American National Group Inc.

Previous wording

Management's discussion and analysis reviews our consolidated financial position at December 31, 2024 compared with December 31, 2023, December 31, 2022, and May 24, 2022 and our consolidated results of operations for the years ended December 31, 2024 and 2023, the successor period of May 25, 2022 to December 31, 2022, and the predecessor period of January 1, 2022 to May 24, 2022 and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with our audited consolidated financial statements, notes thereto and selected consolidated financial data appearing elsewhere in this report.

Current wording

Management's discussion and analysis reviews our consolidated financial position at December 31, 2025 compared with December 31, 2024, and our consolidated results of operations for the years ended December 31, 2025, 2024, and 2023, and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with our audited consolidated financial statements, notes thereto and selected consolidated financial data appearing elsewhere in this report.

Previous wording

For the year ended December 31, 2024, we reported total net premiums of $5.5 billion, compared to net premiums of $3.5 billion in the prior year. The increase of $2.0 billion is primarily driven by continued growth within the PRT business and the execution of the Company’s first U.K. reinsurance transaction, reinsuring $1.3 billion of pension liabilities. Net premiums for our Annuities segment increased by $2.1 billion due to growth in PRT business as noted. Our P&C segment decreased by $139 million due to an increase in ceded premiums with the cession of the specialty market group block of business beginning in Q1 2024.

Current wording

For the year ended December 31, 2024, we reported total net premiums of $3.7 billion, compared to $1.7 billion in the prior year. The increase of $2.0 billion is primarily driven by continued growth within the PRT business and the execution of the Company’s first U.K. reinsurance transaction, reinsuring $1.3 billion of pension liabilities. Net premiums for our Annuities segment increased by $2.0 billion due to growth in PRT business as noted.

Previous wording

(2)Variable sales represent additional premiums on previously issued policies.

Current wording

(1)Variable sales represent additional premiums on previously issued policies.

Previous wording

(1)Gross annuity sales differ from premiums in Pension Risk Transfer, since premiums are recognized as revenue when due while they are included in sales upon deal close, which is confirmed by the counterparty.

Current wording

(2)Gross annuity sales differ from premiums in Pension Risk Transfer, since premiums are recognized as revenue when due while they are included in sales upon deal close, which is confirmed by the counterparty.

Previous wording

The following table summarizes the financial results of our business for the years ended December 31, 2024 and December 31, 2023, the period from May 25, 2022 to December 31, 2022, and the Predecessor period from January 1, 2022 to May 24, 2022:

Current wording

The following table summarizes the financial results of our business for the years ended December 31, 2025, 2024, and 2023:

Previous wording

Net investment income was $1.4 billion for the year ended December 31, 2023, compared to $700 million for the period from May 25, 2022 to December 31, 2022, and $513 million for the Predecessor period from January 1, 2022 to May 24, 2022. Net investment income is comprised of interest and dividends earned on fixed income investments and equity investments, as well as other miscellaneous income from equity accounted investments primarily consisting of real estate partnerships and investment funds. The increase of $175 million for the year ended December 31, 2023, compared to the period from May 25, 2022 to December 31, 2022 and the Predecessor period from January 1, 2022 to May 24, 2022, was driven by an increase in effective yield due to rotation of the investment portfolio into higher yielding investments in line with a targeted investment strategy.

Current wording

Net investment income increased by $1.4 billion for the year ended December 31, 2025, relative to the prior year. Net investment income is comprised of interest and dividends earned on fixed income investments and equity investments, as well as other miscellaneous income from equity accounted investments primarily consisting of real estate partnerships and investment funds. The increase was primarily driven by the growth in our investment portfolio due to a full year contribution from American Equity following the acquisition, coupled with the continued rotation into higher yielding investment strategies.

Previous wording

Change in fair value of insurance-related derivatives and embedded derivatives represents the fair value change of call options used to fund the equity-indexed annuity and universal life contracts as well as the fair value change of embedded derivatives of these contracts. Fair value changes are impacted by the expected and actual performance of the indices the call options relate to as well as interest rates used to estimate our embedded derivatives. Change in fair value of insurance-related derivatives and embedded derivatives for the year ended December 31, 2023 was a loss of $36 million, compared to a gain of $23 million for the period from May 25, 2022 to December 31, 2022, and a loss of $31 million for the Predecessor period from January 1, 2022 to May 24, 2022. The increase in the loss for the year ended December 31, 2023, compared to the period from May 25, 2022 to December 31, 2022 and the Predecessor period from January 1, 2022 to May 24, 2022, is attributable to the impact of interest rates and equity market performance on the fair value of the embedded derivatives and equity-indexed options.

