Company Quick10K Filing
Quick10K
AXA Equitable Life Insurance
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
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AXAEQ 2018-09-30
Part I Financial Information
Item 1. Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 axaeq-09302018xexhibit311.htm
EX-31.2 axaeq-09302018xexhibit312.htm
EX-32.1 axaeq-09302018xexhibit321.htm
EX-32.2 axaeq-09302018xexhibit322.htm

AXA Equitable Life Insurance Earnings 2018-09-30

AXAEQ 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 axaeq3q1810q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             

Commission File Number 000-20501
AXA Equitable Life Insurance Company
(Exact name of registrant as specified in its charter) 
New York
 
13-5570651
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
1290 Avenue of the Americas, New York, New York
 
10104
(Address of principal executive offices)
 
(Zip Code)
(212) 554-1234
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address, and former fiscal year if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an “emerging growth company”. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
x  
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ¨
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of November 13, 2018, 2,000,000 shares of the registrant’s Common Stock were outstanding.
REDUCED DISCLOSURE FORMAT:
AXA Equitable Life Insurance Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q in the reduced disclosure format.




AXA EQUITABLE LIFE INSURANCE COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018
TABLE OF CONTENTS

 
 
 
 
  
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3


FORWARD-LOOKING STATEMENTS
Certain of the statements included or incorporated by reference in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “seeks,” “aims,” “plans,” “assumes,” “estimates,” “projects,” “should,” “would,” “could,” “may,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon AXA Equitable Life Insurance Company (“AXA Equitable”) and its consolidated subsidiaries. “We,” “us” and “our” refer to AXA Equitable and its consolidated subsidiaries, unless the context refers only to AXA Equitable as a corporate entity. There can be no assurance that future developments affecting AXA Equitable will be those anticipated by management. Forward-looking statements include, without limitation, all matters that are not historical facts.
These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (i) conditions in the financial markets and economy, including equity market declines and volatility, interest rate fluctuations, impacts on our goodwill and changes in liquidity and access to and cost of capital; (ii) operational factors, including indebtedness, elements of our business strategy not being effective in accomplishing our objectives, protection of confidential customer information or proprietary business information, information systems failing or being compromised and strong industry competition; (iii) credit, counterparties and investments, including counterparty default on derivative contracts, failure of financial institutions, defaults, errors or omissions by third parties and affiliates and gross unrealized losses on fixed maturity and equity securities; (iv) our reinsurance and hedging programs; (v) our products, structure and product distribution, including variable annuity guaranteed benefits features within certain of our products, complex regulation and administration of our products, variations in statutory capital requirements, financial strength and claims-paying ratings and key product distribution relationships; (vi) estimates, assumptions and valuations, including risk management policies and procedures, potential inadequacy of reserves, actual mortality, longevity and morbidity experience differing from pricing expectations or reserves, amortization of deferred acquisition costs and financial models; (vii) our Investment Management and Research segment, including fluctuations in assets under management, the industry-wide shift from actively-managed investment services to passive services and potential termination of investment advisory agreements; (viii) legal and regulatory risks, including federal and state legislation affecting financial institutions, insurance regulation and tax reform; and (ix) risks related to our controlling stockholder, including conflicts of interest, waiver of corporate opportunities and costs associated with separation and rebranding; and (x) remediation of our material weaknesses.
Forward-looking statements should be read in conjunction with the other cautionary statements, risks, uncertainties and other factors included in AXA Equitable’s Annual Report on Form 10-K for the year ended December 31, 2017, including in the section entitled “Risk Factors,” and elsewhere in this Quarterly Report on Form 10-Q. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.


4


PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
 
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
 
(in millions, except share amounts)
ASSETS
 
 
 
Investments:
 
Fixed maturities available for sale, at fair value (amortized cost of $40,542 and $34,831)
$
39,754

 
$
36,358

Mortgage loans on real estate (net of valuation allowance of $7 and $8)
12,053

 
10,935

Real estate held for production of income(1)
54

 
390

Policy loans
3,269

 
3,315

Other equity investments(1)
1,321

 
1,351

Trading securities, at fair value
14,760

 
12,628

Other invested assets(1)
1,844

 
3,121

Total investments
73,055

 
68,098

Cash and cash equivalents(1)
3,317

 
3,409

Cash and securities segregated, at fair value
1,263

 
825

Broker-dealer related receivables
2,224

 
2,158

Deferred policy acquisition costs
5,011

 
4,492

Goodwill and other intangible assets, net
3,687

 
3,709

Amounts due from reinsurers
3,069

 
5,079

Loans to affiliates
800

 
703

GMIB reinsurance contract asset, at fair value
1,571

 
10,488

Current and deferred income taxes
456

 

Other assets(1)
3,182

 
4,432

Separate Accounts assets
123,869

 
122,537

Total Assets
$
221,504

 
$
225,930

 
 
 
 
LIABILITIES
 
 
 
Policyholders’ account balances
$
46,508

 
$
43,805

Future policy benefits and other policyholders liabilities
28,325

 
29,070

Broker-dealer related payables
395

 
764

Securities sold under agreements to repurchase
1,900

 
1,887

Customer related payables
2,781

 
2,229

Amounts due to reinsurers
78

 
134

Short-term and long-term debt(1)
398

 
769

Current and deferred income taxes

 
1,954

Other liabilities(1)
2,205

 
2,663

Separate Accounts liabilities
123,869

 
122,537



5

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED


 
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
Total Liabilities
$
206,459

 
$
205,812

Redeemable noncontrolling interest(1)
$
143

 
$
626

Commitments and contingent liabilities

 

 
 
 
 
EQUITY
 
 
 
AXA Equitable's Equity
 
 
 
Common stock, $1.25 par value; 2,000,000 shares authorized, issued and outstanding
$
2

 
$
2

Capital in excess of par value
7,771

 
6,859

Retained earnings
4,988

 
8,938

Accumulated other comprehensive income (loss)
(867
)
 
598

Total AXA Equitable's equity
11,894

 
16,397

Noncontrolling interest
3,008

 
3,095

Total Equity
14,902

 
19,492

Total Liabilities, Redeemable Noncontrolling Interest and Equity
$
221,504

 
$
225,930

______________
(1)    See Note 2 for details of balances with variable interest entities.

See Notes to Consolidated Financial Statements (Unaudited).


