% - 0.98%
Embedded derivative - FIA	170,215		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	0.14% - 0.98%
Embedded derivative - IUL	51,385		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	0.14% - 0.98%

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

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

~~Table of Contents~~

The Company has considered all reasonably available quantitative inputs as of ~~June 30, 2016 (Successor Company),~~March 31, 2017, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in ~~$205.4~~$101.7 million of financial instruments being classified as Level 3 as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. Of the ~~$205.4~~$101.7 million, ~~$160.9~~$68.9 million are other asset-backed securities, ~~$41.4~~$32.3 million are corporate securities, and ~~$3.1~~$0.4 million are equity securities.

In certain cases, the Company has determined that book value materially approximates fair value. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company held ~~$66.7~~$65.9 million of financial instruments where book value approximates fair value which was predominantly FHLB stock.

~~Table of Contents~~

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

Successor
Company

Fair Value
As of
December 31, 2015
Valuation
Technique

Unobservable
Input

Range
(Weighted Average)
(Dollars In Thousands)
Assets:
Other asset-backed securities $ 587,031
Discounted cash flow Liquidity premium 0.27% - 1.49% (0.42%)

Paydown rate 10.20% - 14.72% (13.11%)
Corporate securities 875,810
Discounted cash flow Spread over 0.10% - 19.00% (2.61%)

treasury
Liabilities:

Embedded derivatives - GMWB(1)
$ 181,612
Actuarial cash flow model Mortality 1994 MGDB table with company

experience

Lapse 0.3% - 15%, depending on

product/duration/funded

status of guarantee

Utilization 99%. 10% of policies have a one-time over-utilization of 400%

Nonperformance risk 0.18% - 1.04%
Annuity account balances(2)
92,512
Actuarial cash flow model Asset earned rate 4.53% - 5.67%

Expenses $81 per policy

Withdrawal rate 2.20%

Mortality 1994 MGDB table with company

experience

Lapse 2.2% - 33.0%, depending

on duration/surrender

charge period

Return on assets 1.50% - 1.85% depending on

surrender charge period

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

Withdrawal rate 1.1% - 4.5% depending on

duration and tax qualification

Mortality 1994 MGDB table with company

experience

Lapse 2.5% - 40.0%, depending

on duration/surrender

charge period

Nonperformance risk 0.18% - 1.04%
Embedded derivative - IUL 29,629
Actuarial cash flow model Mortality 38% - 153% of 2015

VBT Primary Tables

Lapse 0.5% - 10.0%, depending

on duration/distribution

channel and smoking class

Nonperformance risk 0.18% - 1.04%

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

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



	Fair Value As of December 31, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	553,308	Liquidation	Liquidation value	$88 - $97.25 ($95.04)
Corporate securities	638,279		Discounted cash flow	Spread over treasury	0.31% - 4.50% (2.04%)
Liabilities:⁽¹⁾
Embedded derivatives - GLWB⁽²⁾	$	115,370	Actuarial cash flow model	Mortality	91.1% to 106.6% of
					Ruark 2015 ALB table
				Lapse	0.3% - 15%, depending on
					product/duration/funded
					status of guarantee
				Utilization	99%. 10% of policies have a one-
					time over-utilization of 400%
				Nonperformance risk	0.18% - 1.09%
Embedded derivative - FIA	147,368		Actuarial cash flow model	Expenses	$126 per policy
				Asset Earned Rate	4.08% - 4.66%
				Withdrawal rate	1% prior to age 70, 100% of the
					RMD for ages 70+
				Mortality	1994 MGDB table with company
					experience
				Lapse	2.0% - 40.0%, depending
					on duration/surrender
					charge period
				Nonperformance risk	0.18% - 1.09%
Embedded derivative - IUL	46,051		Actuarial cash flow model	Mortality	38% - 153% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending
					on duration/distribution
					channel and smoking class
				Nonperformance risk	0.18% - 1.09%

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

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

The Company has considered all reasonably available quantitative inputs as of December 31, ~~2015 (Successor Company),~~2016, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the

~~Table of Contents~~

Company. This resulted in ~~$200.5~~$128.2 million of financial instruments being classified as Level 3 as of December 31, ~~2015 (Successor Company).~~2016. Of the ~~$200.5~~$128.2 million, ~~$152.9~~$93.9 million are other asset-backed securities, ~~$44.5~~$31.3 million are corporate securities, and $3.1 million are equity securities.

In certain cases the Company has determined that book value materially approximates fair value. As of December 31, ~~2015 (Successor Company),~~2016, the Company held ~~$66.7~~$65.9 million of financial instruments where book value approximates fair value which are predominantly FHLB stock.

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

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

holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease, and decreases when spreads increase.

The fair value of the ~~GMWB~~GLWB embedded derivative is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the fair value of the liability and conversely, if there is a decrease in the assumptions the fair value would increase. The fair value is also dependent on the assumed policyholder utilization of the ~~GMWB~~GLWB where an increase in assumed utilization would result in an increase in the fair value of the liability and conversely, if there is a decrease in the assumption, the fair value would decrease.

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

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

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

~~Table of Contents~~

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, for which the Company has used significant unobservable inputs (Level 3):

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses

Total
Gains (losses)
included in

Beginning
Balance

Included
in
Earnings

Included
in
Other
Comprehensive
Income

Included
in
Earnings

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

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

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Other asset-backed securities 537,831
—
769
—
(8,350 ) 9,597
(7,629 ) —
—
—
923
533,141
—
Corporate securities 833,737
925
16,189
—
(694 ) 9,558
(57,123 ) —
—
(16,773 ) (2,676 ) 783,143
—
Total fixed maturity securities - available-for-sale 1,371,571
925
16,958
—
(9,044 ) 19,155
(64,752 ) —
—
(16,773 ) (1,753 ) 1,316,287
—
Fixed maturity securities - trading

Other asset-backed securities 150,683
1,822
—
(8 ) —
—
(609 ) —
—
—
76
151,964
1,814
Corporate securities 5,677
24
—
—
—
10,908
1
—
—
—
(23 ) 16,587
25
Total fixed maturity securities - trading 156,360
1,846
—
(8 ) —
10,908
(608 ) —
—
—
53
168,551
1,839
Total fixed maturity securities 1,527,931
2,771
16,958
(8 ) (9,044 ) 30,063
(65,360 ) —
—
(16,773 ) (1,700 ) 1,484,838
1,839
Equity securities 69,728
—
—
—
—
22
—
—
—
—
—
69,750
—
Other long-term investments⁽¹⁾
66,696
1,568
—
(19,265 ) —
—
—
—
—
—
—
48,999
(17,697 )
Total investments 1,664,355
4,339
16,958
(19,273 ) (9,044 ) 30,085
(65,360 ) —
—
(16,773 ) (1,700 ) 1,603,587
(15,858 )
Total assets measured at fair value on a recurring basis $ 1,664,355
$ 4,339
$ 16,958
$ (19,273 ) $ (9,044 ) $ 30,085
$ (65,360 ) $ —
$ —
$ (16,773 ) $ (1,700 ) $ 1,603,587
$ (15,858 )
Liabilities:

Annuity account balances⁽²⁾
$ 90,123
$ —
$ —
$ (530 ) $ —
$ —
$ —
$ 63
$ 1,896
$ —
$ —
$ 88,820
$ —
Other liabilities⁽¹⁾
801,781
15,217
—
(185,520 ) —
—
—
—
—
—
—
972,084
(170,303 )
Total liabilities measured at fair value on a recurring basis $ 891,904
$ 15,217
$ —
$ (186,050 ) $ —
$ —
$ —
$ 63
$ 1,896
$ —
$ —
$ 1,060,904
$ (170,303 )

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

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



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	(3	)	$	—	$	—	$	—		$	—		$	—	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	562,604		—		3,530		—			(831		)	—		(2,015		)	—		—		(6,643		)	291			556,936		—
Corporate securities	664,046		—		7,771		—			(282		)	37,259		(38,884		)	—		—		(2,647		)	(558		)	666,705		—
Total fixed maturity securities - available-for-sale	1,226,653		—		11,301		—			(1,113		)	37,259		(40,902		)	—		—		(9,290		)	(267		)	1,223,641		—
Fixed maturity securities - trading
Other asset-backed securities	84,563		3,474		—		(586		)	—			—		(19,308		)	—		—		—			609			68,752		2,888
Corporate securities	5,492		34		—		—			—			—		—			—		—		—			(22		)	5,504		34
Total fixed maturity securities - trading	90,055		3,508		—		(586		)	—			—		(19,308		)	—		—		—			587			74,256		2,922
Total fixed maturity securities	1,316,708		3,508		11,301		(586		)	(1,113		)	37,259		(60,210		)	—		—		(9,290		)	320			1,297,897		2,922
Equity securities	69,010		—		2		(2,630		)	—			—		—			—		—		3			(1		)	66,384		1
Other long-term investments⁽¹⁾	124,325		11,061		—		(1,958		)	—			—		—			—		—		—			—			133,428		9,103
Total investments	1,510,043		14,569		11,303		(5,174		)	(1,113		)	37,259		(60,210		)	—		—		(9,287		)	319			1,497,709		12,026
Total assets measured at fair value on a recurring basis	$	1,510,043	$	14,569	$	11,303	$	(5,174	)	$	(1,113	)	$	37,259	$	(60,210	)	$	—	$	—	$	(9,287	)	$	319		$	1,497,709	$	12,026
Liabilities:
Annuity account balances⁽²⁾	$	87,616	$	—	$	—	$	(887	)	$	—		$	—	$	—		$	180	$	2,268	$	—		$	—		$	86,415	$	—
Other liabilities⁽¹⁾	571,843		44,263		—		(59,494		)	—			—		—			—		—		—			—			587,074		(15,231		)
Total liabilities measured at fair value on a recurring basis	$	659,459	$	44,263	$	—	$	(60,381	)	$	—		$	—	$	—		$	180	$	2,268	$	—		$	—		$	673,489	$	(15,231	)

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

For the three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, there were ~~$27.2 million~~an immaterial amount of securities transferred into Level 3.

For the three months ended ~~June 30, 2016 (Successor Company), $44.0~~March 31, 2017, $9.3 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of ~~June 30, 2016 (Successor Company).~~

March 31, 2017.

For the three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, there were no securities ~~were~~ transferred from Level 2 to Level 1.

For the three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, there were no securities ~~were~~ transferred from Level 1.

~~Table of Contents~~

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the ~~six~~three months ended ~~June 30,~~March 31, 2016, ~~(Successor Company),~~ for which the Company has used significant unobservable inputs (Level 3):

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses

Total
Gains (losses)
included in

Beginning
Balance

Included
in
Earnings

Included
in
Other
Comprehensive
Income

Included
in
Earnings

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

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

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Other asset-backed securities 587,031
6,859
769
—
(21,407 ) 9,597
(58,449 ) —
—
7,457
1,284
533,141
—
Corporate securities 902,119
925
31,111
(4,135 ) (6,981 ) 25,558
(81,865 ) —
—
(77,952 ) (5,637 ) 783,143
—
Total fixed maturity securities - available-for-sale 1,489,153
7,784
31,880
(4,135 ) (28,388 ) 35,155
(140,314 ) —
—
(70,495 ) (4,353 ) 1,316,287
—
Fixed maturity securities - trading

Other asset-backed securities 152,912
2,050
—
(942 ) —
—
(2,212 ) —
—
172
(16 ) 151,964
1,105
Corporate securities 18,225
332
—
(259 ) —
10,908
(4,071 ) —
—
(8,479 ) (69 ) 16,587
241
Total fixed maturity securities - trading 171,137
2,382
—
(1,201 ) —
10,908
(6,283 ) —
—
(8,307 ) (85 ) 168,551
1,346
Total fixed maturity securities 1,660,290
10,166
31,880
(5,336 ) (28,388 ) 46,063
(146,597 ) —
—
(78,802 ) (4,438 ) 1,484,838
1,346
Equity securities 69,763
—
—
—
—
22
—
—
—
(36 ) 1
69,750
—
Other long-term investments⁽¹⁾
96,830
1,568
—
(49,399 ) —
—
—
—
—
—
—
48,999
(47,831 )
Total investments 1,826,883
11,734
31,880
(54,735 ) (28,388 ) 46,085
(146,597 ) —
—
(78,838 ) (4,437 ) 1,603,587
(46,485 )
Total assets measured at fair value on a recurring basis $ 1,826,883
$ 11,734
$ 31,880
$ (54,735 ) $ (28,388 ) $ 46,085
$ (146,597 ) $ —
$ —
$ (78,838 ) $ (4,437 ) $ 1,603,587
$ (46,485 )
Liabilities:

Annuity account balances⁽²⁾
$ 92,512
$ —
$ —
$ (1,096 ) $ —
$ —
$ —
$ 250
$ 5,038
$ —
$ —
$ 88,820
$ —
Other liabilities⁽¹⁾
585,556
15,585
—
(402,113 ) —
—
—
—
—
—
—
972,084
(386,528 )
Total liabilities measured at fair value on a recurring basis $ 678,068
$ 15,585
$ —
$ (403,209 ) $ —
$ —
$ —
$ 250
$ 5,038
$ —
$ —
$ 1,060,904
$ (386,528 )

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

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



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	3	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	587,031		6,859		—		—			(13,057		)	—		(50,820		)	—		—		7,457			361			537,831		—
Corporate securities	902,119		—		14,922		(4,135		)	(6,287		)	16,000		(24,742		)	—		—		(61,179		)	(2,961		)	833,737		—
Total fixed maturity securities - available-for-sale	1,489,153		6,859		14,922		(4,135		)	(19,344		)	16,000		(75,562		)	—		—		(53,722		)	(2,600		)	1,371,571		—
Fixed maturity securities - trading
Other asset-backed securities	152,912		228		—		(934		)	—			—		(1,603		)	—		—		172			(92		)	150,683		(709		)
Corporate securities	18,225		308		—		(259		)	—			—		(4,072		)	—		—		(8,479		)	(46		)	5,677		216
Total fixed maturity securities - trading	171,137		536		—		(1,193		)	—			—		(5,675		)	—		—		(8,307		)	(138		)	156,360		(493		)
Total fixed maturity securities	1,660,290		7,395		14,922		(5,328		)	(19,344		)	16,000		(81,237		)	—		—		(62,029		)	(2,738		)	1,527,931		(493		)
Equity securities	69,763		—		—		—			—			—		—			—		—		(36		)	1			69,728		—
Other long-term investments⁽¹⁾	96,830		—		—		(30,134		)	—			—		—			—		—		—			—			66,696		(30,134		)
Total investments	1,826,883		7,395		14,922		(35,462		)	(19,344		)	16,000		(81,237		)	—		—		(62,065		)	(2,737		)	1,664,355		(30,627		)
Total assets measured at fair value on a recurring basis	$	1,826,883	$	7,395	$	14,922	$	(35,462	)	$	(19,344	)	$	16,000	$	(81,237	)	$	—	$	—	$	(62,065	)	$	(2,737	)	$	1,664,355	$	(30,627	)
Liabilities:
Annuity account balances⁽²⁾	$	92,512	$	—	$	—	$	(566	)	$	—		$	—	$	—		$	187	$	3,142	$	—		$	—		$	90,123	$	—
Other liabilities⁽¹⁾	585,556		368		—		(216,593		)	—			—		—			—		—		—			—			801,781		(216,225		)
Total liabilities measured at fair value on a recurring basis	$	678,068	$	368	$	—	$	(217,159	)	$	—		$	—	$	—		$	187	$	3,142	$	—		$	—		$	891,904	$	(216,225	)

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

For the ~~six~~three months ended ~~June 30,~~March 31, 2016, ~~(Successor Company), $71.3~~there were $44.1 million of securities ~~were~~ transferred into Level 3.

For the ~~six~~three months ended ~~June 30,~~March 31, 2016, ~~(Successor Company), $150.2~~there were $106.2 million of securities ~~were~~ transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of ~~June 30, 2016 (Successor Company).~~

~~For the six months ended June 30, 2016 (Successor Company), $12.2 million of securities were transferred from Level 2 to Level 1.~~

~~For the six months ended June 30, 2016 (Successor Company), $0.1 million of securities were transferred from Level 1.~~

~~Table of Contents~~

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

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses

Total
Gains (losses)
included in

Beginning
Balance

Included
in
Earnings

Included
in
Other
Comprehensive
Income

Included
in
Earnings

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

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

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Other asset-backed securities 600,132
—
165
(92 ) (9,323 ) —
(87 ) —
—
—
90
590,885
—
Corporate securities 1,283,142
3,656
4,001
(687 ) (24,247 ) 89,929
(219,148 ) —
—
(21,803 ) (3,412 ) 1,111,431
—
Total fixed maturity securities - available-for-sale 1,883,277
3,656
4,166
(779 ) (33,570 ) 89,929
(219,235 ) —
—
(21,803 ) (3,322 ) 1,702,319
—
Fixed maturity securities - trading

Other asset-backed securities 170,500
589
—
(5,173 ) —
—
(5,468 ) —
—
—
146
160,594
(4,587 )
Corporate securities 19,614
140
—
(233 ) —
—
(161 ) —
—
—
(44 ) 19,316
(93 )
Total fixed maturity securities - trading 190,114
729
—
(5,406 ) —
—
(5,629 ) —
—
—
102
179,910
(4,680 )
Total fixed maturity securities 2,073,391
4,385
4,166
(6,185 ) (33,570 ) 89,929
(224,864 ) —
—
(21,803 ) (3,220 ) 1,882,229
(4,680 )
Equity securities 69,951
—
—
—
—
—
(231 ) —
—
—
—
69,720
—
Other long-term investments⁽¹⁾
122,894
46,702
—
—
—
—
—
—
—
—
—
169,596
46,702
Total investments 2,266,236
51,087
4,166
(6,185 ) (33,570 ) 89,929
(225,095 ) —
—
(21,803 ) (3,220 ) 2,121,545
42,022
Total assets measured at fair value on a recurring basis $ 2,266,236
$ 51,087
$ 4,166
$ (6,185 ) $ (33,570 ) $ 89,929
$ (225,095 ) $ —
$ —
$ (21,803 ) $ (3,220 ) $ 2,121,545
$ 42,022
Liabilities:

Annuity account balances⁽²⁾
$ 97,108
$ —
$ —
$ (911 ) $ —
$ —
$ —
$ 72
$ 2,913
$ —
$ —
$ 95,178
$ —
Other liabilities⁽¹⁾
627,515
224,194
—
(24,444 ) —
—
—
—
—
—
—
427,765
199,750
Total liabilities measured at fair value on a recurring basis $ 724,623
$ 224,194
$ —
$ (25,355 ) $ —
$ —
$ —
$ 72
$ 2,913
$ —
$ —
$ 522,943
$ 199,750

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

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

March 31, 2016.

For the three months ended ~~June 30, 2015 (Successor Company),~~March 31, 2016, there were ~~no securities transferred into Level 3.~~

~~For the three months ended June 30, 2015 (Successor Company), $21.8~~$12.2 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of June 30, 2015 (Successor Company).

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

For the three months ended ~~June 30, 2015 (Successor Company),~~March 31, 2016, there were no$0.1 million of securities transferred from Level 1.

~~Table of Contents~~

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

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses

Total
Gains (losses)
included in

Beginning
Balance

Included
in
Earnings

Included
in
Other
Comprehensive
Income

Included
in
Earnings

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

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

Fixed maturity securities available-for-sale

Residential mortgage-backed securities $ 3
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 3
$ —
Other asset-backed securities 603,646
—
165
(92 ) (12,891 ) —
(127 ) —
—
—
184
590,885
—
States, municipals, and political subdivisions 3,675
—
—
—
—
—
(3,675 ) —
—
—
—
—
—
Corporate securities 1,307,259
4,291
15,619
(687 ) (24,247 ) 111,929
(254,935 ) —
—
(41,853 ) (5,945 ) 1,111,431
—
Total fixed maturity securities - available-for-sale 1,914,583
4,291
15,784
(779 ) (37,138 ) 111,929
(258,737 ) —
—
(41,853 ) (5,761 ) 1,702,319
—
Fixed maturity securities - trading

Other asset-backed securities 169,473
3,949
—
(5,173 ) —
—
(7,876 ) —
—
—
221
160,594
(5,829 )
Corporate securities 25,130
174
—
(299 ) —
—
(5,584 ) —
—
—
(105 ) 19,316
(1,180 )
Total fixed maturity securities - trading 194,603
4,123
—
(5,472 ) —
—
(13,460 ) —
—
—
116
179,910
(7,009 )
Total fixed maturity securities 2,109,186
8,414
15,784
(6,251 ) (37,138 ) 111,929
(272,197 ) —
—
(41,853 ) (5,645 ) 1,882,229
(7,009 )
Equity securities 73,044
—
—
—
—
—
(231 ) —
—
—
(3,093 ) 69,720
—
Other long-term investments⁽¹⁾
93,274
76,342
—
(20 ) —
—
—
—
—
—
—
169,596
76,322
Total investments 2,275,504
84,756
15,784
(6,271 ) (37,138 ) 111,929
(272,428 ) —
—
(41,853 ) (8,738 ) 2,121,545
69,313
Total assets measured at fair value on a recurring basis $ 2,275,504
$ 84,756
$ 15,784
$ (6,271 ) $ (37,138 ) $ 111,929
$ (272,428 ) $ —
$ —
$ (41,853 ) $ (8,738 ) $ 2,121,545
$ 69,313
Liabilities:

Annuity account balances⁽²⁾
$ 98,279
$ —
$ —
$ (1,544 ) $ —
$ —
$ —
$ 86
$ 4,731
$ —
$ —
$ 95,178
$ —
Other liabilities⁽¹⁾
742,130
358,811
—
(44,446 ) —
—
—
—
—
—
—
427,765
314,365
Total liabilities measured at fair value on a recurring basis $ 840,409
$ 358,811
$ —
$ (45,990 ) $ —
$ —
$ —
$ 86
$ 4,731
$ —
$ —
$ 522,943
$ 314,365

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

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

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

For the period of February 1, 2015 to June 30, 2015 (Successor Company), $41.9 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were no longer available in previous periods but were priced by independent pricing services or brokers as of June 30, 2015 (Successor Company).

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

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

~~Table of Contents~~

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

Total
Realized and Unrealized
Gains

Total
Realized and Unrealized
Losses

Total
Gains (losses)
included in

Beginning
Balance

Included in
Earnings

Included in
Other
Comprehensive
Income

Included in
Earnings

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

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

Fixed maturity securities available-for-sale

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

Other asset-backed securities 169,461
586
—
(139 ) —
—
(472 ) —
—
—
37
169,473
447
Corporate securities 24,744
602
—
(196 ) —
—
(20 ) —
—
—
—
25,130
406
Total fixed maturity securities - trading 194,205
1,188
—
(335 ) —
—
(492 ) —
—
—
37
194,603
853
Total fixed maturity securities 2,087,527
1,188
12,282
(335 ) (26,896 ) —
(7,586 ) —
—
43,205
(199 ) 2,109,186
853
Equity securities 73,054
—
—
—
(10 ) —
—
—
—
—
—
73,044
—
Other long-term investments(1)
67,894
753
—
(25,902 ) —
—
—
—
—
—
—
42,745
(25,149 )
Short-term investments —
—
—
—
—
—
—
—
—
—
—
—
—
Total investments 2,228,475
1,941
12,282
(26,237 ) (26,906 ) —
(7,586 ) —
—
43,205
(199 ) 2,224,975
(24,296 )
Total assets measured at fair value on a recurring basis $ 2,228,475
$ 1,941
$ 12,282
$ (26,237 ) $ (26,906 ) $ —
$ (7,586 ) $ —
$ —
$ 43,205
$ (199 ) $ 2,224,975
$ (24,296 )
Liabilities:

Annuity account balances(2)
$ 97,825
$ —
$ —
$ (536 ) $ —
$ —
$ —
$ 7
$ 419
$ —
$ —
$ 97,949
$ —
Other liabilities(1)
754,852
61
—
(253,773 ) —
—
—
—
—
—
—
1,008,564
(253,712 )
Total liabilities measured at fair value on a recurring basis $ 852,677
$ 61
$ —
$ (254,309 ) $ —
$ —
$ —
$ 7
$ 419
$ —
$ —
$ 1,106,513
$ (253,712 )

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

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

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

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

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

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

~~Table of Contents~~

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

The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. The asset transfers in the table(s) above primarily related to positions moved from Level 3 to Level 2 as the Company determined that certain inputs were observable.

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

Estimated Fair Value of Financial Instruments

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

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

Fair Value
Level

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

Mortgage loans on real estate 3 $ 5,748,675
$ 5,735,650
$ 5,662,812
$ 5,529,803
Policy loans 3 1,670,218
1,670,218
1,699,508
1,699,508
Fixed maturities, held-to-maturity ⁽¹⁾
3 2,779,280
2,853,788
593,314
515,000
Liabilities:

Stable value product account balances 3 $ 2,838,674
$ 2,855,064
$ 2,131,822
$ 2,124,712
Annuity account balances 3 10,678,701
10,221,680
10,719,862
10,274,571
Debt:

Bank borrowings 3 $ 360,000
$ 360,000
$ 485,000
$ 485,000
Senior Notes 2 1,037,236
996,213
1,103,806
1,020,025
Subordinated debt securities 2 445,023
466,385
448,763
457,275
Non-recourse funding obligations ⁽²⁾
3 2,863,409
2,938,559
685,684
614,380

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

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

~~(2)~~ Of this carrying amount, $2.8 billion, fair value of $2.8 billion, as of June 30, 2016 (Successor Company) and $500.0 million, fair value of $495.5 million, as of December 31, 2015 (Successor Company), relates to non-recourse funding obligations issued by Golden Gate and Golden Gate V.



		As of
		March 31, 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	$	6,311,822	$	6,180,585	$	6,132,125	$	5,930,992
Policy loans	3	1,635,511		1,635,511		1,650,240		1,650,240
Fixed maturities, held-to-maturity⁽¹⁾	3	2,758,137		2,746,375		2,770,177		2,733,340
Liabilities:
Stable value product account balances	3	$	3,614,225	$	3,607,767	$	3,501,636	$	3,488,877
Future policy benefits and claims⁽²⁾	3	216,520		216,520		221,634		221,658
Other policyholders' funds⁽³⁾	3	134,329		135,090		135,367		136,127
Debt:
Bank borrowings	3	$	340,000	$	340,000	$	170,000	$	170,000
Senior Notes	2	965,408		933,130		993,285		937,074
Subordinated debt securities	2	439,260		444,820		441,202		443,355
Non-recourse funding obligations⁽⁴⁾	3	2,785,056		2,777,508		2,796,474		2,765,558

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) As of March 31, 2017, $2.7 billion in carrying amount and fair value relates 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 relates 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.

~~Table of Contents~~

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 ~~Annuity account~~other investment contract balances

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

Debt

Bank borrowings

The Company believes the carrying value of its bank borrowings approximates fair value as the borrowings pay a floating interest rate plus a spread based on the rating of the Company’s senior debt which the Company believes approximates a market interest rate.

Non-recourse funding obligations

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

8.6. DERIVATIVE FINANCIAL INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

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

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

Derivatives Related to Interest Rate Risk Management

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

Derivatives Related to Foreign Currency Exchange Risk Management

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

foreign equity options.

Derivatives Related to Risk Mitigation of Certain Annuity Contracts

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

•Foreign Currency Futures

•Variance Swaps

•Interest Rate Futures

•Equity Options

•Equity Futures

•Credit Derivatives

•Interest Rate Swaps

•Interest Rate Swaptions

•Volatility Futures

•Volatility Options

•Total Return Swaps

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

~~Table of Contents~~

income or in other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists.

For a derivative financial instrument to be accounted for as an accounting hedge, it must be identified and documented as such on the date of designation. For cash flow hedges, the effective portion of their realized gain or loss is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged item impacts earnings.

Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain attributable to the hedged risk of the hedged item is recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis.

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

instruments.”

Derivative Instruments Designated and Qualifying as Hedging Instruments

Cash-Flow Hedges

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

note.

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments

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

Derivatives Related to Variable Annuity Contracts

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

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

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

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

Derivatives Related to Fixed Annuity Contracts

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

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

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

Other Derivatives

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

~~Table of Contents~~

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

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

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

Realized investment gains (losses) - derivative financial instruments

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

Interest rate futures - VA $ 31,266
$ (14,183 ) $ 69,067
$ (14,231 ) $ 1,413
Equity futures - VA (21,328 ) (5,267 ) (24,556 ) (37,736 ) 9,221
Currency futures - VA 11,112
(8,709 ) 4,954
(2,572 ) 7,778
Equity options - VA (3,232 ) (3,550 ) 13,072
(25,324 ) 3,047
Interest rate swaptions - VA (749 ) 2,547
(2,983 ) (8,781 ) 9,268
Interest rate swaps - VA 81,554
(121,167 ) 207,147
(175,958 ) 122,710
Embedded derivative - GMWB (161,402 ) 132,657
(337,253 ) 245,917
(207,018 )
Total derivatives related to VA contracts (62,779 ) (17,672 ) (70,552 ) (18,685 ) (53,581 )
Derivatives related to FIA contracts:

Embedded derivative - FIA 710
290
(1,452 ) (2,293 ) 1,769
Equity futures - FIA 651
123
2,033
307
(184 )
Volatility futures - FIA —
25
—
29
—
Equity options - FIA 735
1,226
(4,827 ) 5,601
(2,617 )
Total derivatives related to FIA contracts 2,096
1,664
(4,246 ) 3,644
(1,032 )
Derivatives related to IUL contracts:

Embedded derivative - IUL (96 ) 1,538
(834 ) 1,795
(486 )
Equity futures - IUL 47
9
(172 ) 23
3
Equity options - IUL 241
(78 ) 214
62
(115 )
Total derivatives related to IUL contracts 192
1,469
(792 ) 1,880
(598 )
Embedded derivative - Modco reinsurance treaties (22,820 ) 109,131
(81,175 ) 141,322
(68,026 )
Other derivatives (55 ) 11
(100 ) 83
(37 )
Total realized gains (losses) - derivatives $ (83,366 ) $ 94,603
$ (156,865 ) $ 128,244
$ (123,274 )

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Derivatives related to VA contracts:
Interest rate futures - VA	$	3,448		$	37,801
Equity futures - VA	(30,817		)	(3,228		)
Currency futures - VA	(6,256		)	(6,158		)
Equity options - VA	(40,185		)	16,304
Interest rate swaptions - VA	(1,469		)	(2,234		)
Interest rate swaps - VA	(8,957		)	125,593
Embedded derivative - GLWB	33,632			(175,851		)
Total derivatives related to VA contracts	(50,604		)	(7,773		)
Derivatives related to FIA contracts:
Embedded derivative - FIA	(12,411		)	(2,162		)
Equity futures - FIA	297			1,382
Volatility futures - FIA	—			—
Equity options - FIA	10,700			(5,562		)
Total derivatives related to FIA contracts	(1,414		)	(6,342		)
Derivatives related to IUL contracts:
Embedded derivative - IUL	(2,090		)	(738		)
Equity futures - IUL	(799		)	(219		)
Equity options - IUL	2,891			(27		)
Total derivatives related to IUL contracts	2			(984		)
Embedded derivative - Modco reinsurance treaties	(17,865		)	(58,355		)
Other derivatives	3			(45		)
Total realized gains (losses) - derivatives	$	(69,878	)	$	(73,499	)

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

Realized investment gains (losses) - all other investments



	For The Three Months Ended March 31,
	2017		2016
	(Dollars In Thousands)
Modco trading portfolio⁽¹⁾	$	18,552	$	78,154

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

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

The following table presents the components of the gain or loss on derivatives that qualify as a cash flow hedging relationship.

The Company did not have any derivatives that qualified as a cash flow hedging relationships for the three months ended March 31, 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~~	~~Realized investment~~
	~~expenses~~	~~gains (losses)~~
	~~(Dollars In Thousands)~~



	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			Realized investment
				expenses			gains (losses)
				(Dollars In Thousands)
For The Three Months Ended March 31, 2017
Foreign currency swaps	$	(1,034	)	$	(205	)	$	—
Total	$	(1,034	)	$	(205	)	$	—

Successor Company
For The Three Months Ended June 30, 2015

Inflation $ (95 ) $ (41 ) $ 77
Total $ (95 ) $ (41 ) $ 77

February 1, 2015 to June 30, 2015

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

Predecessor Company
January 1, 2015 to January 31, 2015

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

~~Table~~Based on expected cash flows of ~~Contents~~

the underlying hedged items, the Company expects to reclassify $0.8 million out of accumulated other comprehensive income into earnings during the next twelve months.

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

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

Notional
Amount

Fair
Value

Notional
Amount

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

Derivatives not designated as hedging instruments:

Interest rate swaps $ 1,640,000
$ 255,439
$ 1,435,000
$ 66,408
Embedded derivative - Modco reinsurance treaties 64,201
1,850
64,593
1,215
Embedded derivative - GMWB 1,992,225
47,149
3,769,601
95,614
Interest rate futures 1,155,001
35,366
282,373
1,537
Equity futures 190,058
752
262,485
1,275
Currency futures 314,256
15,915
226,936
2,499
Equity options 2,725,744
269,217
2,198,340
179,458
Interest rate swaptions 225,000
681
225,000
3,663
Other 298
249
242
347
$ 8,306,783
$ 626,618
$ 8,464,570
$ 352,016
Other liabilities

Derivatives not designated as hedging instruments:

Interest rate swaps $ 270,000
$ 3,215
$ 475,000
$ 16,579
Embedded derivative - Modco reinsurance treaties 2,457,293
239,350
2,473,427
178,362
Embedded derivative - GMWB 8,480,468
566,026
6,539,658
277,236
Embedded derivative - FIA 1,313,404
119,997
1,110,790
100,329
Embedded derivative - IUL 77,879
46,711
57,760
29,629
Interest rate futures —
—
793,763
1,539
Equity futures 582,493
7,461
233,412
2,599
Currency futures 64,445
1,805
46,692
1,115
Equity options 1,459,533
60,551
1,205,204
22,167
$ 14,705,515
$ 1,045,116
$ 12,935,706
$ 629,555



	As of
	March 31, 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	$	132
Derivatives not designated as hedging instruments:
Interest rate swaps	1,040,000		43,730		1,135,000		71,644
Embedded derivative - Modco reinsurance treaties	64,310		616		64,123		2,573
Embedded derivative - GLWB	4,917,362		132,812		4,601,633		121,752
Interest rate futures	698,352		1,917		102,587		894
Equity futures	445,702		1,769		654,113		5,805
Currency futures	—		—		340,058		7,883
Equity options	4,459,031		363,614		3,944,444		328,908
Interest rate swaptions	225,000		1,034		225,000		2,503
Other	157		153		212		149
	$	11,849,914	$	545,645	$	11,184,348	$	542,243
Other liabilities
Cash flow hedges:
Foreign currency swaps	$	117,178	$	485	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	822,500		1,953		575,000		10,208
Embedded derivative - Modco reinsurance treaties	2,437,200		150,924		2,450,692		141,301
Embedded derivative - GLWB	5,625,350		214,550		5,962,044		237,122
Embedded derivative - FIA	1,610,708		170,215		1,496,346		147,368
Embedded derivative - IUL	120,218		51,385		103,838		46,051
Interest rate futures	769,621		922		993,842		6,611
Equity futures	280,278		3,987		102,667		2,907
Currency futures	298,852		6,234		—		—
Equity options	3,020,620		201,838		2,590,160		157,253
	$	15,102,525	$	802,493	$	14,274,589	$	748,821

9. 7. OFFSETTING OF ASSETS AND LIABILITIES

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

~~Table of Contents~~

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

March 31, 2017:


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position							Gross Amounts of Recognized Assets			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets				Financial Instruments			Cash Collateral Received		Net Amount				Financial Instruments				Gross Amounts Offset in the Statement of Financial Position		Cash Collateral Received			Net Amount
	(Dollars In Thousands)														Gross Amounts of Recognized Assets		(Dollars In Thousands)
Offsetting of Derivative Assets			Gross Amounts Offset in the Statement of Financial Position
Offsetting of Assets
Derivatives:
Free-Standing derivatives	$	577,370	$	—		$	577,370	$	66,347	$	336,163	$	174,860		$	412,064		$	—		$	412,064	$	206,954	$	96,785	$	108,325
Total derivatives, subject to a master netting arrangement or similar arrangement	577,370		—			577,370		66,347		336,163		174,860			412,064			—			412,064		206,954		96,785		108,325
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	1,850		—			1,850		—		—		1,850			616			—			616		—		—		616
Embedded derivative - GMWB	47,149		—			47,149		—		—		47,149
Embedded derivative - GLWB															132,812			—			132,812		—		—		132,812
Other	249		—			249		—		—		249			153			—			153		—		—		153
Total derivatives, not subject to a master netting arrangement or similar arrangement	49,248		—			49,248		—		—		49,248			133,581			—			133,581		—		—		133,581
Total derivatives	626,618		—			626,618		66,347		336,163		224,108			545,645			—			545,645		206,954		96,785		241,906
Total Assets	$	626,618	$	—		$	626,618	$	66,347	$	336,163	$	224,108		$	545,645		$	—		$	545,645	$	206,954	$	96,785	$	241,906

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

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

Derivatives:

Free-Standing derivatives $ 73,032
$ —
$ 73,032
$ 66,347
$ 6,685
$ —
Total derivatives, subject to a master netting arrangement or similar arrangement 73,032
—
73,032
66,347
6,685
—
Derivatives not subject to a master netting arrangement or similar arrangement

Embedded derivative - Modco reinsurance treaties 239,350
—
239,350
—
—
239,350
Embedded derivative - GMWB 566,026
—
566,026
—
—
566,026
Embedded derivative - FIA 119,997
—
119,997
—
—
119,997
Embedded derivative - IUL 46,711
—
46,711
—
—
46,711
Total derivatives, not subject to a master netting arrangement or similar arrangement 972,084
—
972,084
—
—
972,084
Total derivatives 1,045,116
—
1,045,116
66,347
6,685
972,084
Repurchase agreements⁽¹⁾
160,000
—
160,000
—
—
160,000
Total Liabilities $ 1,205,116
$ —
$ 1,205,116
$ 66,347
$ 6,685
$ 1,132,084

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



	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral Paid		Net Amount
	(Dollars In Thousands)
Offsetting of Liabilities
Derivatives:
Free-Standing derivatives	$	215,419	$	—	$	215,419	$	206,954	$	8,465	$	—
Total derivatives, subject to a master netting arrangement or similar arrangement	215,419		—		215,419		206,954		8,465		—
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	150,924		—		150,924		—		—		150,924
Embedded derivative - GLWB	214,550		—		214,550		—		—		214,550
Embedded derivative - FIA	170,215		—		170,215		—		—		170,215
Embedded derivative - IUL	51,385		—		51,385		—		—		51,385
Total derivatives, not subject to a master netting arrangement or similar arrangement	587,074		—		587,074		—		—		587,074
Total derivatives	802,493		—		802,493		206,954		8,465		587,074
Repurchase agreements⁽¹⁾	787,652		—		787,652		787,652		—		—
Total Liabilities	$	1,590,145	$	—	$	1,590,145	$	994,606	$	8,465	$	587,074

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

~~Table of Contents~~

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

2016:


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position							Gross Amounts of Recognized Assets			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets				Financial Instruments			Cash Collateral Received		Net Amount				Financial Instruments				Gross Amounts Offset in the Statement of Financial Position		Cash Collateral Received			Net Amount
	(Dollars In Thousands)														Gross Amounts of Recognized Assets		(Dollars In Thousands)
Offsetting of Derivative Assets			Gross Amounts Offset in the Statement of Financial Position
Derivatives:
Free-Standing derivatives	$	254,840	$	—		$	254,840	$	42,382	$	105,842	$	106,616		$	417,769		$	—		$	417,769	$	171,384	$	100,890	$	145,495
Total derivatives, subject to a master netting arrangement or similar arrangement	254,840		—			254,840		42,382		105,842		106,616			417,769			—			417,769		171,384		100,890		145,495
Derivatives not subject to a master netting arrangement or similar arrangement
Embedded derivative - Modco reinsurance treaties	1,215		—			1,215		—		—		1,215			2,573			—			2,573		—		—		2,573
Embedded derivative - GMWB	95,614		—			95,614		—		—		95,614
Embedded derivative - GLWB															121,752			—			121,752		—		—		121,752
Other	347		—			347		—		—		347			149			—			149		—		—		149
Total derivatives, not subject to a master netting arrangement or similar arrangement	97,176		—			97,176		—		—		97,176			124,474			—			124,474		—		—		124,474
Total derivatives	352,016		—			352,016		42,382		105,842		203,792			542,243			—			542,243		171,384		100,890		269,969
Total Assets	$	352,016	$	—		$	352,016	$	42,382	$	105,842	$	203,792		$	542,243		$	—		$	542,243	$	171,384	$	100,890	$	269,969

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

Financial
Instruments

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

Derivatives:

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

Embedded derivative - Modco reinsurance treaties 178,362
—
178,362
—
—
178,362
Embedded derivative - GMWB 277,236
—
277,236
—
—
277,236
Embedded derivative - FIA 100,329
—
100,329
—
—
100,329
Embedded derivative - IUL 29,629
—
29,629
—
—
29,629
Total derivatives, not subject to a master netting arrangement or similar arrangement 585,556
—
585,556
—
—
585,556
Total derivatives 629,555
—
629,555
42,382
1,617
585,556
Repurchase agreements⁽¹⁾
438,185
—
438,185
—
—
438,185
Total Liabilities $ 1,067,740
$ —
$ 1,067,740
$ 42,382
$ 1,617
$ 1,023,741

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

~~Table of Contents~~



	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral Paid		Net Amount
	(Dollars In Thousands)
Offsetting of Derivative 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
Embedded derivative - GLWB	237,122		—		237,122		—		—		237,122
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	571,842		—		571,842		—		—		571,842
Total derivatives	748,821		—		748,821		171,384		5,595		571,842
Repurchase agreements⁽¹⁾	797,721		—		797,721		—		—		797,721
Total Liabilities	$	1,546,542	$	—	$	1,546,542	$	171,384	$	5,595	$	1,369,563

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

~~10.~~8. MORTGAGE LOANS

Mortgage Loans

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company’s mortgage loan holdings were approximately ~~$5.7~~$6.3 billion. The Company has specialized in making loans on ~~either~~ credit-oriented commercial properties, or credit-anchored strip shopping centers, senior living facilities, and apartments. The Company’s underwriting procedures relative to its commercial loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). The Company believes that these asset types tend to weather economic downturns better than other commercial asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history. The majority of the ~~Company’s~~Company's mortgage loans portfolio was underwritten by the Company. From time to time, the Company may acquire loans in conjunction with an acquisition.

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

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

Certain of the mortgage loans have call options that occur within the next 12 years. However, if interest rates were to significantly increase, wethe Company may be unable to exercise the call options on ~~our~~its existing mortgage loans commensurate with the significantly increased market rates. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, assuming the loans are called at their next call dates, approximately ~~$42.7~~$119.9 million of principal would become due for the remainder of ~~2016, $922.1~~2017, $957.5 million in ~~2017~~2018 through ~~2021, $238.1~~2022, $129.8 million in ~~2022~~2023 through ~~2026,~~2027, and ~~$11.1~~$10.1 million thereafter.

