ANG 10-Q Quarterly Report Sept. 30, 2023

AMERICAN NATIONAL GROUP INC.

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ael-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2023


☐			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 : 001-31911

American Equity Investment Life Holding Co mpany

(Exact name of registrant as specified in its charter)


Iowa						42-1447959
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6000 Westown Parkway

West Des Moines , Iowa 50266

(Address of principal executive offices, including zip code)

( 515 ) 221-0002

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $1

AEL

New York Stock Exchange

Depositary Shares, each representing a 1/1,000th interest in a share of 5.95% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series A

AELPRA

New York Stock Exchange

Depositary Shares, each representing a 1/1,000th interest in a share of 6.625% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series B

AELPRB

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☒ 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 the 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	☒	Accelerated filer	☐
Non-accelerated filer	☐	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 ☒

As of November 3, 2023, there were 79,024,826 shares of the registrant's common stock, $1 par value, outstanding.

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION
Item 1: Financial Statements:			2
Consolidated Balance Sheets			2
Consolidated Statements of Operations			4
Consolidated Statements of Comprehensive Income			5
Consolidated Statements of Changes in Stockholders’ Equity			6
Consolidated Statements of Cash Flows			8
Notes to Consolidated Financial Statements			10
Note 1. Significant Accounting Policies			10
Note 2. Fair Values of Financial Instruments			13
Note 3. Investments			20
Note 4. Mortgage Loans on Real Estate			25
Note 5. Variable Interest Entities			30
Note 6. Derivative Instruments			31
Note 7. Deferred Policy Acquisition Costs and Deferred Sales Inducements			34
Note 8. Policyholder Liabilities			35
Note 9. Notes and Loan Payable			41
Note 10. Commitments and Contingencies			41
Note 11. Earnings Per Common Share and Stockholders' Equity			42
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			44
Item 3: Quantitative and Qualitative Disclosures about Market Risk			68
Item 4: Controls and Procedures			69

PART II — OTHER INFORMATION
Item 1: Legal Proceedings			69
Item 1A: Risk Factors			69
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			72
Item 3: Defaults Upon Senior Securities			72
Item 4: Mine Safety Disclosures			72
Item 5: Other Information			72
Item 6: Exhibits			73

Signatures			74

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

(Unaudited)

	September 30, 2023		December 31, 2022 (a)
Assets
Investments:
Fixed maturity securities, available for sale, at fair value (amortized cost of $ 37,813,550 as of 2023 and $ 44,866,019 as of 2022; allowance for credit losses of $ 3,618 as of 2023 and $ 3,347 as of 2022)	$	32,084,932	$	39,804,617
Mortgage loans on real estate (net of allowance for credit losses of $ 45,082 as of 2023 and $ 36,972 as of 2022)	7,494,983		6,949,027
Real estate investments related to consolidated variable interest entities	1,302,185		1,056,063
Limited partnerships and limited liability companies (2023 and 2022 include $ 1,172,525 and $ 684,834 related to consolidated variable interest entities)	1,763,551		1,266,779
Derivative instruments	733,784		431,727
Other investments	1,207,672		1,817,085
Total investments	44,587,107		51,325,298

Cash and cash equivalents (2023 and 2022 include $ 41,982 and $ 27,235 related to consolidated variable interest entities)	10,188,438		1,919,669

Coinsurance deposits (net of allowance for credit losses of $ 5,490 as of 2023 and $ 8,737 as of 2022)	14,628,884		13,254,956

Market risk benefits	346,515		229,871

Accrued investment income (2023 and 2022 include $ 2,658 and $ 3,444 related to consolidated variable interest entities)	443,642		497,851
Deferred policy acquisition costs	2,933,304		2,773,643
Deferred sales inducements	2,257,064		2,045,683
Deferred income taxes	425,398		438,434
Income taxes recoverable	55,498		55,498
Other assets (2023 and 2022 include $ 17,426 and $ 10,690 related to consolidated variable interest entities)	847,047		642,696
Total assets	$	76,712,897	$	73,183,599

Table of Contents


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

(Unaudited)

	September 30, 2023		December 31, 2022 (a)
Liabilities and Stockholders' Equity
Liabilities:
Policy benefit reserves	$	60,226,094	$	58,781,836
Market risk benefits	2,552,907		2,455,492
Other policy funds and contract claims	196,299		512,790

Notes and loan payable	787,098		792,073
Subordinated debentures	79,017		78,753



Funds withheld for reinsurance liabilities	8,139,724		6,577,426
Other liabilities (2023 and 2022 include $ 91,734 and $ 78,644 related to consolidated variable interest entities)	2,655,213		1,614,479
Total liabilities	74,636,352		70,812,849

Stockholders' equity:
Preferred stock, Series A; par value $ 1 per share; $ 400,000 aggregate liquidation preference; 20,000 shares authorized; issued and outstanding: 2023 and 2022 - 16,000 shares	16		16
Preferred stock, Series B; par value $ 1 per share; $ 300,000 aggregate liquidation preference; 12,000 shares authorized; issued and outstanding: 2023 and 2022 - 12,000 shares	12		12
Common stock; par value $ 1 per share; 200,000,000 shares authorized; issued and outstanding: 2023 - 78,974,095 shares (excluding 30,971,013 treasury shares); 2022 - 84,810,255 shares (excluding 24,590,353 treasury shares)	78,974		84,810
Additional paid-in capital	1,071,907		1,325,316
Accumulated other comprehensive loss	( 4,425,695 )		( 3,746,230 )
Retained earnings	5,328,362		4,685,593
Total stockholders' equity attributable to American Equity Investment Life Holding Company	2,053,576		2,349,517
Noncontrolling interests	22,969		21,233
Total stockholders' equity	2,076,545		2,370,750
Total liabilities and stockholders' equity	$	76,712,897	$	73,183,599

(a) Certain prior period amounts have been recast. See Note 1 - Significant Accounting Policies for more information.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022 (a)		2023		2022 (a)
Revenues:
Premiums and other considerations	$	2,657	$	2,839	$	9,310	$	16,748
Annuity product charges	84,316		60,819		218,549		168,688
Net investment income	586,614		609,737		1,690,622		1,769,468
Change in fair value of derivatives	( 383,026 )		( 176,671 )		( 94,397 )		( 1,160,371 )
Net realized losses on investments	( 44,672 )		( 15,860 )		( 97,138 )		( 62,259 )
Other revenue	20,763		10,988		53,893		29,213

Total revenues	266,652		491,852		1,780,839		761,487

Benefits and expenses:
Insurance policy benefits and change in future policy benefits (remeasurement gains (losses) of future policy benefit reserves of $ 463 and $ 369 for three months ended and $ 1,814 and $ 1,144 for nine months ended September 30, 2023 and 2022, respectively)	2,193		6,659		14,526		27,272
Interest sensitive and index product benefits	193,686		68,982		373,984		497,245

Market risk benefits (gains) losses	( 296,114 )		77,579		( 256,544 )		( 29,806 )

Amortization of deferred sales inducements	48,354		46,223		141,906		136,004
Change in fair value of embedded derivatives	( 451,806 )		( 415,374 )		166,398		( 2,695,007 )
Interest expense on notes and loan payable	12,003		8,984		34,248		21,870
Interest expense on subordinated debentures	1,340		1,333		4,014		3,996
Amortization of deferred policy acquisition costs	70,561		71,726		207,272		217,180
Other operating costs and expenses	76,630		59,470		226,331		177,137
Total benefits and expenses	( 343,153 )		( 74,418 )		912,135		( 1,644,109 )
Income before income taxes	609,805		566,270		868,704		2,405,596
Income tax expense	133,691		121,380		193,335		517,952
Net income	476,114		444,890		675,369		1,887,644
Less: Net income (loss) available to noncontrolling interests	( 42 )		1		( 156 )		( 3 )
Net income available to American Equity Investment Life Holding Company stockholders	476,156		444,889		675,525		1,887,647
Less: Preferred stock dividends	10,918		10,918		32,756		32,756
Net income available to American Equity Investment Life Holding Company common stockholders	$	465,238	$	433,971	$	642,769	$	1,854,891


Earnings per common share	$	5.96	$	4.95	$	8.06	$	20.09
Earnings per common share - assuming dilution	$	5.82	$	4.90	$	7.92	$	19.89

Weighted average common shares outstanding (in thousands):
Earnings per common share	78,034		87,707		79,719		92,339
Earnings per common share - assuming dilution	79,952		88,581		81,191		93,270

(a) Certain prior period amounts have been recast. See Note 1 - Significant Accounting Policies for more information.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022 (a)		2023		2022 (a)
Net income	$	476,114	$	444,890	$	675,369	$	1,887,644
Other comprehensive loss:
Change in net unrealized investment gains/losses	( 1,057,565 )		( 2,267,314 )		( 627,163 )		( 9,702,989 )
Change in current discount rate for liability for future policy benefits	6,919		17,558		7,470		74,239
Change in instrument-specific credit risk for market risk benefits	( 176,701 )		40,787		( 205,605 )		576,262
Reclassification of unrealized investment gains/losses to net income	( 38,484 )		( 9,903 )		( 34,226 )		( 31,990 )
Other comprehensive loss before income tax	( 1,265,831 )		( 2,218,872 )		( 859,524 )		( 9,084,478 )
Income tax effect related to other comprehensive loss	265,384		465,970		180,059		1,907,435
Other comprehensive loss	( 1,000,447 )		( 1,752,902 )		( 679,465 )		( 7,177,043 )
Comprehensive loss	$	( 524,333 )	$	( 1,308,012 )	$	( 4,096 )	$	( 5,289,399 )

(a) Certain prior period amounts have been recast. See Note 1 - Significant Accounting Policies for more information.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)


	Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Noncontrolling Interest		Total Stockholders' Equity
For the three months ended September 30, 2023
Balance at June 30, 2023	$	28	$	78,048	$	1,055,963	$	( 3,425,248 )	$	4,863,124	$	23,126	$	2,595,041
Net income (loss) for period	—		—		—		—		476,156		( 42 )		476,114
Other comprehensive loss	—		—		—		( 1,000,447 )		—		—		( 1,000,447 )

Share-based compensation	—		—		10,263		—		—		—		10,263
Issuance of common stock	—		926		19,188		—		—		—		20,114
Treasury stock acquired, common	—		—		( 13,507 )		—		—		—		( 13,507 )
Dividends on preferred stock	—		—		—		—		( 10,918 )		—		( 10,918 )
Contributions (distributions) from noncontrolling interests	—		—		—		—		—		( 115 )		( 115 )
Balance at September 30, 2023	$	28	$	78,974	$	1,071,907	$	( 4,425,695 )	$	5,328,362	$	22,969	$	2,076,545

	Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Noncontrolling Interest		Total Stockholders' Equity
For the three months ended September 30, 2022 (a)
Balance at June 30, 2022	$	28	$	90,169	$	1,507,601	$	( 2,231,594 )	$	4,260,174	$	1,169	$	3,627,547
Net income for period	—		—		—		—		444,889		1		444,890
Other comprehensive loss	—		—		—		( 1,752,902 )		—		—		( 1,752,902 )

Share-based compensation	—		—		4,288		—		—		—		4,288
Issuance of common stock	—		19		—		—		—		—		19
Treasury stock acquired, common	—		( 4,221 )		( 149,867 )		—		—		—		( 154,088 )
Dividends on preferred stock	—		—		—		—		( 10,918 )		—		( 10,918 )
Contributions (distributions) from noncontrolling interests	—		—		—		—		—		1,760		1,760
Balance at September 30, 2022	$	28	$	85,967	$	1,362,022	$	( 3,984,496 )	$	4,694,145	$	2,930	$	2,160,596

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)



	Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Noncontrolling Interest		Total Stockholders' Equity
For the nine months ended September 30, 2023
Balance at December 31, 2022	$	28	$	84,810	$	1,325,316	$	( 3,746,230 )	$	4,685,593	$	21,233	$	2,370,750
Net income (loss) for period	—		—		—		—		675,525		( 156 )		675,369
Other comprehensive loss	—		—		—		( 679,465 )		—		—		( 679,465 )

Share-based compensation	—		—		31,140		—		—		—		31,140
Issuance of common stock	—		1,432		17,815		—		—		—		19,247
Treasury stock acquired, common	—		( 7,268 )		( 302,364 )		—		—		—		( 309,632 )

Dividends on preferred stock	—		—		—		—		( 32,756 )		—		( 32,756 )
Contributions (distributions) from noncontrolling interests	—		—		—		—		—		1,892		1,892
Balance at September 30, 2023	$	28	$	78,974	$	1,071,907	$	( 4,425,695 )	$	5,328,362	$	22,969	$	2,076,545

	Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Noncontrolling Interest		Total Stockholders' Equity
For the nine months ended September 30, 2022 (a)
Balance at December 31, 2021	$	28	$	92,514	$	1,614,374	$	3,192,547	$	2,839,254	$	—	$	7,738,717
Net income (loss) for period	—		—		—		—		1,887,647		( 3 )		1,887,644
Other comprehensive loss	—		—		—		( 7,177,043 )		—		—		( 7,177,043 )

Share-based compensation	—		—		10,708		—		—		—		10,708
Issuance of common stock	—		7,071		245,790		—		—		—		252,861
Treasury stock acquired, common	—		( 13,618 )		( 508,850 )		—		—		—		( 522,468 )

Dividends on preferred stock	—		—		—		—		( 32,756 )		—		( 32,756 )
Contributions (distributions) from noncontrolling interests	—		—		—		—		—		2,933		2,933
Balance at September 30, 2022	$	28	$	85,967	$	1,362,022	$	( 3,984,496 )	$	4,694,145	$	2,930	$	2,160,596

(a) Certain prior period amounts have been recast. See Note 1 - Significant Accounting Policies for more information.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022 (a)
Operating activities
Net income	$	675,369	$	1,887,644
Adjustments to reconcile net income to net cash provided by operating activities:
Interest sensitive and index product benefits	373,984		497,245
Amortization of deferred sales inducements	141,906		136,004
Annuity product charges	( 218,549 )		( 168,688 )
Change in fair value of embedded derivatives	166,398		( 2,695,007 )

Change in traditional life and accident and health insurance reserves	( 20,483 )		( 79,410 )
Policy acquisition costs deferred	( 366,933 )		( 146,934 )
Amortization of deferred policy acquisition costs	207,272		217,180
Provision for depreciation and other amortization	6,067		12,845
Amortization of discounts and premiums on investments	111,158		637
Realized gains/losses on investments	97,138		62,259
Distributions from equity method investments	74,279		5,098
Change in fair value of derivatives	94,397		1,160,371
Deferred income taxes	193,095		467,262

Share-based compensation	31,140		10,708
Change in accrued investment income	54,209		( 71,552 )
Change in income taxes recoverable/payable	—		62,748
Change in other assets	( 265,443 )		( 40,000 )
Change in other policy funds and contract claims	( 320,461 )		35,328
Change in market risk benefits, net	( 259,303 )		28,154
Change in collateral held for derivatives	305,709		( 905,799 )

Change in funds withheld from reinsurers	1,646,394		629,251
Change in other liabilities	341,031		166,999
Other	( 38,772 )		( 147,248 )
Net cash provided by operating activities	3,029,602		1,125,095

Investing activities
Sales, maturities, or repayments of investments:
Fixed maturity securities, available for sale	10,450,819		5,136,412


Mortgage loans on real estate	1,155,655		1,572,420
Real estate investments sold	2,973		—
Derivative instruments	296,933		577,772
Other investments	1,145,777		440,079
Acquisitions of investments:
Fixed maturity securities, available for sale	( 3,079,148 )		( 5,238,533 )


Mortgage loans on real estate	( 1,814,544 )		( 2,408,977 )
Real estate investments acquired	( 260,101 )		( 611,881 )
Derivative instruments	( 723,356 )		( 586,804 )
Other investments	( 1,344,537 )		( 1,123,295 )
Purchases of property, furniture and equipment	( 36,034 )		( 34,215 )
Net cash provided by (used in) investing activities	5,794,437		( 2,277,022 )

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022 (a)
Financing activities
Receipts credited to annuity policyholder account balances	$	5,608,928	$	2,416,692
Coinsurance deposits	( 824,085 )		( 241,746 )
Return of annuity policyholder account balances	( 5,027,817 )		( 3,724,169 )



Repayment of loan payable	( 5,475 )		( 1,875 )
Proceeds from issuance of loan payable	—		300,000




Acquisition of treasury stock	( 309,632 )		( 522,468 )

Proceeds from issuance of common stock, net	19,247		252,861
Change in checks in excess of cash balance	16,320		4,538
Dividends paid on preferred stock	( 32,756 )		( 32,756 )
Net cash used in financing activities	( 555,270 )		( 1,548,923 )
Increase (decrease) in cash and cash equivalents	8,268,769		( 2,700,850 )
Cash and cash equivalents at beginning of period	1,919,669		4,508,982
Cash and cash equivalents at end of period	$	10,188,438	$	1,808,132

Supplemental disclosures of cash flow information
Cash paid during period for:
Interest expense	$	31,098	$	16,250
Income taxes	1,899		4,873
Income tax refunds received	53		17,187

Non-cash operating activity:
Deferral of sales inducements	353,287		74,074

(a) Certain prior period amounts have been recast. See Note 1 - Significant Accounting Policies for more information.

See accompanying notes to unaudited consolidated financial statements.

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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

1. Significant Accounting Policies

Consolidation and Basis of Presentation

The accompanying consolidated financial statements of American Equity Investment Life Holding Company ("we", "us", "our" or the "Company") have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include variable interest entities (“VIE”) in which we are the primary beneficiary. All of the adjustments in the consolidated financial statements are normal recurring items which are necessary to present fairly our financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for the three and nine month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for any other period, including for the year ended December 31, 2023. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements requires management estimates and assumptions using subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Our actual results could differ from these estimates. For further information related to a description of areas of judgment and estimates and other information necessary to understand our financial position and results of operations, refer to the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Adopted Accounting Pronouncements

Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the Financial Accounting Standards Board ("FASB") issued an accounting standards update ("ASU") on troubled debt restructurings ("TDR") and vintage disclosures related to current period gross write-offs and recoveries. This guidance eliminates the accounting guidance for TDRs by creditors and enhances disclosure requirements for certain refinancing and restructuring of loans by creditors when a borrower is experiencing financial difficulty. The guidance also requires companies to disclosure current-period gross write-offs by year of origination for financing receivables and net investments in leases. This ASU was adopted on January 1, 2023 and will be applied prospectively. This guidance did not have a material impact on our consolidated financial statements.