6

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
REVENUES
 
 
 
 
 
 
 
Policy charges and fee income
900

 
852

 
$
2,644

 
$
2,516

Premiums
217

 
208

 
657

 
665

Net derivative gains (losses)
(2,006
)
 
(368
)
 
(3,106
)
 
1,048

Net investment income (loss)
652

 
677

 
1,748

 
1,993

Investment gains (losses), net:
 
 
 
 
 
 
 
Total other-than-temporary impairment losses
(4
)
 

 
(4
)
 
(13
)
Other investment gains (losses), net
(5
)
 
(8
)
 
77

 
4

Total investment gains (losses), net
(9
)
 
(8
)
 
73

 
(9
)
Investment management and service fees
1,093

 
1,019

 
3,227

 
2,974

Other income
13

 
32

 
47

 
68

Total revenues
860

 
2,412

 
5,290

 
9,255

BENEFITS AND OTHER DEDUCTIONS
 
 
 
 
 
 
 
Policyholders’ benefits
206

 
856

 
1,987

 
3,184

Interest credited to policyholders’ account balances
259

 
233

 
754

 
681

Compensation and benefits (includes $34, $33, $101 and $101 of deferred policy acquisition costs, respectively)
467

 
436

 
1,459

 
1,324

Commissions and distribution related payments (includes $119, $101, $331 and $332 of deferred policy acquisition costs, respectively)
371

 
362

 
1,119

 
1,133

Interest expense
12

 
9

 
34

 
20

Amortization of deferred policy acquisition costs (net of capitalization of $153, $134, $432 and $433 of deferred policy acquisition costs, respectively)
(239
)
 

 
(129
)
 
42

Other operating costs and expenses (includes $1, $2, $2 and $5 of deferred policy acquisition costs, respectively)
341

 
462

 
3,267

 
992

Total benefits and other deductions
1,417

 
2,358

 
8,491

 
7,376

Income (loss) from continuing operations, before income taxes
(557
)
 
54

 
(3,201
)
 
1,879

Income tax (expense) benefit
175

 
89

 
782

 
(198
)
Net income (loss)
(382
)
 
143

 
(2,419
)
 
1,681

Less: net (income) loss attributable to the noncontrolling interest
(129
)
 
(122
)
 
(439
)
 
(353
)
Net income (loss) attributable to AXA Equitable
$
(511
)
 
$
21

 
$
(2,858
)
 
$
1,328


See Notes to Consolidated Financial Statements (Unaudited).


7

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Net income (loss)
$
(382
)
 
$
143

 
$
(2,419
)
 
$
1,681

Other comprehensive income (loss) net of income taxes:

 

 

 

Foreign currency translation adjustment
1

 
6

 
(11
)
 
20

Change in unrealized gains (losses), net of reclassification adjustment
(404
)
 
(71
)
 
(1,456
)
 
336

Changes in defined benefit plan related items not yet recognized in periodic benefit cost, net of reclassification adjustment
(3
)
 
(3
)
 
(8
)
 
(2
)
Total other comprehensive income (loss), net of income taxes
(406
)
 
(68
)
 
(1,475
)
 
354

Comprehensive income (loss)
(788
)
 
75

 
(3,894
)
 
2,035

Less: Comprehensive (income) loss attributable to noncontrolling interest
(126
)
 
(154
)
 
(429
)
 
(372
)
Comprehensive income (loss) attributable to AXA Equitable
$
(914
)
 
$
(79
)
 
$
(4,323
)
 
$
1,663


See Notes to Consolidated Financial Statements (Unaudited).



8

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)

 
Nine Months Ended September 30,
 
2018
 
2017
 
(in millions)
Equity attributable to AXA Equitable:
 
 
 
Common stock, at par value, beginning and end of period
$
2

 
$
2

 
 
 
 
Capital in excess of par value, beginning of year
$
6,859

 
$
5,339

Changes in capital in excess of par value
912

 
22

Capital in excess of par value, end of period
$
7,771

 
$
5,361

 
 
 
 
Retained earnings, beginning of year
$
8,938

 
$
6,095

   Impact of adoption of revenue recognition standard ASC 606
8

 

Net earnings (loss)
(2,858
)
 
1,328

Stockholder dividends
(1,100
)
 

Retained earnings, end of period
$
4,988

 
$
7,423

 
 
 
 
Accumulated other comprehensive income (loss), beginning of year
$
598

 
$
(4
)
Other comprehensive income (loss)
(1,465
)
 
335

Accumulated other comprehensive income (loss), end of period
(867
)
 
331

Total AXA Equitable's equity, end of period
$
11,894

 
$
13,117

 
 
 
 
Noncontrolling interest, beginning of year
$
3,095

 
$
3,096

Impact of adoption of revenue recognition standard ASC 606
25

 

Repurchase of AB Holding units
(59
)
 
(96
)
Net earnings (loss) attributable to noncontrolling interest
418

 
311

Dividends paid to noncontrolling interest
(468
)
 
(347
)
Other comprehensive income (loss) attributable to noncontrolling interest
(10
)
 
19

Other changes in noncontrolling interest
7

 
(14
)
Noncontrolling interest, end of period
3,008

 
2,969

Total Equity, End of Period
$
14,902

 
$
16,086


See Notes to Consolidated Financial Statements (Unaudited).



9

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


 
Nine Months Ended September 30,
 
2018
 
2017
 
(in millions)
Net income (loss)
(2,419
)
 
1,681

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Interest credited to policyholders’ account balances
754

 
681

Policy charges and fee income
(2,644
)
 
(2,516
)
(Income) loss related to derivative instruments
3,106

 
(1,048
)
Investment (gains) losses, net
(73
)
 
9

Realized and unrealized (gains) losses on trading securities
206

 
(188
)
Amortization of deferred compensation
13

 
27

Amortization of deferred sales commission
17

 
25

Other depreciation and amortization
(60
)
 
(67
)
Amortization of deferred cost of reinsurance asset
1,884

 
111

Distribution from joint ventures and limited partnerships
63

 
94

Cash received on the recapture of captive reinsurance
1,099

 

Changes in:
 
 
 
Net broker-dealer and customer related receivables/payables
414

 
(56
)
Reinsurance recoverable
20

 
(361
)
Segregated cash and securities, net
(438
)
 
157

Deferred policy acquisition costs
(129
)
 
42

Future policy benefits
(58
)
 
1,146

Current and deferred income taxes
(264
)
 
640

Other, net
123

 
617

Net cash provided by (used in) operating activities
$
1,614

 
$
994

 
 
 
 
Cash flows from investing activities:
 
 
 
Proceeds from the sale/maturity/prepayment of:
 
 
 
Fixed maturities, available for sale
$
5,942

 
$
3,873

Mortgage loans on real estate
375

 
695

Trading account securities
6,913

 
6,565

Other
344

 
58

Payment for the purchase/origination of:


 
 