The Company offers a type of commercial mortgage loan under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of ~~June 30, 2016 (Successor Company)~~March 31, 2017, and December 31, ~~2015 (Successor Company),~~2016, approximately ~~$522.8~~$613.5 million and ~~$449.2~~$595.2 million, respectively, of the Company’s total mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, (Successor Company), the three months ended June 30, 2015 (Successor Company), the period of February 1, 2015 to June 30, 2015 (Successor Company), and January 1, 2015 to January 31, 2015 (Predecessor Company), the Company recognized ~~$5.7 million, $12.5 million, $3.3 million, $5.1~~$6.8 million and ~~$0.1~~$6.8 million, respectively, of participating mortgage loan income.

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, approximately ~~$1.0~~$2.0 million of invested assets consisted of nonperforming mortgage loans, restructured mortgage loans, or mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company ~~did not enter into certain mortgage loan transactions that were accounted for as~~recognized a troubled debt ~~restructurings under Topic 310~~restructuring as a result of the ~~FASB ASC. If the~~ Company ~~had troubled debt restructurings, these transactions would include either the acceptance of assets in satisfaction of principal during the respective periods or at~~granting a ~~future date, and were~~concession to a borrower which included loans terms unavailable from other lenders. This concession was the result of agreements between the creditor and the debtor. ~~During the six months ended June 30, 2016 (Successor Company), the~~The Company did not ~~accept or agree to accept assets in satisfaction of principal. As of June 30, 2016 (Successor Company),~~identify any loans whose principal was permanently impaired during the ~~Company did not have any mortgage loan transactions accounted for as troubled debt restructurings.~~

three months ended March 31, 2017.

The Company’s mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those subject to a contractual pooling and servicing agreement. As of ~~June 30, 2016 (Successor Company), $1.0~~March 31, 2017, $2.0 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 and servicing agreement during the ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~

March 31, 2017.

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, none of the loans subject to a pooling and servicing agreement were nonperforming or restructured. The Company did not foreclose on any nonperforming loans subject to a pooling and servicing agreement during the ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~

March 31, 2017.

As of ~~June 30,~~March 31, 2017, and December 31, 2016, ~~(Successor Company),~~ the Company had an allowance for mortgage loan credit losses of ~~$3.9~~$5.1 million and ~~no allowance as of December 31, 2015 (Successor Company).~~$0.7 million, respectively. Due to the Company’s loss experience and nature of the loan portfolio, the Company believes that a collectively evaluated allowance would be inappropriate. The Company believes an allowance calculated through an analysis of specific loans that are believed to have a higher risk of credit impairment provides a

~~Table of Contents~~

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

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


	Successor Company					Predecessor Company			As of
	As of June 30, 2016		February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015			March 31, 2017			December 31, 2016
	(Dollars In Thousands)					(Dollars In Thousands)			(Dollars In Thousands)
Beginning balance	$	—	$	—		$	5,720		$	724		$	—
Charge offs	—		(2,561		)	(861		)	—			(4,682		)
Recoveries	—		(638		)	(2,359		)	(724		)	—
Provision	3,850		3,199			—			5,087			5,406
Ending balance	$	3,850	$	—		$	2,500		$	5,087		$	724

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

Greater
Successor Company 30-59 Days 60-89 Days than 90 Days Total
As of June 30, 2016 Delinquent Delinquent Delinquent Delinquent
(Dollars In Thousands)
Commercial mortgage loans $ 9,167
$ —
$ 1,034
$ 10,201
Number of delinquent commercial mortgage loans 3
—
1
4

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

~~Table of Contents~~



					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
As of March 31, 2017	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	1,968	$	—	$	1,235	$	3,203
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 mortgage loans that are collateralized by real estate. Due to the collateralized nature of the loans, any assessment of impairment and ultimate loss given a default on the loans is based upon a consideration of the estimated fair value of the real estate. The Company limits accrued interest income on impaired loans to 90 days of interest. Once accrued interest on the impaired loan is received, interest income is recognized on a cash basis. For information regarding impaired loans, please refer to the following chart:


			Unpaid				Average		Interest		Cash Basis				Unpaid				Average		Interest		Cash Basis
Successor Company	Recorded		Principal		Related		Recorded		Income		Interest
As of June 30, 2016	Investment		Balance		Allowance		Investment		Recognized		Income
													Recorded		Principal		Related		Recorded		Income		Interest
As of March 31, 2017													Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)												(Dollars In Thousands)
Commercial mortgage loans:
With no related allowance recorded	$	1,034	$	1,067	$	—	$	1,034	$	—	$	—	$	1,235	$	1,186	$	—	$	1,235	$	—	$	—
With an allowance recorded	12,313		12,301		3,850		6,156		190		199		9,573		9,562		5,087		9,573		101		101

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

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



	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars In Thousands)
As of March 31, 2017
Troubled debt restructuring:
Commercial mortgage loans	1	$	739	$	739

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

~~11.~~9. GOODWILL

~~As permitted by ASC Topic 805,~~ ~~Business Combinations~~,During the year ended December 31, 2016, the Company ~~measured~~increased its ~~assets and liabilities at fair value on the date of the Merger, February 1, 2015. The purchase price in excess of the fair value of assets and liabilities of the Company resulted~~goodwill balance by approximately $61.0 million in the establishment of goodwill as of the date of the Merger. As of February 1, 2015 (Successor Company), the Company established an aggregate goodwill balance of $735.7 million. During the measurement period subsequent to February 1, 2015, the Company has made adjustments to provisional amounts related to certain tax balances that resulted in a decrease to goodwill of $3.3 million from the amount recorded at the Merger date. This reduction in GoodwillAsset Protection segment, which was ~~applied~~attributed to the ~~Life Marketing segment's goodwill.~~US Warranty acquisition. The balance of goodwill ~~associated with~~for the ~~Merger~~Company as of ~~June 30, 2016 (Successor Company) and December~~March 31, ~~2015 (Successor Company)~~2017 was ~~$732.4~~$793.5 million. There has been no change ~~in the~~to goodwill during the ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~

March 31, 2017.

Accounting for goodwill requires an estimate of the future profitability of the associated lines of business to assess the recoverability of the capitalized acquisition goodwill. The Company evaluates the carrying value of goodwill at the segment (or reporting unit) level at least annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: 1) a significant adverse change in legal factors or in business climate, 2) unanticipated competition, or 3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If it is determined that it is more likely than not that impairment exists, the Company compares its estimate of the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The Company utilizes a fair value measurement (which includes a discounted cash flows analysis) to assess the carrying value of the reporting units in consideration of the recoverability of the goodwill balance assigned to each reporting unit as of the measurement date. The Company’s material goodwill balances are attributable to certain of its operating segments (which are each considered to be reporting units). The cash flows used to determine the fair value of the Company’s reporting units are dependent on a number of significant assumptions. The Company’s estimates, which consider a market participant view of fair value, are subject to change given the inherent uncertainty in predicting future results and cash flows, which are impacted by such things as policyholder behavior, competitor pricing, capital limitations, new product introductions, and specific industry and market conditions.

The balance recognized as goodwill is not amortized, but is reviewed for impairment on an annual basis, or more frequently as events or circumstances may warrant, including those circumstances which would more likely than not reduce the fair value of the Company’s reporting units below its carrying amount. During the fourth quarter of ~~2015,~~2016, the Company performed its annual evaluation of goodwill based on information as of ~~September 30, 2015 (Successor Company)~~October 1, 2016, and determined that no adjustment to impair goodwill was necessary. During the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company did not identify any events or circumstances which would indicate that the fair value of its operating segments would have declined below their book value, either individually or in the aggregate. Accordingly, no impairment to the Company’s goodwill balance has been recorded.

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

Debt and Subordinated Debt Securities

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

Debt and subordinated debt securities are summarized as follows:


					As of
	Successor Company				March 31, 2017				December 31, 2016
	As of June 30, 2016		As of December 31, 2015		Outstanding Principal		Carrying Amounts		Outstanding Principal		Carrying Amounts
	(Dollars In Thousands)				(Dollars In Thousands)
Debt (year of issue):
Revolving Line of Credit	$	360,000	$	485,000	$	340,000	$	340,000	$	170,000	$	170,000
6.40% Senior Notes (2007), due 2018	159,684		162,671		150,000		155,140		150,000		156,663
7.375% Senior Notes (2009), due 2019	463,962		473,127		400,000		450,009		400,000		454,688
8.45% Senior Notes (2009), due 2039	413,590		468,008		233,428		360,259		246,926		381,934
	$	1,397,236	$	1,588,806	$	1,123,428	$	1,305,408	$	966,926	$	1,163,285
Subordinated debt securities (year of issue):
6.25% Subordinated Debentures (2012), due 2042, callable 2017	$	292,947	$	295,833	$	287,500	$	288,506	$	287,500	$	290,002
6.00% Subordinated Debentures (2012), due 2042, callable 2017	152,076		152,930		150,000		150,754		150,000		151,200
	$	445,023	$	448,763	$	437,500	$	439,260	$	437,500	$	441,202

During the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, the Company repurchased ~~$52.8~~and subsequently extinguished $20.9 million (par value - ~~$33.8~~$13.5 million) of the Company's 8.45% Senior Notes due 2039. These repurchases resulted in a ~~$7.4~~$1.8 million pre-tax gain for the Company. The gain is recorded in other income in the consolidated condensed statements of income.

During the ~~period of February 1, 2015 to~~year ended December 31, ~~2015 (Successor Company),~~2016, the Company ~~called~~repurchased and ~~redeemed the entire $103.1~~subsequently extinguished $82.7 million ~~of outstanding principal amount~~(par value - $53.1 million) of the ~~Company’s 6.125% Subordinated Debentures~~Company's 8.45% Senior Notes due ~~2034.~~2039. These repurchases resulted in a $9.8 million pre-tax gain for the Company. The gain is recorded in other income in the consolidated condensed statements of income.

~~On February 2, 2015, the Company amended and restated the Credit Facility (the "Credit Facility”). Under the Credit Facility, the~~The Company has the ability to borrow on an unsecured basis under a Credit Facility up to an aggregate principal amount of $1.0 billion. The Company has the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.25 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of the Company’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, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of the Company's Senior Debt. The Credit Facility also provided for a facility fee at a rate that varies with the ratings of the Company’s Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The initial facility fee rate was 0.15% on February 2, 2015, and was adjusted to 0.125% upon the Company's subsequent ratings upgrade on February 2, 2015. The Credit Facility provides that the Company is liable for the full amount of any obligations for borrowings or letters of credit, including those of PLICO, under the Credit Facility. The maturity date of the Credit Facility is February 2, 2020. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. There was an outstanding balance of ~~$360.0~~$340.0 million bearing interest at a rate of LIBOR plus 1.00% as of June 30, 2016 (Successor Company). As of June 30, 2016 (Successor Company), PLICO has used $30.0 million of borrowing capacity by executing a Letter of Credit under the Credit Facility for the benefit on an affiliated captive reinsurance subsidiary of the Company. This Letter of Credit had not been drawn upon as of June 30, 2016 (Successor Company).

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March 31, 2017.

Non-Recourse Funding Obligations

Golden Gate Captive Insurance Company

On January 15, 2016, Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of PLICO, and Steel City, LLC (“Steel City”), a newly formed wholly owned subsidiary of the Company, entered into an 18-year transaction to finance $2.188 billion of “XXX” reserves related to the acquired GLAIC Block and the other term life insurance business reinsured to Golden Gate by PLICO and WCL, a direct wholly owned subsidiary of PLICO. Steel City issued notes with an aggregate initial principal amount of $2.188 billion to Golden Gate in exchange for a ~~surplus note~~non-recourse funding obligation issued by Golden Gate with an initial principal amount of $2.188 billion. Through the structure, Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and Nomura Americas Re Ltd. (collectively, the “Risk-Takers”) provide credit enhancement to the Steel City Notes for the 18-year term in exchange for credit enhancement fees. The transaction is “non-recourse” to PLICO, WCL and the Company, meaning that none of these companies, other than Golden Gate, are liable to reimburse the Risk-Takers for any credit enhancement payments required to be made. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the aggregate principal balance of the Steel City Notes was ~~$2.153~~$2.09 billion. In connection with this transaction, the Company has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate or Steel City, including a guarantee of the fees to the Risk-Takers. The support agreements provide that amounts would become payable by the Company if Golden Gate’s annual general corporate expenses were higher than modeled amounts, certain reinsurance rates applicable to the subject business increase beyond modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold

levels. Additionally, the Company has entered into a separate agreement to guarantee payment of certain fee amounts in connection with the credit enhancement of the Steel City Notes. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, no payments have been made under these agreements.

In connection with the transaction outlined above, Golden Gate had a ~~$2.153~~$2.09 billion outstanding non-recourse funding obligation as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. This non-recourse funding obligation matures in ~~2034~~2039 and accrues interest at a fixed annual rate of 4.75%.

Prior to this transaction, Golden Gate had three series of non-recourse funding obligations with a total outstanding balance of $800 million. The Company held the entire outstanding balance of non-recourse funding obligations. Series A1 non-recourse funding obligations had a balance of $400 million and accrued interest at 7.375%, the Series A2 non-recourse funding obligations had a balance of $100 million and accrued interest at 8.00%, and the Series A3 non-recourse funding obligations had a balance of $300 million and accrued interest at 8.45%. As a result of the transaction described above, the ~~$800~~$800 million of Golden Gate Series A Surplus Notes held by the Company were contributed to PLICO and then subsequently contributed to Golden Gate, which resulted in the extinguishment of these notes.

Golden Gate II Captive Insurance Company

Golden Gate II Captive Insurance Company (“Golden Gate II”), a South Carolina special purpose financial captive insurance company and a wholly owned by PLICO, had $575 million of outstanding non-recourse funding obligations as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. These outstanding non-recourse funding obligations were issued to special purpose trusts, which in turn issued securities to third parties. Certain of our affiliates own a portion of these securities. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, securities related to ~~$133.6~~$58.6 million of the outstanding balance of the non-recourse funding obligations were held by external parties and securities related to ~~$441.4~~$516.4 million of the non-recourse funding obligations were held by the Company and its affiliates. The Company has entered into certain support agreements with Golden Gate II obligating the Company to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate II. These support agreements provide that amounts would become payable by the Company to Golden Gate II if its annual general corporate expenses were higher than modeled amounts or if Golden Gate II’s investment income on certain investments or premium income was below certain actuarially determined amounts. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, no payments have been made under these agreements, however, certain support agreement obligations to Golden Gate II of approximately ~~$1.5~~$2.8 million have been collateralized by the Company. Re-evaluation and, if necessary, adjustments of any support agreement collateralization amounts occur annually during the first quarter pursuant to the terms of the support agreements.

During the ~~six~~three months ended ~~June 30,~~March 31, 2017, the Company and its affiliates did not repurchase any of its outstanding non-recourse funding obligations, at a discount. During the three months ended March 31, 2016, ~~(Successor Company),~~ the Company and its affiliates repurchased $11.3 million of its outstanding non-recourse funding obligations, at a discount. These repurchases did not result in a material gain or loss for the Company. During the period of February 1, 2015 to June 30, 2015 (Successor Company) and the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the Company did not repurchase any of its outstanding non-recourse funding obligations.

Golden Gate V Vermont Captive Insurance Company

On October 10, 2012, Golden Gate V Vermont Captive Insurance Company ("Golden Gate V"), a Vermont special purpose financial insurance company, and Red Mountain, LLC ("Red Mountain"), both wholly owned subsidiaries of PLICO, entered into a 20-year transaction to finance up to $945 million of “AXXX” reserves related to a block of universal life insurance policies with secondary guarantees issued by our direct wholly owned subsidiary PLICO and indirect wholly owned subsidiary, West Coast Life Insurance Company (“WCL”). Golden Gate V issued non-recourse funding obligations to Red Mountain, and Red Mountain issued a note with an initial principal amount of $275 million, increasing to a maximum of $945 million in 2027, to Golden Gate V for deposit to a reinsurance trust supporting Golden Gate V’s obligations under a reinsurance agreement with WCL, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of PLICO. Through the structure, Hannover Life Reassurance Company of America (“Hannover

~~Table of Contents~~

Re”), the ultimate risk taker in the transaction, provides credit enhancement to the Red Mountain note for the 20-year term in exchange for a fee. The transaction is “non-recourse” to Golden Gate V, Red Mountain, WCL, PLICO, and the Company, meaning that none of these companies are liable for the reimbursement of any credit enhancement payments required to be made. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the principal balance of the Red Mountain note was ~~$535~~$580 million. Future scheduled capital contributions to prefund credit enhancement fees amount to approximately ~~$134.2~~$128.3 million and will be paid in annual installments through 2031. In connection with the transaction, the Company has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate V or Red Mountain. The support agreements provide that amounts would become payable by the Company if Golden Gate V’s annual general corporate expenses were higher than modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold levels. Additionally, the Company has entered into separate agreements to indemnify Golden Gate V with respect to material adverse changes in non-guaranteed elements of insurance policies reinsured by Golden Gate V, and to guarantee payment of certain fee amounts in connection with the credit enhancement of the Red Mountain note. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, no payments have been made under these agreements.

In connection with the transaction outlined above, Golden Gate V had a ~~$535~~$580 million outstanding non-recourse funding obligation as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. This non-recourse funding obligation matures in 2037, has scheduled increases in principal to a maximum of $945 million, and accrues interest at a fixed annual rate of 6.25%.

Non-recourse funding obligations outstanding as of ~~June 30, 2016 (Successor Company),~~March 31, 2017, on a consolidated basis, are shown in the following ~~table:~~tables:


			Maturity	Year-to-Date Weighted-Avg
Issuer	Carrying Value⁽¹⁾		Year	Interest Rate			Outstanding Principal		Carrying Value⁽¹⁾		Maturity Year	Year-to-Date Weighted-Avg Interest Rate
	(Dollars In Thousands)						(Dollars In Thousands)
Golden Gate Captive Insurance Company⁽²⁾⁽³⁾	$	2,153,000	2039	4.75	%		2,090,000		$	2,090,000	2039	4.75	%
Golden Gate II Captive Insurance Company	109,050		2052	1.44	%		58,600		50,006		2052	2.78	%
Golden Gate V Vermont Captive Insurance Company⁽²⁾⁽³⁾	598,863		2037	5.12	%		580,000		642,599		2037	5.12	%
MONY Life Insurance Company⁽³⁾	2,496		2024	6.19	%		1,091		2,451		2024	6.19	%
Total	$	2,863,409					$	2,729,691	$	2,785,056

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

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

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

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

~~(3) Fixed rate obligations~~



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	58,600		49,983		2052	2.52	%
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	$	2,740,691	$	2,796,474

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

Letters of Credit

Golden Gate III Vermont Captive Insurance Company

Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a Vermont special purpose financial insurance company and wholly owned subsidiary of PLICO, is party to a Reimbursement Agreement (the “Reimbursement Agreement”) with UBS AG, Stamford Branch (“UBS”), as issuing lender. Under the original Reimbursement Agreement, dated April 23, 2010, UBS issued a letter of credit (the “LOC”) in the initial amount of $505 million to a trust for the benefit of WCL. The Reimbursement Agreement was subsequently amended and restated effective November 21, 2011, (the “First Amended and Restated Reimbursement Agreement”), to replace the existing LOC with one or more letters of credit from UBS, and to extend the maturity date from April 1, 2018, to April 1, 2022. On August 7, 2013, Golden Gate III entered into a Second Amended and Restated Reimbursement Agreement with UBS (the “Second Amended and Restated Reimbursement Agreement”), which amended and restated the First Amended and Restated Reimbursement Agreement. Under the Second and Amended and Restated Reimbursement Agreement a new LOC in an initial amount of $710 million was issued by UBS in replacement of the existing LOC issued under the First Amended and Restated Reimbursement Agreement. The term of the LOC was extended from April 1, 2022, to October 1, 2023, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $610 million to $720 million in 2015 if certain conditions had been met. On June 25, 2014, Golden Gate III entered into a Third Amended and Restated Reimbursement Agreement with UBS (the “Third Amended and Restated Reimbursement Agreement”), which amended and restated the Second Amended and Restated Reimbursement Agreement. Under the Third Amended and Restated Reimbursement Agreement, a new LOC in an initial amount of $915 million was issued by UBS in replacement of the existing LOC issued under the Second Amended and Restated Reimbursement Agreement. The term of the LOC was extended from October 1, 2023, to April 1, 2025, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $720 million to $935 million in 2015. The LOC is held in trust for the

benefit of WCL, and supports certain obligations of Golden Gate III to WCL under an indemnity reinsurance agreement originally effective April 1, 2010, as amended and restated on November 21, 2011, and as further amended and restated on August 7, 2013, and on June 25, 2014, to include additional blocks of policies, and pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of PLICO. ~~The~~Pursuant to the terms of the Third Amended and Restated Reimbursement Agreement, the LOC balance reached its scheduled peak amount of $935 million in ~~2015 and remained as this level as~~2015. As of ~~June 30, 2016 (Successor Company), pursuant to~~March 31, 2017, the ~~terms of the Third Amended and Restated Reimbursement Agreement.~~LOC balance was $925 million. The term of the LOC is expected to be approximately 15 years from the original issuance date. This transaction is “non- recourse” to WCL, PLICO, and the Company, meaning that none of these companies other than

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Golden Gate III are liable for reimbursement on a draw of the LOC. The Company has entered into certain support agreements with Golden Gate III obligating the Company to make capital contributions or provide support related to certain of Golden Gate III’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate III. Future scheduled capital contributions amount to approximately $122.5 million and will be paid in three installments with the last payment occurring in 2021, and these contributions may be subject to potential offset against dividend payments as permitted under the terms of the Third Amended and Restated Reimbursement Agreement. The support agreements provide that amounts would become payable by the Company to Golden Gate III if its annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate III. Pursuant to the terms of an amended and restated letter agreement with UBS, the Company has continued to guarantee the payment of fees to UBS as specified in the Third Amended and Restated Reimbursement Agreement. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, no payments have been made under these agreements.

Golden Gate IV Vermont Captive Insurance Company

Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a Vermont special purpose financial insurance company and wholly owned subsidiary of PLICO, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL. ~~The LOC balance, in accordance with~~Pursuant to the terms of the Reimbursement Agreement, the LOC balance reached its scheduled peak amount of $790 million in 2016 and remained at this level as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. The term of the LOC is expected to be 12 years from the original issuance date (stated maturity of December 30, 2022). The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of PLICO. This transaction is “non-recourse” to WCL, PLICO, and the Company, meaning that none of these companies other than Golden Gate IV are liable for reimbursement on a draw of the LOC. The Company has entered into certain support agreements with Golden Gate IV obligating the Company to make capital contributions or provide support related to certain of Golden Gate IV’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate IV. The support agreements provide that amounts would become payable by the Company to Golden Gate IV if its annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate IV. The Company has also entered into a separate agreement to guarantee the payments of LOC fees under the terms of the Reimbursement Agreement. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, no payments have been made under these agreements.

Secured Financing Transactions

Repurchase Program Borrowings

While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements provided for net settlement in the event of default or on termination of the agreements. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the fair value of securities pledged under the repurchase program was ~~$177.5~~$856.6 million, and the repurchase obligation of ~~$160.0~~$787.7 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 4290 basis points). During the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, the maximum balance outstanding at any one point in time related to these programs was ~~$725.0~~$981.3 million. The average daily balance was ~~$464.5~~$842.7 million (at an average borrowing rate of 4071 basis points) during the ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~March 31, 2017. As of December 31, ~~2015 (Successor Company),~~2016, the fair value of securities pledged under the repurchase program was ~~$479.9~~$861.7 million, and the repurchase obligation of ~~$438.2~~$797.7 million was included in the Company's consolidated condensed balance ~~sheets.~~sheets (at an average borrowing rate of 65 basis points). During ~~2015,~~2016, the maximum balance outstanding at any one point in time related to these programs was ~~$912.7~~$1,065.8 million. The average daily balance was ~~$540.3 million and $77.4~~$505.4 million (at an average borrowing rate of ~~20 and 16~~44 basis points) during the ~~period of February 1, 2015 to~~year ended December 31, ~~2015 (Successor Company)~~2016.

Securities Lending

The Company participates in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. The Company requires initial collateral of 102% of the market value of the loaned securities to be separately maintained. The loaned securities’ market value is monitored on a daily basis. As of March 31, 2017, securities with a market value of $37.9 million were loaned under this program. As collateral for the loaned securities, the Company receives short-term investments, which are recorded in “short-term investments” with a corresponding liability recorded in “secured financing liabilities” to account for its obligation to return the collateral. As of March 31, 2017, the fair value of the collateral related to this program was $39.6 million and the ~~period~~Company has an obligation to return $39.6 million of ~~January 1, 2015~~collateral to ~~January 31, 2015 (Predecessor Company).~~

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the securities borrowers.

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

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

Accounted for as Secured Borrowings



	Remaining Contractual Maturity of the Agreements
	As of March 31, 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	$	346,440	$	13,666	$	—	$	—	$	360,106
Mortgage loans	496,528		—		—		—		496,528
Total repurchase agreements and repurchase-to-maturity transactions	842,968		13,666		—		—		856,634
Securities lending transactions
Corporate securities	35,557		—		—		—		35,557
Equity securities	1,907		—		—		—		1,907
Preferred stock	436		—		—		—		436
Total securities lending transactions	37,900		—		—		—		37,900
Total securities	$	880,868	$	13,666	$	—	$	—	$	894,534

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

Accounted for as Secured Borrowings


	Remaining Contractual Maturity of the Agreements										Remaining Contractual Maturity of the Agreements
	As of June 30, 2016 (Successor Company)										As of December 31, 2016
	(Dollars In Thousands)										(Dollars In Thousands)
	Overnight and Continuous		Up to 30 days		30-90 days		Greater Than 90 days		Total		Overnight and Continuous		Up to 30 days		30-90 days		Greater Than 90 days		Total
Repurchase agreements and repurchase-to-maturity transactions
U.S. Treasury and agency securities	$	—	$	—	$	—	$	—	$	—	$	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	177,463		—		—		—		177,463		480,269		—		—		—		480,269
Other asset-backed securities	—		—		—		—		—
Total borrowings	$	177,463	$	—	$	—	$	—	$	177,463
Total securities											$	837,974	$	23,758	$	—	$	—	$	861,732

~~13.~~11. COMMITMENTS AND CONTINGENCIES

The Company has entered into indemnity agreements with each of its current directors other than those that are employees of Dai-ichi Life that provide, among other things and subject to certain limitations, a contractual right to indemnification to the fullest extent permissible under the law. The Company has agreements with certain of its officers providing up to $10 million in indemnification. These obligations are in addition to the customary obligation to indemnify officers and directors contained in the Company’s governance documents.

Under the insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. ~~In addition, from~~From time to time, companies may be asked to contribute amounts beyond prescribed limits. ~~Most insurance~~It is possible that the Company could be assessed with respect to product lines not offered by the Company. In addition, legislation may be introduced in various states with respect to guaranty fund assessment laws ~~provide~~related to insurance products, including long term care insurance and other specialty products, that ~~an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.~~alters future premium tax offsets received in connection with guaranty fund assessments. The Company ~~does not believe its insurance guaranty fund~~cannot predict the amount, nature or timing of any

future assessments ~~will be materially different from amounts already provided for in~~or legislation, any of which could have a material and adverse impact on the Company's financial ~~statements.~~

condition or results of operations.

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

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

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

~~Table of Contents~~

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

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

~~14.~~12. EMPLOYEE BENEFIT PLANS

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

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


	Successor Company																				Predecessor Company					For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016					For The Three Months Ended June 30, 2015					For The Six Months Ended June 30, 2016					February 1, 2015 to June 30, 2015					January 1, 2015 to January 31, 2015					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		Defined Benefit Pension Plan			Excess Benefit Plan		Defined Benefit Pension Plan			Excess Benefit Plan		Defined Benefit Pension Plan			Excess Benefit Plan
	(Dollars In Thousands)																				(Dollars In Thousands)					(Dollars In Thousands)
Service cost — benefits earned during the period	$	2,906		$	313	$	2,973		$	333	$	5,812		$	625	$	4,955		$	555	$	974		$	95	$	3,348		$	334	$	2,906		$	313
Interest cost on projected benefit obligation	2,737			438		2,433			408		5,474			877		4,055			680		1,002			140		2,191			297		2,737			438
Expected return on plan assets	(3,605		)	—		(3,642		)	—		(7,211		)	—		(6,070		)	—		(1,293		)	—		(3,352		)	—		(3,605		)	—
Amortization of prior service cost	—			—		—			—		—			—		—			—		(33		)	1		—			—		—			—
Amortization of actuarial losses	—			—		—			—		—			—		—			—		668			138		—			118		—			—
Preliminary net periodic benefit cost	2,038			751		1,764			741		4,075			1,502		2,940			1,235		1,318			374		2,187			749		2,038			751
Settlement/curtailment expense	—			1,500		—			—		—			1,500		—			—		—			—		—			—		—			—
Total net periodic benefit cost	$	2,038		$	2,251	$	1,764		$	741	$	4,075		$	3,002	$	2,940		$	1,235	$	1,318		$	374	$	2,187		$	749	$	2,038		$	751

On May 5, 2016, the Board of Directors of Protective Life Corporation decided to convert the accrued benefit payable under the excess benefit plan as of March 31, 2016 to John D. Johns, the Company's Chairman and Chief Executive Officer, into a lump sum amount. Upon the completion of the final terms of the conversion agreement, the lump sum amount will be allocated to a book entry account that will be treated as though it were a deferral account under the Company’s deferred compensation plan for officers. Mr. Johns will continue to accrue benefits with respect to his continued service as an employee of the Company after March 31, 2016 in a manner that is consistent with the provisions of the excess benefit plan. The conversion event will require the Company to re-measure the excess benefit plan and will result in settlement expense recognition upon the completion of the

~~Table of Contents~~

~~final conversion agreement. The Company estimates that the re-measurement of the excess benefit plan will result in the recognition of $1.5 million in settlement expense, which has been accrued during~~During the three months ended ~~June 30, 2016 (Successor Company). Financial re-measurement of the excess benefit plan will be performed as soon as the conversion agreement is in place.~~

~~During the six months ended June 30, 2016 (Successor Company),~~March 31, 2017, the Company did not make a contribution to its defined benefit pension ~~plan.~~plan for the 2016 plan year or 2017 plan year. The Company will make contributions in future periods as necessary to at least satisfy minimum funding requirements. The Company may also make additional contributions in future periods to maintain an adjusted funding target attainment percentage (“AFTAP”) of at least 80% and to avoid certain Pension Benefit Guaranty Corporation (“PBGC”) reporting triggers.

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

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

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Successor Company
Unrealized
Gains and Losses
on Investments(2)
Accumulated
Gain and Loss
Derivatives
Minimum
Pension Liability
Adjustment
Total
Accumulated
Other
Comprehensive
Income (Loss)
(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2015 $ (1,247,065 ) $ —
$ 5,931
$ (1,241,134 )
Other comprehensive income (loss) before reclassifications 1,022,377
—
—
1,022,377
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings (2,572 ) —
—
(2,572 )
Amounts reclassified from accumulated other
comprehensive income (loss)(1)
(12,287 ) —
—
(12,287 )
Net current-period other comprehensive income (loss) 1,007,518
—
—
1,007,518
Ending Balance, June 30, 2016 $ (239,547 ) $ —
$ 5,931
$ (233,616 )

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

(2) As of June 30, 2016 net unrealized losses reported in AOCI were offset by $139.3 million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.

~~Table of Contents~~



	Unrealized Gains and Losses on Investments⁽²⁾			Accumulated Gain and Loss Derivatives			Minimum Pension Liability Adjustment		Total Accumulated Other Comprehensive Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2016	$	(656,322	)	$	727		$	1,072	$	(654,523	)
Other comprehensive income (loss) before reclassifications	159,641			(672		)	—		158,969
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	3,703			—			—		3,703
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	(1,072		)	133			—		(939		)
Net current-period other comprehensive income (loss)	162,272			(539		)	—		161,733
Ending Balance, March 31, 2017	$	(494,050	)	$	188		$	1,072	$	(492,790	)

(1) See Reclassification table below for details.
(2) As of March 31, 2017, net unrealized losses reported in AOCI were offset by $348.4 million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Successor Company
Unrealized
Gains and Losses
on Investments(2)
Accumulated
Gain and Loss
Derivatives
Minimum
Pension Liability
Adjustment
Total
Accumulated
Other
Comprehensive
Income (Loss)
(Dollars In Thousands, Net of Tax)
Beginning Balance, February 1, 2015 $ —
$ —
$ —
$ —
Other comprehensive income (loss) before reclassifications (1,264,034 ) (86 ) 5,931
(1,258,189 )
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings (393 ) —
—
(393 )
Amounts reclassified from accumulated other
comprehensive income (loss)(1)
17,362
86
—
17,448
Net current-period other comprehensive income (loss) (1,247,065 ) —
5,931
(1,241,134 )
Ending Balance, December 31, 2015 $ (1,247,065 )
$ —

$ 5,931
$ (1,241,134 )

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

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

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

Predecessor Company
Unrealized
Gains and Losses
on Investments(2)
Accumulated
Gain and Loss
Derivatives Minimum
Pension Liability
Adjustment Total
Accumulated
Other
Comprehensive
Income (Loss)
(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2014 $ 1,484,169
$ (82 ) $ (66,011 ) $ 1,418,076
Other comprehensive income (loss) before reclassifications 482,370
9
(12,527 ) 469,852
Other comprehensive income (loss) relating to other- than-temporary impaired investments for which a portion has been recognized in earnings (243 ) —
—
(243 )
Amounts reclassified from accumulated other
comprehensive income (loss)(1)
(4,166 ) 23
502
(3,641 )
Net current-period other comprehensive income (loss) 477,961
32
(12,025 ) 465,968
Ending Balance, January 31, 2015 $ 1,962,130

$ (50 )
$ (78,036 )
$ 1,884,044

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

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

~~Table of Contents~~



	Unrealized Gains and Losses on Investments⁽²⁾			Accumulated Gain and Loss Derivatives		Minimum Pension Liability Adjustment			Total Accumulated Other Comprehensive Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2015	$	(1,247,065	)	$	—	$	5,931		$	(1,241,134	)
Other comprehensive income (loss) before reclassifications	606,985			688		(5,659		)	602,014
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⁾	(9,460		)	39		800			(8,621		)
Net current-period other comprehensive income (loss)	590,743			727		(4,859		)	586,611
Ending Balance, December 31, 2016	$	(656,322	)	$	727	$	1,072		$	(654,523	)

(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 six~~ months ended ~~June 30, 2016 (Successor Company), the three months ended June 30, 2015 (Successor Company), the period of February 1, 2015 to June 30, 2015 (Successor Company),~~March 31, 2017 and ~~for the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~

2016.

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)


	Amount Reclassified from Accumulated					Amount Reclassified from Accumulated
Successor Company	Other Comprehensive			Affected Line Item in the
For The Three Months Ended June 30, 2016	Income (Loss)			Consolidated Condensed Statements of Income
						Other Comprehensive			Affected Line Item in the
For The Three Months Ended March 31, 2017						Income (Loss)			Consolidated Condensed Statements of Income
						(Dollars In Thousands)
Gains and losses on derivative instruments
Net settlement (expense)/benefit⁽¹⁾						$	(205	)	Benefits and settlement expenses, net of reinsurance ceded
						(205		)	Total before tax
						72			Tax (expense) or benefit
	(Dollars In Thousands)					$	(133	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains (losses)	$	16,932		Realized investment gains (losses): All other investments		$	9,481		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(967		)	Net impairment losses recognized in earnings		(7,831		)	Net impairment losses recognized in earnings
	15,965			Total before tax		1,650			Total before tax
	(5,588		)	Tax (expense) or benefit		(578		)	Tax (expense) or benefit
	$	10,377		Net of tax		$	1,072		Net of tax
(1) See Note 6, Derivative Financial Instruments for additional information					(1) See Note 6, Derivative Financial Instruments for additional information

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

Amount
Reclassified
from Accumulated
Successor Company Other Comprehensive Affected Line Item in the
For The Six Months Ended June 30, 2016 Income (Loss) Consolidated Condensed Statements of Income
(Dollars In Thousands)
Unrealized gains and losses on available-for-sale securities

Net investment gains (losses) $ 22,487
Realized investment gains (losses): All other investments
Impairments recognized in earnings (3,584 ) Net impairment losses recognized in earnings
18,903
Total before tax
(6,616 ) Tax (expense) or benefit
$ 12,287
Net of tax

~~Table of Contents~~

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

Amount
Reclassified
from Accumulated
Successor Company Other Comprehensive Affected Line Item in the
For The Three Months Ended June 30, 2015 Income (Loss) Consolidated Condensed Statements of Income
(Dollars In Thousands)
Gains and losses on derivative instruments

Net settlement (expense)/benefit(1)
$ (41 ) Benefits and settlement expenses, net of reinsurance ceded
(41 ) Total before tax
14
Tax (expense) or benefit
$ (27 ) Net of tax
Unrealized gains and losses on available-for-sale securities

Net investment gains (losses) $ 3,360
Realized investment gains (losses): All other investments
Impairments recognized in earnings (5,734 ) Net impairment losses recognized in earnings
(2,374 ) Total before tax
831
Tax (expense) or benefit
$ (1,543 ) Net of tax

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

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

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

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

Net investment gains (losses) $ 3,733
Realized investment gains (losses): All other investments
Impairments recognized in earnings (5,734 ) Net impairment losses recognized in earnings
(2,001 ) Total before tax
700
Tax (expense) or benefit
$ (1,301 ) Net of tax

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

~~Table of Contents~~

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

Amount
Reclassified
from Accumulated
Predecessor Company Other Comprehensive Affected Line Item in the
January 1, 2015 to January 31, 2015 Income (Loss) Consolidated Condensed Statements of Income
(Dollars In Thousands)
Gains and losses on derivative instruments

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

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

Amortization of net actuarial gain/(loss) $ (808 ) Other operating expenses
Amortization of prior service credit/(cost) 31
Other operating expenses
Amortization of transition asset/(obligation) 5
Other operating expenses
(772 ) Total before tax
270
Tax (expense) or benefit
$ (502 ) Net of tax

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



	Amount Reclassified from Accumulated
	Other Comprehensive			Affected Line Item in the
For The Three Months Ended March 31, 2016	Income (Loss)			Consolidated Condensed Statements of Income
	(Dollars In Thousands)
Unrealized gains and losses on available-for-sale securities
Net investment gains (losses)	$	5,555		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(2,617		)	Net impairment losses recognized in earnings
	2,938			Total before tax
	(1,028		)	Tax (expense) or benefit
	$	1,910		Net of tax

~~16.EARNINGS PER SHARE (PREDECESSOR COMPANY)~~

As of February 1, 2015, the Company became a wholly owned subsidiary of Dai-ichi Life, and for the periods after February 1, 2015, there was no market for the Company’s common stock and therefore the Company will no longer disclose earnings per share information.

For periods prior to February 1, 2015, basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period, including shares issuable under various deferred compensation plans. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period, assuming the shares were not anti-dilutive, including shares issuable under various stock-based compensation plans and stock purchase contracts.

~~Table of Contents~~

~~A reconciliation of the numerators and denominators of the basic and diluted earnings per share is presented below for the period of January 1, 2015 to January 31, 2015 (Predecessor Company):~~

Predecessor Company
January 1, 2015
to
January 31, 2015
(Dollars In Thousands, Except Per Share Amounts)
Calculation of basic earnings per share:
Net income $ 1,509

Average shares issued and outstanding 79,343,253
Issuable under various deferred compensation plans 1,109,595
Weighted shares outstanding - basic 80,452,848
Per share:
Net income - basic $ 0.02
Calculation of diluted earnings per share:
Net income $ 1,509

Weighted shares outstanding - basic 80,452,848
Stock appreciation rights (“SARs”) 64,570
Issuable under various other stock-based compensation plans 935,382
Restricted stock units 306,487
Weighted shares outstanding - diluted 81,759,287
Per share:
Net income - diluted $ 0.02

~~17.~~14. INCOME TAXES

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

Successor Company Predecessor Company
As of
June 30, 2016 February 1, 2015
to
December 31, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Balance, beginning of period $ 13,138
$ 137,593
$ 193,244
Additions for tax positions of the current year 1,218
2,213
(5,010 )
Additions for tax positions of prior years —
1,811
7,724
Reductions of tax positions of prior years:

Changes in judgment —
(16,416 ) (58,365 )
Settlements during the period (4,911 ) (112,063 ) —
Lapses of applicable statute of limitations —
—
—
Balance, end of period $ 9,445
$ 13,138

$ 137,593

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 of 2015, the IRS proposed favorable and unfavorable adjustments to the Company's 2008 through 2011 reported taxable income. The Company agreed to these adjustments. As a result, pending a routine review by Congress’ Joint Committee on Taxation, which was finalized without change subsequent to quarter end, 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. ~~The Company is currently under audit by~~

In July 2016, the IRS ~~for~~proposed favorable and unfavorable adjustments to the ~~years 2012 and 2013. The audit adjustments received as of June 30, 2016 related to the~~Company's 2012 and 2013 ~~years will~~reported taxable income. The Company agreed to these adjustments. The resulting settlement paid in September 2016 did not materially impact the Company or its effective tax rate. ~~These agreements with~~

There have been no material changes to the ~~IRS are the primary cause for the reductions~~balance of unrecognized tax benefits, ~~shown in~~where the ~~chart above.~~

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changes impact earnings, during the quarter ending March 31, 2017. The Company believes that ~~it is possible~~ in the next 12 months, ~~approximately $0.5 million~~none of ~~these~~the unrecognized tax benefits at March 31, 2017 will be ~~reduced due to time lapse and the closure of the statute of limitations.~~

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 ~~2012.~~2014. Nevertheless, certain of these ~~pre-2012~~pre-2014 years have pending U.S. tax refunds. Due to their size, as of quarter end these refunds ~~are~~were being reviewed by Congress' Joint Committee on Taxation. Subsequent to quarter end, 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-2012~~pre-2014 taxable income, the Company is amending certain of its 2003 through ~~2011~~2013 state income tax returns. Such amendments will cause such years to remain open, pending the states' acceptances of the returns. At this time, the Company believes that the Joint Committee's review of its U.S. tax refunds and the states' acceptance of its amending returns will be completed this year. The underlying statutes of limitations are expected to close in due course on or before June 30, 2017.