Targeted Improvements to the Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued an ASU that revises certain aspects of the measurement models and disclosure requirements for long duration insurance and investment contracts. The FASB’s objective in issuing this ASU is to improve, simplify, and enhance the accounting for long-duration contracts. The revisions include updating cash flow assumptions in the calculation of the liability for traditional life products, introducing the term ‘market risk benefit’ (“MRB”) and requiring all contract features meeting the definition of an MRB to be measured at fair value with the change in fair value recognized in net income excluding the change in fair value related to our own-credit risk which is recognized in AOCI and simplifying the method used to amortize deferred policy acquisition costs and deferred sales inducements to a constant level basis over the expected term of the related contracts rather than based on actual and estimated gross profits and enhancing disclosure requirements. While this ASU was effective for us January 1, 2023, the transition date (the remeasurement date) was January 1, 2021. We adopted the guidance for the liability for future policyholder benefits, deferred acquisition costs, and deferred sales inducements on a modified retrospective basis such that those balances were adjusted to conform to ASU 2018-12 on January 1, 2021. The guidance for market risk benefits was applied retrospectively. Below are the transition date impacts for each of these items.


	Liability for Future Policy Benefits for Payout Annuity With Life Contingency
	(Dollars in thousands)
Pre-adoption 1/1/2021 balance	$	337,467
Adjustment to opening retained earnings for expected future policy benefits	2,566
Adjustment for the effect of remeasurement of liability at current single A rate	68,717
Post adoption 1/1/2021 balance	$	408,750

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	Market Risk Benefit Liability
	(Dollars in thousands)
Pre-adoption 1/1/2021 carrying amount for features now classified as MRBs	$	2,547,231
Adjustment for the removal of shadow adjustments	( 584,636 )
Adjustment for the cumulative effect of the changes in the instrument-specific credit risk between the original contract issuance date and the transition date	229,108
Adjustment for the remaining difference between previous carrying amount and fair value measurement for the MRB, exclusive of the instrument specific credit risk	33,781
Post adoption 1/1/2021 MRB balance	$	2,225,484


	Ceded Market Risk Benefit (a)
	(Dollars in thousands)
Pre-adoption 1/1/2021 carrying amount for features now classified as MRBs	$	62,108
Adjustment for the difference between previous carrying amount and fair value measurement for the MRB, exclusive of the instrument specific credit risk	27,230
Post adoption 1/1/2021 ceded MRB balance	$	89,338

(a) The ceded market risk benefit is recognized in coinsurance deposits on the Consolidated Balance Sheets.


	Deferred Policy Acquisition Costs
	Fixed Index Annuities and Fixed Rate Annuities
	(Dollars in thousands)
Pre-adoption 1/1/2021 balance	$	2,225,199
Adjustments for the removal of shadow adjustments	1,183,306
Post adoption 1/1/2021 balance	$	3,408,505


	Deferred Sales Inducements
	Fixed Index Annuities and Fixed Rate Annuities
	(Dollars in thousands)
Pre-adoption 1/1/2021 balance	$	1,448,375
Adjustments for the removal of shadow adjustments	768,310
Post adoption 1/1/2021 balance	$	2,216,685

For deferred acquisition costs, the Company removed shadow adjustments previously recorded in accumulated other comprehensive income for the impact of unrealized gains and losses that were included in the pre-ASU 2018-12 expected gross profits amortization calculation as of the transition date.

As a result of the adoption of ASU 2018-12, the Company decreased beginning retained earnings by $ 7.2 million and increased accumulated other comprehensive income by $ 1.8 billion as of January 1, 2021.

Certain amounts in the prior years' consolidated financial statements and related footnotes thereto have been recast, to the extent impacted by ASU 2018-12, to conform to the new guidance.

Market Risk Benefits Accounting Policy

Market risk benefits (MRBs) are contracts or contract features that both provide protection to the policyholder from other-than-nominal capital market risk and expose the Company to other-than-nominal capital market risk. We issue certain fixed indexed annuity and fixed rate annuity contracts that provide minimum guarantees to policyholders including guaranteed minimum withdrawal benefits (GMWB) and guaranteed minimum death benefits (GMDB) that are MRBs.

MRBs are measured at fair value, at the individual contract level, and can be either an asset or a liability. Contracts which contain more than one MRB feature are combined into one single MRB. The fair value is calculated using stochastic models that include a risk margin and incorporate a spread for our instrument specific credit risk. At contract inception, attributed fees are calculated based on the present value of the fees and assessments collectible from the policyholder relative to the present value of expected benefits paid attributable to the MRB. The attributed fees remain static over the life of the MRB and is used to calculate the fair value of the MRB using a risk neutral valuation method. The attributed fees cannot be negative and cannot exceed the total explicit fees collectible from the policyholder.

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The MRB assets and liabilities are presented separately on the Consolidated Balance Sheets. The ceded MRB assets are presented in coinsurance deposits on the Consolidated Balance Sheets. Changes in fair value of the MRB are recognized in market risk benefits (gains) losses on the Consolidated Statements of Operations each period with the exception of the portion of the change in fair value related to a changes in our nonperformance risk, which is recognized in other comprehensive income (OCI). See Note 8 - Policyholder Liabilities for more information on MRBs.

Deferred Policy Acquisition Costs (DAC) and Deferred Sales Inducements (DSI) Accounting Policy

The Company incurs costs in connection with acquiring new and renewal business. The portion of these costs which are incremental and direct to the acquisition of a new or renewal policy are deferred as they are incurred. DAC and DSI are amortized on a constant level basis over the expected term of the contracts based on projected policy counts. Contracts are grouped consistent with the grouping used in the estimating of the liability. The assumptions used in the calculation of DAC and DSI include full surrenders, partial withdrawals, mortality, utilization and reset assumptions associated with lifetime income benefit riders, and the option budget assumption. If the actual experience is different from our expectations, the amortization pattern is adjusted prospectively. See Note 7 - Deferred Policy Acquisition Costs and Deferred Sales Inducements for more information on DAC and DSI.

Liability for Future Policy Benefits Accounting Policy

A liability for future policy benefits is recorded for our traditional limited-payment insurance contracts and is generally equal to the present value of expected future policy benefit payments. The present value calculation uses assumptions for mortality, morbidity, termination, and expense. The contracts are grouped into cohorts based on issue year and product type.

The liability for future policy benefits is discounted using an upper-medium grade fixed-income instrument yield that reflects the duration characteristics of the liabilities and maximizes the use of observable data. The discount rate is updated each reporting period and any changes in the liability resulting from changes in the upper medium grade fixed income instrument yield are recognized in AOCI. Any changes to the liability as a result of assumption changes will be recognized as remeasurement gains (losses) in insurance policy benefits and change in future policy benefits in the Consolidated Statement of Operations. See Note 8 - Policyholder Liabilities for more information on the liability for future policy benefits.

ASU 2018-12 also requires disaggregated roll forwards for the liability for future policy benefits, MRBs, DAC and DSI. We disaggregated the roll forwards by product type consistent with how we internally view our business.

Agreement and Plan of Merger

On July 4, 2023, American Equity Investment Life Holding Company entered into an Agreement and Plan of Merger (the "Agreement") with Brookfield Reinsurance Ltd. The Agreement provides that each issued and outstanding share of AEL common stock will be converted into the right to receive $ 38.85 per share in cash and a number of fully-paid and nonassessable share of class A limited voting shares of Brookfield Asset Management Ltd (BAM) equal to the Exchange Ratio as defined in the Agreement. The Exchange Ratio is subject to adjustment based on the 10-day volume-weighted average share price of BAM Class A Stock with total consideration ranging between $ 54.00 and $ 56.50 per share. The Agreement does not provide for the payment of any consideration with respect to the issued and outstanding shares of AEL Series A and Series B preferred stock. As such, these shares will be unaffected by the Agreement and will remain outstanding.

The closing of the Agreement is subject to a number of contingencies, including (1) receipt of American Equity Investment Life Holding Company shareholder approval, (2) receipt of certain regulatory approvals, (3) the absence of any injunction or restraint making illegal or otherwise prohibiting the consummation of the merger, (4) the effectiveness of the applicable registration statement on Form F-4 to be filed by BAM and (5) listing approval of the shares of BAM Class A Stock on the New York Stock Exchange and the Toronto Stock Exchange. BAM’s obligations to close the merger are also conditioned upon the absence of a Company Material Adverse Effect (as defined in the Agreement) and the absence of the imposition of a Burdensome Condition (as defined in the Agreement) by any regulator as part of the regulatory approval process. The Agreement contains Company representations and warranties and provides for pre-closing covenants, including, subject to certain exceptions, covenants relating to the conduct by the Company in the ordinary course consistent with past practice.

The closing of the merger may not occur prior to January 5, 2024, unless BAM's parent agrees otherwise. The Agreement also provides termination rights for each of the Company and BAM, including, among others, in the event the closing of the merger does not occur on or before April 4, 2024, subject to extension under certain circumstances be extended. Should the Agreement be terminated under certain circumstances, the Company may be required to pay BAM's parent a termination fee of $ 102 million.

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2. Fair Values of Financial Instruments

The following sets forth a comparison of the carrying amounts and fair values of our financial instruments:


	September 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Assets
Fixed maturity securities, available for sale	$	32,084,932	$	32,084,932	$	39,804,617	$	39,804,617
Mortgage loans on real estate	7,494,983		6,920,180		6,949,027		6,502,463
Real estate investments	1,191,255		1,191,255		1,056,063		1,056,063
Limited partnerships and limited liability companies	1,172,525		1,172,525		684,835		684,835
Derivative instruments	733,784		733,784		431,727		431,727
Other investments	1,207,672		1,207,672		1,817,085		1,817,085
Cash and cash equivalents	10,188,438		10,188,438		1,919,669		1,919,669
Coinsurance deposits	14,628,884		13,723,689		13,254,956		12,640,797
Market risk benefits	346,515		346,515		229,871		229,871


Liabilities
Policy benefit reserves	59,884,652		56,592,975		58,419,911		55,572,896
Market risk benefits	2,552,907		2,552,907		2,455,492		2,455,492
Single premium immediate annuity (SPIA) benefit reserves	195,757		204,102		212,119		221,130
Other policy funds - FHLB	—		—		300,000		300,000
Notes and loan payable	787,098		761,550		792,073		774,220
Subordinated debentures	79,017		80,060		78,753		87,293

Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The objective of a fair value measurement is to determine that price for each financial instrument at each measurement date. We meet this objective using various methods of valuation that include market, income and cost approaches.

We categorize our financial instruments into three levels of fair value hierarchy based on the priority of inputs used in determining fair value. The hierarchy defines the highest priority inputs (Level 1) as quoted prices in active markets for identical assets or liabilities. The lowest priority inputs (Level 3) are our own assumptions about what a market participant would use in determining fair value such as estimated future cash flows. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. We categorize financial assets and liabilities recorded at fair value in the consolidated balance sheets as follows:

Level 1 – Quoted prices are available in active markets for identical financial instruments as of the reporting date. We do not adjust the quoted price for these financial instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.

Level 2 – Quoted prices in active markets for similar financial instruments, quoted prices for identical or similar financial instruments in markets that are not active; and models and other valuation methodologies using inputs other than quoted prices that are observable.

Level 3 – Models and other valuation methodologies using significant inputs that are unobservable for financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in Level 3 are securities for which no market activity or data exists and for which we used discounted expected future cash flows with our own assumptions about what a market participant would use in determining fair value.

NAV – Our consolidated limited partnership funds are typically measured using NAV as a practical expedient in determining fair value and are not classified in the fair value hierarchy. Our carrying value reflects our pro rata ownership percentage as indicated by NAV in the investment fund financial statements and is recorded on a quarter lag due to the timing of when financial statements are available.

Transfers of securities among the levels occur at times and depend on the type of inputs used to determine fair value of each security. We record transfers between levels as of the beginning of the reporting period.

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Our assets and liabilities which are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 are presented below based on the fair value hierarchy levels:


	Total Fair Value		NAV		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
September 30, 2023
Assets
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	162,885	$	—	$	27,068	$	135,817	$	—
States, municipalities and territories	2,564,670		—		—		2,442,796		121,874
Foreign corporate securities and foreign governments	428,227		—		—		428,227		—
Corporate securities	19,211,380		—		—		18,959,540		251,840
Residential mortgage backed securities	1,342,984		—		—		1,342,984		—
Commercial mortgage backed securities	2,983,030		—		—		2,983,030		—
Other asset backed securities	5,391,756		—		—		4,638,696		753,060
Other investments	724,223		—		390,923		333,300		—
Real estate investments	1,191,255		—		—		—		1,191,255
Limited partnerships and limited liability companies	1,172,525		1,023,691		—		—		148,834
Derivative instruments	733,784		—		—		733,784		—
Cash and cash equivalents	10,188,438		—		10,188,438		—		—


Market risk benefits (a)	346,515		—		—		—		346,515
	$	46,441,672	$	1,023,691	$	10,606,429	$	31,998,174	$	2,813,378
Liabilities
Funds withheld liability - embedded derivative	$	( 525,960 )	$	—	$	—	$	—	$	( 525,960 )
Fixed index annuities - embedded derivatives	4,604,191		—		—		—		4,604,191
Market risk benefits (a)	2,552,907		—		—		—		2,552,907
	$	6,631,138	$	—	$	—	$	—	$	6,631,138

December 31, 2022
Assets
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	169,071	$	—	$	26,184	$	142,887	$	—
States, municipalities and territories	3,822,982		—		—		3,822,982		—
Foreign corporate securities and foreign governments	676,852		—		—		676,852		—
Corporate securities	24,161,921		—		—		23,759,573		402,348
Residential mortgage backed securities	1,377,611		—		—		1,377,611		—
Commercial mortgage backed securities	3,687,478		—		—		3,687,478		—
Other asset backed securities	5,908,702		—		—		5,465,784		442,918
Other investments	1,013,297		—		398,280		615,017		—
Real estate investments	940,559		—		—		—		940,559
Limited partnerships and limited liability companies	684,835		620,626		—		—		64,209
Derivative instruments	431,727		—		—		431,727		—
Cash and cash equivalents	1,919,669		—		1,919,669		—		—


Market risk benefits (a)	229,871		—		—		—		229,871
	$	45,024,575	$	620,626	$	2,344,133	$	39,979,911	$	2,079,905
Liabilities
Funds withheld liability - embedded derivative	$	( 441,864 )	$	—	$	—	$	—	$	( 441,864 )
Fixed index annuities - embedded derivatives	4,820,845		—		—		—		4,820,845
Market risk benefits (a)	2,455,492		—		—		—		2,455,492
	$	6,834,473	$	—	$	—	$	—	$	6,834,473

(a) See Note 8 - Policyholder Liabilities for additional information related to market risk benefits, including the balances of and changes in market risk benefits as well as significant inputs and assumptions used in the fair value measurements of market risk benefits.

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The following methods and assumptions were used in estimating the fair values of financial instruments during the periods presented in these consolidated financial statements.

Fixed maturity securities

The fair values of fixed maturity securities in an active and orderly market are determined by utilizing independent pricing services. The independent pricing services incorporate a variety of observable market data in their valuation techniques, including:

• reported trading prices,

• benchmark yields,

• broker-dealer quotes,

• benchmark securities,

• bids and offers,

• credit ratings,

• relative credit information, and

• other reference data.

The independent pricing services also take into account perceived market movements and sector news, as well as a security's terms and conditions, including any features specific to that issue that may influence risk and marketability. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary.

The independent pricing services provide quoted market prices when available. Quoted prices are not always available due to market inactivity. When quoted market prices are not available, the third parties use yield data and other factors relating to instruments or securities with similar characteristics to determine fair value for securities that are not actively traded. We generally obtain one value from our primary external pricing service. In situations where a price is not available from this service, we may obtain quotes or prices from additional parties as needed. Market indices of similar rated asset class spreads are considered for valuations and broker indications of similar securities are compared. Inputs used by the broker include market information, such as yield data and other factors relating to instruments or securities with similar characteristics. Valuations and quotes obtained from third party commercial pricing services are non-binding and do not represent quotes on which one may execute the disposition of the assets.

We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, comparison of the prices to a secondary pricing source, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. Additionally, as needed we utilize discounted cash flow models or perform independent valuations on a case-by-case basis using inputs and assumptions similar to those used by the pricing services. Although we do identify differences from time to time as a result of these validation procedures, we did not make any significant adjustments as of September 30, 2023 and December 31, 2022.

Fixed maturity security valuations that include at least one significant unobservable input are reflected in Level 3 in the fair value hierarchy and can include fixed maturity securities across all asset classes. Quantitative information about the significant unobservable inputs used are provided below for fixed maturity securities that were either valued internally or were valued by a third party and the inputs were reasonably available. The fair value of corporate securities that utilized at least one significant unobservable input were $ 77.7 million and $ 84.7 million as of September 30, 2023 and December 31, 2022, respectively. A discounted cash flow methodology was utilized in the valuation, which included an unobservable liquidity premium of 20 basis points being incorporated along with other observable market data. The fair value of other asset backed securities that utilized at least one significant unobservable input was $ 604.5 million and $ 296.8 million as of September 30, 2023 and December 31, 2022, respectively. A discounted cash flow methodology was utilized in the valuation, which included unobservable discount rates and weighted average lives being incorporated along with other observable market data. At September 30, 2023, the discount rates used in the fair value calculations ranged from 5.87 % to 25.00 % with a weighted average rate of 7.31 %. The weighted average lives used in the fair value calculations ranged from 1.20 years to 12.27 years with a weighted average of 5.91 years. At December 31, 2022, the discount rates used in the fair value calculations ranged from 4.04 % to 28.58 % with a weighted average rate of 4.36 %. The weighted average lives used in the fair value calculations ranged from 8.79 years to 12.48 years with an average of 9.29 years.

Mortgage loans on real estate

Mortgage loans on real estate are not measured at fair value on a recurring basis. The fair values of mortgage loans on real estate are calculated using discounted expected cash flows using competitive market interest rates currently being offered for similar loans. The fair values of impaired mortgage loans on real estate that we have considered to be collateral dependent are based on the fair value of the real estate collateral (based on appraised values) less estimated costs to sell. The inputs utilized to determine fair value of all mortgage loans are unobservable market data (competitive market interest rates); therefore, fair value of mortgage loans falls into Level 3 in the fair value hierarchy.