Current wording

Change in fair value of insurance-related derivatives and embedded derivatives represents the fair value change of call options used to fund the equity-indexed annuity and universal life contracts as well as the fair value change of embedded derivatives of these contracts. Fair value changes are impacted by the expected and actual performance of the indices the call options relate to as well as interest rates used to estimate our embedded derivatives. The increase in expense of $310 million is attributable to the impact of interest rates and equity market performance on the fair value of the embedded derivatives and equity-indexed options as well as the net impact of assumption updates from the annual assumption review used in the calculation of the fair value of the embedded derivatives .

Previous wording

Change in fair value of market risk benefits represents the mark-to-market movements of our liability based on the protection to the policyholder from capital market risks. Change in fair value of market risk benefits for the year ended December 31, 2023 was a gain of $69 million, compared to a gain of $102 million for the period from May 25, 2022 to December 31, 2022, and no impact for the Predecessor period from January 1, 2022 to May 24, 2022. The decrease in the gain for the year ended December 31, 2023, compared to the period from May 25, 2022 to December 31, 2022 and the Predecessor period from January 1, 2022 to May 24, 2022, is primarily due to movements in interest rates used in the valuation of these liabilities.

Current wording

Change in fair value of market risk benefits represents the mark-to-market movements of our liability based on the protection to the policyholder from capital market risks. The loss of $725 million for the year ended December 31, 2025 or an increase of $728 million year-over-year is primarily due to the impact of interest rates and equity markets on the valuation of these liabilities as well as the net impact of assumption updates as a result of the annual assumption review used in the calculation of the fair value of market risk benefits. Additionally, the market risk benefit liabilities increased as a result of the acquisition of American Equity leading to increases in the change in the fair value of these liabilities.

Previous wording

Property and Casualty – DOE increased by $132 million for the year ended December 31, 2024 compared to the prior year. The increase was primarily driven by improvements in our loss experience arising from underwriting actions implemented during the prior year.

Current wording

Income (loss) from discontinuing operations, net of tax was $126 million for the year ended December 31, 2025 compared to $111 million in the prior year or an increase of $15 million. The increase was largely attributable to improvements in our loss experience arising from underwriting actions implemented over the past twelve months on the property casualty block of business which was disposed of during 2025 as discussed in Note 28 - Discontinued Operations.

Previous wording

For the year ended December 31, 2024, we reported net income of $729 million, compared to a net income of $392 million in the prior year. The increase is primarily due to an increase in net premiums as a result of the closing of a U.K. pension risk transfer deal during Q4 2024. In addition, net investment income and other policy revenue increased due to the inclusion of American Equity following the acquisition. This increase was partially offset by an increase in policyholder benefits and claims incurred due to growth in the PRT business, an increase in investment related losses due to the transfer of assets associated with the RGA reinsurance transaction and volatility on equity positions, an increase in interest sensitive contract benefits, amortization of deferred policy acquisition costs, deferred sales inducements, and value of business acquired, and operating expenses due to the inclusion of American Equity following the acquisition.

Current wording

For the year ended December 31, 2024, we reported net income of $729 million, compared to a net income of $392 million in the prior year. The increase is primarily due to an increase in net premiums as a result of the closing of a reinsurance transaction with respect to a U.K. pension risk transfer deal during Q4 2024. In addition, net investment income and other policy revenue increased due to the inclusion of American Equity following the acquisition. This increase was partially offset by an increase in policyholder benefits and claims incurred due to growth in the PRT business, an increase in investment related losses due to the transfer of assets associated with the RGA reinsurance transaction and volatility on equity positions, an increase in interest sensitive contract benefits, amortization of deferred policy acquisition costs, deferred sales inducements, and value of business acquired and operating expenses due to the inclusion of American Equity following the acquisition.

Previous wording

Net premiums and other policy revenue were $6.2 billion for the year ended December 31, 2024, compared to $3.9 billion in the prior year. The increase of $2.3 billion is primarily due to growth in the PRT business partially offset by an increase in ceded premiums with the cession of the specialty market group block of business beginning in Q1 2024. Additionally, there was an increase in other policy revenue which reflects surrender fee and rider fee income recognized on annuity policies added following the acquisition of American Equity.