During the ~~six months~~year ended ~~June 30,~~December 31, 2016, ~~(Successor Company),~~ the Company entered into a reinsurance ~~transaction, as discussed in Note 3,~~ ~~Reinsurance and Financing Transactions~~.transaction. This transaction is expected to generate an operating loss on the Company’s consolidated 2016 USU.S. income tax return. The Company has evaluated its ability to carry this loss back to receive refunds of previously-paid taxes, plus utilize the remaining loss in future years. The Company expects to receive refunds for substantially all of the USU.S. income taxes that it paid in 2014 and 2015, as well as fully utilize the remaining operating loss carryforward during the carryforward period. Based on the Company’s current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that it will generate sufficient taxable income to realize all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of ~~June 30,~~March 31, 2017 and December 31, 2016.

The Company used its respective estimates of its annual ~~2016~~2017 and ~~2015~~2016 incomes in computing its effective income tax rates for the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company), the three months ended June 30, 2015 (Successor Company), the period of February 1, 2015 to June 30, 2015 (Successor Company),~~March 31, 2017 and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~2016. The effective tax rates for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, ~~(Successor Company), the three months June 30, 2015 (Successor Company) the period of February 1, 2015 to June 30, 2015 (Successor Company),~~were 32.9% and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company) were 33.5%, 33.2%, 34.1%, 33.2%, and (27.7)%~~32.9%, respectively. The recorded tax benefit for the period of January 1, 2015 to January 31, 2015 (Predecessor Company) included the benefit associated with the re-measurement of the unrecognized tax benefits discussed above.

~~18.~~15. OPERATING SEGMENTS

The Company has several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. The Company periodically evaluates its operating segments, as prescribed in the ASC Segment Reporting Topic, and makes adjustments to its segment reporting as needed. ~~There were no changes to the Company’s operating segments made or required to be made as a result of the Merger on February 1, 2015.~~ A brief description of each segment follows.

The Life Marketing segment markets fixed universal life (“UL”), indexed universal life ("IUL"), variable universal life (“VUL”), bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”)

products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent marketing organizations, and affinity groups.

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

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

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

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

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 (including interest on corporate debt). This segment includes earnings from several non-strategic or runoff lines of business, various

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financing and investment-related transactions, the operations of several small ~~subsidiaries, and the repurchase of obligations and debt on the open market.~~

subsidiaries.

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

realized gains and losses on investments and derivatives, ~~net~~

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

actual GLWB incurred claims, and

the amortization ~~related to~~of DAC, VOBA, and ~~benefits and settlement expenses. Operating earnings exclude changes in~~certain policy liabilities that is impacted by the ~~GMWB embedded derivatives (excluding the portion attributed to economic cost), actual GMWB incurred claims and the related amortization of DAC/VOBA attributed to each~~exclusion of these items.

~~Segment~~The items excluded from adjusted operating income (loss) ~~represents~~are important to understanding the ~~basis on which~~overall results of operations. 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 and the ~~performance~~Board of Directors' understanding of the ~~Company’s business is internally assessed by management. Premiums~~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/~~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 six~~ months ended ~~June 30, 2016 (Successor Company), the three months ended June 30, 2015 (Successor Company), the period of February 1, 2015 to June 30, 2015 (Successor Company),~~March 31, 2017 and ~~the period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~

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2016.

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

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

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

Life Marketing $ 412,892
$ 379,122
$ 821,974
$ 651,298
$ 145,595
Acquisitions 453,848
363,985
878,655
622,774
139,761
Annuities 97,243
145,085
235,657
248,454
7,884
Stable Value Products 26,237
16,656
56,139
26,998
8,181
Asset Protection 67,487
69,680
131,735
113,707
21,953
Corporate and Other 58,694
44,233
119,154
77,857
17,535
Total revenues $ 1,116,401
$ 1,018,761
$ 2,243,314
$ 1,741,088
$ 340,909
Segment Operating Income (Loss)

Life Marketing $ 24,562
$ 6,651
$ 38,263
$ 10,076
$ (1,618 )
Acquisitions 45,285
37,876
113,938
73,946
20,134
Annuities 56,901
49,189
110,530
87,374
13,164
Stable Value Products 15,178
9,349
29,626
15,464
4,529
Asset Protection 5,462
5,897
10,761
9,944
2,420
Corporate and Other (16,737 ) (9,881 ) (30,457 ) (7,996 ) (10,144 )
Total segment operating income 130,651
99,081
272,661
188,808
28,485
Realized investment (losses) gains - investments⁽¹⁾
100,889
(115,706 ) 184,050
(158,639 ) 89,815
Realized investment (losses) gains - derivatives (62,879 ) 113,535
(116,208 ) 159,568
(117,118 )
Income tax (expense) benefit (56,541 ) (33,070 ) (113,035 ) (63,036 ) 327
Net income $ 112,120
$ 63,840
$ 227,468
$ 126,701
$ 1,509

All other investment gains (losses) $ 87,816
$ (108,071 ) $ 166,927
$ (143,127 ) $ 80,672
Less: amortization related to DAC/VOBA and benefits and settlement expenses (13,073 ) 7,635
(17,123 ) 15,512
(9,143 )
Realized investment gains (losses) - investments $ 100,889
$ (115,706 ) $ 184,050
$ (158,639 ) $ 89,815

Derivative financial instruments gains (losses) $ (83,366 ) $ 94,603
$ (156,865 ) $ 128,244
$ (123,274 )
Less: VA GMWB economic cost (20,487 ) (18,932 ) (40,657 ) (31,324 ) (6,156 )
Realized investment gains (losses) - derivatives $ (62,879 ) $ 113,535
$ (116,208 ) $ 159,568
$ (117,118 )

(1) Includes credit related other-than-temporary impairments of $1.0 million, $3.6 million, $5.7 million, $5.7 million, and $0.5 million for the three and six months ended June 30, 2016 (Successor Company), the three months ended June 30, 2015 (Successor Company), for the period of February 1, 2015 to June 30, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Revenues
Life Marketing	$	421,392		$	409,082
Acquisitions	401,367			424,807
Annuities	108,642			138,414
Stable Value Products	40,843			29,902
Asset Protection	80,083			64,248
Corporate and Other	52,970			60,460
Total revenues	$	1,105,297		$	1,126,913
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	18,945		$	13,701
Acquisitions	53,667			68,653
Annuities	53,007			53,629
Stable Value Products	23,899			14,448
Asset Protection	5,599			5,300
Corporate and Other	(19,728		)	(13,721		)
Pre-tax adjusted operating income	135,389			142,010
Realized (losses) gains on investments and derivatives	(23,040		)	29,832
Income before income tax	112,349			171,842
Income tax expense	(36,935		)	(56,494		)
Net income	$	75,414		$	115,348

Pre-tax adjusted operating income	$	135,389		$	142,010
Adjusted operating income tax (expense) benefit	(44,999		)	(46,053		)
After-tax adjusted operating income	90,390			95,957
Realized (losses) gains on investments and derivatives	(23,040		)	29,832
Income tax benefit (expense) on adjustments	8,064			(10,441		)
Net income	$	75,414		$	115,348

Realized investment (losses) gains:
Derivative financial instruments	$	(69,878	)	$	(73,499	)
All other investments	22,841			81,728
Net impairment losses recognized in earnings	(7,831		)	(2,617		)
Less: related amortization⁽¹⁾	(10,744		)	(4,050		)
Less: VA GLWB economic cost	(21,084		)	(20,170		)
Realized (losses) gains on investments and derivatives	$	(23,040	)	$	29,832


(1) 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 March 31, 2017
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,257,164	$	19,629,308	$	20,485,877	$	3,486,857
DAC and VOBA	1,246,081		102,691		680,597		4,999
Other intangibles	296,638		36,465		180,116		8,556
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	16,000,157	$	19,782,988	$	21,683,267	$	3,614,225


	Operating Segment Assets As of June 30, 2016 (Successor Company)
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products		Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	13,916,859	$	20,052,484	$	20,264,882	$	2,711,452	$	1,005,914	$	13,612,582	$	72,477,702
Deferred policy acquisition costs and value of business acquired	1,134,643		93,983		625,628		4,353
DAC and VOBA									30,906		—		2,065,274
Other intangibles	310,809		38,380		190,116		9,056		141,216		12,516		675,507
Goodwill	200,274		14,524		336,677		113,813		128,182		—		793,470
Total assets	$	15,562,585	$	20,199,371	$	21,417,303	$	2,838,674	$	1,306,218	$	13,625,098	$	76,011,953


							Operating Segment Assets As of December 31, 2016
							(Dollars In Thousands)
	Asset Protection		Corporate and Other		Total Consolidated		Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	953,996	$	13,720,582	$	71,620,255	$	14,050,170	$	19,679,690	$	20,243,333	$	3,373,646
Deferred policy acquisition costs and value of business acquired	32,377		—		1,890,984
DAC and VOBA							1,218,944		106,532		655,618		5,455
Other intangibles	76,782		—		625,143		301,399		37,103		183,449		8,722
Goodwill	67,155		—		732,443		200,274		14,524		336,677		113,813
Total assets	$	1,130,310	$	13,720,582	$	74,868,825	$	15,770,787	$	19,837,849	$	21,419,077	$	3,501,636

Operating Segment Assets
As of December 31, 2015 (Successor Company)
(Dollars In Thousands)

Life
Marketing
Acquisitions Annuities
Stable Value
Products
Investments and other assets $ 13,258,639
$ 19,879,988
$ 19,926,108
$ 2,006,263
Deferred policy acquisition costs and value of business acquired 1,119,515
(178,662 ) 578,742
2,357
Other intangibles 319,623
39,658
196,780
9,389
Goodwill 200,274
14,524
336,677
113,813
Total assets $ 14,898,051
$ 19,755,508
$ 21,038,307
$ 2,131,822


	Asset Protection		Corporate and Other		Total Consolidated		Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	897,326	$	9,583,991	$	65,552,315	$	1,013,399	$	13,141,759	$	71,501,997
Deferred policy acquisition costs and value of business acquired	36,856		—		1,558,808
DAC and VOBA							33,280		—		2,019,829
Other intangibles	79,681		—		645,131		143,865		13,545		688,083
Goodwill	67,155		—		732,443		128,182		—		793,470
Total assets	$	1,081,018	$	9,583,991	$	68,488,697	$	1,318,726	$	13,155,304	$	75,003,379

~~19.~~16. SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to ~~June 30, 2016 (Successor Company),~~March 31, 2017, and through the date we filed our consolidated condensed financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in our consolidated condensed financial statements.

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

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

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

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

FORWARD-LOOKING STATEMENTS — CAUTIONARY LANGUAGE

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

IMPORTANT INVESTOR INFORMATION

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

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

OVERVIEW

Our Business

On February 1, 2015, Protective Life Corporation (the “Company”) 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”~~Life Holdings, Inc., "Dai-ichi Life"), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into the Company. Prior to February 1, 2015, our stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, we remain an SEC registrant for financial reporting purposes in the United States. The Company, which is headquartered in Birmingham, Alabama, operates as a holding company for its insurance and other subsidiaries that provide financial services primarily in the United States through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company (“PLICO”) is our largest operating subsidiary. Unless the context otherwise requires, the “Company,” “we,” “us,” or “our” refers to the consolidated group of Protective Life Corporation and our subsidiaries.

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

~~Table of Contents~~

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

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

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

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

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

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

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

~~RECENT DEVELOPMENTS~~

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

RISKS AND UNCERTAINTIES

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

General

•we are controlled by Dai-ichi Life, which has the ability to make important decisions affecting our business;

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

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

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

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

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

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

we are dependent on the performance of others;

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

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

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

Financial Environment

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

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

equity market volatility could negatively impact our business;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

we operate as a holding company and depend on the ability of our subsidiaries to transfer funds to us to meet our obligations;

Industry and Regulation

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

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

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

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

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

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

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

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

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

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

regulations issued by the Department of Labor on April 6, 2016, expanding the definition of "investment advice fiduciary" under ERISA and creating and revising several prohibited transactions exemptions for investment activities in light of that expanded definition, may have a material adverse impact on our ability to sell annuities and other products, to retain in-force business and on our financial condition or results of operations;

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

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

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

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

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

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

use of reinsurance introduces variability in our statements of income;

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

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES

Our accounting policies require the use of judgments relating to a variety of assumptions and estimates, including, but not limited to expectations of current and future mortality, morbidity, persistency, expenses, and interest rates, as well as expectations

around the valuations of securities. Because of the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could be materially different from those reported in the consolidated condensed financial statements. For a complete listing of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2015 (Successor Company).~~

2016.

RESULTS OF OPERATIONS

~~We use~~Our management and Board of Directors analyzes and assesses the ~~same accounting policies and procedures to measure~~operating performance of each segment using "pre-tax adjusted operating income (loss)" and ~~assets as we use to measure consolidated net~~"after-tax adjusted operating income ~~and assets. Segment~~(loss)." Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is our measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting "income (loss) before income tax," by excluding the following items:

realized gains and losses on investments and derivatives, ~~net~~

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

actual GLWB incurred claims, and

the amortization ~~related to~~of DAC, VOBA, and ~~benefits and settlement expenses. Segment operating income (loss) also excludes changes in~~certain policy liabilities that is impacted by the ~~GMWB embedded derivatives (excluding the portion attributed to economic cost), actual GMWB incurred claims and the related amortization of DAC attributed to each~~exclusion of these items.

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

The items excluded from adjusted operating income (loss) are important to understanding the overall results of ~~our business~~operations. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not a 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. Our belief is ~~internally assessed by management. Premiums~~that pre-tax and after-tax adjusted operating income (loss) enhances management's and the Board of Directors' understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.

~~However, segment~~During the year, we modified our labeling of our non-GAAP measures presented herein as "Adjusted operating income (loss) ~~should not be viewed~~" or "Pre-tax adjusted operating income (loss)". In previous filings, we referred to "Pre-tax adjusted operating income (loss)" as ~~a substitute for net~~"Pre-tax operating income", "Operating income ~~calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”)~~before tax", or "Segment operating income". In addition, ~~our segment~~we previously referred to "After-tax adjusted operating income (loss)" as "After-tax operating income" or "Operating earnings". The definition of these labels remains unchanged, but we have modified the labels to provide further clarity that these measures ~~may not be comparable to similarly titled measures reported by other companies.~~

are non-GAAP measures.

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

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associated with these assumption changes.

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

income:

Successor Company Predecessor Company

For The Three
Months Ended
June 30, 2016

For The Three
Months Ended
June 30, 2015

For The Six
Months Ended
June 30, 2016
February 1, 2015
to
June 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Segment Operating Income (Loss)

Life Marketing $ 24,562
$ 6,651
$ 38,263
$ 10,076
$ (1,618 )
Acquisitions 45,285
37,876
113,938
73,946
20,134
Annuities 56,901
49,189
110,530
87,374
13,164
Stable Value Products 15,178
9,349
29,626
15,464
4,529
Asset Protection 5,461
5,897
10,761
9,944
2,420
Corporate and Other (16,736 ) (9,881 ) (30,457 ) (7,996 ) (10,144 )
Total segment operating income 130,651
99,081
272,661
188,808
28,485
Realized investment gains (losses) - investments ⁽¹⁾
100,889
(115,706 ) 184,050
(158,639 ) 89,815
Realized investment gains (losses) - derivatives (62,879 ) 113,535
(116,208 ) 159,568
(117,118 )
Income tax (expense) benefit (56,541 ) (33,070 ) (113,035 ) (63,036 ) 327
Net income $ 112,120
$ 63,840
$ 227,468
$ 126,701
$ 1,509

All other investment gains (losses) $ 87,816
$ (108,071 ) $ 166,927
$ (143,127 ) $ 80,672
Less: amortization related to DAC/VOBA and benefits and settlement expenses (13,073 ) 7,635
(17,123 ) 15,512
(9,143 )
Realized investment gains (losses) - investments $ 100,889
$ (115,706 ) $ 184,050
$ (158,639 ) $ 89,815

Derivative financial instruments gains (losses) $ (83,366 ) $ 94,603
$ (156,865 ) $ 128,244
$ (123,274 )
Less: VA GMWB economic cost (20,487 ) (18,932 ) (40,657 ) (31,324 ) (6,156 )
Realized investment gains (losses) - derivatives $ (62,879 ) $ 113,535
$ (116,208 ) $ 159,568
$ (117,118 )



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	18,945		$	13,701
Acquisitions	53,667			68,653
Annuities	53,007			53,629
Stable Value Products	23,899			14,448
Asset Protection	5,599			5,300
Corporate and Other	(19,728		)	(13,721		)
Pre-tax adjusted operating income	135,389			142,010
Realized (losses) gains on investments and derivatives	(23,040		)	29,832
Income before income tax	112,349			171,842
Income tax expense	(36,935		)	(56,494		)
Net income	$	75,414		$	115,348

Pre-tax adjusted operating income	$	135,389		$	142,010
Adjusted operating income tax (expense) benefit	(44,999		)	(46,053		)
After-tax adjusted operating income	90,390			95,957
Realized (losses) gains on investments and derivatives	(23,040		)	29,832
Income tax benefit (expense) on adjustments	8,064			(10,441		)
Net income	$	75,414		$	115,348

Realized investment (losses) gains:
Derivative financial instruments	$	(69,878	)	$	(73,499	)
All other investments	22,841			81,728
Net impairment losses recognized in earnings	(7,831		)	(2,617		)
Less: related amortization⁽¹⁾	(10,744		)	(4,050		)
Less: VA GLWB economic cost	(21,084		)	(20,170		)
Realized (losses) gains on investments and derivatives	$	(23,040	)	$	29,832

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

~~(1)~~ Includes credit related other-than-temporary impairments of $1.0 million, $3.6 million, $5.7 million, $5.7 million, and $0.5 million for the three and six months ended June 30, 2016 (Successor Company), for the three months ended June 30, 2015 (Successor Company), for the period of February 1, 2015 to June 30, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~

March 31, 2016

Net income ~~was $112.1~~for the three months ended March 31, 2017 included a $6.6 million, or 4.7%, decrease in pre-tax adjusted operating income. The decrease consisted of a $15.0 million decrease in the Acquisitions segment, a $0.6 million decrease in the Annuities segment, and ~~operating income was $130.7~~a decrease of $6.0 million in the Corporate and Other segment. These decreases were partially offset by a $5.2 million increase in the Life Marketing segment, a $9.5 million increase in the Stable Value Products segment, and a $0.3 million increase in the Asset Protection segment.

We experienced net realized losses before amortization and VA GLWB economic cost of $54.9 million for the three months ended ~~June 30, 2016.~~March 31, 2017. The $54.9 million of losses included $69.9 million of losses on derivatives offset by $15.0 million gains on other investments. These losses were offset by $31.8 million of VA GLWB economic cost and associated amortization resulting in a total loss of $23.0 million associated with realized investment and derivative gain (losses) activity.

~~We experienced~~The $23.0 million impact of losses realized for the three months ended March 31, 2017 were primarily $20.3 million of net ~~realized~~losses on derivatives and investments associated with variable and fixed indexed annuity contracts, $7.8 million of other-than-temporary impairment credit-related losses, and net losses of $5.2 million related to other investment and derivative activity. Partially offsetting these losses were gains of ~~$4.5~~$9.5 million related to investment securities sale activity.

Life Marketing segment pre-tax adjusted operating income was $18.9 million for the three months ended June 30, 2016. The gains realized were primarily related to $53.4 million of gains related to the net activity of the modified coinsurance portfolio, $16.9 million of gains related to investment securities sale activity, net gains of $0.2 million of derivatives related to IUL contracts, and net gains of $2.1 million of derivatives related to FIA contracts. Partially offsetting these gains were $1.0 million of other-than-temporary impairment credit-related losses, net losses of $62.8 million of derivatives related to variable annuity contracts, and net losses of $4.4 million loss related to other investment and derivative activity.

~~Life Marketing segment operating income was $24.6 million for the three months ended June 30, 2016,~~March 31, 2017, representing an increase of ~~$17.9~~$5.2 million from the three months ended ~~June 30, 2015.~~March 31, 2016. The increase was primarily due to higher ~~universal life~~premiums and policy fees and ~~higher~~ investment ~~income. These increases were~~income, partially offset by ~~an increase in~~higher reserves ~~from growth in retained universal life insurance in-force.~~

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due to in-force reserve growth.

Acquisitions segment pre-tax adjusted operating income was ~~$45.3~~$53.7 million for the three months ended ~~June 30, 2016, an increase~~March 31, 2017, a decrease of ~~$7.4~~$15.0 million as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to the addition of the GLAIC reinsurance transaction completed on January 15, 2016. The GLAIC transaction added $9.0 million to segment operating income for the three months ended June 30, 2016. This was partly offset byhigher mortality and the expected runoff of the in-force blocks of business.

Annuities segment pre-tax adjusted operating income was ~~$56.9~~$53.0 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to ~~$49.2~~$53.6 million for the three months ended ~~June 30, 2015, an increase~~March 31, 2016, a decrease of ~~$7.7~~$0.6 million, or ~~15.7%~~1.2%. This variance was primarily the result of ~~lower credited interest and favorable~~an unfavorable change in single premium immediate annuities (“SPIA”) mortality and higher non-deferred expenses, partially offset by ~~lower investment income~~increased interest spreads and ~~lower~~growth in VA fee ~~and other income from~~income. Segment results were positively impacted by $1.6 million of favorable unlocking for the ~~variable annuities ("VA") line~~three months ended March 31, 2017 as compared to $0.4 million of ~~business.~~

favorable unlocking for the three months ended March 31, 2016.

Stable Value Products segment pre-tax adjusted operating income was ~~$15.2~~$23.9 million and increased ~~$5.8~~$9.5 million, or ~~62.3%~~65.4%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. The increase in adjusted operating earnings primarily resulted from a 68.9% increase in average account values in addition to an increase in participating mortgage ~~income, higher operating spreads, and increased average account values.~~income. Participating mortgage income for the three months ended ~~June 30, 2016~~March 31, 2017, was ~~$3.9~~$6.8 million as compared to ~~$0.5~~$5.3 million for the three months ended ~~June 30, 2015.~~March 31, 2016. The adjusted operating spread, which excludes participating income, ~~decreased~~increased by 417 basis points for the three months ended ~~June 30, 2016~~March 31, 2017, over the prior year, due primarily to an increase in ~~credited interest.~~investment yields.

Asset Protection segment pre-tax adjusted operating income was ~~$5.5~~$5.6 million, representing ~~a decrease~~an increase of ~~$0.4~~$0.3 million, or ~~7.4%~~5.6%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016.Service contract earnings increased $2.6 million primarily due to favorable loss ratios and the acquisition of US Warranty Corporation ("US Warranty") in the fourth quarter of 2016. Credit insurance earnings increased $0.1 million primarily due to lower losses. Earnings from the ~~guaranteed asset protection (“GAP”)~~GAP product line decreased ~~$0.6~~$2.4 million primarily resulting from higher losses. Credit insurance earnings decreased $0.4 million primarily due to unfavorable underwriting income. Service contract earnings increased $0.6 million primarily due to favorable underwriting income.losses, somewhat offset by additional income provided by US Warranty.

The Corporate and Other segment pre-tax adjusted operating loss was ~~$16.7~~$19.7 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to an adjusted operating loss of ~~$9.9~~$13.7 million for the three months ended ~~June 30, 2015.~~March 31, 2016. The decrease was primarily due to ~~a $4.4 million decrease in core net investment income.~~

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Net~~other income ~~was $227.5 million and operating income was $272.7 million for the six months ended June 30, 2016.~~

We experienced net realized gains of $10.1 million for the six months ended June 30, 2016. The gains realized were primarily related to $73.2 million of gains related to the net activity of the modified coinsurance portfolio and $22.5 million of gains related to investment securities sale activity. Partially offsetting these gains were $3.6 million of other-than-temporary impairment credit-related losses, net losses of $70.6 million of derivatives related to variable annuity contracts, net losses of $6.4 million loss related to other investment and derivative activity, net losses of $0.8 million of derivatives related to IUL contracts, and net losses of $4.2 million of derivatives related to FIA contracts.

Life Marketing segment operating income was $38.3 million which consisted of universal life operating income of $39.4 million, traditional life operating income of $5.0 million, and an operating loss of $6.1 million in other lines.

Acquisitions segment operating income was $113.9 million. This included expected runoff of the in-force blocks of business and $17.8 million in operating income associated with the GLAIC reinsurance transaction that was completed on January 15, 2016.

Annuities segment operating income was $110.5 million which included $59.8 million of variable annuity operating earnings, $59.5 million of fixed annuity operating earnings, and a $8.7 million loss in other annuity earnings. The fixed annuity results were positively impacted by $11.3 million of favorable SPIA mortality.

Stable Value Products segment operating income of $29.6 million was primarily due to activity in average account values, participating mortgage income, and operating spread. Participating mortgage income was $9.2 million and the adjusted operating spread, which excludes participating income, was 177 basis points.

Asset Protection segment operating income was $10.8 million which consisted of service contract earnings of $8.0 million, GAP product earnings of $1.6 million, and credit insurance earnings of $1.2 million.

The Corporate and Other segment’s $30.5 million operating loss was primarily due to $144.5 million of other operating expense which is primarily interest expense and corporate overhead expenses. These expenses were partially offset by $107.9 million of investment income which represents income on assets supporting our equity capital and held-to-maturity notes, as well as a ~~$7.4~~result of a $5.5 million ~~gain~~change in the gains recognized on ~~the~~ extinguishment of debt.

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

~~Net income was $126.7 million and operating income was $188.8 million for the period of February 1, 2015 to June 30, 2015.~~

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We experienced net realized losses of $14.9 million for the period of February 1, 2015 to June 30, 2015. The losses realized were primarily related to $5.7 million of other-than-temporary impairment credit-related losses, net losses of $18.7 million of derivatives related to variable annuity contracts, and $0.6 million of losses related to the net activity of the modified coinsurance portfolio. Partially offsetting these losses were $3.7 million of gains related to investment securities sale activity, net gains of $3.6 million of derivatives related to FIA contracts, and net gains of $1.9 million related to IUL contracts, and net gains of $0.9 million loss related to other investment and derivative activity.

Life Marketing segment operating income was $10.1 million which consisted of universal life operating income of $19.8 million, traditional life operating loss of $2.5 million, and an operating loss of $7.2 million in other lines.

~~Acquisitions segment operating income was $73.9 million. This included expected runoff of the in force blocks of business.~~

Annuities segment operating income was $87.4 million which included $44.4 million of fixed annuity operating earnings and $49.7 million of variable annuity operating earnings. The fixed annuity results were positively impacted by $4.8 million of favorable SPIA mortality.

Stable Value Products segment operating income of $15.5 million was primarily due to activity in average account values, operating spread, and participating mortgage income. Participating mortgage income was $1.7 million and the adjusted operating spread, which excludes participating income, was 171 basis points.

Asset Protection segment operating income was $9.9 million which consisted of service contract earnings of $6.0 million, GAP product earnings of $2.6 million, and credit insurance earnings of $1.3 million.

The Corporate and Other segment’s $8.0 million operating loss was primarily due to $78.3 million of other operating expense which is primarily interest expense and corporate overhead expenses. These expenses were partially offset by $69.7 million of investment income which represents income on assets supporting our equity capital.

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

~~Net income was $1.5 million and operating income was $28.5 million for the period of January 1, 2015 to January 31, 2015.~~

We experienced net realized losses of $42.6 million for the period of January 1, 2015 to January 31, 2015. The losses realized for the period of January 1, 2015 to January 31, 2015, were primarily related to $0.5 million for other-than-temporary impairment credit-related losses, net losses of $53.6 million of derivatives related to variable annuity contracts, net losses of $1.0 million of derivatives related to FIA contracts, and net losses of $0.6 million of derivatives related to IUL contracts. Partially offsetting these losses were $6.9 million of gains related to investment securities sale activity, $5.0 million of gains related to the net activity of the modified coinsurance portfolio, and net gains of $1.2 million related to other investment and derivative activity.

Life Marketing segment operating loss was $1.6 million. Included in that amount was a traditional life operating loss of $3.4 million, universal life earnings of $1.2 million, and operating earnings of $0.6 million in other lines.

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

Annuities segment operating income was $13.2 million. Included in that amount was $2.8 million of unfavorable SPIA mortality results and $2.3 million of unfavorable unlocking, primarily related to the VA line of business.

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

Asset Protection segment operating income was $2.4 million which consisted of $1.3 million in service contract earnings, $0.9 million in GAP product earnings, and credit insurance earnings of $0.2 million.

The Corporate and Other segment’s $10.1 million operating loss was primarily due to $20.5 million of other operating expense which is primarily interest expense and corporate overhead expenses. These expenses were partially offset by $10.7 million of investment income which represents income on assets supporting our equity capital.

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Life Marketing

Segment Results of Operations

Segment results were as follows:

Successor Company Predecessor Company

For The Three
Months Ended
June 30, 2016

For The Three
Months Ended
June 30, 2015

For The Six
Months Ended
June 30, 2016
February 1, 2015
to
June 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
REVENUES

Gross premiums and policy fees $ 448,991
$ 439,717
$ 889,740
$ 683,395
$ 136,068
Reinsurance ceded (204,157 ) (211,296 ) (387,881 ) (279,679 ) (51,142 )
Net premiums and policy fees 244,834
228,421
501,859
403,716
84,926
Net investment income 131,653
120,556
259,907
198,811
47,460
Other income 28,525
30,992
56,872
49,073
12,810
Total operating revenues 405,012
379,969
818,638
651,600
145,196
Realized gains (losses) - investments 7,687
(2,315 ) 4,127
(2,182 ) 997
Realized gains (losses) - derivatives 193
1,468
(791 ) 1,880
(598 )
Total revenues 412,892
379,122
821,974
651,298
145,595
BENEFITS AND EXPENSES

Benefits and settlement expenses 303,136
291,619
623,979
514,349
123,525
Amortization of deferred policy acquisition costs and value of business acquired 31,024
33,428
63,740
53,575
4,584
Other operating expenses 46,290
48,271
92,656
73,600
18,705
Operating benefits and settlement expenses 380,450
373,318
780,375
641,524
146,814
Amortization related to benefits and settlement expenses 3,331
1,110
(1,840 ) 1,519
(346 )
Amortization of DAC/VOBA related to realized gains (losses) - investments 284
10
30
41
229
Total benefits and expenses 384,065
374,438
778,565
643,084
146,697
INCOME (LOSS) BEFORE INCOME TAX 28,827
4,684
43,409
8,214
(1,102 )
Less: realized gains (losses) 7,880
(847 ) 3,336
(302 ) 399
Less: amortization related to benefits and settlement expenses (3,331 ) (1,110 ) 1,840
(1,519 ) 346
Less: related amortization of DAC/VOBA (284 ) (10 ) (30 ) (41 ) (229 )
OPERATING INCOME (LOSS) $ 24,562
$ 6,651
$ 38,263
$ 10,076
$ (1,618 )

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	453,135		$	440,749
Reinsurance ceded	(190,335		)	(183,724		)
Net premiums and policy fees	262,800			257,025
Net investment income	137,543			128,254
Other income	26,378			28,347
Total operating revenues	426,721			413,626
Realized gains (losses) - investments	(5,330		)	(3,560		)
Realized gains (losses) - derivatives	1			(984		)
Total revenues	421,392			409,082
BENEFITS AND EXPENSES
Benefits and settlement expenses	332,058			320,843
Amortization of DAC/VOBA	30,415			32,716
Other operating expenses	45,303			46,366
Operating benefits and settlement expenses	407,776			399,925
Amortization related to benefits and settlement expenses	(3,165		)	(5,171		)
Amortization of DAC/VOBA related to realized gains (losses) - investments	344			(254		)
Total benefits and expenses	404,955			394,500
INCOME BEFORE INCOME TAX	16,437			14,582
Less: realized gains (losses)	(5,329		)	(4,544		)
Less: amortization related to benefits and settlement expenses	3,165			5,171
Less: related amortization of DAC/VOBA	(344		)	254
PRE-TAX ADJUSTED OPERATING INCOME	$	18,945		$	13,701

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

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

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017		2016
	(Dollars In Thousands)
Sales By Product⁽¹⁾
Traditional life	$	182	$	403
Universal life	43,189		39,507
BOLI	—		—
	$	43,371	$	39,910
Sales By Distribution Channel
Traditional brokerage	$	37,368	$	34,201
Institutional	3,819		4,131
Direct	2,184		1,578
	$	43,371	$	39,910
Average Life Insurance In-force⁽²⁾
Traditional	$	352,440,121	$	371,543,314
Universal life	237,765,536		195,392,995
	$	590,205,657	$	566,936,309
Average Account Values
Universal life	$	7,546,119	$	7,387,034
Variable universal life	680,920		589,040
	$	8,227,039	$	7,976,074

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

Operating expenses detail

Other operating expenses for the segment were as follows:


	Successor Company												Predecessor Company			For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Insurance companies:
First year commissions	$	48,222		$	42,762		$	96,355		$	71,431		$	14,109		$	50,543		$	48,133
Renewal commissions	9,325			8,544			18,067			13,396			2,513			9,841			8,742
First year ceding allowances	(939		)	(927		)	(1,788		)	(1,435		)	(49		)	(701		)	(849		)
Renewal ceding allowances	(40,347		)	(39,288		)	(78,556		)	(68,140		)	(12,364		)	(42,423		)	(38,209		)
General & administrative	53,529			52,789			105,936			84,763			17,467			55,483			52,408
Taxes, licenses, and fees	8,234			7,736			15,665			12,910			2,508			8,465			7,431
Other operating expenses incurred	78,024			71,616			155,679			112,925			24,184			81,208			77,656
Less: commissions, allowances & expenses capitalized	(60,333		)	(53,791		)	(119,049		)	(87,875		)	(17,059		)	(63,982		)	(58,716		)
Other insurance company operating expenses	17,691			17,825			36,630			25,050			7,125			17,226			18,940
Marketing companies:
Commissions	20,306			22,552			40,281			35,439			8,233			19,998			19,975
Other operating expenses	8,293			7,894			15,745			13,111			3,347			8,079			7,451
Other marketing company operating expenses	28,599			30,446			56,026			48,550			11,580			28,077			27,426
Other operating expenses	$	46,290		$	48,271		$	92,656		$	73,600		$	18,705		$	45,303		$	46,366

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~March 31, 2016

~~Segment~~Pre-tax adjusted operating income

~~Operating~~Pre-tax adjusted operating income was ~~$24.6~~$18.9 million for the three months ended ~~June 30, 2016,~~March 31, 2017, representing an increase of ~~$17.9~~$5.2 million from the three months ended ~~June 30, 2015.~~March 31, 2016. The increase was primarily due to higher ~~universal life~~premiums and policy fees and ~~higher~~ investment ~~income. These increases were~~income, partially offset by ~~an increase in~~higher reserves ~~from growth in retained universal life insurance in-force.~~

due to in-force reserve growth.

Operating revenues

Total operating revenues for the three months ended ~~June 30, 2016,~~March 31, 2017, increased ~~$25.0~~$13.1 million, or ~~6.6%~~3.2%, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. This increase was driven by higher ~~premiums and policy fees due to continued growth in the universal life block. Higher~~ investment income due to increases in net in-force reserves ~~also contributed to the increase.~~

and yields.

Net premiums and policy fees

Net premiums and policy fees increased by ~~$16.4~~$5.8 million, or ~~7.2%~~2.2%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, due to an increase in policy fees associated with continued growth in universal life business. This increase is ~~partially~~ offset by a decrease in traditional life premiums.

Net investment income

Net investment income in the segment increased ~~$11.1~~$9.3 million, or ~~9.2%~~7.2%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. Of the increase in net investment income, ~~$7.1~~$6.8 million was the result of ~~a net~~an increase in universal life due to higher yields and universal life reserves. Traditional life investment income increased ~~$3.3~~$0.9 million primarily due to lower excess reserve funding ~~costs and higher reserves.~~

costs.

Other income

Other income decreased ~~$2.5~~$2.0 million, or ~~8.0%~~6.9%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to lower revenue in the segment’s non-insurance operations.

~~Table of Contents~~

Benefits and settlement expenses

Benefits and settlement expenses increased by ~~$11.5~~$11.2 million, or ~~3.9%~~3.5%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, due primarily to an increase in reserves ~~and claims~~ from growth in retained universal life insurance in-force, partly offset by a ~~smaller increase~~decrease in traditional reserves. For the three months ended March 31, 2017, universal life unlocking increased policy benefits and settlement expenses $0.6 million, as compared to a decrease of $1.1 million for the three months ended March 31, 2016.

Amortization of DAC/VOBA

DAC/VOBA amortization decreased ~~$2.4~~$2.3 million, or ~~7.2%~~7.0%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015, partially~~March 31, 2016, due to lower VOBA amortization in the ~~impact of unlocking.~~traditional blocks resulting from lower lapses. For the three months ended ~~June 30, 2016,~~March 31, 2017, universal life ~~and BOLI~~ unlocking decreased amortization ~~$0.6~~$0.9 million, as compared to ~~a decrease~~an increase of ~~$0.1~~$0.3 million for the three months ended ~~June 30, 2015.~~

March 31, 2016.

Other operating expenses

Other operating expenses decreased ~~$2.0~~$1.1 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. This decrease is driven by lower new business acquisition costs after capitalization and ~~lower marking company expenses of $1.8 million. These decreases were largely~~higher reinsurance allowances, offset by higher ~~general administrative expenses of $0.7 million along with~~commissions and an increase in general and administrative expenses and taxes, ~~license~~licenses and ~~fees of $0.5 million.~~fees.

Sales

Sales for the segment increased ~~$2.1~~$3.5 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. Universal life sales increased ~~$1.9~~$3.7 million primarily due to an expansion in distribution partners and focused efforts with existing partners.

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Segment operating income~~

~~Net premiums and policy fees~~

Net premiums and policy fees were $501.9 million for the six months ended June 30, 2016. Included in this amount are traditional life net premiums of $213.2 million and universal life policy fees of $288.2 million.

~~Net investment income~~

Net investment income was $259.9 million for the six months ended June 30, 2016. Included in this amount is traditional life net investment income of $38.5 million and universal life investment income of $214.2 million.

~~Other income~~

~~Other income was $56.9 million for the six months ended June 30, 2016. This amount is primarily comprised of revenue in the segment’s non-insurance operations.~~

~~Benefits and settlement expenses~~

Benefit and settlement expenses were $624.0 million for the six months ended June 30, 2016. This amount includes traditional life benefit and settlement expenses of $172.4 million and universal life benefit and settlement expenses of $447.4 million, including $154.9 million of interest on funds for universal life policies.

~~Amortization of DAC and VOBA~~

~~DAC and VOBA amortization was $63.7 million for the six months ended June 30, 2016.~~

~~Other operating expenses~~

Other operating expenses were $92.7 million for the six months ended June 30, 2016. Other operating expenses for the insurance companies reflect commissions of $114.4 million, general and administrative expenses of $106.0 million, and taxes, licenses, and fees of $15.7 million, partly offset by ceding allowances of $80.3 million and capitalization of $119.1 million. Marketing company expenses were $56.0 million for the six months ended June 30, 2016.

~~Sales~~

~~Sales for the segment were $81.9 million for the six months ended June 30, 2016, comprised primarily of universal life sales.~~

~~Table of Contents~~

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

~~Segment operating income~~

~~Net premiums and policy fees~~

Net premiums and policy fees were $403.7 million for the period of February 1, 2015 to June 30, 2015. Included in this amount are traditional life net premiums of $212.9 million and universal life policy fees of $190.6 million.

~~Net investment income~~

Net investment income was $198.8 million for the period of February 1, 2015 to June 30, 2015. Included in this amount is traditional life net investment income of $26.0 million and universal life investment income of $167.4 million.

~~Other income~~

~~Other income was $49.1 million for the period of February 1, 2015 to June 30, 2015. This amount is primarily comprised of revenue in the segment’s non-insurance operations.~~

~~Benefits and settlement expenses~~

Benefit and settlement expenses were $514.3 million for the period of February 1, 2015 to June 30, 2015. This amount includes traditional life benefit and settlement expenses of $182.6 million and universal life benefit and settlement expenses of $331.5 million, including $131.6 million of interest on funds for universal life policies.

~~Amortization of DAC and VOBA~~

~~DAC and VOBA amortization was $53.6 million for the period of February 1, 2015 to June 30, 2015.~~

~~Other operating expenses~~

Other operating expenses were $73.6 million for the period of February 1, 2015 to June 30, 2015. Other operating expenses for the insurance companies reflect commissions of $84.8 million, general and administrative expenses of $84.8 million, and taxes, licenses, and fees of $12.9 million, partly offset by ceding allowances of $69.6 million and capitalization of $87.9 million. Marketing company expenses were $48.6 million for the period of February 1, 2015 to June 30, 2015.

~~Sales~~

~~Sales for the segment were $63.6 million for the period of February 1, 2015 to June 30, 2015, comprised primarily of universal life sales.~~

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

~~Segment operating income~~

Segment operating loss was $1.6 million. Included in that amount was a traditional life operating loss of $3.4 million, universal life earnings of $1.2 million, and operating earnings of $0.6 million in other lines.

~~Net premiums and policy fees~~

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

~~Net investment income~~

Net investment income was $47.5 million for the period of January 1, 2015 to January 31, 2015. Included in this amount is traditional life net investment income of $6.3 million and universal life investment income of $40.1 million.

~~Other income~~

~~Other income was $12.8 million for the period of January 1, 2015 to January 31, 2015. This amount is primarily comprised of revenue in the segment’s non-insurance operations.~~

~~Table of Contents~~

~~Benefits and settlement expenses~~

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

~~Amortization of DAC and VOBA~~

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

~~Other operating expenses~~

Other operating expenses were $18.7 million for the period of January 1, 2015 to January 31, 2015. Other operating expenses for the insurance companies reflect commissions of $16.6 million, general and administrative expenses of $17.5 million, and taxes of $2.5 million, partly offset by ceding allowances of $12.4 million and capitalization of $17.1 million. Marketing company expenses were $11.6 million for the period of January 1, 2015 to January 31, 2015.

~~Sales~~

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

Reinsurance

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

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

~~Table of Contents~~

Impact of reinsurance

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

Life Marketing Segment

Line Item Impact of Reinsurance

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



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(190,335	)	$	(183,724	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(165,493		)	(203,365		)
Amortization of DAC/VOBA	(1,416		)	(1,645		)
Other operating expenses⁽¹⁾	(41,338		)	(36,686		)
Total benefits and expenses	(208,247		)	(241,696		)

NET IMPACT OF REINSURANCE	$	17,912		$	57,972

Allowances received	$	(43,124	)	$	(39,058	)
Less: Amount deferred	1,786			2,372
Allowances recognized (ceded other operating expenses)⁽¹⁾	$	(41,338	)	$	(36,686	)
(1) Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.

The table above does not reflect the impact of reinsurance on our net investment income. By ceding business to the assuming companies, we forgo investment income on the reserves ceded. Conversely, the assuming companies will receive investment income on the reserves assumed, which will increase the assuming companies’ profitability on the business that we cede. The net investment income impact to us and the assuming companies has not been quantified. The impact of including foregone investment income would be to substantially reduce the favorable net impact of reinsurance reflected above. We estimate that the impact of foregone investment income would be to reduce the net impact of reinsurance presented in the table above by ~~100%~~120% to ~~340%~~380%. The Life Marketing segment’s reinsurance programs do not materially impact the “other income” line of our income statement.