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Real estate investments

The fair values of residential real estate investments held through consolidation of investment company VIEs are initially calculated based on the cost to purchase the properties and subsequently calculated based on a discounted cash flow methodology. Under the discounted cash flow method, net operating income is forecasted assuming a 10 -year hold period commencing as of the valuation date. An additional year is forecasted in order to determine the residual sale price at the end of the hold period, using a residual (terminal) capitalization rate. The significant inputs into the fair value calculation under the discounted cash flow method include the residual capitalization rate and discount rate. These inputs are unobservable market data; therefore, fair value of residential real estate investments falls into Level 3 in the fair value hierarchy. As of September 30, 2023, the residual capitalization rates used in the fair value calculations ranged from 4.75 % to 6.50 % with an average rate of 5.41 %. As of December 31, 2022, the residual capitalization rates used in the fair value calculations ranged from 4.75 % to 6.50 % with an average rate of 5.44 %. As of September 30, 2023, the discount rates used in the fair value calculations ranged from 6.00 % to 7.88 % with an average rate of 6.84 %. As of December 31, 2022, the discount rates used in the fair value calculations ranged from 6.00 % to 8.00 % with an average rate of 6.91 %.

Limited partnerships and limited liability companies

Two of our consolidated variable interest entities, which are fair valued on a recurring basis, invest in limited liability companies that invest in operating entities which hold multifamily real estate properties. The fair value of these variable interest entities were $ 49.8 million and $ 64.2 million as of September 30, 2023 and December 31, 2022, respectively, and falls within Level 3 of the fair value hierarchy. The fair value of the limited liability companies was obtained from a third party and is based on the fair value of the underlying real estate held by the various operating entities. The real estate is initially calculated based on the cost to purchase the properties and subsequently calculated based on a discounted cash flow methodology. As of September 30, 2023, the residual capitalization rates used in the fair value calculations of the underlying real estate ranged from 5.00 % to 5.00 % with a weighted average rate of 5.00 %. As of December 31, 2022, the residual capitalization rates used in the fair value calculations of the underlying real estate ranged from 4.25 % to 4.75 % with a weighted average rate of 4.46 %. As of September 30, 2023, the discount rates used in the fair value calculations of the underlying real estate ranged from 6.50 % to 6.50 % with a weighted average rate of 6.50 %. As of December 31, 2022, the discount rates used in the fair value calculations of the underlying real estate ranged from 5.75 % to 6.00 % with a weighted average rate of 5.86 %. The fair value of this investment falls within Level 3 of the fair value hierarchy.

During the year, we purchased an investment in an infrastructure limited liability company through a consolidated VIE that is measured at fair value on a recurring basis. There have been no significant changes to inputs since the purchase date, and therefore, the cost to purchase the investment of $ 100 million approximates fair value as of September 30, 2023, and falls within Level 3 of the fair value hierarchy.

Each of our consolidated limited partnership funds, which are measured using NAV as a practical expedient, are closed-end funds that invest in infrastructure credit assets and tech-centric middle-market loans, respectively. Redemptions are not allowed until the funds’ termination dates and liquidations begin. As of September 30, 2023 and December 31, 2022, our unfunded commitments for our consolidated limited partnership funds were $ 510.6 million and $ 926.3 million, respectively.

Derivative instruments

The fair values of our call options are based upon the amount of cash that we will receive to settle each derivative instrument on the reporting date. These amounts are determined by our investment team using industry accepted valuation models and are adjusted for the nonperformance risk of each counterparty net of any collateral held. Inputs include market volatility and risk free interest rates and are used in income valuation techniques in arriving at a fair value for each option contract. The nonperformance risk for each counterparty is based upon its credit default swap rate. We have no performance obligations related to the call options purchased to fund our fixed index annuity policy liabilities.

The fair values of our pay fixed/receive float interest rate swaps are determined using internal valuation models that generate discounted expected future cash flows by constructing a projected Secured Overnight Financing Rate (SOFR) curve over the term of the swap.

Other investments

Certain financial instruments included in other investments are measured at fair value on a recurring basis. The fair value for these investments are determined using the same methods discussed above for fixed maturity securities.

Financial instruments included in other investments that are not measured at fair value on a recurring basis are FHLB common stock, short-term loans, collateral loans and company owned life insurance ("COLI"). FHLB common stock is carried at cost which approximates fair value. FHLB common stock was $ 10.0 million and $ 22.0 million as of September 30, 2023 and December 31, 2022, respectively, and falls within Level 2 of the fair value hierarchy. Due to the short-term nature of the investments, the fair value of a portion of our short-term loans approximates the carrying value. We had no short-term loans as of September 30, 2023. The fair value of short-term loans was $ 316.4 million as of December 31, 2022. Our short-term loans fall within Level 2 of the fair value hierarchy. For our collateral loans, we have concluded the carrying value approximates fair value and falls within Level 2 of the fair value hierarchy. The fair value of collateral loans was $ 64.6 million as of September 30, 2023 and December 31, 2022. The fair value of our COLI approximates the cash surrender value of the policies and falls within Level 2 of the fair value hierarchy. The fair value of COLI was $ 404.9 million and $ 397.7 million as of September 30, 2023 and December 31, 2022, respectively.

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Cash and cash equivalents

Amounts reported in the consolidated balance sheets for these instruments are reported at their historical cost which approximates fair value due to the nature of the assets assigned to this category.

Policy benefit reserves, coinsurance deposits and SPIA benefit reserves

The fair values of the liabilities under contracts not involving significant mortality or morbidity risks (principally deferred annuities), are stated at the cost we would incur to extinguish the liability (i.e., the cash surrender value) as these contracts are generally issued without an annuitization date. The coinsurance deposits related to the annuity benefit reserves have fair values determined in a similar fashion. For period-certain annuity benefit contracts, the fair value is determined by discounting the benefits at the interest rates currently in effect for newly issued immediate annuity contracts. We are not required to and have not estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value. Policy benefit reserves, coinsurance deposits and SPIA benefit reserves without life contingencies are not measured at fair value on a recurring basis. SPIA benefit reserves without life contingencies are recognized in other policy funds and contract claims on the Consolidated Balance Sheets. All of the fair values presented within these categories fall within Level 3 of the fair value hierarchy as most of the inputs are unobservable market data.

Other policy funds - FHLB

The fair values of the Company's funding agreements with the FHLB are estimated using discounted cash flow calculations based on interest rates currently being offered for similar agreements with similar maturities.

Notes and loan payable

The fair value of our senior unsecured notes is based upon quoted market prices. The carrying value of the term loan approximates fair value as the interest rate is reset on a quarterly basis utilizing SOFR adjusted for a credit spread. Both of these are categorized as Level 2 within the fair value hierarchy, and are not remeasured at fair value on a recurring basis.

Subordinated debentures

Fair values for subordinated debentures are estimated using discounted cash flow calculations based principally on observable inputs including our incremental borrowing rates, which reflect our credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt being valued. These fair values are categorized as Level 2 within the fair value hierarchy. Subordinated debentures are not measured at fair value on a recurring basis.

Funds withheld liability - embedded derivative

We estimate the fair value of the embedded derivative based on the fair value of the assets supporting the funds withheld payable under modified coinsurance and funds withheld coinsurance reinsurance agreeme nts. The fair value of the embedded derivative is classified as Level 3 based on valuation methods used for the assets held supporting the reinsurance agreements.

Fixed index annuities - embedded derivatives

We estimate the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves 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 our nonperformance risk related to those liabilities. The projections of policy contract values are based on our best estimate assumptions for future policy growth and future policy decrements. Our best estimate assumptions for future policy growth include assumptions for the expected index credit on the next policy anniversary date which are derived from the fair values of the underlying call options purchased to fund such index credits and the expected costs of annual call options we will purchase in the future to fund index credits beyond the next policy anniversary. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as were used to project policy contract values.

Within this determination we have the following significant unobservable inputs: 1) the expected cost of annual call options we will purchase in the future to fund index credits beyond the next policy anniversary and 2) our best estimates for future policy decrements, primarily lapse rates. As of both September 30, 2023 and December 31, 2022, we utilized an estimate of 2.35 % and 2.40 %, respectively, for the long-term expected cost of annual call options, which is based on estimated long-term account value growth and a historical review of our actual option costs.

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Our best estimate assumptions for lapse rates are based on our actual experience and our outlook as to future expectations for such assumptions. These assumptions are reviewed on a quarterly basis and are updated as our experience develops and/or as future expectations change. The following table presents average lapse rate assumptions, by contract duration, used in estimating the fair value of the embedded derivative component of our fixed index annuity policy benefit reserves at each reporting date:


	Average Lapse Rates
Contract Duration (Years)	September 30, 2023	December 31, 2022
1 - 5	2.00 %	2.17 %
6 - 10	3.60 %	3.28 %
11 - 15	3.75 %	3.63 %
16 - 20	9.35 %	8.55 %
20 +	4.91 %	4.90 %

Lapse rates are generally expected to increase as surrender charge percentages decrease for policies without a lifetime income benefit rider. Lapse expectations reflect a significant increase in the year in which the surrender charge period on a contract ends.

The following table provides a reconciliation of the beginning and ending balances for our Level 3 assets and liabilities, which are measured at fair value on a recurring basis using significant unobservable inputs for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Fixed maturity securities, available for sale - States, municipalities and territories
Beginning balance	$	129,303	$	—	$	—	$	—
Purchases and sales, net	—		—		—		—
Transfers in	—		—		108,823		—
Transfers out	—		—		—		—
Total realized/unrealized gains (losses)
Included in net income	—		—		—		—
Included in other comprehensive income (loss)	( 7,429 )		—		13,051		—
Ending balance	$	121,874	$	—	$	121,874	$	—

Fixed maturity securities, available for sale - Corporate securities
Beginning balance	$	251,137	$	77,726	$	402,348	$	—
Purchases and sales, net	—		—		( 26,278 )		—
Transfers in	17,281		241,878		66,954		319,604
Transfers out	—		—		( 172,174 )		—
Total realized/unrealized gains (losses):
Included in net income	—		—		—		—
Included in other comprehensive income (loss)	( 16,578 )		( 72 )		( 19,010 )		( 72 )
Ending balance	$	251,840	$	319,532	$	251,840	$	319,532

Fixed maturity securities, available for sale - Other asset backed securities
Beginning balance	$	742,924	$	64,550	$	442,918	$	—
Purchases and sales, net	—		—		227,032		—
Transfers in	23,244		37,151		153,746		101,701
Transfers out	—		—		( 20,817 )		—
Total realized/unrealized gains (losses):
Included in net income	—		—		—		—
Included in other comprehensive income (loss)	( 13,108 )		( 3,456 )		( 49,819 )		( 3,456 )
Ending balance	$	753,060	$	98,245	$	753,060	$	98,245

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Other investments
Beginning balance	$	23,244	$	—	$	—	$	6,349
Transfers in	—		—		9,821		—
Transfers out	( 23,244 )		—		( 23,244 )		( 3,867 )
Total realized/unrealized gains (losses):
Included in net income	—		—		—		( 2,482 )
Included in other comprehensive income (loss)	—		—		13,423		—
Ending balance	$	—	$	—	$	—	$	—

Real estate investments
Beginning balance	$	1,158,772	$	672,475	$	940,559	$	337,939
Purchases and sales, net	27,396		250,062		257,129		553,628
Change in fair value	5,087		( 24,864 )		( 6,433 )		6,106
Ending balance	$	1,191,255	$	897,673	$	1,191,255	$	897,673

Limited partnerships and limited liability companies
Beginning balance	$	151,040	$	—	$	64,209	$	—
Purchases and sales, net	1,260		—		98,736		—
Change in fair value	( 3,466 )		—		( 14,111 )		—
Ending balance	$	148,834	$	—	$	148,834	$	—

Funds withheld liability - embedded derivative
Beginning balance	$	( 397,234 )	$	—	$	( 441,864 )	$	—
Transfers in	—		( 520,458 )		—		( 520,458 )
Change in fair value	( 128,726 )		—		( 84,096 )		—
Ending balance	$	( 525,960 )	$	( 520,458 )	$	( 525,960 )	$	( 520,458 )

Fixed index annuities - embedded derivatives
Beginning balance	$	5,014,697	$	5,836,312	$	4,820,845	$	7,964,961
Premiums less benefits	( 23,488 )		( 92,242 )		( 176,978 )		( 28,759 )
Change in fair value, net	( 387,018 )		( 466,244 )		( 39,676 )		( 2,658,376 )
Reserve release related to in-force ceded reinsurance	—		( 20,784 )		—		( 20,784 )
Ending balance	$	4,604,191	$	5,257,042	$	4,604,191	$	5,257,042

Transfers into and out of Level 3 during the three and nine months ended September 30, 2023 and 2022 were primarily the result of changes in observable pricing information.

The fair value of our fixed index annuities embedded derivatives is net of coinsurance ceded of $ 1,074.4 million and $ 1,173.4 million as of September 30, 2023 and December 31, 2022, respectively. Change in fair value, net for each period in our embedded derivatives is included in Change in fair value of embedded derivatives in the Consolidated Statements of Operations.

Certain derivatives embedded in our fixed index annuity contracts are our most significant financial instrument measured at fair value that are categorized as Level 3 in the fair value hierarchy. The contractual obligations for future annual index credits within our fixed index annuity contracts are treated as a "series of embedded derivatives" over the expected life of the applicable contracts. We estimate the fair value of these embedded derivatives at each valuation date by the method described above under fixed index annuities - embedded derivatives . The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as were used to project policy contract values.

The most sensitive assumption in determining policy liabilities for fixed index annuities is the rates used to discount the excess projected contract values. As indicated above, the discount rate reflects our nonperformance risk. If the discount rates used to discount the excess projected contract values at September 30, 2023, were to increase by 100 basis points, the fair value of the embedded derivatives would decrease by $ 307.9 million recorded through operations as a decrease in the change in fair value of embedded derivatives. A decrease by 100 basis points in the discount rates used to discount the excess projected contract values would increase the fair value of the embedded derivatives by $ 352.2 million recorded through operations as an increase in the change in fair value of embedded derivatives.

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3. Investments

At September 30, 2023 and December 31, 2022, the amortized cost and fair value of fixed maturity securities were as follows:


	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses (2)		Allowance for Credit Losses		Fair Value
	(Dollars in thousands)
September 30, 2023
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	172,650	$	7	$	( 9,772 )	$	—	$	162,885
States, municipalities and territories	3,198,091		5,049		( 638,470 )		—		2,564,670
Foreign corporate securities and foreign governments	535,008		37		( 106,818 )		—		428,227
Corporate securities	23,271,192		45,571		( 4,102,472 )		( 2,911 )		19,211,380
Residential mortgage backed securities	1,501,200		5,030		( 163,149 )		( 97 )		1,342,984
Commercial mortgage backed securities	3,520,832		443		( 538,245 )		—		2,983,030
Other asset backed securities	5,614,577		21,760		( 243,971 )		( 610 )		5,391,756
	$	37,813,550	$	77,897	$	( 5,802,897 )	$	( 3,618 )	$	32,084,932

December 31, 2022
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	173,638	$	70	$	( 4,637 )	$	—	$	169,071
States, municipalities and territories	4,356,251		41,565		( 574,834 )		—		3,822,982
Foreign corporate securities and foreign governments	748,770		11,661		( 83,579 )		—		676,852
Corporate securities	27,706,440		146,065		( 3,687,370 )		( 3,214 )		24,161,921
Residential mortgage backed securities	1,492,242		11,870		( 126,368 )		( 133 )		1,377,611
Commercial mortgage backed securities	4,098,755		493		( 411,770 )		—		3,687,478
Other asset backed securities	6,289,923		14,068		( 395,289 )		—		5,908,702
	$	44,866,019	$	225,792	$	( 5,283,847 )	$	( 3,347 )	$	39,804,617

(1) Amortized cost excludes accrued interest receivable of $ 370.6 million and $ 425.4 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Gross unrealized losses are net of allowance for credit losses.

The amortized cost and fair value of fixed maturity securities at September 30, 2023, by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of our mortgage and other asset backed securities provide for periodic payments throughout their lives and are shown below as separate lines.


	Available for sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	1,425,811	$	1,423,194
Due after one year through five years	4,298,107		4,048,402
Due after five years through ten years	4,868,547		4,242,544
Due after ten years through twenty years	7,384,698		6,057,753
Due after twenty years	9,199,778		6,595,269
	27,176,941		22,367,162
Residential mortgage backed securities	1,501,200		1,342,984
Commercial mortgage backed securities	3,520,832		2,983,030
Other asset backed securities	5,614,577		5,391,756
	$	37,813,550	$	32,084,932

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Net unrealized losses on investments reported as a separate component of stockholders' equity were comprised of the following:


	September 30, 2023		December 31, 2022
	(Dollars in thousands)
Net unrealized losses on investments	$	( 5,726,811 )	$	( 5,065,422 )
Deferred income tax valuation allowance reversal	22,534		22,534
Deferred income tax expense	1,201,891		1,063,441
Net unrealized losses reported as accumulated other comprehensive loss	$	( 4,502,386 )	$	( 3,979,447 )

The National Association of Insurance Commissioners ("NAIC") assigns designations to fixed maturity securities. These designations range from Class 1 (highest quality) to Class 6 (lowest quality). In general, securities are assigned a designation based upon the ratings they are given by the Nationally Recognized Statistical Rating Organizations ("NRSRO’s"). The NAIC designations are utilized by insurers in preparing their annual statutory statements. NAIC Class 1 and 2 designations are considered "investment grade" while NAIC Class 3 through 6 designations are considered "non-investment grade." Based on the NAIC designations, we had 98 % of our fixed maturity portfolio rated investment grade at both September 30, 2023 and December 31, 2022, respectively.

The following table summarizes the credit quality, as determined by NAIC designation, of our fixed maturity portfolio as of the dates indicated:


	September 30, 2023				December 31, 2022
NAIC Designation (1)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
1	$	22,103,730	$	18,644,092	$	27,061,903	$	24,211,086
2	14,909,260		12,739,371		17,023,157		14,944,131
3	554,568		469,819		595,193		510,392
4	116,264		98,929		109,409		91,495
5	61,334		45,253		61,721		36,738
6	10,000		7,127		14,636		10,775
	$	37,755,156	$	32,004,591	$	44,866,019	$	39,804,617

(1) The table excludes residual tranche securities that are not rated with an amortized cost of $ 58,394 and fair value of $ 80,341 as of September 30, 2023.

