The next Administration’s Dialogue and Evaluation of Monetary Situation and
Outcomes of Operations (“MD&A”) needs to be learn along side our
consolidated condensed monetary statements included beneath Half I, Merchandise 1,
Monetary Statements (Unaudited), of this Quarterly Report on Type 10-Q and our
audited consolidated monetary statements for the yr ended December 31, 2020,
included in our most up-to-date Annual Report on Type 10-Ok.
For a extra full understanding of our enterprise and present interval outcomes,
please learn the next MD&A along side our newest Annual Report on
Type 10-Ok and different filings with the US Securities and Change
Fee (the “SEC”).
FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE
This report critiques our monetary situation and outcomes of operations, together with
our liquidity and capital assets. Historic info is introduced and
mentioned, and the place acceptable, elements which will have an effect on future monetary
efficiency are additionally recognized and mentioned. Sure statements made on this
report embrace “forward-looking statements” inside the that means of the Non-public
Securities Litigation Reform Act of 1995. Ahead-looking statements embrace any
assertion which will predict, forecast, point out, or indicate future outcomes,
efficiency, or achievements as an alternative of historic details and will include phrases
like “consider”, “count on”, “estimate”, “venture”, “funds”, “forecast”,
“anticipate”, “plan”, “will”, “shall”, “could”, and different phrases, phrases, or
expressions with comparable that means. Ahead-looking statements contain dangers and
uncertainties, which can trigger precise outcomes to vary materially from the
outcomes contained within the forward-looking statements, and we can’t give
assurances that such statements will show to be appropriate. Given these dangers and
uncertainties, traders shouldn’t place undue reliance on forward-looking
statements as a prediction of precise outcomes. We undertake no obligation to
publicly replace any forward-looking statements, whether or not on account of new
info, future developments or in any other case. Precise outcomes might differ
materially from these expressed in or implied by such forward-looking statements
because of a wide range of elements, together with:
COVID-19 Pandemic
•the coronavirus (COVID-19) international pandemic has adversely impacted our enterprise,
and the final word impact on our enterprise, outcomes of operations, and monetary
situation will rely on future developments which are extremely unsure,
together with the scope and length of the pandemic and actions taken by
governmental authorities in response to the pandemic;
Monetary Atmosphere
•rate of interest fluctuations and sustained durations of low or excessive rates of interest
might negatively have an effect on our curiosity earnings and unfold earnings, or in any other case
influence our enterprise;
•our investments are topic to market and credit score dangers, which might be
heightened during times of maximum volatility or disruption in monetary and
credit score markets;
•local weather change could adversely have an effect on our funding portfolio;
•elimination of London Inter-Financial institution Provided Fee (“LIBOR”) could adversely have an effect on
the rates of interest on and worth of sure derivatives and floating charge
securities we maintain and floating charge securities we now have issued, the worth and
profitability of sure actual property lending and different actions we conduct,
and another property or liabilities whose worth is tied to LIBOR;
•credit score market volatility or disruption might adversely influence our monetary
situation or outcomes from operations;
•disruption of the capital and credit score markets might negatively have an effect on our
potential to fulfill our liquidity and monetary wants;
•fairness market volatility might negatively influence our enterprise;
•our use of by-product monetary devices inside our danger administration technique
will not be efficient or adequate;
•our potential to develop relies upon largely upon the continued availability of
capital;
•we might be compelled to promote investments at a loss to cowl policyholder
withdrawals;
•tough basic financial circumstances might materially adversely have an effect on our
enterprise and outcomes of operations;
•we might be adversely affected by an incapability to entry our credit score facility or
FHLB lending;
•the quantity of statutory capital or risk-based capital that we now have and the
quantity of statutory capital or risk-based capital that we should maintain to keep up
our monetary power and credit score scores and meet different necessities can differ
considerably occasionally and is delicate to plenty of elements outdoors
of our management;
•we might be adversely affected by a scores downgrade or different damaging motion
by a score group;
•our securities lending program could topic us to liquidity and different dangers;
•our monetary situation or outcomes of operations might be adversely impacted if
our assumptions concerning the honest worth and future efficiency of our
investments differ from precise expertise;
•antagonistic actions of sure funds or their advisers might have a detrimental
influence on our potential to promote our variable life and annuity merchandise, or
keep present ranges of property in these merchandise;
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Trade and Regulation
•the enterprise of our firm is extremely regulated and is topic to routine
audits, examinations, and actions by regulators, regulation enforcement companies, and
self-regulatory organizations;
•we could also be topic to laws of, or laws influenced by,
worldwide regulatory authorities or initiatives;
•the Nationwide Affiliation of Insurance coverage Commissioners (“NAIC”) actions,
pronouncements and initiatives could have an effect on our product profitability, reserve and
capital necessities, monetary situation or outcomes of operations;
•legal guidelines, laws and initiatives associated to unreported deaths and unclaimed
property and loss of life advantages could end in operational burdens, fines, surprising
funds or escheatments;
•we’re topic to insurance coverage warranty fund legal guidelines, guidelines and laws that
might adversely have an effect on our monetary situation or outcomes of operations;
•we’re topic to insurable curiosity legal guidelines, guidelines and laws that might
adversely have an effect on our monetary situation or outcomes of operations;
•legal guidelines, guidelines and laws promulgated in reference to the enactment of the
Dodd-Frank Wall Road Reform and Shopper Safety Act (the “Dodd-Frank Act”)
could adversely have an effect on our outcomes of operations or monetary situation;
•new and amended laws concerning the usual of care or normal of
conduct relevant to funding professionals, insurance coverage companies, and
monetary establishments that suggest or promote annuities or life insurance coverage
merchandise could have a cloth antagonistic influence on our potential to promote annuities and
different merchandise and to retain in-force enterprise and on our monetary situation or
outcomes of operations;
•we could also be topic to regulation, investigations, enforcement actions, fines and
penalties imposed by the SEC, the Monetary Trade Regulatory Authority
(“FINRA”) and different federal and worldwide regulators in reference to our
enterprise operations;
•adjustments to tax regulation, or interpretations of current tax regulation might adversely
have an effect on our potential to compete with non-insurance merchandise or scale back the demand
for sure insurance coverage merchandise;
•monetary companies firms and their subsidiaries are incessantly the targets
of authorized proceedings and elevated regulatory scrutiny, together with class motion
litigation, which might end in substantial judgments, and regulation enforcement
investigations;
•if our enterprise doesn’t carry out nicely, we could also be required to acknowledge an
impairment of our goodwill and indefinite lived intangible property which might
adversely have an effect on our outcomes of operations or monetary situation;
•use of reinsurance introduces variability in our statements of earnings;
•our reinsurers might fail to fulfill assumed obligations, enhance charges,
terminate agreements or be topic to antagonistic developments that might have an effect on us;
•our coverage claims fluctuate from interval to interval leading to earnings
volatility;
•we function in a mature, extremely aggressive trade, which might restrict our
potential to realize or keep our place within the trade and negatively have an effect on
profitability;
•developments in know-how could influence our enterprise;
•our potential to keep up aggressive unit prices depends upon the extent of
new gross sales and persistency of current enterprise;
Privateness and Cyber Safety
•a disruption or cyberattack affecting the digital, communication and
info know-how techniques or different applied sciences of the Firm or these on
whom the Firm depends might adversely have an effect on the Firm’s enterprise, monetary
situation, and outcomes of operations;
•confidential info maintained within the techniques of the Firm or different
events upon which the Firm depends might be compromised or misappropriated as
a results of safety breaches or different associated lapses or incidents, damaging the
Firm’s enterprise and status and adversely affecting its monetary
situation and outcomes of operations;
•compliance with current and rising privateness laws might end in
elevated compliance prices and/or result in adjustments in enterprise practices and
insurance policies, and any failure to guard the confidentiality of client info
might adversely have an effect on our status and have a cloth antagonistic impact on our
enterprise, monetary situation and outcomes of operations;
Acquisitions, Tendencies or Different Company Structural Issues
•we could not understand our anticipated monetary outcomes from our acquisitions
technique;
•property allotted to the MONY Closed Block profit solely the holders of sure
insurance policies; and antagonistic efficiency of Closed Block property or antagonistic expertise
of Closed Block liabilities could negatively have an effect on us;
•we rely on the power of our subsidiaries to switch funds to us to fulfill
our obligations;
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•our use of affiliate and captive reinsurance firms to finance statutory
reserves associated to our mounted annuity and time period and common life merchandise and
to scale back volatility affecting our variable annuity merchandise could also be restricted or
adversely affected by regulatory motion, pronouncements, and interpretations;
•we’re a completely subsidiary of Protecting Life Company (“PLC”), which is a
wholly subsidiary of Dai-ichi Life, and Dai-ichi Life has the power to make
essential selections affecting our enterprise;
Common
•publicity to dangers associated to pure and man-made disasters and catastrophes,
equivalent to ailments, epidemics, pandemics (together with the novel coronavirus,
COVID-19), malicious acts, cyberattacks, terrorist acts, and local weather change,
might adversely have an effect on our operations and outcomes;
•our outcomes and monetary situation could also be negatively affected ought to precise
expertise differ from administration’s fashions, assumptions, or estimates;
•we’re depending on the efficiency of others;
•our danger administration insurance policies, practices, and procedures might depart us uncovered
to unidentified or unanticipated dangers, which might negatively have an effect on our
enterprise or end in losses;
•our methods for mitigating dangers arising from our day-to-day operations could
show ineffective leading to a cloth antagonistic impact on our outcomes of
operations and monetary situation;
•occasions that injury our status or the status of our trade might
adversely influence our enterprise, outcomes of operations, or monetary situation;
•we could not be capable of shield our mental property and could also be topic to
infringement claims;
•we could also be required to determine a valuation allowance in opposition to our deferred tax
property, which might have a cloth antagonistic impact on our outcomes of operations,
monetary situation, and capital place; and
•new accounting guidelines, adjustments to current accounting guidelines, or the granting of
permitted accounting practices to opponents might negatively influence the
Firm.
For extra details about the dangers, uncertainties, and different elements that
might have an effect on our future outcomes, please see Half II, Merchandise 1A, Threat Elements, of
this report.
IMPORTANT INVESTOR INFORMATION
We file stories with the US Securities and Change Fee (the
“SEC”), together with Annual Experiences on Type 10-Ok, Quarterly Experiences on Type 10-Q,
Present Experiences on Type 8-Ok, and different stories as required. We’re an digital
filer and the SEC maintains an web web site at www.sec.gov that accommodates these
stories and different info filed electronically by us. We make out there
by way of the web site of our guardian firm, PLC, https://investor.protecting.com,
our Annual stories on Type 10-Ok, Quarterly stories on Type 10-Q, Present stories
on Type 8-Ok, and amendments to these stories as quickly as moderately practicable
after such supplies are electronically filed with or furnished to the SEC.
We additionally make out there to the general public present info, together with monetary
info, concerning the Firm and our associates on the Monetary
Info web page of PLC’s web site, https://investor.protecting.com. We encourage
traders, the media and others considering us and our associates to evaluate
the data we publish on our web site. The data discovered on our web site is
not a part of this or another report filed with or furnished to the SEC.
OVERVIEW
Our Enterprise
We’re a completely owned subsidiary of PLC. Based in 1907, we’re the biggest
working subsidiary of PLC. PLC is a completely owned subsidiary of Dai-ichi Life
Holdings, Inc., a kabushiki kaisha organized beneath the legal guidelines of Japan (“Dai-ichi
Life”). We offer monetary companies by way of the manufacturing, distribution, and
administration of insurance coverage and funding merchandise. Except the context
in any other case requires, the “Firm,” “we,” “us,” or “our” refers back to the
consolidated group of Protecting Life Insurance coverage Firm and our subsidiaries.
We’ve got a number of working segments, every having a strategic focus. An working
section is distinguished by merchandise, channels of distribution, and/or different
strategic distinctions. We periodically consider our working segments and make
changes to our section reporting as wanted.
Our working segments are Retail Life and Annuity, Acquisitions, Secure Worth
Merchandise, and Asset Safety. We’ve got a further reporting section referred
to as Company and Different.
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•Retail Life and Annuity – We primarily market mounted common life (“UL”),
listed common life (“IUL”), variable common life (“VUL”), degree premium
time period insurance coverage (“conventional”), bank-owned life insurance coverage (“BOLI”),
corporate-owned life insurance coverage (“COLI”), mounted annuity, and variable annuity
(“VA”) merchandise on a nationwide foundation primarily by way of networks of impartial
insurance coverage brokers and brokers, broker-dealers, monetary establishments,
impartial distribution organizations, and affinity teams.
•Acquisitions – We concentrate on buying, changing, and/or servicing insurance policies and
contracts from different firms. This section’s major focus is on life
insurance coverage insurance policies and annuity merchandise that had been bought to people. The extent
of the section’s acquisition exercise relies upon many elements, together with
out there capital, working capability, potential return on capital, and market
dynamics. Insurance policies acquired by way of the Acquisitions section are sometimes
blocks of enterprise the place no new insurance policies are being marketed, nonetheless, some
current acquisitions have included ongoing new enterprise actions. Ongoing new
product gross sales written by the Firm from these acquisitions are included within the
Retail Life and Annuity section. In consequence, earnings and account values are
anticipated to say no as the results of lapses, deaths, and different terminations of
protection except new acquisitions are made.
•Secure Worth Merchandise – We promote mounted and floating charge funding agreements
on to the trustees of municipal bond proceeds, cash market funds, financial institution
belief departments, and different institutional traders. The section additionally points
funding agreements to the Federal Dwelling Mortgage Financial institution (“FHLB”), and markets
assured funding contracts (“GICs”) to 401(okay) and different certified
retirement financial savings plans. We even have an unregistered funding agreement-backed
notes program which offers for affords of notes to each home and
worldwide institutional traders.
•Asset Safety – We market prolonged service contracts, assured asset
safety (“GAP”) merchandise, and different specialised ancillary merchandise to guard
shoppers’ investments in cars and leisure autos. GAP merchandise
are designed to cowl the distinction between the scheduled mortgage pay-off quantity
and an asset’s precise money worth within the case of a complete loss. Every sort of
specialised ancillary product protects in opposition to injury or different loss to a
explicit side of the underlying asset.
•Company and Different – This section primarily consists of internet funding earnings
on property supporting our fairness capital, unallocated company overhead, and
bills not attributable to the segments above. This section contains earnings
from a number of non-strategic or runoff strains of enterprise, financing and
investment-related transactions, and the operations of a number of small
subsidiaries.
Affect of COVID-19

Starting within the first quarter of 2020, the outbreak of COVID-19 created
important financial and social disruption within the international financial system and monetary
markets. These occasions impacted varied operational and monetary facets of the
Firm’s enterprise in 2020 and have and will proceed to influence earnings
all through 2021 based mostly on, amongst different elements, the amount and severity of
claims associated to COVID-19 and the monetary disruption brought on by the pandemic,
which might influence the Firm’s funding portfolio. The Firm continues to
monitor the consequences of COVID-19, together with the unfold of the Delta variant, and
will take that info into consideration throughout the deliberate return of its
workforce to the workplace.

Retail Life and Annuity section and Acquisitions section. The pre-tax adjusted
working earnings within the Retail Life and Annuity section and the Acquisitions
section had been impacted by the consequences of the COVID-19 pandemic on mortality
throughout the 9 months ended September 30, 2021. The COVID-19 pandemic has
resulted in a rise in claims within the conventional life and common life
blocks. The pandemic will proceed to influence earnings based mostly on, amongst different
elements, the amount and severity of claims associated to COVID-19 and the monetary
disruption brought on by the pandemic, which might influence the Firm’s funding
portfolio. The pandemic has additionally affected the way by which our Acquisitions
section conducts due diligence, negotiates transactions, works with
counterparties and integrates acquisitions, in every case adapting processes and
procedures to replicate the elevated reliance on know-how and distant
interactions on account of COVID-19.

Asset Safety section. The first impacts from COVID-19 on the Asset
Safety section throughout 2020 included a short lived damaging influence on gross sales due
to decrease gross sales within the auto trade, a discount in automobile service and GAP
claims on account of the impact of much less miles pushed and decrease basic and
administrative bills, particularly with respect to journey prices. Whereas present
developments stay constructive, there stays uncertainty across the potential impact of
the COVID-19 pandemic on the section’s 2021 outcomes, together with a possible
damaging influence on gross sales 1) if a resurgence in COVID-19 instances end in
elevated shut downs of financial exercise or 2) extended provide chain points
equivalent to half and chip shortages proceed to trigger a discount in auto manufacturing
and inventories.