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

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

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~

March 31, 2016

The ~~lower~~higher ceded premium and policy fees for ~~2016~~the three months ended March 31, 2017, as compared to ~~2015~~the three months ended March 31, 2016, was caused primarily by higher universal life policy fees of $10.6 million, slightly offset by lower ceded traditional life premiums of ~~$10.0 million and higher universal life policy fees of $3.3~~$3.1 million. Ceded traditional ~~premium~~life premiums for the three months ended ~~June 30, 2016,~~March 31, 2017, decreased from the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ~~fluctuations in the number of policies entering their~~ post level ~~period. Ceded universal life policy fees for three months ended June 30, 2016, increased from the three months ended June 30, 2015, with the increase in the direct universal life policy fees.~~

activity.

Ceded benefits and settlement expenses were lower for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, due to ~~a smaller increase in ceded reserves, partly offset by higher~~lower universal life ceded ~~claims.~~claims and due to net decreases in ceded reserves. Traditional ceded benefits decreased ~~$9.7~~$13.3 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ~~a smaller increase in post level ceded reserves and~~ lower ceded death benefits. Universal life ceded benefits decreased ~~$6.4~~$23.1 million for the three months ended ~~June 30, 2016, as compared to the three months ended~~

~~Table of Contents~~

June 30, 2015, due to a smaller increase in ceded reserves, partly offset by an increase in ceded claims. Ceded universal life claims were $9.1 million higher for the three months ended June 30, 2016,March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~

March 31, 2016, due to a decrease in ceded claims, partially offset by an increase in ceded reserves. Ceded universal life claims were $24.9 million lower for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016.

Ceded amortization of DAC and VOBA ~~increased~~decreased slightly for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015, primarily due to the differences in unlocking between the two periods.~~

March 31, 2016.

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

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~The ceded premiums were primarily comprised~~ of ~~ceded traditional life premiums of $181.8 million and universal life premiums of $204.8 million.~~

Ceded benefits and settlement expenses were $375.7 million for the six months ended June 30, 2016. This amount is driven by ceded claims. Traditional life ceded benefits activity of $186.7 million was due to ceded death benefits, slightly offset by ceded reserves. Universal life ceded benefits of $189.8 million were largely comprised of $186.1 million in ceded universal life claims during the period.

~~Ceded amortization of DAC and VOBA activity was $3.4 million for the six months ended June 30, 2016.~~

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

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

~~The ceded premiums were primarily comprised of ceded traditional life premiums of $113.7 million and universal life premiums of $165.5 million.~~

Ceded benefits and settlement expenses were $250.7 million for the period of February 1, 2015 to June 30, 2015. This amount is driven by ceded claims, partly offset by change in ceded reserves. Traditional life ceded benefits activity of $105.5 million was due to ceded death benefits, partly offset by ceded reserves. Universal life ceded benefits of $145.6 million were largely comprised of $124.0 million in ceded universal life claims during the period.

~~Ceded amortization of DAC and VOBA activity was $2.2 million for the period of February 1, 2015 to June 30, 2015.~~

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

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

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

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

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

~~Table of Contents~~

amounts deferred.

Acquisitions

Segment Results of Operations

Segment results were as follows:

Successor Company Predecessor Company

For The Three
Months Ended
June 30, 2016

For The Three
Months Ended
June 30, 2015

For The Six
Months Ended
June 30, 2016
February 1, 2015
to
June 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
REVENUES

Gross premiums and policy fees $ 296,109
$ 280,570
$ 596,617
$ 472,472
$ 88,855
Reinsurance ceded (91,405 ) (96,158 ) (177,827 ) (144,718 ) (26,512 )
Net premiums and policy fees 204,704
184,412
418,790
327,754
62,343
Net investment income 189,014
175,815
376,669
289,507
71,088
Other income 2,721
3,173
5,452
5,364
1,240
Total operating revenues 396,439
363,400
800,911
622,625
134,671
Realized gains (losses) - investments 81,478
(107,997 ) 159,603
(140,624 ) 73,601
Realized gains (losses) - derivatives (24,069 ) 108,582
(81,859 ) 140,773
(68,511 )
Total revenues 453,848
363,985
878,655
622,774
139,761
BENEFITS AND EXPENSES

Benefits and settlement expenses 312,194
300,336
619,728
506,183
100,693
Amortization of value of business acquired 10,185
968
9,092
838
4,803
Other operating expenses 28,775
24,220
58,153
41,658
9,041
Operating benefits and expenses 351,154
325,524
686,973
548,679
114,537
Amortization related to benefits and settlement expenses 2,957
4,859
5,688
7,268
1,233
Amortization of VOBA related to realized gains (losses) - investments 2
(18 ) 4
(28 ) 230
Total benefits and expenses 354,113
330,365
692,665
555,919
116,000
INCOME (LOSS) BEFORE INCOME TAX 99,735
33,620
185,990
66,855
23,761
Less: realized gains (losses) 57,409
585
77,744
149
5,090
Less: amortization related to benefits and settlement expenses (2,957 ) (4,859 ) (5,688 ) (7,268 ) (1,233 )
Less: related amortization of VOBA (2 ) 18
(4 ) 28
(230 )
OPERATING INCOME $ 45,285
$ 37,876
$ 113,938
$ 73,946
$ 20,134

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	281,450		$	300,508
Reinsurance ceded	(80,250		)	(86,422		)
Net premiums and policy fees	201,200			214,086
Net investment income	190,969			187,655
Other income	2,788			2,731
Total operating revenues	394,957			404,472
Realized gains (losses) - investments	22,905			78,125
Realized gains (losses) - derivatives	(16,495		)	(57,790		)
Total revenues	401,367			424,807
BENEFITS AND EXPENSES
Benefits and settlement expenses	316,368			307,534
Amortization of VOBA	(3,085		)	(1,093		)
Other operating expenses	28,007			29,378
Operating benefits and expenses	341,290			335,819
Amortization related to benefits and settlement expenses	2,448			2,731
Amortization of VOBA related to realized gains (losses) - investments	13			2
Total benefits and expenses	343,751			338,552
INCOME BEFORE INCOME TAX	57,616			86,255
Less: realized gains (losses)	6,410			20,335
Less: amortization related to benefits and settlement expenses	(2,448		)	(2,731		)
Less: related amortization of VOBA	(13		)	(2		)
PRE-TAX ADJUSTED OPERATING INCOME	$	53,667		$	68,653

The following table summarizes key data for the Acquisitions segment:

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

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

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



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Average Life Insurance In-Force⁽¹⁾
Traditional	$	233,273,368		$	208,412,727
Universal life	28,243,487			30,336,289
	$	261,516,855		$	238,749,016
Average Account Values
Universal life	$	4,211,856		$	4,313,082
Fixed annuity⁽²⁾	3,523,668			3,582,906
Variable annuity	1,167,104			1,207,913
	$	8,902,628		$	9,103,901
Interest Spread - Fixed Annuities
Net investment income yield	3.99		%	3.99		%
Interest credited to policyholders	3.31		%	3.33		%
Interest spread⁽³⁾	0.68		%	0.66		%

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

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~March 31, 2016

~~Segment~~Pre-tax adjusted operating income

~~Operating~~Pre-tax adjusted operating income was ~~$45.3~~$53.7 million for the three months ended ~~June 30, 2016, an increase~~March 31, 2017, a decrease of ~~$7.4~~$15.0 million as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to the addition of the GLAIC reinsurance transaction completed on January 15, 2016. The GLAIC transaction added $9.0 million to segment operating income for the three months ended June 30, 2016. This was partly offset byhigher mortality and the expected runoff of the in-force blocks of business.

Operating revenues

Net premiums and policy fees ~~increased $20.3~~decreased $12.9 million, or ~~11.0%~~6.0%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ~~the premiums associated with the GLAIC reinsurance transaction more than offsetting~~ expected runoff ~~related to other~~of the in-force blocks of business. Net investment income increased ~~$13.2~~$3.3 million, or ~~7.5%~~1.8%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ~~the $14.2 million impact of the GLAIC reinsurance transaction,~~higher yields partly offset by expected runoff of ~~the in-force~~ business.

Total benefits and expenses

Total benefits and expenses increased ~~$23.7~~$5.2 million, or ~~7.2%~~1.5%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. The increase was primarily due to ~~the GLAIC reinsurance transaction, which increased operating benefits and expenses $36.4 million. This was~~higher mortality partly offset by ~~expected runoff of the in-force business.~~

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Segment operating income~~

Operating income was $113.9 million. This included expected runoff of the in-force blocks of business and $17.8 million in operating income associated with the GLAIC reinsurance transaction that was completed on January 15, 2016.

~~Operating revenues~~

Operating revenues for the segment were $800.9 million and included net premiums and policy fees of $418.8 million, net investment income of $376.7 million, and other income of $5.5 million. The segment experienced expected runoff in the current period.

~~Table of Contents~~

~~Operating revenues from the GLAIC transaction were $94.8 million and included net premiums and policy fees of $66.1 million and net investment income of $28.7 million.~~

~~Total benefits and expenses~~

Total benefits and expenses were $692.7 million, primarily due to operating benefits and expenses of $687.0 million. Operating benefits and expenses included benefits and settlement expenses of $619.7 million, amortization offavorable VOBA of $9.1 million, and other operating expenses of $58.2 million. The net impact of amortization related to benefits and settlement expenses and amortization of VOBA related to realized gains (losses) on investments contributed $5.7 million to total benefits and expenses.

Total benefits and expenses from the GLAIC transaction were $77.1 million. Operating benefits and expenses included benefits and settlement expenses of $61.7 million, amortization of VOBA of $6.5 million, and other operating expenses of $8.9 million from this transaction.

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

~~Segment operating income~~

~~Operating income was $73.9 million. This included expected runoff of the in force blocks of business.~~

~~Operating revenues~~

Operating revenues for the segment were $622.6 million and included net premiums and policy fees of $327.8 million, net investment income of $289.5 million, and other income of $5.4 million. The segment experienced expected runoff in the current period.

~~Total benefits and expenses~~

Total benefits and expenses were $555.9 million, primarily due to operating benefits and expenses of $548.7 million. Operating benefits and expenses included benefits and settlement expenses of $506.2 million, amortization of VOBA of $0.8 million, and other operating expenses of $41.7 million. The net impact of amortization related to benefits and settlement expenses and amortization of VOBA related to realized gains (losses) on investments contributed $7.2 million to total benefits and expenses.

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

~~Segment operating income~~

~~Operating income was $20.1 million. This included expected runoff of the in force blocks of business.~~

~~Operating revenues~~

Operating revenues for the segment were $134.7 million and included net premiums and policy fees of $62.3 million, net investment income of $71.1 million, and other income of $1.2 million. The segment experienced expected runoff in the current period.

~~Total benefits and expenses~~

Total benefits and expenses were $116.0 million, primarily due to operating benefits and expenses of $114.5 million. Operating benefits and expenses included benefits and settlement expenses of $100.7 million, amortization of VOBA of $4.8 million, and other operating expenses of $9.0 million. The net impact of amortization related to benefits and settlement expenses and amortization of VOBA related to realized gains (losses) on investments contributed $1.5 million to total benefits and expenses.

amortization.

Reinsurance

The Acquisitions segment currently reinsures portions of both its life and annuity in-force. The cost of reinsurance to the segment is reflected in the chart shown below. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015 (Successor Company).~~2016.

~~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

~~(1)~~ ~~Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(80,250	)	$	(86,422	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(68,210		)	(64,524		)
Amortization of value of business acquired	(117		)	(118		)
Other operating expenses	(9,122		)	(11,087		)
Total benefits and expenses	(77,449		)	(75,729		)

NET IMPACT OF REINSURANCE⁽¹⁾	$	(2,801	)	$	(10,693	)

(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.

The segment’s reinsurance programs do not materially impact the other income line of the income statement. In addition, net investment income generally has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgo investment income on the reserves ceded to the assuming companies. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on business assumed from the Company. For business ceded under modified coinsurance arrangements, the amount of investment income attributable to the assuming company is included as part of the overall change in policy reserves and, as such, is reflected in benefit and settlement expenses. The net investment income impact to us and the assuming companies has not been quantified as it is not fully reflected in our consolidated financial statements.

The net impact of reinsurance is ~~less~~more favorable by ~~$13.7~~$7.9 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to lower ceded ~~claims.~~revenues. In the three months ended ~~June 30, 2016,~~March 31, 2017, ceded revenues decreased by ~~$4.8~~$6.2 million, while ceded benefits and expenses ~~decreased~~increased by ~~$18.5~~$1.7 million primarily due to ~~lower claims.~~

The net impact of reinsurance activity for the six months ended June 30, 2016 (Successor Company) was primarily due to ceded premiums in relation to ceded benefits and settlement expenses. Ceded benefits and settlement expenses were primarily driven by ceded claims.

The net impact of reinsurance activity for the period of February 1, 2015 to June 30, 2015 (Successor Company) was primarily due to ceded premiums in relation to ceded benefits and settlement expenses. Ceded benefits and settlement expenses were primarily driven by ceded claims.

The net impact of reinsurance activity for the period of January 1, 2015 to January 31, 2015 (Predecessor Company) was primarily due to ceded premiums in relation to ceded benefits and settlement expenses. Ceded benefits and settlement expenses were primarily driven by cededhigher claims.

~~Table of Contents~~

Annuities

Segment Results of Operations

Segment results were as follows:

Successor Company Predecessor Company

For The Three
Months Ended
June 30, 2016

For The Three
Months Ended
June 30, 2015

For The Six
Months Ended
June 30, 2016
February 1, 2015
to
June 30, 2015 January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
REVENUES

Gross premiums and policy fees $ 36,455
$ 38,272
$ 72,010
$ 63,219
$ 12,473
Reinsurance ceded —
—
—
—
—
Net premiums and policy fees 36,455
38,272
72,010
63,219
12,473
Net investment income 80,142
82,854
159,423
133,785
37,189
Realized gains (losses) - derivatives (20,487 ) (18,932 ) (40,657 ) (31,324 ) (6,156 )
Other income 40,458
41,394
78,711
68,523
12,980
Total operating revenues 136,568
143,588
269,487
234,203
56,486
Realized gains (losses) - investments 871
(1,427 ) 311
(2,032 ) (145 )
Realized gains (losses) - derivatives, net of economic cost (40,196 ) 2,924
(34,141 ) 16,283
(48,457 )
Total revenues 97,243
145,085
235,657
248,454
7,884
BENEFITS AND EXPENSES

Benefits and settlement expenses 47,990
63,435
98,940
96,354
27,485
Amortization of deferred policy acquisition costs and value of business acquired (3,212 ) (3,320 ) (8,298 ) (5,724 ) 5,911
Other operating expenses 34,889
34,284
68,315
56,199
9,926
Operating benefits and expenses 79,667
94,399
158,957
146,829
43,322
Amortization related to benefits and settlement expenses 3,228
(737 ) 2,970
(1,349 ) 3,128
Amortization of DAC/VOBA related to realized gains (losses) - investments (22,875 ) 2,411
(23,975 ) 8,061
(13,617 )
Total benefits and expenses 60,020
96,073
137,952
153,541
32,833
INCOME (LOSS) BEFORE INCOME TAX 37,223
49,012
97,705
94,913
(24,949 )
Less: realized gains (losses) - investments 871
(1,427 ) 311
(2,032 ) (145 )
Less: realized gains (losses) - derivatives, net of economic cost (40,196 ) 2,924
(34,141 ) 16,283
(48,457 )
Less: amortization related to benefits and settlement expenses (3,228 ) 737
(2,970 ) 1,349
(3,128 )
Less: related amortization of DAC/VOBA 22,875
(2,411 ) 23,975
(8,061 ) 13,617
OPERATING INCOME $ 56,901
$ 49,189
$ 110,530
$ 87,374
$ 13,164

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	37,883		$	35,555
Reinsurance ceded	—			—
Net premiums and policy fees	37,883			35,555
Net investment income	78,988			79,281
Realized gains (losses) - derivatives	(21,084		)	(20,170		)
Other income	43,514			38,253
Total operating revenues	139,301			132,919
Realized gains (losses) - investments	275			(560		)
Realized gains (losses) - derivatives, net of economic cost	(30,934		)	6,055
Total revenues	108,642			138,414
BENEFITS AND EXPENSES
Benefits and settlement expenses	50,711			50,950
Amortization of DAC and VOBA	(559		)	(5,086		)
Other operating expenses	36,142			33,426
Operating benefits and expenses	86,294			79,290
Amortization related to benefits and settlement expenses	1,316			(258		)
Amortization of DAC/VOBA related to realized gains (losses) - investments	(11,700		)	(1,100		)
Total benefits and expenses	75,910			77,932
INCOME BEFORE INCOME TAX	32,732			60,482
Less: realized gains (losses) - investments	275			(560		)
Less: realized gains (losses) - derivatives, net of economic cost	(30,934		)	6,055
Less: amortization related to benefits and settlement expenses	(1,316		)	258
Less: related amortization of DAC/VOBA	11,700			1,100
PRE-TAX ADJUSTED OPERATING INCOME	$	53,007		$	53,629

The following tables summarize key data for the Annuities segment:



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Sales⁽¹⁾
Fixed annuity	$	196,617		$	209,305
Variable annuity	113,561			173,514
	$	310,178		$	382,819
Average Account Values
Fixed annuity⁽²⁾	$	8,159,205		$	8,233,706
Variable annuity	12,855,580			11,965,807
	$	21,014,785		$	20,199,513
Interest Spread - Fixed Annuities⁽³⁾
Net investment income yield	3.65		%	3.67		%
Interest credited to policyholders	2.53			2.71
Interest spread	1.12		%	0.96		%

(1) Sales are measured based on the amount of purchase payments received less surrenders occurring within twelve months of the purchase payments.
(2) Includes general account balances held within VA products.
(3) Interest spread on average general account values.

~~(1)~~ ~~Includes general account balances held within VA products.~~

~~(2)~~ ~~Interest spread on average general account values.~~

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Derivatives related to VA contracts:
Interest rate futures - VA	$	3,448		$	37,801
Equity futures - VA	(30,817		)	(3,228		)
Currency futures - VA	(6,256		)	(6,158		)
Equity options - VA	(40,185		)	16,304
Interest rate swaptions - VA	(1,469		)	(2,234		)
Interest rate swaps - VA	(8,957		)	125,593
Embedded derivative - GLWB⁽¹⁾	33,632			(175,851		)
Total derivatives related to VA contracts	(50,604		)	(7,773		)
Derivatives related to FIA contracts:
Embedded derivative - FIA	(12,411		)	(2,162		)
Equity futures - FIA	297			1,382
Volatility futures - FIA	—			—
Equity options - FIA	10,700			(5,562		)
Total derivatives related to FIA contracts	(1,414		)	(6,342		)
VA GLWB economic cost⁽²⁾	21,084			20,170
Realized gains (losses) - derivatives, net of economic cost	$	(30,934	)	$	6,055

(1) Includes impact of nonperformance risk of $(14.5) million and $34.1 million for the three months ended March 31, 2017 and 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.).

~~(1)~~ Includes impact of nonperformance risk of $(0.1) million, $34.0 million, $5.4 million, $(0.5) million, and $11.8 million for the three and six months ended June 30, 2016 (Successor Company), the three months ended June 30, 2015 (Successor Company), for the period of February 1, 2015 to June 30, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.

~~(2)~~ Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.).

Successor Company

As of
June 30, 2016

As of
December 31, 2015
(Dollars In Thousands)
GMDB - Net amount at risk⁽¹⁾
$ 233,658
$ 266,950
GMDB Reserves 33,237
33,141
GMWB and GMAB Reserves 518,877
181,622
Account value subject to GMWB rider 9,306,967
9,306,644
GMWB Benefit Base 10,468,569
10,304,939
GMAB Benefit Base 4,124
4,323
S&P 500® Index 2,099
2,044

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

~~Table of Contents~~



	As of
	March 31, 2017		December 31, 2016
	(Dollars In Thousands)
GMDB - Net amount at risk⁽¹⁾	$	93,732	$	123,091
GMDB Reserves	31,119		31,695
GLWB and GMAB Reserves	81,738		115,370
Account value subject to GLWB rider	9,617,991		9,486,773
GLWB Benefit Base	10,571,749		10,559,907
GMAB Benefit Base	3,465		3,770
S&P 500® Index	2,363		2,239

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

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~March 31, 2016

~~Segment~~Pre-tax adjusted operating income

~~Operating~~Pre-tax adjusted operating income was ~~$56.9~~$53.0 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to ~~$49.2~~$53.6 million for the three months ended ~~June 30, 2015, an increase~~March 31, 2016, a decrease of ~~$7.7~~$0.6 million, or ~~15.7%~~1.2%. This variance was primarily the result of ~~lower credited interest~~an unfavorable change in SPIA mortality and ~~favorable single premium immediate annuities (“SPIA”) mortality~~higher non-deferred expenses, partially offset by ~~lower investment income~~increased interest spreads and ~~lower~~growth in VA fee ~~and other income from~~income. Segment results were positively impacted by $1.6 million of favorable unlocking for the ~~VA line~~three months ended March 31, 2017 as compared to $0.4 million of ~~business.~~

favorable unlocking for the three months ended March 31, 2016.

Operating revenues

Segment operating revenues ~~decreased $7.0~~increased $6.4 million, or ~~4.9%~~4.8%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ~~decreases in~~higher policy fees and other income from the VA line of ~~business and decreases in investment income from the market value adjusted (“MVA”) and single premium deferred annuity (“SPDA”) lines of~~ business. Those ~~decreases~~increases were partially offset by ~~increased investment income~~higher GLWB economic cost in the ~~fixed indexed annuity (“FIA”)~~VA line of business. Average fixed account balances decreased 0.9% and average variable account balances ~~decreased 4.7%~~increased 7.4% for the three months ended ~~June 30, 2016,~~March 31, 2017 as compared to the three months ended ~~June 30, 2015.~~

March 31, 2016.

Benefits and settlement expenses

Benefits and settlement expenses decreased ~~$15.4~~$0.2 million, or ~~24.3%~~0.5%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. This decrease was primarily the result of lower credited interest, lower guaranteed death benefits, and a ~~$9.8 million~~ favorable change in guaranteed death benefit reserves. Partially offsetting these favorable changes was an unfavorable change in SPIA mortality ~~results.~~

results of $5.1 million. Included in benefits and settlement expenses was $0.1 million of favorable unlocking for the three months ended March 31, 2017, as compared to $0.5 million of favorable unlocking for the three months ended March 31, 2016.

Amortization of DAC and VOBA

DAC and VOBA amortization unfavorably changed by ~~$0.1~~$4.5 million, or ~~3.3%~~89.0%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~

March 31, 2016. The unfavorable changes in normal DAC and VOBA amortization were due to higher fee income in the VA line of business partially offset by a favorable change in unlocking. DAC and VOBA unlocking for the three months ended March 31, 2017, was $1.4 million favorable as compared to $0.1 million unfavorable for the three months ended March 31, 2016.

Other operating expenses

Other operating expenses increased ~~$0.6~~$2.7 million, or ~~1.8%~~8.1%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015. Increases in~~March 31, 2016. The increase is due to higher non-deferred acquisition expense, maintenance and overhead ~~expenses were offset by lower non-deferred~~expense, and commission expense.

Sales

Total sales decreased ~~$149.9~~$72.6 million, or ~~31.7%~~19.0%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. Sales of variable annuities decreased ~~$210.0~~$60.0 million, or ~~58.1%~~34.6% for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016, primarily due to disruptions in the broader market driven by the proposed DOL rule changes. Sales of fixed annuities ~~increased~~decreased by ~~$60.1~~$12.7 million, or ~~54.1%~~6.1%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015, driven by an increase in FIA sales.~~

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Segment operating income~~

Operating income was $110.5 million which included $59.8 million of variable annuity operating earnings, $59.5 million of fixed annuity operating earnings, and a $8.7 million loss in other annuity earnings. The fixed annuity results were positively impacted by $11.3 million of favorable SPIA mortality.

~~Operating revenues~~

Segment operating revenues were $269.5 million for the six months ended June 30, 2016. Operating revenue consisted of $159.4 million of net investment income, $72.0 million of policy fees, $78.7 million of other income, and $40.7 million of losses related to GMWB economic cost from the VA line of business.

~~Benefits and settlement expenses~~

Benefits and settlement expenses were $98.9 million for the six months ended June 30, 2016. Included in that amount was $11.3 million of favorable SPIA mortality results and $0.8 million of favorable unlocking.

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization was $8.3 million favorable for the six months ended June 30, 2016 due to negative VOBA assigned to some of the products within the segment. There was $0.2 million of favorable unlocking recorded by the segment during the six months ended June 30,March 31, 2016.

~~Table of Contents~~

~~Other operating expenses~~

Other operating expenses were $68.3 million for the six months ended June 30, 2016. Operating expenses consisted of $17.5 million in acquisition expenses, $26.3 million in maintenance and overhead expenses, and $24.4 million in commission expenses.

~~Sales~~

~~Total sales were $705.6 million for the six months ended June 30, 2016. Fixed annuity sales were $380.5 million and variable annuity sales were $325.1 million.~~

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

~~Segment operating income~~

Operating income was $87.4 million which included $44.4 million of fixed annuity operating earnings and $49.7 million of variable annuity operating earnings. The fixed annuity results were positively impacted by $4.8 million of favorable SPIA mortality.

~~Operating revenues~~

Segment operating revenues were $234.2 million for the period of February 1, 2015 to June 30, 2015. Operating revenue consisted of $113.8 million of net investment income, $63.2 million of policy fees, $68.5 million in other income, and $31.3 million related to GMWB economic cost from the VA line of business.

~~Benefits and settlement expenses~~

Benefits and settlement expenses were $96.4 million for the period of February 1, 2015 to June 30, 2015. Included in that amount was $4.8 million in favorable SPIA mortality results, which was partially offset by an increase in guaranteed benefit reserves of $2.4 million from the VA line of business.

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization was $5.7 million favorable for the period of February 1, 2015 to June 30, 2015 due to the allocation of negative VOBA to some of the products within the segment. There was $0.3 million of favorable unlocking recorded by the segment during the period of February 1, 2015 to June 30, 2015.

~~Other operating expenses~~

Other operating expenses were $56.2 million for the period of February 1, 2015 to June 30, 2015. Operating expenses consisted of $14.1 million in acquisition expenses, $20.2 million in maintenance and overhead expenses, and $21.9 million in commission expenses.

~~Sales~~

~~Total sales were $699.3 million for the period of February 1, 2015 to June 30, 2015. Fixed annuity sales were $153.6 million and variable annuity sales were $545.7 million.~~

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

~~Segment operating income~~

Operating income was $13.2 million. Included in that amount was $2.8 million of unfavorable SPIA mortality results and $2.3 million of unfavorable unlocking, primarily related to the VA line of business.

~~Operating revenues~~

Segment operating revenues were $56.5 million for the period of January 1, 2015 to January 31, 2015. Operating revenue consisted of $37.2 million of net investment income, $12.5 million of policy fees, $13.0 million in other income, and $6.2 million of losses related to GMWB economic cost from the VA line of business.

~~Benefits and settlement expenses~~

Benefits and settlement expenses were $27.5 million for the period of January 1, 2015 to January 31, 2015. Included in that amount was $2.8 million of unfavorable SPIA mortality results and a $2.6 million increase in guaranteed benefit reserves from the VA line of business.

~~Table of Contents~~

~~Amortization of DAC and VOBA~~

DAC and VOBA amortization was $5.9 million for the period of January 1, 2015 to January 31, 2015. The segment recorded unfavorable DAC unlocking of $2.4 million, including $2.2 million of unfavorable unlocking from the VA line of business.

~~Other operating expenses~~

Other operating expenses were $9.9 million for the period of January 1, 2015 to January 31, 2015. Operating expenses consisted of $2.8 million in acquisition expense, $2.8 million in maintenance and overhead expenses, and $4.3 million in commission expenses.

~~Sales~~

~~Total sales were $87.5 million for the period of January 1, 2015 to January 31, 2015. Fixed annuity sales were $28.3 million and variable annuity sales were $59.1 million.~~

~~Table of Contents~~

Stable Value Products

Segment Results of Operations

Segment results were as follows:

~~Table of Contents~~



	For The Three Months Ended March 31,
	2017		2016
	(Dollars In Thousands)
REVENUES
Net investment income	$	39,346	$	23,067
Total operating revenues	39,346		23,067
Realized gains (losses)	1,497		6,835
Total revenues	40,843		29,902
BENEFITS AND EXPENSES
Benefits and settlement expenses	14,448		7,968
Amortization of deferred policy acquisition costs	456		112
Other operating expenses	543		539
Total benefits and expenses	15,447		8,619
INCOME BEFORE INCOME TAX	25,396		21,283
Less: realized gains (losses)	1,497		6,835
PRE-TAX ADJUSTED OPERATING INCOME	$	23,899	$	14,448

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


	Successor Company												Predecessor Company			For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Sales(1)
GIC	$	7,000		$	55,200		$	57,000		$	105,900		$	—		$	55,000		$	50,000
GFA - Direct Institutional	900,000			50,000			900,000			150,000			—			200,000			—
	$	907,000		$	105,200		$	957,000		$	255,900		$	—		$	255,000		$	50,000

Average Account Values	$	2,513,097		$	1,926,711		$	2,320,707		$	1,901,499		$	1,932,722		$	3,590,453		$	2,125,906
Ending Account Values	$	2,838,674		$	1,861,280		$	2,838,674		$	1,861,280		$	1,911,751		$	3,614,225		$	2,098,870

Operating Spread
Net investment income yield	4.15		%	3.23		%	4.26		%	3.30		%	4.28		%	4.39		%	4.37		%
Other income yield	—			0.02			—			0.01			—
Interest credited	1.56			1.19			1.54			1.23			1.40			1.61			1.51
Operating expenses	0.16			0.10			0.14			0.11			0.07			0.11			0.12
Operating spread	2.43		%	1.96		%	2.58		%	1.97		%	2.81		%	2.67		%	2.74		%

Adjusted operating spread⁽¹⁾	1.79		%	1.83		%	1.77		%	1.71		%	2.76		%
Adjusted operating spread⁽²⁾																1.91		%	1.74		%

(1) Sales are measured at the time the purchase payments are received.																(1) Sales are measured at the time the purchase payments are received.
(2) Excludes participating mortgage loan income.																(2) Excludes participating mortgage loan income.

~~(1)~~ ~~Excludes participating mortgage loan income and other income.~~

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~March 31, 2016

~~Segment~~Pre-tax adjusted operating income

~~Operating~~Pre-tax adjusted operating income was ~~$15.2~~$23.9 million and increased ~~$5.8~~$9.5 million, or ~~62.3%~~65.4%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. The increase in adjusted operating earnings primarily resulted from a 68.9% increase in average account values in addition to an increase in participating mortgage ~~income, higher operating spreads, and increased average account values.~~income. Participating mortgage income for the three months ended ~~June 30, 2016~~March 31, 2017, was ~~$3.9~~$6.8 million as compared to ~~$0.5~~$5.3 million for the three months ended ~~June 30, 2015.~~March 31, 2016. The adjusted operating spread, which excludes participating income, ~~decreased~~increased by 417 basis points for the three months ended ~~June 30, 2016~~March 31, 2017, over the prior year, due primarily to an increase in ~~credited interest.~~investment yields.

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Segment operating income~~

Operating income of $29.6 million was primarily due to activity in average account values, participating mortgage income, and operating spread. Participating mortgage income was $9.2 million and the adjusted operating spread, which excludes participating income, was 177 basis point.

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

~~Segment operating income~~

Operating income of $15.5 million was primarily due to activity in average account values, operating spread, and participating mortgage income. Participating mortgage income was $1.7 million and the adjusted operating spread, which excludes participating income, was 171 basis points.

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

~~Segment operating income~~

Operating income of $4.5 million was primarily due to activity in average account values, operating spread, and participating mortgage income. Participating mortgage income was $0.1 million and the adjusted operating spread, which excludes participating income, was 276 basis points.

~~Table of Contents~~

Asset Protection

Segment Results of Operations

Segment results were as follows:


	Successor Company												Predecessor Company			For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	72,861		$	69,759		$	145,170		$	115,576		$	23,127		$	84,691		$	72,309
Reinsurance ceded	(40,961		)	(37,773		)	(81,083		)	(62,231		)	(12,302		)	(45,432		)	(40,122		)
Net premiums and policy fees	31,900			31,986			64,087			53,345			10,825			39,259			32,187
Net investment income	5,471			4,644			10,707			7,656			1,878			6,326			5,236
Other income	30,116			33,050			56,941			52,706			9,250			34,498			26,825
Total operating revenues	67,487			69,680			131,735			113,707			21,953			80,083			64,248
BENEFITS AND EXPENSES
Benefits and settlement expenses	26,357			24,919			52,281			40,710			7,592			31,804			25,924
Amortization of deferred policy acquisition costs and value of business acquired	5,111			6,599			10,560			11,202			1,820
Amortization of DAC and VOBA																4,635			5,448
Other operating expenses	30,557			32,265			58,133			51,851			10,121			38,045			27,576
Total benefits and expenses	62,025			63,783			120,974			103,763			19,533			74,484			58,948
INCOME BEFORE INCOME TAX	5,462			5,897			10,761			9,944			2,420			5,599			5,300
OPERATING INCOME	$	5,462		$	5,897		$	10,761		$	9,944		$	2,420
PRE-TAX ADJUSTED OPERATING INCOME																$	5,599		$	5,300

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

~~(1)~~ ~~Incurred claims as a percentage of earned premiums~~



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Sales⁽¹⁾
Credit insurance	$	4,074		$	5,577
Service contracts	108,248			85,159
GAP	31,347			25,561
	$	143,669		$	116,297
Loss Ratios⁽²⁾
Credit insurance	26.2		%	32.4		%
Service contracts	62.1			75.3
GAP	120.7			105.9

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

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~March 31, 2016

~~Segment~~Pre-tax adjusted operating income

~~Operating~~Pre-tax adjusted operating income was ~~$5.5~~$5.6 million, representing ~~a decrease~~an increase of ~~$0.4~~$0.3 million, or ~~7.4%~~5.6%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. Service contract earnings increased $2.6 million primarily due to favorable loss ratios and the acquisition of US Warranty in the fourth quarter of 2016. Credit insurance earnings increased $0.1 million primarily due to lower losses. Earnings from the GAP product line decreased ~~$0.6~~$2.4 million primarily resulting from higher ~~losses. Credit insurance earnings decreased $0.4 million primarily due to lower underwriting income. Service contract earnings increased $0.6 million primarily due to favorable underwriting income.~~

~~Table of Contents~~

losses, somewhat offset by additional income provided by US Warranty.

Net premiums and policy fees

Net premiums and policy fees ~~decreased $0.1~~increased $7.1 million, or ~~0.3%~~22.0%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015. Service contract~~March 31, 2016. GAP premiums ~~decreased $2.4~~increased $4.3 million primarily due to higher volume from existing distribution channels and the addition of US Warranty business. Service contract premiums increased $3.1 million primarily due to the addition of US Warranty business, somewhat offset by higher ceded ~~premiums.~~premiums in existing distribution channels. Credit insurance premiums decreased $0.3 million as a result of lower sales. ~~GAP premiums increased $2.6 million primarily due to higher volume.~~

Other income

Other income ~~decreased $2.9~~increased $7.7 million, or ~~8.9%~~28.6%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015~~March 31, 2016, primarily due to ~~lower sales volume~~the addition of US Warranty business in the service contract ~~line.~~

and GAP lines.

Benefits and settlement expenses

Benefits and settlement expenses increased ~~$1.4~~$5.9 million, or ~~5.8%~~22.7%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. GAP claims increased ~~$4.6~~$6.7 million due to a higher loss ~~ratio~~ratios and ~~increased volume. The increase was partially~~the acquisition of US Warranty. Service contract claims decreased $0.5 million due to lower loss ratios, somewhat offset by ~~a decrease in service contract~~the addition of claims ~~of $3.2~~from the US Warranty line. Credit insurance claims decreased $0.3 million due primarily to lower loss ratios and lower volume. ~~Credit insurance claims remained consistent with the prior year.~~

Amortization of DAC and VOBA and Other operating expenses

Amortization of DAC and VOBA was ~~$1.5~~$0.8 million, or ~~22.5%~~14.9%, lower for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to decreased amortization of in-force VOBA in the GAP product line ~~due to runoff of in-force VOBA~~ and lower volume in the credit product line. Other operating expenses were ~~$1.7~~$10.5 million, or ~~5.3%~~38.0%, ~~lower~~higher for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ~~lower sales volume in~~ the ~~service contract line.~~

acquisition of US Warranty.

Sales

Total segment sales ~~decreased $9.7~~increased $27.4 million, or ~~6.9%~~23.5%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. Service contract sales ~~decreased $11.2 million.~~increased $23.1 million due to the additional volume provided by US Warranty. GAP sales increased $5.8 million due to additional sales in existing distribution channels and US Warranty. Credit insurance sales decreased ~~$1.4~~$1.5 million due to decreasing demand for the product. ~~The decreases were partially offset by an increase in GAP sales of $2.8 million.~~

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Segment operating income~~

~~Operating income was $10.8 million which consisted of service contract earnings of $8.0 million, GAP product earnings of $1.6 million, and credit insurance earnings of $1.2 million.~~

~~Net premiums and policy fees~~

~~Net premiums and policy fees were $64.1 million which consisted of service contract premiums of $36.8 million, GAP premiums of $20.8 million, and credit insurance premiums of $6.5 million.~~

~~Other income~~

~~Other income activity consisted of $47.0 million from the service contract line and $9.9 million from the GAP product line.~~

~~Benefits and settlement expenses~~

~~Benefits and settlement expenses activity was $28.4 million in service contract claims, $21.7 million in GAP claims and $2.1 million in credit insurance claims.~~

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

Amortization of DAC and VOBA consisted of $6.5 million in the credit insurance line, $3.6 million in the GAP line, and $0.4 million in the service contract line, primarily resulting from amortization of VOBA activity. Other operating expenses were $58.1 million including activity in all product lines.

~~Sales~~

~~Total segment sales consisted of $184.1 million in the service contract line, $52.1 million in the GAP product line, and credit insurance sales of $11.5 million.~~

~~Table of Contents~~

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

~~Segment operating income~~

~~Operating income was $9.9 million which consisted of service contract earnings of $6.0 million, GAP product earnings of $2.6 million, and credit insurance earnings of $1.3 million.~~

~~Net premiums and policy fees~~

~~Net premiums and policy fees were $53.3 million which consisted of service contract premiums of $34.3 million, GAP premiums of $13.1 million, and credit insurance premiums of $5.9 million.~~

~~Other income~~

~~Other income activity consisted of $44.6 million from the service contract line and $8.1 million from the GAP product line.~~

~~Benefits and settlement expenses~~

~~Benefits and settlement expenses activity was $28.6 million in service contract claims, $10.1 million in GAP claims and $2.0 million in credit insurance claims.~~

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

Amortization of DAC and VOBA consisted of $6.2 million in the credit insurance line, $4.8 million in the GAP line, and $0.2 million in the service contract line, primarily resulting from amortization of VOBA activity. Other operating expenses were $51.9 million including activity in all product lines.

~~Sales~~

~~Total segment sales consisted of $172.0 million in the service contract line, $38.9 million in the GAP product line, and credit insurance sales of $11.2 million.~~

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

~~Segment operating income~~

~~Operating income was $2.4 million which consisted of $1.3 million in service contract earnings, $0.9 million in GAP product earnings, and credit insurance earnings of $0.2 million.~~

~~Net premiums and policy fees~~

~~Net premiums and policy fees consisted of service contract premiums of $7.0 million, GAP premiums of $2.6 million, and $1.2 million of credit insurance premiums.~~

~~Other income~~

~~Other income consisted of $7.9 million from the service contract line and $1.4 million from the GAP product line.~~

~~Benefits and settlement expenses~~

~~Benefits and settlement expenses was primarily due to service contract claims of $5.8 million, GAP claims of $1.5 million, and credit insurance claims of $0.3 million.~~

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

Amortization of DAC and VOBA consisted of $1.1 million in the credit insurance line, $0.4 million in the GAP line, and $0.3 million in the service contract line. Other operating expenses were $10.1 million including activity in all product lines.

~~Sales~~

~~Total segment sales consisted of $28.8 million in the service contract line, $6.3 million in the GAP product line and credit insurance sales of $2.1 million.~~

Reinsurance

The majority of the Asset Protection segment’s reinsurance activity relates to the cession of single premium credit life and credit accident and health insurance, vehicle service contracts, and guaranteed asset protection insurance to producer affiliated reinsurance companies (“PARCs”). These arrangements are coinsurance contracts ceding the business on a first dollar quota share basis at 100% to limit our exposure and allow the PARCs to share in the underwriting income of the product. Reinsurance contracts

~~Table of Contents~~

do not relieve us from our obligations to our policyholders. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015 (Successor Company).~~2016.

Impact of Reinsurance

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

Asset Protection Segment

Line Item Impact of Reinsurance


	Successor Company												Predecessor Company			For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(40,961	)	$	(37,773	)	$	(81,083	)	$	(62,231	)	$	(12,302	)	$	(45,432	)	$	(40,122	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(18,541		)	(16,655		)	(37,771		)	(26,936		)	(4,659		)	(18,369		)	(19,230		)
Amortization of deferred policy acquisition costs and value of business acquired	(422		)	(84		)	(807		)	(92		)	(520		)
Amortization of DAC and VOBA																(676		)	(385		)
Other operating expenses	(1,245		)	(1,145		)	(2,332		)	(1,885		)	(531		)	(1,209		)	(1,087		)
Total benefits and expenses	(20,208		)	(17,884		)	(40,910		)	(28,913		)	(5,710		)	(20,254		)	(20,702		)
NET IMPACT OF REINSURANCE ⁽¹⁾	$	(20,753	)	$	(19,889	)	$	(40,173	)	$	(33,318	)	$	(6,592	)	$	(25,178	)	$	(19,420	)

(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.																(1) Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.

~~(1)~~ ~~Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.~~

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~

March 31, 2016

Reinsurance premiums ceded increased ~~$3.2~~$5.3 million, or ~~8.4%~~13.2%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. The increase was primarily due to an increase in ceded service contract and GAP premiums.

Benefits and settlement expenses ceded ~~increased $1.9~~decreased $0.9 million, or ~~11.3%~~4.5%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. The ~~increase~~decrease was primarily due to ~~higher~~lower ceded losses in the service contract product line, mostly offset by an increase in ceded losses in the GAP product line.

Amortization of DAC and VOBA ceded increased $0.3 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, as the result of ceded activity in all product lines. Other operating expenses ceded increased $0.1 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ceded activity in the service contract line.

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 Six Months Ended June 30, 2016 (Successor Company)~~

Reinsurance premiums ceded of $81.1 million consisted of ceded premiums in the service contract line of $63.6 million, ceded premiums in the GAP product line of $9.6 million, and ceded premiums in the credit insurance line of $7.9 million.

