Talcott Resolution Life Insurance Earnings 2019-03-31

HIG 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

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 March 31, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32293




TALCOTT RESOLUTION LIFE INSURANCE COMPANY
	(Exact name of registrant as specified in its charter)



Connecticut		06-0974148
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

One Griffin Road North, Windsor, Connecticut 06095

(Address of principal executive offices)

(800) 862-6668

(Registrant’s telephone number, including area code)

¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯



Indicate by check mark:	Yes	No
• 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.	x	¨

• whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).	x	¨

• 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non Accelerated filer x	Smaller reporting company o	Emerging growth company o

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



• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)	¨	x



• whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.	o	o

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered

As of May 3, 2019, there were outstanding 1,000 shares of Common Stock, $5,690 par value per share, of the registrant.

TALCOTT RESOLUTION LIFE INSURANCE COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS



Item	Description	Page
	Part I. FINANCIAL INFORMATION
1.	Financial Statements
	Condensed Consolidated Statements of Operations — For the Three Months Ended March 31, 2019 (Successor Company) and For the Three Months Ended March 31, 2018 (Predecessor Company)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) — For the Three Months Ended March 31, 2019 (Successor Company) and For the Three Months Ended March 31, 2018 (Predecessor Company)	6
	Condensed Consolidated Balance Sheets — As of March 31, 2019 (Successor Company) and December 31, 2018 (Successor Company)	7
	Condensed Consolidated Statements of Changes in Stockholder's Equity — For the Three Months Ended March 31, 2019 (Successor Company) and For the Three Months Ended March 31, 2018 (Predecessor Company)	8
	Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2019 (Successor Company) and For the Three Months Ended March 31, 2018 (Predecessor Company)	9
	Notes to Condensed Consolidated Financial Statements	10
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
3.	Quantitative and Qualitative Disclosures About Market Risk	77
4.	Controls and Procedures	77
	Part II. OTHER INFORMATION
1.	Legal Proceedings	78
1A.	Risk Factors	78
2.	Unregistered Sales of Equity Securities and Use of Proceeds	[a]
6.	Exhibits	78
	Exhibit Index	79
	Signature	80


[a]	Not applicable

Forward-Looking Statements

Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods.

Forward-looking statements are based on management's current expectations and assumptions regarding future economic, competitive, legislative and other developments and their potential effect upon Talcott Resolution Life Insurance Company (formerly "Hartford Life Insurance Company") and its subsidiaries (collectively, the “Company”). Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from expectations, depending on the evolution of various factors, including the risks and uncertainties identified below, as well as factors described in such forward-looking statements or in Part I, Item 1A, Risk Factors, in the Company’s 2018 Form 10-K Annual Report and those identified from time to time in our other filings with the Securities and Exchange Commission ("SEC").


•	Risks Relating to Economic, Political and Global Market Conditions:


◦	challenges related to the Company's current operating environment, including global, political, economic and market conditions, and the effect of financial market disruptions, economic downturns or other potentially adverse macroeconomic developments on our products, the returns in our investment portfolios and the hedging costs associated with our run-off annuity block;


◦	financial risk related to the continued reinvestment of our investment portfolios and performance of our hedge program for our run-off annuity block;


◦	market risks associated with our business, including changes in credit spreads, equity prices, interest rates, market volatility and foreign exchange rates;


◦	the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy;


•	Insurance Industry and Product Related Risks:


◦	volatility in our statutory earnings and earnings calculated in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and potential material changes to our financial results resulting from our adjustment of our risk management program to emphasize protection of statutory surplus and economic value;


◦	the possibility of a terrorist attack, a pandemic, or other natural or man-made disaster that may increase the Company's mortality exposure and adversely affect its businesses;


◦	the possibility of losses from increased life expectancy trends among policyholders receiving long-term life contingent benefit payments;


◦	the possibility that the liability reserves for our payout annuities may be inadequate if there are medical improvements or other technological improvements that change our mortality assumptions;


◦	losses resulting from unanticipated policyholder behavior especially when combined with adverse market events;


•	Financial Strength, Credit and Counterparty Risks:


◦	risks to our business, financial position, prospects and results associated with negative rating actions or downgrades in the Company's financial strength and credit ratings or negative rating actions or downgrades relating to our investments;


◦	the impact on our statutory capital of various factors, including many that are outside the Company’s control, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results;


◦	losses due to nonperformance or defaults by others, including sourcing partners, derivative counterparties and other third parties;


◦	the potential for losses due to our reinsurers' unwillingness or inability to meet their obligations under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;