Current wording

Net premiums and other policy revenue were $4.3 billion for the year ended December 31, 2024, compared to $2.1 billion in the prior year. The increase of $2.3 billion is primarily due to growth in the PRT business. Additionally, there was an increase in other policy revenue which reflects surrender fee and rider fee income recognized on annuity policies added following the acquisition of American Equity.

Previous wording

Investment related gains (losses) increased by $345 million relative to the prior year. The increase was primarily due to realized losses on investments driven by the transfer of assets pursuant to the RGA reinsurance transaction, which was effective July 1, 2024, as well as volatility on equity positions.

Current wording

Investment related gains (losses) increased by $331 million relative to the prior year. The increase was primarily due to realized losses on investments driven by the transfer of assets pursuant to the RGA reinsurance transaction, which was effective July 1, 2024, as well as volatility on equity positions.

Previous wording

Policyholder benefits and claims incurred increased by $2.1 billion for the year ended December 31, 2024, relative to the prior year. The increase is primarily due to an increase in growth of the PRT business which resulted in higher reserves. Additionally, there was an increase in catastrophe claims on the property and casualty business due to weather related incidents. These increases were partially offset by a decrease in claims incurred due to the impact of business ceded to RGA beginning in Q2 2024.

Current wording

Policyholder benefits and claims incurred increased by $2.2 billion for the year ended December 31, 2024, relative to the prior year. The increase is primarily due to an increase in growth of the PRT business which resulted in higher reserves. These increases were partially offset by a decrease in claims incurred due to the impact of business ceded to RGA beginning in Q2 2024.

Previous wording

Interest sensitive contract benefits represent interest credited to policyholders’ account balances (“PAB”) from our investment contracts with customers, as well as amortization of deferred revenue. For the year ended December 31, 2024, interest sensitive contract benefits increased by $1.3 billion, which was primarily driven by an increase in the in-force block of annuities business following the acquisition of American Equity.

Current wording

Interest sensitive contract benefits represent interest credited to PAB from our investment contracts with customers. For the year ended December 31, 2024, interest sensitive contract benefits increased by $1.3 billion, which was primarily driven by an increase in the in-force block of annuities business following the acquisition of American Equity.

Previous wording

Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired were $939 million for the year ended December 31, 2024, compared to $525 million in the prior year. The increase of $414 million was primarily due to an increase in the amortization of VOBA due to the increase in the VOBA asset following the acquisition of American Equity, as well as the continued growth of the annuities business, which increases the deferred acquisition cost and deferred sales inducements asset.

Current wording

Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired were $587 million for the year ended December 31, 2024, compared to $112 million in the prior year. The increase of $475 million was primarily due to an increase in the amortization of VOBA due to the increase in the VOBA asset following the acquisition of American Equity, as well as the continued growth of the annuities business, which increases the deferred acquisition cost and deferred sales inducements asset.

Previous wording

Operating expenses were $880 million for the year ended December 31, 2024 compared to $601 million to the prior year, which represents an increase of $279 million. The increase was primarily driven by transaction expenses incurred related to the acquisition of American Equity as well as an increase associated with eight months of operating expenses from American Equity subsequent to the acquisition.

Current wording

Operating expenses were $701 million for the year ended December 31, 2024, compared to $430 million for the prior year, which represents an increase of $271 million. The increase was primarily driven by transaction expenses incurred related to the acquisition of American Equity as well as an increase associated with eight months of operating expenses from American Equity subsequent to the acquisition.

Previous wording

The following table presents DOE of each of our reporting segments for the years ended December 31, 2024 and December 31, 2023, and the period from May 25, 2022 to December 31, 2022:

Current wording

The following table presents DOE of each of our reporting segments for the years ended December 31, 2025, 2024, and 2023:

Previous wording

Annuities – DOE within our annuities business represents contribution from both our retail and institutional platforms. DOE increased by $266 million for the year ended December 31, 2023, compared to the period from May 25, 2022 to December 31, 2022, with the increase primarily driven by a full year of DOE from American National in 2023 coupled with increased investment income from our continued rotation of the portfolio into higher yielding investment strategies.