~~Benefits and settlement expenses ceded consisted of $29.6 million in service contract ceded claims, $6.7 million in GAP ceded claims, and $1.5 million in credit insurance ceded claims.~~

Amortization of DAC and VOBA ceded of $0.8 million was mainly due to ceded activity in the service contract and GAP product lines. Other operating expenses ceded of $2.3 million was mainly due to ceded activity in the credit insurance product line.

~~Table of Contents~~

~~income impact to us and the assuming companies has not been quantified as it is not reflected in our consolidated condensed financial statements.~~

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

Reinsurance premiums ceded of $62.2 million consisted of ceded premiums in the service contract line of $47.9 million, ceded premiums in the GAP product line of $7.1 million, and ceded premiums in the credit insurance line of $7.2 million.

~~Benefits and settlement expenses ceded consisted of $22.2 million in service contract ceded claims, $3.3 million in GAP ceded claims, and $1.4 million in credit insurance ceded claims.~~

~~Other operating expenses ceded of $1.9 million was mainly due to ceded activity in the credit insurance and GAP product lines.~~

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

Reinsurance premiums ceded of $12.3 million consisted of ceded premiums in the service contract line of $9.4 million, ceded premiums in the GAP product line of $1.4 million and ceded premiums in the credit insurance line of $1.5 million.

~~Benefits and settlement expenses ceded consisted of $4.0 million in service contract ceded claims, $0.4 million in GAP ceded claims, and $0.3 million in credit insurance ceded claims.~~

Amortization of DAC and VOBA ceded consisted of $0.3 million in the service contract line and $0.2 million in the credit insurance line. Other operating expenses ceded of $0.5 million was mainly due to ceded activity in the credit insurance product line.

~~Table of Contents~~

Corporate and Other

Segment Results of Operations

Segment results were as follows:


	Successor Company												Predecessor Company			For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	3,532		$	3,770		$	7,206		$	6,434		$	1,343		$	3,427		$	3,674
Reinsurance ceded	(82		)	(17		)	(141		)	(17		)	—			(59		)	(59		)
Net premiums and policy fees	3,450			3,753			7,065			6,417			1,343			3,368			3,615
Net investment income	56,272			37,051			107,896			69,660			10,677			53,241			51,624
Other income	328			352			7,888			558			141			2,064			7,560
Total operating revenues	60,050			41,156			122,849			76,635			12,161			58,673			62,799
Realized gains (losses) - investments	(2,549		)	2,593			(4,278		)	663			4,919			(4,337		)	(1,729		)
Realized gains (losses) - derivatives	1,193			484			583			559			455			(1,366		)	(610		)
Total revenues	58,694			44,233			119,154			77,857			17,535			52,970			60,460
BENEFITS AND EXPENSES
Benefits and settlement expenses	4,752			3,378			8,776			6,265			1,722			3,654			4,024
Amortization of deferred policy acquisition costs and value of business acquired	—			16			—			26			87
Amortization of DAC and VOBA																—			1
Other operating expenses	72,035			47,643			144,530			78,340			20,496			74,747			72,495
Total benefits and expenses	76,787			51,037			153,306			84,631			22,305			78,401			76,520
INCOME (LOSS) BEFORE INCOME TAX	(18,093		)	(6,804		)	(34,152		)	(6,774		)	(4,770		)	(25,431		)	(16,060		)
Less: realized gains (losses) - investments	(2,549		)	2,593			(4,278		)	663			4,919			(4,337		)	(1,729		)
Less: realized gains (losses) - derivatives	1,193			484			583			559			455			(1,366		)	(610		)
OPERATING INCOME (LOSS)	$	(16,737	)	$	(9,881	)	$	(30,457	)	$	(7,996	)	$	(10,144	)
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)																$	(19,728	)	$	(13,721	)

For The Three Months Ended ~~June 30, 2016~~March 31, 2017, as compared to The Three Months Ended ~~June 30, 2015 (Successor Company)~~March 31, 2016

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

~~Corporate and Other segment~~Pre-tax adjusted operating loss was ~~$16.7~~$19.7 million for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to an adjusted operating loss of ~~$9.9~~$13.7 million for the three months ended ~~June 30, 2015.~~March 31, 2016. The decrease was primarily due to other income as a ~~$4.4~~result of a $5.5 million ~~decrease~~change in ~~core net investment income.~~

the gains recognized on extinguishment of debt.

Operating revenues

Net investment income for the segment increased ~~$19.2~~$1.6 million, or ~~51.9%~~3.1%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015.~~March 31, 2016. The increase in net investment income was primarily due to $23.6 million of income related to additional held to maturity securities issued by affiliates of the Company which are considered variable interest entities (“VIE’s”). These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company. Interest expense related to the non-recourse funding obligations is recognizedincreases in ~~an equal~~average asset balances and ~~offsetting amount to the~~ investment ~~income. Offsetting this increase was a $4.4 million decrease in core net investment income.~~

~~Table of Contents~~

yields.

Total benefits and expenses

Total benefits and expenses increased ~~$25.8~~$1.9 million or ~~50.5%~~2.5%, for the three months ended ~~June 30, 2016,~~March 31, 2017, as compared to the three months ended ~~June 30, 2015,~~March 31, 2016, primarily due to ~~$23.6 million of interest expense related to the Golden Gate Captive non-recourse funding obligations.~~

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Segment operating income (loss)~~

~~The segment’s $30.5 million operating loss was primarily due to $144.5 million of other operating expense which is primarily interest expense and~~increases in corporate overhead expenses. These expenses were partially offset by $107.9 million of investment income which represents income on assets supporting our equity capital and held-to-maturity notes, as well as a $7.4 million gain on the extinguishment of debt.

~~Operating revenues~~

Operating revenues of $122.8 million were primarily due to $107.9 million of investment income which represents income on assets supporting our equity capital as well as a $7.4 million gain on the extinguishment of debt.

~~Total benefits and expenses~~

~~Total benefits and expenses of $153.3 million were primarily due to $144.5 million of other operating expenses which included corporate overhead expenses and $89.5 million of interest expense.~~

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

~~Segment operating income (loss)~~

The segment’s $8.0 million operating loss was primarily due to $78.3 million of other operating expense which is primarily interest expense and corporate overhead expenses. These expenses were partially offset by $69.7 million of investment income which represents income on assets supporting our equity capital.

~~Operating revenues~~

~~Operating revenues of $76.6 million were primarily due to $69.7 million of investment income which represents income on assets supporting our equity capital.~~

~~Total benefits and expenses~~

~~Total benefits and expenses of $84.6 million were primarily due to $78.3 million of other operating expenses which included corporate overhead expenses and $36.4 million of interest expense.~~

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

~~Segment operating income (loss)~~

The segment’s $10.1 million operating loss was primarily due to $20.5 million of other operating expense which is primarily interest expense and corporate overhead expenses. These expenses were partially offset by $10.7 million of investment income which represents income on assets supporting our equity capital.

~~Operating revenues~~

~~Operating revenues of $12.2 million were primarily due to $10.7 million of investment income which represents income on assets supporting our equity capital.~~

~~Total benefits and expenses~~

Total benefits and expenses of $22.3 million were primarily due to $20.5 million of other operating expenses which included $11.1 million of interest expense, corporate overhead expenses, and $2.8 million of charitable contributions.

~~Table of Contents~~

CONSOLIDATED INVESTMENTS

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, our investment portfolio was approximately ~~$51.0~~$51.3 billion. The types of assets in which we may invest are influenced by various state insurance laws which prescribe qualified investment assets. Within the parameters of these laws, we invest in assets giving consideration to such factors as liquidity and capital needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure.

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

Successor Company

As of
June 30, 2016

As of
December 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Publicly issued bonds (amortized cost: 2016 - $30,337,732; 2015 - $29,898,554) $ 29,810,477
58.4 % $ 27,444,771
60.7 %
Privately issued bonds (amortized cost: 2016 - $11,829,924; 2015 - $9,083,251) 11,752,822
23.0
8,654,911
19.1
Preferred stock (amortized cost: 2016 - $67,941; 2015 - $68,558) 68,006
0.1
66,882
0.1
Fixed maturities 41,631,305
81.5 % 36,166,564
79.9 %
Equity securities (cost: 2016 - $718,409; 2015 - $732,485) 739,709
1.5
739,263
1.6
Mortgage loans 5,748,675
11.3
5,662,812
12.6
Investment real estate 7,028
—
11,118
—
Policy loans 1,670,218
3.3
1,699,508
3.8
Other long-term investments 919,809
1.8
622,567
1.4
Short-term investments 286,201
0.6
268,718
0.7
Total investments $ 51,002,945
100.0 % $ 45,170,550
100.0 %

Included in the preceding table are $2.8 billion and $2.7 billion of fixed maturities and $38.2 million and $61.7 million of short-term investments classified as trading securities as of June 30, 2016 (Successor Company) and December 31, 2015 (Successor Company), respectively. All of the fixed maturities in the trading portfolio are invested assets that are held pursuant to modified coinsurance (“Modco”) arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers. Also included above are $2.8 billion and $593.3 million of securities classified as held-to-maturity as of June 30, 2016 (Successor Company) and December 31, 2015 (Successor Company), respectively.

~~Fixed Maturity Investments~~

As of June 30, 2016 (Successor Company), our fixed maturity investment holdings were approximately $41.6 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:

Successor Company
As of As of
Rating June 30, 2016 December 31, 2015
(Dollars In Thousands)
AAA $ 5,348,294
12.8 % $ 5,223,656
14.4 %
AA 3,299,794
7.9
2,865,729
7.9
A 13,131,565
31.7
11,600,130
32.1
BBB 15,004,049
36.0
14,104,113
39.0
Below investment grade 2,068,323
4.9
1,779,622
4.9
Not rated⁽¹⁾
2,779,280
6.7
593,314
1.7
$ 41,631,305
100.0 % $ 36,166,564
100.0 %

(1) Our "not rated" securities are $2.8 billion or 6.7% 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 6, 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.

~~Table of Contents~~

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.

We do not have material exposure to financial guarantee insurance companies with respect to our investment portfolio.

Within our fixed maturity investments, we maintain portfolios classified as “available-for-sale”, “trading”, and “held-to-maturity”. We purchase our available-for-sale investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, we may sell any of our available-for-sale and trading investments to maintain proper matching of assets and liabilities. Accordingly, we classified $35.9 billion, or 86.9%, of our fixed maturities as “available-for-sale” as of March 31, 2017. These securities are carried at fair value on our consolidated condensed balance sheets. Changes in fair value for our available-for-sale portfolio, net of tax and the related impact on certain insurance assets and liabilities are recorded directly to shareowner’s equity. Declines in fair value that are other-than-temporary are recorded as realized losses in the consolidated condensed statements of income, net of any applicable non-credit component of the loss, which is recorded as an adjustment to other comprehensive income (loss).

~~The distribution of our fixed maturity investments by type is as follows:~~

Successor Company
As of As of
Type June 30, 2016 December 31, 2015
(Dollars In Thousands)
Corporate securities $ 29,823,476
$ 27,184,287
Residential mortgage-backed securities 2,213,678
2,051,931
Commercial mortgage-backed securities 1,753,936
1,433,630
Other asset-backed securities 1,395,682
1,072,474
U.S. government-related securities 1,418,303
1,770,524
Other government-related securities 78,941
76,567
States, municipals, and political subdivisions 2,100,003
1,916,954
Preferred stock 68,006
66,883
Securities issued by affiliates 2,779,280
593,314
Total fixed income portfolio $ 41,631,305
$ 36,166,564

~~100~~

~~Table of Contents~~

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

Successor Company

As of
June 30, 2016

% Fair
Value

As of
December 31, 2015

% Fair
Value
(Dollars In Thousands) (Dollars In Thousands)
Banking $ 3,769,227
9.1 % $ 3,373,418
9.3 %
Other finance 423,132
1.0
482,676
1.3
Electric utility 4,053,744
9.7
3,709,684
10.2
Energy and natural gas 4,422,152
10.6
3,948,469
10.9
Insurance 3,157,793
7.6
2,929,190
8.1
Communications 1,422,292
3.4
1,338,544
3.7
Basic industrial 1,623,631
3.9
1,483,634
4.1
Consumer noncyclical 3,704,838
8.9
3,139,178
8.7
Consumer cyclical 1,724,559
4.1
1,717,786
4.7
Finance companies 120,672
0.3
118,214
0.3
Capital goods 1,488,393
3.6
1,422,675
3.9
Transportation 1,044,424
2.5
972,341
2.7
Other industrial 373,399
0.9
315,961
0.9
Brokerage 582,243
1.4
550,787
1.5
Technology 1,556,966
3.7
1,326,057
3.7
Real estate 173,428
0.4
189,955
0.5
Other utility 250,589
0.6
232,601
0.6
Commercial mortgage-backed securities 1,753,936
4.2
1,433,630
4.0
Other asset-backed securities 1,395,682
3.4
1,072,474
3.0
Residential mortgage-backed non-agency securities 1,274,452
3.1
1,102,310
3.0
Residential mortgage-backed agency securities 939,226
2.3
949,621
2.6
U.S. government-related securities 1,418,303
3.4
1,770,524
4.9
Other government-related securities 78,941
0.2
76,567
0.2
State, municipals, and political divisions 2,100,003
5.0
1,916,954
5.3
Securities issued by affiliates 2,779,280
6.7
593,314
1.9
Total $ 41,631,305
100.0 % $ 36,166,564
100.0 %

Within our fixed maturity investments, we maintain portfolios classified as “available-for-sale”, “trading”, and “held-to-maturity”. We purchase our available-for-sale investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, we may sell any of our available-for-sale and trading investments to maintain proper matching of assets and liabilities. Accordingly, we classified $36.1 billion, or 86.6%, of our fixed maturities as “available-for-sale” as of June 30, 2016 (Successor Company). TheseTrading 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 $2.6 billion, or 6.4%, of our ~~consolidated condensed balance sheets.~~

fixed maturities and $51.2 million of short-term investments as of March 31, 2017. 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 $2.8 billion, or 6.7%, of our fixed maturities as “held-to-maturity” as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. These securities are carried at amortized cost on our consolidated condensed balance sheets.

~~101~~

~~Table of Contents~~

Trading securities are carried at fair value and changes in fair value are recorded on the income statement as they occur. Our trading portfolio accounted for $2.8 billion, or 6.7%, of our fixed maturities and $38.2 million of short-term investments as of June 30, 2016 (Successor Company). Changes in fair value on the Modco trading portfolio, including gains and losses from sales, are passed to the reinsurers through the contractual terms of the reinsurance arrangements. Partially offsetting these amounts are corresponding changes in the fair value of the embedded derivative associated with the underlying reinsurance arrangement. The total Modco trading portfolio fixed maturities by rating is as follows:

Successor Company
As of As of
Rating June 30, 2016 December 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
AAA $ 387,609
$ 542,080
AA 336,922
309,852
A 939,001
752,419
BBB 855,219
771,501
Below investment grade 270,840
288,197
Total Modco trading fixed maturities $ 2,789,591
$ 2,664,049

A portion of our bond portfolio is invested in residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). ABS are securities that are backed by a pool of assets. These holdings as of June 30, 2016 (Successor Company), were approximately $5.4 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.

~~102~~

~~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 June 30, 2016 (Successor Company) and December 31, 2015 (Successor Company).

As of June 30, 2016 (Successor Company)

Prime⁽¹⁾

Non-Prime⁽¹⁾
Commercial Other asset-backed Total
Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized
Value Cost Value Cost Value Cost Value Cost Value Cost
(Dollars In Millions)
Rating $
AAA $ 1,799.1
$ 1,750.7
$ —
$ —
$ 1,125.7
$ 1,107.9
$ 716.1
$ 745.6
$ 3,640.9
$ 3,604.2
AA 1.2
1.2
—
—
385.8
379.6
161.6
160.9
548.6
541.7
A 3.1
3.2
—
—
230.4
227.8
390.5
392.6
624.0
623.6
BBB 2.4
2.4
2.4
2.5
12.0
12.1
25.4
25.5
42.2
42.5
Below 132.7
134.5
272.8
278.4
—
—
102.1
101.9
507.6
514.8
$ 1,938.5
$ 1,892.0
$ 275.2
$ 280.9
$ 1,753.9
$ 1,727.4
$ 1,395.7
$ 1,426.5
$ 5,363.3
$ 5,326.8

Rating %
AAA 92.8 % 92.5 % — % — % 64.2 % 64.1 % 51.3 % 52.3 % 67.9 % 67.7 %
AA 0.1
0.1
—
—
22.0
22.0
11.6
11.3
10.2
10.2
A 0.2
0.2
—
—
13.1
13.2
28.0
27.5
11.6
11.7
BBB 0.1
0.1
0.9
0.9
0.7
0.7
1.8
1.8
0.8
0.8
Below 6.8
7.1
99.1
99.1
—
—
7.3
7.1
9.5
9.6
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 $ 945.2
$ 929.8
$ 275.2
$ 280.9
$ 867.4
$ 859.2
$ 902.7
$ 934.5
$ 2,990.5
$ 3,004.4
2013 151.9
148.2
—
—
238.4
236.1
116.4
117.0
506.7
501.3
2014 175.9
172.2
—
—
243.2
242.6
187.1
187.4
606.2
602.2
2015 559.9
540.0
—
—
221.2
211.2
64.4
63.9
845.5
815.1
2016 105.6
101.8
—
—
183.7
178.3
125.1
123.7
414.4
403.8
Total $ 1,938.5
$ 1,892.0
$ 275.2
$ 280.9
$ 1,753.9
$ 1,727.4
$ 1,395.7
$ 1,426.5
$ 5,363.3
$ 5,326.8

(1)Included in Residential Mortgage-Backed securities.

~~103~~

~~Table of Contents~~

As of December 31, 2015 (Successor Company)

Prime⁽¹⁾

Non-Prime⁽¹⁾
Commercial Other asset-backed Total
Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized
Value Cost Value Cost Value Cost Value Cost Value Cost
(Dollars In Millions)
Rating $
AAA $ 1,585.4
$ 1,589.2
$ —
$ —
$ 1,002.4
$ 1,033.9
$ 595.2
$ 608.3
$ 3,183.0
$ 3,231.4
AA 1.4
1.4
—
—
253.5
262.0
197.1
194.5
452.0
457.9
A 3.5
3.5
—
—
164.5
165.9
153.8
159.2
321.8
328.6
BBB 2.8
2.8
2.8
2.8
13.2
13.2
13.5
13.5
32.3
32.3
Below 152.9
153.1
303.1
306.9
—
—
112.9
113.0
568.9
573.0
$ 1,746.0
$ 1,750.0
$ 305.9
$ 309.7
$ 1,433.6
$ 1,475.0
$ 1,072.5
$ 1,088.5
$ 4,558.0
$ 4,623.2

Rating %
AAA 90.8 % 90.8 % — % — % 69.9 % 70.1 % 55.5 % 55.9 % 69.8 % 69.9 %
AA 0.1
0.1
—
—
17.7
17.8
18.4
17.9
9.9
9.9
A 0.2
0.2
—
—
11.5
11.2
14.3
14.6
7.1
7.1
BBB 0.2
0.2
0.9
0.9
0.9
0.9
1.3
1.2
0.7
0.7
Below 8.7
8.7
99.1
99.1
—
—
10.5
10.4
12.5
12.4
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Estimated Fair Value of Security by Year of Security Origination
2011 and prior $ 894.3
$ 896.2
$ 305.9
$ 309.7
$ 480.1
$ 491.0
$ 826.4
$ 838.0
$ 2,506.7
$ 2,534.9
2012 74.2
75.2
—
—
369.5
381.1
136.6
138.8
580.3
595.1
2013 157.2
160.3
—
—
198.2
203.8
48.9
49.9
404.3
414.0
2014 161.6
160.6
—
—
216.6
228.3
43.1
44.3
421.3
433.2
2015 458.7
457.7
—
—
169.2
170.8
17.5
17.5
645.4
646.0
Total $ 1,746.0
$ 1,750.0
$ 305.9
$ 309.7
$ 1,433.6
$ 1,475.0
$ 1,072.5
$ 1,088.5
$ 4,558.0
$ 4,623.2

(1) Included in Residential Mortgage-Backed securities

The majority of our RMBS holdings as of June 30, 2016 (Successor Company) were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 4.89 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of June 30, 2016 (Successor Company):



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

~~Prime~~		~~5.13~~
~~Alt-A~~		~~3.72~~
~~Sub-prime~~		~~3.26~~

Our investments classified as available-for-sale and trading in debt and equity securities are reported at fair value. Our investments classified as held-to-maturity are reported at amortized cost. As of June 30, 2016 (Successor Company), our fixed maturity investments (bonds and redeemable preferred stocks) had a fair value of $41.6 billion, which was 1.4% below amortized cost of $42.2 billion. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

Fair values for private, non-traded securities are determined as follows: 1) we obtain estimates from independent pricing services and 2) we estimate fair value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics. We analyze the independent pricing services valuation methodologies and related inputs, including an assessment of the observability of market inputs. Upon obtaining this information related to fair value, management makes a determination as to the appropriate valuation amount. For more information about the fair values of our investments please refer to Note 5, Fair Value of Financial Instruments, to the financial statements.

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



	As of
	March 31, 2017				December 31, 2016
	(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2017 - $30,457,876; 2016 - $30,523,193)	$	29,359,412	57.3	%	$	29,184,566	57.6	%
Privately issued bonds (amortized cost: 2017 - $12,082,146; 2016 - $11,981,360)	11,881,104		23.2		11,679,121		23.0
Preferred stock (amortized cost: 2017 - $98,142; 2016 - $98,348)	93,054		0.3		89,827		0.3
Fixed maturities	41,333,570		80.8	%	40,953,514		80.9	%
Equity securities (cost: 2017 - $783,751; 2016 - $768,423)	792,231		1.5		754,489		1.5
Mortgage loans	6,311,822		12.3		6,132,125		12.1
Investment real estate	7,149		—		8,060		—
Policy loans	1,635,511		3.2		1,650,240		3.3
Other long-term investments	879,418		1.7		865,304		1.7
Short-term investments	299,167		0.5		332,431		0.5
Total investments	$	51,258,868	100.0	%	$	50,696,163	100.0	%

Included in the preceding table are $2.6 billion and $2.6 billion of fixed maturities and $51.2 million and $52.6 million of short-term investments classified as trading securities as of March 31, 2017 and December 31, 2016, respectively. All of the fixed maturities in the trading portfolio are invested assets that are held pursuant to Modco arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers. Also included above are $2.8 billion and $2.8 billion of securities classified as held-to-maturity as of March 31, 2017 and December 31, 2016, respectively.

Fixed Maturity Investments

As of March 31, 2017, our fixed maturity investment holdings were approximately $41.3 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:



	As of
Rating	March 31, 2017				December 31, 2016
	(Dollars In Thousands)
AAA	$	5,395,717	13.1	%	$	5,241,698	12.8	%
AA	3,534,651		8.6		3,500,090		8.5
A	12,820,894		31.0		12,748,585		31.1
BBB	14,593,186		35.1		14,471,125		35.4
Below investment grade	2,230,985		5.5		2,221,839		5.4
Not rated⁽¹⁾	2,758,137		6.7		2,770,177		6.8
	$	41,333,570	100.0	%	$	40,953,514	100.0	%

(1) Our "not rated" securities are $2.8 billion or 6.7% 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.

The distribution of our fixed maturity investments by type is as follows:



	As of
Type	March 31, 2017		December 31, 2016
	(Dollars In Thousands)
Corporate securities	$	29,306,076	$	28,996,154
Residential mortgage-backed securities	2,225,971		2,153,510
Commercial mortgage-backed securities	1,969,423		1,961,153
Other asset-backed securities	1,363,750		1,411,617
U.S. government-related securities	1,323,770		1,295,120
Other government-related securities	308,570		302,933
States, municipals, and political subdivisions	1,984,819		1,973,022
Preferred stock	93,054		89,828
Securities issued by affiliates	2,758,137		2,770,177
Total fixed income portfolio	$	41,333,570	$	40,953,514

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



	As of March 31, 2017		% Fair Value		As of December 31, 2016		% Fair Value
	(Dollars In Thousands)
Banking	$	3,949,003	9.6	%	$	3,857,746	9.4	%
Other finance	83,222		0.2		83,895		0.2
Electric utility	3,928,224		9.5		3,929,300		9.6
Energy	3,943,213		9.5		3,897,950		9.5
Natural gas	594,020		1.4		603,149		1.5
Insurance	3,254,324		7.9		3,197,348		7.8
Communications	1,633,308		4.0		1,654,630		4.0
Basic industrial	1,541,790		3.7		1,536,879		3.8
Consumer noncyclical	3,537,923		8.6		3,483,948		8.5
Consumer cyclical	1,028,286		2.5		1,050,529		2.6
Finance companies	143,790		0.3		139,050		0.3
Capital goods	1,831,523		4.4		1,779,590		4.3
Transportation	1,146,361		2.8		1,144,450		2.8
Other industrial	199,488		0.5		200,605		0.5
Brokerage	786,859		1.9		769,663		1.9
Technology	1,617,705		3.9		1,551,826		3.8
Real estate	96,899		0.2		122,058		0.3
Other utility	83,192		0.2		83,366		0.2
Commercial mortgage-backed securities	1,969,423		4.8		1,961,153		4.8
Other asset-backed securities	1,363,750		3.3		1,411,617		3.4
Residential mortgage-backed non-agency securities	1,521,001		3.7		1,423,735		3.5
Residential mortgage-backed agency securities	704,970		1.7		729,775		1.8
U.S. government-related securities	1,323,770		3.2		1,295,120		3.2
Other government-related securities	308,570		0.7		302,933		0.7
State, municipals, and political divisions	1,984,819		4.8		1,973,022		4.8
Securities issued by affiliates	2,758,137		6.7		2,770,177		6.8
Total	$	41,333,570	100.0	%	$	40,953,514	100.0	%

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



	As of
Rating	March 31, 2017		December 31, 2016
	(Dollars In Thousands)
AAA	$	384,574	$	341,364
AA	288,454		301,258
A	821,396		849,286
BBB	889,734		884,850
Below investment grade	259,764		263,102
Total Modco trading fixed maturities	$	2,643,922	$	2,639,860

A portion of our bond portfolio is invested in residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). ABS are securities that are backed by a pool of assets. These holdings as of March 31, 2017, were approximately $5.6 billion. Mortgage-backed securities (“MBS”) are constructed from pools of mortgages and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Excluding limitations on access to lending and other extraordinary economic conditions, prepayments of principal on the underlying loans can be expected to accelerate with decreases in market interest rates and diminish with increases in interest rates.



	As of March 31, 2017
	Prime⁽¹⁾						Non-Prime⁽¹⁾						Commercial						Other asset-backed						Total
	Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized			Fair			Amortized
	Value			Cost			Value			Cost			Value			Cost			Value			Cost			Value			Cost
	(Dollars In Millions)
Rating $
AAA	$	1,859.4		$	1,875.6		$	—		$	—		$	1,179.5		$	1,197.3		$	711.4		$	714.1		$	3,750.3		$	3,787.0
AA	1.9			1.9			—			—			517.1			532.3			130.5			122.4			649.5			656.6
A	0.8			0.8			0.4			0.4			265.4			268.7			416.4			417.4			683.0			687.3
BBB	2.3			2.3			1.8			1.8			7.3			7.3			19.7			19.6			31.1			31.0
Below	108.6			108.7			250.8			252.6			—			—			85.8			85.2			445.2			446.5
	$	1,973.0		$	1,989.3		$	253.0		$	254.8		$	1,969.3		$	2,005.6		$	1,363.8		$	1,358.7		$	5,559.1		$	5,608.4

Rating %
AAA	94.2		%	94.3		%	—		%	—		%	59.9		%	59.7		%	52.2		%	52.6		%	67.5		%	67.5		%
AA	0.1			0.1			—			—			26.3			26.5			9.6			9.0			11.7			11.7
A	—			—			0.2			0.2			13.4			13.4			30.5			30.7			12.3			12.3
BBB	0.1			0.1			0.7			0.7			0.4			0.4			1.4			1.4			0.6			0.6
Below	5.6			5.5			99.1			99.1			—			—			6.3			6.3			7.9			7.9
	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

Estimated Fair Value of Security by Year of Security Origination
2013 and prior	$	971.1		$	975.2		$	253.0		$	254.8		$	1,047.7		$	1,062.9		$	895.3		$	893.0		$	3,167.1		$	3,185.9
2014	200.8			200.7			—			—			237.9			246.6			110.2			110.7			548.9			558.0
2015	454.0			457.5			—			—			211.7			211.9			66.9			65.1			732.6			734.5
2016	218.0			226.2			—			—			469.9			482.1			266.6			265.3			954.5			973.6
2017	129.1			129.7			—			—			2.1			2.1			24.8			24.6			156.0			156.4
Total	$	1,973.0		$	1,989.3		$	253.0		$	254.8		$	1,969.3		$	2,005.6		$	1,363.8		$	1,358.7		$	5,559.1		$	5,608.4

(1) Included in Residential Mortgage-Backed securities.

~~104~~



	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	$	1,767.5		$	1,779.9		$	—		$	—		$	1,167.9		$	1,186.7		$	727.3		$	732.6		$	3,662.7		$	3,699.2
AA	3.1			3.1			—			—			517.0			532.9			125.2			117.8			645.3			653.8
A	2.8			2.8			0.5			0.5			266.5			270.9			426.4			428.6			696.2			702.8
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
	$	1,893.7		$	1,905.9		$	259.8		$	262.5		$	1,961.2		$	2,000.3		$	1,411.6		$	1,410.6		$	5,526.3		$	5,579.3

Rating %
AAA	93.3		%	93.4		%	—		%	—		%	59.6		%	59.4		%	51.5		%	51.9		%	66.3		%	66.3		%
AA	0.2			0.2			—			—			26.4			26.6			8.9			8.4			11.7			11.7
A	0.1			0.1			0.2			0.2			13.5			13.5			30.2			30.4			12.6			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			8.5			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			—			—			231.2			235.7			98.6			98.8			496.3			502.5
2014	205.0			205.0			—			—			238.2			246.9			168.4			168.4			611.6			620.3
2015	461.2			464.6			—			—			210.9			211.6			66.2			64.6			738.3			740.8
2016	215.8			223.1			—			—			455.4			469.0			249.7			249.9			920.9			942.0
Total	$	1,893.7		$	1,905.9		$	259.8		$	262.5		$	1,961.2		$	2,000.3		$	1,411.6		$	1,410.6		$	5,526.3		$	5,579.3

(1) Included in Residential Mortgage-Backed securities

The majority of our RMBS holdings as of March 31, 2017, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 9.44 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of March 31, 2017:



		Weighted-Average
Non-agency portfolio		Life

Prime		10.15
Alt-A		3.65
Sub-prime		2.45

~~Table of Contents~~

Mortgage Loans

We invest a portion of our investment portfolio in commercial mortgage loans. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, our mortgage loan holdings were approximately ~~$5.7~~$6.3 billion. We have specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers and apartments. Our underwriting procedures relative to our commercial loan portfolio are based, in our view, on a conservative and disciplined approach. We concentrate on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). We believe that these asset types tend to weather economic downturns better than other commercial asset classes in which we have chosen not to participate. We believe this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout our history. The majority of our mortgage loans portfolio was underwritten and funded by us. From time to time, we may acquire loans in conjunction with an acquisition.

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

Certain of the mortgage loans have call options that occur within the next 12 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options on our existing mortgage loans commensurate with the significantly increased market rates. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, assuming the loans are called at their next call dates, approximately ~~$42.7~~$119.9 million of principal would become due for the remainder of ~~2016, $922.1~~2017, $957.5 million in ~~2017~~2018 through ~~2021, $238.1~~2022, $129.8 million in ~~2022~~2023 through ~~2026,~~2027, and ~~$11.1~~$10.1 million thereafter.

We offer a type of commercial mortgage loan under which we will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of ~~June 30, 2016 (Successor Company)~~March 31, 2017 and December 31, ~~2015 (Successor Company),~~2016, approximately ~~$522.8~~$613.5 million and ~~$449.2~~$595.2 million, respectively, of our total mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, (Successor Company), the three months ended June 30, 2015 (Successor Company), the period of February 1, 2015 to June 30, 2015 (Successor Company), and January 1, 2015 to January 31, 2015 (Predecessor Company), we recognized ~~$5.7 million, $12.5 million, $3.3 million, $5.1~~$6.8 million and ~~$0.1~~$6.8 million, respectively, of participating mortgage loan income.

We record mortgage loans net of an allowance for credit losses. This allowance is calculated through analysis of specific loans that have indicators of potential impairment based on current information and events. As of ~~June 30,~~March 31, 2017 and December 31, 2016, ~~(Successor Company)~~ there were ~~$3.9~~$5.1 million and $0.7 million of allowances for mortgage loan credit losses, ~~and as of December 31, 2015 (Successor Company), there were no allowances for mortgage loan credit losses.~~respectively. While our mortgage loans do not have quoted market values, as of ~~June 30, 2016 (Successor Company),~~March 31, 2017, we estimated the fair value of our mortgage loans to be ~~$5.7~~$6.2 billion (using an internal fair value model which calculates the value of most loans by using the loan's discounted cash flows to the loan's call or maturity date), which was approximately ~~0.2%~~2.1% less than the amortized cost, less any related loan loss reserve.

At the time of origination, our mortgage lending criteria targets that the loan-to-value ratio on each mortgage is 75% or less. We target projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) of 70% of the property’s projected operating expenses and debt service.

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, approximately ~~$1.0~~$2.0 million of invested assets consisted of nonperforming mortgage loans, restructured mortgage loans, or mortgage loans that were foreclosed and were converted to real estate properties. We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities. During the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, we ~~did not enter into certain mortgage loan transactions that were accounted for as~~recognized a troubled debt ~~restructurings under Topic 310~~restructuring as a result of the ~~FASB ASC. For all mortgage~~Company granting a concession to a borrower which included loans the impact of troubled debt restructurings is generally reflected in our investment balance and in the allowance for mortgage loan credit losses. If we had troubled debt restructurings, these transactions would include either the acceptance of assets in satisfaction of principal during the respective periods or at a future date, and wereterms unavailable from other lenders. This concession was the result of agreements between the creditor and the debtor. ~~During~~We did not identify any loans whose principal was permanently impaired during the ~~six~~three months ended June 30, 2016 (Successor Company), we did not accept or agree to accept assets in satisfaction of principal. As of June 30, 2016 (Successor Company), we did not have any mortgage loan transactions accounted for as troubled debt restructurings.

March 31, 2017.

Our mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those subject to a contractual pooling and servicing agreement. As of ~~June 30, 2016 (Successor Company), $1.0~~March 31, 2017, $2.0 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 ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~

March 31, 2017.

As of ~~June 30, 2016 (Successor Company),~~March 31, 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 ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~

March 31, 2017.

We do not expect these investments to adversely affect our liquidity or ability to maintain proper matching of assets and liabilities.

~~105~~

~~Table of Contents~~

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

Unrealized Gains and Losses — Available-for-Sale Securities

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after March 31, 2017, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is other-than-temporary, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine other-than-temporary impairments. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine if an other-than-temporary impairment has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain/(loss) position of the portfolio. We had an overall net unrealized loss of $1.3 billion, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of March 31, 2017, and an overall net unrealized loss of $1.7 billion as of December 31, 2016.

For fixed maturity and equity securities held that are in an unrealized loss position as of March 31, 2017, the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position are presented in the table below:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
<= 90 days	$	2,461,778	9.0	%	$	2,496,238	8.7	%	$	(34,460	)	2.2	%
>90 days but <= 180 days	13,286,534		48.8		13,751,831		47.8		(465,297		)	29.6
>180 days but <= 270 days	878,283		3.2		943,315		3.3		(65,032		)	4.1
>270 days but <= 1 year	32,542		0.1		33,161		0.1		(619		)	—
>1 year but <= 2 years	1,533,246		5.6		1,618,776		5.6		(85,530		)	5.4
>2 years but <= 3 years	9,013,159		33.3		9,931,637		34.5		(918,478		)	58.7
>3 years but <= 4 years	—		—		—		—		—			—
>4 years but <= 5 years	—		—		—		—		—			—
>5 years	—		—		—		—		—			—
Total	$	27,205,542	100.0	%	$	28,774,958	100.0	%	$	(1,569,416	)	100.0	%

The book value of our investment portfolio was marked to fair value as of February 1, 2015, in conjunction with the Dai-ichi Merger which resulted in the elimination of previously unrealized gains and losses from accumulated other comprehensive income. The level of interest rates as of February 1, 2015, resulted in an increase in the carrying value of our investments. Since February 1, 2015 interest rates have increased resulting in net unrealized losses in our investment portfolio.

As of March 31, 2017, the Barclays Investment Grade Index was priced at 115 bps versus a 10 year average of 178 bps. Similarly, the Barclays High Yield Index was priced at 412 bps versus a 10 year average of 654 bps. As of March 31, 2017, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 2.0%, 2.4%, and 3.0%, as compared to 10 year averages of 1.9%, 2.8%, and 3.6%, respectively.

As of March 31, 2017, 94.8% of the unrealized loss was associated with securities that were rated investment grade. We have examined the performance of the underlying collateral and cash flows and expect that our investments will continue to perform in accordance with their contractual terms. Factors such as credit enhancements within the deal structures and the underlying collateral performance/characteristics support the recoverability of the investments. Based on the factors discussed, we do not consider these unrealized loss positions to be other-than-temporary. However, from time to time, we may sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield enhancement, asset/liability management, and liquidity requirements.

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 March 31, 2017, there were estimated gross unrealized losses of $2.9 million related to our mortgage-backed securities collateralized by Alt-A mortgage loans. Gross unrealized losses in our securities collateralized by Alt-A residential mortgage loans as of March 31, 2017, were primarily the result of continued widening spreads, representing marketplace uncertainty arising from higher defaults in Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by Alt-A residential mortgage loans.

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of March 31, 2017, is presented in the following table:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
Banking	$	2,467,016	9.1	%	$	2,536,746	8.8	%	$	(69,730	)	4.4	%
Other finance	58,320		0.2		61,162		0.2		(2,842		)	0.2
Electric utility	3,386,108		12.4		3,675,237		12.8		(289,129		)	18.4
Energy	2,546,921		9.4		2,688,260		9.3		(141,339		)	9.0
Natural gas	520,233		1.9		564,253		2.0		(44,020		)	2.8
Insurance	2,585,166		9.5		2,762,327		9.6		(177,161		)	11.3
Communications	1,366,706		5.0		1,493,512		5.2		(126,806		)	8.1
Basic industrial	984,159		3.6		1,050,049		3.6		(65,890		)	4.2
Consumer noncyclical	2,557,021		9.4		2,712,679		9.4		(155,658		)	9.9
Consumer cyclical	671,062		2.5		714,956		2.5		(43,894		)	2.8
Finance companies	49,468		0.2		53,715		0.2		(4,247		)	0.3
Capital goods	1,207,732		4.4		1,280,443		4.4		(72,711		)	4.6
Transportation	893,791		3.3		950,452		3.3		(56,661		)	3.6
Other industrial	164,005		0.6		176,265		0.6		(12,260		)	0.8
Brokerage	496,935		1.8		518,046		1.8		(21,111		)	1.3
Technology	918,287		3.4		961,675		3.3		(43,388		)	2.8
Real estate	99,759		0.5		101,887		0.4		(2,128		)	0.1
Other utility	17,281		0.1		18,471		0.1		(1,190		)	0.1
Commercial mortgage-backed securities	1,541,474		5.7		1,580,852		5.5		(39,378		)	2.5
Other asset-backed securities	434,614		1.6		451,762		1.6		(17,148		)	1.1
Residential mortgage-backed non-agency securities	1,021,380		3.8		1,044,175		3.6		(22,795		)	1.5
Residential mortgage-backed agency securities	275,676		1.0		282,001		1.0		(6,325		)	0.4
U.S. government-related securities	1,214,009		4.5		1,249,753		4.3		(35,744		)	2.3
Other government-related securities	151,964		0.6		164,022		0.6		(12,058		)	0.8
States, municipals, and political divisions	1,576,455		5.5		1,682,258		5.9		(105,803		)	6.7
Total	$	27,205,542	100.0	%	$	28,774,958	100.0	%	$	(1,569,416	)	100.0	%

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of December 31, 2016, is presented in the following table:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
Banking	$	3,106,898	10.6	%	$	3,214,957	10.3	%	$	(108,059	)	5.8	%
Other finance	65,883		0.2		69,729		0.2		(3,846		)	0.2
Electric utility	3,412,425		11.7		3,727,811		12.0		(315,386		)	16.9
Energy	2,714,073		9.3		2,892,598		9.3		(178,525		)	9.6
Natural gas	542,654		1.9		593,355		1.9		(50,701		)	2.7
Insurance	2,864,965		9.8		3,101,797		10.0		(236,832		)	12.7
Communications	1,466,405		5.0		1,607,756		5.2		(141,351		)	7.6
Basic industrial	1,149,208		3.9		1,236,848		4.0		(87,640		)	4.7
Consumer noncyclical	2,636,679		9.0		2,822,430		9.1		(185,751		)	10.0
Consumer cyclical	770,269		2.6		814,406		2.6		(44,137		)	2.4
Finance companies	64,490		0.2		69,077		0.2		(4,587		)	0.2
Capital goods	1,393,935		4.8		1,480,205		4.8		(86,270		)	4.6
Transportation	954,836		3.3		1,018,546		3.3		(63,710		)	3.4
Other industrial	163,993		0.6		176,558		0.6		(12,565		)	0.7
Brokerage	516,318		1.8		550,112		1.8		(33,794		)	1.8
Technology	949,675		3.2		1,003,894		3.2		(54,219		)	2.9
Real estate	126,156		0.5		131,715		0.4		(5,559		)	0.3
Other utility	17,326		0.1		18,516		0.1		(1,190		)	0.1
Commercial mortgage-backed securities	1,552,621		5.3		1,594,299		5.1		(41,678		)	2.2
Other asset-backed securities	500,497		1.7		521,195		1.7		(20,698		)	1.1
Residential mortgage-backed non-agency securities	965,399		3.3		985,142		3.2		(19,743		)	1.1
Residential mortgage-backed agency securities	265,996		0.9		271,920		0.9		(5,924		)	0.3
U.S. government-related securities	1,237,945		4.2		1,278,400		4.1		(40,455		)	2.2
Other government-related securities	177,805		0.6		192,602		0.6		(14,797		)	0.8
States, municipals, and political divisions	1,610,621		5.5		1,716,179		5.4		(105,558		)	5.7
Total	$	29,227,072	100.0	%	$	31,090,047	100.0	%	$	(1,862,975	)	100.0	%

The range of maturity dates for securities in an unrealized loss position as of March 31, 2017, varies, with 16.7% maturing in less than 5 years, 19.0% maturing between 5 and 10 years, and 64.3% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of March 31, 2017:



S&P or Equivalent	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
Designation	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
AAA/AA/A	$	15,918,521	58.5	%	$	16,735,468	58.2	%	$	(816,947	)	52.1	%
BBB	10,261,327		37.7		10,932,249		38.0		(670,922		)	42.7
Investment grade	26,179,848		96.2	%	27,667,717		96.2	%	(1,487,869		)	94.8	%
BB	676,792		2.5		717,944		2.5		(41,152		)	2.6
B	222,214		0.8		252,065		0.9		(29,851		)	1.9
CCC or lower	126,688		0.5		137,232		0.4		(10,544		)	0.7
Below investment grade	1,025,694		3.8	%	1,107,241		3.8	%	(81,547		)	5.2	%
Total	$	27,205,542	100.0	%	$	28,774,958	100.0	%	$	(1,569,416	)	100.0	%

As of March 31, 2017, we held a total of 2,171 positions that were in an unrealized loss position. Included in that amount were 129 positions of below investment grade securities with a fair value of $1.0 billion that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $81.5 million, $75.9 million of which had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 2.0% of invested assets.