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Business Mortgage Loans. We offer sure aid beneath the Coronavirus Support
Reduction, and Financial Safety Act (the “CARES Act”) beneath its COVID-19
Business Mortgage Mortgage Program (the “Mortgage Modification Program”). In the course of the
9 months ended September 30, 2021, we modified 23 loans beneath the Mortgage
Modification Program, representing $475 million in unpaid principal stability. As
of September 30, 2021, because the inception of the CARES Act, there have been 277
complete loans modified beneath the Mortgage Modification Program, representing
$2.1 billion in unpaid principal stability. At September 30, 2021, $1.7 billion of
these loans have resumed common principal and curiosity funds in accordance
with the phrases of the modification agreements and we count on the remaining $0.4
billion loans to renew scheduled funds in accordance with the agreed upon
phrases. The modifications beneath this program embrace agreements to defer
principal funds solely and/or to defer principal and curiosity funds for a
specified time frame. None of those modifications had been thought of troubled
debt restructurings.
CRITICAL ACCOUNTING POLICIES
Our accounting insurance policies require using judgments referring to a wide range of
assumptions and estimates, together with, however not restricted to expectations of present
and future mortality, morbidity, persistency, bills, and rates of interest, as
nicely as expectations across the valuations of securities. Due to the
inherent uncertainty when utilizing the assumptions and estimates, the impact of
sure accounting insurance policies beneath totally different circumstances or assumptions might be
materially totally different from these reported within the consolidated condensed monetary
statements. For an entire itemizing of our essential accounting insurance policies, discuss with
our Annual Report on Type 10-Ok for the yr ended December 31, 2020.
RESULTS OF OPERATIONS
Our administration and Board of Administrators analyze and assess the working
efficiency of every section utilizing pre-tax adjusted working earnings (loss) and
after-tax adjusted working earnings (loss). Per GAAP accounting
steering for section reporting, pre-tax adjusted working earnings (loss) is our
measure of section efficiency. Pre-tax adjusted working earnings (loss) is
calculated by adjusting earnings (loss) earlier than earnings tax, by excluding the
following gadgets:
•realized good points and losses on investments and derivatives,
•adjustments within the assured dwelling withdrawal advantages (“GLWB”) embedded
derivatives unique of the portion attributable to the financial price of the
GLWB,
•precise GLWB incurred claims,
•instant impacts from adjustments in present market circumstances on estimates of
future profitability on variable annuity and variable common life merchandise,
together with impacts on deferred acquisition prices (“DAC”), worth of enterprise
acquired (“VOBA”), reserves and different gadgets, and
•the amortization of DAC, VOBA, and sure coverage liabilities that’s impacted
by the exclusion of this stuff.

After-tax/Pre-tax adjusted working earnings (loss)

After-tax adjusted working earnings (loss) is derived from pre-tax adjusted
working earnings (loss) with the inclusion of earnings tax expense or advantages
related to pre-tax adjusted working earnings. Revenue tax expense or
advantages is allotted to the gadgets excluded from pre-tax adjusted working
earnings (loss) on the statutory federal earnings tax charge for the related
interval. Revenue tax expense or advantages allotted to after-tax adjusted working
earnings (loss) can differ interval to interval based mostly on adjustments in our efficient earnings
tax charge.
Pre-tax adjusted working earnings (loss) and after-tax adjusted working earnings
(loss) introduced under are non-GAAP monetary measures. The gadgets excluded from
adjusted working earnings (loss) are essential to understanding the general
outcomes of operations. Throughout Q1 2021, the Firm started excluding from pre-tax
and after-tax adjusted working earnings (loss) the impacts on DAC, VOBA,
reserves and different gadgets because of adjustments in estimated profitability of variable
annuity and variable common life merchandise on account of adjustments in present
market circumstances. Administration believes this alteration enhances the understanding of
the underlying efficiency developments of those merchandise. Pre-tax adjusted working
earnings (loss) and after-tax adjusted working earnings (loss) should not substitutes
for earnings earlier than earnings taxes or internet earnings (loss), respectively. These
measures will not be similar to equally titled measures reported by different
firms. Our perception is that pre-tax and after-tax adjusted working earnings
(loss) enhances administration’s and the Board of Administrators’ understanding of the
ongoing operations, and the underlying profitability of every section, and helps
facilitate the allocation of assets.
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In figuring out the elements of the pre-tax adjusted working earnings (loss)
for every section, premiums and coverage charges, different earnings, advantages and
settlement bills, and amortization of DAC and VOBA are attributed on to
every working section. Internet funding earnings is allotted based mostly on immediately
associated property required for transacting the enterprise of that section. Realized
good points (losses) and different working bills are allotted to the segments in a
method that almost all appropriately displays the operations of that section.
Investments and different property are allotted based mostly on coverage liabilities internet of
related coverage property, whereas DAC/VOBA and goodwill are proven within the segments
to which they’re attributable.
Unlocking

We periodically evaluate and replace as acceptable our key assumptions used to
measure sure balances associated to insurance coverage merchandise, together with future
mortality, bills, lapses, premium persistency, profit utilization,
funding yields, rates of interest, and separate account fund returns. Modifications to
these assumptions end in changes which enhance or lower DAC and VOBA
amortization and/or advantages and bills. Assumptions could also be up to date as a part of
our annual assumption evaluate course of, in addition to throughout our quarterly replace of
historic enterprise exercise. This periodic evaluate and updating of assumptions
is collectively known as “unlocking”. When referring to unlocking the
reference is to adjustments in all stability sheet elements related to these
adjustments. The changes related to unlocking can create important
variability from interval to interval within the profitability of sure of the
Firm’s working segments.

Further info

Degree time period insurance policies are insurance policies by which premium charge stays the identical for our
established degree time period interval (e.g. 20 years). On the finish of the extent time period
interval, premium charges sometimes enhance considerably and policyholder lapse
charges are sometimes excessive. Since most of our reinsurance premiums are paid on an
annual prematurely foundation, at every interval finish, we set up an accrual to regulate
for the earnings impact of insurance policies anticipated to lapse within the subsequent interval. Premiums
paid to and refunded by reinsurers are included in reinsurance ceded, whereas
changes from the accrual for publish degree coverage lapses is included within the
advantages and settlement bills line within the statements of earnings. In consequence,
over time there may be important volatility in these particular person line gadgets due
to the influence of enterprise coming into the publish degree interval.

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The next desk presents a abstract of outcomes and reconciles pre-tax
adjusted working earnings (loss) to consolidated earnings earlier than earnings tax
expense and internet earnings:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30,
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Pre-tax Adjusted Working Revenue (Loss)
Retail Life and Annuity $ (85)$ 23 n/m $ (63)$ 47 n/m
Acquisitions 42 65 (35.4) 255 238 7.1
Secure Worth Merchandise 63 20 n/m 128 61 n/m
Asset Safety 9 8 12.5 31 33 (6.1)
Company and Different (26) (35) (25.7) (120) (108) 11.1
Pre-tax adjusted working earnings 3 81 n/m 231 271 (14.8)
Non-operating earnings (loss) 56 79 (29.1) 156 (96) n/m
Revenue earlier than earnings tax 59 160 (63.1) 387 175 n/m
Revenue tax expense (10) (29) (65.5) (74) (31) n/m
Internet earnings $ 49 $ 131 (62.6)% $ 313$ 144 n/m

Pre-tax adjusted working earnings (loss) $ 3 $ 81 n/m $ 231$ 271 (14.8)%
Adjusted working earnings tax profit
(expense) 1 (13) n/m (41) (52) (21.2)
After-tax adjusted working earnings (loss) 4 68 n/m 190 219 (13.2)
Non-operating earnings (loss) 56 79 (29.1) 156 (96) n/m
Revenue tax expense on changes (11) (16) (31.3) (33) 21 n/n
Internet earnings $ 49 $ 131 (62.6)% $ 313$ 144 n/m

Non-operating earnings (loss)
By-product good points (losses) $ 51 $ 88 (42.0)% $ 50$ (152) n/m
Funding good points (losses) 16 23 (30.4) 111 (72) n/m
VA/VUL market impacts(1) (6) – n/m 13 – n/m
Much less: associated amortization(2) 31 55 (43.6) 93 (59) n/m
Much less: VA GLWB financial price (26) (23) 13.0 (75) (69) 8.7
Complete non-operating earnings (loss) $ 56 $ 79 (29.1)% $ 156$ (96) n/m

(1) Represents the instant impacts on DAC, VOBA, reserves and different non-cash gadgets in present interval outcomes because of adjustments in present market circumstances on estimates of
profitability, that are excluded from pre-tax and after-tax adjusted working earnings (loss) starting in Q1 of 2021.
(2) Consists of amortization of DAC/VOBA and advantages and settlement bills which are impacted by realized good points (losses).
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

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Retail Life and Annuity
Phase Outcomes of Operations
Phase outcomes had been as follows:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Gross premiums and coverage charges $ 570$ 564 1.1% $ 1,735$ 1,559 11.3%
Reinsurance ceded (203) (176) 15.3 (619) (381) 62.5
Internet premiums and coverage charges 367 388 (5.4) 1,116 1,178 (5.3)
Internet funding earnings 277 252 9.9 819 754 8.6
Realized good points (losses) (23) (20) 15.0 (66) (60) 10.0
Different earnings 45 40 12.5 136 121 12.4
Complete working revenues 666 660 0.9 2,005 1,993 0.6
BENEFITS AND EXPENSES
Advantages and settlement bills 652 547 19.2 1,766 1,663 6.2
Amortization of DAC/VOBA 41 39 5.1 133 137 (2.9)
Different working bills 58 51 13.7 169 146 15.8
Complete working advantages and bills 751 637 17.9 2,068 1,946 6.3
PRE-TAX ADJUSTED OPERATING INCOME (LOSS) (85) 23 n/m (63) 47 n/m
Non-operating earnings (loss):
Realized good points (losses) 74 97 (23.7) 120 (185) n/m
Associated advantages and settlement bills (8) (9) (11.1) (8) 11 n/m
Associated amortization of DAC/VOBA (18) (38) (52.6) (41) 67 n/m
VA/VUL market impacts(1) (5) – n/m 8 – n/m
Complete non-operating earnings (loss) 43 50 (14.0) 79 (107) n/m
INCOME (LOSS) BEFORE INCOME TAX $ (42)$ 73 n/m $ 16 $ (60) n/m

(1) Represents the instant impacts on DAC, VOBA, reserves and different non-cash gadgets in present interval outcomes because of adjustments in present market circumstances on estimates
of profitability, that are excluded from pre-tax and after-tax adjusted working earnings (loss) starting in Q1 of 2021.
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

The next desk summarizes key knowledge for the Retail Life and Annuity section:

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For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Gross sales By Product
Conventional life(1) $ 65 $ 74 (12.2)% $ 197$ 192 2.6%
Common life(1) 26 10 n/m 64 32 100.0
BOLI/COLI(2) 122 – n/m 641 – n/m
Fastened annuity(3) 303 793 (61.8) 1,112 1,804 (38.4)
Variable annuity(3) 256 80 n/m 751 173 n/m
$ 772$ 957 (19.3)% $ 2,765$ 2,201 25.6%
Common Account Values
Common life(4) $ 7,853$ 7,656 2.6% $ 7,775$ 7,698 1.0%
Variable common life 1,406 848 65.8 1,276 821 55.4
Fastened annuity(5) 12,203 11,099 9.9 12,022 10,759 11.7
Variable annuity 12,543 10,797 16.2 12,273 10,749 14.2
$ 34,005$ 30,400 11.9% $ 33,346$ 30,027 11.1%
Common Life Insurance coverage In-force(6)
Conventional life $ 430,814$ 382,629 12.6% $ 417,749$ 374,968 11.4%
Common life 290,907 288,154 1.0 289,765 288,522 0.4
$ 721,721$ 670,783 7.6% $ 707,514$ 663,490 6.6%
Curiosity Unfold – Fastened Annuities(7)
Internet funding earnings yield 3.57 % 3.43 % 3.62 % 3.68 %
Curiosity credited to policyholders 2.39 % 2.50 % 2.39 % 2.50 %
Curiosity unfold 1.18 % 0.93 % 1.23 % 1.18 %

As of
September 30, December 31, %
2021 2020 Change
({Dollars} In Tens of millions)
VA GLWB Profit Base $ 9,883$ 9,817 0.7%

Account worth topic to GLWB rider $ 8,217$ 8,035

2.3%

(1) Gross sales knowledge for conventional life insurance coverage, aside from Single Premium Complete Life (“SPWL”) insurance coverage, relies on annualized premiums. SPWL insurance coverage
gross sales are based mostly on complete single premium {dollars} obtained within the interval. Common life gross sales are based mostly on annualized deliberate premiums, or “goal”
premiums if lesser, plus 6% of quantities obtained in extra of goal premiums and 10% of single premiums. “Goal” premiums for common life are these
premiums upon which full first yr commissions are paid.
(2) BOLI gross sales are measured based mostly on complete premiums obtained. COLI gross sales characterize anticipated premium inside one yr of coverage subject date.
(3) Gross sales are measured based mostly on the quantity of buy funds obtained much less surrenders occurring inside twelve months of the acquisition funds.
(4) Consists of basic account balances held inside VUL merchandise.
(5) Consists of basic account balances held inside VA merchandise. Fastened annuity account worth is internet of non-affiliate reinsurance ceded.
(6) Quantities should not adjusted for reinsurance ceded.
(7) Curiosity unfold on common basic account values.
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

Annuity Account Values

Annuity account values are a major driver of our working outcomes, and
are primarily pushed by internet additions (withdrawals) and the influence of market
adjustments. The earnings we earn on most of our fee-based merchandise varies with the
degree of underlying account values as many coverage charges are decided by these
values. The funding earnings and curiosity we credit score to policyholders on our
spread-based merchandise varies with the extent of basic account values. To a
lesser extent, adjustments in account values influence our sample of amortization of
DAC and VOBA and basic and administrative bills.

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Fastened Annuities

Fastened annuity account values within the rollforward under characterize basic account
reserves for mounted deferred and variable deferred annuities inside the annuity
account balances line merchandise on the consolidated condensed stability sheet. It additionally
contains the overall account reserves related to instant annuity insurance policies
inside the future coverage advantages and claims line merchandise on the consolidated
condensed stability sheet. These reserves can differ from account worth on sure
merchandise. Quick annuities don’t have an account worth, however do keep a
GAAP reserve, which is included within the under rollforward. The complete GAAP
reserve for listed annuities differs from account worth as a result of bifurcation
of the host contract and the embedded by-product. The under rollforward
represents the account worth related to mounted funds and reserves related
with the host contract on listed annuities.

For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions)
Fastened Annuities
Starting complete account worth $ 11,838$ 10,533$ 11,411$ 10,027
Deposits and gross sales 328 752 1,182 1,748
Withdrawals and advantages (283) (254) (837) (810)
Coverage charges/give up fees (10) (1) (26) (3)
Curiosity credited and different exercise 74 71 217 139
Ending account worth $ 11,947$ 11,101$ 11,947$ 11,101

Variable Annuities

Variable annuity account values within the rollforward under characterize separate
account reserves for variable deferred and instant annuities. These reserves
are a part of the liabilities associated to separate accounts line merchandise within the
consolidated condensed stability sheet.
As of or For The As of or For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions)
Variable Account Worth
Starting stability $ 12,599$ 10,684$ 11,763$ 12,162
Enhance (lower) in VA account values:
Deposits 217 50 635 114
Surrenders (254) (230) (770) (739)
Contract holder assessments (60) (56) (178) (169)
Change in market worth and different exercise (14) 463 1,038 (457)
Ending stability $ 12,488$ 10,911$ 12,488$ 10,911

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Pre-Tax Adjusted Working Revenue (Loss)

Three Month Comparability. Pre-tax adjusted working earnings (loss) decreased $108
million primarily pushed by:

•Unfavorable potential unlocking
•Unfavorable mortality expertise
•Increased internet funding earnings because of increased asset balances, in addition to increased
participation earnings and prepayment charge earnings on industrial mortgage loans
•Increased charge earnings because of development in VA account balances
•Increased insurance coverage working bills
•Development in assured profit reserves
•Unfavorable impacts as a result of exclusion of variable product market impacts
from working earnings in 2021. In 2021, the working earnings definition was
revised to exclude the influence of fairness market adjustments on variable merchandise.
9 Month Comparability. Pre-tax adjusted working earnings (loss) decreased $110
million primarily pushed by:
•Unfavorable potential unlocking
•Unfavorable mortality expertise
•Increased internet funding earnings because of increased asset balances
•Increased charge earnings as a result of development in VA account balances
•Increased insurance coverage working bills
•Development in assured profit reserves
•Favorable impacts as a result of exclusion of variable product market impacts from
working earnings in 2021. In 2021, the working earnings definition was revised
to exclude the influence of fairness market adjustments on variable merchandise.
Working Revenues
Three Month Comparability. Working revenues elevated $6 million primarily pushed
by:
•Increased internet funding earnings primarily because of increased legal responsibility balances and
increased participation earnings and prepayment charge earnings on industrial mortgage
loans
•Increased annuity charges from the expansion in VA account balances because of will increase in
fairness markets and development in mounted annuity gross sales with assured profit riders
•Decrease conventional life internet premiums because of decrease single premium complete life
gross sales.
9 Month Comparability. Working revenues elevated $12 million primarily pushed
by:
•Increased internet funding earnings primarily because of increased legal responsibility balances, and
increased participation earnings and prepayment charge earnings on industrial mortgage
loans
•Increased annuity charges from the expansion in VA account balances because of will increase in
fairness markets and development in mounted annuity gross sales with assured profit riders
•Decrease life internet premiums of $75 million primarily because of fluctuations within the
variety of conventional life insurance policies coming into their publish degree interval on the finish
of 2019. These insurance policies trigger fluctuations in reinsurance premiums between
durations for these contracts that enter the grace interval and subsequently lapse.