Current wording

Annuities – DOE within our annuities business represents contribution from both our retail and institutional platforms. DOE increased by $524 million for the year ended December 31, 2025 to the prior year. The increase is primarily attributable to an increased asset base from the acquisition of American Equity and continued growth of the business as well as deployment into higher yielding investment strategies.

Previous wording

Deferred policy acquisition costs (“DAC”), deferred sales inducements (“DSI”) and value of business acquired (“VOBA”) are capitalized costs directly related to writing new policyholder contracts and include the VOBA intangible assets. During the year, the balance increased by $9.7 billion, primarily driven by the addition of $7.2 billion of VOBA related to the acquisition of American Equity. Additionally, deferrals associated with writing new business contributed to an increase of $1.6 billion of DAC and DSI assets, partially offset by $939 million of amortization of DAC, DSI and VOBA recorded during the year. Additionally, the recapture of the North End Re reinsurance treaty resulted in a $2 billion increase in VOBA which was previously recognized as ceded VOBA and reduced the VOBA asset recognized in the acquisition of American Equity.

Current wording

Deferred policy acquisition costs (“DAC”), deferred sales inducements (“DSI”) and value of business acquired (“VOBA”) are capitalized costs directly related to writing new policyholder contracts and include the VOBA intangible assets. During the year, the balance increased by $1.0 billion, primarily driven by deferral of acquisition costs and sales inducements associated with writing new business during the period, partially offset by the amortization of existing DAC, DSI and VOBA.

Previous wording

Reinsurance recoverables and deposit assets are estimated amounts due to the Company from reinsurers and include reinsurance receivables and recoverables from reinsurers and deposit assets associated with reinsurance agreements. The amount increased by $9.6 billion in the year primarily due to the acquisition of American Equity, which contributed $15.0 billion of reinsurance recoverables and deposit assets, and the RGA reinsurance transaction executed in Q3 2024, which contributed approximately $3.4 billion of reinsurance recoverables. These increases were offset by a decrease in reinsurance recoverable of $7.6 billion due the recapture of the North End Re reinsurance treaty by American Equity during Q4 2024.

Current wording

Reinsurance recoverables and deposit assets are estimated amounts due to the Company from reinsurers and include reinsurance receivables and recoverables from reinsurers and deposit assets associated with reinsurance agreements. The amount decreased by $607 million in the year primarily driven by the run off of certain blocks of business ceded to external reinsurers.

Previous wording

Other assets were $2.7 billion as of December 31, 2024, an increase of $2.2 billion from December 31, 2023. The increase reflects changes in current tax asset, market risk benefit asset, prepaid pension assets, as well as other miscellaneous receivables. This also includes an increase of $671 million as a result of the acquisition of American Equity. Additionally, the recapture of the North End Re reinsurance treaty resulted in an increase of $330 million to the market risk benefit asset.

Current wording

Other assets were $2.8 billion as of December 31, 2025, an increase of $205 million from December 31, 2024. The balance includes current tax asset, market risk benefit asset, as well as other miscellaneous receivables and the increase is primarily attributable to an increase in the market risk benefit asset as a result of assumption updates made during the annual assumption review.

Previous wording

Other liabilities increased by $3.7 billion from December 31, 2023 to December 31, 2024. The balance includes the reinsured market risk benefits liability, accrued interest on debt and other miscellaneous payables. The increase is primarily due to the acquisition of American Equity, which contributed an increase of $2.4 billion and a $1.6 billion deferred gain associated with the RGA reinsurance transaction executed in Q3 2024.

Current wording

Other liabilities increased by $245 million from December 31, 2024 to December 31, 2025. The balance includes the reinsured market risk benefits liability, accrued interest on debt and other miscellaneous payables. The increase is primarily due to an increase in debt and payables from consolidated variable interest entities (“VIEs”).

Previous wording

Today, we have significant liquidity within our insurance portfolios, giving us flexibility to secure attractive investment opportunities. In addition to a portfolio of highly liquid financial assets, our operating companies have additional access to liquidity from sources such as the Federal Home Loan Bank (“FHLB”) and access to a sub-allocation under the Brookfield Wealth Solutions revolving credit facility. As of December 31, 2024, the Company had no drawings and a total of $881 million undrawn commitment available related to this program, and access to $300 million of capacity under the revolving credit facility.