As of March 31, 2017, securities in an unrealized loss position that were rated as below investment grade represented 3.8% of the total fair value and 5.2% of the total unrealized loss. We have the ability and intent to hold these securities to maturity. After a review of each security and its expected cash flows, we believe the decline in market value to be temporary.

The following table includes the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position for all below investment grade securities as of March 31, 2017:



	Fair Value		% Fair Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
<= 90 days	$	128,942	12.6	%	$	130,943	11.8	%	$	(2,001	)	2.5	%
>90 days but <= 180 days	82,995		8.1		86,287		7.8		(3,292		)	4.0
>180 days but <= 270 days	3,392		0.3		3,504		0.3		(112		)	0.1
>270 days but <= 1 year	15,516		1.5		15,780		1.4		(264		)	0.4
>1 year but <= 2 years	413,410		40.3		438,087		39.6		(24,677		)	30.2
>2 years but <= 3 years	381,439		37.2		432,640		39.1		(51,201		)	62.8
>3 years but <= 4 years	—		—		—		—		—			—
>4 years but <= 5 years	—		—		—		—		—			—
>5 years	—		—		—		—		—			—
Total	$	1,025,694	100.0	%	$	1,107,241	100.0	%	$	(81,547	)	100.0	%

Risk Management and Impairment Review

We monitor the overall credit quality of our portfolio within established guidelines. The following table includes our available-for-sale fixed maturities by credit rating as of ~~June 30, 2016 (Successor Company):~~March 31, 2017:


			Percent of				Percent of
Rating	Fair Value		Fair Value		Fair Value		Fair Value
	(Dollars In Thousands)				(Dollars In Thousands)
AAA	$	4,960,685	13.8	%	$	5,011,143	13.9	%
AA	2,962,871		8.2		3,246,197		9.1
A	12,192,564		33.8		11,999,497		33.4
BBB	14,148,830		39.4		13,703,453		38.2
Investment grade	34,264,950		95.2		33,960,290		94.6
BB	1,118,011		3.1		1,345,401		3.7
B	381,445		0.8		328,077		0.9
CCC or lower	298,028		0.9		297,743		0.8
Below investment grade	1,797,484		4.8		1,971,221		5.4
Total	$	36,062,434	100.0	%	$	35,931,511	100.0	%

Not included in the table above are ~~$2.5~~$2.4 billion of investment grade and ~~$270.8~~$259.8 million of below investment grade fixed maturities classified as trading securities and $2.8 billion of fixed maturities classified as held-to-maturity.

Limiting bond exposure to any creditor group is another way we manage credit risk. We held no credit default swaps on the positions listed below as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. The following table summarizes our ten largest fixed maturity exposures to an individual creditor group as of ~~June 30, 2016 (Successor Company):~~March 31, 2017:

Fair Value of
Funded Unfunded Total
Creditor Securities Exposures Fair Value
(Dollars In Millions)
Exelon Corp $ 235.3
$ —
$ 235.3
AT&T Inc 215.9
—
215.9
Wells Fargo & Co. 207.7
—
207.7
Berkshire Hathaway Inc 196.3
—
196.3
Duke Energy Corp 191.8
—
191.8
JP Morgan Chase and Company 166.3
21.9
188.2
Comcast Corp 182.2
—
182.2
Bank of America Corp 179.7
0.1
179.8
Goldman Sachs Group 175.4
—
175.4
Morgan Stanley 168.1
—
168.1
Total $ 1,918.7
$ 22.0
$ 1,940.7



	Fair Value of
	Funded		Unfunded		Total
Creditor	Securities		Exposures		Fair Value
	(Dollars In Thousands)
Federal Home Loan Bank	$	228.6	$	—	$	228.6
Duke Energy Corp	199.7		—		199.7
Wells Fargo & Co	197.0		1.0		198.0
AT&T, Inc	197.8		—		197.8
The Southern Co	197.6		—		197.6
Berkshire Hathaway	194.7		—		194.7
Exelon Corp	193.1		—		193.1
Anheuser Busch Inbev	189.3		—		189.3
JP Morgan Chase & Co	173.7		8.7		182.4
Goldman Sachs Group	182.2		—		182.2
Total	$	1,953.7	$	9.7	$	1,963.4

Determining whether a decline in the current fair value of invested assets is an other-than-temporary decline in value is both objective and subjective, and can involve a variety of assumptions and estimates, particularly for investments that are not actively traded in established markets. We review our positions on a monthly basis for possible credit concerns and review our current exposure, credit enhancement, and delinquency experience.

Management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Since it is possible for the impairment of one investment to affect other investments, we engage in ongoing risk management to safeguard against and limit any further risk to our investment portfolio. Special attention is given to correlative risks within specific industries, related parties, and business markets.

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For certain securitized financial assets with contractual cash flows, including RMBS, CMBS, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”), GAAP requires us to periodically update our best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the expected cash flows since the last revised estimate, considering both timing and amount, an other-than-temporary impairment charge is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Projections of expected future cash flows may change based upon

new information regarding the performance of the underlying collateral. In addition, we consider our intent and ability to retain a temporarily depressed security until recovery.

Securities in an unrealized loss position are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors. We consider a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of our intent to sell the security (including a more likely than not assessment of whether we will be required to sell the security) before recovering the security’s amortized cost, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security-by-security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered, along with an analysis regarding our expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows. Based on our analysis, for the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, we ~~concluded that~~recognized approximately ~~$1.0~~$7.8 million ~~and $3.6 million, respectively,~~ of credit related impairments on investment securities in an unrealized loss position that were other-than-temporarily impaired ~~due to credit related factors,~~ resulting in a charge to earnings. ~~Additionally, we recognized $4.6 million and $4.8 million of non-credit losses in other comprehensive income (loss), respectively.~~

There are certain risks and uncertainties associated with determining whether declines in fair values are other-than-temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud, and legislative actions. We continuously monitor these factors as they relate to the investment portfolio in determining the status of each investment.

During 2015 and 2016, the energy and natural gas sector experienced increased volatility due to the decline in oil prices. A prolonged decline in oil prices could have a broad economic impact and put financial stress on companies in this sector. We continue to monitor our exposure to companies within and exposed to this sector closely. Our current exposure is predominantly with investment grade securities of companies with ample liquidity to weather a prolonged decline in oil prices. Many of these companies have displayed financial discipline by reducing capital expenditures to conserve cash and maintain their credit ratings. For the six months ended June 30, 2016 (Successor Company), we concluded that certain investment securities within the energy and natural gas sector that were in an unrealized loss position were other-than-temporarily impaired due to credit related factors, resulting in a $2.6 million impairment recognized in net income. We did not recognized an other-than-temporary impairment for the three months ended June 30, 2016 (Successor Company).

~~The energy and natural gas sector securities as of June 30, 2016 (Successor Company) are presented in the following tables.~~

Energy and Natural Gas

Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Midstream $ 1,691,586
$ 1,822,302
$ (130,716 ) 48.9 %
Integrated 790,380
818,448
(28,068 ) 10.5
Distributors 703,367
728,756
(25,389 ) 9.5
Independent 550,774
575,452
(24,678 ) 9.2
Oil Field Services 516,861
565,358
(48,497 ) 18.2
Refining 169,184
178,900
(9,716 ) 3.7
Total $ 4,422,152
$ 4,689,216
$ (267,064 ) 100.0 %

~~107~~

~~Table of Contents~~

Energy and Natural Gas
Rating Issuer Type
Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
AAA/AA/A Distributors $ 364,181
$ 366,546
$ (2,365 ) 0.9 %
Independent 80,209
76,888
3,321
(1.2 )
Integrated 321,860
325,705
(3,845 ) 1.4
Midstream 175,568
182,809
(7,241 ) 2.7
Oil Field Services 159,578
159,916
(338 ) 0.1

BBB Distributors 314,457
335,065
(20,608 ) 7.7
Independent 417,910
447,707
(29,797 ) 11.2
Integrated 337,183
358,326
(21,143 ) 7.9
Midstream 1,358,188
1,470,460
(112,272 ) 42.0
Oil Field Services 142,308
147,503
(5,195 ) 1.9
Refining 158,976
168,526
(9,550 ) 3.6
Total investment grade 3,830,418
4,039,451
(209,033 ) 78.2

Below investment grade Distributors 24,729
27,145
(2,416 ) 0.9
Independent 52,655
50,857
1,798
(0.7 )
Integrated 131,337
134,417
(3,080 ) 1.2
Midstream 157,830
169,033
(11,203 ) 4.2
Oil Field Services 214,975
257,939
(42,964 ) 16.1
Refining 10,208
10,374
(166 ) 0.1
Total below investment grade 591,734
649,765
(58,031 ) 21.8
Total energy and natural gas $ 4,422,152
$ 4,689,216
$ (267,064 ) 100.0 %

During 2015, the metals and mining sector (a sub-sector of the basic industrial sector) experienced increased volatility due to the decline in precious and base metal prices. A prolonged decline in these prices could have a broad economic impact and put financial stress on companies in this sector. We continue to monitor our exposure to companies within and exposed to this sector closely. Our current exposure is predominantly with investment grade securities of companies with ample liquidity to weather a prolonged decline in these prices. Many of these companies have displayed financial discipline by reducing capital expenditures and reducing dividends to conserve cash and maintain their credit ratings.

~~The basic industrial sector securities as of June 30, 2016 (Successor Company) are presented in the following tables:~~

Basic Industrial

Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Chemicals $ 761,260
$ 792,956
$ (31,696 ) 37.1 %
Metals and Mining 731,087
761,654
(30,567 ) 58.6
Paper 131,284
133,624
(2,340 ) 4.3
Total $ 1,623,631
$ 1,688,234
$ (64,603 ) 100.0 %

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~~Table of Contents~~

Basic Industrial
Rating Issuer Type
Fair
Value

Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
AAA/AA/A Chemicals $ 265,121
$ 273,873
$ (8,752 ) 13.5 %
Metals and Mining 225,054
232,184
(7,130 ) 11.1

BBB Chemicals 494,203
516,649
(22,446 ) 34.8
Metals and Mining 221,825
233,485
(11,660 ) 18.0
Paper 131,284
133,624
(2,340 ) 3.6
Total investment grade 1,337,487
1,389,815
(52,328 ) 81.0

Below investment grade Chemicals 1,936
2,434
(498 ) 0.8
Metals and Mining 284,208
295,985
(11,777 ) 18.2
Total below investment grade 286,144
298,419
(12,275 ) 19.0
Total basic industrial $ 1,623,631
$ 1,688,234
$ (64,603 ) 100.0 %

We have deposits with certain financial institutions which exceed federally insured limits. We have reviewed the creditworthiness of these financial institutions and believe that there is minimal risk of a material loss.

Certain European countries have experienced varying degrees of financial stress. Risks from the debt crisis in Europe could continue to disrupt the financial markets, which could have a detrimental impact on global economic conditions and on sovereign and non-sovereign obligations. There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets.

The chart shown below includes our non-sovereign fair value exposures in these countries as of ~~June 30, 2016 (Successor Company).~~March 31, 2017. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, we had no unfunded exposure and had no direct sovereign ~~fair value~~ exposure.

Total Gross
Non-sovereign Debt Funded
Financial Instrument and Country Financial Non-financial Exposure
(Dollars In Millions)
Securities:

United Kingdom $ 538.1
$ 902.8
$ 1,440.9
Netherlands 166.3
252.2
418.5
Switzerland 191.0
164.2
355.2
France 105.5
207.5
313.0
Spain 22.9
230.1
253.0
Germany 156.0
83.8
239.8
Belgium —
174.0
174.0
Sweden 131.6
34.0
165.6
Italy 42.3
95.5
137.8
Norway —
101.3
101.3
Ireland 11.4
58.7
70.1
Luxembourg —
55.9
55.9
Total securities 1,365.1
2,360.0
3,725.1
Derivatives:

Germany 70.0
—
70.0
United Kingdom 32.0
—
32.0
Switzerland 22.8
—
22.8
France 4.2
—
4.2
Total derivatives 129.0
—
129.0
Total securities $ 1,494.1
$ 2,360.0
$ 3,854.1

~~109~~

~~Table of Contents~~



					Total Gross
	Non-sovereign Debt				Funded
Financial Instrument and Country	Financial		Non-financial		Exposure
	(Dollars In Thousands)
Securities:
United Kingdom	$	602.4	$	718.0	$	1,320.4
Netherlands	203.0		240.1		443.1
France	119.9		212.3		332.2
Switzerland	187.2		118.8		306.0
Germany	161.9		103.8		265.7
Spain	22.8		222.9		245.7
Belgium	—		199.3		199.3
Sweden	128.4		32.3		160.7
Norway	—		96.9		96.9
Italy	—		92.4		92.4
Luxembourg	—		59.9		59.9
Ireland	—		56.8		56.8
Total securities	1,425.6		2,153.5		3,579.1
Derivatives:
Germany	25.5		—		25.5
United Kingdom	16.4		—		16.4
Switzerland	3.4		—		3.4
France	2.9		—		2.9
Total derivatives	48.2		—		48.2
Total securities	$	1,473.8	$	2,153.5	$	3,627.3

Realized Gains and Losses

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


	Successor Company												Predecessor Company			For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016			For The Three Months Ended June 30, 2015			For The Six Months Ended June 30, 2016			February 1, 2015 to June 30, 2015			January 1, 2015 to January 31, 2015			2017			2016
	(Dollars In Thousands)												(Dollars In Thousands)			(Dollars In Thousands)
Fixed maturity gains - sales	$	18,550		$	5,391		$	27,480		$	6,898		$	6,920		$	10,738		$	8,930
Fixed maturity losses - sales	(1,820		)	(2,052		)	(5,029		)	(3,186		)	(29		)	(1,248		)	(3,209		)
Equity gains - sales	202			44			320			44			—			—			118
Equity losses - sales	—			(23		)	(284		)	(23		)	—			(9		)	(284		)
Impairments on corporate securities	(964		)	(5,734		)	(3,581		)	(5,734		)	(481		)
Impairments																(7,831		)	(2,617		)
Modco trading portfolio	76,201			(108,741		)	154,355			(141,901		)	73,062			18,552			78,154
Other	(4,353		)	3,044			(6,334		)	775			1,200			(5,192		)	(1,981		)
Total realized gains (losses) - investments	$	87,816		$	(108,071	)	$	166,927		$	(143,127	)	$	80,672		$	15,010		$	79,111
Derivatives related to VA contracts:
Interest rate futures - VA	$	31,266		$	(14,183	)	$	69,067		$	(14,231	)	$	1,413		$	3,448		$	37,801
Equity futures - VA	(21,328		)	(5,267		)	(24,556		)	(37,736		)	9,221			(30,817		)	(3,228		)
Currency futures - VA	11,112			(8,709		)	4,954			(2,572		)	7,778			(6,256		)	(6,158		)
Equity options - VA	(3,232		)	(3,550		)	13,072			(25,324		)	3,047			(40,185		)	16,304
Interest rate swaptions - VA	(749		)	2,547			(2,983		)	(8,781		)	9,268			(1,469		)	(2,234		)
Interest rate swaps - VA	81,554			(121,167		)	207,147			(175,958		)	122,710			(8,957		)	125,593
Embedded derivative - GMWB	(161,402		)	132,657			(337,253		)	245,917			(207,018		)
Embedded derivative - GLWB																33,632			(175,851		)
Total derivatives related to VA contracts	(62,779		)	(17,672		)	(70,552		)	(18,685		)	(53,581		)	(50,604		)	(7,773		)
Derivatives related to FIA contracts:
Embedded derivative - FIA	710			290			(1,452		)	(2,293		)	1,769			(12,411		)	(2,162		)
Equity futures - FIA	651			123			2,033			307			(184		)	297			1,382
Volatility futures - FIA	—			25			—			29			—			—			—
Equity options - FIA	735			1,226			(4,827		)	5,601			(2,617		)	10,700			(5,562		)
Total derivatives related to FIA contracts	2,096			1,664			(4,246		)	3,644			(1,032		)	(1,414		)	(6,342		)
Derivatives related to IUL contracts:
Embedded derivative - IUL	(96		)	1,538			(834		)	1,795			(486		)	(2,090		)	(738		)
Equity futures - IUL	47			9			(172		)	23			3			(799		)	(219		)
Equity options - IUL	241			(78		)	214			62			(115		)	2,891			(27		)
Total derivatives related to IUL contracts	192			1,469			(792		)	1,880			(598		)	2			(984		)
Embedded derivative - Modco reinsurance treaties	(22,820		)	109,131			(81,175		)	141,322			(68,026		)	(17,865		)	(58,355		)
Other derivatives	(55		)	11			(100		)	83			(37		)	3			(45		)
Total realized gains (losses) - derivatives	$	(83,366	)	$	94,603		$	(156,865	)	$	128,244		$	(123,274	)	$	(69,878	)	$	(73,499	)

Realized gains and losses on investments reflect portfolio management activities designed to maintain proper matching of assets and liabilities and to enhance long-term investment portfolio performance. The change in net realized investment gains (losses), excluding impairments and Modco trading portfolio activity during the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, primarily reflects the normal operation of our asset/liability program within the context of the changing interest rate and spread environment, as well as tax planning strategies designed to utilize capital loss carryforwards.

Realized losses are comprised ~~of both write-downs~~ of other-than-temporary impairments and actual sales of investments. For the three and six months ended June 30, 2016 (Successor Company) we concluded that approximately $1.0 million and $3.6 million, respectively, of investment securities in an unrealized loss position were other-than-temporarily impaired, due to credit related factors, resulting in a charge to earnings. Additionally, $4.6 million and $4.8 million of non-credit losses was recorded in other comprehensive income (loss), respectively.

For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), we recognized pre-tax other-than-temporary impairments of $0.5 million due to credit-related factors, resulting in a charge to earnings. Of the credit losses, $0.1 million were non-credit losses previously recorded in other comprehensive income.

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These other-than-temporary impairments resulted from our analysis of circumstances and our belief that credit events, loss severity, changes in credit enhancement, and/or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency in the contractual cash flows related to these investments. These other-than-temporary impairments ~~net of Modco recoveries,~~ are presented in the chart below:


	Successor Company								Predecessor Company		For The Three Months Ended March 31,
	For The Three Months Ended June 30, 2016		For The Three Months Ended June 30, 2015		For The Six Months Ended June 30, 2016		February 1, 2015 to June 30, 2015		January 1, 2015 to January 31, 2015		2017		2016
	(Dollars In Millions)								(Dollars In Millions)		(Dollars In Millions)
Alt-A MBS	$	—	$	—	$	—	$	—	$	0.3	$	—	$	—
Other MBS	—		0.1		—		0.1		0.2		—		—
Corporate securities	1.0		5.6		3.6		5.6		—		5.2		2.6
Equities											2.6		—
Total	$	1.0	$	5.7	$	3.6	$	5.7	$	0.5	$	7.8	$	2.6

As previously discussed, management considers several factors when determining other-than-temporary impairments. Although we purchase securities with the intent to hold them until maturity, we may change our position as a result of a change in circumstances. Any such decision is consistent with our classification of all but a specific portion of our investment portfolio as available-for-sale. For the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, we sold securities in an unrealized loss position with a fair value ~~of $60.6~~of $12.5 million. For such securities, the proceeds, realized loss, and total time period that the security had been in an unrealized loss position are presented in the table ~~below for the six months ended June 30, 2016 (Successor Company):~~below:


	Proceeds		% Proceeds		Realized Loss			% Realized Loss		Proceeds		% Proceeds		Realized Loss			% Realized Loss
	(Dollars In Thousands)									(Dollars In Thousands)
<= 90 days	$	53,566	88.4	%	$	(3,375	)	63.5	%	$	9,657	77.6	%	$	(688	)	54.7	%
>90 days but <= 180 days	1,846		3.0		(364		)	6.9		532		4.3		(56		)	4.4
>180 days but <= 270 days	1,211		2.0		(590		)	11.1		181		1.5		(50		)	4.0
>270 days but <= 1 year	1,476		2.4		(325		)	6.1		126		1.0		(23		)	1.9
>1 year	2,483		4.2		(659		)	12.4		1,956		15.6		(440		)	35.0
Total	$	60,582	100.0	%	$	(5,313	)	100.0	%	$	12,452	100.0	%	$	(1,257	)	100.0	%

For the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company)~~March 31, 2017, we sold securities in an unrealized loss position with a fair value (proceeds) of ~~$6.9 million and $60.6 million, respectively.~~$12.5 million. The losses realized on the sale of these securities were ~~$1.8 million and $5.3 million, respectively.~~$1.3 million. We made the decision to exit these holdings in conjunction with our overall asset liability management process.

For the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, we sold securities in an unrealized gain position with a fair value of ~~$513.5 million and $822.8 million, respectively.~~$169.1 million. The gains realized on the sale of these securities were ~~$18.8 million and $27.8 million, respectively.~~

$10.7 million.

The ~~$4.3~~$5.2 million of other realized losses recognized for the three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, consisted of an increase in mortgage loan reserves of ~~$2.0~~$4.4 million, partnership losses of ~~$2.4~~$0.7 million, and real estate ~~realized gains~~losses of $0.1 million.

The $6.3 million of other realized losses recognized for the six months ended June 30, 2016 (Successor Company), consisted realized gains related to mortgage loans of $0.3 million, an increase in mortgage loan reserves of $3.9 million, partnership losses of $2.5 million, and real estate realized losses of $0.2 million.

For the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company)~~March 31, 2017, net gains of ~~$76.2~~$18.6 million, ~~and $154.4 million, respectively,~~ primarily related to changes in fair value on our Modco trading portfolios, were included in realized gains and losses. Of the ~~$154.4~~$18.6 million for the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, approximately ~~$2.0~~$1.7 million of losses were realized through the sale of certain securities, which will be ~~reimbursed~~returned to us from our reinsurance partners over time through the reinsurance settlement process for this block of business.

The Modco embedded derivative associated with the trading portfolios had realized pre-tax losses of ~~$22.8~~$17.9 million ~~and $81.2 million, respectively,~~ during the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company).~~March 31, 2017. The losses during the three months ended ~~June 30, 2016 (Successor Company)~~March 31, 2017, were due to ~~lower treasury yields.~~

the tightening of credit spreads.

Realized investment gains and losses related to derivatives represent changes in their fair value during the period and termination gains/(losses) on those derivatives that were closed during the period.

We use various derivative instruments to manage risks related to certain life insurance and annuity products. We can use these derivatives as economic hedges against risks inherent in the products. These risks have a direct impact on the cost of these products and are correlated with the equity markets, interest rates, foreign currency levels, and overall volatility. The hedged risks

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are recorded through the recognition of embedded derivatives associated with the products. These products include the ~~GMWB~~GLWB rider associated with the variable annuity, fixed indexed annuity products as well as indexed universal life products. During the three ~~and six~~ months ended ~~June 30, 2016 (Successor Company)~~March 31, 2017, we experienced net realized losses on derivatives related to VA contracts of approximately ~~$62.8~~ $50.6 million and $70.6 million, respectively. These net losses on derivatives related to VA contracts in addition to capital market impacts were affected by changes in the lowering of assumed lapses used to value the GMWB embedded derivatives..

We also use various swaps and other types of derivatives to mitigate risk related to other exposures. ~~These~~For the three months ended March 31, 2017, these contracts generated ~~losses of $0.1 million for the three and six months ended June 30, 2016 (Successor Company)~~immaterial gains.

~~Unrealized Gains and Losses — Available-for-Sale Securities~~

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after June 30, 2016 (Successor Company), the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is other-than-temporary, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine other-than-temporary impairments. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine if an other-than-temporary impairment has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain/(loss) position of the portfolio. We had an overall net unrealized loss of $583.0 million, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of June 30, 2016 (Successor Company), and an overall net unrealized loss of $2.9 billion as of December 31, 2015 (Successor Company).

For fixed maturity and equity securities held that are in an unrealized loss position as of June 30, 2016 (Successor Company), the fair value, amortized cost, unrealized loss, and total time period that the security has been in an unrealized loss position are presented in the table below:

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
<= 90 days $ 440,287
2.4 % $ 450,885
2.4 % $ (10,598 ) 0.9 %
>90 days but <= 180 days 363,609
2.0
384,025
2.0
(20,416 ) 1.8
>180 days but <= 270 days 391,831
2.2
406,451
2.1
(14,620 ) 1.4
>270 days but <= 1 year 1,564,247
8.7
1,653,655
8.6
(89,408 ) 7.9
>1 year but <= 2 years 15,265,342
84.7
16,259,979
84.9
(994,637 ) 88.0
>2 years but <= 3 years —
—
—
—
—
—
>3 years but <= 4 years —
—
—
—
—
—
>4 years but <= 5 years —
—
—
—
—
—
>5 years —
—
—
—
—
—
Total $ 18,025,316
100.0 % $ 19,154,995
100.0 % $ (1,129,679 ) 100.0 %

The book value of our investment portfolio was marked to fair value as of February 1, 2015 (Successor Company), in conjunction with the Dai-ichi Merger which resulted in the elimination of previously unrealized gains and losses from accumulated other comprehensive income. The level of interest rates as of February 1, 2015 (Successor Company), resulted in an increase in the carrying value of our investments. Since February 1, 2015 (Successor Company) interest rates have increased resulting in net unrealized losses in our investment portfolio.

As of June 30, 2016 (Successor Company), the Barclays Investment Grade Index was priced at 147.6 bps versus a 10 year average of 175 bps. Similarly, the Barclays High Yield Index was priced at 628.9 bps versus a 10 year average of 642.2 bps. As of June 30, 2016 (Successor Company), the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 1.000%, 1.471%, and 2.285%, as compared to 10 year averages of 2.080%, 2.943%, and 3.752%, respectively.

As of June 30, 2016 (Successor Company), 84.8% of the unrealized loss was associated with securities that were rated investment grade. We have examined the performance of the underlying collateral and cash flows and expect that our investments will continue to perform in accordance with their contractual terms. Factors such as credit enhancements within the deal structures and the underlying collateral performance/characteristics support the recoverability of the investments. Based on the factors discussed, we do not consider these unrealized loss positions to be other-than-temporary. However, from time to time, we may sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield enhancement, asset/liability management, and liquidity requirements.

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that such an event may lead to adverse changes in the cash flows on our holdings of these types of securities. This could lead to potential future write-downs within our portfolio of mortgage-backed and asset-backed securities. Expectations that our investments in corporate securities and/or debt obligations will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process. Although we do not anticipate such events, it is reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize potential future write-downs within our portfolio of corporate securities. It is also possible that such unanticipated events would lead us to dispose of those certain holdings and recognize the effects of any such market movements in our financial statements.

As of June 30, 2016 (Successor Company), there were estimated gross unrealized losses of $5.8 million related to our mortgage-backed securities collateralized by Alt-A mortgage loans. Gross unrealized losses in our securities collateralized by Alt-A residential mortgage loans as of June 30, 2016 (Successor Company), were primarily the result of continued widening spreads, representing marketplace uncertainty arising from higher defaults in Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by Alt-A residential mortgage loans.

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of June 30, 2016 (Successor Company) is presented in the following table:

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Banking $ 1,669,839
9.3 % $ 1,746,222
9.1 % $ (76,383 ) 6.8 %
Other finance 122,801
0.7
126,390
0.7
(3,589 ) 0.3
Electric utility 2,646,564
14.7
2,796,947
14.6
(150,383 ) 13.3
Energy and natural gas 3,254,051
18.0
3,551,083
18.6
(297,032 ) 26.3
Insurance 2,254,875
12.5
2,416,380
12.6
(161,505 ) 14.3
Communications 935,891
5.2
1,023,589
5.3
(87,698 ) 7.8
Basic industrial 1,100,079
6.1
1,184,074
6.2
(83,995 ) 7.4
Consumer noncyclical 1,078,285
6.0
1,131,061
5.9
(52,776 ) 4.7
Consumer cyclical 619,793
3.4
651,071
3.4
(31,278 ) 2.8
Finance companies 28,104
0.2
31,953
0.2
(3,849 ) 0.3
Capital goods 654,269
3.6
676,354
3.5
(22,085 ) 2.0
Transportation 503,182
2.8
530,195
2.8
(27,013 ) 2.4
Other industrial 138,964
0.8
146,317
0.8
(7,353 ) 0.7
Brokerage 243,013
1.3
256,715
1.3
(13,702 ) 1.2
Technology 556,487
3.1
592,661
3.1
(36,174 ) 3.2
Real estate 51,916
0.5
52,300
0.3
(384 ) —
Other utility 130,681
0.7
134,328
0.7
(3,647 ) 0.3
Commercial mortgage-backed securities 238,515
1.3
242,241
1.3
(3,726 ) 0.3
Other asset-backed securities 641,176
3.6
677,231
3.5
(36,055 ) 3.2
Residential mortgage-backed non-agency securities 307,092
1.7
316,250
1.7
(9,158 ) 0.8
Residential mortgage-backed agency securities 38,174
0.2
38,269
0.2
(95 ) —
U.S. government-related securities 58,655
0.3
58,860
0.3
(205 ) —
Other government-related securities —
—
—
—
—
—
States, municipals, and political divisions 752,910
4.0
774,504
3.9
(21,594 ) 1.9
Total $ 18,025,316
100.0 % $ 19,154,995
100.0 % $ (1,129,679 ) 100.0 %

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We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of December 31, 2015 (Successor Company) is presented in the following table:

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
Banking $ 2,908,692
9.6 % $ 3,024,232
9.1 % $ (115,540 ) 3.9 %
Other finance 437,939
1.4
453,491
1.4
(15,552 ) 0.5
Electric utility 3,396,360
11.2
3,790,953
11.4
(394,593 ) 13.5
Energy and natural gas 3,725,281
12.3
4,416,700
13.3
(691,419 ) 23.6
Insurance 2,699,313
8.9
2,984,867
9.0
(285,554 ) 9.7
Communications 1,207,227
4.0
1,396,152
4.5
(188,925 ) 6.5
Basic industrial 1,404,012
4.6
1,658,300
5.0
(254,288 ) 8.7
Consumer noncyclical 2,780,597
9.2
3,036,815
9.1
(256,218 ) 8.7
Consumer cyclical 1,512,885
4.9
1,627,750
4.9
(114,865 ) 3.9
Finance companies 102,526
0.3
111,112
0.3
(8,586 ) 0.3
Capital goods 1,269,025
4.2
1,368,468
4.1
(99,443 ) 3.4
Transportation 858,122
2.8
944,190
2.8
(86,068 ) 2.9
Other industrial 275,478
0.9
301,883
0.9
(26,405 ) 0.9
Brokerage 480,565
1.6
516,367
1.6
(35,802 ) 1.2
Technology 1,152,738
3.8
1,247,429
3.8
(94,691 ) 3.2
Real estate 139,853
0.5
142,483
0.4
(2,630 ) 0.1
Other utility 216,013
0.7
236,052
0.7
(20,039 ) 0.7
Commercial mortgage-backed securities 1,233,518
4.1
1,275,376
3.5
(41,858 ) 1.4
Other asset-backed securities 633,274
2.1
652,037
2.0
(18,763 ) 0.6
Residential mortgage-backed non-agency securities 562,686
1.9
572,327
1.7
(9,641 ) 0.3
Residential mortgage-backed agency securities 414,747
1.4
422,218
1.3
(7,471 ) 0.3
U.S. government-related securities 1,291,476
4.3
1,326,008
4.0
(34,532 ) 1.2
Other government-related securities 17,740
0.1
18,483
0.1
(743 ) —
States, municipals, and political divisions 1,566,752
5.2
1,693,566
5.1
(126,814 ) 4.5
Total $ 30,286,819
100.0 % $ 33,217,259
100.0 % $ (2,930,440 ) 100.0 %

The range of maturity dates for securities in an unrealized loss position as of June 30, 2016 (Successor Company) varies, with 11.1% maturing in less than 5 years, 10.4% maturing between 5 and 10 years, and 78.5% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of June 30, 2016 (Successor Company):

S&P or Equivalent Fair % Fair Amortized % Amortized Unrealized % Unrealized
Designation Value Value Cost Cost Loss Loss
(Dollars In Thousands)
AAA/AA/A $ 7,480,662
41.5 % $ 7,786,262
40.6 % $ (305,600 ) 27.1 %
BBB 9,044,714
50.2
9,696,272
50.6
(651,558 ) 57.7
Investment grade 16,525,376
91.7 % 17,482,534
91.2 % (957,158 ) 84.8 %
BB 909,863
5.0
988,966
5.2
(79,103 ) 7.0
B 368,303
2.0
440,255
2.3
(71,952 ) 6.4
CCC or lower 221,774
1.3
243,240
1.3
(21,466 ) 1.8
Below investment grade 1,499,940
8.3 % 1,672,461
8.8 % (172,521 ) 15.2 %
Total $ 18,025,316
100.0 % $ 19,154,995
100.0 % $ (1,129,679 ) 100.0 %

As of June 30, 2016 (Successor Company), we held a total of 1,414 positions that were in an unrealized loss position. Included in that amount were 187 positions of below investment grade securities with a fair value of $1.5 billion that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $172.5 million, $90.4 million

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~~of which had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 2.9% of invested assets.~~

As of June 30, 2016 (Successor Company), securities in an unrealized loss position that were rated as below investment grade represented 8.3% of the total fair value and 15.2% of the total unrealized loss. We have the ability and intent to hold these securities to maturity. After a review of each security and its expected cash flows, we believe the decline in market value to be temporary.

Fair
Value

% Fair
Value

Amortized
Cost

% Amortized
Cost

Unrealized
Loss

% Unrealized
Loss
(Dollars In Thousands)
<= 90 days $ 105,089
7.0 % $ 112,305
6.7 % $ (7,216 ) 4.2 %
>90 days but <= 180 days 174,206
11.6
184,601
11.0
(10,395 ) 6.0
>180 days but <= 270 days 116,408
7.8
124,490
7.4
(8,082 ) 4.7
>270 days but <= 1 year 532,561
35.5
589,003
35.2
(56,442 ) 32.7
>1 year but <= 2 years 571,676
38.1
662,062
39.7
(90,386 ) 52.4
>2 years but <= 3 years —
—
—
—
—
—
>3 years but <= 4 years —
—
—
—
—
—
>4 years but <= 5 years —
—
—
—
—
—
>5 years —
—
—
—
—
—
Total $ 1,499,940
100.0 % $ 1,672,461
100.0 % $ (172,521 ) 100.0 %

LIQUIDITY AND CAPITAL RESOURCES

The Holding Company

Overview

Our primary sources of funding are dividends from our operating subsidiaries; revenues from investment management, data processing, legal, and management services rendered to subsidiaries; investment income; and external financing. These sources of cash support our general corporate needs including our common stock dividends and debt service. We expect to use a portion of our positive cash flow from operations to pay dividends to our parent, Dai-ichi Life. We paid a $143.8 million dividend during thethree months ended March 31, 2017, and do not expect to pay a dividends for the remainder of 2017.

The states in which our insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries’ ability to pay us dividends. These restrictions are based in part on the prior year’s statutory income and/or surplus. Generally, these restrictions pose no short-term liquidity concerns. We plan to retain portions of the earnings of our insurance subsidiaries in those companies primarily to support their future growth.

Debt and other capital resources

Our primary sources of capital are through retained income from our operating subsidiaries, capital infusions from our parent, Dai-ichi Life, as well as our ability to access debt financing markets. Additionally, we have access to the Credit Facility discussed below.

We have the ability to borrow under a Credit Facility arrangement on an unsecured basis up to an aggregate principal amount of $1.0 billion. We have the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.25 billion. We are not aware of any non-compliance with the financial debt covenants of the Credit Facility as of March 31, 2017. There was an outstanding balance of $340.0 million bearing interest at a rate of LIBOR plus 1.00% as of March 31, 2017.

Liquidity

Liquidity refers to a company’s ability to generate adequate amounts of cash to meet its needs. We meet our liquidity requirements primarily through positive cash flows from our operating subsidiaries. Primary sources of cash from the operating subsidiaries are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash include benefit payments, withdrawals from policyholder accounts, investment purchases, policy acquisition costs, interest payments, and other operating expenses. We believe that we have sufficient liquidity to fund our cash needs under normal operating scenarios.

In the event of significant unanticipated cash requirements beyond our normal liquidity needs, we have additional sources of liquidity available depending on market conditions and the amount and timing of the liquidity need. These additional sources of liquidity include cash flows from operations, the sale of liquid assets, accessing our credit facility, and other sources described herein.

Our decision to sell investment assets could be impacted by accounting rules, including rules relating to the likelihood of a requirement to sell securities before recovery of our cost basis. Under stressful market and economic conditions, liquidity may broadly deteriorate, which could negatively impact our ability to sell investment assets. If we require on short notice significant amounts of cash in excess of normal requirements, we may have difficulty selling investment assets in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.

The liquidity requirements of our regulated insurance subsidiaries primarily relate to the liabilities associated with their various insurance and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans, and obligations to redeem funding agreements.

Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits and expected surrenders, withdrawals, loans, and redemption obligations without forced sales of investments. In addition, our insurance subsidiaries hold highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities to fund our expected operating expenses, surrenders, and withdrawals. As of March 31, 2017, our total cash and invested assets were $51.7 billion. The life insurance subsidiaries were committed as of March 31, 2017, to fund mortgage loans in the amount of $772.4 million.

Our positive cash flows from operations are used to fund an investment portfolio that provides for future benefit payments. We employ a formal asset/liability program to manage the cash flows of our investment portfolio relative to our long-term benefit obligations. Our insurance subsidiaries held approximately $552.6 million in cash and short-term investments as of March 31, 2017, and we held approximately $92.3 million in cash available for general corporate purposes.

The following chart includes the cash flows provided by or used in operating, investing, and financing activities for the following periods:



	For The Three Months Ended March 31,
	2017			2016
	(Dollars In Thousands)
Net cash provided by operating activities	$	40,018		$	109,768
Net cash used in investing activities	(359,771		)	(2,570,119		)
Net cash provided by financing activities	380,948			2,418,423
Total	$	61,195		$	(41,928	)

For The Three Months Ended March 31, 2017 as compared to the Three Months Ended March 31, 2016

Net cash provided by operating activities - Cash flows from operating activities are affected by the timing of premiums received, fees received, investment income, and expenses paid. Principal sources of cash include sales of our products and services. We typically generate positive cash flows from operating activities, as premiums and policy fees collected from our insurance and investment products exceed benefit payments and redemptions, and we invest the excess. Accordingly, in analyzing our cash flows we focus on the amount of cash provided by or used in investing and financing activities.

Net cash used in investing activities - Changes in cash from investing activities primarily related to the activity in our investment portfolio.

Net cash provided by financing activities - Changes in cash from financing activities included $29.5 million of inflows from secured financing liabilities for the three months ended March 31, 2017, as compared to the $221.8 million of inflows for the three months ended March 31, 2016 and $349.8 million inflows of investment product and universal life net activity as compared to $144.1 million in the prior year. Net activity related to credit facility resulted in inflows of $156.5 million for the three months ended March 31, 2017, as compared to $37.9 million of outflows for three months ended March 31, 2016. Net repayment of non-recourse funding obligations equaled $11.0 million during the three months ended March 31, 2017, as compared to net issuances of $2.2 billion during the three months ended March 31, 2016, which occurred in conjunction with the GLAIC reinsurance transaction. See Note 10, Debt and Other Obligations for additional information on the transaction. The Company paid a dividend during the three month period ended March 31, 2017 of $143.8 million, as compared to a dividend of $89.3 million during the three months ended March 31, 2016.

Through our subsidiaries, we are members of the FHLB of Cincinnati and the FHLB of New York. FHLB advances provide an attractive funding source for short-term borrowing and for the sale of funding agreements. Membership in the FHLB requires that we purchase FHLB capital stock based on a minimum requirement and a percentage of the dollar amount of advances outstanding. Our borrowing capacity is determined by criteria established by each respective bank. In addition, our obligations under the advances must be collateralized. We maintain control over any such pledged assets, including the right of substitution. As of March 31, 2017, we had $822.4 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

While we anticipate that the cash flows of our operating subsidiaries will be sufficient to meet our investment commitments and operating cash needs in a normal credit market environment, we recognize that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, we have established repurchase agreement programs for certain of our insurance subsidiaries to provide liquidity when needed. We expect that the rate received on its investments will equal or exceed its borrowing rate. Under this program, we may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements provided for net settlement in the event of default or on termination of the agreements. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, the fair value of securities pledged under the repurchase program was ~~$177.5~~$856.6 million and the repurchase obligation of ~~$160.0~~$787.7 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 4290 basis points). During the ~~six~~three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, the maximum balance outstanding at any one point in time related to these programs was ~~$725.0~~$981.3 million. The average daily balance was ~~$464.5~~$842.7 million (at an average borrowing rate of 4071 basis points) during the ~~six~~three months ended ~~June 30, 2016 (Successor Company).~~March 31, 2017. As of December 31, ~~2015 (Successor Company),~~2016, the fair value of securities pledged under the repurchase program was ~~$479.9~~$861.7 million and the repurchase obligation of ~~$438.2~~$797.7 million was included in our consolidated condensed balance ~~sheets.~~sheets (at an average borrowing rate of 65 basis points). During ~~2015,~~2016, the maximum balance outstanding at any one point in time related to these programs was ~~$912.7~~$1,065.8 million. The average daily balance was ~~$540.3 million and $77.4~~$505.4 million (at an average borrowing rate of ~~20 and 16~~44 basis points) during the ~~period of February 1, 2015 to~~year ended December 31, ~~2015 (Successor Company)~~2016.

We participate in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. We require initial collateral of 102% of the market value of the loaned securities to be separately maintained. The loaned securities’ market value is monitored on a daily basis. As of March 31, 2017, securities with a market value of $37.9 million were loaned under this program. As collateral for the loaned securities, we receive short-term investments, which are recorded in “short-term investments” with a corresponding liability recorded in “other liabilities” to account for its obligation to return the collateral. As of March 31, 2017, the fair value of the collateral related to this program was $39.6 million and we have an obligation to return $39.6 million of collateral to the ~~period of January 1, 2015 to January 31, 2015 (Predecessor Company).~~securities borrowers.

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Additionally, we may, from time to time, sell short-duration stable value products to complement our cash management practices. Depending on market conditions, we may also use securitization transactions involving our commercial mortgage loans to increase liquidity for the operating subsidiaries.