Fixed maturities, available for sale
(6,422
)
 
(3,721
)
Mortgage loans on real estate
(1,485
)
 
(1,534
)
Trading account securities
(8,103
)
 
(9,307
)
Other
(146
)
 
(207
)
Purchase of business, net of cash acquired

 
(133
)
Cash settlements related to derivative instruments
(584
)
 
(929
)
Increase in loans to affiliates
(1,100
)
 

Decrease in loans to affiliates
700

 

Change in short-term investments
350

 
(266
)
Investment in capitalized software, leasehold improvements and EDP equipment
(79
)
 
(67
)


10

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
(UNAUDITED)


 
Nine Months Ended September 30,
 
2018
 
2017
 
(in millions)
Other, net
305

 
(258
)
Net cash provided by (used in) investing activities
$
(2,990
)
 
$
(5,231
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Policyholders’ account balances:
 
 
 
Deposits
$
7,852

 
$
5,871

Withdrawals
(4,014
)
 
(2,574
)
Transfer (to) from Separate Accounts
(338
)
 
1,617

Change in short-term financings
(168
)
 
(216
)
Change in collateralized pledged assets
(62
)
 
724

Change in collateralized pledged liabilities
279

 
664

 Increase (decrease) in overdrafts payable
(39
)
 
66

Shareholder dividend paid
(1,100
)
 

Repurchase of AB Holding units from noncontrolling interest
(59
)
 

Redemption of noncontrolling interests of consolidated VIEs, net
(519
)
 
(52
)
Distribution to noncontrolling interests in consolidated subsidiaries
(468
)
 
(347
)
Increase (decrease) in securities sold under agreement to repurchase
13

 
(159
)
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net
(83
)
 
(134
)
Other, net
(1
)
 

Net cash provided by (used in) financing activities
$
1,293

 
$
5,460

Effect of exchange rate changes on cash and cash equivalents
(9
)
 
17

Change in cash and cash equivalents
(92
)
 
1,240

Cash and cash equivalents, beginning of year
3,409

 
2,950

Cash and Cash Equivalents, end of period
$
3,317

 
$
4,190

 
 
 
 
Non-cash transactions during the period(1)
 
 
 
(Settlement) issuance of long-term debt
$
(202
)
 
$
202

Transfer of assets to reinsurer
$
(604
)
 
$

Repayment of loan to affiliates
$
300

 
$

_______________
(1)     See Note 11 for significant non-cash transactions related to the GMxB unwind and related merger of AXA RE Arizona.


See Notes to Consolidated Financial Statements (Unaudited)


11

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1)    ORGANIZATION
AXA Equitable Life Insurance Company (“AXA Equitable” and, collectively with its consolidated subsidiaries, the “Company”) is a diversified financial services company. The Company is an indirect, wholly-owned subsidiary of AXA Equitable Holdings, Inc. (“Holdings”). Prior to May 14, 2018, Holdings was a direct wholly-owned subsidiary of AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management. On May 14, 2018, Holdings completed an initial public offering in which AXA sold a minority stake to the public. The accompanying consolidated financial statements represent the consolidated results and financial position of AXA Equitable and not the consolidated results and financial position of Holdings.
The Company conducts operations in four segments: Individual Retirement, Group Retirement, Investment Management and Research, and Protection Solutions. The Company’s management evaluates the performance of each of these segments independently.
The Individual Retirement segment offers a diverse suite of variable annuity products which are primarily sold to affluent and high net worth individuals saving for retirement or seeking retirement income.
The Group Retirement segment offers tax-deferred investment and retirement plans sponsored by educational entities, municipalities and not-for-profit entities as well as small and medium-sized businesses.
The Investment Management and Research segment provides diversified investment management, research and related solutions globally to a broad range of clients through three main client channels—Institutional, Retail and Private Wealth Management—and distributes its institutional research products and solutions through Bernstein Research Services. The Investment Management and Research segment reflects the business of AllianceBernstein Holding L.P. (“AB Holding”), AllianceBernstein L.P. (“ABLP”) and their subsidiaries (collectively, “AB”).
The Protection Solutions segment includes the Company’s life insurance and group employee benefits businesses. The life insurance business offers a variety of variable universal life, indexed universal life and term life products to help affluent and high net worth individuals, as well as small and medium-sized business owners, with their wealth protection, wealth transfer and corporate needs. Our group employee benefits business offers a suite of life, short- and long-term disability, dental and vision insurance products to small and medium-size businesses across the United States.
The Company reports certain activities and items that are not included in our segments in Corporate and Other. Corporate and Other includes certain of our financing and investment expenses. It also includes: the closed block of life insurance (the “Closed Block”), run-off group pension business, run-off health business, certain strategic investments and certain unallocated items, including capital and related investments, interest expense and corporate expense. AB’s results of operations are reflected in the Investment Management and Research segment. Accordingly, Corporate and Other does not include any items applicable to AB.
At September 30, 2018 and September 30, 2017, respectively, AXA Equitable’s economic interest in AB was approximately 29% and approximately 29%. At September 30, 2018 and September 30, 2017, respectively, Holdings’ economic interest in AB was approximately 65% and approximately 65%. The general partner of AB, AllianceBernstein Corporation (the “General Partner”), is a wholly-owned subsidiary of the Company. Because the General Partner has the authority to manage and control the business of AB, AB is consolidated in the Company’s financial statements for all periods.
In March 2018, AXA contributed its 0.5% minority interest in AXA Financial, Inc. (“AXA Financial”) to Holdings so that Holdings now owns 100% of AXA Financial. On October 1, 2018 AXA Financial merged with and into its direct parent, Holdings, with Holdings continuing as the surviving entity. See Note 16 for further information.


12

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Basis of Presentation
The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Intercompany balances and transactions have been eliminated.
In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).
The terms “third quarter 2018” and “third quarter 2017” refer to the three months ended September 30, 2018 and 2017, respectively. The terms “first nine months of 2018” and “first nine months of 2017” refer to the nine months ended September 30, 2018 and 2017, respectively.
2)    SIGNIFICANT ACCOUNTING POLICIES
Adoption of New Accounting Pronouncements
Standard
Description
Effect on the Financial Statement or Other Significant Matters
ASU 2014-09
Revenue from Contracts with Customers (Topic 606)
This ASU contains new guidance that clarifies the principles for recognizing revenue arising from contracts with customers and develops a common revenue standard for U.S. GAAP and IFRS.
On January 1, 2018, the Company adopted the new revenue recognition guidance on a modified retrospective basis. Adoption did not change the amounts or timing of the Company’s revenue recognition for base investment management and advisory fees, distribution revenues, shareholder servicing revenues, and broker-dealer revenues. Some performance-based fees and carried-interest distributions that were recognized prior to adoption when no risk of reversal remained, in certain instances may now be recognized earlier if it is probable that significant reversal will not occur.