◦	regulatory limitations on the ability of the Company and certain of its subsidiaries to declare and pay dividends;


•	Risks Relating to Estimates, Assumptions and Valuations:


◦	risk associated with the use of analytical models in making decisions in key areas such as capital management, hedging, and reserving;


◦	the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the Company’s fair value estimates for its investments and the evaluation of the other-than-temporary impairments on available-for-sale securities;


◦	the potential for further acceleration in amortization of the present value of the business acquired ("VOBA") and an increase in reserve for certain guaranteed benefits in our variable annuities;


◦	the potential for valuation allowances against deferred tax assets;


•	Strategic and Operational Risks:


◦	the risks associated with separating our operations from those of our former parent and establishing a stand-alone company, including increased costs related to replacing third-party arrangements previously obtained through our former parent;


◦	the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster, cyber or other information security incident or other unanticipated event;


◦	the potential for difficulties arising from outsourcing and similar third-party relationships;


◦	the risks, challenges and uncertainties associated with the Company's initiatives and other actions, which may include acquisitions and divestitures;


◦	the Company’s ability to protect its intellectual property and defend against claims of infringement;


•	Regulatory and Legal Risks:


◦	the cost and other potential effects of increased regulatory and legislative developments, including those that could adversely impact the Company’s operating costs and required capital levels;


◦	unfavorable judicial or legislative developments;


◦	the impact of changes in federal or state tax laws that could impact the tax-favored status of life and annuity contracts; and


◦	the impact of potential changes in accounting and financial reporting requirements of the liability for future policy benefits, including how we account for our long-duration insurance contracts, including the discounting of life contingent fixed annuities.

Any forward-looking statement made by the Company in this document speaks only as of the date of the filing of this Form 10-Q. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1.Financial Statements

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)



	Successor Company			Predecessor Company
(In millions)	For the Three Months Ended March 31, 2019			For the Three Months Ended March 31, 2018
Revenues
Fee income and other	$	203		$	231
Earned premiums	8			27
Net investment income	238			312
Net realized capital gains (losses)	(193		)	21
Amortization of deferred reinsurance gain	15			—
Total revenues	271			591
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses	174			325
Amortization of deferred policy acquisition costs ("DAC") and value of business acquired ("VOBA")	(43		)	11
Insurance operating costs and other expenses	106			108
Other intangible asset amortization	1			—
Dividends to policyholders	2			2
Total benefits, losses and expenses	240			446
Income before income taxes	31			145
Income tax expense (benefit)	(1		)	20
Net income	$	32		$	125

See Notes to Condensed Consolidated Financial Statements

Table of Contents

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)



	Successor Company			Predecessor Company
(In millions)	For the Three Months Ended March 31, 2019			For the Three Months Ended March 31, 2018
Net income	$	32		$	125
Other comprehensive income (loss):
Changes in net unrealized gain (loss) on securities	354			(304		)
Changes in net gain on cash-flow hedging instruments	—			(18		)
Changes in foreign currency translation adjustments	(2		)	1
OCI, net of tax	352			(321		)
Comprehensive income (loss)	$	384		$	(196	)

See Notes to Condensed Consolidated Financial Statements

Table of Contents

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)



	Successor Company
(In millions, except for share data)	As of March 31, 2019		As of December 31, 2018
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost: March 31, 2019 - $13,711; December 31, 2018 - $14,035)	$	13,977	$	13,839
Fixed maturities, at fair value using the fair value option	11		12
Equity securities, at fair value	173		116
Mortgage loans (net of valuation allowances: March 31, 2019 - $0; December 31, 2018 - $5)	2,085		2,100
Policy loans, at outstanding balance	1,452		1,441
Limited partnerships and other alternative investments	912		894
Other investments	166		201
Short-term investments	1,204		844
Total investments	19,980		19,447
Cash	104		221
Premiums receivable and agents’ balances	11		12
Reinsurance recoverables	29,321		29,564
Value of business acquired	741		716
Deferred income taxes, net	876		969
Other intangible assets	50		51
Other assets	404		352
Separate account assets	104,809		98,814
Total assets	$	156,296	$	150,146
Liabilities
Reserve for future policy benefits	$	18,314	$	18,323
Other policyholder funds and benefits payable	28,182		28,584
Other liabilities	2,602		2,420
Separate account liabilities	104,809		98,814
Total liabilities	153,907		148,141
Commitments and Contingencies (Note 10)
Stockholder's Equity
Common stock—1,000 shares authorized, issued and outstanding, par value $5,690	6		6
Additional paid-in capital	1,761		1,761
Accumulated other comprehensive income (loss), net of tax	181		(171		)
Retained earnings	441		409
Total stockholder's equity	2,389		2,005
Total liabilities and stockholder's equity	$	156,296	$	150,146