Statutory Capital

~~Credit Facility~~

~~On February 2, 2015, we amended and restated~~A life insurance company’s statutory capital is computed according to rules prescribed by the Credit Facility (the “Credit Facility”). Under the Credit Facility, we have the ability to borrow on an unsecured basis up to an aggregate principal amount of $1.0 billion. We have the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.25 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of our 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 Federal Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of our Senior Debt. The Credit Facility also provided for a facility fee at a rate that varies with the ratings of our Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The initial facility fee rate was 0.15% on February 2, 2015, and was adjusted to 0.125% upon our subsequent ratings upgrade on February 2, 2015. The Credit Facility provides that we are liable for the full amount of any obligations for borrowings or letters of credit, including those of PLICO, under the Credit Facility. The maturity date of the Credit Facility is February 2, 2020. We are not aware of any non-compliance with the financial debt covenants of the Credit FacilityNAIC, as of June 30, 2016 (Successor Company). There was an outstanding balance of $360.0 million bearing interest at a rate of LIBOR plus 1.00% as of June 30, 2016 (Successor Company). As of June 30, 2016 (Successor Company), PLICO had used $30.0 million of borrowing capacitymodified by executing a Letter of Credit under the Credit Facility for the benefit on an affiliated captive reinsurance subsidiary of the Company. This Letter of Credit had not been drawn upon as of June 30, 2016 (Successor Company).

~~Sources and Use of Cash~~

Our primary sources of funding are dividends from our operating subsidiaries; revenues from investments, data processing, legal, and management services rendered to subsidiaries; investment income; and external financing. These sources of cash support our general corporate needs including our common stock dividends and debt service. Thestate law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our equity contributions. In general, dividends up to specified levels are ~~domiciled impose certain restrictions on~~considered ordinary and may be paid thirty days after written notice to the insurance subsidiaries’ ability to pay us dividends. These restrictions are based in part on the prior year’s statutory income and/or surplus. Generally, these restrictions pose no short-term liquidity concerns. We plan to retain portionscommissioner of the ~~earnings~~state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as an ordinary dividend to us from our insurance subsidiaries in ~~those~~2017 is approximately $423.7 million.

State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies ~~primarily~~to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile. A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to RBC. We manage our capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators.

Statutory reserves established for VA contracts are sensitive to changes in the equity and bond markets and are affected by the level of account values relative to the level of any guarantees and product design. As a result, the relationship between reserve changes and market performance may be non-linear during any given reporting period. Market conditions greatly influence the capital required due to their ~~future growth.~~impact on the valuation of reserves and derivative investments mitigating the risk in these reserves. Risk mitigation activities may result in material and sometimes counterintuitive impacts on statutory surplus and RBC ratio. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can vary at a non-linear rate.

~~Through~~Our statutory surplus is impacted by credit spreads as a result of accounting for the assets and liabilities on our ~~subsidiaries,~~fixed MVA annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are members of the FHLB of Cincinnati and the FHLB of New York. FHLB advances provide an attractive funding source for short-term borrowing and for the sale of funding agreements. Membership in the FHLB requires that we purchase FHLB capital stockrequired to use current crediting rates based on ~~a minimum requirement and a percentage of the dollar amount of advances outstanding. Our borrowing capacity is determined by criteria established by each respective bank.~~

~~We held $65.7 million of FHLB common stock as of June 30, 2016 (Successor Company), which is included in equity securities.~~U.S. Treasuries. In addition, our obligations under the advances must be collateralized. We maintain control over any such pledged assets, including the right of substitution. As of June 30, 2016 (Successor Company), we had $822.3 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

As of June 30, 2016 (Successor Company), we reported approximately $524.2 million (fair value) of Auction Rate Securities (“ARS”) in non-Modco portfolios. As of June 30, 2016 (Successor Company), 100% of these ARS were rated Aaa/AA+. While the auction ratemany capital market ~~has experienced liquidity constraints, we believe that~~scenarios, current crediting rates based on ~~our current liquidity position and our operating cash flows, any lack of liquidity~~U.S. Treasuries are highly correlated with market rates implicit in ~~the ARS market will not have a material impact on our liquidity, financial condition, or cash flows. For information on how we determine~~ the fair value of ~~these securities refer~~statutory separate account assets. As a result, the change in the statutory reserve from period to ~~Note 7,~~ ~~Fair Value of Financial Instruments~~,period will likely substantially offset the change in the fair value of the ~~consolidated condensed~~statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase or decrease sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value gains or losses. As actual credit spreads are not fully reflected in current crediting rates based on U.S. Treasuries, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in a change in statutory surplus.

~~The liquidity requirements~~condition of our ~~regulated insurance subsidiaries primarily relate~~reinsurers and monitor the associated concentration of credit risk. For three months ended March 31, 2017, we ceded premiums to the liabilities associated with their various insurance and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans, and obligationsthird party reinsurers amounting to ~~redeem funding agreements.~~

Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits and expected surrenders, withdrawals, loans, and redemption obligations without forced sales of investments.$316.1 million. In addition, ~~our insurance subsidiaries hold highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities~~we had receivables from reinsurers amounting to fund our expected operating expenses, surrenders, and withdrawals. As of June 30, 2016 (Successor Company), our total cash and invested assets were $51.4 billion. The life insurance subsidiaries were committed$5.3 billion as of ~~June 30, 2016 (Successor Company), to fund mortgage loans in the amount of $717.3 million.~~

~~Our positive cash flows from operations are used to fund an investment portfolio that provides~~March 31, 2017. We review reinsurance receivable amounts for future benefit payments. We employ a formal asset/liability program to manage the cash flows of our investment portfolio relative to our long-term benefit obligations. Our insurance subsidiaries held approximately $539.5 million in cashcollectability and ~~short-term investments as of June 30, 2016 (Successor Company), and we held approximately $69.5 million in cash available for general corporate purposes.~~

The Company expects to use a portion of its positive cash flow from operations to pay dividends to its parent, Dai-ichi Life. The Company paid $89.3 million in dividends during the six months ended June 30, 2016 (Successor Company) to our parent Dai-ichi Life.

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~~The following chart includes the cash flows provided by or used in operating, investing, and financing activities for the following periods:~~

Successor
Company

Predecessor
Company

For The Six
Months Ended
June 30, 2016

February 1, 2015
to
June 30, 2015

January 1, 2015
to
January 31, 2015
(Dollars In Thousands) (Dollars In Thousands)
Net cash provided by operating activities $ 330,141
$ 124,566
$ 191,223
Net cash (used in) provided by investing activities (2,959,525 ) (638,490 ) 22,994
Net cash provided by (used in) financing activities 2,661,831
619,990
(130,918 )
Total $ 32,447
$ 106,066
$ 83,299

~~For The Six Months Ended June 30, 2016 (Successor Company)~~

~~Net cash provided by operating activities~~ - Cash flows from operating activities are affected by the timing of premiums received, fees received, investment income, and expenses paid. Principal sources of cash include sales of our products and services. We typically generate positive cash flows from operating activities, as premiums and policy fees collected from our insurance and investment products exceed benefit payments and redemptions, and we invest the excess. Accordingly, in analyzing our cash flows we focus on the amount of cash provided by or used in investing and financing activities.

~~Net cash (used in) provided by investing activities~~ - Changes in cash from investing activities primarily related to the activity in our investment portfolio and the purchase of $2.2 billion of held-to-maturity securities issued by affiliates in conjunction with the GLAIC reinsurance transaction. See Note 3, ~~Reinsurance and Financing Transactions~~ ~~and Note 12,~~ ~~Debt and Other Obligations~~ ~~for additional information on the transaction.~~

~~Net cash provided by (used in) financing activities~~ - Changes in cash from financing activities included $278.2 million of outflows from repurchase program borrowings for the six months ended June 30, 2016 (Successor Company) and $1.0 million inflows of investment product and universal life net activity. Net activity related to credit facility resulted in outflows of $158.8 million for the six months ended June 30, 2016 (Successor Company). Net issuance of non-recourse funding obligations was $2.2 billion during the six months ended June 30, 2016 (Successor Company), which occurred in conjunction with the GLAIC reinsurance transaction. See Note 3, ~~Reinsurance and Financing Transactions~~ ~~and Note 12,~~ ~~Debt and Other Obligations~~ ~~for additional information on the transaction.~~

establish bad debt reserves if deemed appropriate.

~~Capital Resources~~

Captive Reinsurance Companies

Our life insurance subsidiaries are subject to a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline AXXX.” The regulation and supporting guideline require insurers to establish statutory reserves for term and universal life insurance policies with long-term premium guarantees that are consistent with the statutory reserves required for other individual life insurance policies with similar guarantees. Many market participants believe that these levels of reserves are non-economic. We use captive reinsurance companies to implement reinsurance and capital management actions to satisfy these reserve requirements by financing the non-economic reserves either through the issuance of non-recourse funding obligations by the captives or obtaining Letters of Credit from third-party financial institutions. For more information regarding our use of captives and their impact on our financial statements, please refer to Note ~~12,~~10, Debt and Other Obligations.

Our captive reinsurance companies assume business from affiliates only. Our captives are capitalized to a level we believe is sufficient to support the contractual risks and other general obligations of the respective captive entity. All of our captive reinsurance companies are wholly owned subsidiaries and are located domestically. The captive insurance companies are subject to regulations in the state of domicile.

The National Association of Insurance Commissioners (“NAIC”), through various committees, subgroups and dedicated task forces, is reviewing the use of captives and special purpose vehicles used to transfer insurance risk in relation to existing state laws and regulations, and several committees have adopted or exposed for comment white papers and reports that, if or when implemented, could impose additional requirements on the use of captives and other reinsurers. The Financial Condition (E) Committee of the NAIC recently established a Variable Annuity Issues Working Group to examine company use of variable annuity captives. The Committee has proposed changes in the regulation of variable annuities and variable annuity captives could adversely affect our future financial condition and results of operations.

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The Principles Based Reserving Implementation (EX) Task Force of the NAIC, charged with analysis of the adoption of a principles-based reserving methodology, adopted the “conceptual framework” contained in a report issued by Rector & Associates, Inc., dated June 4, 2014 (as modified or supplemented, the “Rector Report”), that contains numerous recommendations pertaining to the regulation and use of certain captive reinsurers. Certain high-level recommendations have been adopted and assigned to various NAIC working groups, which working groups are in various stages of discussions regarding recommendations. One recommendation of the Rector Report ~~has been~~was adopted as Actuarial Guideline XLVIII (“AG48”). AG48 sets more restrictive standards on the permitted collateral utilized to back reserves of a captive. ~~Other recommendations in~~In September 2016, the ~~Rector Report are subject~~Financial Condition (E) Committee of the NAIC adopted the Term and Universal Life Insurance Reserve Financing Model Regulation (the "Reserve Model") which is substantially similar to ~~ongoing comment~~AG48. AG48 and ~~revision. It is unclear at this time to what extent~~ the recommendations in the Rector Report, or additional or revised recommendations relating to captive transactions or reinsurance transactions in general, will be adopted by the NAIC. If the recommendations proposed in the Rector Report are implemented, itReserve Model will likely bemake it difficult for the Company to establish new captive financing arrangements on a basis consistent with past practices. As a result of AG48 and the ~~Rector Report,~~Reserve Model, the implementation of new captive structures in the future may be less capital efficient, may lead to lower product returns and/or increased product pricing or result in reduced sales of certain products. ~~Additionally, in~~In some circumstances, AG48 and the ~~implementation of the recommendations in the Rector Report~~Reserve Model could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.

We also use a captive reinsurance company to reinsure risks associated with ~~GMWB~~GLWB and GMDB riders which helps us to manage those risks on an economic basis. In an effort to mitigate the equity market risks relative to our RBC ratio, in the fourth quarter of 2012, we established an insurance subsidiary, Shades Creek Captive Insurance Company (“Shades Creek”), to which PLICO has reinsured ~~GMWB~~GLWB and GMDB riders related to its VA contracts. The purpose of Shades Creek is to reduce the volatility in RBC due to non-economic variables included within the RBC calculation.

During 2012, we entered into an intercompany capital support agreement with Shades Creek. The agreement provides through a guarantee that we will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as defined by the agreement. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, Shades Creek maintained capital levels in excess of the required minimum thresholds. The maximum potential future payment amount which could be required under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.

~~Statutory Capital~~

A life insurance company’s statutory capital is computed according to rules prescribed by the NAIC, as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our equity contributions. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as an ordinary dividend to us from our insurance subsidiaries in 2016 is approximately to be $541.3 million.

State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile. A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to RBC. We manage our capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators.

Statutory reserves established for VA contracts are sensitive to changes in the equity markets and are affected by the level of account values relative to the level of any guarantees and product design. As a result, the relationship between reserve changes and equity market performance may be non-linear during any given reporting period. Market conditions greatly influence the capital required due to their impact on the valuation of reserves and derivative investments mitigating the risk in these reserves. Risk mitigation activities may result in material and sometimes counterintuitive impacts on statutory surplus and RBC ratio. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can vary at a non-linear rate.

Our statutory surplus is impacted by credit spreads as a result of accounting for the assets and liabilities on our fixed MVA annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are required to use current crediting rates based on U.S. Treasuries. In many capital market scenarios, current crediting rates based on U.S. Treasuries are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in the statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase or decrease sharply for certain sub-sectors of the overall credit

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market, resulting in statutory separate account asset market value gains or losses. As actual credit spreads are not fully reflected in current crediting rates based on U.S. Treasuries, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in a change in statutory surplus.

On January 15, 2016, PLICO closed the reinsurance transaction with GLAIC. We currently estimate that the total capital investment was approximately $589 million, instead of $661 million, as previously estimated and disclosed. The estimated total capital investment decreased primarily due to lower initial risk-based capital than previously estimated and our ability to utilize certain tax benefits sooner than expected.

We cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets, we remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations that it assumed. We evaluate the financial condition of our reinsurers and monitor the associated concentration of credit risk. For three and six months ended June 30, 2016 (Successor Company), we ceded premiums to third party reinsurers amounting to $336.6 million and $646.9 million. In addition, we had receivables from reinsurers amounting to $5.4 billion as of June 30, 2016 (Successor Company). We review reinsurance receivable amounts for collectability and establish bad debt reserves if deemed appropriate.

Ratings

Various Nationally Recognized Statistical Rating Organizations (“rating organizations”) review the financial performance and condition of insurers, including our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in an insurer’s products, its ability to market its products and its competitive position. The following table summarizes the current financial strength ratings of our significant member companies from the major independent rating organizations:



			Standard &
Ratings	A.M. Best	Fitch	Poor’s	Moody’s

Insurance company financial strength rating:
Protective Life Insurance Company	A+	A+	AA-	A2
West Coast Life Insurance Company	A+	A+	AA-	A2
Protective Life and Annuity Insurance Company	A+	A+	AA-	—
~~Lyndon~~Protective Property & Casualty Insurance Company	A-	—	—	—
MONY Life Insurance Company	A+	A+	A+	A2

Our ratings are subject to review and change by the rating organizations at any time and without notice. A downgrade or other negative action by a ratings organization with respect to the financial strength ratings of our insurance subsidiaries could adversely affect sales, relationships with distributors, the level of policy surrenders and withdrawals, competitive position in the marketplace, and the cost or availability of reinsurance. The rating agencies may take various actions, positive or negative, with respect to the financial strength ratings of our insurance subsidiaries, including as a result of our status as a subsidiary of Dai-ichi Life.

On April 28, 2015, Fitch announced a one-notch downgrade of the insurance financial strength ratings of PLICO, West Coast Life Insurance Company, Protective Life and Annuity Insurance Company and MONY Life Insurance Company to A from A+ following the downgrade of Japan’s Long-Term Local Currency Issuer Default Rating (IDR) to A from A+. Fitch stated that such life insurance companies cannot be rated above the sovereign currency rating applicable to their ultimate parent company, Dai-ichi Life, based in Japan. Our credit rating was not affected by these actions. The ratings downgrades announced by Fitch did not trigger any requirements for us or our subsidiaries to post collateral or otherwise negatively impact current obligations.

Rating organizations also publish credit ratings for the issuers of debt securities, including the Company. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. These ratings are important in the debt issuer’s overall ability to access credit markets and other types of liquidity. Ratings are not recommendations to buy our securities or products. A downgrade or other negative action by a ratings organization with respect to our credit rating could limit our access to capital markets, increase the cost of issuing debt, and a downgrade of sufficient magnitude, combined with other negative factors, could require us to post collateral. The rating agencies may take various actions, positive or negative, with respect to our debt ratings, including as a result of our status as a subsidiary of Dai-ichi Life.

LIABILITIES

Many of our products contain surrender charges and other features that are designed to reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect us against investment losses if interest rates are higher at the time of surrender than at the time of issue.

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, we had policy liabilities and accruals of approximately ~~$31.3~~$31.5 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately ~~3.50%~~3.49%.

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Contractual Obligations

We enter into various obligations to third parties in the ordinary course of our operations. However, we do not believe that our cash flow requirements can be assessed solely based upon an analysis of these obligations. The most significant factors affecting our future cash flows are our ability to earn and collect cash from our customers, and the cash flows arising from our investment program. Future cash outflows, whether they are contractual obligations or not, will also vary based upon our future needs. Although some outflows are fixed, others depend on future events. Examples of fixed obligations include our obligations to pay principal and interest on fixed-rate borrowings. Examples of obligations that will vary include obligations to pay interest on variable-rate borrowings and insurance liabilities that depend on future interest rates, market performance, or surrender provisions. Many of our obligations are linked to cash-generating contracts. In addition, our operations involve significant expenditures that are not based upon contractual obligations. These include expenditures for income taxes and payroll.

As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, we carried a ~~$9.4~~$10.3 million liability for uncertain tax positions, including interest on unrecognized tax benefits. These amounts are not included in the long-term contractual obligations table because of the difficulty in making reasonably reliable estimates of the occurrence or timing of cash settlements with the respective taxing authorities.

The table below sets forth future maturities of our contractual obligations:

Payments due by period
Total
Less than
1 year
1-3 years 3-5 years
More than
5 years
(Dollars In Thousands)
Debt⁽¹⁾
$ 1,830,926
$ 66,781
$ 269,562
$ 816,838
$ 677,745
Non-recourse funding obligations⁽²⁾
5,028,738
227,834
536,580
650,070
3,614,254
Subordinated debt securities⁽³⁾
1,137,941
26,969
53,937
53,937
1,003,098
Stable value products⁽⁴⁾
2,949,925
540,145
1,697,642
701,528
10,610
Operating leases⁽⁵⁾
30,527
4,343
7,598
7,186
11,400
Home office lease⁽⁶⁾
78,622
1,453
77,169
—
—
Mortgage loan and investment commitments 925,169
867,119
58,050
—
—
Repurchase program borrowings⁽⁷⁾
160,002
160,002
—
—
—
Policyholder obligations⁽⁸⁾
42,015,056
1,671,603
3,535,587
3,479,649
33,328,217
Total⁽⁹⁾
$ 54,156,906
$ 3,566,249
$ 6,236,125
$ 5,709,208
$ 38,645,324

~~(1)Debt includes all principal amounts owed on note agreements and expected interest payments due over the term of the notes.~~

~~(2)~~Non-recourse funding obligations include all undiscounted principal amounts owed and expected future interest payments due over the term of the notes. Of the total undiscounted cash flows, $1.8 billion relates to the Golden Gate V transaction. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate V receives from notes issued by a nonconsolidated variable interest entity. Additionally, $3.0 billion relates to the Golden Gate transaction that occurred in Q1 2016. These cash outflows are matched and predominantly offset by the cash inflows Golden Gate receives from notes issued by nonconsolidated entity and third parties. The remaining amounts are associated with the Golden Gate II notes held by third parties as well as certain obligations assumed with the acquisition of MONY Life Insurance Company.

~~(3)Subordinated debt securities includes all principal amounts and interest payments due over the term of the obligations.~~

~~(4)Anticipated stable value products cash flows including interest.~~

~~(5)Includes all lease payments required under operating lease agreements.~~

~~(6)~~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.

~~(7)Represents secured borrowings as part of our repurchase program as well as related interest.~~

~~(8)~~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.

~~(9)Excluded from this table are certain pension obligations.~~

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

FASB guidance defines fair value for GAAP and establishes a framework for measuring fair value as well as a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The term “fair value” in this document is defined in accordance with GAAP. The standard describes three levels of inputs that may be used to measure fair value. For more information, see Note 7, ~~Fair Value of Financial Instruments~~.



			Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(Dollars In Thousands)
Debt⁽¹⁾	$	1,669,685	$	213,451	$	837,353	$	39,449	$	579,432
Non-recourse funding obligations⁽²⁾	4,768,019		247,648		579,637		668,910		3,271,824
Subordinated debt securities⁽³⁾	1,117,715		26,968		53,938		53,938		982,871
Stable value products⁽⁴⁾	3,807,851		605,488		1,774,250		1,280,721		147,392
Operating leases⁽⁵⁾	32,423		4,425		8,731		7,667		11,600
Home office lease⁽⁶⁾	78,163		1,815		76,348		—		—
Mortgage loan and investment commitments	929,424		804,125		125,299		—		—
Secured financing liabilities⁽⁷⁾	827,251		827,251		—		—		—
Policyholder obligations⁽⁸⁾	42,113,846		1,645,404		3,596,226		3,447,509		33,424,707
Total⁽⁹⁾	$	55,344,377	$	4,376,575	$	7,051,782	$	5,498,194	$	38,417,826

(1) Debt includes all principal amounts owed on note agreements and expected interest payments due over the term of the notes.
(2) 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, $2.9 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.
(3) Subordinated debt securities includes all principal amounts and interest payments due over the term of the obligations.
(4) Anticipated stable value products cash flows including interest.
(5) Includes all lease payments required under operating lease agreements.
(6) 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.
(7) Represents secured borrowings and accrued interest as part of our repurchase program as well as liabilities associated with securities lending transactions.
(8) 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.
(9) Excluded from this table are certain pension obligations.

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OFF-BALANCE SHEET ARRANGEMENTS

We have entered into indemnity agreements with each of our directors as well as operating leases that do not result in an obligation being recorded on the balance sheet. Refer to Note ~~13,~~11, Commitments and Contingencies, of the consolidated condensed financial statements for more information on our indemnity agreements.

MARKET RISK EXPOSURES

Our financial position and earnings are subject to various market risks including changes in interest rates, the yield curve, spreads between risk-adjusted and risk-free interest rates, foreign currency rates, used vehicle prices, and equity price risks and issuer defaults. We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, through an integrated asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, ~~inflation risk,~~ currency exchange risk, volatility risk, and equity market risk. See Note 8,6, Derivative Financial Instruments, to the consolidated condensed financial statements included in this report for additional information on our financial instruments.

The primary focus of our asset/liability program is the management of interest rate risk within the insurance operations. This includes monitoring the duration of both investments and insurance liabilities to maintain an appropriate balance between risk and profitability for each product category, and for us as a whole. It is our policy to maintain asset and liability durations within one year of one another, although, from time to time, a broader interval may be allowed.

We are exposed to credit risk within our investment portfolio and through derivative counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. We manage credit risk through established investment policies which attempt to address quality of obligors and counterparties, credit concentration limits, diversification requirements, and acceptable risk levels under expected and stressed scenarios. Derivative counterparty credit risk is measured as the amount owed to us, net of collateral held, based upon current market conditions. In addition, we periodically assess exposure related to potential payment obligations between us and our counterparties. We minimize the credit risk in derivative financial instruments by entering into transactions with high quality counterparties, (A-rated or higher at the time we enter into the contract), and we maintain credit support annexes with certain of those counterparties.

We utilize a risk management strategy that includes the use of derivative financial instruments. Derivative instruments expose us to credit market and basis risk. Such instruments can change materially in value from period- to-period. We minimize our credit risk by entering into transactions with highly rated counterparties. We manage the market and basis risks by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. We monitor our use of derivatives in connection with our overall asset/liability management programs and procedures. In addition, all derivative programs are monitored by our risk management department.

Derivative instruments that are used as part of our interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate options. ~~Our inflation~~

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

foreign equity options.

We may use the following types of derivative contracts to mitigate our exposure to certain guaranteed benefits related to variable annuity, fixed indexed annuity, and indexed universal life contracts:

•Foreign Currency Futures

•Variance Swaps

•Interest Rate Futures

•Equity Options

•Equity Futures

•Credit Derivatives

•Interest Rate Swaps

•Interest Rate Swaptions

•Volatility Futures

•Volatility Options

•Total Return Swaps

We believe that our asset/liability management programs and procedures and certain product features provide protection against the effects of changes in interest rates under various scenarios. Additionally, we believe our asset/liability management programs and procedures provide sufficient liquidity to enable us to fulfill our obligation to pay benefits under our various insurance and deposit contracts. However, our asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, spread movements, implied volatility, policyholder behavior, and other factors, and the effectiveness of our asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions.

In the ordinary course of our commercial mortgage lending operations, we may commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a

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mortgage loan when called upon by the borrower. The commitment is not recognized in our financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest, which may be different than prevailing interest rates. As of ~~June 30, 2016 (Successor Company),~~March 31, 2017, we had outstanding mortgage loan commitments of ~~$717.3~~$772.4 million at an average rate of 4.2%.

Impact of ~~continued low interest rate environment~~

Continued Low Interest Rate Environment

Significant changes in interest rates expose us to the risk of not realizing anticipated spreads between the interest rate earned on investments and the interest rate credited to in-force policies and contracts. In addition, certain of our insurance and investment products guarantee a minimum guaranteed interest rate (“MGIR”). In periods of prolonged low interest rates, the interest spread earned may be negatively impacted to the extent our ability to reduce policyholder crediting rates is limited by the guaranteed minimum credited interest rates. Additionally, those policies without account values may exhibit lower profitability in periods of prolonged low interest rates due to reduced investment income.

The table below presents account values by range of current minimum guaranteed interest rates and current crediting rates for our universal life and deferred fixed annuity products as of ~~June 30, 2016 (Successor Company)~~March 31, 2017, and December 31, ~~2015 (Successor Company):~~

2016:

Credited Rate Summary

As of ~~June 30, 2016 (Successor Company)~~March 31, 2017

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% $ 200
$ 1,077
$ 2,008
$ 3,285
>3% - 4% 4,034
1,194
11
5,239
>4% - 5% 1,958
14
—
1,972
>5% - 6% 212
—
—
212
Subtotal 6,404
2,285
2,019
10,708
Fixed Annuities

1% $ 665
$ 164
$ 132
$ 961
>1% - 2% 561
491
121
1,173
>2% - 3% 2,074
179
11
2,264
>3% - 4% 273
—
—
273
>4% - 5% 281
—
—
281
>5% - 6% 3
—
—
3
Subtotal 3,857
834
264
4,955
Total $ 10,261
$ 3,119
$ 2,283
$ 15,663

Percentage of Total 66 % 20 % 14 % 100 %

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				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		$	1,153		$	2,030		$	3,386
>3% - 4%	4,194			1,029			8			5,231
>4% - 5%	1,973			14			—			1,987
>5% - 6%	219			—			—			219
Subtotal	6,589			2,196			2,038			10,823
Fixed Annuities
1%	$	674		$	150		$	121		$	945
>1% - 2%	543			426			92			1,061
>2% - 3%	2,015			66			6			2,087
>3% - 4%	264			—			—			264
>4% - 5%	279			—			—			279
>5% - 6%	3			—			—			3
Subtotal	3,778			642			219			4,639
Total	$	10,367		$	2,838		$	2,257		$	15,462

Percentage of Total	67		%	18		%	15		%	100		%

Credited Rate Summary

As of December 31, ~~2015 (Successor Company)~~2016


				1-50 bps			More than									1-50 bps			More than
Minimum Guaranteed Interest Rate	At			above			50 bps						At			above			50 bps
Account Value	MGIR			MGIR			above MGIR			Total			MGIR			MGIR			above MGIR			Total
	(Dollars In Millions)												(Dollars In Millions)
Universal Life Insurance
>2% - 3%	$	197		$	1,033		$	2,016		$	3,246		$	202		$	1,133		$	2,023		$	3,358
>3% - 4%	3,648			1,603			27			5,278			4,001			1,191			11			5,203
>4% - 5%	1,983			14			—			1,997			1,928			14			—			1,942
>5% - 6%	215			—			—			215			208			—			—			208
Subtotal	6,043			2,650			2,043			10,736			6,339			2,338			2,034			10,711
Fixed Annuities
1%	$	663		$	169		$	138		$	970		$	670		$	153		$	114		$	937
>1% - 2%	569			496			131			1,196			535			463			103			1,101
>2% - 3%	2,083			248			11			2,342			2,056			68			7			2,131
>3% - 4%	278			—			—			278			267			—			—			267
>4% - 5%	287			—			—			287			281			—			—			281
>5% - 6%	3			—			—			3			3			—			—			3
Subtotal	3,883			913			280			5,076			3,812			684			224			4,720
Total	$	9,926		$	3,563		$	2,323		$	15,812		$	10,151		$	3,022		$	2,258		$	15,431

Percentage of Total	63		%	23		%	14		%	100		%	66		%	19		%	15		%	100		%

We are active in mitigating the impact of a continued low interest rate environment through product design, as well as adjusting crediting rates on current in-force policies and contracts. We also manage interest rate and reinvestment risks through our asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations; cash flow testing under various interest rate scenarios; and the regular rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk.

IMPACT OF INFLATION

Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefit and protection. Higher interest rates may result in higher sales of certain of our investment products.

The higher interest rates that have traditionally accompanied inflation could also affect our operations. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase. The market value of our fixed-rate, long-term investments may decrease, we may be unable to implement fully the interest rate reset and call provisions of our mortgage loans, and our ability to make attractive mortgage loans, including participating mortgage loans, may decrease. In addition, participating mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates. During the periods covered by this report, we believe inflation has not had a material impact on our business.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2, Summary of Significant Accounting Policies, to the consolidated condensed financial statements for information regarding recently issued accounting standards.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources” and Part II, Item 1A, Risk Factors, of this report for market risk disclosures.

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Item 4.Controls and Procedures

(a)Disclosure controls and procedures

In order to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), except as otherwise noted below. Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective. It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of any control system is based in part upon certain judgments, including the costs and benefits of controls and the likelihood of future events. Because of these and other inherent limitations of control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.

~~As described in Note 3~~In conducting our evaluation of the effectiveness of internal control over financial reporting as of March 31, 2017, we have excluded USWC Holding Company and its subsidiaries ("US Warranty") and the internal controls relating to the consolidated condensed financial statements set forth in this periodic report on Form 10-Q, the Company entered into a reinsurance transaction with Genworth Life and Annuity Insurance Company effective January 1, 2016. The Company performed due diligence on this transaction prior to the effective date and developed a reasonable level of assurance that the disclosure controls and procedures for the related administrative systems and processes being provided by third parties for the acquired business. US Warranty was acquired on December 1, 2016 and its revenues and income were ~~effective.~~ immaterial to the Company's results of operations for the three month period ended March 31, 2017.

(b)Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended ~~June 30, 2016 (Successor Company),~~March 31, 2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.

PART II

Item 1A. Risk Factors

The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and known trends and uncertainties. In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015 (Successor Company),~~2016, which could materially affect the Company’s business, financial condition, or future results of operations.

The Company is exposed to risks related to natural and man-made disasters and catastrophes, diseases, epidemics, pandemics, malicious acts, cyber-attacks, terrorist acts and climate change, which could adversely affect the Company’s operations and results.

While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no predictions of specific scenarios can be made nor can assurance be given that there are not scenarios that could have an adverse effect on the Company. A natural or man-made disaster or catastrophe, including a severe weather or geological event such as a storm, tornado, fire, flood, or earthquake, disease, epidemic, pandemic, malicious act,cyber-attack, terrorist act, or the occurrence of climate change, could cause the Company’s workforce to be unable to engage in operations at one or more of its facilities or result in short or long-term interruptions in the Company’s business operations, any of which could be material to the Company’s operating results for a particular period. In addition, such events could adversely affect the mortality, morbidity, or other experience of the Company or its reinsurers and have a significant negative impact on the Company. In addition, claims arising from the occurrence of such events or conditions could have a material adverse effect on the Company’s financial condition and results of operations. Such events or conditions could also have an adverse effect on lapses and surrenders of existing policies, as well as sales of new policies. The Company’s risk management efforts and other precautionary plans and activities may not adequately predict the impact on the Company from such events.

In addition, such events or conditions could result in a decrease or halt in economic activity in large geographic areas, adversely affecting the marketing or administration of the Company’s business within such geographic areas and/or the general economic climate, which in turn could have an adverse effect on the Company. Such events or conditions could also result in additional regulation or restrictions on the Company in the conduct of its business. The possible macroeconomic effects of such events or conditions could also adversely affect the Company’s asset portfolio, as well as many other aspects of the Company’s business, financial condition, and results of operations.General Risk Factors

The ~~Company’s~~Company's results and financial condition may be negatively affected should actual experience differ from ~~management’s~~management's assumptions and estimates.

In the conduct of business, the Company makes certain assumptions regarding mortality, morbidity, persistency, expenses, interest rates, equity ~~market volatility,~~markets, tax, ~~liability,~~ business mix, ~~frequency and severity of claims,~~casualty, contingent liabilities, investment performance, and other factors appropriate to the type of business it expects to experience in future periods. These assumptions are ~~also~~ used to estimate the amounts of deferred policy acquisition costs, policy liabilities and accruals, future earnings, and various components of the ~~Company’s~~Company's balance sheet. These assumptions are also used in the operation of the ~~Company’s~~Company's business in

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making decisions crucial to the success of the Company, including the pricing of ~~products~~acquisitions and ~~expense structures relating to~~ products. The ~~Company’s~~Company's actual experience, as well as changes in estimates, is used to prepare the ~~Company’s~~Company's financial statements. To the extent the ~~Company’s~~Company's actual experience and changes in estimates differ from original estimates, the ~~Company’s~~Company's financial condition may be adversely affected.

Mortality, morbidity, and casualty ~~expectations~~assumptions incorporate underlying assumptions about many factors. Such factors ~~including~~may include, for example, how a product is distributed, for what purpose the product is purchased, the mix of customers purchasing the products, persistency and lapses, future progress in the fields of health and medicine, and the projected level of used vehicle values. Actual mortality, morbidity, and/or casualty experience may differ from expectations. In addition, continued activity in the viatical, stranger-owned, and/or life settlement industry could cause the ~~Company’s~~Company's level of lapses to differ from its assumptions about persistency and lapses, which could negatively impact the ~~Company’s~~Company's performance.

The calculations the Company uses to estimate various components of its balance sheet and statements of income are necessarily complex and involve analyzing and interpreting large quantities of data. The Company currently employs various techniques for such calculations and relies, in certain instances, on third parties to make or assist in making such calculations. From time to time it develops and implements more sophisticated administrative systems and procedures capable of facilitating the calculation of more precise estimates. The systems and procedures that the Company develops and the Company's reliance upon third parties could result in errors in the calculations that impact our financial statements or affect our financial condition.

Assumptions and estimates involve judgment, and by their nature are imprecise and subject to changes and revisions over time. Accordingly, the Company’s results may be affected, positively or negatively, from time to time, by actual results

differing from assumptions, by changes in estimates, and by changes resulting from implementing more sophisticated administrative systems and procedures that facilitate the calculation of more precise estimates.

The Company may not realize its anticipated financial results from its acquisitions strategy.

The Company’s Acquisitions segment focuses on the acquisitions of companies and business operations, and the coinsurance of blocks of insurance business, all of which have increased ~~its~~the Company’s earnings. However, there can be no assurance that the Company will have future suitable opportunities for, or sufficient capital and/or reserve financing available to fund, such transactions. If our competitors have access to capital on more favorable terms or at a lower cost, our ability to compete for acquisitions may be diminished. In addition, there can be no assurance that the Company will be able to realize any projected operating efficiencies or ~~realize~~achieve the anticipated financial results from such transactions.

The Company may be unable to complete an acquisition transaction. Completion of an acquisition transaction may be more costly or take longer than expected, or may have a different or more costly financing structure than initially contemplated. In addition, the Company may not be able to complete or manage multiple acquisition transactions at the same time, or the completion of such transactions may be delayed or be more costly than initially contemplated. The Company, its affiliates, or other parties to the transaction may be unable to obtain regulatory approvals required to complete an acquisition transaction. If the Company identifies and completes suitable acquisitions, it may not be able to successfully integrate the business in a timely or cost-effective manner, or retain key personnel and business relationships necessary to achieve anticipated financial results. In addition, there may be unforeseen liabilities that arise in connection with businesses or blocks of insurance business that the Company ~~acquires.~~acquires or reinsures. Additionally, in connection with its acquisition transactions that involve reinsurance, the Company assumes, or otherwise becomes responsible for, the obligations of policies and other liabilities of other insurers. Any regulatory, legal, financial, or other adverse development affecting the other insurer could also have an adverse effect on the Company.

Risks Related to the Financial Environment

The ~~Company’s~~Company's use of derivative financial instruments within its risk management strategy may not be effective or sufficient.

The Company uses derivative financial instruments within its risk management strategy to mitigate risks to which it is exposed, including ~~the adverse effects of domestic and/or international~~risks related to credit and/or equity market and/or interest rate levels, foreign exchange, ~~risks,~~ or volatility on its fixed indexed annuity and variable annuity products ~~with~~and associated guaranteed benefit features. The Company may also use derivative financial instruments within its risk management strategy to mitigate risks arising from its exposure to investments in individual issuers or sectors of issuers and to mitigate the adverse effects of interest rate levels or volatility on its overall financial condition or results of operations.

These derivative financial instruments may not effectively offset the changes in the carrying value of the ~~guarantees~~exposures due to, among other things, the time lag between changes in the value of such ~~guarantees~~exposures and the changes in the value of the derivative financial instruments purchased by the Company, extreme credit and/or equity market and/or interest rate levels or volatility, contract holder behavior that differs from the Company’s expectations, and divergence between the performance of the underlying funds of such variable annuity products with guaranteed benefit features and the indices utilized by the Company in estimating its exposure to such guarantees.

The Company may also use derivative financial instruments within its risk management strategy to mitigate risks arising from its exposure to investments in individual issuers or sectors of issuers and to mitigate the adverse effects of distressed domestic and/or international credit and/or equity markets and/or interest rate levels or volatility on its overall financial condition or results of operations.basis risk.

The use of derivative financial instruments by the Company generally to hedge various risks that impact GAAP earnings may have an adverse impact on the level of statutory capital and ~~the~~ risk-based capital ratios, ~~of the Company’s insurance subsidiaries. The Company employs strategies in the use of derivative financial instruments~~given that ~~are intended to mitigate such adverse impacts, but the Company’s strategies may~~each respective accounting basis does not ~~be effective.~~move perfectly together.

The Company may also choose not to hedge, in whole or in part, these or other risks that it has identified, due to, for example, the availability and/or cost of a suitable derivative financial instrument or, in reaction to extreme credit, equity market and/or interest rate levels or volatility. Additionally, the Company’s estimates and assumptions made in connection with its use of any derivative financial instrument may fail to reflect or correspond to its actual long-term exposure in respect to identified risks. Derivative financial instruments held or purchased by the Company may also otherwise be insufficient to hedge the risks in relation

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~~to the Company’s obligations.~~instrument. In addition, the Company may fail to identify risks, or the magnitude thereof, to which it is exposed. The Company is also exposed to the risk that its use of derivative financial instruments within its risk management strategy may not be properly designed and/or may not be properly implemented as designed.

The Company is ~~also~~ subject to the risk that its derivative counterparties or clearinghouse may fail or refuse to meet their obligations to the Company ~~under~~which may result in associated derivative financial instruments. If the Company’s derivative counterparties or clearinghouse fail or refuse to meet their obligations to the Company in this regard, the Company’s efforts to mitigate risks to which it is subject through the use of such derivative financial instruments ~~may prove~~ to be ineffective or inefficient.

The above factors, either alone or in combination, may have a material adverse effect on the ~~Company’s financial condition and results of operations.~~

~~Disruption of the capital and credit markets could negatively affect the Company’s ability to meet its liquidity and financing needs.~~

The Company needs liquidity to meet its obligations to its policyholders and its debt holders, and to pay its operating expenses. The Company’s sources of liquidity include insurance premiums, annuity considerations, deposit funds, cash flow from investments and assets, and other income from its operations. In normal credit and capital market conditions, the Company’s sources of liquidity also include a variety of short and long-term borrowing arrangements, including issuing debt securities.

The Company’s business is dependent on the capital and credit markets, including confidence in such markets. When the credit and capital markets are disrupted and confidence is eroded the Company may not be able to borrow money, including through the issuance of debt securities, or the cost of borrowing or raising capital may be prohibitively high. If the Company’s internal sources of liquidity are inadequate during such periods, the Company could suffer negative effects from not being able to borrow money, or from having to do so on unfavorable terms. The negative effects could include being forced to sell assets at a loss, a lowering of the Company’s credit ratings and the financial strength ratings of its insurance subsidiaries, and the possibility that customers, lenders, ratings agencies, or regulators develop a negative perception of the Company’s financial prospects, which could lead to further adverse effects on the Company.

~~The Company could be adversely affected by an inability to access its credit facility.~~

The Company relies on its credit facility as a potential source of liquidity. The availability of these funds could be critical to the Company’s credit and financial strength ratings and its ability to meet obligations, particularly when alternative sources of credit or liquidity are either difficult to access or costly. The availability of the Company’s credit facility is dependent in part on the ability of the lenders to provide funds under the facility. The Company’s credit facility contains various affirmative and negative covenants and events of default, including covenants requiring the Company to maintain a specified minimum consolidated net worth. The Company’s right to make borrowings under the facility is subject to the fulfillment of certain conditions, including its compliance with all covenants. The Company’s failure to comply with the covenants in the credit facility could restrict its ability to access this credit facility when needed. The Company’s inability to access some or all of the line of credit under the credit facility could have a material adverse effect on itsCompany's financial condition and results of operations.

The Company's securities lending program may subject it to liquidity and other risks.

The Company ~~could~~maintains a securities lending program in which securities are loaned to third parties, including brokerage firms and commercial banks. The borrowers of the Company's securities provide the Company with collateral, typically in cash, which it separately maintains. The Company invests the collateral in other securities, including primarily short-term government repo and money market funds. Securities loaned under the program may be ~~adversely affected~~returned to the Company by ~~an inability~~the borrower at any time, requiring the Company to ~~access FHLB lending.~~return the related cash collateral. In some cases, the Company may use the cash collateral provided to purchase other securities to be held as invested collateral, and the maturity of such securities may exceed the term of the securities loaned under the program and/or the market value of such securities may fall below the amount of cash collateral that the Company is obligated to return to the borrower of the Company's loaned securities. If the Company is required to return significant amounts of cash collateral on short notice and are forced to sell the securities held as invested collateral to meet the obligation, the Company may have difficulty selling such securities in a timely manner and/or the Company may be forced to sell the securities in a volatile or illiquid market for less than it otherwise would have been able to realize under normal market conditions. In addition, the Company's ability to sell securities held as invested collateral may be restricted under stressful market and economic conditions in which liquidity deteriorates.