Current wording

Today, we have significant liquidity within our insurance portfolios, giving us flexibility to secure attractive investment opportunities. In addition to a portfolio of highly liquid financial assets, our operating companies have additional access to liquidity from sources such as the Federal Home Loan Bank (“FHLB”) and access to a sub-allocation under the Brookfield Wealth Solutions revolving credit facility. As of December 31, 2025, the Company had no drawings and a total of $1.5 billion undrawn commitment available related to the FHLB program, and access to $300 million of capacity under the revolving credit facility.

Previous wording

Liquidity within our insurance subsidiaries may be restricted from time to time due to regulatory constraints. As of December 31, 2024, the Company’s total liquidity was $45.2 billion, which included $535 million of cash and cash equivalents held outside of the regulated insurance companies.

Current wording

Liquidity within our insurance subsidiaries may be restricted from time to time due to regulatory constraints. As of December 31, 2025, the Company’s total liquidity was $55.2 billion, which included $580 million of cash and cash equivalents held outside of the regulated insurance companies.

Previous wording

The following table presents a summary of our cash flows and ending cash balances for the years ended December 31, 2024 and December 31, 2023, the period from May 25, 2022 to December 31, 2022, and the Predecessor period from January 1, 2022 to May 24, 2022:

Current wording

The following table presents a summary of our cash flows and ending cash balances for the years ended December 31, 2025, 2024, and 2023:

Previous wording

As of December 31, 2024, the Company and its subsidiaries, in aggregate, had outstanding investment commitments of $4.7 billion. The funded commitments are primarily recognized as mortgage loans, private loans, investment funds, investment real estate and other invested assets. For additional information, see Note 28 - Financial Commitments and Contingencies in the notes to the consolidated financial statements.

Current wording

As of December 31, 2025, the Company and its subsidiaries, in aggregate, had outstanding investment commitments of $4.9 billion. The funded commitments are primarily recognized as mortgage loans, private loans, investment funds, investment real estate and other invested assets. For additional information, see Note 27 - Financial Commitments and Contingencies in the notes to the consolidated financial statements.

Previous wording

For additional information, See Note 21 - Notes Payable and Long Term Borrowings of the financial statements.

Current wording

For additional information, See Note 21 - Long Term Borrowings of the financial statements.

Previous wording

American National and AEL are required to follow Risk Based Capital (“RBC”) requirements based on guidelines of the National Association of Insurance Commissioners (“NAIC”). RBC is a method of measuring the level of capital appropriate for an insurance company to support its overall business operations, in light of its size and risk profile. It provides a means of assessing capital adequacy, where the degree of risk taken by the insurer is the primary determinant.

Current wording

American National and AEL are required to follow Risk Based Capital (“RBC”) requirements based on guidelines of the NAIC. RBC is a method of measuring the level of capital appropriate for an insurance company to support its overall business operations, in light of its size and risk profile. It provides a means of assessing capital adequacy, where the degree of risk taken by the insurer is the primary determinant.

Previous wording

To measure performance, we focus on net income and total assets, as well as certain non-GAAP measures, including DOE and Total Liquidity, which we believe are useful to investors to provide additional insights into assets within the business available for redeployment. See “Results of Operations”, “Financial Condition,” and “Liquidity and Capital Resources” sections of this MD&A for further discussion on our performance and Non-GAAP measures for the years ended December 31, 2024 and December 31, 2023, and the period from May 25, 2022 to December 31, 2022.

Current wording

To measure performance, we focus on net income and total assets, as well as certain non-GAAP measures, including DOE and Total Liquidity, which we believe are useful to investors to provide additional insights into assets within the business available for redeployment. See “Results of Operations”, “Financial Condition,” and “Liquidity and Capital Resources” sections of this MD&A for further discussion on our performance and Non-GAAP measures for the years ended December 31, 2025, 2024, and, 2023.

Previous wording

We use Distributable Operating Earnings (“DOE”) to assess operating results and the performance of our businesses. We define DOE as net income after applicable taxes, excluding the impact of depreciation and amortization, deferred income taxes related to basis and other changes, and breakage and transaction costs, as well as certain investment and insurance reserve gains and losses, including gains and losses related to asset and liability matching strategies, non-operating adjustments related to changes in cash flow assumptions for future policy benefits and change in market risk benefits. DOE is inclusive of returns on equity invested in certain variable interest entities and our share of adjusted earnings from our investments in certain associates.