The most important classes of internet funding earnings are summarized as follows:

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For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Internet Funding Revenue
Fastened maturities $ 216$ 198$ 633$ 584
Business mortgage loans 54 48 153 142
Business mortgage mortgage participation earnings 2 1 11 10
Different, internet 5 5 22 18
Complete internet funding earnings $ 277$ 252$ 819$ 754

Working Advantages and Bills
Three Month Comparability. Working advantages and bills elevated $114 million
primarily pushed by:
•Increased potential unlocking of $72 million because of annual assumption updates
•Unfavorable mortality expertise, primarily as a result of influence of COVID-19
•Increased insurance coverage working bills primarily pushed by increased acquisition
bills and VA commissions on elevated VA account values
•Development in assured profit reserves because of mounted annuity gross sales and reserve
will increase within the common life block
•Unfavorable impacts as a result of exclusion of different unlocking and adjustments in
assured profit reserves related to variable product market impacts from
working earnings in 2021.
9 Month Comparability. Working advantages and bills elevated $122 million
primarily pushed by:
•Increased potential unlocking of $72 million because of annual assumption updates
•Unfavorable mortality expertise primarily as a result of influence of COVID-19
•Increased insurance coverage working bills pushed by increased acquisition bills,
increased upkeep and overhead, and better gross sales and commissions on elevated
VA account values
•Decrease enhance in life reserves of $104 million, excluding the influence of
mortality expertise, primarily because of fluctuations within the variety of insurance policies
coming into their publish degree interval on the finish of 2019. These insurance policies trigger
fluctuations in reinsurance premiums between durations for these contracts that
enter the grace interval and subsequently lapse, which additionally leads to accruals
inside advantages and settlement expense to regulate for the earnings impact of
insurance policies anticipated to lapse within the subsequent interval
•Development in assured profit reserves because of mounted annuity gross sales and reserve
will increase within the common life block
•Favorable impacts as a result of exclusion of variable product market impacts from
working earnings in 2021.

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For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Profit and settlement expense
Dying claims $ 265$ 192 $ 741 $ 586
Change in life reserves 226 198 546 618
Life surrenders 4 2 10 7
Change in annuity assured profit reserves 19 8 38 15
Payout annuities mortality variance (6) (4) (3) (12)
Curiosity credited and different bills 144 151 434 449
Complete advantages and settlement bills $ 652$ 547$ 1,766$ 1,663

Reinsurance

At the moment, the Retail Life and Annuity section reinsures important quantities of
its life insurance coverage in-force. Pursuant to the underlying reinsurance contracts,
reinsurers pay allowances to the section as a proportion of each first yr and
renewal premiums. Reinsurance allowances characterize the quantity the reinsurer is
keen to pay for reimbursement of acquisition prices incurred by the direct
author of the enterprise. A portion of reinsurance allowances obtained is deferred
as a part of DAC and a portion is acknowledged instantly as a discount of different
working bills. Because the non-deferred portion of allowances reduces working
bills within the interval obtained, these quantities characterize a internet enhance to
adjusted working earnings throughout that interval.
Reinsurance allowances don’t have an effect on the methodology used to amortize DAC or the
interval over which such DAC is amortized. Nonetheless, they do have an effect on the quantities
acknowledged as DAC amortization. DAC on common life-type, limited-payment lengthy
length, and funding contracts enterprise is amortized based mostly on the estimated
gross earnings of the insurance policies in-force. Reinsurance allowances are thought of in
the willpower of estimated gross earnings, and subsequently, influence DAC
amortization on these strains of enterprise. Deferred reinsurance allowances on
degree time period enterprise are recorded as ceded DAC, which is amortized over the
estimated ceded premiums of the insurance policies in-force. Thus, deferred reinsurance
allowances could influence DAC amortization.
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Affect of reinsurance
Reinsurance impacted the Retail Life and Annuity section line gadgets as proven in
the next desk:
Retail Life and Annuity Phase
Line Merchandise Affect of Reinsurance
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30,
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Reinsurance ceded (203) $ (176) 15.3% $ (619)$ (381) 62.5%
Different earnings (4) (1) n/m (4) (2) n/m
Complete working revenues (207) (177) 16.9 (623) (383) 62.7
Realized good points (losses) (4) – n/m (7) (1) n/m
Complete revenues (211) (177) 19.2 (630) (384) 64.1
BENEFITS AND EXPENSES
Advantages and settlement bills (317) (154) n/m (799) (333) n/m
Amortization of DAC/VOBA (2) (1) n/m (5) (3) 66.7
Different working bills (45) (44) 2.3 (138) (145) (4.8)
Working advantages and bills (364) (199) 82.9 (942) (481)

95.8

Advantages and settlement bills associated
to realized good points (losses) (2) 1 n/m (2) (1)

n/m

Amortization of DAC/VOBA associated to
realized good points (losses) (1) 2 n/m (1) 5 n/m
Complete advantages and bills (367) (196) 87.2% (945) (477) 98.1%
NET IMPACT OF REINSURANCE $ 156$ 19 n/m $ 315$ 96 n/m

n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

The desk above doesn’t replicate the influence of reinsurance on our internet funding
earnings. By ceding enterprise to the assuming firms, we forgo funding earnings
on the reserves ceded. Conversely, the assuming firms will obtain
funding earnings on the reserves assumed, which is able to enhance the assuming
firms’ profitability on the enterprise that we cede. The web funding earnings
influence to us and the assuming firms has not been quantified. The influence of
together with foregone funding earnings can be to considerably scale back the
favorable internet influence of reinsurance mirrored above. The Retail Life and Annuity
section’s reinsurance applications don’t materially influence the “different earnings” line
of our earnings assertion.
Three Month Comparability. The change within the internet influence of reinsurance was
favorable by $137 million primarily pushed by:
•Increased ceded advantages and settlement bills as a result of influence of potential
unlocking on UL extra profit reserves and better life claims primarily because of
the influence of COVID-19
•Increased ceded internet premiums pushed by increased ceded conventional life premiums.
9 Month Comparability. The change within the internet influence of reinsurance was favorable
by $219 million primarily pushed by:
•Increased ceded advantages and settlement bills primarily because of fluctuations in
the variety of insurance policies coming into their publish degree interval on the finish of 2019, due
to accruals inside advantages and settlement expense to regulate for the earnings
impact of insurance policies anticipated to lapse within the subsequent interval
•Increased influence of potential unlocking on UL extra profit reserves and better
ceded life claims primarily as a result of influence of COVID-19
•Increased ceded conventional life premiums of $238 million primarily because of
fluctuations within the variety of insurance policies coming into their publish degree interval on the
finish of 2019. These publish ranges insurance policies trigger fluctuations in reinsurance
premiums between durations for these contracts that enter the grace interval and
subsequently lapse.
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Acquisitions
Phase Outcomes of Operations
Phase outcomes had been as follows:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Gross premiums and coverage charges $ 408$ 405 0.7% $ 1,213$ 1,161 4.5%
Reinsurance ceded (58) (63) (7.9) (191) (162) 17.9
Internet premiums and coverage charges 350 342 2.3 1,022 999 2.3
Internet funding earnings 393 406 (3.2) 1,192 1,235 (3.5)
Realized good points (losses) (3) (3) – (9) (9) –
Different earnings 6 37 (83.8) 27 124 (78.2)
Complete working revenues 746 782 (4.6) 2,232 2,349 (5.0)
BENEFITS AND EXPENSES
Advantages and settlement bills 637 645 (1.2) 1,796 1,906 (5.8)
Amortization of DAC/VOBA 9 7 28.6 7 13 (46.2)
Different working bills 58 65 (10.8) 174 192 (9.4)
Complete working advantages and bills 704 717 (1.8) 1,977 2,111

(6.3)

PRE-TAX ADJUSTED OPERATING INCOME 42 65 (35.4) 255 238 7.1
Non-operating earnings (loss)
Realized good points 3 20 (85.0) 50 50 –
Associated advantages and settlement bills (3) (1) n/m (35) (8)

n/m

Associated amortization of VOBA (2) (7) (71.4) (9) (11)

(18.2)

VA/VUL market impacts(1) (1) – n/m 5 –

n/m

Complete non-operating earnings (3) 12 n/m 11 31

(64.5)

INCOME BEFORE INCOME TAX $ 39 $ 77 (49.4)% $ 266 $ 269

(1.1)%

(1) Represents the instant impacts on DAC, VOBA, reserves and different non-cash gadgets in present interval outcomes because of adjustments in present market
circumstances on estimates of profitability, that are excluded from pre-tax and after-tax adjusted working earnings (loss) starting in Q1 of 2021.
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

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The next desk summarizes key knowledge for the Acquisitions section:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Common Life Insurance coverage In-Drive(1)
Conventional $ 218,982$ 242,435 (9.7)% $ 225,485$ 247,093 (8.7)%
Common life 67,665 67,638 – 67,901 67,953 (0.1)
$ 286,647$ 310,073 (7.6)% $ 293,386$ 315,046 (6.9)%
Common Account Values
Common life(2) $ 15,121$ 15,571 (2.9)% $ 15,339$ 15,612 (1.7)%
Variable common life 9,323 7,869 18.5 9,092 7,702 18.0
Fastened annuity(2) 9,375 10,219 (8.3) 9,544 10,362 (7.9)
Variable annuity 5,626 4,859 15.8 5,493 4,946 11.1
$ 39,445$ 38,518 2.4% $ 39,468$ 38,622 2.2%
Curiosity Unfold – Fastened Annuities
Internet funding earnings yield 3.97 % 3.91 % 3.94 % 3.96 %
Curiosity credited to policyholders 3.39 % 3.35 % 3.36 % 3.30 %
Curiosity unfold(3) 0.58 % 0.56 % 0.58 % 0.66 %

(1) Quantities should not adjusted for coinsurance ceded.
(2) Consists of basic account balances held inside variable merchandise and is internet of non-affiliate reinsurance ceded. Excludes
structured annuity merchandise.
(3) Curiosity unfold on common basic account values
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

Pre-Tax Adjusted Working Revenue

Three Month Comparability. Pre-tax adjusted working earnings decreased $23 million
primarily pushed by:

•Unfavorable mortality expertise
•Decrease internet funding earnings and curiosity unfold because of anticipated run off of the
in-force blocks of enterprise
•Decrease bills associated to system conversions and integration of acquired blocks
•Favorable potential unlocking
9 Month Comparability. Pre-tax adjusted working earnings elevated $17 million
primarily pushed by:
•Favorable mortality expertise within the payout annuity block, partially offset by
unfavorable mortality expertise within the life merchandise
•Decrease internet funding earnings and curiosity unfold because of anticipated run off of the
in-force blocks of enterprise
•Decrease advantages on taking part insurance policies, primarily associated to a discount in
the policyholder dividend obligation related to insurance policies within the regulatory
closed block
•Decrease bills associated to system conversions and integration of acquired blocks
•Favorable potential unlocking
•Different earnings obtained within the first quarter of 2020 associated to the ultimate
settlement of a previous acquisition
Working Revenues
Three Month Comparability. Working revenues decreased $36 million primarily
pushed by:
•Decrease internet funding earnings because of anticipated run off of the in-force blocks of
enterprise
•Decrease different earnings and better premiums and coverage charges because of a change in 2021
of the classification of sure coverage charges
9 Month Comparability. Working revenues decreased $117 million primarily
pushed by:
•Decrease internet funding earnings because of anticipated run off of the in-force blocks of
enterprise
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•Different earnings of $15 million obtained the primary quarter of 2020 associated to the
remaining settlement of a previous acquisition
•Decrease different earnings and better premiums and coverage charges because of a change in 2021
of the classification of sure coverage charges
The most important classes of internet funding earnings are summarized as follows:
For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Internet Funding Revenue
Fastened maturities $ 362$ 367$ 1,065$ 1,096
Business mortgage loans 15 20 52 58
Different, internet 16 19 75 81
Complete internet funding earnings $ 393$ 406$ 1,192$ 1,235

Working Advantages and Bills
Three Month Comparability. Working advantages and bills decreased $13 million
primarily pushed by:
•Unfavorable mortality expertise
•Decrease annuity curiosity credited primarily because of decrease mounted annuity account
balances
•Decrease bills of $8 million associated to system conversions and integration of
acquired blocks
•Increased potential unlocking of $6 million because of annual assumption updates
9 Month Comparability. Working advantages and bills decreased $134 million
primarily pushed by:
•Favorable mortality expertise on payout annuity block, partially offset by
unfavorable mortality expertise within the life merchandise
•Decrease advantages on taking part insurance policies of $15 million, primarily associated to a
discount within the policyholder dividend obligation related to insurance policies in
the regulatory closed block
•Decrease bills of $14 million associated to system conversions and integration of
acquired blocks
•Favorable potential unlocking of $6 million because of annual assumption updates
For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Profit and settlement expense
Dying claims $ 321$ 279 $ 927 $ 863
Change in life reserves (11) (9) (109) (102)
Life surrenders 47 59 154 198
Payout annuities mortality variance (7) 4 (33) 5
Accident & Well being profit and settlement
expense 14 14 42 45
Curiosity credited and different bills 273 298 815 897
Complete advantages and settlement bills $ 637$ 645$ 1,796$ 1,906

Reinsurance

The Acquisitions section at the moment reinsures parts of each its life and
annuity in-force. The price of reinsurance to the section is mirrored within the
chart proven under. A extra detailed dialogue of the elements of reinsurance
may be discovered within the Reinsurance part of Observe 2, Abstract of Important
Accounting Insurance policies of our Annual Report on Type 10-Ok for the fiscal yr ended
December 31, 2020.
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Affect of reinsurance

Reinsurance impacted the Acquisitions section line gadgets as proven within the
following desk:

Acquisitions Phase
Line Merchandise Affect of Reinsurance
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30,
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Reinsurance ceded $ (58)$ (63) (7.9)% $ (191)$ (162) 17.9%
BENEFITS AND EXPENSES
Advantages and settlement bills (48) (65) (26.2) (191) (148) 29.1
Amortization of DAC/VOBA – – n/m (1) –
Different working bills (7) (6) 16.7 (20) (21) (4.8)
Complete advantages and bills (55) (71) (22.5) (212) (169) 25.4

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

(1) Assumes no funding earnings on reinsurance. Foregone funding earnings would considerably scale back the favorable influence of reinsurance.
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

The section’s reinsurance applications don’t materially influence the opposite earnings
line of our earnings assertion. As well as, internet funding earnings typically has
no direct influence on reinsurance price. Nonetheless, by ceding enterprise to the
assuming firms, we forgo funding earnings on the reserves ceded to the
assuming firms. Conversely, the assuming firms will obtain funding
earnings on the reserves assumed which is able to enhance the assuming firms’
profitability on enterprise assumed from the Firm. For enterprise ceded beneath
modified coinsurance preparations, the quantity of funding earnings attributable
to the assuming firm is included as a part of the general change in coverage
reserves and, as such, is mirrored in profit and settlement bills. The web
funding earnings influence to us and the assuming firms has not been
quantified as it isn’t absolutely mirrored in our consolidated monetary
statements.
Three Month Comparability. The change within the internet influence of reinsurance was
unfavorable by $11 million primarily pushed by:
•Decrease ceded conventional life premiums and coverage charges pushed by anticipated run
off of the in-force blocks of enterprise
•Decrease ceded advantages and settlement bills pushed by anticipated run off of the
in-force blocks of enterprise in addition to decrease ceded claims
9 Month Comparability. The change within the internet influence of reinsurance was favorable
by $14 million primarily pushed by:
•Increased ceded conventional life premiums primarily because of fluctuations within the
variety of insurance policies coming into their publish degree interval on the finish of 2019. These
publish degree insurance policies trigger fluctuations in reinsurance premiums between durations
for these contracts that enter the grace interval and subsequently lapse
•Increased ceded advantages and settlement bills primarily because of fluctuations in
the variety of insurance policies coming into their publish degree interval on the finish of 2019, due
to accruals inside advantages and settlement expense to regulate for the earnings
impact of insurance policies anticipated to lapse within the subsequent interval

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Secure Worth Merchandise
Phase Outcomes of Operations
Phase outcomes had been as follows:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Internet funding earnings $ 97 $ 54 79.6% 228 169 34.9%

Complete working revenues 97 54 79.6 228 169 34.9
BENEFITS AND EXPENSES
Advantages and settlement bills 31 32 (3.1) 93 102 (8.8)
Amortization of DAC 2 1 n/m 4 3 n/m
Different working bills 1 1 n/m 3 3 n/m
Complete advantages and bills 34 34 – 100 108 (7.4)
PRE-TAX ADJUSTED OPERATING INCOME 63 20 n/m 128 61 n/m
Add: realized good points (losses) 9 (6) n/m 47 (32) n/m
INCOME BEFORE INCOME TAX $ 72 $ 14 n/m 175 29 n/m

n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

The next desk summarizes key knowledge for the Secure Worth Merchandise section:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Gross sales(1)
GIC $ – $ 75 n/m $ – $ 78 n/m
GFA 1,200 750 60.0% 3,910 1,750 n/m
$ 1,200$ 825 45.5% $ 3,910$ 1,828 n/m

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

Working Unfold
Internet funding earnings yield 4.77 % 3.56 % 4.07 % 3.89 %

Curiosity credited 1.53 2.13 1.68 2.35
Working bills 0.11 0.11 0.11 0.11
Working unfold 3.13 % 1.32 % 2.28 % 1.43 %

Adjusted working unfold(2) 1.54 % 1.31 % 1.56 % 1.25 %

(1) Gross sales are measured on the time the acquisition funds are obtained.
(2) Excludes participation industrial mortgage mortgage earnings, accelerated low cost accretion from known as securities, and the influence of business mortgage
mortgage prepayments.
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