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The following table shows our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities (consisting of 4,059 and 4,510 securities, respectively) have been in a continuous unrealized loss position, at September 30, 2023 and December 31, 2022:


	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses (1)		Fair Value		Unrealized Losses (1)		Fair Value		Unrealized Losses (1)
	(Dollars in thousands)
September 30, 2023
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	116,484	$	( 6,223 )	$	45,991	$	( 3,549 )	$	162,475	$	( 9,772 )
States, municipalities and territories	229,082		( 19,688 )		2,168,957		( 618,782 )		2,398,039		( 638,470 )
Foreign corporate securities and foreign governments	14,610		( 70 )		393,715		( 106,748 )		408,325		( 106,818 )
Corporate securities	2,888,535		( 163,562 )		14,312,197		( 3,938,910 )		17,200,732		( 4,102,472 )
Residential mortgage backed securities	487,935		( 25,263 )		772,581		( 137,886 )		1,260,516		( 163,149 )
Commercial mortgage backed securities	181,256		( 7,607 )		2,734,129		( 530,639 )		2,915,385		( 538,246 )
Other asset backed securities	1,182,339		( 45,678 )		3,307,085		( 198,292 )		4,489,424		( 243,970 )
	$	5,100,241	$	( 268,091 )	$	23,734,655	$	( 5,534,806 )	$	28,834,896	$	( 5,802,897 )

December 31, 2022
Fixed maturity securities, available for sale:
U.S. Government and agencies	$	160,201	$	( 4,512 )	$	908	$	( 125 )	$	161,109	$	( 4,637 )
States, municipalities and territories	2,595,122		( 537,313 )		95,184		( 37,521 )		2,690,306		( 574,834 )
Foreign corporate securities and foreign governments	522,826		( 76,957 )		21,816		( 6,622 )		544,642		( 83,579 )
Corporate securities	18,784,181		( 3,218,323 )		1,411,177		( 469,047 )		20,195,358		( 3,687,370 )
Residential mortgage backed securities	992,783		( 101,100 )		116,388		( 25,268 )		1,109,171		( 126,368 )
Commercial mortgage backed securities	2,941,293		( 302,513 )		651,923		( 109,257 )		3,593,216		( 411,770 )
Other asset backed securities	2,561,390		( 162,821 )		1,924,026		( 232,468 )		4,485,416		( 395,289 )
	$	28,557,796	$	( 4,403,539 )	$	4,221,422	$	( 880,308 )	$	32,779,218	$	( 5,283,847 )

(1) Unrealized losses have been reduced to reflect the allowance for credit losses of $ 3.6 million and $ 3.3 million as of September 30, 2023 and December 31, 2022, respectively.

The unrealized losses at September 30, 2023 are principally related to the timing of the purchases of certain securities, which carry less yield than those available at September 30, 2023. Approximately 98 % of the unrealized losses on fixed maturity securities shown in the above table for both September 30, 2023 and December 31, 2022 are on securities that are rated investment grade, defined as being the highest two NAIC designations.

We expect to recover our amortized cost on all securities except for those securities on which we recognized an allowance for credit loss. In addition, because we did not have the intent to sell fixed maturity securities with unrealized losses and it was not more likely than not that we would be required to sell these securities prior to recovery of the amortized cost, which may be maturity, we did not write down these investments to fair value through the consolidated statements of operations.

Changes in net unrealized gains/losses on investments for the three and nine months ended September 30, 2023 and 2022 are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Fixed maturity securities available for sale carried at fair value	$	( 1,096,049 )	$	( 2,277,217 )	$	( 661,389 )	$	( 9,734,979 )

Adjustment for effect on other balance sheet accounts:
Deferred income tax asset/liability	229,729		478,223		138,450		2,044,070
	229,729		478,223		138,450		2,044,070
Change in net unrealized gains/losses on investments carried at fair value	$	( 866,320 )	$	( 1,798,994 )	$	( 522,939 )	$	( 7,690,909 )

Proceeds from sales of available for sale fixed maturity securities for the nine months ended September 30, 2023 and 2022 were $ 9.0 billion and $ 3.2 billion, respectively. Scheduled principal repayments, calls and tenders for available for sale fixed maturity securities for the nine months ended September 30, 2023 and 2022 were $ 1.4 billion and $ 2.0 billion, respectively.

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Net realized losses on investments for the three and nine months ended September 30, 2023 and 2022, are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Available for sale fixed maturity securities:
Gross realized gains	$	52,700	$	23,978	$	137,744	$	27,950
Gross realized losses	( 91,184 )		( 33,881 )		( 171,970 )		( 59,940 )
Net credit loss (provision) release	537		( 1,487 )		( 46,565 )		( 14,341 )
	( 37,947 )		( 11,390 )		( 80,791 )		( 46,331 )




Other investments:
Gross realized gains	29		—		2,239		—
Gross realized losses	—		—		( 5,061 )		—
	29		—		( 2,822 )		—
Mortgage loans on real estate:
Increase in allowance for credit losses	( 4,687 )		( 4,716 )		( 8,110 )		( 13,309 )
Recovery of specific allowance	—		1,086		—		1,315
Loss on sale of mortgage loans	( 2,067 )		( 840 )		( 5,415 )		( 3,934 )
	( 6,754 )		( 4,470 )		( 13,525 )		( 15,928 )
	$	( 44,672 )	$	( 15,860 )	$	( 97,138 )	$	( 62,259 )

Realized losses on available for sale fixed maturity securities in 2023 and 2022 were realized primarily due to strategies to reposition the fixed maturity security portfolio that result in improved net investment income, credit risk or duration profiles as they pertain to our asset liability management. Realized gains and losses on sales are determined on the basis of specific identification of investments based on the trade date.

We review and analyze all investments on an ongoing basis for changes in market interest rates and credit deterioration. This review process includes analyzing our ability to recover the amortized cost basis of each investment that has a fair value that is materially lower than its amortized cost and requires a high degree of management judgment and involves uncertainty. The evaluation of securities for credit loss is a quantitative and qualitative process, which is subject to risks and uncertainties.

We have a policy and process to identify securities that could potentially have credit loss. This process involves monitoring market events and other items that could impact issuers. The evaluation includes but is not limited to such factors as:

• the extent to which the fair value has been less than amortized cost or cost;

• whether the issuer is current on all payments and all contractual payments have been made as agreed;

• the remaining payment terms and the financial condition and near-term prospects of the issuer;

• the lack of ability to refinance due to liquidity problems in the credit market;

• the fair value of any underlying collateral;

• the existence of any credit protection available;

• our intent to sell and whether it is more likely than not we would be required to sell prior to recovery for debt securities;

• consideration of rating agency actions; and

• changes in estimated cash flows of mortgage and asset backed securities.

We determine whether an allowance for credit loss should be established for debt securities by assessing pertinent facts and circumstances surrounding each security. Where the decline in fair value of debt securities is attributable to changes in market interest rates or to factors such as market volatility, liquidity and spread widening, and we anticipate recovery of all contractual or expected cash flows, we do not consider these investments to have credit loss because we do not intend to sell these investments and it is not more likely than not we will be required to sell these investments before a recovery of amortized cost, which may be maturity.

If we intend to sell a debt security or if it is more likely than not that we will be required to sell a debt security before recovery of its amortized cost basis, credit loss has occurred and the difference between amortized cost and fair value will be recognized as a loss in operations.

If we do not intend to sell and it is not more likely than not we will be required to sell the debt security but also do not expect to recover the entire amortized cost basis of the security, a credit loss would be recognized in operations for the amount of the expected credit loss. We determine the amount of expected credit loss by calculating the present value of the cash flows expected to be collected discounted at each security's acquisition yield based on our consideration of whether the security was of high credit quality at the time of acquisition. The difference between the present value of expected future cash flows and the amortized cost basis of the security is the amount of credit loss recognized in operations. The recognized credit loss is limited to the total unrealized loss on the security (i.e., the fair value floor).

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The determination of the credit loss component of a mortgage backed security is based on a number of factors. The primary consideration in this evaluation process is the issuer's ability to meet current and future interest and principal payments as contractually stated at time of purchase. Our review of these securities includes an analysis of the cash flow modeling under various default scenarios considering independent third party benchmarks, the seniority of the specific tranche within the structure of the security, the composition of the collateral and the actual default, loss severity and prepayment experience exhibited. With the input of third party assumptions for default projections, loss severity and prepayment expectations, we evaluate the cash flow projections to determine whether the security is performing in accordance with its contractual obligation.

We utilize models from a leading structured product software specialist serving institutional investors. These models incorporate each security's seniority and cash flow structure. In circumstances where the analysis implies a potential for principal loss at some point in the future, we use the "best estimate" cash flow projection discounted at the security's effective yield at acquisition to determine the amount of our potential credit loss associated with this security. The discounted expected future cash flows equates to our expected recovery value. Any shortfall of the expected recovery when compared to the amortized cost of the security will be recorded as credit loss.

The determination of the credit loss component of a corporate bond is based on the underlying financial performance of the issuer and their ability to meet their contractual obligations. Considerations in our evaluation include, but are not limited to, credit rating changes, financial statement and ratio analysis, changes in management, significant changes in credit spreads, breaches of financial covenants and a review of the economic outlook for the industry and markets in which they trade. In circumstances where an issuer appears unlikely to meet its future obligation, an estimate of credit loss is determined. Credit loss is calculated using default probabilities as derived from the credit default swaps markets in conjunction with recovery rates derived from independent third party analysis or a best estimate of credit loss. This credit loss rate is then incorporated into a present value calculation based on an expected principal loss in the future discounted at the yield at the date of purchase and compared to amortized cost to determine the amount of credit loss associated with the security.

We do not measure a credit loss allowance on accrued interest receivable as we write off any accrued interest receivable balance to net investment income in a timely manner when we have concerns regarding collectability.

Amounts on available for sale fixed maturities that are deemed to be uncollectible are written off and removed from the allowance for credit loss. A write-off may also occur if we intend to sell a security or when it is more likely than not we will be required to sell the security before the recovery of its amortized cost.

The following table provides a rollforward of the allowance for credit loss:


	Three Months Ended September 30, 2023
	States, Municipalities and Territories		Corporate Securities		Residential Mortgage Backed Securities		Other Asset Backed Securities		Total
	(Dollars in thousands)
Beginning balance	$	—	$	3,132	$	67	$	947	$	4,146
Additions for credit losses not previously recorded	—		—		97		—		97
Change in allowance on securities with previous allowance	—		( 221 )		( 67 )		( 337 )		( 625 )

Reduction for securities sold during the period	—		—		—		—		—


Ending balance	$	—	$	2,911	$	97	$	610	$	3,618

	Three Months Ended September 30, 2022
	States, Municipalities and Territories		Corporate Securities		Residential Mortgage Backed Securities		Other Asset Backed Securities		Total
	(Dollars in thousands)
Beginning balance	$	1,834	$	3,743	$	610	$	—	$	6,187
Additions for credit losses not previously recorded	—		—		439		—		439
Change in allowance on securities with previous allowance	( 1,834 )		( 529 )		657		—		( 1,706 )

Reduction for securities sold during the period	—		—		—		—		—


Ending balance	$	—	$	3,214	$	1,706	$	—	$	4,920

Table of Contents


	Nine Months Ended September 30, 2023
	States, Municipalities and Territories		Corporate Securities		Residential Mortgage Backed Securities		Other Asset Backed Securities		Total
	(Dollars in thousands)
Beginning balance	$	—	$	3,214	$	133	$	—	$	3,347
Additions for credit losses not previously recorded	—		—		97		947		1,044
Change in allowance on securities with previous allowance	—		( 303 )		( 133 )		( 337 )		( 773 )

Reduction for securities sold during the period	—		—		—		—		—


Ending balance	$	—	$	2,911	$	97	$	610	$	3,618

	Nine Months Ended September 30, 2022
	States, Municipalities and Territories		Corporate Securities		Residential Mortgage Backed Securities		Other Asset Backed Securities		Total
	(Dollars in thousands)
Beginning balance	$	2,776	$	—	$	70	$	—	$	2,846
Additions for credit losses not previously recorded	—		3,825		1,070		—		4,895
Change in allowance on securities with previous allowance	( 2,776 )		( 611 )		994		—		( 2,393 )

Reduction for securities sold during the period	—		—		( 428 )		—		( 428 )


Ending balance	$	—	$	3,214	$	1,706	$	—	$	4,920

4. Mortgage Loans on Real Estate

Our financing receivables consist of the following three portfolio segments: commercial mortgage loans, agricultural mortgage loans and residential mortgage loans. Our mortgage loan portfolios are summarized in the following table. There were commitments outstanding of $ 750.5 million at September 30, 2023.


	September 30, 2023		December 31, 2022
	(Dollars in thousands)
Commercial mortgage loans:
Principal outstanding	$	3,534,502	$	3,560,903
Deferred fees and costs, net	( 3,903 )		( 6,345 )
Unamortized discounts and premiums, net	( 1,593 )		—
Amortized cost	3,529,006		3,554,558
Valuation allowance	( 21,802 )		( 22,428 )
Commercial mortgage loans, carrying value	3,507,204		3,532,130

Agricultural mortgage loans:
Principal outstanding	585,020		567,630
Deferred fees and costs, net	( 1,707 )		( 1,667 )
Amortized cost	583,313		565,963
Valuation allowance	( 1,105 )		( 1,021 )
Agricultural mortgage loans, carrying value	582,208		564,942

Residential mortgage loans:
Principal outstanding	3,359,939		2,807,652
Deferred fees and costs, net	669		1,909
Unamortized discounts and premiums, net	67,138		55,917
Amortized cost	3,427,746		2,865,478
Valuation allowance	( 22,175 )		( 13,523 )
Residential mortgage loans, carrying value	3,405,571		2,851,955
Mortgage loans, carrying value	$	7,494,983	$	6,949,027

Table of Contents

Our commercial mortgage loan portfolio consists of loans collateralized by the related properties and diversified as to property type, location and loan size. Our lending policies establish limits on the amount that can be loaned to one borrower and other criteria to attempt to reduce the risk of default. The commercial mortgage loan portfolio is summarized by geographic region and property type as follows:


	September 30, 2023				December 31, 2022
	Principal		Percent		Principal		Percent
	(Dollars in thousands)
Geographic distribution
East	$	490,286	13.9	%	$	502,659	14.1	%
Middle Atlantic	276,679		7.8	%	280,993		7.9	%
Mountain	395,301		11.2	%	416,307		11.7	%
New England	82,566		2.3	%	73,631		2.1	%
Pacific	840,127		23.8	%	858,812		24.1	%
South Atlantic	939,397		26.6	%	934,007		26.2	%
West North Central	185,743		5.2	%	205,568		5.8	%
West South Central	324,403		9.2	%	288,926		8.1	%
	$	3,534,502	100.0	%	$	3,560,903	100.0	%
Property type distribution
Office	$	366,874	10.4	%	$	388,978	10.9	%

Retail	824,708		23.3	%	896,351		25.2	%
Industrial/Warehouse	925,806		26.2	%	866,623		24.3	%
Apartment	1,015,703		28.7	%	912,984		25.6	%
Hotel	324,271		9.2	%	285,271		8.0	%
Mixed Use/Other	77,140		2.2	%	210,696		6.0	%
	$	3,534,502	100.0	%	$	3,560,903	100.0	%

Our agricultural mortgage loan portfolio consists of loans with an outstanding principal balance of $ 585.0 million and $ 567.6 million as of September 30, 2023 and December 31, 2022, respectively. These loans are collateralized by agricultural land and are diversified as to location within the United States. Our residential mortgage loan portfolio consists of loans with an outstanding principal balance of $ 3.4 billion and $ 2.8 billion as of September 30, 2023 and December 31, 2022, respectively. These loans are collateralized by the related properties and diversified as to location within the United States.

Mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Interest income is included in Net investment income on our Consolidated Statements of Operations. Accrued interest receivable, which was $ 66.3 million and $ 58.2 million as of September 30, 2023 and December 31, 2022, respectively, is included in Accrued investment income on our Consolidated Balance Sheets.

Loan Valuation Allowance

We establish a valuation allowance to provide for the risk of credit losses inherent in our mortgage loan portfolios. The valuation allowance is maintained at a level believed adequate by management to absorb estimated expected credit losses. The valuation allowance is based on amortized cost, which excludes accrued interest receivable. We do not measure a credit loss allowance on accrued interest receivable as we write off any uncollectible accrued interest receivable balances to net investment income in a timely manner. We did no t charge off any uncollectible accrued interest receivable on our commercial, agricultural or residential mortgage loan portfolios for the three and nine month periods ended September 30, 2023 or 2022, respectively.

The valuation allowances for each of our mortgage loan portfolios are estimated by deriving probability of default and recovery rate assumptions based on the characteristics of the loans in each portfolio, historical economic data and loss information, and current and forecasted economic conditions. Key loan characteristics impacting the estimate for our commercial mortgage loan portfolio include the current state of the borrower’s credit quality, which considers factors such as loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios, loan performance, underlying collateral type, delinquency status, time to maturity, and original credit scores. Key loan characteristics impacting the estimate for our agricultural and residential mortgage loan portfolios include the current state of the borrowers' credit quality, delinquency status, time to maturity and original credit scores.