See Notes to Condensed Consolidated Financial Statements

Table of Contents

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholder's Equity

(Unaudited)



For the Three Months Ended March 31, 2019 (Successor Company)
(In millions)	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings		Total Equity
Balance, beginning of period	$	6	$	1,761	$	(171	)	$	409	$	2,005
Net income	—		—		—			32		32
Total other comprehensive income	—		—		352			—		352
Balance, end of period	$	6	$	1,761	$	181		$	441	$	2,389



For the Three Months Ended March 31, 2018 (Predecessor Company)
(In millions)	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings			Total Equity
Balance, beginning of period	$	6	$	3,539	$	1,023		$	2,112		$	6,680
Cumulative effect of accounting changes, net of tax	—		—		182			(182		)	—
Adjusted balance, beginning of period	6		3,539		1,205			1,930			6,680
Net income	—		—		—			125			125
Total other comprehensive loss	—		—		(321		)	—			(321		)
Capital contributions from parent	—		2		—			—			2
Balance, end of period	$	6	$	3,541	$	884		$	2,055		$	6,486

See Notes to Condensed Consolidated Financial Statements

Table of Contents

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Successor Company			Predecessor Company
(In millions)	For the Three Months Ended March 31, 2019			For the Three Months Ended March 31, 2018
Operating Activities
Net income	$	32		$	125
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital (gains) losses	193			(21		)
Amortization of deferred reinsurance gain	(15		)	—
Amortization of DAC and VOBA	(43		)	11
Depreciation and amortization, net	11			4
Other operating activities, net	(139		)	126
Change in assets and liabilities:
Decrease in reinsurance recoverables	289			3
Decrease in deferred and accrued income taxes	93			15
Increase (decrease) in reserve for future policy benefits and unearned premiums	(241		)	4
Net changes in other assets and other liabilities	202			—
Net cash provided by operating activities	382			267
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	1,112			1,605
Fixed maturities, fair value option	1			3
Equity securities, at fair value	14			31
Mortgage loans	20			98
Partnerships	22			50
Payments for the purchase of:
Fixed maturities, available-for-sale	(853		)	(1,212		)
Equity securities, at fair value	(2		)	(7		)
Mortgage loans	(13		)	(63		)
Partnerships	(24		)	(44		)
Net payments for repurchase agreements program	(7		)	—
Net payments for derivatives	(52		)	(156		)
Net decrease in policy loans	(11		)	(46		)
Net additions to property and equipment	—			(1		)
Net payments for short-term investments	(349		)	(460		)
Other investing activities, net	—			15
Net cash used for investing activities	(142		)	(187		)
Financing Activities
Deposits and other additions to investment and universal life-type contracts	680			1,354
Withdrawals and other deductions from investment and universal life-type contracts	(2,958		)	(7,472		)
Net transfers from separate accounts related to investment and universal life-type contracts	1,890			5,918
Net increase (decrease) in securities loaned or sold under agreements to repurchase	29			(136		)
Net repayments at maturity or settlement of consumer notes	—			(4		)
Net cash used for financing activities	(359		)	(340		)
Foreign exchange rate effect on cash	2			—
Net decrease in cash	(117		)	(260		)
Cash — beginning of period	221			537
Cash — end of period	$	104		$	277

See Notes to Condensed Consolidated Financial Statements

Table of Contents

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in millions, unless otherwise stated)

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Talcott Resolution Life Insurance Company, formerly Hartford Life Insurance Company, (together with its subsidiaries, “TL,” “Company,” “we” or “our”) is a provider of insurance and investment products in the United States (“U.S.”) and is a wholly-owned subsidiary of Talcott Resolution Life, Inc., a Delaware corporation ("TLI"). Hopmeadow Holdings LP (“Hopmeadow Holdings", or "HHLP ”) is the ultimate parent of the Company.

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, which differ materially from the accounting practices prescribed by various insurance regulatory authorities. These Condensed Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2018 Form 10-K Annual Report (“Successor Company”).

On May 31, 2018 the Company's indirect parent, Hartford Holding, Inc. ("HHI") completed the sale of the Company's parent to a group of investors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group ("Global Atlantic"), Pine Brook and J. Safra Group. Although Talcott Resolution Life Insurance Company is no longer affiliated with The Hartford Financial Services Group, Inc. ("The Hartford") or any of its subsidiaries, The Hartford retained a 9.7 percent ownership interest in HHLP ("Talcott Resolution Sale Transaction").