Pre-Tax Adjusted Working Revenue
Three Month Comparability. Pre-tax adjusted working earnings elevated $43 million
primarily pushed by:
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•Enhance in internet funding earnings of $32 million because of a rise in
participation earnings on industrial mortgage loans and earnings on known as
securities and prepayments
•Enhance in internet funding earnings of $8 million because of a rise within the
common stability
9 Month Comparability. Pre-tax adjusted working earnings elevated $67 million
primarily pushed by:

•Enhance in internet funding earnings of $34 million because of a rise in
participation earnings on industrial mortgage loans and earnings on known as
securities and prepayments
•Enhance in internet funding earnings of $19 million because of a rise within the
common stability

For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Internet Funding Revenue
Fastened maturities $ 33$ 25$ 92$ 81
Participation industrial mortgage mortgage earnings 29 – 35 7
Business mortgage mortgage earnings 36 30 103 82
Different earnings and bills (1) (1) (2) (1)
Complete internet funding earnings $ 97$ 54$ 228$ 169

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Asset Safety
Phase Outcomes of Operations
Phase outcomes had been as follows:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Gross premiums and coverage charges $ 73 $ 74 (1.4)% $ 219$ 222 (1.4)%
Reinsurance ceded (50) (48) 4.2 (144) (140) 2.9
Internet premiums and coverage charges 23 26 (11.5) 75 82 (8.5)
Internet funding earnings 5 5 – 16 19 (15.8)
Different earnings 38 37 2.7 114 108 5.6

Complete working revenues 66 68 (2.9) 205 209 (1.9)
BENEFITS AND EXPENSES
Advantages and settlement bills 14 21 (33.3) 47 59 (20.3)
Amortization of DAC/VOBA 17 18 (5.6) 47 48 (2.1)
Different working bills 26 21 23.8 80 69 15.9
Complete advantages and bills 57 60 (5.0) 174 176 (1.1)
PRE-TAX ADJUSTED OPERATING INCOME 9 8 12.5 31 33 (6.1)

INCOME BEFORE INCOME TAX $ 9 $ 8 12.5% $ 31 $ 33 (6.1)%

n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

The next desk summarizes key knowledge for the Asset Safety section:

For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
Gross sales(1)
Credit score insurance coverage $ – $ 2 n/m $ – $ 4 n/m
Service contracts 134 114 17.5 % 383 294 30.3 %
GAP 22 21 4.8 66 57 15.8
$ 156$ 137 13.9 % $ 449$ 355 26.5 %
Loss Ratios(2)
Credit score insurance coverage 88.5 % 37.0 % 47.5 % 32.1 %
Service contracts 63.5 65.9 58.7 62.0
GAP 40.2 132.1 74.9 114.3

(1) Gross sales are based mostly on the quantity of single premiums and charges obtained
(2) Incurred claims as a proportion of earned premiums

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Pre-Tax Adjusted Working Revenue
Three Month Comparability. Pre-tax adjusted working earnings elevated $1 million
primarily pushed by:
•Favorable influence of decrease loss ratios from the GAP product line, because of increased
used automotive values
•Increased bills because of increased gross sales and commissions within the service contract
line
•Enhance in gross sales as a result of constructive influence of elevated trade auto gross sales
9 Month Comparability. Pre-tax adjusted working earnings decreased $2 million
primarily pushed by:
•Favorable influence of decrease loss ratios from the GAP product line, because of increased
used automotive values
•Decrease internet funding earnings because of decrease funding yields
•Increased bills because of increased gross sales and commissions within the service contract
line
•Enhance in gross sales as a result of constructive influence of elevated trade auto gross sales

Reinsurance

Nearly all of the Asset Safety section’s reinsurance exercise pertains to
the cession of single premium credit score life and credit score accident and well being
insurance coverage, automobile service contracts, and assured asset safety insurance coverage
to producer affiliated reinsurance firms (“PARCs”). These preparations are
coinsurance contracts ceding the enterprise on a primary greenback quota share foundation at
100% to restrict the section’s publicity and permit the PARCs to share within the
underwriting earnings of the product. Reinsurance contracts don’t relieve the
Asset Safety section from obligations to policyholders. A extra detailed
dialogue of the elements of reinsurance may be discovered within the Reinsurance
part of Observe 2, Abstract of Important Accounting Insurance policies, to the Annual
Report on Type 10-Ok for the fiscal yr ended December 31, 2020.
Affect of Reinsurance
Reinsurance impacted the Asset Safety section line gadgets as proven within the
following desk:
Asset Safety Phase
Line Merchandise Affect of Reinsurance
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Reinsurance ceded $ (50)$ (48) 4.2% $ (144)$ (140) 2.9%
BENEFITS AND EXPENSES
Advantages and settlement bills (19) (22) (13.6) (59) (63) (6.3)
Amortization of DAC/VOBA (1) (1) – (4) (3) 33.3
Different working bills (1) (1) – (4) (3) 33.3
Complete advantages and bills (21) (24) (12.5) (67) (69) (2.9)
NET IMPACT OF REINSURANCE(1) $ (29)$ (24) 20.8% $ (77)$ (71) 8.5%

(1) Assumes no funding earnings on reinsurance. Foregone funding earnings would considerably change the influence of reinsurance.
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

Three Month Comparability. The change within the internet influence of reinsurance was
unfavorable by $5 million primarily pushed by:
•Lower in ceded GAP losses on account of decrease loss ratios pushed by increased
used automotive costs
9 Month Comparability. The change within the internet influence of reinsurance was
unfavorable by $6 million primarily pushed by:
•Lower in ceded GAP losses on account of decrease loss ratios pushed by increased
used automotive costs
•Enhance in ceded service contract premiums associated to increased service contract
premium quantity

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Company and Different
Phase Outcomes of Operations
Phase outcomes had been as follows:
For The For The
Three Months Ended 9 Months Ended
September 30, % September 30, %
2021 2020 Change 2021 2020 Change
({Dollars} In Tens of millions) ({Dollars} In Tens of millions)
REVENUES
Gross premiums and coverage charges $ 3 $ 2 50.0% $ 8 $ 8 -%
Reinsurance ceded – – n/m – – n/m
Internet premiums and coverage charges 3 2 50.0 8 8 –
Internet funding earnings(1) (19) 23 n/m (40) 59 n/m
Different earnings – 1 – – 1 n/m
Complete working revenues (16) 26 n/m (32) 68 n/m
BENEFITS AND EXPENSES
Advantages and settlement bills 1 4 (75.0) 8 10 (20.0)
Amortization of DAC/VOBA – – n/m – – n/m
Different working bills(1) 9 57 (84.2) 80 166 (51.8)
Complete advantages and bills 10 61 (83.6) 88 176 (50.0)
PRE-TAX ADJUSTED OPERATING INCOME (LOSS) (26) (35) (25.7) (120) (108) 11.1
Add: realized good points (losses) 7 23 (69.6) 19 12 58.3
INCOME (LOSS) BEFORE INCOME TAX $ (19)$ (12) n/m $ (101)$ (96) 5.2%

(1) The web funding earnings and different working bills strains decreased $30 million and $33 million, respectively, within the three month comparability and $90 million and $100
million, respectively, within the 9 month comparability on account of the impacts of a captive reinsurance firm reorganization that occurred throughout 2020. See the Firm’s
Annual Report on Type 10-Ok, Merchandise 2. Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations for the yr ended December 31, 2020 for
further info on this transaction.
n/m – we outline n/m as not significant for will increase or decreases larger than 100%.

Three Month Comparability. The decreased pre-tax adjusted working loss was
primarily because of a lower in company overhead expense, partially offset by
unfavorable portfolio yields.
9 Month Comparability. The elevated pre-tax adjusted working loss was
primarily because of a rise in company overhead expense.
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CONSOLIDATED INVESTMENTS
As of September 30, 2021, our funding portfolio was $90.0 billion. The kinds
of property by which we could make investments are influenced by varied state insurance coverage legal guidelines
which prescribe certified funding property. Throughout the parameters of those
legal guidelines, we spend money on property giving consideration to such elements as liquidity and
capital wants, funding high quality, funding return, matching of property and
liabilities, and the general composition of the funding portfolio by asset
sort and credit score publicity.
Inside our mounted maturity investments, we keep portfolios labeled as
“available-for-sale” and “buying and selling”. We buy our available-for-sale
investments with the intent to carry to maturity by buying investments that
match future money movement wants. Nonetheless, we could promote any of our available-for-sale
and buying and selling investments to keep up correct matching of property and liabilities.
Accordingly, we labeled $70.8 billion, or 96.1%, of our mounted maturities as
“available-for-sale” as of September 30, 2021. These securities are carried at
honest worth on our consolidated stability sheets. Modifications in honest worth for our
available-for-sale portfolio, internet of tax and the associated influence on sure
insurance coverage property and liabilities, are recorded on to shareowner’s fairness.
Declines in honest worth which are because of credit score losses are recorded as realized
good points (losses) within the consolidated condensed statements of earnings. Credit score losses
are recorded in realized good points (losses) with a corresponding adjustment to the
allowance for credit score losses, besides that the credit score losses acknowledged can’t
exceed the distinction between the e-book worth and honest worth of the safety as
of the date of the evaluation. In future durations, recoveries within the current worth
of anticipated money flows are recorded as a reversal of the beforehand acknowledged
allowance for credit score losses with an offsetting adjustment to realized good points
(losses).
Buying and selling securities are carried at honest worth and adjustments in honest worth are
recorded on the earnings assertion as they happen. Our buying and selling portfolio accounted
for $2.8 billion, or 3.9%, of our mounted maturities and $87 million of short-term
investments as of September 30, 2021. Modifications in honest worth on the Modco buying and selling
portfolios, together with good points and losses from gross sales, are handed to 3rd celebration
reinsurers by way of the contractual phrases of the associated reinsurance
preparations. Partially offsetting these quantities are corresponding adjustments in
the honest worth of the embedded by-product related to the underlying
reinsurance association.
Truthful values for personal, non-traded securities are decided as follows: 1) we
receive estimates from impartial pricing companies and a pair of) we estimate honest worth
based mostly upon a comparability to quoted problems with the identical issuer or problems with different
issuers with comparable phrases and danger traits. We analyze the impartial
pricing companies valuation methodologies and associated inputs, together with an
evaluation of the observability of market inputs. Upon acquiring this
info associated to honest worth, administration makes a willpower as to the
acceptable valuation quantity. For extra details about the honest values of our
investments please discuss with Observe 4, Truthful Worth of Monetary Devices, to the
monetary statements.
The next desk presents the reported values of our invested property:
As of
September 30, 2021 December 31, 2020
({Dollars} In Tens of millions)
Publicly issued bonds (amortized price: 2021 –
$44,577; 2020 – $44,169) $ 48,741 54.1 % $ 49,571 56.0 %
Privately issued bonds (amortized price: 2021 –
$23,441; 2020 – $21,332) 24,557 27.3 22,817 25.8
Redeemable most popular shares (amortized price:
2021 – $305; 2020 – $196) 318 0.4 207 0.2
Fastened maturities 73,616 81.8 % 72,595 82.0 %
Fairness securities (price: 2021 – $740; 2020 –
$635) 772 0.9 667 0.8
Business mortgage loans 10,506 11.7 10,006 11.3
Funding actual property 10 – 10 –
Coverage loans 1,543 1.7 1,593 1.8
Different long-term investments 2,916 3.2 3,241 3.7
Quick-term investments 629 0.7 462 0.4
Complete investments $ 89,992 100.0 % $ 88,574 100.0 %

Included within the previous desk are $2.8 billion and $2.9 billion of mounted
maturities and $87 million and $76 million of short-term investments labeled
as buying and selling securities as of September 30, 2021 and December 31, 2020,
respectively. The entire mounted maturities within the buying and selling portfolio are invested
property which are held pursuant to Modco preparations beneath which the financial
dangers and advantages of the investments are handed to 3rd celebration reinsurers.
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Fastened Maturity Investments
As of September 30, 2021, our mounted maturity funding holdings had been $73.6
billion. The approximate proportion distribution of our mounted maturity
investments by high quality score is as follows:
As of
Score September 30, 2021 December 31, 2020
({Dollars} In Tens of millions)
AAA $ 9,592 13.0 % $ 9,497 13.1 %
AA 7,131 9.7 7,337 10.1
A 23,057 31.3 24,372 33.6
BBB 31,122 42.3 28,654 39.5
Under funding grade 2,714 3.7 2,735 3.7
$ 73,616 100.0 % $ 72,595 100.0 %

We use varied Nationally Acknowledged Statistical Score Organizations’ (“NRSRO”)
scores when classifying securities by high quality scores. When the assorted NRSRO
scores should not constant for a safety, we use the second-highest conference
in assigning the score. When there are not any such printed scores, we assign a
score based mostly on the statutory accounting score system if such scores are
out there.
The distribution of our mounted maturity investments by sort is as follows:
As of
Sort September 30, 2021 December 31, 2020
({Dollars} In Tens of millions)
Company securities $ 55,507 75.4 % $ 53,967 74.3 %
Residential mortgage-backed securities 7,504 10.2 6,877 9.5
Business mortgage-backed securities 2,498 3.4 2,748 3.8
Different asset-backed securities 1,657 2.3 1,741 2.4
U.S. government-related securities 845 1.1 1,606 2.2
Different government-related securities 826 1.1 747 1.0
States, municipals, and political subdivisions 4,461 6.1 4,702 6.5
Redeemable most popular shares 318 0.4 207 0.3
Complete mounted earnings portfolio $ 73,616 100.0 % $ 72,595 100.0 %

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The trade section composition of our mounted maturity securities is introduced
within the following desk:
As of
As of September % Truthful December 31, % Truthful
30, 2021 Worth 2020 Worth
({Dollars} In Tens of millions)
Banking $ 8,306 11.3 % $ 7,752 10.7 %
Different finance 989 1.3 959 1.3
Electrical utility 5,736 7.8 5,792 8.0
Vitality 4,661 6.3 4,756 6.6
Pure gasoline 1,289 1.8 1,275 1.8
Insurance coverage 6,416 8.7 6,022 8.3
Communications 2,918 4.0 2,967 4.1
Primary industrial 2,727 3.7 2,532 3.5
Shopper noncyclical 7,329 9.9 7,374 10.2
Shopper cyclical 2,837 3.9 2,833 3.9
Finance firms 509 0.7 319 0.4
Capital items 3,575 4.9 3,648 5.0
Transportation 2,064 2.8 2,236 3.1
Different industrial 710 1.0 691 1.0
Brokerage 2,021 2.7 1,786 2.5
Expertise 3,121 4.2 2,596 3.6
Actual property 552 0.7 587 0.8
Different utility 65 0.1 48 –
Business mortgage-backed securities 2,498 3.4 2,748 3.8
Different asset-backed securities 1,657 2.3 1,741 2.4
Residential mortgage-backed non-agency securities 6,193 8.4 5,607 7.7
Residential mortgage-backed company securities 1,311 1.8 1,270 1.8
U.S. government-related securities 845 1.1 1,607 2.0
Different government-related securities 826 1.1 747 1.0
State, municipals, and political divisions 4,461 6.1 4,702 6.5
Complete $ 73,616 100.0 % $ 72,595 100.0 %

The overall Modco buying and selling portfolio mounted maturities by score is as follows:

As of
Score September 30, 2021 December 31, 2020
({Dollars} In Tens of millions)
AAA $ 272 9.6 % $ 340 11.9 %
AA 272 9.5 268 9.4
A 921 32.4 909 31.8
BBB 1,239 43.6 1,205 42.1
Under funding grade 139 4.9 140 4.8
$ 2,843 100.0 % $ 2,862 100.0 %

A portion of our bond portfolio is invested in residential mortgage-backed
securities (“RMBS”), industrial mortgage-backed securities (“CMBS”), and different
asset-backed securities (collectively known as asset-backed securities or
“ABS”). ABS are securities which are backed by a pool of property. These holdings
as of September 30, 2021, had been $11.7 billion. Mortgage-backed securities (“MBS”)
are constructed from swimming pools of mortgages and will have money movement volatility as a
results of adjustments within the charge at which prepayments of principal happen with
respect to the underlying loans. Excluding limitations on entry to lending and
different extraordinary financial circumstances, prepayments of principal on the
underlying loans may be anticipated to speed up with decreases in market curiosity
charges and diminish with will increase in rates of interest.
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The next tables embrace the share of our collateral grouped by score
class and categorizes the estimated honest worth by yr of safety
origination for our Prime, Non-Prime, Business, and Different asset-backed
securities as of September 30, 2021 and December 31, 2020.
As of September 30, 2021
Prime(1) Non-Prime(1) Business Different asset-backed Complete
Truthful Amortized Truthful Amortized Truthful Amortized Truthful Amortized Truthful Amortized
Worth Price Worth Price Worth Price Worth Price Worth Price
({Dollars} In Tens of millions)
Score $
AAA $ 6,137$ 6,129$ 1$ 1$ 1,389$ 1,328$ 542$ 525$ 8,069$ 7,983
AA – – – – 572 551 272 262 844 813
A 1,312 1,316 6 6 396 377 675 667 2,389 2,366
BBB 5 5 2 2 124 122 149 143 280 272
Under 17 18 24 22 17 22 19 20 77 82
$ 7,471$ 7,468$ 33

$ 31$ 2,498$ 2,400$ 1,657$ 1,617$ 11,659$ 11,516

Score %
AAA 82.2 % 82.1 % 3.7 % 4.0 % 55.6 % 55.3 % 32.7 % 32.5 % 69.2 % 69.3 %
AA – – 0.2 0.2 22.9 23.0 16.4 16.2 7.2 7.1
A 17.5 17.6 19.7 18.4 15.8 15.7 40.7 41.3 20.5 20.5
BBB 0.1 0.1 4.7 5.9 5.0 5.1 9.0 8.8 2.4 2.4
Under 0.2 0.2 71.7 71.5 0.7 0.9 1.2 1.2 0.7 0.7
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

100.0 % 100.0 % 100.0 %

Estimated Truthful Worth of Safety by 12 months of Safety Origination
2017 and prior $ 1,474$ 1,440$ 33$ 31$ 2,252$ 2,169$ 1,354$ 1,318$ 5,113$ 4,958
2018 386 379 – – 146 134 128 127 660 640
2019 470 465 – – 74 71 41 40 585 576
2020 1,415 1,421 – – 16 16 33 31 1,464 1,468
2021 3,726 3,763 – – 10 10 101 101 3,837 3,874
Complete $ 7,471$ 7,468$ 33$ 31$ 2,498$ 2,400$ 1,657$ 1,617$ 11,659$ 11,516

(1) Included in Residential Mortgage-Backed securities.