Table of Contents

The following table represents a rollforward of the valuation allowance on our mortgage loan portfolios:


	Three Months Ended September 30, 2023
	Commercial		Agricultural		Residential		Total
	(Dollars in thousands)
Beginning allowance balance	$	( 21,330 )	$	( 895 )	$	( 18,170 )	$	( 40,395 )
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Change in provision for credit losses	( 472 )		( 210 )		( 4,005 )		( 4,687 )
Ending allowance balance	$	( 21,802 )	$	( 1,105 )	$	( 22,175 )	$	( 45,082 )

	Three Months Ended September 30, 2022
	Commercial		Agricultural		Residential		Total
	(Dollars in thousands)
Beginning allowance balance	$	( 24,244 )	$	( 664 )	$	( 7,480 )	$	( 32,388 )
Charge-offs	414		—		—		414
Recoveries	1,086		—		—		1,086
Change in provision for credit losses	( 869 )		( 146 )		( 3,701 )		( 4,716 )
Ending allowance balance	$	( 23,613 )	$	( 810 )	$	( 11,181 )	$	( 35,604 )

	Nine Months Ended September 30, 2023
	Commercial		Agricultural		Residential		Total
	(Dollars in thousands)
Beginning allowance balance	$	( 22,428 )	$	( 1,021 )	$	( 13,523 )	$	( 36,972 )
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Change in provision for credit losses	626		( 84 )		( 8,652 )		( 8,110 )
Ending allowance balance	$	( 21,802 )	$	( 1,105 )	$	( 22,175 )	$	( 45,082 )

	Nine Months Ended September 30, 2022
	Commercial		Agricultural		Residential		Total
	(Dollars in thousands)
Beginning allowance balance	$	( 17,926 )	$	( 519 )	$	( 5,579 )	$	( 24,024 )
Charge-offs	414		—		—		414
Recoveries	1,315		—		—		1,315
Change in provision for credit losses	( 7,416 )		( 291 )		( 5,602 )		( 13,309 )
Ending allowance balance	$	( 23,613 )	$	( 810 )	$	( 11,181 )	$	( 35,604 )

Charge-offs include allowances that have been established on loans that were satisfied either by taking ownership of the collateral or by some other means such as discounted pay-off or loan sale. When ownership of the property is taken it is recorded at the lower of the loan's carrying value or the property's fair value (based on appraised values) less estimated costs to sell. The real estate owned is recorded as a component of Other investments and the loan is recorded as fully paid, with any allowance for credit loss that has been established charged off. Fair value of the real estate is determined by third party appraisal. There were three real estate properties totaling $ 876 thousand at September 30, 2023. There were no real estate properties in which ownership of the property was taken to satisfy an outstanding loan at December 31, 2022. Recoveries are situations where we have received a payment from the borrower in an amount greater than the carrying value of the loan (principal outstanding less specific allowance).

Credit Quality Indicators

We evaluate the credit quality of our commercial and agricultural mortgage loans by analyzing LTV and DSC ratios and loan performance. We evaluate the credit quality of our residential mortgage loans by analyzing loan performance.

LTV and DSC ratios for our commercial mortgage loans are originally calculated at the time of loan origination and are updated annually for each loan using information such as rent rolls, assessment of lease maturity dates and property operating statements, which are reviewed in the context of current leasing and in place rents compared to market leasing and market rents. A DSC ratio of less than 1.0 indicates that a property's operations do not generate sufficient income to cover debt payments. An LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the value of the underlying collateral. All of our commercial mortgage loans that have a debt service coverage ratio of less than 1.0 are performing under the original contractual loan terms at September 30, 2023 and December 31, 2022.

Table of Contents

The amortized cost of our commercial mortgage loan portfolio by LTV and DSC ratios based on the most recent information collected was as follows at September 30, 2023 and December 31, 2022 (by year of origination):


	2023				2022				2021				2020				2019				Prior				Total
As of September 30, 2023:	Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV
Debt Service Coverage Ratio:	(Dollars in thousands)
Greater than or equal to 1.5	$	—	—	%	$	285,725	62	%	$	273,012	57	%	$	380,956	53	%	$	461,587	55	%	$	1,098,330	44	%	$	2,499,610	51	%
Greater than or equal to 1.2 and less than 1.5	—		—	%	—		—	%	4,547		56	%	55,321		54	%	94,038		68	%	178,773		58	%	332,679		60	%
Greater than or equal to 1.0 and less than 1.2	34,618		32	%	214,899		42	%	321,776		45	%	39,223		62	%	—		—	%	29,780		69	%	640,296		46	%
Less than 1.0	—		—	%	—		—	%	—		—	%	—		—	%	2,557		80	%	53,864		53	%	56,421		54	%
Total	$	34,618	32	%	$	500,624	53	%	$	599,335	51	%	$	475,500	53	%	$	558,182	57	%	$	1,360,747	47	%	$	3,529,006	51	%


	2022				2021				2020				2019				2018				Prior				Total
As of December 31, 2022:	Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV
Debt Service Coverage Ratio:
Greater than or equal to 1.5	$	249,328	63	%	$	257,746	61	%	$	421,391	57	%	$	429,596	58	%	$	325,117	53	%	$	813,319	44	%	$	2,496,497	53	%
Greater than or equal to 1.2 and less than 1.5	6,488		70	%	123,038		55	%	46,804		58	%	115,977		66	%	67,642		67	%	145,703		60	%	505,652		62	%
Greater than or equal to 1.0 and less than 1.2	170,059		52	%	211,684		43	%	18,144		79	%	39,396		73	%	10,348		76	%	58,021		47	%	507,652		51	%
Less than 1.0	—		—	%	—		—	%	—		—	%	6,107		64	%	13,025		70	%	25,625		65	%	44,757		66	%
Total	$	425,875	59	%	$	592,468	53	%	$	486,339	58	%	$	591,076	61	%	$	416,132	57	%	$	1,042,668	47	%	$	3,554,558	54	%

LTV and DSC ratios for our agricultural mortgage loans are calculated at the time of loan origination and are evaluated annually for each loan using land value averages. A DSC ratio of less than 1.0 indicates that a property's operations do not generate sufficient income to cover debt payments. An LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the value of the underlying collateral. All of our agricultural mortgage loans that have a debt service coverage ratio of less than 1.0 are performing under the original contractual loan terms at September 30, 2023 and December 31, 2022.

The amortized cost of our agricultural mortgage loan portfolio by LTV and DSC ratios based on the most recent information collected was as follows at September 30, 2023 and December 31, 2022 (by year of origination):


	2023				2022				2021				2020				2019				Prior				Total
As of September 30, 2023:	Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV
Debt Service Coverage Ratio:	(Dollars in thousands)
Greater than or equal to 1.5	$	27,014	59	%	$	86,511	46	%	$	61,672	57	%	$	100,768	45	%	$	—	—	%	$	—	—	%	$	275,965	49	%
Greater than or equal to 1.2 and less than 1.5	17,824		59	%	103,934		54	%	65,543		53	%	60,068		45	%	—		—	%	—		—	%	247,369		52	%
Greater than or equal to 1.0 and less than 1.2	3,988		43	%	3,080		55	%	8,673		39	%	—		—	%	—		—	%	—		—	%	15,741		43	%
Less than 1.0	—		—	%	—		—	%	—		—	%	7,975		40	%	2,263		33	%	34,000		42	%	44,238		41	%
Total	$	48,826	58	%	$	193,525	51	%	$	135,888	54	%	$	168,811	45	%	$	2,263	33	%	$	34,000	42	%	$	583,313	50	%


	2022				2021				2020				2019				2018				Prior				Total
As of December 31, 2022:	Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV		Amortized Cost		Average LTV
Debt Service Coverage Ratio:
Greater than or equal to 1.5	$	85,367	47	%	$	84,186	46	%	$	97,143	41	%	$	—	—	%	$	—	—	%	$	—	—	%	$	266,696	45	%
Greater than or equal to 1.2 and less than 1.5	107,856		54	%	67,630		52	%	61,103		32	%	—		—	%	—		—	%	—		—	%	236,589		48	%
Greater than or equal to 1.0 and less than 1.2	3,124		56	%	8,825		38	%	3,125		25	%	—		—	%	—		—	%	—		—	%	15,074		39	%
Less than 1.0	—		—	%	—		—	%	7,975		35	%	5,629		41	%	34,000		31	%	—		—	%	47,604		33	%
Total	$	196,347	51	%	$	160,641	48	%	$	169,346	37	%	$	5,629	41	%	$	34,000	31	%	$	—	—	%	$	565,963	45	%

Table of Contents

We closely monitor loan performance for our commercial, agricultural and residential mortgage loan portfolios. Aging of financing receivables is summarized in the following table (by year of origination):


	2023		2022		2021		2020		2019		Prior		Total
As of September 30, 2023:	(Dollars in thousands)
Commercial mortgage loans
Current	$	34,618	$	500,624	$	599,335	$	475,500	$	558,182	$	1,360,747	$	3,529,006
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
90 days or more past due	—		—		—		—		—		—		—
Total commercial mortgage loans	$	34,618	$	500,624	$	599,335	$	475,500	$	558,182	$	1,360,747	$	3,529,006

Agricultural mortgage loans
Current	$	48,826	$	193,525	$	135,888	$	168,811	$	2,263	$	34,000	$	583,313
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
90 days or more past due	—		—		—		—		—		—		—
Total agricultural mortgage loans	$	48,826	$	193,525	$	135,888	$	168,811	$	2,263	$	34,000	$	583,313

Residential mortgage loans
Current	$	975,966	$	1,639,242	$	411,035	$	167,678	$	27,309	$	893	$	3,222,123
30 - 59 days past due	30,963		36,240		15,604		6,560		99		—		89,466
60 - 89 days past due	3,007		21,436		4,233		888		—		—		29,564
90 days or more past due	8,171		39,138		27,114		5,369		3,398		3,403		86,593
Total residential mortgage loans	$	1,018,107	$	1,736,056	$	457,986	$	180,495	$	30,806	$	4,296	$	3,427,746


	2022		2021		2020		2019		2018		Prior		Total
As of December 31, 2022:	(Dollars in thousands)
Commercial mortgage loans
Current	$	425,875	$	592,468	$	486,339	$	591,076	$	416,132	$	1,042,668	$	3,554,558
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
90 days or more past due	—		—		—		—		—		—		—
Total commercial mortgage loans	$	425,875	$	592,468	$	486,339	$	591,076	$	416,132	$	1,042,668	$	3,554,558

Agricultural mortgage loans
Current	$	196,347	$	160,641	$	166,211	$	5,629	$	34,000	$	—	$	562,828
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
90 days or more past due	—		—		3,135		—		—		—		3,135
Total agricultural mortgage loans	$	196,347	$	160,641	$	169,346	$	5,629	$	34,000	$	—	$	565,963

Residential mortgage loans
Current	$	1,915,169	$	595,363	$	211,119	$	27,483	$	1,710	$	417	$	2,751,261
30 - 59 days past due	39,179		8,238		13,073		1,960		—		—		62,450
60 - 89 days past due	6,668		7,165		3,034		57		—		—		16,924
90 days or more past due	9,702		14,068		6,515		1,762		2,796		—		34,843
Total residential mortgage loans	$	1,970,718	$	624,834	$	233,741	$	31,262	$	4,506	$	417	$	2,865,478

Table of Contents

Commercial, agricultural and residential mortgage loans are considered nonperforming when they become 90 days or more past due. When loans become nonperforming, we place them on non-accrual status and discontinue recognizing interest income. If payments are received on a nonperforming loan, interest income is recognized to the extent it would have been recognized if normal principal and interest would have been received timely. If payments are received to bring a nonperforming loan back to less than 90 days past due, we will resume accruing interest income on that loan. There were 164 loans in non-accrual status at September 30, 2023 and 59 loans in non-accrual status at December 31, 2022. During the three and nine months ended September 30, 2023 we recognized $ 156 thousand and $ 2,156 thousand in interest income on loans which were in non-accrual status at the respective period end. During the three and nine months ended September 30, 2022, we recognized $ 0 thousand and $ 546 thousand interest income on loans which were in non-accrual status at the respective period end.

Loan Modifications

Our commercial, agricultural and residential mortgage loans may be subject to loan modifications. Loan modifications may be granted to borrowers experiencing financial difficulty and could include principal forgiveness, interest rate reduction, an other-than-significant delay or a term extension. We consider the following factors in determining whether or not a borrower is experiencing financial difficulty:

• borrower is in default,

• borrower has declared bankruptcy,

• there is growing concern about the borrower's ability to continue as a going concern,

• borrower has insufficient cash flows to service debt,

• borrower's inability to obtain funds from other sources, and

• there is a breach of financial covenants by the borrower.

A loan modification typically does not result in a change in valuation allowance as it is already incorporated into our allowance methodology. However, if we grant a borrower experiencing financial difficulty principal forgiveness, the amount of principal forgiven would be written off, which would reduce the amortized cost of the loan and result in an adjustment to the valuation allowance.

There were no significant mortgage loan modifications for the three and nine months ended September 30, 2023.

Prior to adoption of authoritative guidance on January 1, 2023, we evaluated whether a TDR had occurred on our commercial, agricultural or residential mortgage loans. We did not have any significant loan modifications that resulted in a TDR for the three and nine months ended September 30, 2022.

5. Variable Interest Entities

We have relationships with various types of entities which may be VIEs. Certain VIEs are consolidated in our financial results.

Consolidated Variable Interest Entities

We are invested in multiple investment company real estate limited partnerships which own various limited liability companies that invest in residential real estate properties and one real estate limited liability company that invests in a commercial real estate property. These entities are VIE's as the legal entities equity investors have insufficient equity at risk and lack of power to direct the activities that most significantly impact the economic performance. We determined we are the primary beneficiary as a result of our power to control the entities through our significant ownership. Due to the nature of the investment company real estate investments, the investments balance will fluctuate based on changes in the fair value of the properties as well as when purchases and sales of properties are made. The investment balance in the commercial real estate property is held at depreciated cost, and is expected to decrease over time.

We are invested in two investment company limited liability companies that invest in operating entities which hold multifamily real estate properties. The entities are VIEs and we have determined we are the primary beneficiary as a result of our power to control the entities through our significant ownership. The investment balances, which represent equity interests in the investment company limited liability companies, fluctuate based on changes in the fair value of the properties and the performance of the operating entities.

We are invested in two limited partnership feeder funds which each invest in a separate limited partnership fund. One fund holds infrastructure credit assets and the other holds tech-centric middle-market loans. In both cases, the feeder fund limited partnerships are VIEs, and we determined we are the primary beneficiary as a result of our significant ownership of the limited partnerships and our obligation to absorb losses or receive benefits from the VIEs. We have consolidated the assets and liabilities of the limited partnerships, which primarily consist of equity interests in limited partnerships.

We are invested in one investment company limited liability company that invests in core infrastructure assets typically held through an interest in limited liability companies. The entity is a VIE and we have determined we are the primary beneficiary as a result of our power to control the entity through significant ownership and our obligation to absorb losses or receive benefits from the VIE. The VIE meets the definition of an investment company, which requires the investment balance to be held at fair value.

Table of Contents

The carrying amounts of our consolidated VIE assets, which can only be used to settle obligations of the consolidated VIEs, and liabilities of consolidated VIEs for which creditors do not have recourse were as follows:


	September 30, 2023				December 31, 2022
	Total Assets		Total Liabilities		Total Assets		Total Liabilities
	(Dollars in thousands)
Real estate investments	$	1,362,292	$	90,828	$	1,095,267	$	78,244
Real estate limited liability companies	50,095		142		66,258		287
Limited partnership funds	1,023,769		224		620,741		113
Infrastructure limited liability companies	100,620		540		—		—
	$	2,536,776	$	91,734	$	1,782,266	$	78,644

Unconsolidated Variable Interest Entities

We provided debt funding to various special purpose vehicles, which are used to acquire and hold various types of loans or receivables. These legal entities are deemed VIEs because there is insufficient equity at risk. We have determined we are not the primary beneficiary as we do not control the activities that most significantly impact the economic performance of the VIEs. Our investments in these VIEs are reported in Fixed maturity securities, available for sale in the Consolidated Balance Sheets.

The carrying value and maximum loss exposure for our unconsolidated VIEs were as follows:


	September 30, 2023				December 31, 2022
	Asset Carrying Value		Maximum Exposure to Loss		Asset Carrying Value		Maximum Exposure to Loss
	(Dollars in thousands)
Fixed maturity securities, available for sale	$	1,503,458	$	1,503,458	$	1,178,110	$	1,178,110

6. Derivative Instruments

We use derivative instruments to manage risks. We have derivatives that are designated as hedging instruments and others that are not designated as hedging instruments. Any change in the fair value of the derivatives is recognized immediately in the Consolidated Statements of Operations.

The notional and fair values of our derivative instruments, including derivative instruments embedded in fixed index annuity contracts, presented in the Consolidated Balance Sheets are as follows:


	September 30, 2023				December 31, 2022
	Notional		Fair Value		Notional		Fair Value
	(Dollars in thousands)
Derivatives designated as hedging instruments
Assets
Derivative instruments
Interest rate swaps	$	—	$	—	$	408,369	$	32,769

Derivatives not designated as hedging instruments
Assets
Derivative instruments
Call options	$	40,993,916	$	733,784	$	38,927,534	$	397,789
Warrants	—		—		2,020		1,169

	$	40,993,916	$	733,784	$	38,929,554	$	398,958
Liabilities
Policy benefit reserves - annuity products
Fixed index annuities - embedded derivatives, net			$	4,604,191			$	4,820,845
Funds withheld for reinsurance liabilities
Reinsurance related embedded derivative			( 525,960 )				( 441,864 )
			$	4,078,231			$	4,378,981

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Derivatives Designated as Hedging Instruments

We used interest rate swaps designated and accounted for as fair value hedges to protect a portfolio of fixed-rate fixed maturity securities against changes in fair value due to changes in interest rates. Our interest rate swap contracts allowed us to pay a fixed rate and receive a floating rate utilizing the Secured Overnight Financing Rate at specified intervals based on a notional amount. Interest rate swaps were carried at fair value and presented as Derivative instruments on the Consolidated Balance Sheets.

For derivative instruments that were designated and qualified as a fair value hedge, the gain or loss on the portion of the derivative instrument included in the assessment of hedge effectiveness and the offsetting gain or loss on the hedged item attributable to the hedged risk were recognized in the same line item in the Consolidated Statements of Operations. The change in unrealized gain or loss attributable to interest rate changes on the fixed maturity securities that were designated as part of the hedge were reclassified out of Accumulated other comprehensive income (loss) into Change in fair value of derivatives in the Consolidated Statements of Operations. The remaining change in unrealized gain or loss on the hedged item not associated with the risk being hedged was recognized as a component of Other comprehensive income.

