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ASU 2018-12 Transition | 6 Months Ended
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Jun. 30, 2023
Accounting Changes and Error Corrections [Abstract] |
ASU 2018-12 Transition | ASU 2018-12 Transition We adopted ASU 2018-12 on January 1, 2023 with a transition date of January 1, 2021, or the beginning of the earliest period that will be presented in the annual December 31, 2023 Consolidated Financial Statements. We elected to adopt ASU 2018-12 using the full retrospective transition method and balances for FPB, DAC and balances amortized on a basis consistent with DAC (VOBA, DSI, and URL), and MRBs were adjusted to conform to ASU 2018-12 starting as of the F&G acquisition date, June 1, 2020. No hindsight was used for the full retrospective adoption of MRBs. As a result of adoption, the Company recorded a cumulative-effect adjustment, which increased opening 2021 retained earnings by $75 million, net of tax. The following table summarizes the balance of and changes in the FPB on January 1, 2021 due to adoption of ASU 2018-12:
| Immediate annuities |  | Traditional Life |  | Total (3)
| (In millions)
Balance, December 31, 2020 | $ | 1,861 |  |  | $ | 2,144 |  |  | $ | 4,005 |
Cumulative effect of retrospective adoption (1) | 201 |  |  | (279) |  |  | (78) |
Effect of remeasurement of liability at current discount rate (2) | 113 |  |  | 88 |  |  | 201 |
Balance, January 1, 2021 | $ | 2,175 |  |  | $ | 1,953 |  |  | $ | 4,128 |
Less: Reinsurance Recoverable | 322 |  |  | 793 |  |  | 1,115 |
Balance, January 1, 2021, net of reinsurance | $ | 1,853 |  |  | $ | 1,160 |  |  | $ | 3,013 |
(1) Adjustments for the cumulative effect of adoption of the new measurement guidance under the full retrospective method for contract issue years from the FNF Acquisition Date through December 31, 2020, net of the effects of any change in the DPL.
(2) The remeasurement of the liability at the current discount rate is reflected as an adjustment to opening AOCI upon the adoption of ASU 2018-12.
(3) PRT was not written as of the transition date, January 1, 2021, and as a result is not presented in the transition adjustment roll forward.
The following table summarizes the balance of and changes in VOBA on January 1, 2021 due to adoption of ASU 2018-12:
| FIA |  | Fixed rate annuities |  | Immediate annuities |  | Universal Life |  | Traditional Life |  | Total
| (In millions)
Balance, December 31, 2020 | $ | 1,208 |  |  | $ | 15 |  |  | $ | 86 |  |  | $ | 139 |  |  | $ | 18 |  |  | $ | 1,466 |
Adjustment for reversal of AOCI adjustments (1) | 208 |  |  | 24 |  |  | — |  |  | 29 |  |  | (29) |  |  | 232 |
Cumulative effect of retrospective adoption (2) | (14) |  |  | 7 |  |  | (5) |  |  | (9) |  |  | (1) |  |  | (22) |
Transition opening balance adjustment | 69 |  |  | 2 |  |  | 145 |  |  | 5 |  |  | 43 |  |  | 264 |
Balance, January 1, 2021 | $ | 1,471 |  |  | $ | 48 |  |  | $ | 226 |  |  | $ | 164 |  |  | $ | 31 |  |  | $ | 1,940 |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI.
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020
(3) Adjustments for the change in VOBA due to the full retrospective adjustment of carrying amounts of acquired contracts as of the FNF Acquisition Date due to the adoption of ASU 2018-12.
The following table summarizes the balance of and changes in DAC on January 1, 2021 due to adoption of ASU 2018-12:
| FIA |  | Fixed rate annuities |  | Universal Life |  | Total
| (In millions)
Balance, December 31, 2020 | $ | 167 |  |  | $ | 14 |  |  | $ | 41 |  |  | $ | 222 |
Adjustment for reversal of AOCI adjustments (1) | 15 |  |  | 2 |  |  | 8 |  |  | 25 |
Cumulative effect of retrospective adoption (2) | (1) |  |  | — |  |  | (1) |  |  | (2) |
Balance, January 1, 2021 | $ | 181 |  |  | $ | 16 |  |  | $ | 48 |  |  | $ | 245 |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI.
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020.
The following table summarizes the balance of and changes in DSI on January 1, 2021 due to adoption of ASU 2018-12:
| FIA |  |  |  |  |  | Total
| (In millions)
Balance, December 31, 2020 | $ | 36 |  |  |  |  |  |  | $ | 36 |
Adjustment for reversal of AOCI adjustments (1) | 5 |  |  |  |  |  |  | 5 |
Cumulative effect of retrospective adoption (2) | 4 |  |  |  |  |  |  | 4 |
Balance, January 1, 2021 | $ | 45 |  |  |  |  |  |  | $ | 45 |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI.
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020.