Current wording

We use DOE to assess operating results and the performance of our businesses. We define DOE as net income after applicable taxes, excluding the impact of depreciation and amortization, deferred income taxes related to basis and other changes, and breakage and transaction costs, as well as certain investment and insurance reserve gains and losses, including gains and losses related to asset and liability matching strategies, non-operating adjustments related to changes in cash flow assumptions for future policy benefits and change in market risk benefits. DOE is inclusive of returns on equity invested in certain variable interest entities and our share of adjusted earnings from our investments in certain associates.

Previous wording

The following table contains further details regarding our use of the Non-GAAP measures, as well as a reconciliation of GAAP consolidated net income to DOE:

Current wording

The following table contains further details regarding our use of the Non-GAAP measures, as well as a reconciliation of GAAP consolidated net income from continuing operations to DOE:

Previous wording

(1)“Mark-to-market losses (gains) on investments, including reinsurance funds withheld” primarily represent mark-to-market gains or losses on our investments and reinsurance funds withheld. Mark-to-market gains or losses on our invested assets are presented as “Investment related gains (losses)” on the Consolidated Statements of Operations. See Note 10 - Net Investment Income and Investment Related Gains (Losses) in the notes to the consolidated financial statements for additional details. Mark-to-market gains or losses on reinsurance funds withheld are included in “Net investment results from reinsurance funds withheld” and represent the change in fair value of the embedded derivative during the period. See Note 9 - Derivative Instruments in the notes to the consolidated financial statements for additional details.

Current wording

(2)“Mark-to-market losses (gains) on investments, including reinsurance funds withheld” primarily represent mark-to-market gains or losses on our investments and reinsurance funds withheld. Mark-to-market gains or losses on our invested assets are presented as “Investment related gains (losses)” on the Consolidated Statements of Operations. See Note 10 - Net Investment Income and Investment Related Gains (Losses) in the notes to the consolidated financial statements for additional details.

Previous wording

(2)“Mark-to-market losses (gains) on insurance contracts and other net assets” principally represents the mark-to-market effect on insurance-related liabilities, net of reinsurance, due to changes in market risks (e.g., interest rates, equity markets and equity index volatility) and includes depreciation expenses on investment real estate. These mark-to-market effects are primarily included in “Net investment income”, “Interest sensitive contract benefits”, “Change in fair value of insurance-related derivatives and embedded derivatives” and “Change in fair value of market risk benefits” on the Consolidated Statements of Operations. See the following notes to the consolidated financial statements for additional information: (i)Note 9 - Derivative Instruments; (ii)Note 10 - Net Investment Income and Investment Related Gains (Losses); (iii)Note 18 - Policyholders' Account Balances; and (iv)Note 19 - Market Risk Benefits.

Current wording

(3)“Mark-to-market losses (gains) on insurance contracts and other net assets” principally represents the mark-to-market effect on insurance-related liabilities, net of reinsurance, due to changes in market risks (e.g., interest rates, equity markets and equity index volatility). These mark-to-market effects are primarily included in “Interest sensitive contract benefits”, “Change in fair value of insurance-related derivatives and embedded derivatives” and “Change in fair value of market risk benefits” on the Consolidated Statements of Operations. See the following notes to the consolidated financial statements for additional information: (i)Note 9 - Derivative Instruments; (ii)Note 18 - Policyholders' Account Balances; and (iii)Note 19 - Market Risk Benefits.

Previous wording

(3)Included in “Mark-to-market losses (gains) on insurance contracts and other net assets” are “returns on equity invested in certain variable interest entities” and “our share of adjusted earnings from our investments in certain associates” as stated in the definition of DOE. “Returns on equity invested in certain variable interest entities” primarily represent equity-accounted income from our investments in real estate partnerships and investment funds and are included in “Net investment income” on the Consolidated Statements of Operations.

Current wording

(4)Included in “Mark-to-market losses (gains) on insurance contracts and other net assets” are “returns on equity invested in certain variable interest entities” and “our share of adjusted earnings from our investments in certain associates” as stated in the definition of DOE. “Returns on equity invested in certain variable interest entities” primarily represent equity-accounted income from our investments in real estate partnerships and investment funds and are included in “Net investment income” on the Consolidated Statements of Operations.