The following represents the amortized cost and cumulative fair value hedging adjustments included in the hedged assets:


Line Item in the Consolidated Balance Sheets in Which Hedged Item is Included	Amortized Cost of Hedged Item				Cumulative Amount of Fair Value Basis Adjustment Gain (Loss)
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
	(Dollars in thousands)
Fixed maturities, available for sale:
Current hedging relationships	$	—	$	389,060	$	—	$	( 39,128 )
Discontinued hedging relationships	1,280,224		1,594,736		( 69,756 )		( 94,681 )

The following represents a summary of the gains (losses) related to the derivatives and hedged items that qualify for fair value hedge accounting:


	Derivative		Hedged Item		Net		Amount Excluded: Recognized in Income Immediately
	(Dollars in thousands)
For the three months ended September 30, 2023
Interest rate swaps	$	—	$	—	$	—	$	—

For the three months ended September 30, 2022
Interest rate swaps	$	188,667	$	( 214,414 )	$	( 25,747 )	$	11,301

For the nine months ended September 30, 2023
Interest rate swaps	$	5,856	$	3,240	$	9,096	$	—

For the nine months ended September 30, 2022
Interest rate swaps	$	215,438	$	( 247,507 )	$	( 32,069 )	$	13,957

Derivatives Not Designated as Hedging Instruments

We have fixed index annuity products that guarantee the return of principal to the policyholder and credit interest based on a percentage of the gain in a specified market index. When fixed index annuity deposits are received, a portion of the deposit is used to purchase derivatives consisting of call options on the applicable market indices to fund the index credits due to fixed index annuity policyholders. Substantially all such call options are one year options purchased to match the funding requirements of the underlying policies. The call options are marked to fair value with the change in fair value included as a component of revenues. The change in fair value of derivatives includes the gains or losses recognized at the expiration of the option term and the changes in fair value for open positions. On the respective anniversary dates of the index policies, the index used to compute the index credit is reset and we purchase new call options to fund the next index credit. We manage the cost of these purchases through the terms of our fixed index annuities, which permit us to change caps, participation rates, and/or asset fees, subject to guaranteed minimums on each policy's anniversary date. By adjusting caps, participation rates, or asset fees, we can generally manage option costs except in cases where the contractual features would prevent further modifications.

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The changes in fair value of derivatives not designated as hedging instruments included in the Consolidated Statements of Operations are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Change in fair value of derivatives:
Call options	$	( 383,026 )	$	( 162,308 )	$	( 104,699 )	$	( 1,142,521 )
Warrants	—		83		1,206		262
Interest rate swaps	—		11,301		—		13,957
	$	( 383,026 )	$	( 150,924 )	$	( 103,493 )	$	( 1,128,302 )
Change in fair value of embedded derivatives:
Fixed index annuities - embedded derivatives	$	( 323,080 )	$	( 299,144 )	$	250,494	$	( 2,176,911 )
Reinsurance related embedded derivative	( 128,726 )		( 116,230 )		( 84,096 )		( 518,096 )
	$	( 451,806 )	$	( 415,374 )	$	166,398	$	( 2,695,007 )

Derivative Exposure

We attempt to mitigate potential risk of loss due to the nonperformance of the counterparties through a regular monitoring process which evaluates the program's effectiveness. We do not purchase derivative instruments that would require payment or collateral to another institution and our derivative instruments do not contain counterparty credit-risk-related contingent features. We are exposed to risk of loss in the event of nonperformance by the counterparties and, accordingly, we purchase our derivative instruments from multiple counterparties and evaluate the creditworthiness of all counterparties prior to purchase of the contracts. All non-exchange traded derivative instruments have been purchased from nationally recognized financial institutions with a Standard and Poor's credit rating of A- or higher at the time of purchase and the maximum credit exposure to any single counterparty is subject to concentration limits. Both our call options and interest rate swaps fall under the same credit support agreements with each counterparty that allow us to request the counterparty to provide collateral to us when the fair value of our exposure to the counterparty exceeds specified amounts.

The notional amount and fair value of our call options and interest rate swaps by counterparty and each counterparty's current credit rating are as follows:


			September 30, 2023				December 31, 2022
Counterparty	Credit Rating (S&P)	Credit Rating (Moody's)	Notional Amount		Fair Value		Notional Amount		Fair Value
			(Dollars in thousands)
Bank of America	A+	Aa1	$	4,458,432	$	37,833	$	3,574,125	$	26,080
Barclays	A+	A1	2,360,864		65,937		3,686,896		39,657
Canadian Imperial Bank of Commerce	A+	Aa2	1,266,781		37,238		2,707,734		34,218
Citibank, N.A.	A+	Aa3	3,582,088		36,800		3,748,162		29,873
Credit Suisse	A+	A3	1,961,115		17,525		2,086,470		20,691
Goldman Sachs	A+	A1	105,238		327		—		—
J.P. Morgan	A+	Aa2	4,593,302		37,157		6,501,103		69,006
Mizuho	A	A1	7,685,054		172,280		—		—
Morgan Stanley	A+	Aa3	1,708,060		14,328		2,957,389		38,470
Royal Bank of Canada	AA-	A1	4,380,240		118,325		4,378,132		58,026
Societe Generale	A	A1	2,870,061		39,335		2,099,081		17,157
Truist	A	A2	2,003,795		52,208		1,960,787		32,885
UBS AG	A+	Aa3	443,410		5,199		—		—
Wells Fargo	A+	Aa2	3,545,311		98,655		5,436,824		61,840
Exchange traded			30,165		637		199,200		2,655
			$	40,993,916	$	733,784	$	39,335,903	$	430,558

As of September 30, 2023 and December 31, 2022, we held $ 0.7 billion and $ 0.4 billion, respectively, of cash and cash equivalents and other investments from counterparties for derivative collateral, which is included in Other liabilities on our Consolidated Balance Sheets. This derivative collateral limits the maximum amount of economic loss due to credit risk that we would incur if the counterparties failed completely to perform according to the terms of the contracts to $ 5.4 million and $ 3.3 million at September 30, 2023 and December 31, 2022, respectively.

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The future index credits on our fixed index annuities are treated as a "series of embedded derivatives" over the expected life of the applicable contract. We do not purchase call options to fund the index liabilities which may arise after the next policy anniversary date. We must value both the call options and the related forward embedded options in the policies at fair value.

We cede certain fixed index annuity product liabilities to third party reinsurers on a modified coinsurance basis which results in an embedded derivative. The obligation to pay the total return on the assets supporting liabilities associated with this reinsurance agreement represents a total return swap. The fair value of the total return swap is based on the unrealized gains and losses of the underlying assets held in the modified coinsurance portfolio. The reinsurance related embedded derivative is reported in Funds withheld for reinsurance liabilities on the Consolidated Balance Sheets and the change in the fair value of the embedded derivative is reported in Change in fair value of embedded derivatives on the Consolidated Statements of Operations.

7. Deferred Policy Acquisition Costs and Deferred Sales Inducements

Deferred Policy Acquisition Costs

The following tables present the balances and changes in deferred policy acquisition costs:











	Nine Months Ended September 30, 2023
	Fixed Index Annuities		Fixed Rate Annuities		Single Premium Immediate Annuities		Total
	(Dollars in thousands)
Balance, beginning of period	$	2,649,322	$	120,105	$	4,216	$	2,773,643

Capitalizations	350,302		16,586		45		366,933
Amortization expense	( 184,710 )		( 22,069 )		( 493 )		( 207,272 )
Balance, end of period	$	2,814,914	$	114,622	$	3,768	$	2,933,304


	Year Ended December 31, 2022
	Fixed Index Annuities		Fixed Rate Annuities		Single Premium Immediate Annuities		Total
	(Dollars in thousands)
Balance, beginning of period	$	2,906,684	$	151,322	$	4,198	$	3,062,204
Write-off related to in-force ceded reinsurance	( 196,417 )		( 7,209 )		—		( 203,626 )
Capitalizations	193,989		4,424		663		199,076
Amortization expense	( 254,934 )		( 28,432 )		( 645 )		( 284,011 )
Balance, end of period	$	2,649,322	$	120,105	$	4,216	$	2,773,643

Deferred Sales Inducements

The following tables present the balances and changes in deferred sales inducements:










	Nine Months Ended September 30, 2023
	Fixed Index Annuities		Fixed Rate Annuities		Total
	(Dollars in thousands)
Balance, beginning of period	$	2,017,960	$	27,723	$	2,045,683
Capitalizations	353,220		67		353,287
Amortization expense	( 139,568 )		( 2,338 )		( 141,906 )
Balance, end of period	$	2,231,612	$	25,452	$	2,257,064


	Year Ended December 31, 2022
	Fixed Index Annuities		Fixed Rate Annuities		Total
	(Dollars in thousands)
Balance, beginning of period	$	2,088,591	$	31,370	$	2,119,961
Capitalizations	107,684		8		107,692
Amortization expense	( 178,315 )		( 3,655 )		( 181,970 )
Balance, end of period	$	2,017,960	$	27,723	$	2,045,683

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8. Policyholder Liabilities

Liability for Future Policy Benefits

The liability for future policy benefits consists only of the liability associated with single premium immediate annuities (SPIA) with life contingencies. As this business has no future expected premiums, the rollforward presented below is the present value of expected future benefits. The balances of and changes in the liability for future policy benefits for the nine months ended September 30, 2023 and year ended December 31, 2022 is as follows:


	Present Value of Expected Future Policy Benefits
	Nine Months Ended September 30, 2023		Year Ended December 31, 2022
	(Dollars in thousands)
Balance, beginning of period	$	318,677	$	402,305
Beginning balance at original discount rate	342,453		352,708
Effect of changes in cash flow assumptions	( 4,607 )		1,277
Effect of actual variances from expected experience	( 1,692 )		( 1,941 )
Adjusted beginning of year balance	336,154		352,044

Issuances	6,391		16,072
Interest accrual	10,357		14,664


Derecognition (lapses and benefit payments)	( 29,252 )		( 40,327 )
Ending balance at original discount rate	323,650		342,453
Effect of changes in discount rate assumptions	( 31,316 )		( 23,776 )
Balance, end of period	$	292,334	$	318,677

The reconciliation of the net liability for future policy benefits to the liability for future policy benefits included in policy benefit reserves in the consolidated balance sheets is as follows:


	September 30, 2023		December 31, 2022
	(Dollars in thousands)
Liability for future policy benefits	$	292,334	$	318,677
Deferred profit liability	22,975		19,223
	315,309		337,900
Less: Reinsurance recoverable	( 1,997 )		( 1,259 )
Net liability for future policy benefits, after reinsurance recoverable	$	313,312	$	336,641

The weighted-average liability duration of the liability for future policy benefits is as follows:


	September 30, 2023	December 31, 2022
SPIA With Life Contingency:
Weighted-average liability duration of the liability for future policy benefits (years)	6.82	6.78

The following table presents the amount of undiscounted expected future benefit payments and expected gross premiums:


	September 30, 2023		December 31, 2022
	(Dollars in thousands)
SPIA With Life Contingency:
Expected future benefit payments	$	446,831	$	467,627
Expected future gross premiums	—		—

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The amount of revenue and interest associated with the liability for future policy benefits recognized in the statement of operations for the nine months ended September 30, 2023 and year ended December 31, 2022 is as follows:


	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
		Gross Premiums or Assessments		Interest Expense		Gross Premiums or Assessments		Interest Expense
		(Dollars in thousands)
SPIA With Life Contingency		$	6,994	$	10,297	$	16,994	$	14,613

Total		$	6,994	$	10,297	$	16,994	$	14,613

The weighted-average interest rate is as follows:


	September 30, 2023		December 31, 2022
Interest accretion rate	4.25	%	4.25	%
Current discount rate	5.92	%	5.37	%

Market Risk Benefits

The balances of and changes in the liability for market risk benefits (MRB) for the nine months ended September 30, 2023 and year ended December 31, 2022 is as follows:


	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
		Fixed Rate Annuities		Fixed Index Annuities		Fixed Rate Annuities		Fixed Index Annuities
		(Dollars in thousands)
MRB Liability
Balance, beginning of period		$	37,863	$	2,187,758	$	78,411	$	2,557,378
Balance, beginning of period, before effect of changes in the instrument-specific credit risk		44,355		2,453,169		77,731		2,310,437
Issuances		32		218,643		376		59,452
Interest accrual		2,294		118,391		1,349		72,551
Attributed fees collected		920		93,757		1,270		125,168
Benefits payments		—		—		—		—
Effect of changes in interest rates		( 8,338 )		( 401,074 )		( 19,421 )		( 952,265 )
Effect of changes in equity markets		—		( 9,167 )		—		186,618
Effect of changes in equity index volatility		—		( 36,721 )		—		241,563
Actual policyholder behavior different from expected behavior		—		—		—		—
Effect of changes in future expected policyholder behavior		( 250 )		( 948 )		602		46,567
Effect of changes in other future expected assumptions		16,720		( 219,094 )		( 17,552 )		363,078
Balance, end of period, before effect of changes in the instrument-specific credit		55,733		2,216,956		44,355		2,453,169
Effect of changes in the instrument-specific credit risk		( 5,134 )		( 61,163 )		( 6,492 )		( 265,411 )
Balance, end of period		50,599		2,155,793		37,863		2,187,758
Reinsured MRB, end of period		15,776		562,516		10,656		593,959
Balance, end of period, net of reinsurance		$	34,823	$	1,593,277	$	27,207	$	1,593,799

Net amount at risk (a)		$	265,429	$	11,673,620	$	258,826	$	10,987,198
Weighted average attained age of contract holders (years)		70		71		69		71

(a) Net amount at risk is defined as the current guarantee amount in excess of the current account balance.

The following is a reconciliation of market risk benefits by amounts in an asset position and in a liability position to market risk benefit amounts included in other assets and market risk benefit reserves, respectively, in the Consolidated Balance Sheets:


	September 30, 2023
	Asset		Liability		Net Liability
	(Dollars in thousands)
Fixed Index Annuities	$	343,923	$	2,499,716	$	2,155,793
Fixed Rate Annuities	2,592		53,191		50,599

Total	$	346,515	$	2,552,907	$	2,206,392

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	December 31, 2022
	Asset		Liability		Net Liability
	(Dollars in thousands)
Fixed Index Annuities	$	226,294	$	2,414,052	$	2,187,758
Fixed Rate Annuities	3,577		41,440		37,863

Total	$	229,871	$	2,455,492	$	2,225,621

Reinsured Market Risk Benefits

The following table presents the balances and changes in reinsured market risk benefits associated with fixed index annuities for the nine months ended September 30, 2023 and year ended December 31, 2022:


	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
		Fixed Rate Annuities		Fixed Index Annuities		Fixed Rate Annuities		Fixed Index Annuities
		(Dollars in thousands)
Ceded MRB
Balance, beginning of period		$	10,656	$	593,959	$	—	$	156,931
Write-off related to in-force ceded reinsurance		—		—		10,091		334,835
Issuances		—		146,498		—		36,036
Interest accrual		536		24,861		104		7,598
Attributed fees collected		41		22,440		28		23,745
Benefits payments		—		—		—		—
Effect of changes in interest rates		( 1,129 )		( 74,994 )		135		( 171,948 )
Effect of changes in equity markets		—		( 2,167 )		118		43,799
Effect of changes in equity index volatility		—		( 8,485 )		—		34,278
Actual policyholder behavior different from expected behavior		—		—		—		—
Effect of changes in future expected policyholder behavior		58		5,098		180		12,598
Effect of changes in other future expected assumptions		5,614		( 144,694 )		—		116,087
Balance, end of period		$	15,776	$	562,516	$	10,656	$	593,959

Net amount at risk (a)		$	74,611	$	2,828,270	$	72,350	$	2,402,964
Weighted average attained age of contract holders (years)		70		70		70		71

(a) Net amount at risk is defined as the current guarantee amount in excess of the current account balance.

The following is a reconciliation of reinsurance market risk benefits by amounts in an asset position and in liability position to market risk benefit amounts included in coinsurance deposits and other liabilities, respectively, in the consolidated balance sheets:


	September 30, 2023
	Asset		Liability		Net Asset
	(Dollars in thousands)
Fixed Index Annuities	$	695,387	$	132,871	$	562,516
Fixed Rate Annuities	16,026		250		15,776

Total	$	711,413	$	133,121	$	578,292


	December 31, 2022
	Asset		Liability		Net Asset
	(Dollars in thousands)
Fixed Index Annuities	$	629,611	$	35,652	$	593,959
Fixed Rate Annuities	11,070		414		10,656

Total	$	640,681	$	36,066	$	604,615

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Significant Inputs for Fair Value Measurement - Market Risk Benefits

The following tables provides a summary of the significant inputs and assumptions used in the fair value measurements of market risk benefits:


	September 30, 2023
	Fair Value		Valuation Technique	Significant Inputs and Assumptions	Range	Weighted Average
	(in thousands)
Market risk benefits	$	2,206,392	Discounted cash flow	Utilization (a)	0.04 % - 47.37 %	5.62 %
Ceded market risk benefits	578,292			Option budget (b)	1.85 % - 2.75 %	2.29 %
				Risk-free interest rate (c)	3.63 % - 5.44 %	4.05 %
				Nonperformance risk (d)	0.66 % - 3.00 %	2.21 %
				Mortality (e)	0.01 % - 46.00 %	3.73 %
				Lapse (f)	0.25 % - 40.00 %	3.69 %


	December 31, 2022
	Fair Value		Valuation Technique	Significant Inputs and Assumptions	Range	Weighted Average
	(in thousands)
Market risk benefits	$	2,225,621	Discounted cash flow	Utilization (a)	0.04 % - 78.75 %	4.24 %
Ceded market risk benefits	604,615			Option budget (b)	1.65 % - 2.50 %	2.31 %
				Risk-free interest rate (c)	2.51 % - 4.90 %	3.31 %
				Nonperformance risk (d)	0.06 % - 3.27 %	2.59 %
				Mortality (e)	0.01 %- 44.00 %	3.44 %
				Lapse (f)	0.25 %- 40.00 %	3.65 %

(a) The utilization assumption represents the percentage of policyholders who will elect to receive lifetime income benefit payments in a given year. The range and weighted average of this assumption can vary from year to year depending on the characteristics of policies in a given cohort within the range. A decrease (increase) in the utilization assumption used in the fair value of market risk benefits could lead to favorable (unfavorable) changes in the market risk benefits.

(b) The option budget assumption represents the expected cost of annual call options we will purchases in the future. An increase (decrease) in the option budget assumption used in the fair value of market risk benefits could lead to favorable (unfavorable) changes in the market risk benefits.