On January 1, 2018, the Company recognized a cumulative effect adjustment, net of tax, to increase opening equity attributable to AXA Equitable and the noncontrolling interest by approximately $8 million and $25 million, respectively, reflecting the impact of carried-interest distributions previously received by AB of approximately $78 million, net of revenue sharing payments to investment team members of approximately $43 million, for which it is probable that significant reversal will not occur and for which incremental tax is provided at AXA Equitable.


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AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Standard
Description
Effect on the Financial Statement or Other Significant Matters
ASU 2016-01
Financial Instruments - Overall (Subtopic 825-10)
This ASU provides new guidance related to the recognition and measurement of financial assets and financial liabilities. The new guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option, and presentation and disclosure requirements for financial instruments. The FASB also clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on AFS debt securities. The new guidance requires equity investments in unconsolidated entities, except those accounted for under the equity method, to be measured at fair value through earnings, thereby eliminating the AFS classification for equity securities with readily determinable fair values for which changes in fair value currently are reported in AOCI.
On January 1, 2018, the Company adopted the new recognition requirements on a modified retrospective basis for changes in the fair value of AFS equity securities, resulting in no material reclassification adjustment from AOCI to opening retained earnings for the net unrealized gains, net of tax, related to approximately $13 million common stock securities and eliminated their designation as AFS equity securities. The Company does not currently report any of its financial liabilities under the fair value option.
ASU 2016-15 Statement of Cash Flows (Topic 230 )
This ASU provides new guidance to simplify elements of cash flow classification. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance requires application of a retrospective transition method.
Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
ASU 2017-07
Compensation - Retirement Benefits (Topic 715)
This ASU provides new guidance on the presentation of net periodic pension and post-retirement benefit costs that requires retrospective disaggregation of the service cost component from the other components of net benefit costs on the income statement.
On January 1, 2018, the Company adopted the change in the income statement presentation utilizing the practical expedient for determining the historical components of net benefit costs, resulting in no material impact to the consolidated financial statements. In addition, no changes to the Company’s capitalization policies with respect to benefit costs resulted from the adoption of the new guidance.
ASU 2017-09
Compensation - Stock Compensation (Topic 718)
This ASU provides clarity and reduces both 1) diversity in practice and 2) cost and complexity when applying guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award.
Adoption of this amendment on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements.
Future Adoption of New Accounting Pronouncements
Standard
Description
Effective Date and Method of Adoption
Effect on the Financial Statement or Other Significant Matters
ASU 2018-14
Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)
This ASU improves the effectiveness of disclosures related to defined benefit plans in the notes to the financial statements. Amendments in ASU 2018-14 remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosures, and add new, relevant disclosure requirements.
Effective for fiscal years ending after December 15, 2020, for public business entities. Early adoption is permitted. Amendments should be applied on a retrospective basis to all periods presented.
Management currently is evaluating the impact of the guidance on the Company’s financial statement disclosures but has concluded that this guidance will not impact the Company’s consolidated financial position or results of operations.


14

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Standard
Description
Effective Date and Method of Adoption
Effect on the Financial Statement or Other Significant Matters
ASU 2018-13
Fair Value Measurement (Topic 820)
This ASU improves the effectiveness of fair value disclosures in the notes to financial statements. Amendments in this ASU modify disclosure requirements in Topic 820, including the removal of certain disclosure requirements, modification of certain disclosures, and the addition of new requirements.
Effective for fiscal years beginning after December 15, 2019, for public business entities. Early adoption is permitted, with the option to early adopt amendments to remove or modify disclosures, with full adoption of additional requirements delayed until their effective date. Amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively.
Management currently is evaluating the impact of the guidance on the Company’s financial statement disclosures but has concluded that this guidance will not impact the Company’s consolidated financial position or results of operations.


15

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Standard
Description
Effective Date and Method of Adoption
Effect on the Financial Statement or Other Significant Matters
ASU 2018-12
Financial Services - Insurance (Topic 944)
This ASU provides targeted improvements to existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The ASU primarily impacts four key areas, including:
Measurement of the liability for future policy benefits for traditional and limited payment contracts. The ASU requires companies to review, and if necessary update, cash flow assumptions at least annually for non-participating traditional and limited-payment insurance contracts.  Interest rates used to discount the liability will need to be updated quarterly using an upper medium grade (low credit risk) fixed-income instrument yield.
Measurement of market risk benefits (“MRBs”). MRBs, as defined under the ASU, will encompass certain GMxB features associated with variable annuity products and other general account annuities with other than nominal market risk.  The ASU requires MRBs to be measured at fair value with changes in value attributable to changes in instrument-specific credit risk recognized in OCI.
Amortization of deferred acquisition costs. The ASU simplifies the amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins, requiring such balances to be amortized on a constant level basis over the expected term of the contracts.  Deferred costs will be required to be written off for unexpected contract terminations but will not be subject to impairment testing.
Expanded footnote disclosures. The ASU requires additional disclosures including disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, MRBs, separate account liabilities and deferred acquisition costs.  Companies will also be required to disclose information about significant inputs, judgements, assumptions and methods used in measurement.
Effective date for public business entities for fiscal years and interim periods with those fiscal years, beginning after December 31, 2020.  Early adoption is permitted.
For the liability for future policyholder benefits for traditional and limited payment contracts, companies can elect one of two adoption methods.  Companies can either elect a modified retrospective transition method applied to contracts in force as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or a full retrospective transition method using actual historical experience information as of contract inception.  The same adoption method must be used for deferred acquisition costs.
For MRBs, the ASU should be applied retrospectively as of the beginning of the earliest period presented.
For deferred acquisition costs, companies can elect one of two adoption methods. Companies can either elect a modified retrospective transition method applied to contracts in force as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or a full retrospective transition method using actual historical experience information as of contract inception. The same adoption method must be used for the liability for future policyholder benefits for traditional and limited payment contracts.
Management currently is evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements, however the adoption of the ASU is expected to have a significant impact on our consolidated financial condition, results of operations, cash flows and required disclosures, as well as processes and controls.


16

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Standard
Description
Effective Date and Method of Adoption
Effect on the Financial Statement or Other Significant Matters
ASU 2018-07 Compensation - Stock Compensation (Topic 718)
This ASU contains new guidance that largely aligns the accounting for share-based payment awards issued to employees and non-employees.
Effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted.
The Company has granted share-based payment awards only to employees as defined by accounting guidance and does not expect this guidance will have a material impact on its consolidated financial statements.