Previous wording

Value of business acquired (“VOBA”) is an intangible asset or liability resulting from a business combination that represents the difference between the policyholder liabilities measured in accordance with the acquiring company’s accounting policies and the estimated fair value of the same acquired policyholder liabilities in-force at the acquisition date. The estimated fair value of the acquired liabilities include assumptions on future policy benefits and contract charges, premiums, discount rates, and the net investment earned rate. VOBA can be either positive or negative. Positive VOBA is recorded in the “Deferred policy acquisition costs, deferred sales inducements and value of business acquired” line in the Consolidated Statements of Financial Position. Negative VOBA occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is less than the amount recorded as insurance contract liabilities, and is recorded in the “Future policy benefits” in the Consolidated Statements of Financial Position.

Current wording

Value of business acquired (“VOBA”)– VOBA is an intangible asset or liability resulting from a business combination that represents the difference between the policyholder liabilities measured in accordance with the acquiring company’s accounting policies and the estimated fair value of the same acquired policyholder liabilities in-force at the acquisition date. The estimated fair value of the acquired liabilities upon the acquisition includes assumptions on discount rate and the net investment earned rate. These assumptions are subject to inherent uncertainties and involve a significant level of management judgment and estimation and may have a material impact on our financial condition upon the initial recognition of VOBA. Refer to Note 16 - Acquisitions in the notes to the consolidated financial statements for additional details on VOBA.

Previous wording

The Company updates its estimate of cash flows over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions. The Company reviews and updates cash flow assumptions at least annually during the third quarter of each year, and at the same time every year by cohort or product. The Company also reviews more frequently and updates its cash flow assumptions during an interim period if evidence suggests cash flow assumptions should be revised. Assumption revisions will be reflected in the net premium ratio and FPB calculation in the quarter in which assumptions are revised. The change in the liability due to actual experience is recognized in “Policyholder benefits and claims incurred” in the Consolidated Statement of Operations.

Current wording

Future policy benefits (“FPB”) – Relate to long-duration insurance contracts such as deferred and immediate annuities with life contingencies, including our PRT contracts, and certain life products. Assumptions used in the establishment of the FPB, inclusive of associated reinsurance balances, include longevity, mortality and lapse rates as well as discount rates, which require significant judgment and may materially impact the valuation of these liabilities. The Company reviews and updates cash flow assumptions, including significant policyholder behavior assumptions, at least annually during the third quarter of each year, and at the same time every year by cohort or product. The Company also reviews more frequently and updates its cash flow assumptions during an interim period if evidence suggests cash flow assumptions should be revised.

Previous wording

Policyholders’ account balances (“PAB”) represent the contract value that has accrued to the benefit of the policyholders related to universal-life and investments-type contracts. For fixed products, these are generally equal to the accumulated deposits plus interest credited, reduced by withdrawals, payouts and accumulated policyholder assessments. Indexed product account balances with returns linked to the performance of a specified market index are equal to the sum of the host (or guaranteed) component of the contracts and the fair value of the embedded derivatives which include funded benefits in excess of the host guarantee. The host value is established at inception of the contract and accreted over the policy’s life at a constant level of interest. The fair value of the embedded derivative is estimated by projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and discounting the excess of the projected contract value amounts at the applicable risk-free interest rates adjusted for nonperformance risk related to those liabilities. Interest credited or index credits to policyholders’ account balances pursuant to accounting by insurance companies for certain long-duration contracts are included in “Interest sensitive contract benefits” in the Consolidated Statement of Operations. Changes in the fair value of the embedded derivatives are included in the “Change in fair value of insurance-related derivatives and embedded derivatives” in the Consolidated Statement of Operations.

Current wording

Embedded derivatives in policyholders’ account balances (“PAB”)– Our PAB liabilities relate to investment-type contracts and universal life-type policies. Our indexed product account balances with returns linked to the performance of a specified market index (e.g., fixed index annuity contracts and equity-indexed universal life policies) include an embedded derivative that is bifurcated from the host (or guaranteed) component of the contracts. The fair value of the embedded derivatives is estimated at each valuation date by (i) projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and (ii) discounting the excess of the projected contract value amounts at the applicable risk free interest rates adjusted for the Company’s non-performance risk related to those liabilities. Significant assumptions include option budget, lapse rates and non-performance risk.