(c) The risk-free interest rate assumption impacts the discount rate used in the discounted future cash flow valuation. An increase (decrease) in the risk-free interest rate assumption used in the fair value of market risk benefits could lead to favorable (unfavorable) changes in the market risk benefits.

(d) The nonperformance risk assumption impacts the discount rate used in the discounted future cash flow valuation and includes our own credit risk based on the current market credit spreads for debt-like instruments we have issued and are available in the market. Additionally, the nonperformance risk assumption includes the counterparty credit risk used in the fair value measurement of ceded market risk benefits which is determined using the current market credit spreads based on the counterparty credit rating. An increase (decrease) in the nonperformance risk assumption for own credit risk used in the fair value of market risk benefits could lead to favorable (unfavorable) changes in the market risk benefits. An decrease (increase) in the nonperformance risk assumption for counterparty credit risk used in the fair value of ceded market risk benefits could lead to favorable (unfavorable) changes in the ceded market risk benefits.

(e) The mortality rate assumptions are set based on a combination of company and industry experience, adjusted for improvement factors. Mortality rates vary by age and by demographic characteristics such as gender. An increase (decrease) in the mortality rate assumptions used in the fair value of market risk benefits could lead to favorable (unfavorable) changes in the market risk benefits.

(f) The lapse rate assumptions represent the expected rate of full surrenders which are set based on product type or feature and whether a policy is subject to surrender charges. An increase (decrease) in lapse rate assumptions used in the fair value of market risk benefits could lead to favorable (unfavorable) changes in the market risk benefits.

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During the nine months ended September 30, 2023, the Company made the following notable changes to significant inputs and assumptions resulting in changes in the fair value measurement of market risk benefits:

• Utilization assumptions were increased resulting in an increase to the market risk benefits liability and a decrease to net income.

• Option budget assumptions were changed to increase the near term assumption and decrease the long-term assumption. There was no change to the grading of these assumptions. The net impact of these changes resulted in an increase in the market risk benefits and a decrease to net income.

• Mortality assumptions were increased resulting in a decrease to the market risk benefits liability and an increase to net income.

• Lapse assumptions were increased resulting in a decrease to the market risk benefits liability and an increase to net income.

During the year ended December 31, 2022, the Company made the following notable changes to significant inputs and assumptions resulting in changes in the fair value measurement of market risk benefits:

• Utilization assumptions were increased resulting in an increase to the market risk benefits liability and a decrease to net income.

• Option budget assumptions were increased resulting in a decrease to the market risk benefits liability and an increase to net income.

• Mortality assumptions were decreased resulting in an increase to the market risk benefits liability and a decrease to net income.

• Lapse assumptions were increased resulting in a decrease to the market risk benefits liability and an increase to net income.

Policyholder Account Balances

The following table presents the balances and changes in policyholders’ account balances:


	Nine Months Ended September 30, 2023				Year Ended December 31, 2022
		Fixed Rate Annuities			Fixed Index Annuities			Fixed Rate Annuities			Fixed Index Annuities
		(Dollars in thousands)
Balance, beginning of period		$	6,589,577		$	53,826,234		$	6,860,060		$	55,003,305
Issuances		569,851			5,276,791			159,570			3,001,738
Premiums received		11,871			112,087			4,811			170,493
Policy charges		( 3,506 )			( 188,503 )			( 6,587 )			( 272,604 )
Surrenders and withdrawals		( 713,181 )			( 4,120,220 )			( 574,590 )			( 3,945,504 )
Benefit payments		( 9,782 )			( 610,452 )			( 11,328 )			( 727,847 )
Interest credited		123,713			708,194			151,762			599,259
Other		( 18,730 )			( 2,790 )			5,879			( 2,606 )
Balance, end of period		$	6,549,813		$	55,001,341		$	6,589,577		$	53,826,234

Weighted-average crediting rate		2.53		%	1.75		%	2.28		%	1.11		%
Net amount at risk (a)		$	265,429		$	11,673,620		$	258,826		$	10,987,198
Cash surrender value		$	6,169,436		$	50,607,640		$	6,208,597		$	49,551,657

(a) Net amount at risk is defined as the current guarantee amount in excess of the current account balance.

The following table presents the reconciliation of policyholders’ account balances to policy benefit reserves in the consolidated balance sheets:


	September 30, 2023		December 31, 2022
	(Dollars in thousands)
Fixed index annuities policyholder account balances	$	55,001,341	$	53,826,234
Fixed rate annuities policyholder account balances	6,549,813		6,589,577
Embedded derivative adjustment (b)	( 1,684,963 )		( 1,996,640 )
Liability for future policy benefits	292,334		318,677
Deferred profit liability	22,975		19,223
Other	44,594		24,765
Total	$	60,226,094	$	58,781,836

(b) The embedded derivative adjustment reconciles the account balance to the gross GAAP liability and represents the combination of the host contract and the fair value of the embedded derivatives.

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The following table presents the balance of account values by range of guaranteed minimum crediting rates and the related range of the difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums:


	September 30, 2023
	Range of guaranteed minimum crediting rate	At guaranteed minimum		1 to 50		51 to 150		Greater than 150 basis points above		Total
		(Dollars in thousands)
Fixed Index Annuities	0.00 % - 0.50 %	$	—	$	833,693	$	466,501	$	840,895	$	2,141,089
	0.50 % - 1.00 %	2,379,142		1,060,459		2,105,601		127,464		5,672,666
	1.00 % - 1.50 %	45,031		9,083		—		—		54,114
	1.50 % - 2.00 %	50		—		—		—		50
	2.00 % - 2.50 %	126,181		78,511		8		—		204,700
	2.50 % - 3.00 %	817,671		—		—		—		817,671
	Greater than 3.00 %	—		—		—		—		—
	Allocated to index strategies									46,111,051
Total		$	3,368,075	$	1,981,746	$	2,572,110	$	968,359	$	55,001,341

Fixed Rate Annuities	0.00 % - 0.50 %	$	52	$	—	$	—	$	—	$	52
	0.50 % - 1.00 %	53,147		178,358		3,833,822		985,499		5,050,826
	1.00 % - 1.50 %	442,739		235		—		—		442,974
	1.50 % - 2.00 %	359,167		32,400		226,713		215		618,495
	2.00 % - 2.50 %	17,870		23		—		—		17,893
	2.50 % - 3.00 %	365,385		6,956		—		—		372,341
	Greater than 3.00 %	47,232		—		—		—		47,232
Total		$	1,285,592	$	217,972	$	4,060,535	$	985,714	$	6,549,813


	December 31, 2022
	Range of guaranteed minimum crediting rate	At guaranteed minimum		1 to 50		51 to 150		Greater than 150 basis points above		Total
		(Dollars in thousands)
Fixed Index Annuities	0.00 % - 0.50 %	$	—	$	462,356	$	407,426	$	314,929	$	1,184,711
	0.50 % - 1.00 %	2,421,795		1,098,332		2,258,992		77,901		5,857,020
	1.00 % - 1.50 %	51,586		9,391		—		—		60,977
	1.50 % - 2.00 %	57		—		—		—		57
	2.00 % - 2.50 %	133,059		100,205		8		—		233,272
	2.50 % - 3.00 %	939,684		—		—		—		939,684
	Greater than 3.00 %	—		—		—		—		—
	Allocated to index strategies									45,550,513
Total		$	3,546,181	$	1,670,284	$	2,666,426	$	392,830	$	53,826,234

Fixed Rate Annuities	0.00 % - 0.50 %	$	61	$	—	$	—	$	—	$	61
	0.50 % - 1.00 %	55,458		203,523		4,000,203		701,836		4,961,020
	1.00 % - 1.50 %	454,728		231		—		—		454,959
	1.50 % - 2.00 %	281,694		96,767		277,053		189		655,703
	2.00 % - 2.50 %	21,887		22		—		—		21,909
	2.50 % - 3.00 %	434,042		7,417		—		—		441,459
	Greater than 3.00 %	54,466		—		—		—		54,466
Total		$	1,302,336	$	307,960	$	4,277,256	$	702,025	$	6,589,577

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9. Notes and Loan Payable

Notes and loan payable includes the following:


	September 30, 2023		December 31, 2022
	(Dollars in thousands)
Senior notes due 2027
Principal	$	500,000	$	500,000
Unamortized debt issue costs	( 2,507 )		( 2,960 )
Unamortized discount	( 151 )		( 178 )
Term loan due 2027
Principal	300,000		300,000
Principal paydown	( 9,375 )		( 3,750 )
Unamortized debt issue costs	( 869 )		( 1,039 )
	$	787,098	$	792,073

On June 16, 2017, we issued $ 500 million aggregate principal amount of senior unsecured notes due 2027 which bear interest at 5.0 % per year and will mature on June 15, 2027 (the "2027 Notes"). The 2027 Notes were issued at a $ 0.3 million discount, which is being amortized over the term of the 2027 Notes using the effective interest method. Contractual interest is payable semi-annually in arrears each June 15th and December 15th. The initial transaction fees and costs totaling $ 5.8 million were capitalized as deferred financing costs and are being amortized over the term of the 2027 Notes using the effective interest method.

On February 15, 2022, we entered into a five -year, $ 300 million unsecured delayed draw term loan credit agreement. On July 6, 2022, we borrowed $ 300 million under this agreement. We will pay a floating rate of interest on the term loan utilizing SOFR adjusted for a credit spread. The term loan matures on February 15, 2027 and is amortizing at 2.5 % annually for the first three years and 5.0 % for the last two years.

10. Commitments and Contingencies

We are occasionally involved in litigation, both as a defendant and as a plaintiff. In addition, state and federal regulatory bodies, such as state insurance departments, the Securities and Exchange Commission ("SEC") and the Department of Labor, regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws and the Employee Retirement Income Security Act of 1974, as amended.

In accordance with applicable accounting guidelines, we establish an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. As a litigation or regulatory matter is developing we, in conjunction with outside counsel, evaluate on an ongoing basis whether the matter presents a loss contingency that meets conditions indicating the need for accrual and/or disclosure, and if not, the matter will continue to be monitored for further developments. If and when the loss contingency related to litigation or regulatory matters is deemed to be both probable and estimable, we will establish an accrued liability with respect to that matter and will continue to monitor the matter for further developments that may affect the amount of the accrued liability.

There can be no assurance that any pending or future litigation will not have a material adverse effect on our business, financial condition, or results of operations.

In addition to our commitments to fund mortgage loans, we have unfunded commitments at September 30, 2023 to limited partnerships of $ 725.5 million, and fixed maturity securities of $ 1.1 billion.

Through our FHLB membership, we have issued funding agreements to the FHLB in exchange for cash advances. As of September 30, 2023, we had no FHLB funding agreements outstanding. We are required to provide collateral in excess of the funding agreement amounts outstanding. The fixed maturity security investments pledged for collateral had a fair value of $ 1.7 billion at September 30, 2023.

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11. Earnings Per Common Share and Stockholders' Equity

Earnings Per Common Share

The following table sets forth the computation of earnings per common share and earnings per common share - assuming dilution:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands, except per share data)
Numerator:
Net income available to common stockholders - numerator for earnings per common share	$	465,238	$	433,971	$	642,769	$	1,854,891

Denominator:
Weighted average common shares outstanding	78,033,828		87,707,426		79,719,497		92,338,919
Effect of dilutive securities:
Stock options and deferred compensation agreements	702,387		452,321		599,809		517,490
Restricted stock and restricted stock units	1,215,929		421,391		871,466		413,106

Denominator for earnings per common share - assuming dilution	79,952,144		88,581,138		81,190,772		93,269,515

Earnings per common share	$	5.96	$	4.95	$	8.06	$	20.09
Earnings per common share - assuming dilution	$	5.82	$	4.90	$	7.92	$	19.89

There were no options to purchase shares of our common stock outstanding excluded from the computation of diluted earnings per common share during the three and nine months ended September 30, 2023 and 2022, as the exercise price of all options outstanding was less than the average market price of our common shares for those periods.

Stockholders' Equity

On June 10, 2020, we issued 12,000 shares of 6.625 % Fixed-Rate Reset Non-Cumulative Preferred Stock, Series B ("Series B") with a $ 1.00 par value per share and a liquidation preference of $ 25,000 per share, for aggregate net proceeds of $ 290.3 million.

On November 21, 2019 we issued 16,000 shares of 5.95 % Fixed-Rate Reset Non-Cumulative Preferred Stock, Series A ("Series A") with a $ 1.00 par value per share and a liquidation preference of $ 25,000 per share, for aggregate net proceeds of $ 388.9 million.

Dividends on the Series A and Series B preferred stock are payable on a non-cumulative basis only when, as and if declared, quarterly in arrears on the first day of March, June, September and December of each year, commencing on March 1, 2020 for Series A and on December 1, 2020 for Series B. For both the three and nine months ended September 30, 2023 and 2022, we paid dividends totaling $ 5.9 million and $ 17.8 million for Series A preferred stock and $ 5.0 million and $ 14.9 million for Series B preferred stock, respectively. The Series A and Series B preferred stock rank senior to our common stock with respect to dividends, to the extent declared, and in liquidation, to the extent of the liquidation preference. The Series A and Series B preferred stock are not subject to any mandatory redemption, sinking fund, retirement fund, purchase fund or similar provisions.

Brookfield Asset Management Equity Investment

On October 18, 2020, we announced an agreement with Brookfield Asset Management, Inc. and its affiliated entities (collectively, "Brookfield") under which Brookfield would acquire up to a 19.9 % ownership interest of common stock in the Company. The equity investment by Brookfield took place in two stages: an initial purchase of a 9.9 % equity interest at $ 37.00 per share which closed on November 30, 2020 with Brookfield purchasing 9,106,042 shares, and a second purchase of an additional 6,775,000 shares which were issued to Brookfield at $ 37.33 per share in January of 2022, resulting in total ownership of approximately 16 %. Brookfield also received the right to nominate one candidate for the Company’s Board of Directors following the initial equity investment.

Share Repurchase Program

As part of a share repurchase program, the Company's Board of Directors approved the repurchase of Company common stock of $ 500 million on November 19, 2021, and an additional $ 400 million on November 11, 2022. The share repurchase program has offset dilution from the issuance of shares to Brookfield, and its purpose remains to institute a regular cash return program for shareholders.

On March 17, 2023 we entered into an accelerated share repurchase (ASR) agreement with JPMorgan Chase Bank, National Association to repurchase an aggregate of $ 200 million of our common stock. Under the ASR agreement, we received an initial share delivery of approximately 4.8 million shares representing approximately 80 % of the number of shares initially underlying the ASR. The average price paid for the initial share delivery under the ASR was $ 33.12 per common share. The ASR agreement was determined to be an equity contract. The ASR was terminated on July 13, 2023, and a payment of $ 14 million was made to settle for the final volume-weighted average price associated with the initial share delivery.

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From the 2020 inception of the share repurchase program through September 30, 2023, we have repurchased approximately 31.2 million shares of our common stock at an average price of $ 35.21 per common share, including 2.4 million shares repurchased in the open market during the nine months ended September 30, 2023. As of September 30, 2023, we had $ 276 million remaining under our share repurchase program.

Treasury Stock

As of September 30, 2023, we held 30,971,013 shares of treasury stock with a carrying value of $ 1.1 billion. As of December 31, 2022, we held 24,590,353 shares of treasury stock with a carrying value of $ 823.1 million.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis reviews our unaudited consolidated financial position at September 30, 2023, and the unaudited consolidated results of operations for the three and nine month periods ended September 30, 2023 and 2022, and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q, and the audited consolidated financial statements, notes thereto and selected consolidated financial data appearing in our Annual Report on Form 10-K for the year ended December 31, 2022. Interim operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the entire year. Preparation of financial statements requires use of management estimates and assumptions. On January 1, 2023, we adopted ASU 2018-12, more commonly referred to as Long Duration Targeted Improvements. As such, results for 2022 have been recast and are also presented under the new guidance.

Cautionary Statement Regarding Forward-Looking Information

All statements, trend analysis and other information contained in this report and elsewhere (such as in filings by us with the SEC, press releases, presentations by us or management or oral statements) may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. Forward-looking statements give expectations or forecasts of future events and do not relate strictly to historical or current facts. They may relate to markets for our products, trends in our operations or financial results, strategic alternatives, future operations, strategies, plans, partnerships, investments, share buybacks and other financial developments. They use words and terms such as anticipate, assume, believe, can, continue, could, enable, estimate, expect, foreseeable, goal, improve, intend, likely, may, model, objective, opportunity, outlook, plan, potential, project, remain, risk seek, should, strategy, target, will, would, and other words and terms of similar meaning or that are otherwise tied to future periods or future performance, in each case in all forms of speech and derivative forms, or similar words, as well as any projections of future events or results. Forward-looking statements, by their nature, are subject to a variety of assumptions, risks, and uncertainties that could cause actual results to differ materially from the results projected. Many of these risks and uncertainties cannot be controlled by the Company. Factors that may cause our actual decisions or results to differ materially from those contemplated by these forward-looking statements include, among other things:

• delay in completing, or failure to complete, the merger with BAM.

• disruption of relationships with third parties and employees, diversion of management’s attention, negative publicity, or legal proceedings from efforts to complete the merger with BAM.

• limits on the ability to pursue alternatives to the merger with BAM.

• restrictions on business activities while the BAM merger agreement is in effect.

• results differing from assumptions, estimates, and models.

• interest rate condition changes.

• investment losses or failures to grow as quickly as expected due to market, credit, liquidity, concentration, default, and other risks.

• option costs increases.

• counterparty credit risks.

• third parties service-provider failures to perform or to comply with legal or regulatory requirements.

• poor attraction and retention of customers or distributors due to competitors’ greater resources, broader array of products, and higher ratings.

• information technology and communication systems failures or security breaches.

• credit or financial strength downgrades.

• inability to raise additional capital to support our business and sustain our growth on favorable terms.

• U.S. and global capital market and economic deterioration due to major public health issues, including the COVID-19 pandemic, political or social developments, or otherwise.

• failure to authorize and pay dividends on our preferred stock.

• subsidiaries’ inability to pay dividends or make other payments to us.

• failure at reinsurance, investment management, or third-party capital arrangements.

• failure to prevent excessive risk-taking.

• failure of policies and procedures to protect from operational risks.

• increased litigation, regulatory examinations, and tax audits.

• changes to laws, regulations, accounting, and benchmarking standards.

• takeover or combination delays or deterrence by laws, corporate governance documents, or change-in-control agreements.