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As of December 31, 2020
Prime(1) Non-Prime(1) Business Different asset-backed Complete
Truthful Amortized Truthful Amortized Truthful Amortized Truthful Amortized Truthful Amortized
Worth Price Worth Price Worth Price Worth Price Worth Price
({Dollars} In Tens of millions)
Score $
AAA $ 5,541$ 5,420$ 2$ 2$ 1,596$ 1,514$ 543$ 527$ 7,682$ 7,463
AA – – – – 587 570 277 268 864 838
A 1,268 1,228 8 7 469 449 731 727 2,476 2,411
BBB 4 4 1 1 85 86 164 158 254 249
Under 24 24 29 27 11 19 26 29 90 99
$ 6,837$ 6,676$ 40

$ 37$ 2,748$ 2,638$ 1,741$ 1,709$ 11,366$ 11,060

Score %
AAA 81.1 % 81.2 % 5.3 % 5.6 % 58.1 % 57.4 % 31.2 % 30.8 % 67.6 % 67.5 %
AA – – 0.2 0.2 21.4 21.6 15.9 15.7 7.6 7.6
A 18.5 18.3 19.7 18.2 17.0 17.0 42.0 42.6 21.8 21.7
BBB 0.1 0.1 2.8 2.9 3.1 3.3 9.4 9.2 2.2 2.3
Under 0.3 0.4 72.0 73.1 0.4 0.7 1.5 1.7 0.8 0.9
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

100.0 % 100.0 % 100.0 %

Estimated Truthful Worth of Safety by 12 months of Safety Origination
2016 and prior $ 1,701$ 1,647$ 38$ 35$ 2,238$ 2,167$ 1,069$ 1,044$ 5,046$ 4,893
2017 737 711 2 2 270 249 402 397 1,411 1,359
2018 1,001 970 – – 151 136 148 148 1,300 1,254
2019 1,070 1,045 – – 75 71 92 91 1,237 1,207
2020 2,328 2,303 – – 14 15 30 29 2,372 2,347
Complete $ 6,837$ 6,676$ 40$ 37$ 2,748$ 2,638$ 1,741$ 1,709$ 11,366$ 11,060

(1) Included in Residential Mortgage-Backed securities

Nearly all of our RMBS holdings as of September 30, 2021, had been tremendous senior or
senior bonds within the capital construction. Our complete non-agency portfolio has a
weighted-average life of seven.5 years. The next desk categorizes the
weighted-average life for our non-agency portfolio, by class of fabric
holdings, as of September 30, 2021:

Weighted-Common
Non-agency portfolio Life

Prime 7.59

Sub-prime 1.61

Business Mortgage Loans
We make investments a portion of our funding portfolio in industrial mortgage loans. As
of September 30, 2021 our industrial mortgage mortgage holdings had been $10.6 billion,
or $10.5 billion internet of allowance for credit score losses. We focus on making
industrial mortgage loans on credit-oriented industrial properties. Our
underwriting procedures relative to our industrial mortgage mortgage portfolio are
based mostly, in our view, on a conservative and disciplined strategy. We focus
on a small variety of industrial actual property asset sorts related to the
requirements of life (grocery anchored and credit score tenant retail, industrial,
multi-family, senior dwelling, and credit score tenant and medical workplace). We consider
that these asset sorts are inclined to climate financial downturns higher than different
industrial asset lessons by which we now have chosen to not take part. We consider
this disciplined strategy has helped to keep up a comparatively low delinquency
and foreclosures charge all through our historical past. Nearly all of our industrial
mortgage mortgage portfolio was underwritten by us. Sometimes, we could
purchase loans along side an acquisition.

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Our industrial mortgage loans are said at unpaid principal stability, adjusted
for any unamortized premium or low cost, and internet of the allowance for credit score
losses. Curiosity earnings is accrued on the principal quantity of the mortgage based mostly on
the mortgage’s contractual rate of interest. Amortization of premiums and reductions is
recorded utilizing the efficient yield methodology. Curiosity earnings, amortization of
premiums and reductions, and prepayment charges are reported in internet funding
earnings.

Sure of the industrial mortgage loans have name choices that happen inside the
subsequent 9 years. Nonetheless, if rates of interest had been to considerably enhance, we could
be unable to train the decision choices on our current industrial mortgage loans
commensurate with the considerably elevated market charges. As of September 30,
2021, assuming the loans are known as at their subsequent name dates, $54 million of
principal would turn out to be due for the rest of 2021, $450 million in 2022
by way of 2026, and $12 million in 2027 by way of 2029.

We provide a kind of business mortgage mortgage beneath which we are going to allow a
loan-to-value ratio of as much as 85% in trade for a participation curiosity within the
money flows from the underlying actual property. As of September 30, 2021 and
December 31, 2020, $620 million and $806 million, respectively, of our complete
industrial mortgage loans principal stability have this participation function.
Money flows obtained on account of this participation function are recorded as
curiosity earnings. In the course of the three and 9 months ended September 30, 2021 and
2020, the Firm acknowledged $32 million and $46 million, and $1 million and $17
million respectively, of participation industrial mortgage mortgage earnings.

The next desk features a breakdown of our industrial mortgage mortgage
portfolio:
Business Mortgage Mortgage Portfolio Profile
As of September 30, As of December 31,
2021 2020
({Dollars} In Tens of millions)
Variety of industrial mortgage loans 1,789 1,827
Amortized price $ 10,609$ 10,228
Unpaid principal stability $ 10,556$ 10,148

Allowance for funded industrial mortgage mortgage credit score
losses

$ (103) $ (222)
Common industrial mortgage mortgage measurement $ 6 $ 6

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

Variety of unfunded industrial mortgage mortgage commitments 126 117
Unfunded industrial mortgage mortgage commitments $ 1,294 $ 801
Allowance for unfunded industrial mortgage dedication
credit score losses $ (9) $ (22)

We file industrial mortgage loans internet of an allowance for credit score losses. This
allowance is calculated and recorded at a mortgage degree, based mostly on evaluation and
enter knowledge for loans with comparable danger traits. As of September 30, 2021
and December 31, 2020, there have been allowances for funded industrial mortgage mortgage
and unfunded industrial mortgage mortgage commitments credit score losses of $112 million
and $245 million, respectively.

Whereas our industrial mortgage loans don’t have quoted market values, as of
September 30, 2021 we estimated the honest worth of our industrial mortgage loans
to be $11.2 billion (utilizing an inner honest worth mannequin which calculates the
worth of most loans through the use of the mortgage’s discounted money flows to the mortgage’s name
or maturity date), which was 5.12% greater than the amortized price.

On the time of origination, our industrial mortgage lending standards targets
that the loan-to-value ratio on every industrial mortgage mortgage is 75% or much less. We
goal projected rental funds from credit score anchors (i.e., excluding rental
funds from smaller native tenants) of 70% of the property’s projected
working bills and debt service.

As of September 30, 2021, we didn’t have any industrial mortgage loans that
had been nonperforming, restructured, or foreclosed. As of December 31, 2020 we had
$3 million of invested property that consisted of business mortgage loans that
had been nonperforming, restructured or foreclosed and transformed to actual property
properties. For all industrial mortgage loans, the
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influence of troubled debt restructurings is mirrored in our funding stability
and within the allowance for industrial mortgage mortgage credit score losses.

In the course of the 9 months ended September 30, 2021, we acknowledged one troubled debt
restructuring transaction on account of granting a concession to a borrower
which included mortgage phrases unavailable from different lenders. This concession was
the results of an settlement between the creditor and the debtor. The Firm did
not establish any loans whose principal was completely impaired throughout the 9
months ended September 30, 2021.

It’s our coverage to stop to hold accrued curiosity on loans which are over 90
days delinquent. For loans lower than 90 days delinquent, curiosity is accrued
except it’s decided that the accrued curiosity is just not collectible. If a mortgage
turns into over 90 days delinquent, it’s our basic coverage to provoke
foreclosures proceedings except a exercise association to convey the mortgage present
is in place.

We use the identical methodology and assumptions to estimate the allowance for
unfunded industrial mortgage mortgage commitments credit score losses as for funded
industrial mortgage loans. As of September 30, 2021, the allowance for unfunded
industrial mortgage mortgage commitments credit score losses was $9 million, which was a
slight lower of $3 million from the second quarter of 2021.

Unrealized Features and Losses – Obtainable-for-Sale Securities
The data introduced under pertains to investments at a sure level in
time and isn’t essentially indicative of the standing of the portfolio at any
time after September 30, 2021, the stability sheet date. Details about
unrealized good points and losses is topic to quickly altering circumstances, together with
volatility of economic markets and adjustments in rates of interest. Administration
considers plenty of elements in figuring out if an unrealized loss is said to
a credit score loss, together with the anticipated money to be collected and the intent,
chance, and/or potential to carry the safety till restoration. Per
our long-standing observe, we don’t make the most of a “vibrant line take a look at” to find out
whether or not a credit score loss has occurred. On a quarterly foundation, we carry out an evaluation
on each safety with an unrealized loss to find out whether or not a credit score loss has
occurred. This evaluation contains reviewing a number of metrics together with collateral,
anticipated money flows, scores, and liquidity. Moreover, because the timing of
recognizing realized good points and losses is basically based mostly on administration’s selections
as to the timing and number of investments to be bought, the tables and
info supplied under needs to be thought of inside the context of the
general unrealized achieve/(loss) place of the portfolio. We had an general internet
unrealized achieve of $5.3 billion, previous to tax and the associated influence of sure
insurance coverage property and liabilities offsets, as of September 30, 2021, and an
general internet unrealized achieve of $6.9 billion as of December 31, 2020.
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For mounted maturity securities held which are in an unrealized loss place as of
September 30, 2021, the honest worth, amortized price, unrealized loss, allowance
for anticipated credit score losses (“ACL”), and complete time interval that the safety has
been in an unrealized loss place are introduced within the desk under:
% % %
Truthful Truthful Amortized Amortized Unrealized Unrealized
Worth Worth Price Price ACL % ACL Loss Loss
({Dollars} In Tens of millions)
<= 90 days $ 4,739 53.5 % $ 4,802 52.8 % $ - - % $ (63) 27.8 % >90 days however <= 180 days 379 4.3 385 4.2 - - (6) 2.6 >180 days however <= 270 days 2,825 31.8 2,922 32.2 - - (97) 42.8 >270 days however <= 1 year 198 2.2 210 2.4 - - (12) 5.3 >1 yr however <= 2 years 298 3.4 315 3.5 (1) 50.0 (16) 7.0 >2 years however <= 3 years 105 1.2 110 1.2 - - (5) 2.2 >3 years however <= 4 years 97 1.1 104 1.1 - - (7) 3.1 >4 years however <= 5 years 48 0.5 49 0.5 - - (1) 0.4 >5 years 174 2.0 195 2.1 (1) 50.0 (20) 8.8
Complete $ 8,863 100.0 % $ 9,092 100.0 % $ (2) 100.0 % $ (227) 100.0 %

The vary of maturity dates for securities in an unrealized loss place as of
September 30, 2021, varies, with 6.6% maturing in lower than 5 years, 30.7%
maturing between 5 and 10 years, and 62.7% maturing after 10 years. The
following desk exhibits the credit standing of securities in an unrealized loss
place as of September 30, 2021:

% %
S&P or Equal Truthful % Amortized Amortized Unrealized Unrealized
Designation Worth Truthful Worth Price Price ACL % ACL Loss Loss
({Dollars} In Tens of millions)
AAA/AA/A $ 5,489 61.9 % $ 5,618 61.8 % $ – – % $ (129) 56.8 %
BBB 2,988 33.7 3,059 33.6 – – (71) 31.3
Funding grade 8,477 95.6 % 8,677 95.4 % – – % (200) 88.1 %
BB 380 4.3 407 4.5 (1) 50.0 (26) 11.5
B 6 0.1 8 0.1 (1) 50.0 (1) 0.4
CCC or decrease – – – – – – – –
Under funding grade 386 4.4 % 415 4.6 % (2) 100.0 % (27) 11.9 %
Complete $ 8,863 100.0 % $ 9,092 100.0 % $ (2) 100.0 % $ (227) 100.0 %

As of September 30, 2021, the Barclays Funding Grade Index was priced at 87
bps versus a ten yr common of 135 bps. Equally, the Barclays Excessive Yield
Index was priced at 332 bps versus a ten yr common of 488 bps. As of
September 30, 2021, the 5, ten, and thirty-year U.S.Treasury obligations
had been buying and selling at ranges of 1.0%, 1.5%, and a pair of.0%, as in comparison with 10 yr averages
of 1.4%, 2.0%, and a pair of.8%, respectively.
As of September 30, 2021, 88.1% of the unrealized loss was related to
securities that had been rated funding grade. We’ve got examined the efficiency of
the underlying collateral and money flows and count on that our investments will
proceed to carry out in accordance with their contractual phrases. Elements equivalent to
credit score enhancements inside the deal buildings and the underlying collateral
efficiency/traits assist the recoverability of the investments. Based mostly
on the elements mentioned, we concluded that an allowance for credit score losses was
not mandatory. Nonetheless, occasionally, we could promote securities within the
strange course of managing our portfolio to fulfill diversification, credit score
high quality, yield enhancement, asset/legal responsibility administration, and liquidity
necessities.
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Expectations that investments in mortgage-backed and asset-backed securities
will proceed to carry out in accordance with their contractual phrases are based mostly on
assumptions {that a} market participant would use in figuring out the present honest
worth. It’s moderately attainable that the underlying collateral of those
investments will carry out worse than present market expectations and that such an
occasion could result in antagonistic adjustments within the money flows on our holdings of those
sorts of securities. This might result in potential future write-downs inside our
portfolio of mortgage-backed and asset-backed securities. Expectations that our
investments in company securities and/or debt obligations will proceed to
carry out in accordance with their contractual phrases are based mostly on proof
gathered by way of our regular credit score surveillance course of. Though we don’t
anticipate such occasions, it’s moderately attainable that issuers of our
investments in company securities will carry out worse than present
expectations. Such occasions could lead us to acknowledge potential future write-downs
inside our portfolio of company securities. Additionally it is attainable that such
unanticipated occasions would lead us to get rid of these sure holdings and
acknowledge the consequences of any such market actions in our monetary statements.
As of September 30, 2021, we held a complete of 558 positions that had been in an
unrealized loss place. Included in that quantity had been 40 positions of under
funding grade securities with a good worth of $386 million that had been in an
unrealized loss place. Complete unrealized losses associated to under funding
grade securities had been $27 million, $23 million of which had been in an
unrealized loss place for greater than twelve months. Under funding grade
securities in an unrealized loss place had been 0.4% of invested property.
As of September 30, 2021, securities in an unrealized loss place that had been
rated as under funding grade represented 4.4% of the overall honest worth and
11.9% of the overall unrealized loss. We’ve got the power and intent to carry these
securities to maturity. After a evaluate of every safety and its anticipated money
flows, we consider the decline in honest worth to be non-credit associated.
The next desk contains the honest worth, amortized price, unrealized loss,
ACL, and complete time interval that the safety has been in an unrealized loss
place for all under funding grade securities as of September 30, 2021:
% % %
Truthful Truthful Amortized Amortized Unrealized Unrealized
Worth Worth Price Price ACL % ACL Loss Loss
({Dollars} In Tens of millions)
<= 90 days $ 46 11.9 % $ 47 11.3 % $ - - % $ (1) 3.7 % >90 days however <= 180 days - - - - - - - - >180 days however <= 270 days 53 13.7 56 13.5 - - (3) 11.1 >270 days however <= 1 year - - - - - - - - >1 yr however <= 2 years 48 12.4 54 13.0 (1) 50.0 (5) 18.5 >2 years however <= 3 years 38 9.8 39 9.4 - - (1) 3.7 >3 years however <= 4 years 40 10.4 45 10.8 - - (5) 18.5 >4 years however <= 5 years 20 5.2 21 5.1 - - (1) 3.7 >5 years 141 36.6 153 36.9 (1) 50.0 (11) 40.8
Complete $ 386 100.0 % $ 415 100.0 % $ (2) 100.0 % $ (27) 100.0 %