In conjunction with the sale, the Company entered into a transition services agreement with The Hartford to provide general ledger, cash management and information technology infrastructure services for a period of up to three years. In March 2019, an administrative services agreement was entered into for investment accounting services which replaced the services previously provided under the transition services agreement. These service agreements are not considered a material change in internal controls as the controls are substantially similar to those that existed prior to the Talcott Resolution Sale Transaction. The Company monitors and maintains oversight of the control environment provided by The Hartford covering these services and considers these controls in the evaluation of our internal control environment.

HHLP’s May 31, 2018 acquisition of TLI was accounted for by HHLP using business combination accounting. Under this method, the purchase price paid by the investor group was assigned to the identifiable assets acquired and liabilities assumed as of the acquisition date based on their fair value. The Company elected to apply "pushdown" accounting by applying the guidance permitted under Accounting Standards Codification (“ASC”) Topic 805 Business Combinations. By the application of pushdown accounting, the Company’s assets, liabilities and equity were accordingly adjusted to fair value on May 31, 2018 which generated both intangible assets and Value of Business Acquired (“VOBA”). Determining the fair value of certain assets acquired and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. While we do not anticipate material changes to the initial valuation of assets and liabilities in purchase and pushdown accounting, new information related to acquisition date valuations may give rise to a measurement period adjustment. The measurement period is not to exceed one year from the acquisition date and as of March 31, 2019 no changes have been made to the initial valuation of assets and liabilities determined as part of the purchase and pushdown accounting. Due to the application of pushdown accounting, TL’s financial statements and footnote disclosures are presented in two distinct periods to indicate the application of two different bases of accounting. The three months ended March 31, 2018 is identified herein as “Predecessor,” while the periods subsequent to HHLP’s acquisition of TLI is identified as “Successor.” As a result of the change in the basis of accounting from historical GAAP to reflect HHLP’s purchase cost, the financial statements for the Predecessor period are not comparable to the Successor periods.

On June 1, 2018, TL executed reinsurance agreements to reinsure certain fixed immediate and deferred annuity contracts, variable payout separate account annuity contracts, standard mortality structured settlements, and period certain structured settlement annuity contracts ("Commonwealth Annuity Reinsurance Agreement") to Commonwealth Annuity and Life Insurance Company ("Commonwealth"), a subsidiary of Global Atlantic which is a member of the acquiring investment group. TL reinsured an 85% quota share, except 75% for standard mortality structured settlements, in exchange for a $357 ceding commission that was fixed based on reinsuring approximately $9.3 billion of reserves as of December 31, 2016, plus annuitizations through closing and annuitizations from market value adjusted annuities post-close. The reinsurance agreement was executed after the Talcott Resolution Sale Transaction, and as such, the accounting for the agreement was recorded after the TL balance sheet was adjusted to fair value in purchase and pushdown accounting. A deferred gain of approximately $1 billion was recorded in Other liabilities on the Condensed Consolidated Balance Sheet related to this reinsurance agreement and will be amortized over the life of the underlying policies reinsured.

The accompanying Condensed Consolidated Financial Statements and Notes are unaudited. These financial statements reflect all adjustments (consisting only of normal accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. The Company's significant accounting policies are summarized in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements

Table of Contents

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. Basis of Presentation and Significant Accounting Policies (continued)

included in the Company's 2018 Form 10-K Annual Report (Successor Company). The Company did not make significant changes to accounting policies during the three months ended March 31, 2019.

Consolidation

The Condensed Consolidated Financial Statements include the accounts of TL and entities the Company directly or indirectly has a controlling financial interest in, which the Company is required to consolidate. Entities in which TL has significant influence over the operating and financing decisions, but is not required to consolidate, are reported using the equity method. All intercompany transactions and balances between TL and its subsidiaries have been eliminated.

Use of Estimates

The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates include those used in determining estimated gross profits used in the valuation and amortization of assets (including VOBA) and liabilities associated with variable annuity and other universal life-type contracts; evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments; living benefits required to be fair valued; valuation of investments and derivative instruments; valuation allowance on deferred tax assets; amortization of the deferred gain on reinsurance; and contingencies relating to corporate litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements.

Reclassifications

Certain reclassifications have been made to prior year financial information to conform to the current year presentation.