The following table summarizes the balance of and changes in URL on January 1, 2021 due to adoption of ASU 2018-12:
|  |  |  |  | Universal Life |  | Total
|  |  |  |  | (In millions)
Balance, December 31, 2020 |  |  |  |  | $ | 2 |  |  | $ | 2 |
Adjustment for reversal of AOCI adjustments (1) |  |  |  |  | 25 |  |  | 25 |
Cumulative effect of retrospective adoption (2) |  |  |  |  | 2 |  |  | 2 |
Balance, January 1, 2021 |  |  |  |  | $ | 29 |  |  | $ | 29 |
(1) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI.
(2) Adjustments for the cumulative effect of adoption of the simplified amortization methodology under the full retrospective method for contract issue years from the FNF acquisition date through December 31, 2020.
The following table summarizes the balance of and changes in the asset and liability position of MRBs on January 1, 2021 due to adoption of ASU 2018-12:
| FIA |  | Fixed rate annuities |  | Total
| (In millions)
Balance, December 31, 2020 - Carrying amount of MRBs under prior guidance (1) | $ | 531 |  |  | $ | — |  |  | $ | 531 |
Adjustment for reversal of AOCI adjustments (2) | (116) |  |  | — |  |  | (116) |
Cumulative effect of the changes in the instrument-specific credit risk between the original contract issuance date and the transition date (3) | 159 |  |  | — |  |  | 159 |
Remaining cumulative difference (exclusive of the instrument specific credit risk change) between December 31, 2020 carrying amount and fair value measurement for the MRBs (4) | (96) |  |  | 1 |  |  | (95) |
Balance, January 1, 2021 - Market risk benefits at fair value | $ | 478 |  |  | $ | 1 |  |  | $ | 479 |
Less: Reinsurance Recoverable | — |  |  | — |  |  | — |
Balance, January 1, 2021, net of reinsurance | $ | 478 |  |  | $ | 1 |  |  | $ | 479 |
(1) The pre-adoption balance as of December 31, 2020 balance for MRBs represents the contract features that meet the definition of an MRB under ASU 2018-12 and the related carrying amount of those features prior to the ASU. Those contract features were previously accounted for at fair value as a derivative or embedded derivative under ASC 815 or as an additional liability for annuitization benefits or death or other insurance benefits under ASC 944.
(2) Prior period "shadow" adjustments in AOCI have been reversed upon the adoption of ASU 2018-12 from opening AOCI.
(3) The cumulative effective of the change in instrument-specific credit risk between the FNF Acquisition Date or, if later, the original contract issuance date and the transition date to ASU 2018-12, which is recorded as an adjustment to opening AOCI.
(4) The cumulative difference (exclusive of instrument-specific credit risk change) between the pre-adoption carrying amount and the fair value measurement for MRBs is recorded as an adjustment to opening retained earnings.
The following table presents the effect of transition adjustments on Equity on January 1, 2021 due to the adoption of ASU 2018-12:
| January 1, 2021
| Retained Earnings |  | AOCI
| (In millions)
Contractholder funds | $ | 101 |  |  | $ | 115 |
MRB | 30 |  |  | (160) |
FPB | (14) |  |  | (159) |
VOBA | (21) |  |  | 233 |
DAC | (1) |  |  | 5 |
Increase to Equity, gross of tax | $ | 95 |  |  | $ | 34 |
Tax impact | 20 |  | 9
Increase to Equity, net of tax | $ | 75 |  |  | $ | 25 |
For MRBs, the transition adjustment reflected within the unaudited Condensed Consolidated Statements of Comprehensive Earnings relates to the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date. The remaining difference between the fair value and carrying amount of the MRBs at transition, excluding the amounts recorded in the unaudited Condensed Consolidated Statements of Comprehensive Earnings, was recorded as an adjustment to Retained Earnings as of the transition date. For the FPB, the net transition adjustment is primarily related to the difference in the discount rate used pre-transition and the discount rate at January 1, 2021, partially offset by the removal of provisions for adverse deviation from the cash flow assumptions used in the FPB calculation. At transition, we did not identify any instances, at the cohort level, where net premiums exceeded gross premiums. Before the adoption of ASU 2018-12, VOBA was amortized consistent with DAC, which was amortized over the lives of the policies in relation to the expected emergence of estimated gross profits (“EGPs”). Based on our historical practice of using consistent amortization methods for VOBA and DAC, we elected to change the amortization method for VOBA associated with fixed rate annuities, FIAs, and IUL/Universal Life products to maintain consistency with the amortization method for DAC. At transition, VOBA associated with these product types is amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Additionally, at transition, shadow adjustments previously recorded in the unaudited Condensed Consolidated Statements of Comprehensive Earnings, consistent with the historic amortization of DAC, have been removed. For DAC, DSI and URL, we removed shadow adjustments previously recorded in the unaudited Condensed Consolidated Statements of Comprehensive Earnings for the impact of unrealized gains and losses that were included in the pre-transition expected gross profits amortization calculation as of the transition date.

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- Definition The entire disclosure for change in accounting principle. 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