We’ve got no materials concentrations of issuers or guarantors of mounted maturity
securities. The trade section composition of all securities in an unrealized
loss place held as of September 30, 2021, is introduced within the following
desk:
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% % %
Truthful Truthful Amortized Amortized Unrealized Unrealized
Worth Worth Price Price ACL % ACL Loss Loss
({Dollars} In Tens of millions)
Banking $ 851 9.7 % $ 869 9.6 % $ – – % $ (18) 8.0 %
Different finance 136 1.5 145 1.6 – – (9) 4.0
Electrical utility 393 4.4 406 4.5 – – (13) 5.7
Vitality 348 3.9 363 4.0 – – (15) 6.6
Pure gasoline 48 0.5 49 0.5 – – (1) 0.4
Insurance coverage 397 4.5 410 4.5 – – (13) 5.7
Communications 267 3.0 276 3.0 (1) 50.0 (8) 3.5
Primary industrial 224 2.5 229 2.5 – – (5) 2.2
Shopper noncyclical 586 6.6 603 6.6 – – (17) 7.5
Shopper cyclical 370 4.2 384 4.2 – – (14) 6.2
Finance firms 109 1.2 111 1.2 – – (2) 0.9
Capital items 174 2.0 178 2.0 – – (4) 1.8
Transportation 80 0.9 81 0.9 – – (1) 0.4
Different industrial 40 0.5 41 0.5 – – (1) 0.4
Brokerage 146 1.6 151 1.7 – – (5) 2.2
Expertise 325 3.7 334 3.7 – – (9) 4.0

Business mortgage-backed
securities 140 1.6 147 1.6 (1) 50.0 (6) 2.6
Different asset-backed securities 184 2.1 185 2.0 – – (1) 0.4
Residential mortgage-backed
non-agency securities 2,733 30.8 2,765 30.4 – – (32) 14.1
Residential mortgage-backed
company securities 738 8.3 764 8.4 – – (26) 11.5
U.S. government-related
securities 459 5.2 483 5.3 – – (24) 10.6
Different government-related
securities 76 0.9 78 0.9 – – (2) 0.9
States, municipals, and
political divisions 39 0.4 40 0.4 – – (1) 0.4
Complete $ 8,863 100.0 % $ 9,092 100.0 % $ (2) 100.0 % $ (227) 100.0 %

We’ve got no materials concentrations of issuers or guarantors of mounted maturity
securities. The trade section composition of all securities in an unrealized
loss place held as of December 31, 2020, is introduced within the following desk:
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Truthful % Truthful Amortized % Amortized Unrealized % Unrealized
Worth Worth Price Price ACL % ACL Loss Loss
({Dollars} In Tens of millions)
Banking $ 163 5.1 % $ 165 5.0 % $ – – % $ (2) 1.2 %
Different finance 95 3.0 103 3.1 – – (8) 6.3
Electrical utility 221 7.0 231 6.9 – 0.6 (10) 7.6
Vitality 431 13.7 482 14.6 (16) 68.2 (35) 26.9
Pure gasoline 14 0.4 14 0.4 – 1.0 – 0.2
Insurance coverage 87 2.8 100 3.1 – – (13) 10.0
Communications 54 1.6 56 1.6 (2) 8.3 – (0.4)
Primary industrial – – – – – – – –
Shopper noncyclical 188 5.9 193 5.8 – – (5) 3.9
Shopper cyclical 243 7.6 256 7.6 – – (13) 10.4
Finance firms 1 0.1 2 0.1 – – (1) 0.7
Capital items 32 1.0 33 1.0 – – (1) 1.0
Transportation 153 4.8 161 4.8 – – (8) 5.1
Different industrial 18 0.6 18 0.5 – – – 0.1
Brokerage 39 1.2 41 1.2 – – (2) 1.3
Expertise 52 1.6 55 1.6 – – (3) 1.9

Business mortgage-backed
securities 293 9.2 316 9.5 (4) 15.7 (19) 15.1
Different asset-backed securities 472 14.9 480 14.4 (1) 6.2 (7) 5.1
Residential mortgage-backed
non-agency securities 292 9.2 293 8.8 – – (1) 0.9
Residential mortgage-backed company
securities 103 3.2 103 3.1 – – – –
U.S. government-related securities 312 5.1 315 5.0 – – (3) 1.3
Different government-related securities 26 0.8 27 0.8 – – (1) 0.8
States, municipals, and political
divisions 39 1.2 39 1.1 – – – 0.6
Complete $ 3,328 100.0 % $ 3,483 100.0 % $ (23) 100.0 % $ (132) 100.0 %

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Threat Administration and Impairment Assessment
We monitor the general credit score high quality of our portfolio inside established
tips. The next desk contains our available-for-sale mounted maturities
by credit standing as of September 30, 2021:
% of
Score Truthful Worth Truthful Worth
({Dollars} In Tens of millions)
AAA $ 9,320 13.2 %
AA 6,859 9.7
A 22,136 31.2
BBB 29,883 42.2
Funding grade 68,198 96.3
BB 2,453 3.5
B 119 0.2
CCC or decrease 3 –
Under funding grade 2,575 3.7
Complete $ 70,773 100.0 %

Not included within the desk above are $2.7 billion of funding grade and $139
million of under funding grade mounted maturities labeled as buying and selling
securities.
Limiting bond publicity to any creditor group is one other approach we handle credit score
danger. We held no credit score default swaps on the positions listed under as of
September 30, 2021. The next desk summarizes our ten largest mounted
maturity exposures to a person creditor group as of September 30, 2021:
Truthful Worth of
Funded Unfunded Complete
Creditor Securities Exposures Truthful Worth
({Dollars} In Tens of millions)
JP Morgan Chase & Co $ 294$ 13$ 307
AT&T Inc. 298 – 298
Wells Fargo & Firm 289 1 290
UnitedHealth Group Inc. 288 – 288
Verizon Communications Inc 285 – 285
Berkshire Hathaway Inc. 285 – 285
TIAA Board of Overseers 279 – 279
BNP Paribas 267 12 279
HSBC Holdings PLC 278 – 278
Normal Chartered PLC 273 – 273
Complete $ 2,836$ 26$ 2,862

Figuring out whether or not a decline within the present honest worth of invested property is a
credit score loss is each goal and subjective, and might contain a wide range of
assumptions and estimates, significantly for investments that aren’t actively
traded in established markets. We evaluate our positions on a month-to-month foundation for
attainable credit score issues and evaluate our present publicity, credit score enhancement,
and delinquency expertise.
Administration considers plenty of elements when figuring out the impairment standing
of particular person securities. These embrace the financial situation of varied
trade segments and geographic places and different areas of recognized dangers.
Since it’s attainable for the impairment of 1 funding to have an effect on different
investments, we interact in ongoing danger administration to safeguard in opposition to and restrict
any additional danger to our funding portfolio. Particular consideration is given to
correlative dangers inside particular industries, associated events, and enterprise
markets.
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For sure securitized monetary property with contractual money flows, together with
RMBS, CMBS, and different asset-backed securities (collectively known as
asset-backed securities or “ABS”), GAAP requires us to periodically replace our
greatest estimate of money flows over the lifetime of the safety. If the honest worth of
a securitized monetary asset is lower than its price or amortized price and there
has been a lower within the current worth of the anticipated money flows because the
final revised estimate, a credit score loss is acknowledged. Estimating future money flows
is a quantitative and qualitative course of that includes info obtained
from third celebration sources together with sure inner assumptions and judgments
concerning the longer term efficiency of the underlying collateral. Projections of
anticipated future money flows could change based mostly upon new info concerning the
efficiency of the underlying collateral. As well as, we contemplate our intent
and skill to retain a quickly depressed safety till restoration.

For securities which the Firm has the intent and skill to carry till the
restoration of the amortized price foundation, evaluation of anticipated money flows is used to
measure the quantity of the credit score loss, if any, and the Firm makes use of the
efficient rate of interest implicit within the safety on the date of acquisition to
low cost anticipated money flows. For floating charge securities, the Firm’s coverage
is to lock within the rate of interest on the first occasion of an impairment.
Estimates of anticipated money flows should not probability-weighted, however will replicate
the Firm’s greatest estimate based mostly on previous occasions, present circumstances, and
affordable and supportable forecasts of future occasions. To the extent the
amortized price foundation of the safety exceeds the current worth of future money
flows anticipated to be collected, this distinction represents a credit score loss. Credit score
losses are recorded in present earnings with a corresponding adjustment to the
allowance for credit score losses, besides that the credit score loss acknowledged can’t
exceed the distinction between the e-book worth and honest worth of the safety as
of the date of the evaluation. In future durations, recoveries within the current worth
of anticipated money flows are recorded in present earnings as a reversal of the
beforehand acknowledged allowance for credit score losses.
There are particular dangers and uncertainties related to figuring out whether or not
declines in honest values are the results of credit score losses. These embrace
important adjustments generally financial circumstances and enterprise markets, developments
in sure trade segments, rate of interest fluctuations, score company actions,
adjustments in important accounting estimates and assumptions, fee of
fraud, and legislative actions. We constantly monitor these elements as they
relate to the funding portfolio in figuring out the standing of every funding.
We’ve got deposits with sure monetary establishments which exceed federally
insured limits. We’ve got reviewed the creditworthiness of those monetary
establishments and consider that there’s minimal danger of a cloth loss.
Sure European international locations have skilled various levels of economic stress,
which might have a detrimental influence on regional or international financial circumstances
and on sovereign and non-sovereign obligations. The chart proven under contains
our non-sovereign honest worth exposures in these international locations as of September 30,
2021. As of September 30, 2021, we had no materials unfunded publicity and had no
materials direct sovereign publicity.
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Complete Gross
Non-sovereign Debt Funded

Monetary Instrument and Nation Monetary Non-financial

Publicity
({Dollars} In Tens of millions)
Securities:
United Kingdom $ 1,304$ 1,456$ 2,760
France 749 410 1,159
Netherlands 346 354 700
Germany 249 836 1,085
Switzerland 459 156 615
Spain 245 359 604
Belgium – 209 209
Norway – 126 126
Finland 109 – 109
Eire 72 126 198
Italy 75 175 250
Luxembourg – 34 34
Sweden – 53 53
Denmark 57 – 57
Portugal – 25 25
Austria – 21 21
Complete securities 3,665 4,340 8,005
Derivatives:

United Kingdom 125 – 125
Switzerland 26 – 26
France 53 – 53
Complete derivatives 204 – 204
Complete securities $ 3,869$ 4,340$ 8,209

Realized Features and Losses
The next desk units forth realized good points (losses) – investments/derivatives
for the durations proven:
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For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions)
Fastened maturity good points – gross sales $ 5$ 3$ 45$ 49
Fastened maturity losses – gross sales – – (1) (4)
Fairness good points and losses – 16 3 (1)
Change in internet anticipated credit score losses – mounted
maturities – (38) 5 (121)
Business mortgage loans 37 (2) 129 (101)
Modco buying and selling portfolio (25) 45 (69) 108
Different investments (1) (1) (1) (2)
Complete realized good points (losses) – investments 16 23 111 (72)
Derivatives associated to VA contracts:
Rate of interest futures – 2 8 (3)
Fairness futures 2 (1) (10) 132
Foreign money futures 4 (9) 9 1
Fairness choices 1 (42) (81) 67

Rate of interest swaps (24) (58) (167) 364
Complete return swaps 6 (31) (119) 30
Embedded by-product – GLWB (15) 190 287 (681)

Complete derivatives associated to VA contracts (26) 51 (73) (90)
Derivatives associated to FIA contracts:
Embedded by-product 61 (9) 25 (38)
Funds withheld by-product – (3) (5) (10)
Fairness futures – 1 3 (7)
Fairness choices (3) 25 45 15
Different derivatives – – (2) –
Complete derivatives associated to FIA contracts 58 14 66 (40)
Derivatives associated to IUL contracts:
Embedded by-product (3) 16 (15) 1
Fairness futures – – – (2)
Fairness choices 1 6 9 1
Complete derivatives associated to IUL contracts (2) 22 (6) –
Embedded by-product – Modco reinsurance
treaties 19 (25) 66 (56)
Derivatives with PLC(1) – 20 – 22
Different derivatives 2 6 (3) 12
Complete realized good points (losses) – derivatives 51 88 50 (152)
Complete realized good points (losses) $ 67$ 111$ 161$ (224)

(1) The Firm and sure of its subsidiaries had an curiosity assist settlement, a yearly renewable time period (“YRT”) premium
assist settlement, and portfolio upkeep agreements PLC by way of October 1, 2020. These agreements had been terminated as
a part of the Captive Merger and a brand new portfolio upkeep settlement was entered into with PLC on that date.

Realized good points (losses) on investments replicate portfolio administration actions
designed to keep up correct matching of property and liabilities and to reinforce
long-term funding portfolio efficiency. The change in internet realized good points
(losses) – investments, excluding adjustments within the allowance for credit score losses and
Modco buying and selling portfolio exercise throughout the three and 9 months ended
September 30, 2021, primarily displays the conventional operation of our
asset/legal responsibility program inside the context of the altering rate of interest and
unfold surroundings.
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Realized losses are comprised of internet adjustments in anticipated credit score losses and
precise gross sales of investments. These impairments resulted from our evaluation of
circumstances and our perception that credit score occasions, loss severity, adjustments in
credit score enhancement, and/or different antagonistic circumstances of the respective issuers
have precipitated, or will result in, a deficiency within the contractual money flows associated
to those investments. These internet adjustments in anticipated credit score losses are introduced
within the chart under:
For The For The
Three Months Ended 9 Months Ended
September 30, September 30,
2021 2020 2021 2020
({Dollars} In Tens of millions)
Different MBS $ – $ – $ – $ (1)
Company securities – (38) 3 (120)

CMBS – – 2 –
Complete $ – $ (38)$ 5$ (121)

As beforehand mentioned, administration considers a number of elements when figuring out
whether or not a credit score loss has occurred. Though we buy securities with the
intent to carry them till maturity, we could change our place on account of a
change in circumstances. Any such choice is per our classification
of all however a particular portion of our funding portfolio as available-for-sale.
For the 9 months ended September 30, 2021, we bought securities in an
unrealized loss place with a good worth of $35 million. For such securities,
the proceeds, realized loss, and complete time interval that the safety had been in
an unrealized loss place are introduced within the desk under:
Proceeds % Proceeds Realized Loss % Realized Loss
({Dollars} In Tens of millions)
<= 90 days $ 20 57.1 % $ - - % >90 days however <= 180 days - - - - >180 days however <= 270 days - - - - >270 days however <= 1 year - - - - >1 yr 15 42.9 (1) 100.0
Complete $ 35 100.0 % $ (1) 100.0 %