ASU 2018-02
Income Statement - Reporting Comprehensive Income

This ASU contains new guidance that permits, but does not require, entities to reclassify to retained earnings tax effects “stranded” in AOCI resulting from the change in federal tax rate enacted by the Tax Cuts and Jobs Act (the “Tax Reform Act”) on December 22, 2017. If elected, these stranded tax effects for all items must be reclassified in AOCI, including, but not limited to, AFS securities and employee benefits.
Effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. Election can be made either to apply the new guidance retrospectively to each period in which the effect of the Tax Reform Act is recognized or in the period of adoption.
Management currently is evaluating the options provided for adopting this guidance and the potential impacts on the Company’s consolidated financial statements.
ASU 2017-12
Derivatives and Hedging (Topic 815)
The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.
Effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early application permitted. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption.
Management does not expect this guidance will have a material impact on the Company’s consolidated financial statements.
ASU 2017-08 Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20)
This ASU requires certain premiums on callable debt securities to be amortized to the earliest call date and is intended to better align interest income recognition with the manner in which market participants price these instruments.
Effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted and is to be applied on a modified retrospective basis.
Management does not expect this guidance will have a material impact on the Company’s consolidated financial statements.
ASU 2016-13
Financial Instruments - Credit Losses (Topic 326)
This ASU contains new guidance which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination.
Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for public business entities. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. These amendments should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.
Management currently is evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.


17

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Standard
Description
Effective Date and Method of Adoption
Effect on the Financial Statement or Other Significant Matters
ASU 2016-02
Leases (Topic 842)
This ASU contains revised guidance to lease accounting that will require lessees to recognize on the balance sheet a “right-of-use” asset and a lease liability for virtually all lease arrangements, including those embedded in other contracts. Lessor accounting will remain substantially unchanged from the current model but has been updated to align with certain changes made to the lessee model.
Effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for public business entities. Early application is permitted. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes optional practical expedients that entities may elect to apply.
The Company expects to adopt ASU 2016-02, as well as other related clarifications and interpretive guidance issued by the FASB, when it becomes effective on January 1, 2019. The Company identified its significant existing leases, which primarily include real estate leases for office space, that will be impacted by the new guidance. The Company expects to implement new accounting processes and internal controls to meet the requirements for financial reporting and disclosures of its leases. The Company expects these evaluation and implementation activities will continue throughout 2018 prior to the effective date of adoption on January 1, 2019. The Company plans to elect the optional modified retrospective transition method to apply the provisions of the new standard, which will result in a cumulative-effect adjustment to opening retained earnings in the period of adoption. Under this transition method, the Company would not recast prior financial statements.
Revenue Recognition
Investment Management and Service Fees and Related Expenses
Reported as Investment management and service fees in the Company’s consolidated statements of income (loss) are investment advisory and service fees, distribution revenues, and institutional research services revenues principally emerging from the Investment Management and Research segment. Also included are investment management and administrative service fees earned by AXA Equitable Funds Management Group, LLC (“AXA Equitable FMG”) and reported in the Individual Retirement, Group Retirement and Protection Solutions segments as well as certain asset-based fees associated with insurance contracts.
Investment management, advisory, and service fees
AB provides asset management services by managing customer assets and seeking to deliver returns to investors. Similarly, AXA Equitable FMG provides investment management and administrative services, such as fund accounting and compliance services, to AXA Premier VIP Trust (“VIP Trust”), EQ Advisors Trust (“EQAT”) and 1290 Funds as well as two private investment trusts established in the Cayman Islands, AXA Allocation Funds Trust and AXA Offshore Multimanager Funds Trust (collectively, the “Other AXA Trusts”). The contracts supporting these revenue streams create a distinct, separately identifiable performance obligation for each day the assets are managed for the performance of a series of services that are substantially the same and have the same pattern of transfer to the customer. Accordingly, these investment management, advisory, and administrative service base fees are recorded over time as services are performed and entitle the Company to variable consideration. Base fees, generally calculated as a percentage of assets under management (“AUM”), are recognized as revenue at month-end when the transaction price no longer is variable and the value of the consideration is determined. These fees are not subject to claw back and there is minimal probability that a significant reversal of the revenue recorded will occur.
Certain investment advisory contracts of AB, including those associated with hedge funds or other alternative investments, provide for a performance-based fee (including carried interest), in addition to a base advisory fee,


18

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

calculated either as a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. These performance-based fees are forms of variable consideration and therefore, are excluded from the transaction price until it becomes probable there will not be significant reversal of the cumulative revenue recognized. At each reporting date, the Company evaluates constraining factors surrounding the variable consideration to determine the extent to which, if any, revenues associated with the performance-based fee can be recognized. Constraining factors impacting the amount of variable consideration included in the transaction price include contractual claw-back provisions, the length of time of the uncertainty, the number and range of possible amounts, the probability of significant fluctuations in the fund’s market value, and the level in which the fund’s value exceeds the contractual threshold required to earn such a fee and the materiality of the amount being evaluated. Prior to adoption of the new revenue recognition guidance on January 1, 2018, the Company recognized performance-based fees at the end of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received as deferred revenues until no risk of reversal remained.
Sub-advisory and sub-administrative expenses associated with these services are calculated and recorded as the related services are performed in Other operating costs and expense in the consolidated statements of income (loss) as the Company is acting in a principal capacity in these transactions and, as such, reflects these revenues and expenses on a gross basis.
Research services
Research services revenue principally consists of brokerage transaction charges received by Sanford C. Bernstein & Co. LLC (“SCB LLC”), Sanford C. Bernstein Limited (“SCBL”) and AB’s other sell side subsidiaries for providing equity research services to institutional clients. Brokerage commissions for trade execution services and related expenses are recorded on a trade-date basis when the performance obligations are satisfied. Generally, the transaction price is agreed upon at the point of each trade and based upon the number of shares traded or the value of the consideration traded. Research revenues are recognized when the transaction price is quantified, collectability is assured, and significant reversal of such revenue is not probable.
Distribution services
Revenues from distribution services include fees received as partial reimbursement of expenses incurred in connection with the sale of certain AB sponsored mutual funds and the 1290 Funds and for the distribution primarily of EQAT and VIP Trust shares to separate accounts in connection with the sale of variable life and annuity contracts. The amount and timing of revenues recognized from performance of these distribution services often is dependent upon the contractual arrangements with the customer and the specific product sold as further described below.
Most open-end management investment companies, such as U.S. funds and the EQAT and VIP Trusts and the 1290 Funds, have adopted a plan under Rule 12b-1 of the Investment Company Act that allows for certain share classes to pay out of assets, distribution and service fees for the distribution and sale of its shares (“12b-1 Fees”). These open-end management investment companies have such agreements with the Company, and the Company has selling and distribution agreements pursuant to which it pays sales commissions to the financial intermediaries that distribute the shares. These agreements may be terminated by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of shares.
The Company records 12b-1 fees monthly based upon a percentage of the net asset value (“NAV”) of the funds. At month-end, the variable consideration of the transaction price is no longer constrained as the NAV can be calculated and the value of consideration is determined. These services are separate and distinct from other asset management services as the customer can benefit from these services independently of other services. The Company accrues the corresponding 12b-1 fees paid to sub-distributors monthly as the expenses are incurred. The Company is acting in a principal capacity in these transactions; as such, these revenues and expenses are recorded on a gross basis in the consolidated statements of income (loss).
AB sponsored mutual funds offer back-end load shares in limited instances and charge the investor a contingent deferred sales charge (“CDSC”) if the investment is redeemed within a certain period. The variable consideration for these


