F&G Reinsurance

9 Months Ended

Sep. 30, 2021

F&G reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding F&G's retention limit is reinsured. F&G primarily seeks reinsurance coverage in order to limit its exposure to mortality losses and enhance capital management. If the underlying policy being reinsured is an insurance contract, F&G follows reinsurance accounting when there is adequate risk transfer or deposit accounting if there is inadequate risk transfer. If the underlying policy being reinsured is an investment contract, the effects of the agreement are accounted for as a separate investment contract.

The effect of reinsurance on net premiums earned and net benefits incurred (benefits paid and reserve changes) for the three and nine months ended September 30, 2021 and the three and four months ended September 30, 2020 (following our June 1, 2020 acquisition of F&G) were as follows (in millions):


	Three months ended								Nine months ended				Four months ended
	September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
	Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred		Net Premiums Earned		Net Benefits Incurred
Direct	$	412	$	461	$	48	$	308	$	500	$	1,646	$	65	$	463

Ceded	(32)		(276)		(36)		(57)		(103)		(912)		(49)		(57)
Net	$	380	$	185	$	12	$	251	$	397	$	734	$	16	$	406

Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. F&G did not write off any significant reinsurance balances during the nine months ended September 30, 2021 or four months ended September 30, 2020. F&G did not commute any ceded reinsurance treaties during the nine months ended September 30, 2021 or four months ended September 30, 2020.

Following the adoption of ASC 326, F&G estimates expected credit losses on reinsurance recoverables using a probability of default/loss given default model. Significant inputs to the model include the reinsurers credit risk, expected timing of recovery, industry-wide historical default experience, senior unsecured bond recovery rates, and credit enhancement features. As of the June 1, 2020 acquisition of F&G, due to purchase accounting adjustments, our expected credit loss reserve was valued at $0. During the three and nine months ended September 30, 2021 and the three and four months ended September 30, 2020, the expected credit loss reserve decreased from $21 million to $19 million and increased from $0 to $22 million, respectively.

No policies issued by F&G have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance.

F&G has not entered into any reinsurance agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than non-payment of premiums or other similar credit issues.

Effective May 1, 2020, F&G entered into an indemnity reinsurance agreement with Canada Life Assurance Company United States Branch, a third party reinsurer, to reinsure FIA policies with guaranteed minimum withdrawal benefits ("GMWB"). In accordance with the terms of this agreement, F&G cedes a quota share percentage of the net retention of guarantee payments in excess of account value for GMWB. Effective January 1, 2021, F&G amended this agreement to include the GMWB rider for its SecureIncome 7 product. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP, since it is not “reasonably possible” that the reinsurer may realize significant loss from assuming the insurance risk.

On January 15, 2021, F&G executed a Funds Withheld Coinsurance Agreement with ASPIDA Life Re Ltd ("Aspida Re"), a Bermuda reinsurer. In accordance with the terms of this agreement, F&G cedes to the reinsurer, on a fifty percent (50%) funds withheld coinsurance basis, certain multiyear guaranteed annuity business written effective January 1, 2021. The effects of this agreement are accounted for as a separate investment contract.

On May 31, 2021, two Novation Agreements were executed by and among Freestone Re Ltd., an exempted company incorporated in the Cayman Islands with limited liability (the “New Reinsurer”), Front Street Re (Cayman) Ltd., an exempted company incorporated in the Cayman Islands with limited liability (the “Original Reinsurer”) and FGL Insurance. The effective dates of the agreements are April 1, 2021. As these

agreements are intercompany both before and after the novation, they are eliminated in consolidation for GAAP reporting.

Concentration of Reinsurance Risk

F&G has a significant concentration of reinsurance risk with third party reinsurers, Wilton Reassurance Company (“Wilton Re”), Kubera and Aspida Re that could have a material impact on the Company’s financial position in the event that any of these reinsurers fail to perform their obligations under the various reinsurance treaties. Wilton Re is a wholly-owned subsidiary of Canada Pension Plan Investment Board ("CPPIB"). CPPIB has an AAA issuer credit rating from Standard & Poor's Ratings Services ("S&P") as of September 30, 2021. Kubera is not rated, however, management has attempted to mitigate the risk of non-performance through the funds withheld arrangement. As of September 30, 2021, Aspida Re has a A- issuer credit rating from AM Best and a BBB from Fitch, and the risk of non-performance is further mitigated through the funds withheld arrangement. As of September 30, 2021, the net amount recoverable from Wilton Re, Kubera, and Aspida Re was $1,287 million, $789 million, and $717 million, respectively. The Company monitors both the financial condition of individual reinsurers and risk concentration arising from similar activities and economic characteristics of reinsurers to attempt to reduce the risk of default by such reinsurers. The Company believes that all amounts due from Wilton Re, Kubera and Aspida Re for periodic treaty settlements are collectible as of September 30, 2021.

On March 6, 2019, Scottish Re (U.S.), Inc. (“SRUS”), a Delaware domestic life and health reinsurer of F&G, was ordered into receivership for purposes of rehabilitation. As of September 30, 2021, the net amount recoverable from SRUS was $30 million. The financial exposure related to these ceded reserves are substantially mitigated via a reinsurance agreement whereby Wilton Re assumes treaty non-performance including credit risk for this business. Wilton Re is currently meeting all conditions related to these assumed obligations.

On July 9, 2019, Pavonia Life Insurance Company of Michigan (“Pavonia”), a Michigan domiciled life, accident, and health insurance company, was placed into rehabilitation. While the court order indicated that Pavonia had a stable financial condition and lack of non-insurance affiliated investments, the Director of the Michigan Department of Insurance and Financial Services (“MDIFS") has concerns relating to Pavonia's parent company. To insulate Pavonia from its parent until a pending acquisition transaction could be consummated, MDIFS placed Pavonia under supervision and rehabilitation. As of September 30, 2021, the net amount recoverable from Pavonia was $76 million. On July 15, 2021, Aspida Holdings Ltd. (“Aspida”) acquired Global Bankers Insurance Group, LLC, the parent company of Pavonia, and is now known as Aspida Financial Services, LLC (“Aspida Financial”). Following the acquisition, Pavonia is no longer in rehabilitation. We believe any financial exposure related to these ceded reserves would be substantially mitigated via a reinsurance agreement whereby Wilton Re assumes treaty non-performance including credit risk for this business.

There have been no other material changes in the reinsurance and the intercompany reinsurance agreements described in our Annual Report on Form 10-K for the year ended December 31, 2020.