For the three and 9 months ended September 30, 2021, we bought securities in an
unrealized loss place with sale proceeds of $12 million and $35 million,
respectively. The losses realized on the sale of those securities in every interval
had been immaterial. We made the choice to exit these holdings along side
our general asset/legal responsibility administration course of.
For the three and 9 months ended September 30, 2021, we bought securities in an
unrealized achieve place with sale proceeds of $232 million and $1.4 billion.
The good points realized on the sale of those securities had been $5 million and $45
million, respectively.
For the three and 9 months ended September 30, 2021, internet losses of $25
million and $69 million, respectively, associated to adjustments in honest worth on our
Modco buying and selling portfolios, had been included in realized good points and losses. Additionally, for
the three and 9 months ended September 30, 2021, roughly $3 million and
$19 million of good points had been realized by way of the sale of sure securities, which
will probably be paid to our reinsurance companions over time by way of the reinsurance
settlement course of for this block of enterprise. The Modco embedded by-product,
included these related to the buying and selling portfolios had realized pre-tax good points
of $19 million and $66 million throughout the three and 9 months ended
September 30, 2021. The good points on the embedded by-product had been because of treasury
yields rising throughout the three and 9 months ended September 30, 2021.
We use varied by-product devices to handle dangers associated to sure life
insurance coverage and annuity merchandise. We are able to use these derivatives as financial hedges
in opposition to dangers inherent within the merchandise. These dangers have a direct influence on the
price of those merchandise and are correlated with the fairness markets, curiosity
charges, international foreign money ranges, and general volatility. The hedged dangers are
recorded by way of the popularity of embedded derivatives related to the
merchandise. These merchandise embrace the GLWB rider related to the variable
annuity, mounted listed annuity merchandise in addition to listed common life
merchandise. In the course of the three and 9 months ended September 30, 2021, we
skilled $26 million and $73 million in losses on derivatives associated to VA
contracts. These internet losses on derivatives associated to VA contracts had been affected
by capital market impacts, adjustments within the Firm’s non-performance danger, and
variations in precise sub-account fund efficiency from the indices included in
our hedging program, in addition to updates to sure policyholder assumptions
throughout the three and 9 months ended September 30, 2021.
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The Funds Withheld by-product related to Protecting Life Reinsurance
Bermuda Ltd. (“PL Re”) had no pre-tax realized good points or losses for the three
months ended September 30, 2021 and losses of $5 million for the 9 months
ended September 30, 2021.
On October 1, 2020, Golden Gate II Captive Insurance coverage Firm (“Golden Gate II”),
Golden Gate III Vermont Captive Insurance coverage Firm (“Golden Gate III”), Golden
Gate IV Vermont Captive Insurance coverage Firm (“Golden Gate IV”), and Golden Gate V
Vermont Captive Insurance coverage Firm (“Golden Gate V”), all of which had been wholly
owned captive insurance coverage firm subsidiaries of the Firm (collectively the
“Captives”) merged with and into (the “Captive Merger”) Golden Gate.
Along with the Captive Merger, the Firm terminated its curiosity
assist, yearly renewable time period (“YRT”) premium assist, and portfolio
upkeep agreements with PLC.
As a part of the Captive Merger, Golden Gate entered into a brand new portfolio
upkeep settlement with PLC. The Firm acknowledged no good points or losses on
this settlement for the three and 9 months ended September 30, 2021.
We additionally use varied swaps and different sorts of derivatives to mitigate danger
associated to different exposures. These contracts generated good points of $2 million and
losses of $3 million for the three and 9 months ended September 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Firm
Overview
Our major sources of funding are from our insurance coverage operations and revenues
from investments. These sources of money assist our operations and are used to
pay dividends to PLC.
The states by which we and our insurance coverage subsidiaries are domiciled impose
sure restrictions on the power to pay dividends. These restrictions are
based mostly partly on the prior yr’s statutory earnings and/or surplus.
Debt and different capital assets
Our major sources of capital are from retained earnings from our insurance coverage
operations and capital infusions from our guardian, PLC. Moreover, we now have
entry to the Credit score Facility mentioned under.
Below a revolving line of credit score association (the “Credit score Facility”), PLC and
the Firm have the power to borrow on an unsecured foundation as much as a mixed
combination principal quantity of $1 billion. Below sure circumstances, the
Credit score Facility permits for a request that the dedication beneath the Credit score
Facility be elevated as much as a most principal quantity of $2 billion. We’re not
conscious of any non-compliance with the monetary debt covenants of the Credit score
Facility as of September 30, 2021. We didn’t have an impressive stability drawn
on the Credit score Facility as of September 30, 2021 or December 31, 2020. PLC had an
excellent stability beneath the Credit score Facility of $350 million and $190 million
as of September 30, 2021 and December 31, 2020.
Liquidity
Liquidity refers to an organization’s potential to generate enough quantities of money to
meet its wants. We meet our liquidity necessities primarily by way of constructive
money flows from our working subsidiaries. Main sources of money from the
working subsidiaries are premiums, deposits for policyholder accounts,
funding gross sales and maturities, and funding earnings. Main makes use of of money
embrace profit funds, withdrawals from policyholder accounts, funding
purchases, coverage acquisition prices, curiosity funds, and different working
bills. We consider that we now have adequate liquidity to fund our money wants
beneath regular working situations.
Within the occasion of serious unanticipated money necessities past our regular
liquidity wants, we now have further sources of liquidity out there relying on
market circumstances and the quantity and timing of the liquidity want. These
further sources of liquidity embrace money flows from operations, the sale of
liquid property, accessing our credit score facility, and different sources described
herein. Our choice to promote funding property might be impacted by accounting
guidelines, together with guidelines referring to the chance of a requirement to promote
securities earlier than restoration of our price foundation. Below tense market and
financial circumstances, liquidity could broadly deteriorate, which might negatively
influence our potential to promote funding property. If we require on quick discover
important quantities of money in extra of regular necessities, we could have
issue promoting funding property in a well timed method, be compelled to promote them
for lower than we in any other case would have been in a position to understand, or each.
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The liquidity necessities of our regulated insurance coverage subsidiaries primarily
relate to the liabilities related to their varied insurance coverage and funding
merchandise, working bills, and earnings taxes. Liabilities arising from
insurance coverage and funding merchandise embrace the cost of policyholder advantages,
in addition to money funds in reference to coverage surrenders and withdrawals,
coverage loans, and obligations to redeem funding agreements.
We keep funding methods meant to offer enough funds to pay
advantages and anticipated surrenders, withdrawals, loans, and redemption obligations
with out compelled gross sales of investments. As well as, our insurance coverage subsidiaries
maintain extremely liquid, high-quality short-term funding securities and different
liquid funding grade mounted maturity securities to fund our anticipated working
bills, surrenders, and withdrawals. We had been dedicated as of September 30,
2021 to fund industrial mortgage loans within the quantity of $1.3 billion.
Our money flows are used to fund an funding portfolio that gives for future
profit funds. We make use of a proper asset/legal responsibility program to handle the money
flows of our funding portfolio relative to our long-term profit obligations.
As of September 30, 2021, we held money and short-term investments of $1.0
billion.
The next chart contains the money flows supplied by or utilized in working,
investing, and financing actions for the next durations:
For The 9 Months Ended
September 30,
2021 2020
({Dollars} In Tens of millions)
Internet money (utilized in) supplied by working actions $ (771) $ 35
Internet money utilized in investing actions (3,469) (1,684)
Internet money supplied by financing actions 3,993 1,885
Complete $ (247) $ 236

For The 9 Months Ended September 30, 2021 as in comparison with the 9 Months
Ended September 30, 2020
Internet money (utilized in) supplied by working actions – Money flows from working
actions are affected by the timing of premiums obtained, reinsurance
transactions, funding actions, and advantages and bills paid. As a result of
nature of our enterprise and the truth that most of the merchandise we promote produce
financing and investing money flows it is very important contemplate money flows
generated by investing and financing actions along side these
generated by working actions.
Internet money utilized in investing actions – Modifications in money from investing
actions primarily associated to our funding portfolio.
Internet money supplied by financing actions – Modifications in money from financing
actions included $774 million of inflows from secured financing liabilities
for the 9 months ended September 30, 2021, as in comparison with the $103 million of
outflows for the 9 months ended September 30, 2020 and $3.3 billion of internet
inflows of funding product and common life internet exercise as in comparison with
$2.0 billion within the prior yr.
The Firm and sure of its subsidiaries, are members of the FHLB of
Cincinnati, the FHLB of New York, and the FHLB of Atlanta. FHLB advances present
a beautiful funding supply for short-term borrowing and for the sale of
funding agreements. Membership within the FHLB requires that we buy FHLB
capital inventory based mostly on a minimal requirement and a proportion of the greenback
quantity of advances excellent. Our borrowing capability is decided by standards
established by every respective financial institution. As well as, our obligations beneath the
advances should be collateralized. We keep management over any such pledged
property, together with the correct of substitution. As of September 30, 2021, we had
$1.4 billion of funding agreement-related advances and accrued curiosity
excellent beneath the FHLB program.
Whereas we anticipate that the money flows of our working subsidiaries will probably be
adequate to fulfill our funding commitments and working money wants in a
regular credit score market surroundings, we acknowledge that funding commitments
scheduled to be funded could, occasionally, exceed the funds then out there.
Due to this fact, we now have established repurchase settlement applications for sure of our
insurance coverage subsidiaries to offer liquidity when wanted. We count on that the speed
obtained on its investments will equal or exceed its borrowing charge. Below this
program, we could, occasionally, promote an funding safety at a particular
worth and comply with repurchase that safety at one other specified worth at a
later date. These borrowings are sometimes for a time period lower than 90 days. The
honest worth of securities to be repurchased is monitored and collateral ranges
are adjusted the place acceptable to guard the counterparty in opposition to credit score
publicity. Money obtained is invested in mounted maturity securities, and the
agreements present for internet settlement within the occasion of default or on termination
of the agreements. As of September 30, 2021, the honest worth of securities
pledged beneath the repurchase program was $1,124 million, and the repurchase
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obligation of $1,104 million was included in our consolidated condensed stability
sheets (at a median borrowing charge of 13 foundation factors). In the course of the 9 months
ended September 30, 2021, the utmost stability excellent at anybody level in
time associated to those applications was $1,289 million. The typical each day stability was
$537 million (at a median borrowing charge of 12 foundation factors) throughout the 9
months ended September 30, 2021. As of December 31, 2020, the honest worth of
securities pledged beneath the repurchase program was $452 million and the
repurchase obligation of $437 million was included in our consolidated condensed
stability sheets (at a median borrowing charge of 15 foundation factors). In the course of the
yr ended December 31, 2020, the utmost stability excellent at anybody level
in time associated to those applications was $825 million. The typical each day stability
was $143 million (at a median borrowing charge of 33 foundation factors) throughout the
yr ended December 31, 2020.

We take part in securities lending, primarily as an funding yield
enhancement, whereby securities which are held as investments are loaned out to
third events for brief durations of time. We require collateral not less than equal to
102% of the honest worth of the loaned securities to be individually maintained. The
loaned securities’ honest worth is monitored every day and collateral is
adjusted accordingly. We keep possession of the securities always and
are entitled to obtain from the borrower any funds for curiosity obtained on
such securities throughout the mortgage time period. Securities lending transactions are
accounted for as secured borrowings. As of September 30, 2021 and December 31,
2020, securities with a good worth of $160 million and $57 million,
respectively, had been loaned beneath this program. As collateral for the loaned
securities, we obtain money, which is primarily reinvested in short-term
agreements, that are collateralized by U.S. Authorities or U.S. Authorities
Company securities, and authorities cash market funds. These investments are
recorded in short-term investments with a corresponding legal responsibility recorded in
secured financing liabilities to account for its obligation to return the
collateral. As of September 30, 2021 and December 31, 2020, the honest worth of
the collateral associated to this program was $166 million and $59 million and we
have an obligation to return $166 million and $59 million of collateral to the
securities debtors, respectively.

Statutory Capital
A life insurance coverage firm’s statutory capital is computed based on
guidelines prescribed by the Nationwide Affiliation of Insurance coverage Commissioners
(“NAIC”), as modified by state regulation. Typically talking, different states by which a
firm does enterprise defer to the interpretation of the domiciliary state with
respect to NAIC guidelines, except inconsistent with the opposite state’s laws.
Statutory accounting guidelines are totally different from GAAP and are meant to replicate a
extra conservative view, for instance, requiring instant expensing of coverage
acquisition prices. The NAIC’s risk-based capital necessities require insurance coverage
firms to calculate and report info beneath a risk-based capital
system. The achievement of long-term development would require development within the
statutory capital of the Firm and its insurance coverage subsidiaries. The Firm and
its subsidiaries could safe further statutory capital by way of varied
sources, equivalent to retained statutory earnings or our fairness contributions. In
basic, dividends as much as specified ranges are thought of strange and could also be
paid with out prior approval of the insurance coverage commissioner of the state of
domicile. Dividends in bigger quantities are thought of extraordinary and are
topic to affirmative prior approval by such commissioner. The utmost quantity
that may qualify as an strange dividend to us from our insurance coverage subsidiaries
in 2021 is $454 million.

State insurance coverage regulators and the NAIC have adopted risk-based capital (“RBC”)
necessities for all times insurance coverage firms to guage the adequacy of statutory
capital and surplus in relation to funding and insurance coverage dangers. The
necessities present a way of measuring the minimal quantity of statutory
surplus acceptable for an insurance coverage firm to assist its general enterprise
operations based mostly on its measurement and danger profile. An organization’s risk-based statutory
surplus is calculated by making use of elements and performing calculations relating
to varied asset, premium, declare, expense, and reserve gadgets. Regulators can
then measure the adequacy of an organization’s statutory surplus by evaluating it to
RBC. We handle our capital consumption through the use of the ratio of our complete adjusted
capital, as outlined by the insurance coverage regulators, to our firm motion degree RBC
(often called the RBC ratio), additionally as outlined by insurance coverage regulators.

Statutory reserves established for VA contracts are delicate to adjustments within the
fairness markets and are affected by the extent of account values relative to the
degree of any ensures and product design. In consequence, the connection
between reserve adjustments and fairness market efficiency could also be non-linear throughout
any given reporting interval. Market circumstances vastly affect the capital
required because of their influence on the valuation of reserves and by-product
investments mitigating the chance in these reserves. Threat mitigation actions
could end in materials and typically counterintuitive impacts on statutory
surplus and RBC ratio. Notably, as adjustments in these market and non-market
elements happen, each our potential obligation and the associated statutory reserves
and/or required capital can differ at a non-linear charge.

Our statutory surplus is impacted by credit score spreads on account of accounting
for the property and liabilities on our mounted market worth adjusted (“MVA”)
annuities. Statutory separate account property supporting the mounted MVA annuities
are recorded at honest worth. In figuring out the statutory reserve for the mounted
MVA annuities, we’re required to make use of present crediting charges based mostly on U.S.
Treasuries. In lots of capital market situations, present crediting charges based mostly on
U.S. Treasuries are extremely correlated with market charges implicit within the honest
worth of statutory separate account property. In consequence, the change within the
statutory reserve from
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interval to interval will seemingly considerably offset the change within the honest worth
of the statutory separate account property. Nonetheless, in durations of risky credit score
markets, precise credit score spreads on funding property could enhance or lower
sharply for sure sub-sectors of the general credit score market, leading to
statutory separate account asset market worth good points or losses. As precise credit score
spreads should not absolutely mirrored in present crediting charges based mostly on U.S.
Treasuries, the calculation of statutory reserves won’t considerably offset
the change in honest worth of the statutory separate account property leading to a
change in statutory surplus.
We cede materials quantities of insurance coverage and switch associated property to different
insurance coverage firms by way of reinsurance. Nonetheless, however the switch
of associated property, we stay liable with respect to ceded insurance coverage ought to any
reinsurer fail to fulfill the obligations that it assumed. We consider the
monetary situation of our reinsurers and monitor the related focus
of credit score danger. For the three and 9 months ended September 30, 2021, we ceded
premiums to 3rd celebration reinsurers amounting to $311 million and $954 million.
As well as, we had receivables from reinsurers amounting to $4.6 billion as of
September 30, 2021. We evaluate reinsurance receivable quantities for collectability
and set up unhealthy debt reserves if deemed acceptable.
Scottish Re (U.S.), Inc. (“SRUS”) was positioned in rehabilitation on March 6, 2019
by the State of Delaware. Below the associated order, the Insurance coverage Commissioner of
the State of Delaware has been appointed the receiver of SRUS (the “Receiver”)
and supplied with authority to conduct and proceed the enterprise of SRUS within the
curiosity of its cedents, collectors, and stockholder. The order was accompanied
by an injunction requiring the continued cost of reinsurance premiums to SRUS
and quickly prohibiting cedents, together with the Firm, from offsetting
premiums payable in opposition to receivables from SRUS. On June 20, 2019, the Delaware
Court docket of Chancery (the “Court docket”) entered an order approving a Revised Offset
Plan, which permits cedents, together with the Firm, to offset premiums beneath
sure circumstances.
A proposed Rehabilitation Plan (“Authentic Rehabilitation Plan”) was filed by the
Receiver on June 30, 2020. The Authentic Rehabilitation Plan presents the
following two choices to every cedent: 1) stay in enterprise with SRUS and be
ruled by the Rehabilitation Plan, or 2) recapture enterprise ceded to SRUS. Due
to SRUS’s monetary standing, neither choice would pay 100% of the Firm’s
excellent claims. The Authentic Rehabilitation Plan would impose sure
monetary phrases and circumstances on the cedents based mostly on the election made, the
sort of enterprise ceded, the way by which the enterprise is collateralized, and
the quantity of losses sustained by the cedent. On October 9, 2020, the Receiver
filed a proposed order setting forth a schedule to current the Authentic
Rehabilitation Plan for Court docket approval, which order contemplated attainable
modifications to the Rehabilitation Plan to be filed with the Court docket by March 16,
2021. The Court docket authorized the order. On March 16, 2021, the Receiver filed a
draft Amended Rehabilitation Plan (“Amended Plan”). Nearly all of the
substance and type of the unique Rehabilitation Plan, together with its two choice
construction described above, remained in place.

For a lot of 2020 and into early 2021, a gaggle of events collectively
requested sure info and monetary knowledge from the Receiver that may
enable them to extra absolutely consider first the Authentic Rehabilitation Plan and
then the Amended Plan, and in addition had plenty of conversations with counsel for
the Receiver concerning issues over the Plan. On July 26, 2021, the Receiver
shared with events an overview of a Modified Plan, together with a
liquidation evaluation. Whereas there are important adjustments proposed within the
Modified Plan (as in comparison with the Authentic Rehabilitation Plan and the Amended
Plan), a lot of the financial substance (together with not paying claims in full) of
the Authentic/Amended Rehabilitation Plan are prone to be included within the
Modified Plan.

The Court docket has but to rule additional or to re-establish a schedule for
pre-confirmation procedures or a listening to on affirmation.

The Firm continues to watch SRUS and the actions of the receiver by way of
discussions with authorized counsel and evaluate of publicly out there info. An
allowance for credit score losses associated to SRUS is included within the general
reinsurance allowance for credit score losses. As of September 30, 2021, administration
doesn’t consider that the final word consequence of the rehabilitation course of will
have a cloth influence on our monetary place or outcomes of operations.
Captive Reinsurance Corporations
The Firm and its subsidiaries are topic to a regulation entitled “Valuation
of Life Insurance coverage Insurance policies Mannequin Regulation,” generally often called “Regulation
XXX,” and a supporting guideline entitled “The Utility of the Valuation of
Life Insurance coverage Insurance policies Mannequin Regulation,” generally often called “Guideline AXXX.”
The regulation and supporting guideline require insurers to determine statutory
reserves for time period and common life insurance coverage insurance policies with long-term premium
ensures which are per the statutory reserves required for different
particular person life insurance coverage insurance policies with comparable ensures. Many market
members consider that these ranges of reserves are non-economic. We make the most of
a captive reinsurance firm to implement reinsurance and capital administration
actions to fulfill these reserve necessities by financing the non-economic
reserves by way of third-party monetary establishments.
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Golden Gate assumes enterprise from associates solely. Golden Gate is capitalized to
a degree we consider is adequate to assist its contractual dangers and different
basic obligations. Golden Gate is a completely owned subsidiary of the Firm and
is topic to laws in its domiciliary state of Vermont.