Industry and Regulatory Related Risks

The business of the Company is highly regulated and is subject to routine audits, examinations and actions by regulators, law enforcement agencies and self-regulatory organizations.

The Company is ~~a member~~subject to government regulation in each of the ~~Federal Home Loan Bank (the “FHLB”)~~states in which it conducts business. In many instances, the regulatory models emanate from the National Association of ~~Cincinnati~~Insurance Commissioners (“NAIC”). Such regulation is vested in state agencies having broad administrative and ~~the FHLB of New York. Membership provides the Company~~in some instances discretionary power dealing with access to FHLB financial services, including advances that provide an attractive funding source for short-term borrowing and for the sale of funding agreements. In recent years, the Federal Housing Finance Agency (“FHFA”) has released advisory bulletins addressing concerns associated with insurance company (as opposed to federally-backed bank) access to FHLB financial services, the state insurance regulatory framework and FHLB creditor status in the event of member insurer insolvency. In response to FHFA actions, FHLB members, the NAIC and trade groups developed model legislation that would subject insurers accessing FHLB funding to collateral requirements similar to those applicable to federally insured depository institutions. While membersmany aspects of the ~~FHLB~~Company’s business, which may include, among other things, premium rates and NAIC were not able to agree on certain points, legislation based on this model has been introduced and adopted in several states and is not being opposed by the NAIC. It is unclear at this time whether or to what extent additional or new legislation or regulatory action regarding continued access to FHLB financial services will be enacted or adopted. Any developments that limit access to FHLB financial services could have a material adverse effect on the Company.

~~NAIC actions, pronouncements and initiatives may affect the Company’s product profitability,~~increases thereto, underwriting practices, reserve ~~and capital~~ requirements, ~~financial condition or results of operations.~~

Although some NAIC pronouncements, particularly as they affect accounting, reserving and risk-based capital issues, may take effect automatically without affirmative action taken by the states, the NAIC is not a governmental entity and its processes and procedures do not comport with those to which governmental entities typically adhere. Therefore, it is possible that actions could be taken by the NAIC that become effective without the procedural safeguards that would be present if governmental action was required. In addition, with respect to some financial regulations and guidelines, states sometimes defer to the interpretation of the insurance department of a non-domiciliary state. Neither the action of the domiciliary state nor the action of the NAIC is binding on a non-domiciliary state. Accordingly, a state could choose to follow a different interpretation. The Company is also subject to the risk that compliance with any particular regulator’s interpretation of a legal, accounting or actuarial issue may result in non-compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. There is an additional risk that any particular regulator’s interpretation of a legal, accounting or actuarial issue may change over time to the Company’s detriment, or that changes to the overall legal or market environment may cause the Company to change itsmarketing practices, ~~in ways that may, in some cases, limit its growth or profitability. Statutes, regulations, interpretations, and instructions~~

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~~may be applied with retroactive impact, particularly in areas such as accounting,~~advertising, privacy, cybersecurity, policy forms, reinsurance reserve ~~and risk-based capital requirements. Also, regulatory actions with prospective impact can potentially have a significant impact on currently sold products.~~

The NAIC has announced more focused inquiries on certain matters that could have an impact on the Company’s financial condition and results of operations. Such inquiries concern, for example, examination of statutory accounting disclosures for separate accounts,requirements, insurer use of captive reinsurance companies, ~~variable annuity reserves and~~acquisitions, mergers, capital ~~treatment, certain aspects of insurance holding company reporting and disclosure, reserving for universal life products with secondary guarantees, reinsurance, cybersecurity~~adequacy, claims practices and ~~risk-based capital calculations.~~the remittance of unclaimed property. In addition, some state insurance departments may enact rules or regulations with extra-territorial application, effectively extending their jurisdiction to areas such as permitted insurance company investments that are normally the ~~NAIC continues to consider various initiatives to change and modernize its financial and solvency requirements and regulations. It has adopted a principles-based reserving methodology for life~~province of an insurance and annuity reserves, but additional formulas relevant to the new standard are being developed. The NAIC is also considering changes to accounting and risk-based capital regulations, governance practices of insurers, and other items. Some of these proposed changes, including implementing a principles-based reserving methodology, require the approval ofcompany’s domiciliary state legislatures. The Company cannot currently estimate what impact these more focused inquiries or proposed changes, if they occur, will have on its product mix, product profitability, reserve and capital requirements, financial condition or results of operations.regulator.

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

~~The Company currently uses affiliated captive reinsurance companies in various structures to finance certain statutory reserves based on~~At any given time, a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline AXXX”, which are associated with term life insurance and universal life insurance with secondary guarantees, respectively, as well as to reduce the volatility in statutory risk-based capital associated with certain guaranteed minimum withdrawal and death benefit riders associated with the Company’s variable annuity products. The NAIC, through various committees, subgroups and dedicated task forces, is reviewing the use of captives and special purpose vehicles used to transfer insurance risk in relation to existing state laws and regulations, and several committees have adopted or exposed for comment white papers and reports that, if or when implemented, could impose additional requirements on the use of captives and other reinsurers (including traditional reinsurers) (the “Affected Business”). In addition, the Principles Based Reserving Implementation (EX) Task Force of the NAIC, charged with analysis of the adoption of a principles-based reserving methodology, adopted the “conceptual framework” contained in a report issued by Rector & Associates, Inc., dated June 4, 2014 (as modified or supplemented, the “Rector Report”), that includes numerous recommendations pertaining to the regulation and use of certain captive reinsurers. Certain high-level recommendations have been adopted and assigned to various NAIC working groups, which working groups are in various stages of discussions regarding recommendations. One recommendation of the Rector Report has been adopted as Actuarial Guideline XLVIII (“AG48”). AG48 sets more restrictive standards on the permitted collateral utilized to back reserves of a captive. Other recommendations in the Rector Report are subject to ongoing comment and revision. It is unclear at this time to what extent the recommendations in the Rector Report, or additional or revised recommendations relating to captive transactions or reinsurance transactions in general, will be adopted by the NAIC. If the recommendations proposed in the Rector Report are implemented, it will likely be difficult for the Company to establish new captive financing arrangements on a basis consistent with past practices. As a result of AG48 and the Rector Report, the implementation of new captive structures in the future may be less capital efficient, may lead to lower product returns and/or increased product pricing or result in reduced sales of certain products. Additionally, in some circumstances AG48 and the implementation of the recommendations in the Rector Report could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.

The Financial Condition (E) Committee of the NAIC established a Variable Annuity Issues Working Group ("VAIWG") in 2015 to oversee the NAIC’s efforts to study and address regulatory issues resulting in variable annuity captive reinsurance transactions. The VAIWG developed a Framework for Change (the “Framework”) which was adopted in 2015. The Framework suggests numerous changes to current NAIC rules and regulations that are intended to decrease incentives for insurers to establish variable annuities captives, which changes could potentially be applied to both in-force and new business. The Framework proposes that various NAIC groups consider and adopt recommended changes to current rules and regulations (with a targeted effective date in 2017) and that, upon adoption, domestic regulators request that insurers ceding business to variable annuity captives recapture such business and dissolve such captives. The VAIWG expects or receive a draft of recommendations for changes to current rules and regulations in August 2016. If the proposals set forth in the Framework are adopted, changes in the regulation of variable annuities and variable annuity captives could adversely affect our future financial condition and results of operations.

The NAIC adopted revisions to the Part A Laws and Regulations Preamble (the "Preamble") of the NAIC Financial Regulation Standards and Accreditation Program that will include within the definition of “multi-state insurer” certain insurer-owned captives and special purpose vehicles that are single-state licensed but assume reinsurance from cedants operating in multiple states. The revised definition will subject certain captives, including XXX/AXXX captives, variable annuity and long-term care captives, to all of the accreditation standards applicable to other traditional multi-state insurers, including standards related to capital and surplus requirements, risk-based capital requirements, investment laws and credit for reinsurance laws. Although we do not expect the revised definition to affect our existing life insurance captives (or our ability to engage in life insurance captive transactions in the future), such application will likely prevent us from engaging in variable annuity captive transactions on the same or a similar basis as in the past and, if applied retroactively, would likely cause us to recapture business from and unwind our existing variable annuity captive (“VA Captive”).

While the recapture of business from our existing VA Captive, caused either by actions of the VAIWG or the effect of the Preamble, would not have a material adverse effect on the Company given current market conditions, in the future the Company could experience fluctuations in its risk-based capital ratio due to market volatility if it were prohibited from engaging in similar

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~~transactions or required to unwind its existing VA Captive, which could adversely affect our future financial condition and results of operations.~~

Any regulatory action or changes in interpretation that materially adversely affects the Company’s use or materially increases the Company’s cost of using captives or reinsurers for the Affected Business, either retroactively or prospectively, could have a material adverse impact on the Company’s financial condition or results of operations. If the Company were required to discontinue its use of captives for intercompany reinsurance transactions on a retroactive basis, adverse impacts would include early termination fees payable with respect to certain structures, diminished capital position and higher cost of capital. Additionally, finding alternative means to support policy liabilities efficiently is an unknown factor that would be dependent, in part, on future market conditions and the Company’s ability to obtain required regulatory approvals. On a prospective basis, discontinuation of the use of captives could impact the types, amounts and pricing of products offered by the Company’s insurance subsidiaries.

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

Since 2012, various states have enacted laws that require life insurers to search for unreported deaths. The National Conference of Insurance Legislators (“NCOIL”) has adopted the Model Unclaimed Life Insurance Benefits Act (the “Unclaimed Benefits Act”) and legislation or regulations have been enacted in numerous states that are similar to the Unclaimed Benefits Act, although each state’s version differs in some respects. The Unclaimed Benefits Act, if adopted by any state, imposes new requirements on insurers to periodically compare their life insurance and annuity contracts and retained asset accounts against the U.S. Social Security Administration's Death Master File or similar databases (a "Death Database"), investigate any potential matches to confirm the death and determine whether benefits are due, and to attempt to locate the beneficiaries of any benefits that are due or, if no beneficiary can be located, escheat the benefit to the state as unclaimed property. Other states in which the Company does business may also consider adopting legislation similar to the Unclaimed Benefits Act. The Company cannot predict whether such legislation will be proposed or enacted in additional states. Additionally, the NAIC Unclaimed Life Insurance Benefits (A) Working Group is developing a model unclaimed property law that overlaps with the NCOIL-based laws already adopted in numerous states.

The Uniform Laws Commission has adopted revisions to the Uniform Unclaimed Property Act in a manner likely to impact state unclaimed property laws and requirements, though it is not clear at this time to what extent or whether requirements will conflict with otherwise imposed search requirements. Other life insurance industry associations and regulatory associations are also considering these matters. Certain states have amended or may amend their unclaimed property laws to require insurers to compare in-force and certain terminated life insurance policies, annuity contracts, and retained asset accounts against a Death Database, to investigate potential matches to determine whether the named insured is deceased, to attempt to locate and pay beneficiaries any unclaimed benefits required to be paid, and, if no beneficiary can be located, to escheat policy benefits to the appropriate state as unclaimed property. The enactment of such unclaimed property laws, may require the Company to incur significant expenses, including benefits with respect to terminated policies for which no reserves are currently held and unanticipated operational expenses. Any of the foregoing could have a material adverse effect on the Company's financial condition and results of operations.

A number of state treasury departments and administrators of unclaimed property have audited life insurance companies for compliance with unclaimed property laws. The focus of the audits has been to determine whether there have been maturities of policies or contracts, or policies that have exceeded limiting age with respect to which death benefitsfinancial, market conduct, or other ~~payments under the policies should be treated as unclaimed property that should be escheated to the state. In addition, the~~examinations or audits have sought to identify unreported deaths of insureds. There is no clear basis in previously existing law for treating an unreported death as giving rise to a policy benefit that would be subject to unclaimed property procedures. A number of life insurers, however, have entered into resolution agreements with state treasury departments and administrators of unclaimed property under which the life insurers agreed to procedures for comparing their previously issued life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, escheating the benefits and interest, in some cases at a negotiated rate, to the state if the beneficiary could not be found, and paying penalties to the state, if required. The amounts publicly reported to have been paid to beneficiaries and/or escheated to the states have been substantial.

The NAIC has established an Investigations of Life/Annuity Claims Settlement Practices (D) Task Force to coordinate targeted multi-state examinations of life insurance companies on claims settlement practices. The state insurance regulators on the Task Force have initiated targeted multi-state examinations of life insurance companies with respect to the companies’ claims paying practices and use of a Death Database to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement systems and procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, escheating the benefits and interest to the state if the beneficiary could not be found, and paying penalties to the state, if required. It has been publicly reported that the life insurers have paid substantial administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements.

~~Certain~~ of the Company’s subsidiaries as well as certain other insurance companies from whom the Company has coinsured blocks of life insurance and annuity policies are subject to unclaimed property audits and/or targeted multistate examinations by insurance regulators similar to those described above.may be ongoing. It is possible that ~~the audits, examinations and/~~any examination or ~~the enactment of state laws similar to the Unclaimed Benefits Act could~~audit may result in ~~additional~~payments of fines and penalties, payments to ~~beneficiaries, additional escheatment of funds~~

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~~deemed abandoned under state laws, payment of administrative penalties and/~~customers, or examination fees to state authorities, and changes to the Company’s procedures for identifying unreported deaths and escheatment of abandoned property. It is possible any such additional payments and any costs related toboth, as well as changes in ~~Company~~systems or procedures, could materially impact the Company’s financial results from operations. It is also possible that life insurers, including the Company, may be subject to claims, regulatory actions, law enforcement actions, and civil litigation arising from their prior business practices, unclaimed property practices or related audits and examinations. Any resulting liabilities, payments or costs, including initial and ongoing costsany of ~~changes to the Company’s procedures or systems, could be significant and~~which could have a material adverse effect on the Company’s financial condition or results of operations.

~~During December 2012,~~The Company’s insurance subsidiaries are required to obtain state regulatory approval for rate increases for certain health insurance products. The Company’s profits may be adversely affected if the ~~West Virginia Treasurer filed actions against~~requested rate increases are not approved in full by regulators in a timely fashion.

State insurance regulators and the ~~Company’s subsidiaries Protective Life Insurance Company~~NAIC regularly re-examine existing laws and ~~West Coast Life Insurance Company in West Virginia state court (State of West Virginia ex rel. John D. Perdue v. Protective Life Insurance Company, State of West Virginia ex rel. John D. Perdue v. West Coast Life Insurance Company; Defendants’ Motions~~regulations applicable to Dismiss granted on December 27, 2013; Notice of Appeal filed on January 27, 2014; dismissal reversed by the West Virginia Supreme Court of Appeals on June 16, 2015; Petition for Rehearing filed by Defendant insurance companies ~~denied on September 21, 2015). The actions, which also name numerous other life insurance companies, allege that~~and their products. Changes in these laws and regulations, or in interpretations thereof, are often made for the ~~companies violated~~benefit of the ~~West Virginia Uniform Unclaimed Property Act, seek~~consumer and may lead to ~~compel compliance with~~additional expense for the ~~Act,~~insurer and, seek payment of unclaimed property, interest, and penalties. While the legal theory or theories that may give rise to liability in the West Virginia Treasurer litigation are uncertain, it is possible that other jurisdictions may pursue similar actions. The Company does not currently believe that losses, if any, arising from the West Virginia Treasurer litigation will be material. The Company cannot, however, predict whether other jurisdictions will pursue similar actions or, if they do, whether such actions willthus, could have a material ~~impact~~adverse effect on the Company’s financial condition and results ~~from~~of operations. At the federal level, bills are routinely introduced in both chambers of the United States Congress that could affect life insurers. In the past, Congress has considered legislation that would impact insurance companies in numerous ways, such as providing for an optional federal charter or a federal presence for insurance, preempting state law in certain respects regarding the regulation of reinsurance, increasing federal oversight in areas such as consumer protection and solvency regulation, setting tax rates, and other matters. The Company cannot predict whether or in what form legislation will be enacted and, if so, whether the enacted legislation will positively or negatively affect the Company or whether any effects will be material.

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

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) enacted in July 2010 made sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of Dodd-Frank are or may become applicable to the Company, its competitors or those entities with which the Company does business. Such provisions include, but are not limited ~~to the following:~~to: the establishment of consolidated federal regulation and resolution authority over systemically important financial services firms, the establishment of the Federal Insurance Office, changes to the regulation and standards applicable to broker-dealers and investment advisors, changes to the regulation of reinsurance, changes to regulations affecting the rights of shareowners, and the imposition of additional regulation over credit rating agencies, and the imposition of concentration limits on financial institutions that restrict the amount of credit that may be extended to a single person or entity. Since the enactment of Dodd-Frank, many regulations have been enacted and others are likely to be adopted in the future that will have an impact upon the Company. Dodd-Frank also created the Financial Stability Oversight Council (the “FSOC”), which has issued a final rule and interpretive guidance setting forth the methodology by which it will determine whether a non-bank financial company is a systemically important financial institution (“SIFI”). A ~~non- bank~~non-bank financial company, such as the Company, that is designated as a SIFI by the FSOC will become subject to supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Company is not currently supervised by the Federal Reserve as a SIFI. Such supervision could impact the Company’s requirements relating to capital, liquidity, stress testing, limits on counterparty credit exposure, compliance and governance, early remediation in the event of financial weakness and other prudential matters, and in other ways the Company currently cannot anticipate. FSOC-designated non-bank financial companies will also be required to prepare resolution plans, ~~so- called~~so-called “living wills,” that set out how they could most efficiently be liquidated if they endangered the U.S. financial system or the broader economy. The FSOC has conducted multiple rounds of SIFI designation ~~consideration. However, this process is still new,~~consideration and ~~the FSOC~~ continues to make changes to its process for designating a company as a SIFI. The FSOC has made ~~its initial~~ SIFI designations, and the Company was not designated as such. However, the Company could be considered and designated at any time. ~~Because the process is in its initial stages, the~~The Company is at this time unable to predict the impact on an entity that is supervised as a SIFI by the Federal Reserve Board. The Company is not able to predict whether the capital requirements or other requirements imposed on SIFIs may impact the requirements applicable to the Company even if it is not designated as a SIFI. The uncertainty about regulatory requirements could influence the Company’s product line or other business decisions with respect to some product lines. There is a similarly uncertain international designation process. The Financial Stability Board, appointed by the G-20 Summit, recently designated nine insurers as “G-SIIs,” or global systemically-important insurers. The insurers designated as G-SIIs to date represent organizations larger than the Company, but the possibility remains that the Company could be so designated. As with the designation of SIFI’s, it is unclear at this time how additional capital, use of non-traditional non-insurance products, and other requirements affect the insurance and financial industries.

Additionally, Dodd-Frank created the Consumer Financial Protection Bureau (“CFPB”), an independent division of the Department of Treasury with jurisdiction over credit, savings, payment, and other consumer financial products and services, ~~other than~~but excluding investment products already regulated by the United States Securities and Exchange Commission (the “SEC”) or the U.S. Commodity Futures Trading Commission. The CFPB has supervisory authority over certain non-banks whose activities or products it determines pose risks to consumers, and ~~recently~~ issued a rule in 2016 amending regulations under the Home Mortgage Disclosure

Act that ~~will require~~requires the Company to, among other things, collect and disclose extensive data related to its lending practices. At this time, the rule relates to reporting data relative to Company loans made on multi-family apartments, seniors living housing, manufactured housing communities and any mixed-use properties which contain a residential component. It is unclear at this time ~~the extent to which the Company’s activities or products will be impacted by~~how burdensome compliance with this ~~rule~~ or other rules promulgated byunder the ~~CFPB, or how burdensome compliance~~Home Mortgage Disclosure Act will become.

Certain of the Company’s subsidiaries sell products that may be regulated by the CFPB. CFPB continues to bring enforcement actions involving a growing number of issues, including actions brought jointly with state Attorneys General, which could directly or indirectly affect the Company or any of its subsidiaries. Additionally, the CFPB is exploring the possibility of helping Americans manage their retirement savings and is considering the extent of its authority in that area. The Company is unable at this time to predict the impact of these activities on the Company.

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Dodd-Frank includes a framework of regulation of over-the-counter (“OTC”) derivatives markets which requires clearing of certain types of transactions which have been or are currently traded OTC by the Company. The types of transactions to be cleared are expected to increase in the future. The new framework could potentially impose additional costs, including increased margin requirements and additional regulation on the Company. Increased margin requirements on the Company’s part, combined with restrictions on securities that will qualify as eligible collateral, could continue to reduce its liquidity and require an increase in its holdings of cash and government securities with lower yields causing a reduction in income. The Company uses derivative financial instruments to mitigate a wide range of risks in connection with its businesses, including those arising from its fixed and variable annuity products with guaranteed benefit features. The derivative clearing requirements of Dodd-Frank could continue to increase the cost of the Company’s risk mitigation and expose it to the risk of a default by a clearinghouse with respect to the Company’s cleared derivative transactions.

Numerous provisions of Dodd-Frank require the adoption of implementing rules and/or regulations. The process of adopting such implementing rules and/or regulations have in some instances been delayed beyond the timeframes imposed by Dodd-Frank. Until the various final regulations are promulgated pursuant to Dodd-Frank, the full impact of the regulations on the Company will remain unclear. In addition, Dodd-Frank mandates multiple studies, which could result in additional legislation or regulation applicable to the insurance industry, the Company, its competitors or the entities with which the Company does business. Legislative or regulatory requirements imposed by or promulgated in connection with Dodd-Frank may impact the Company in many ways, including but not ~~limited to the following:~~limited: placing the Company at a competitive disadvantage relative to its competition or other financial services entities, changing the competitive landscape of the financial services sector and/or the insurance industry, making it more expensive for the Company to conduct its business, requiring the reallocation of significant company resources to government affairs, legal and compliance-related activities, or causing historical market behavior or statistics utilized by the Company in connection with its efforts to manage risk and exposure to no longer be predictive of future risk and exposure or otherwise have a material adverse effect on the overall business climate as well as the Company’s financial condition and results of operations.

Regulations issued by the Department of Labor on April 6, 2016, expanding the definition of “investment advice fiduciary” under ERISA and creating and revising several prohibited transaction exemptions for investment activities in light of that expanded definition, may have a material adverse impact on our ability to sell annuities and other products, to retain in-force business and on our financial condition or results of operation.

Broker-dealers, insurance agencies and other financial institutions sell the Company’s annuities to employee benefit plans governed by provisions of the Employee Retirement Income Security Act (“ERISA”) and Individual Retirement Accounts (“IRAs”) that are governed by similar provisions under the Internal Revenue Code (the “Code”). Consequently, our activities and those of the firms that sell the Company’s products are subject to restrictions that require ERISA fiduciaries to perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that prohibit ERISA fiduciaries from causing a covered plan or retirement account to engage in certain prohibited transactions absent an exemption. In general, the prohibited transaction provisions of ERISA and the Code restrict the receipt of compensation from third parties in connection with the provision of investment advice to ERISA plans and participants and IRAs.

On April 6, 2016, the Department of Labor issued new regulations expanding the definition of “investment advice fiduciary” under ERISA. These new regulations increase the number of circumstances in which the Company and broker-dealers, insurance agencies and other financial institutions that sell the Company’s products could be deemed a fiduciary when providing investment advice with respect to ERISA plans or IRAs. The Department of Labor also issued amendments to ~~long standing~~long-standing exemptions from the provisions of ERISA and the Code that ~~prohibit~~permit fiduciaries ~~from engaging~~to engage in certain types of transactions (“Prohibited Transaction Exemptions”) and adopted new Prohibited Transaction Exemptions. These amended and new Prohibited Transaction Exemptions appear to increase significantly the conditions that must be satisfied by fiduciaries in order to receive traditional forms of commission, such as sales commissions, for sales of insurance products to ERISA plans, plan participants and IRAs.

~~Although~~The Department of Labor announced that it was delaying the original April 10, 2017 applicability date of the regulations, as well as the related Prohibited Transaction Exemptions. Beginning on June 9, 2017, fiduciaries may rely on the Prohibited Transaction Exemptions, provided that they adhere to the Impartial Conduct Standards, but they are not required to comply with the other conditions of the Prohibited Transaction Exemptions until January 1, 2018. In announcing the delay, the Department of Labor also stated that, if after receiving comments on the review ordered by President Trump by April 17, 2017, it concludes that more time is ~~expected that~~needed to complete its review or if significant changes are deemed necessary, it will have the ability to further extend the January 1, 2018 applicability date or grant additional interim relief. It appears unlikely that the Department of Labor ~~may provide~~will further delay the initial June 9, 2017 applicability date, however. Despite the Department of Labor’s provision of 60 additional ~~interpretive guidance with respect~~days to allow for compliance to regulations, and its decision to streamline requirements for Prohibited Transaction Exemptions, there is still uncertainty surrounding the fate of these ~~new regulations, it appears that sales of certain of our products may be materially and adversely affected and our~~regulations. Our current distributors may continue to move forward with their plans to limit the number of products they offer, including the types of products offered by the Company. The Company may

find it necessary to change sales representative and/or broker compensation, to limit the assistance or advice it can provide to owners of the Company’s annuities, to replace or engage additional distributors, or otherwise change the manner in which it designs and supports sales of its annuities. In addition, the Company ~~may~~continues to incur ~~significant~~ expenses in connection with initial and ongoing compliance obligations with respect to such ~~rules.~~rules, and in the aggregate these expenses may be significant. The foregoing could have a material adverse impact on our ability to sell annuities and other products, to retain in-force business, and on our financial condition or results of operations.

~~Changes to tax law or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products.~~

Under the Internal Revenue Code of 1986, as amended (the “Code”), income taxes payable by policyholders on investment earnings on most life insurance and annuity product are deferred during their accumulation period . This favorable tax treatment provides some of the Company’s products with a competitive advantage over products offered by non-insurance companies. To the extent that the Code is revised to either reduce the tax-deferred status of life insurance and annuity products, or to establish the tax-deferred status of competing products, then all life insurance companies, including the Company’s subsidiaries, would be adversely affected with respect to their ability to sell their products. Furthermore, depending upon grandfathering provisions, such changes could cause increased surrenders of existing life insurance and annuity products. For example, future legislation that further restricts the deductibility of interest on funds borrowed to purchase corporate-owned life insurance products could result in increased surrenders of these products.

~~130~~

~~Table of Contents~~

The Company is subject to the federal corporate income tax in the U.S. Certain tax provisions, such as the dividends-received deduction, the deferral of current taxation on derivatives’ and securities’ economic income, and the deduction for future policy benefits and claims, are beneficial to the Company. The Obama Administration and Congress have each made proposals that either materially change or eliminate these benefits. Most of the foregoing proposals would cause the Company to pay higher current taxes, offset (in whole or in part) by a reduction in its deferred taxes. However, the proposal regarding the dividends-received deduction would cause the Company’s net income to decrease. Whether these proposals will be enacted, and if so, whether they will be enacted as described above, is uncertain.

The Company’s mid-2005 transition from relying on reinsurance for newly-written traditional life products to reinsuring some of these products’ reserves into its captive insurance companies resulted in a net reduction in its current taxes, offset by an increase in its deferred taxes. The resulting benefit of reduced current taxes is attributed to the applicable life products and is an important component of the profitability of these products. The profitability and competitive position of these products is dependent on the continuation of current tax law and the ability to generate taxable income.

There is general uncertainty regarding the taxes to which the Company and its products will be subject in the future. The Company cannot predict what changes to tax law or interpretations of existing tax law may ultimately be enacted or adopted, or whether such changes will adversely affect the Company.

~~The Company’s reinsurers could fail to meet assumed obligations, increase rates, terminate agreements or be subject to adverse developments that could affect the Company.~~

The Company and its insurance subsidiaries cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets or other issues, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the assumed obligations. Therefore, the failure, insolvency, or inability or unwillingness to pay under the terms of the reinsurance agreement with the Company of one or more of the Company’s reinsurers could negatively impact the Company’s earnings and financial position.

The Company’s results and its ability to compete are affected by the availability and cost of reinsurance. Premium rates charged by the Company are based, in part, on the assumption that reinsurance will be available at a certain cost. Under certain reinsurance agreements, a reinsurer may increase the rate it charges the Company for the reinsurance, including rates for new policies the Company is issuing and rates related to policies that the Company has already issued. The Company may not be able to increase the premium rates it charges for policies it has already issued, and for competitive reasons it may not be able to raise the premium rates it charges for new policies to offset the increase in rates charged by reinsurers. If the cost of reinsurance were to increase, if reinsurance were to become unavailable, if alternatives to reinsurance were not available to the Company, or if a reinsurer should fail to meet its obligations, the Company could be adversely affected.

Over the last several years, the number of life reinsurers has decreased as the reinsurance industry has consolidated. The decreased number of participants in the life reinsurance market over time has resulted in increased concentration of risk for insurers, including the Company. If the reinsurance market further contracts, the Company’s ability to continue to offer its products on terms favorable to it could be adversely impacted.

In addition, reinsurers face challenges regarding illiquid credit and/or capital markets, investment downgrades, rating agency downgrades, deterioration of general economic conditions, and other factors negatively impacting the financial services industry. If reinsurers, including those with significant exposure to international markets and European Union member states, are unable to meet their obligations, the Company would be adversely impacted.

The Company has implemented a reinsurance program through the use of captive reinsurers. Under these arrangements, a captive owned by the Company serves as the reinsurer, and the consolidated books and tax returns of the Company reflects a liability consisting of the full reserve amount attributable to the reinsured business. The success of the Company’s captive reinsurance program is dependent on a number of factors outside the control of the Company, including continued access to financial solutions, a favorable regulatory environment, and the overall tax position of the Company. If the captive reinsurance program is not successful, the Company’s financial condition could be adversely impacted.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended ~~June 30, 2016,~~March 31, 2017, the Company sold no equity securities in transactions which were not registered under the Securities Act of 1933, as ~~amended (the “Act”).~~amended.

Purchases of Equity Securities by the Issuer

During the quarter ended ~~June 30, 2016 (Successor Company)~~March 31, 2017, 100% of the Company’s common stock was owned by Dai-ichi Life ~~Insurance Company~~Holdings, Inc., and was not available for repurchase by the Company.

~~131~~

~~Table of Contents~~

Item 6.Exhibits



Exhibit
Number
3(a)		Certificate of Incorporation of the Company effective as of February 1, 2015, incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed February 26, 2015 (No. 001-11339).
3(b)		Amended and Restated Bylaws of the Company effective ~~February~~January 4, 2016, incorporated by reference to Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed February 25, 2016 (No. 001-11339).
~~10†~~		~~The Company's Deferred Compensation Plan for Officers, as Amended and Restated as of August 1, 2016, filed herewith.~~
31(a)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(a)		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Financial statements from the quarterly report on Form 10-Q of Protective Life Corporation for the quarter ended ~~June 30, 2016,~~March 31, 2017, filed on ~~August 5, 2016,~~May 8, 2017, formatted in XBRL: (i) the Consolidated Condensed Statements of Income, (ii) the Consolidated Condensed Statements of Comprehensive Income, ~~(Loss),~~ (iii) the Consolidated Condensed Balance Sheets, (iv) the Consolidated Condensed Statement of Shareowner’s Equity, (v) the Consolidated Condensed Statements of Cash Flows, and (iv) the Notes to Consolidated Condensed Financial Statements.

†		~~Management contract or compensatory plan or arrangement~~

~~132~~

~~Table of Contents~~

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	PROTECTIVE LIFE CORPORATION


Date: ~~August 5, 2016~~May 8, 2017	By:	/s/ ~~Steven G. Walker~~PAUL R. WELLS

		~~Steven G. Walker~~Paul R. Wells
		~~Executive~~Senior Vice President, Chief Accounting Officer, and
		~~Chief Financial Officer and~~ Controller

~~133~~105



	Common Stock		Additional Paid-In- Capital		Treasury Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareowner’s equity
	(Dollars In Thousands)
Successor Company
Balance, December 31, 2015	$	—	$	5,554,059	$	—	$	268,299		$	(1,241,134	)	$	4,581,224
Net income for the six months ended June 30, 2016							227,468						227,468
Other comprehensive income										1,007,518			1,007,518
Comprehensive income for the six months ended June 30, 2016													1,234,986
Dividends to parent							(89,343		)				(89,343		)
Balance, June 30, 2016	$	—	$	5,554,059	$	—	$	406,424		$	(233,616	)	$	5,726,867



	Fair Value
	As of
	February 1, 2015
	(Dollars In Thousands)
Assets
Fixed maturities	$	38,363,025
Equity securities	745,512
Mortgage loans	5,580,229
Investment real estate	7,456
Policy loans	1,751,872
Other long-term investments	686,507
Short-term investments	316,167
Total investments	47,450,768
Cash	462,710
Accrued investment income	484,021
Accounts and premiums receivable	112,182
Reinsurance receivables	5,724,020
Value of business acquired	1,276,886
Goodwill	735,712
Other intangibles	683,000
Property and equipment	104,364
Other assets	120,762
Income tax receivable	15,458
Assets related to separate accounts
Variable annuity	12,970,587
Variable universal life	819,188
Total assets	$	70,959,658
Liabilities
Future policy and benefit claims	$	30,195,841
Unearned premiums	682,183
Total policy liabilities and accruals	30,878,024
Stable value product account balances	1,932,277
Annuity account balances	10,941,661
Other policyholders’ funds	1,388,083
Other liabilities	2,188,863
Deferred income taxes	1,535,556
Non-recourse funding obligations	621,798
Repurchase program borrowings	50,000
Debt	1,519,211
Subordinated debt securities	560,351
Liabilities related to separate accounts
Variable annuity	12,970,587
Variable universal life	819,188
Total liabilities	65,405,599
Net assets acquired	$	5,554,059



	Successor Company
	Fair Value As of June 30, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	524,166	Discounted cash flow	Liquidity premium	0.24% - 1.14% (0.55%)
				Paydown rate	9.37% - 11.91% (10.16%)
Corporate securities	758,312		Discounted cash flow	Spread over Treasury	0.70% - 6.25% (2.45%)
Liabilities:
Embedded derivatives - GMWB(1)	$	518,871	Actuarial cash flow model	Mortality	1994 MGDB table with
					company experience
				Lapse	0.3% - 15%, depending on
					product/duration/funded
					status of guarantee
				Utilization	99%. 10% of policies have a
					one-time over-utilization of
					400%
				Nonperformance risk	0.22% - 1.20%
Annuity account balances(2)	88,820		Actuarial cash flow model	Asset earned rate	4.53% - 5.67%
				Expenses	$83 per policy
				Withdrawal rate	2.20%
				Mortality	1994 MGDB table with
					company experience
				Lapse	2.2% - 33.0%, depending
					on duration/surrender
					charge period
				Return on assets	1.50% - 1.85% depending on
					duration/surrender
					charge period
				Nonperformance risk	0.22% - 1.20%
Embedded derivative - FIA	119,997		Actuarial cash flow model	Expenses	$83 per policy
				Withdrawal rate	1.1% - 4.5% depending on
					duration and tax qualification
				Mortality	1994 MGDB table with
					company experience
				Lapse	2.5% - 40.0%, depending
					on duration/surrender
					charge period
				Nonperformance risk	0.22% - 1.20%
Embedded derivative - IUL	46,711		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	0.22% - 1.20%



	Successor Company
	Fair Value As of December 31, 2015		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	587,031	Discounted cash flow	Liquidity premium	0.27% - 1.49% (0.42%)
				Paydown rate	10.20% - 14.72% (13.11%)
Corporate securities	875,810		Discounted cash flow	Spread over	0.10% - 19.00% (2.61%)
				treasury
Liabilities:
Embedded derivatives - GMWB(1)	$	181,612	Actuarial cash flow model	Mortality	1994 MGDB table with company
					experience
				Lapse	0.3% - 15%, depending on
					product/duration/funded
					status of guarantee
				Utilization	99%. 10% of policies have a one-time over-utilization of 400%
				Nonperformance risk	0.18% - 1.04%
Annuity account balances(2)	92,512		Actuarial cash flow model	Asset earned rate	4.53% - 5.67%
				Expenses	$81 per policy
				Withdrawal rate	2.20%
				Mortality	1994 MGDB table with company
					experience
				Lapse	2.2% - 33.0%, depending
					on duration/surrender
					charge period
				Return on assets	1.50% - 1.85% depending on
					surrender charge period
				Nonperformance risk	0.18% - 1.04%
Embedded derivative - FIA	100,329		Actuarial cash flow model	Expenses	$81.50 per policy
				Withdrawal rate	1.1% - 4.5% depending on
					duration and tax qualification
				Mortality	1994 MGDB table with company
					experience
				Lapse	2.5% - 40.0%, depending
					on duration/surrender
					charge period
				Nonperformance risk	0.18% - 1.04%
Embedded derivative - IUL	29,629		Actuarial cash flow model	Mortality	38% - 153% of 2015
					VBT Primary Tables
				Lapse	0.5% - 10.0%, depending
					on duration/distribution
					channel and smoking class
				Nonperformance risk	0.18% - 1.04%



			Total Realized and Unrealized Gains				Total Realized and Unrealized Losses																							Total Gains (losses) included in
	Beginning Balance		Included in Earnings		Included in Other Comprehensive Income		Included in Earnings			Included in Other Comprehensive Income			Purchases		Sales			Issuances		Settlements		Transfers in/out of Level 3			Other			Ending Balance		Earnings related to Instruments still held at the Reporting Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	3	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	3	$	—
Other asset-backed securities	537,831		—		769		—			(8,350		)	9,597		(7,629		)	—		—		—			923			533,141		—
Corporate securities	833,737		925		16,189		—			(694		)	9,558		(57,123		)	—		—		(16,773		)	(2,676		)	783,143		—
Total fixed maturity securities - available-for-sale	1,371,571		925		16,958		—			(9,044		)	19,155		(64,752		)	—		—		(16,773		)	(1,753		)	1,316,287		—
Fixed maturity securities - trading
Other asset-backed securities	150,683		1,822		—		(8		)	—			—		(609		)	—		—		—			76			151,964		1,814
Corporate securities	5,677		24		—		—			—			10,908		1			—		—		—			(23		)	16,587		25
Total fixed maturity securities - trading	156,360		1,846		—		(8		)	—			10,908		(608		)	—		—		—			53			168,551		1,839
Total fixed maturity securities	1,527,931		2,771		16,958		(8		)	(9,044		)	30,063		(65,360		)	—		—		(16,773		)	(1,700		)	1,484,838		1,839
Equity securities	69,728		—		—		—			—			22		—			—		—		—			—			69,750		—
Other long-term investments⁽¹⁾	66,696		1,568		—		(19,265		)	—			—		—			—		—		—			—			48,999		(17,697		)
Total investments	1,664,355		4,339		16,958		(19,273		)	(9,044		)	30,085		(65,360		)	—		—		(16,773		)	(1,700		)	1,603,587		(15,858		)
Total assets measured at fair value on a recurring basis	$	1,664,355	$	4,339	$	16,958	$	(19,273	)	$	(9,044	)	$	30,085	$	(65,360	)	$	—	$	—	$	(16,773	)	$	(1,700	)	$	1,603,587	$	(15,858	)
Liabilities:
Annuity account balances⁽²⁾	$	90,123	$	—	$	—	$	(530	)	$	—		$	—	$	—		$	63	$	1,896	$	—		$	—		$	88,820	$	—
Other liabilities⁽¹⁾	801,781		15,217		—		(185,520		)	—			—		—			—		—		—			—			972,084		(170,303		)
Total liabilities measured at fair value on a recurring basis	$	891,904	$	15,217	$	—	$	(186,050	)	$	—		$	—	$	—		$	63	$	1,896	$	—		$	—		$	1,060,904	$	(170,303	)



Successor Company
For The Three Months Ended June 30, 2015
Inflation	$	(95	)	$	(41	)	$	77
Total	$	(95	)	$	(41	)	$	77

February 1, 2015 to June 30, 2015
Inflation	$	(131	)	$	(131	)	$	73
Total	$	(131	)	$	(131	)	$	73



Predecessor Company
January 1, 2015 to January 31, 2015
Inflation	$	13	$	(36	)	$	(7	)
Total	$	13	$	(36	)	$	(7	)



	Predecessor Company
	January 1, 2015 to January 31, 2015
	(Dollars In Thousands, Except Per Share Amounts)
Calculation of basic earnings per share:
Net income	$	1,509

Average shares issued and outstanding	79,343,253
Issuable under various deferred compensation plans	1,109,595
Weighted shares outstanding - basic	80,452,848
Per share:
Net income - basic	$	0.02
Calculation of diluted earnings per share:
Net income	$	1,509

Weighted shares outstanding - basic	80,452,848
Stock appreciation rights (“SARs”)	64,570
Issuable under various other stock-based compensation plans	935,382
Restricted stock units	306,487
Weighted shares outstanding - diluted	81,759,287
Per share:
Net income - diluted	$	0.02



Energy and Natural Gas
	Fair Value		Amortized Cost		Unrealized Loss			% Unrealized Loss
	(Dollars In Thousands)
Midstream	$	1,691,586	$	1,822,302	$	(130,716	)	48.9	%
Integrated	790,380		818,448		(28,068		)	10.5
Distributors	703,367		728,756		(25,389		)	9.5
Independent	550,774		575,452		(24,678		)	9.2
Oil Field Services	516,861		565,358		(48,497		)	18.2
Refining	169,184		178,900		(9,716		)	3.7
Total	$	4,422,152	$	4,689,216	$	(267,064	)	100.0	%



Energy and Natural Gas
Rating	Issuer Type	Fair Value		Amortized Cost		Unrealized Loss			% Unrealized Loss
		(Dollars In Thousands)
AAA/AA/A	Distributors	$	364,181	$	366,546	$	(2,365	)	0.9	%
	Independent	80,209		76,888		3,321			(1.2	)
	Integrated	321,860		325,705		(3,845		)	1.4
	Midstream	175,568		182,809		(7,241		)	2.7
	Oil Field Services	159,578		159,916		(338		)	0.1

BBB	Distributors	314,457		335,065		(20,608		)	7.7
	Independent	417,910		447,707		(29,797		)	11.2
	Integrated	337,183		358,326		(21,143		)	7.9
	Midstream	1,358,188		1,470,460		(112,272		)	42.0
	Oil Field Services	142,308		147,503		(5,195		)	1.9
	Refining	158,976		168,526		(9,550		)	3.6
Total investment grade		3,830,418		4,039,451		(209,033		)	78.2

Below investment grade	Distributors	24,729		27,145		(2,416		)	0.9
	Independent	52,655		50,857		1,798			(0.7	)
	Integrated	131,337		134,417		(3,080		)	1.2
	Midstream	157,830		169,033		(11,203		)	4.2
	Oil Field Services	214,975		257,939		(42,964		)	16.1
	Refining	10,208		10,374		(166		)	0.1
Total below investment grade		591,734		649,765		(58,031		)	21.8
Total energy and natural gas		$	4,422,152	$	4,689,216	$	(267,064	)	100.0	%