19

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

contracts is contingent upon the timing of the redemption by the investor and the value of the sales proceeds. Due to these constraining factors, the Company excludes the CDSC fee from the transaction price until the investor redeems the investment. Upon redemption, the cash consideration received for these contractual arrangements is recorded as a reduction of unamortized deferred sales commissions.
AB’s Luxembourg subsidiary, the management company for most of its non-U.S. funds earns a management fee which is accrued daily and paid monthly, at an annual rate, based on the average daily net assets of the fund. With respect to certain share classes, the management fee also may contain a component paid to distributors and other financial intermediaries and service providers to cover shareholder servicing and other administrative expenses (also referred to as an “All-in-Fee”). Based on the conclusion that asset management is distinct from distribution, the Company allocates a portion of the investment and advisory fee to distribution revenues for the servicing component based on standalone selling prices.
Other revenues
Also reported as Investment management and service fees in the Company’s consolidated statements of income (loss) are other revenues from contracts with customers, primarily consisting of shareholder servicing fees, mutual fund reimbursements, and other brokerage income.
Shareholder services, including transfer agency, administration, and record-keeping are provided by AB to company-sponsored mutual funds. The consideration for these services is based on a percentage of the NAV of the fund or a fixed-fee based on the number of shareholder accounts being serviced. The revenues are recorded at month-end when the constraining factors involved with determining NAV or the numbers of shareholders’ accounts are resolved.
Other income
Revenues from contracts with customers reported as Other Income in the Company’s consolidated statements of income (loss) primarily consist of advisory account fees and brokerage commissions from the Company’s subsidiary broker-dealer operations and sales commissions from the Company’s general agent for the distribution of non-affiliate insurers’ life insurance and annuity products. These revenues are recognized at month-end when constraining factors, such as AUM and product mix, are resolved and the transaction pricing no longer is variable such that the value of consideration can be determined.
Contract assets and liabilities
The Company applies the practical expedient for contracts that have an original duration of one year or less. Accordingly, the Company accrues the incremental costs of obtaining a contract when incurred and does not consider the time value of money. At September 30, 2018 there are no material balances of contract assets and contract liabilities; as such, no further disclosures are necessary.
Accounting and Consolidation of Variable Interest Entities (“VIEs”)
At September 30, 2018, the Company held approximately $1.2 billion of investment assets in the form of equity interests issued by non-corporate legal entities determined under the guidance to be VIEs, such as limited partnerships and limited liability companies, including hedge funds, private equity funds, and real estate-related funds. As an equity investor, the Company is considered to have a variable interest in each of these VIEs as a result of its participation in the risks and/or rewards these funds were designed to create by their defined portfolio objectives and strategies. Primarily through qualitative assessment, including consideration of related party interests or other financial arrangements, if any, the Company was not identified as primary beneficiary of any of these VIEs, largely due to its inability to direct the activities that most significantly impact their economic performance. Consequently, the Company continues to reflect these equity interests in the consolidated balance sheets as Other equity investments and to apply the equity method of accounting for these positions. The net assets of these non-consolidated VIEs are approximately $166.1 billion, and the Company’s maximum exposure to loss from its direct involvement with these VIEs is the carrying value of its investment of $1.2 billion at September 30, 2018. Except for approximately $748 million of unfunded commitments


20

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

at September 30, 2018, the Company has no further economic interest in these VIEs in the form of guarantees, derivatives, credit enhancements or similar instruments and obligations.
At September 30, 2018, the Company consolidated one real estate joint venture for which it was identified as primary beneficiary under the VIE model. The consolidated entity is jointly owned by AXA Equitable and AXA France and holds an investment in a real estate venture. Included in the Company’s consolidated balance sheets at September 30, 2018, are total assets of $37 million related to this VIE, primarily resulting from the consolidated presentation of $37 million of real estate held for production of income. In addition, real estate held for production of income reflects $17 million as related to two non-consolidated joint ventures at September 30, 2018.
Included in the Company’s consolidated balance sheets at September 30, 2018 are assets of $202 million, liabilities of $6 million and redeemable non-controlling interest of $80 million associated with the consolidation of AB-sponsored investment funds under the VIE model. Also included in the Company’s consolidated balance sheets at September 30, 2018 are assets of $121 million, liabilities of $3 million and redeemable non-controlling interest of $21 million from consolidation of AB-sponsored investment funds under the VOE model. The assets of these consolidated funds are presented within Other invested assets and cash and cash equivalents, and liabilities of these consolidated funds are presented with other liabilities on the face of the Company’s consolidated balance sheets at September 30, 2018; ownership interests not held by the Company relating to consolidated VIEs and VOEs are presented either as redeemable or non-redeemable noncontrolling interest, as appropriate.
As of September 30, 2018, the net assets of AB-sponsored investment products that are non-consolidated VIEs are approximately $58.2 billion, and the Company’s maximum risk of loss is its investment of $6 million in these VIEs and its advisory fee receivables from these VIEs, which are not material.
Assumption Updates and Model Changes
In 2018, the Company began conducting its annual review of our assumptions and models during the third quarter, consistent with industry practice. The annual review encompasses assumptions underlying the valuation of unearned revenue liabilities, embedded derivatives for our insurance business, liabilities for future policyholder benefits, DAC and deferred sales inducement assets. As a result of this review, some assumptions were updated, resulting in increases and decreases in the carrying values of these product liabilities and assets.
The net impact of assumption changes in the third quarter of 2018 decreased Policy charges and fee income by $12 million, decreased Policyholders’ benefits by $684 million, increased Net derivative losses by $1,065 million, and decreased the Amortization of DAC, net by $165 million. This resulted in a decrease in Income (loss) from operations, before income taxes of $228 million and decreased Net income (loss) by approximately $187 million.
Revision of Prior Period Financial Statements
As previously reported, during the preparation of the second quarter 2018 financial statements, management identified errors in its previously issued financial statements related to: (a) a misclassification between interest credited and net derivative gains/losses, (b) an error in an actuarial model used to determine the deferred acquisition cost asset and related amortization for a specific group of insurance products issued by the Company, and (c) the understatement of a charge from Holdings related to partial settlement of a pension plan obligation. The impact of these errors to the Company’s consolidated financial statements for the three months ended March 31, 2018, the nine months ended September 30, 2017, the six months ended June 30, 2017, the three months ended March 31, 2017 and the years ended December 31, 2017 and 2016 were not considered to be material.
In addition, during the preparation of its third quarter 2018 financial statements, management identified errors in its previously issued financial statements. These errors primarily relate to the calculation of policyholders’ benefit reserves for the Company’s life and annuity products and the calculation of net derivative gains (losses) and DAC amortization for certain variable and interest sensitive life products. The impact of these errors were not considered to be material to the consolidated financial statements as of and for the three months ended March 31, 2018, the three and six months