NAIC, by way of varied committees, subgroups and devoted activity forces, is
reviewing using captives and particular function autos used to switch
insurance coverage danger in relation to current state legal guidelines and laws, and several other
committees have adopted or uncovered for remark white papers and stories that, if
or when applied, might impose further necessities on using captives
and different reinsurers.

NAIC and state adoption of Actuarial Guideline XLVIII and the Time period and Common
Life Insurance coverage Reserve Financing Mannequin Regulation could make using new
captive buildings sooner or later much less capital environment friendly and/or result in decrease
product phrases and will influence the Firm’s potential to have interaction in sure
reinsurance transactions with non-affiliates.
Shades Creek Captive Insurance coverage Firm (“Shades Creek”) was a direct wholly
owned insurance coverage subsidiary of PLC by way of December 31, 2020. On January 1, 2021,
Shades Creek was merged with and into the Firm, with the Firm being the
surviving entity. We accounted for the transaction pursuant to ASC 805-50
“Transactions between Entities beneath Widespread Management”. The transferred property and
liabilities of Shades Creek had been recorded by the Firm at their carrying worth
on the date of switch. In accordance with ASC 805-50, all prior monetary
info has been recast to replicate this transaction as of the earliest
interval introduced beneath frequent management, January 1, 2020.
We use an affiliated Bermuda domiciled reinsurance firm, PL Re, to reinsure
sure mounted annuity enterprise as part of our capital administration technique.
Rankings
Numerous Nationally Acknowledged Statistical Score Organizations (“score
organizations”) evaluate the monetary efficiency and situation of insurers,
together with us and our insurance coverage subsidiaries, and publish their monetary
power scores as indicators of an insurer’s potential to fulfill policyholder and
contract holder obligations. These scores are essential to sustaining public
confidence in an insurer’s merchandise, its potential to market its merchandise and its
aggressive place. The next desk summarizes the present monetary
power scores of our important member firms from the main impartial
score organizations:
Normal &
Rankings A.M. Greatest Fitch Poor’s Moody’s

Insurance coverage firm monetary power score:
Protecting Life Insurance coverage Firm A+ A+ AA- A1
West Coast Life Insurance coverage Firm A+ A+ AA- A1
Protecting Life and Annuity Insurance coverage Firm A+ A+ AA- –
Protecting Property & Casualty Insurance coverage
Firm A – – –
MONY Life Insurance coverage Firm A+ A+ A+ A1

Our scores are topic to evaluate and alter by the score organizations at any
time and with out discover. A downgrade or different damaging motion by a score
group with respect to our monetary power scores or these of our
insurance coverage subsidiaries might adversely have an effect on gross sales, relationships with
distributors, the extent of coverage surrenders and withdrawals, aggressive
place within the market, and the price or availability of reinsurance. The
score companies could take varied actions, constructive or damaging, with respect to
the debt and monetary power scores of PLC and its subsidiaries, together with
on account of PLC’s standing as a subsidiary of Dai-ichi Life.
Score organizations additionally publish credit score scores for the issuers of debt
securities, together with PLC. Credit score scores are indicators of a debt issuer’s
potential to fulfill the phrases of debt obligations in a well timed method. PLC is an
essential supply of funding for the Firm, so its credit score scores could have an effect on
the Firm’s liquidity. These scores are essential within the debt issuer’s
general potential to entry credit score markets and different sorts of liquidity. Rankings
should not suggestions to purchase our securities or merchandise. A downgrade or different
damaging motion by a score group with respect to PLC’s credit standing
might restrict its entry to capital markets, enhance the price of issuing debt,
and a downgrade of adequate magnitude, mixed with different damaging elements,
might require PLC to publish collateral. The score companies could take varied
actions, constructive or damaging, with respect to PLC’s debt scores, together with as
a results of its standing as a subsidiary of Dai-ichi Life.
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LIABILITIES
Lots of our merchandise include give up fees and different options which are
designed to reward persistency and penalize the early withdrawal of funds.
Sure secure worth and annuity contracts have market-value changes that
shield us in opposition to funding losses if rates of interest are increased on the time of
give up than on the time of subject.
As of September 30, 2021, we had coverage liabilities and accruals of $54.8
billion. Our interest-sensitive life insurance coverage insurance policies have a weighted common
minimal credited rate of interest of three.47%.
Contractual Obligations
There have been no materials additions or adjustments outdoors of the strange course
of enterprise to our contractual obligations as in comparison with the quantities disclosed
inside our 2020 Annual Report on Type 10-Ok filed on March 30, 2021. For
further particulars associated to our commitments, see Observe 11, Commitments and
Contingencies in our unaudited consolidated condensed monetary statements.
OFF-BALANCE SHEET ARRANGEMENTS
We’ve got entered into working leases that don’t end in an obligation being
recorded on the stability sheet. Discuss with Observe 11, Commitments and Contingencies,
of the consolidated condensed monetary statements for extra info.
The Firm makes use of the identical methodology and assumptions to estimate the allowance
for unfunded industrial mortgage mortgage commitments credit score losses as for funded
industrial mortgage loans. As of September 30, 2021, the allowance for unfunded
industrial mortgage mortgage commitments credit score losses was $9 million. The Firm
had a complete of 126 unfunded commitments that had a stability of $1.3 billion.
MARKET RISK EXPOSURES
Our monetary place and earnings are topic to varied market dangers
together with adjustments in rates of interest, the yield curve, spreads between
risk-adjusted and risk-free rates of interest, international foreign money charges, used automobile
costs, fairness worth dangers and issuer defaults. We analyze and handle the dangers
arising from market exposures of economic devices, in addition to different dangers,
by way of an built-in asset/legal responsibility administration course of. The first focus of
our asset/legal responsibility program is the administration of rate of interest danger inside the
insurance coverage operations. Our asset/legal responsibility administration applications and procedures
contain the monitoring of asset and legal responsibility durations for varied product
strains; money movement testing beneath varied rate of interest situations; and the
steady rebalancing of property and liabilities with respect to yield, credit score
and market danger, and money movement traits to keep up an acceptable
stability between danger and profitability for every product class, and for us as
an entire.

It’s our coverage to keep up asset and legal responsibility durations inside one yr of
each other, though, occasionally, a broader interval could also be allowed.

We’re uncovered to credit score danger inside our funding portfolio and thru
by-product counterparties. Credit score danger pertains to the uncertainty of an
obligor’s continued potential to make well timed funds in accordance with the
contractual phrases of the instrument or contract. We handle credit score danger by way of
established funding insurance policies which try to handle high quality of obligors and
counterparties, credit score focus limits, diversification necessities, and
acceptable danger ranges beneath anticipated and pressured situations. By-product
counterparty credit score danger is measured as the quantity owed to us, internet of collateral
held, based mostly upon present market circumstances. As well as, we periodically assess
publicity associated to potential cost obligations between us and our
counterparties. We decrease the credit score danger in by-product monetary devices
by coming into into transactions with prime quality counterparties (A-rated or
increased on the time we enter into the contract), and we keep credit score assist
annexes with sure of these counterparties.
We make the most of a danger administration technique that includes using by-product
monetary devices to scale back publicity to sure dangers, together with however not
restricted to, rate of interest danger, foreign money trade danger, volatility danger, and
fairness market danger. These methods are developed by way of our evaluation of information
from monetary simulation fashions and different inner and trade sources, and
are then integrated into our danger administration program. See Observe 5, By-product
Monetary Devices, to the consolidated condensed monetary statements
included on this report for extra info on our monetary devices.
By-product devices expose us to credit score and market danger and will end in
materials adjustments from interval to interval. We try to reduce our credit score danger
by coming into into transactions with extremely rated counterparties. We handle the
market danger by establishing and monitoring limits as to the categories and levels of
danger which may be undertaken. We monitor our use of derivatives in connection
with our general asset/legal responsibility administration applications and danger administration
methods. As well as, all by-product applications are monitored by our danger
administration division.
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By-product devices which are used as a part of our rate of interest danger
administration technique embrace rate of interest swaps, rate of interest futures, curiosity
charge caps, and rate of interest swaptions.
By-product devices which are used as a part of the Firm’s international foreign money
trade danger administration technique embrace international foreign money swaps, international
foreign money futures, international fairness futures, and international fairness choices.
We could use the next sorts of by-product contracts to mitigate our publicity
to sure assured advantages associated to VA contracts, mounted listed annuities,
and listed common life:
•International Foreign money Futures
•International Foreign money Choices
•Variance Swaps
•Curiosity Fee Futures
•Fairness Choices
•Fairness Futures
•Credit score Derivatives
•Curiosity Fee Swaps
•Curiosity Fee Swaptions
•Volatility Futures
•Volatility Choices
•Funds Withheld Settlement
•Complete Return Swaps

Different Derivatives
The Firm and sure of its subsidiaries had an curiosity assist settlement,
YRT premium assist agreements, and portfolio upkeep agreements with PLC
by way of October 1, 2020. These agreements had been terminated as a part of the Captive
Merger and a brand new portfolio upkeep settlement was entered into with PLC on
that date.
We’ve got a funds withheld account that consists of varied by-product devices
held by us that’s used to hedge the GLWB and GMDB riders and stuck listed
annuity merchandise. The financial efficiency of derivatives within the funds withheld
account is ceded to subsidiaries of PLC. The funds withheld account is accounted
for as a by-product monetary instrument.
We consider that our asset/legal responsibility administration applications and procedures and
sure product options present safety in opposition to the consequences of adjustments in
rates of interest beneath varied situations. Moreover, we consider our
asset/legal responsibility administration applications and procedures present adequate liquidity
to allow us to meet our obligation to pay advantages beneath our varied
insurance coverage and deposit contracts. Nonetheless, our asset/legal responsibility administration
applications and procedures incorporate assumptions concerning the relationship between
short-term and long-term rates of interest (i.e., the slope of the yield curve),
relationships between risk-adjusted and risk-free rates of interest, market
liquidity, unfold actions, implied volatility, policyholder habits, and
different elements, and the effectiveness of our asset/legal responsibility administration applications
and procedures could also be negatively affected at any time when precise outcomes differ from
these assumptions.
Within the strange course of our industrial mortgage lending operations, we could
commit to offer a industrial mortgage mortgage earlier than the property to be mortgaged
has been constructed or acquired. The industrial mortgage mortgage dedication is a
contractual obligation to fund a industrial mortgage mortgage when known as upon by
the borrower. The dedication is just not acknowledged in our monetary statements till
the dedication is definitely funded. The industrial mortgage mortgage dedication
accommodates phrases, together with the speed of curiosity, which can be totally different than
prevailing rates of interest. As of September 30, 2021, we had excellent
industrial mortgage mortgage commitments of $1.3 billion at a weighted common
rate of interest of three.43%.
Affect of Continued Low Curiosity Fee Atmosphere
Important adjustments in rates of interest expose us to the chance of not realizing
anticipated spreads between the rate of interest earned on investments and the
rate of interest credited to in-force insurance policies and contracts. As well as, sure
of our insurance coverage and funding merchandise assure a minimal assured curiosity
charge (“MGIR”). In durations of extended low rates of interest, the curiosity unfold
earned could also be negatively impacted to the extent our potential to scale back
policyholder crediting charges is proscribed by the assured minimal credited
rates of interest. Moreover, these insurance policies with out account values could exhibit
decrease profitability in durations of extended low rates of interest because of lowered
funding earnings.
The tables under current account values by vary of present minimal assured
rates of interest and present crediting charges for our common life and deferred
mounted annuity merchandise as of September 30, 2021 and December 31, 2020:
Credited Fee Abstract
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September 30, 2021
1-50 bps Greater than
At above 50 bps
MGIR MGIR above MGIR Complete
(Account Worth In Tens of millions)
Crediting Fee
Common Life Insurance coverage
2% $ 15$ 908$ 2,560$ 3,483
>2% – 3% 5,505 747 1,098 7,350
>3% – 4% 7,378 386 36 7,800
>4% – 5% 2,192 478 84 2,754
>5% – 6% 311 – – 311
Subtotal 15,401 2,519 3,778 21,698
Fastened Annuities
1% $ 308$ 1,027$ 1,753$ 3,088
>1% – 2% 493 197 2,171 2,861
>2% – 3% 1,369 47 2 1,418
>3% – 4% 257 – – 257
>4% – 5% 247 – – 247
>5% – 6% – – – –
Subtotal 2,674 1,271 3,926 7,871
Complete $ 18,075$ 3,790$ 7,704$ 29,569

Proportion of Complete 61 % 13 % 26 % 100 %

Credited Fee Abstract
December 31, 2020
1-50 bps Greater than
At above 50 bps
MGIR MGIR above MGIR Complete
(Account Worth In Tens of millions)
Crediting Fee
Common Life Insurance coverage
2% $ – $ 143$ 2,176$ 2,319
>2% – 3% 4,032 1,482 1,244 6,758
>3% – 4% 9,487 472 36 9,995
>4% – 5% 2,261 386 172 2,819
>5% – 6% 316 – – 316
Subtotal 16,096 2,483 3,628 22,207
Fastened Annuities
1% $ 273$ 654$ 1,975$ 2,902
>1% – 2% 517 215 2,185 2,917
>2% – 3% 1,436 52 4 1,492
>3% – 4% 265 – – 265
>4% – 5% 251 – – 251
>5% – 6% – – – –
Subtotal 2,742 921 4,164 7,827
Complete $ 18,838$ 3,404$ 7,792$ 30,034

Proportion of Complete 63 % 11 % 26 % 100 %

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We’re energetic in mitigating the influence of a continued low rate of interest
surroundings by way of product design, in addition to adjusting crediting charges on
present in-force insurance policies and contracts. We additionally handle rate of interest and
reinvestment dangers by way of our asset/legal responsibility administration course of. Our
asset/legal responsibility administration applications and procedures contain the monitoring of
asset and legal responsibility durations; money movement testing beneath varied rate of interest
situations; and the common rebalancing of property and liabilities with respect to
yield, credit score and market danger, and money movement traits. These applications
additionally incorporate using by-product monetary devices primarily to scale back
our publicity to rate of interest danger, inflation danger, foreign money trade danger,
volatility danger, and fairness market danger.
IMPACT OF INFLATION
Inflation will increase the necessity for all times insurance coverage. Many policyholders who as soon as had
enough insurance coverage applications could enhance their life insurance coverage protection to
present the identical relative monetary profit and safety. Increased curiosity
charges could end in increased gross sales of sure of our funding merchandise.
The upper rates of interest which have historically accompanied inflation might
additionally have an effect on our operations. Coverage loans enhance as coverage mortgage rates of interest
turn out to be comparatively extra enticing. As rates of interest enhance, disintermediation
of secure worth and annuity account balances and particular person life coverage money
values could enhance. The honest worth of our fixed-rate, long-term investments could
lower, we could also be unable to implement absolutely the rate of interest reset and name
provisions of our industrial mortgage loans, and our potential to make enticing
industrial mortgage loans, together with participation industrial mortgage loans,
could lower. As well as, participation industrial mortgage mortgage earnings could
lower. The distinction between the rate of interest earned on investments and the
rate of interest credited to life insurance coverage and funding merchandise may be
adversely affected by rising rates of interest. In the course of the durations lined by this
report, we consider inflation has not had a cloth influence on our enterprise.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Observe 2, Abstract of Important Accounting Insurance policies, to the consolidated
condensed monetary statements for info concerning lately issued
accounting requirements.
Merchandise 3. Quantitative and Qualitative Disclosures about Market Threat
See Half I, Merchandise 2, Administration’s Dialogue and Evaluation of Monetary Situation
and Outcomes of Operations, “Market Threat Exposures”.
Merchandise 4. Controls and Procedures
(a) Disclosure controls and procedures
With the intention to be sure that the data the Firm should disclose in its filings
with the Securities and Change Fee is recorded, processed, summarized,
and reported on a well timed foundation, the Firm’s administration, with the participation
of its Chief Government Officer and Chief Monetary Officer, evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures (as such time period is outlined in Rule 13a -15(e) or 15d-15(e) beneath the
Securities Change Act of 1934, as amended (the “Change Act”)). Based mostly on
their analysis as of September 30, 2021, the top of the interval lined by this
Type 10-Q, the Firm’s Chief Government Officer and Chief Monetary Officer
have concluded that the Firm’s disclosure controls and procedures had been
efficient on the affordable assurance degree.

It needs to be famous that any system of controls, irrespective of how nicely designed and
operated, can present solely affordable, not absolute, assurance that the management
system’s aims will probably be met. Additional, the design of any management system is
based mostly partly upon sure judgments, together with the prices and advantages of
controls and the chance of future occasions. Due to these and different
inherent limitations of management techniques, no analysis of controls can present
absolute assurance that each one management points, if any, inside the Firm have been
detected.

(b) Modifications in inner management over monetary reporting
There have been no adjustments within the Firm’s inner management over monetary
reporting throughout the three months ended September 30, 2021, which have materially
affected, or are moderately prone to materially have an effect on, the Firm’s inner
management over monetary reporting. The Firm’s inner controls exist inside a
dynamic surroundings and the Firm regularly strives to enhance its inner
controls and procedures to reinforce the standard of its monetary reporting.

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