Revenue Recognition

Revenue from customers for other than insurance and investment contracts was $21 for the three months ended March 31, 2019 (Successor Company), and $25 for the three months ended March 31, 2018 (Predecessor Company). The Company earns revenues from these contracts primarily for administrative and distribution services fees from offering certain fund families as investment options in its variable annuity products. Fees are primarily based on the average daily net asset values of the funds and are recorded in the period in which the services are provided and collected monthly. Fluctuations in domestic and international markets and related investment performance, volume and mix of sales and redemptions of the funds, and other changes to the composition of assets under management are all factors that ultimately have a direct effect on fee income earned.

Table of Contents

TALCOTT RESOLUTION LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. Basis of Presentation and Significant Accounting Policies (continued)

Pushdown Accounting (Successor Company)

The table below shows the main balance sheet line items impacted in pushdown accounting as of the date of the acquisition.



Cash and invested assets	$	27,038
VOBA	805
Deferred Income Taxes	998
Intangible Assets	55
Reinsurance recoverable and other assets	22,615
Separate account assets	110,773
Total assets	162,284

Reserves for future policy benefits	18,057
Other policyholder funds and benefits payable	29,560
Other liabilities	2,127
Separate account liabilities	110,773
Total liabilities	160,517

Equity	1,767
Total liabilities and stockholder's equity	$	162,284

Intangible Assets

Intangible assets with definite lives are amortized over the estimated useful life of the asset. Amortizing intangible assets primarily consist of internally developed software amortized over a period not to exceed five years. Intangible assets with indefinite lives, primarily insurance licenses, are not amortized but are reviewed annually in the Company's impairment analysis. They will be tested for impairment more frequently if events or circumstances indicate the fair value of the indefinitely lived intangibles is less than the carrying value.

Investments

In pushdown accounting, the acquired investments are recorded at fair value through adjustments to additional paid in capital at the acquisition date.

Value of Business Acquired/DAC/Additional Reserves

In conjunction with the acquisition of TLI, a portion of the purchase price was allocated to the right to receive future gross profits from cash flows and earnings of the Company's insurance and investment contracts as of the date of the transaction. This intangible asset is called VOBA and is based on the actuarially estimated present value of future cash flows from the Company's insurance and investment contracts in-force as of the date of the transaction. The estimated fair value calculation of VOBA is based on certain assumptions, including mortality, persistency, expenses, interest rates, and other factors that the Company expects to experience in future years. Actual experience on the acquired contracts may vary from these projections and the recovery of VOBA is dependent upon the future profitability of the related business. The Company amortizes VOBA over estimated gross profits and it is reviewed for recoverability quarterly. Consistent with the acquisition being recorded at fair value, deferred acquisition costs which do not represent future cash flows are eliminated in pushdown accounting. The fair value of certain acquired obligations of the Company exceeded the book value of assumed in-force policy liabilities resulting in additional reserve liabilities. In pushdown accounting these liabilities were increased to fair value, which is presented separately from VOBA as additional insurance liability in Reserves for future policy benefits and Other policyholder funds and benefits payable. The additional liability is amortized to income over the policy or other relevant time period.

Future Adoption of New Accounting Standards

Financial Instruments - Credit Losses

In June 2016, the FASB issued updated guidance for the recognition and measurement of financial instruments. The guidance revises the credit loss recognition criteria for certain financial assets and off-balance sheet exposures, including reinsurance recoverables. The Accounting Standards Update ("ASU") provides a new expected credit loss model where the reporting entity recognizes its estimate of lifetime expected credit losses for affected financial assets in a valuation allowance resulting in presentation of a net carrying value in

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$52.51	361	$18,980

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
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	2017-06-30	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
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2018-07-18	Officers
8-K	2018-06-07	Enter Agreement
8-K	2018-06-06	Enter Agreement, Control, Officers, Amend Bylaw, Code of Ethics, Exhibits

FIS	Fidelity National Information Services	37,500
ZAYO	Zayo Group Holdings	7,750
PFGC	Performance Food Group	4,130
REXR	Rexford Industrial Realty	3,910
RNST	Renasant	2,130
IOSP	Innospec	2,080
IRWD	Ironwood Pharmaceuticals	1,670
BKCC	Blackrock Capital Investment	429
NK	Nantkwest	112
GLAG	Gala Pharmaceutical	0

EX-31.01	tl10q3312019ex3101.htm
EX-31.02	tl10q3312019ex3102.htm
EX-32.01	tl10q3312019ex3201.htm
EX-32.02	tl10q3312019ex3202.htm