21

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

ended June 30, 2018, the three and nine months ended September 30, 2017, the three and six months ended June 30, 2017, the three months ended March 31, 2017 and the years ended December 31, 2017, 2016 and 2015. However, in order to improve the consistency and comparability of the financial statements, management has determined to revise the Company’s consolidated financial statements for the three and six months ended March 31, 2018 and June 30, 2018, respectively, as well as the three, six and nine months ended March 31, 2017, June 30, 2017 and September 30, 2017, respectively and for the years ended December 31, 2017, 2016 and 2015.
See Note 15 for details of the revisions.
3)    INVESTMENTS
Fixed Maturities
The following tables provide information relating to fixed maturities classified as AFS. As a result of the adoption of the Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) standard on January 1, 2018 (see Note 2), equity securities are no longer classified and accounted for as available-for-sale securities.
Available-for-Sale Securities by Classification 
 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
OTTI
in AOCI 
(3)
 
(in millions)
September 30, 2018:
 
 
 
 
 
 
 
 
 
Fixed Maturities:
 
 
 
 
 
 
 
 
 
Corporate
$
24,796

 
$
397

 
$
591

 
$
24,602

 
$

U.S. Treasury, government and agency
13,621

 
58

 
728

 
12,951

 

States and political subdivisions
409

 
43

 
1

 
451

 

Foreign governments
431

 
17

 
10

 
438

 

Residential mortgage-backed(1)
200

 
8

 

 
208

 

Asset-backed(2)
613

 
1

 
6

 
608

 
2

Redeemable preferred stock
472

 
31

 
7

 
496

 

Total at September 30, 2018
$
40,542

 
$
555

 
$
1,343

 
$
39,754

 
$
2

 


22

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Amortized
Cost
 
Gross Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
OTTI
in AOCI 
(3)
 
(in millions)
December 31, 2017:
 
 
 
 
 
 
 
 
 
Fixed Maturities:
 
 
 
 
 
 
 
 
 
Corporate
$
20,596

 
$
942

 
$
56

 
$
21,482

 
$

U.S. Treasury, government and agency
12,644

 
676

 
185

 
13,135

 

States and political subdivisions
414

 
67

 

 
481

 

Foreign governments
387

 
27

 
5

 
409

 

Residential mortgage-backed(1)
236

 
15

 

 
251

 

Asset-backed(2)
93

 
3

 

 
96

 
2

Redeemable preferred stock
461

 
44

 
1

 
504

 

Total Fixed Maturities
$
34,831

 
$
1,774

 
$
247

 
$
36,358

 
$
2

Equity securities
157

 

 

 
157

 

Total at December 31, 2017
$
34,988

 
$
1,774

 
$
247

 
$
36,515

 
$
2

_____________
(1)
Includes publicly traded agency pass-through securities and collateralized obligations.
(2)
Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.
(3)
Amounts represent OTTI losses in AOCI, which were not included in income (loss) in accordance with current accounting guidance.

The contractual maturities of AFS fixed maturities at September 30, 2018 are shown in the table below. Bonds not due at a single maturity date have been included in the table in the final year of maturity. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Fixed Maturities
Contractual Maturities at September 30, 2018 
 
Amortized
Cost
 
Fair Value
 
(in millions)
Due in one year or less
$
1,908

 
$
1,915

Due in years two through five
7,755

 
7,816

Due in years six through ten
12,941

 
12,719

Due after ten years
16,653

 
15,992

Subtotal
$
39,257

 
$
38,442

Residential mortgage-backed securities
200

 
208

Asset-backed securities
613

 
608

Redeemable preferred stock
472

 
496

Total
$
40,542

 
$
39,754



23

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table shows proceeds from sales, gross gains (losses) from sales and OTTI for AFS fixed maturities during the three and nine months ended September 30, 2018 and 2017: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Proceeds from sales
$
973

 
$
1,287

 
$
4,774

 
$
1,822

Gross gains on sales
$
6

 
$
5

 
$
140

 
$
34

Gross losses on sales
$
(4
)
 
$
(2
)
 
$
(59
)
 
$
(29
)
 
 
 
 
 
 
 
 
Total OTTI
$
(4
)
 
$

 
$
(4
)
 
$
(13
)
Non-credit losses recognized in OCI

 

 

 

Credit losses recognized in net income (loss)
$
(4
)
 
$

 
$
(4
)
 
$
(13
)
The following table sets forth the amount of credit loss impairments on AFS fixed maturities held by the Company at the dates indicated and the corresponding changes in such amounts:
Fixed Maturities - Credit Loss Impairments 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Balances, beginning of period
$
(9
)
 
$
(115
)
 
$
(10
)
 
$
(190
)
Previously recognized impairments on securities that matured, paid, prepaid or sold

 
32

 
1

 
120

Recognized impairments on securities impaired to fair value this period(1)

 

 

 

Impairments recognized this period on securities not previously impaired
(4
)
 

 
(4
)
 
(13
)
Additional impairments this period on securities previously impaired

 

 

 

Increases due to passage of time on previously recorded credit losses

 

 

 

Accretion of previously recognized impairments due to increases in expected cash flows

 

 

 

Balances at September 30
$
(13
)
 
$
(83
)
 
$
(13
)
 
$
(83
)
_______________
(1)     Represents circumstances where the Company determined in the current period that it intends to sell the security, or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.



24

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Net unrealized investment gains (losses) on fixed maturities classified as AFS are included in the consolidated balance sheets as a component of AOCI. The table below presents these amounts as of the dates indicated:
 
September 30,
2018
 
December 31, 2017
 
(in millions)
AFS Securities:
 
 
 
Fixed maturities:
 
 
 
With OTTI loss
$
1

 
$
1

All other
(789
)
 
1,526

Net Unrealized Gains (Losses)
$
(788
)
 
$
1,527

Changes in net unrealized investment gains (losses) recognized in AOCI include reclassification adjustments to reflect amounts realized in Net income (loss) for the current period that had been part of OCI in earlier periods. The tables that follow below present a roll-forward of net unrealized investment gains (losses) recognized in AOCI, split between amounts related to fixed maturities on which an OTTI loss has been recognized and all other:
Net Unrealized Gains (Losses) on Fixed Maturities with OTTI Losses
 
Net
Unrealized
Gains
(Losses) on
Investments
 
DAC
 
Policyholders’
Liabilities
 
Deferred
Income
Tax Asset
(Liability)
 
AOCI Gain
(Loss) Related
to Net
Unrealized
Investment
Gains (Losses)
 
(in millions)
Balance, July 1, 2018
$
1

 
$

 
$

 
$

 
$
1

Net investment gains (losses) arising during the period

 

 

 

 

Reclassification adjustment:
 
 
 
 
 
 
 
 
 
Included in Net income (loss)

 

 

 

 

Excluded from Net income (loss)(1)

 

 

 

 

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC

 

 

 

 

Deferred income taxes

 

 

 

 

Policyholders’ liabilities

 

 

 

 

Balance, September 30, 2018
$
1

 
$

 
$

 
$

 
$
1

 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2017
$
(6
)
 
$
2

 
$
1

 
$
1

 
$
(2
)
Net investment gains (losses) arising during the period
(5
)
 

 

 

 
(5
)
Reclassification adjustment:
 
 
 
 
 
 
 
 
 
Included in Net income (loss)
11

 

 

 

 
11

Excluded from Net income (loss)(1)

 

 

 

 

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC

 
(1
)
 

 

 
(1
)
Deferred income taxes

 

 

 
(1
)
 
(1
)
Policyholders’ liabilities

 

 
(1
)
 

 
(1
)
Balance, September 30, 2017
$

 
$
1

 
$

 
$

 
$
1



25

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

____________
(1)
Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in income (loss) for securities with no prior OTTI loss.


 
Net
Unrealized
Gains
(Losses) on
Investments
 
DAC
 
Policyholders’
Liabilities
 
Deferred
Income
Tax Asset
(Liability)
 
AOCI Gain
(Loss) Related
to Net
Unrealized
Investment
Gains (Losses)
 
(in millions)
Balance, January 1, 2018
$
1

 
$
1

 
$
(1
)
 
$
(5
)
 
$
(4
)
Net investment gains (losses) arising during the period

 

 

 

 

Reclassification adjustment:
 
 
 
 
 
 
 
 
 
Included in Net income (loss)

 

 

 

 

Excluded from Net income (loss)(1)

 

 

 

 

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC

 
(1
)
 

 

 
(1
)
Deferred income taxes

 

 

 
5

 
5

Policyholders’ liabilities

 

 
1

 

 
1

Balance, September 30, 2018
$
1

 
$

 
$

 
$

 
$
1

 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
$
19

 
$
(1
)
 
$
(10
)
 
$
(3
)
 
$
5

Net investment gains (losses) arising during the period

 

 

 

 

Reclassification adjustment:
 
 
 
 
 
 
 
 
 
Included in Net income (loss)
(19
)
 

 

 

 
(19
)
Excluded from Net income (loss)(1)

 

 

 

 

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC

 
2

 

 

 
2

Deferred income taxes

 

 

 
3

 
3

Policyholders’ liabilities

 

 
10

 

 
10

Balance, September 30, 2017
$

 
$
1

 
$

 
$

 
$
1

____________
(1)
Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in income (loss) for securities with no prior OTTI loss.


26

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

All Other Net Unrealized Investment Gains (Losses) in AOCI
 
Net
Unrealized
Gains
(Losses) on
Investments
 
DAC
 
Policyholders’
Liabilities
 
Deferred
Income
Tax Asset
(Liability)
 
AOCI Gain
(Loss) Related
to Net
Unrealized
Investment
Gains (Losses)
 
(in millions)
Balance, July 1, 2018
$
(245
)
 
$
11

 
$
(110
)
 
$
(27
)
 
$
(371
)
Net investment gains (losses) arising during the period
(554
)
 

 

 

 
(554
)
Reclassification adjustment:
 
 
 
 
 
 
 
 

Included in Net income (loss)
10

 

 

 

 
10

Excluded from Net income (loss)(1)

 

 

 

 

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC

 
72

 

 

 
72

Deferred income taxes

 

 

 
112

 
112

Policyholders’ liabilities

 

 
(62
)
 

 
(62
)
Balance, September 30, 2018
$
(789
)
 
$
83

 
$
(172
)
 
$
85

 
$
(793
)
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2017
$
1,145

 
$
(200
)
 
$
(191
)
 
$
(263
)
 
$
491

Net investment gains (losses) arising during the period
18

 

 

 

 
18

Reclassification adjustment:
 
 
 
 
 
 
 
 

Included in Net income (loss)
(2
)
 

 

 

 
(2
)
Excluded from Net income (loss)(1)

 

 

 

 

Impact of net unrealized investment gains (losses) on:
 
 
 
 
 
 
 
 
 
DAC

 
(48
)
 

 


 
(48
)
Deferred income taxes

 

 

 
29

 
29

Policyholders’ liabilities

 

 
(53
)
 


 
(53
)
Balance, September 30, 2017
$
1,161

 
$
(248
)
 
$
(244
)
 
$
(234
)
 
$
435

_______________
(1)
Represents “transfers out” related to the portion of OTTI losses during the period that were not recognized in income (loss) for securities with no prior OTTI loss.


27

AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
Net
Unrealized
Gains
(Losses) on
Investments
 
DAC
 
Policyholders’
Liabilities
 
Deferred
Income
Tax Asset
(Liability)
 
AOCI Gain
(Loss) Related
to Net
Unrealized
Investment
Gains (Losses)
 
(in millions)
Balance, January 1, 2018
$
1,526

 
$
(315
)
 
$
(232
)
 
$
(300