• effects of climate changes, or responses to it.

• failure of efforts to meet environmental, social, and governance standards and to enhance sustainability.

• strained shareholder relationships or disadvantageous takeover proposals.

For a detailed discussion of these and other factors that might affect our performance, see Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and any disclosure in Item 1A of our Quarterly Reports on Form 10-Q. Forward-looking statements speak only as of the date the statement was made and the Company undertakes no obligation to update such forward-looking statements. There can be no assurance that other factors not currently disclosed or anticipated by the Company will not materially adversely affect our results of operations or plans. Investors are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf.

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Our Business and Profitability

We specialize in the sale of individual annuities (primarily fixed and fixed index deferred annuities) through independent marketing organizations ("IMOs"), agents, banks and broker-dealers. Fixed and fixed index annuities are an important product for Americans looking to fund their retirement needs as annuities have the ability to provide retirees a paycheck for life. We have one business segment which represents our core business comprised of the sale of fixed index and fixed rate annuities.

Under U.S. GAAP, premium collections for deferred annuities are reported as deposit liabilities instead of as revenues. Similarly, cash payments to policyholders are reported as decreases in the liabilities for policyholder account balances and not as expenses. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for lifetime income benefit riders, net realized gains (losses) on investments and changes in fair value of derivatives. Components of expenses for products accounted for as deposit liabilities are interest sensitive and index product benefits (primarily interest credited to account balances), changes in fair value of embedded derivatives, changes in market risk benefits, amortization of deferred sales inducements and deferred policy acquisition costs, other operating costs and expenses and income taxes.

Our profitability depends in large part upon:

• the amount of assets under our management,

• investment spreads we earn on our policyholder account balances,

• our ability to manage our investment portfolio to maximize returns and minimize risks such as interest rate changes and defaults or credit losses,

• our ability to appropriately price for lifetime income benefit riders offered on certain of our fixed rate and fixed index annuity policies,

• our ability to manage interest rates credited to policyholders and costs of the options purchased to fund the annual index credits on our fixed index annuities,

• our ability to manage the costs of acquiring new business (principally commissions paid to agents and distribution partners and bonuses credited to policyholders),

• our ability to maintain and continue to generate fee based revenue,

• our ability to manage our operating expenses, and

• income taxes.

While the business looks considerably different today than it did when it was started back in 1995, the themes have been consistent. We offer our customers simple fixed and fixed index annuity products, which we primarily sell through independent insurance agents in the IMO distribution channel. We have consistently been a leader in the IMO market. We will benefit from two secular trends: the demographic trends of people retiring or getting close to retirement who want to accumulate wealth through index based investing while protecting their principal and the need of retirees and pre-retirees to have a way to deaccumulate their wealth into income for life. A traditional brokerage based equity bond portfolio can’t really meet these unique needs, but a fixed index annuity can as part of a holistic financial plan. Finally, there is a scarcity value to what we do: that is originating billions of dollars of annuity funding each year at scale from the IMO channel, which is generally longer term funding than that achieved through sales in the bank and broker dealer channel.

We began to implement an updated strategy, referred to as AEL 2.0, after having undertaken a thorough review of our business in 2020. AEL 2.0 is designed to capitalize on the scarcity value of our annuity origination and couple it with an “open architecture” investment management platform for investing the annuity assets. Our approach to investment management is to partner with best in class investment management firms across a wide array of asset classes and capture part of the asset management value chain economics for our shareholders. This will enable us to operate at the intersection of both asset management and insurance. Our updated strategy focuses on four key pillars: Go-to-Market, Investment Management, Capital Structure and Foundational Capabilities.

During the first nine months of 2023, we continued to advance our AEL 2.0 strategy as we executed against the four key pillars. Key areas of advancement included the following:

• We increased sales to $5.6 billion during the first nine months of 2023, with fixed index annuities representing $5.1 billion of total sales. Total sales during the third quarter of 2023 were $2.2 billion, with fixed index annuities representing $2.2 billion of total sales. Fixed index annuity sales during the third quarter of 2023 increased 18% compared to the second quarter of 2023 and increased 203% compared to the third quarter of 2022.

• We continued to increase our allocation of investments to private assets. As of September 30, 2023, approximately $12.6 billion or 25.3% of our investment portfolio consisted of private assets. In addition, we increased our cash and cash equivalents holdings $6.0 billion during the third quarter of 2023 at a weighted average yield of 5.47% with the focus on raising additional liquidity.

• Effective February 8, 2023, we executed an amendment to our reinsurance agreement with AeBe ISA LTD ("AeBe") under which we ceded $228 million of flow multi-year guarantee annuity business contributing to a total of $2.3 billion of flow reinsurance during the nine months ending September 30, 2023, including $870.0 million during the third quarter of 2023.

• We repurchased 7.3 million shares of Company common stock, of which 2.5 million shares were repurchased in the open market at an average price of $38.24 and 4.8 million shares were delivered under an accelerated stock repurchase program (ASR) at an average price of $33.12. The ASR was executed on March 17, 2023 with 80% of the shares delivered upon execution. The ASR was terminated on

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July 13, 2023, and a payment of $14 million was made to settle for the final volume-weighted average price associated with the initial share delivery.

On August 30, 2023 S&P affirmed its "A-" financial strength rating on American Equity Life and its "BBB-" long-term issuer credit rating on American Equity Investment Life Holding Company.

On July 6, 2023, Fitch affirmed its "A-" financial strength rating on American Equity Investment Life Insurance Company and its life insurance subsidiaries, its "BBB" issuer default rating on American Equity Investment Life Holding Company and its "BBB-" senior unsecured debt ratings, and revised its outlook to "stable" from "negative" on its financial strength, issuer default and senior unsecured debt ratings.

On September 9, 2022, A.M. Best affirmed its "A-" financial strength rating on American Equity Investment Life Insurance Company and its subsidiaries, American Equity Investment Life Insurance Company of New York and Eagle Life Insurance Company, its "bbb-" long-term issuer credit rating of American Equity Investment Life Holding Company, its "bbb-" senior unsecured debt ratings, and its "bb" perpetual, non-cumulative preferred stock ratings.

Earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the interest credited or the cost of providing index credits to the policyholder, or the "investment spread." Our investment spread is summarized as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Average yield on invested assets	4.69%	4.48%	4.52%	4.33%
Aggregate cost of money	1.96%	1.75%	1.87%	1.69%
Aggregate investment spread	2.73%	2.73%	2.65%	2.64%

Impact of:
Investment yield - additional prepayment income	—%	0.03%	0.01%	0.04%
Cost of money benefit from over hedging	0.05%	—%	0.03%	0.02%

The cost of money for fixed index annuities and average crediting rates for fixed rate annuities are computed based upon policyholder account balances and do not include the impact of amortization of deferred sales inducements. With respect to our fixed index annuities, the cost of money includes the average crediting rate on amounts allocated to the fixed rate strategy and expenses we incur to fund the annual index credits. Proceeds received upon expiration of call options purchased to fund annual index credits are recorded as part of the change in fair value of derivatives and are largely offset by an expense for interest credited to annuity policyholder account balances. See Critical Accounting Policies - Policy Liabilities for Fixed Index Annuities and Financial Condition - Derivative Instruments included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2022.

Average yield on invested assets increased as compared to the prior periods primarily as a result of new money yields and the benefit of higher short-term interest rates on our floating rate portfolio partly offset by lower returns on our private assets and partnerships, lower prepayment income and an increase in investment expenses. See Net investment income . The aggregate cost of money increased primarily due to an increase in option costs as compared to the prior periods. We have the flexibility to reduce our crediting rates if necessary and could decrease our cost of money by approximately 125 basis points if we reduce current rates to guaranteed minimums.

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Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

Annuity deposits by product type collected during the three and nine months ended September 30, 2023 and 2022, were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
American Equity Investment Life Insurance Company:
Fixed index annuities	$	1,715,362	$	627,444	$	3,922,839	$	2,055,120
Annual reset fixed rate annuities	250		1,271		1,777		3,473
Multi-year fixed rate annuities	13,127		4,465		206,193		7,295
Single premium immediate annuities	210		1,915		915		18,441
	1,728,949		635,095		4,131,724		2,084,329
Eagle Life Insurance Company:
Fixed index annuities	498,431		102,379		1,133,303		333,507
Annual reset fixed rate annuities	—		143		3,039		150
Multi-year fixed rate annuities	10,616		14,684		341,777		17,147
	509,047		117,206		1,478,119		350,804
Consolidated:
Fixed index annuities	2,213,793		729,823		5,056,142		2,388,627
Annual reset fixed rate annuities	250		1,414		4,816		3,623
Multi-year fixed rate annuities	23,743		19,149		547,970		24,442
Single premium immediate annuities	210		1,915		915		18,441
Total before coinsurance ceded	2,237,996		752,301		5,609,843		2,435,133
Coinsurance ceded	871,661		253,446		2,335,186		682,461
Net after coinsurance ceded	$	1,366,335	$	498,855	$	3,274,657	$	1,752,672

Annuity deposits before and after coinsurance ceded increased 197% and 174%, respectively, during the third quarter of 2023 compared to the same period in 2022 and increased 130% and 87%, respectively, during the nine months ended September 30, 2023 compared to the same period in 2022. The increases in sales for the three and nine months ended September 30, 2023 compared to the same periods in 2022 were primarily driven by increases in fixed index annuity sales as a result of our income product sales, which benefited from a higher demand for guaranteed income solutions as a result of high volatility in the markets. In addition, annuity deposits for the nine months ended September 30, 2023 benefited from an increase in multi-year fixed rate annuities (MYGA) which reflects pricing support from the execution of the amendment to our reinsurance agreement with AeBe to cede new MYGA flow business beginning in the first quarter of 2023.

We began ceding certain fixed rate annuities issued after February 8, 2023 to AeBe, and we have continued to increase the amount of business ceded to North End Re under the reinsurance agreement executed in 2021, both of which contributed to the increases in coinsurance ceded annuity deposits for the three and nine months ended September 30, 2023 compared to the same periods of 2022.

Net income available to common stockholders increased to $465.2 million in the third quarter of 2023 and decreased to $642.8 million for the nine months ended September 30, 2023 compared to $434.0 million and $1.9 billion for the same periods in 2022 . The increase in net income available to common stockholders for the three months ended September 30, 2023 was driven primarily by a market risk benefit gain, increased annuity product charges, an increase in other revenues and a decrease in the change in fair value of embedded derivatives offset by a decrease in net investment income, a decrease in change in fair value of derivatives, an increase in net realized losses on investments, an increase in interest sensitive and index product benefits and an increase in other operating costs and expenses. The decrease in net income available to common stockholders for the nine months ended September 30, 2023 was driven primarily by an increase in the change in fair value of embedded derivatives, a decrease in net investment income, an increase in net realized losses on investments and an increase in other operating costs and expenses offset by a decrease in interest sensitive and product benefits, an increase in the market risk benefit gain, an increase in the change in fair value of derivatives, an increase in annuity product charges and an increase in other revenue.

Net income, in general, is impacted by the volume of business in force and the investment spread earned on this business. The average amount of annuity account balances outstanding (net of annuity liabilities ceded under coinsurance agreements) decreased 9.7% to $47.3 billion for the third quarter of 2023 and 10.5% to $47.3 billion for the nine months ended September 30, 2023 compare d to $52.3 billion and $52.8 billion for the same periods in 2022. Our investment spread measured in dollars was $357.8 million for the third quarter of 2023 and $1,013.8 million for the nine months ended September 30, 2023 com pared to $382.7 million and $1,091.7 million for the same periods in 2022. Net investment income for the three and nine months ended September 30, 2023 was negatively impacted by the lower volumes of business in force as a result of in-force reinsurance transactions executed in 2022, which was partly offset by the benefits to net investment income from higher short-term interest rates on our floating rate portfolio and attractive new money rates (see Net investment income ).

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Net income is also impacted by the change in fair value of derivatives and embedded derivatives, which fluctuates from period to period based upon changes in fair values of call options purchased to fund the annual index credits for fixed index annuities and changes in interest rates used to discount the embedded derivative liability. Net income for the three months ended September 30, 2023 was positively impacted by a decrease in the change in fair value of embedded derivatives while net income for the nine months ended September 30, 2023 was negatively impacted by an increase in the change in fair value of embedded derivatives. Net income for the three and nine months ended September 30, 2023 was negatively impacted by the change in fair value of derivatives. See Change in fair value of derivatives and Change in fair value of embedded derivatives.

In addition, net income is impacted by the change in the market risk benefits (gains) losses which fluctuates from period to period primarily based on changes in interest rates, equity market movement, equity index volatility and policyholder behavior. Net income for the three and nine months ended September 30, 2023 was positively impacted by decreases in the expense associated with the change in the market risk benefits. See Market risk benefit (gains) losses.

We periodically update the key assumptions used in the calculation of market risk benefits gains (losses), policy benefit reserves and the embedded derivative component of our fixed index annuity policy benefit reserves as experience develops that is different from our assumptions.

Net income available to common stockholders for the 2023 and 2022 periods includes effects from updates to assumptions as follows:


	Three and Nine Months Ended September 30,
		2023		2022
		(Dollars in thousands)
Increase (decrease) in market risk benefit (gain) loss		$	(63,294)	$	229,439
Increase (decrease) in policy benefit reserves (1)		(2,296)		3,051
Increase (decrease) in change in fair value of embedded derivatives		84,381		(94,770)
Effect on net income available to common stockholders		(14,750)		(106,905)

(1) The effect on policy benefit reserves from updates to assumptions is related to changes in the liability for future policy benefits and the deferred profit liability.

We review these assumptions quarterly and as a result of these reviews, we made updates to assumptions in the third quarter of 2023 and 2022.

The most significant assumption updates made in the third quarter of 2023 were to the crediting rates on policies, policyholder decrement assumptions including lapse, partial withdrawal and mortality rates, and lifetime income benefit rider utilization assumptions.

We increased the near term crediting/discount rate assumption which grades to the long-term assumption over the eight year reversion period. The long-term assumption was lowered slightly, and there were no changes to the grading period. The near term assumption increased 20 basis points to 1.85% from 1.65% for fixed index annuities while the long term assumption was lowered 5 basis points to 2.35% from 2.40% for fixed index annuities. These changes resulted in an increase in the fair value of the embedded derivative and an increase in the market risk benefit liability.

We updated lapse, partial withdrawal and mortality assumptions based on actual historical experience. We updated shock lapse rates resulting in increases to the assumption for accumulation products with a shorter surrender charge period and decreases to the assumption for policies with a non-utilized, no fee lifetime income benefit rider. In addition, we increased the dynamic lapse factor based on the lifetime income benefit rider profitability. The partial withdrawal assumption was updated to reflect more granular assumptions by product categories which led to an overall decrease in the partial withdrawal rates. The mortality assumption was updated to reflect higher mortality for older ages and lower mortality for younger ages resulting in an overall increase in mortality rates. The net impact of these changes resulted in an increase in the fair value of the embedded derivative, a decrease in the market risk benefit liability and a decrease in the liability for future policy benefits.

We updated our lifetime income benefit rider utilization assumption structure to reflect utilization rates by issue age and duration resulting in higher utilization rates for older business and lower utilization rates for newer business. In addition, the lifetime income benefit rider reset assumption was updated to assume 100% reset for policies with a no fee rider. These changes resulted in an increase in the market risk benefit liability and an increase in the fair value of the embedded derivative.

The most significant assumption updates made in 2022 were to the crediting rates on policies, lapse rate and partial withdrawal assumptions and lifetime income benefit rider utilization assumptions.

We increased the long-term crediting/discount rate assumption by 30 basis points to 1.65% in the near term increasing to 2.40% over the eight year reversion period. In addition, we adjusted the grading of the discount rate assumption in the embedded derivative calculation. These changes resulted in a decrease in the fair value of the embedded derivative due to the grading of the crediting rate assumption and a decrease in the market risk benefit liability due to a higher discount rate.

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We updated lapse rate and partial withdrawal assumptions based on actual historical experience. We refreshed lapse tables based on five years of lapse experience and implemented a 1% lapse floor. For policies with a lifetime income benefit rider that do not charge a fee, we increased the lapse rates. For policies with a lifetime income benefit rider that has been utilized, we decreased the lapse rates. We expanded our partial withdrawal assumptions to include scalars in our assumptions during the surrender charge period, shock period, and post-shock period. This resulted in partial withdrawals extending beyond the surrender charge period. The net impact of these changes resulted in a decrease in the market risk benefit liability due to a decrease the present value of expected claims as a result of higher overall lapses and increased the fair value of the embedded derivative due to higher overall lapses and partial withdrawals.

We updated our lifetime income benefit rider utilization assumption structure to capture policyholder characteristics at a more granular level. This resulted in an increase in the number of policies utilizing the benefit and increased the excess claims. The impact of this change resulted in an increase in the market risk benefit liability and an increase in the fair value of the embedded derivative.

Non-GAAP operating income (loss) available to common stockholders, a non-GAAP financial measure, increased to $195.5 million in the third quarter of 2023 and to $447.5 million for the nine months ended September 30, 2023 compared to $(8.7) million and $249.6 million for the same periods in 2022.

In addition to net income available to common stockholders, we have consistently utilized non-GAAP operating income (loss) available to common stockholders, a non-GAAP financial measure commonly used in the life insurance industry, as an economic measure to evaluate our financial performance. Non-GAAP operating income (loss) available to common stockholders equals net income available to common stockholders adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income (loss) available to common stockholders eliminate the impact of fair value accounting for our fixed index annuity business and are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income (loss) available to common stockholders together with net income available to common stockholders provides information that may enhance an investor's understanding of our underlying results and profitability.

Non-GAAP operating income (loss) available to common stockholders is not a substitute for net income available to common stockholders determined in accordance with GAAP. The adjustments made to derive non-GAAP operating income (loss) available to common stockholders are important to understand our overall results from operations and, if evaluated without proper context, non-GAAP operating income (loss) available to common stockholders possesses material limitations. As an example, we could produce a low level of net income available to common stockholders or a net loss available to common stockholders in a given period, despite strong operating performance, if in that period we experience significant net realized losses from our investment portfolio. We could also produce a high level of net income available to common stockholders in a given period, despite poor operating performance, if in that period we generate significant net realized gains from our investment portfolio. As an example of another limitation of non-GAAP operating income (loss) available to common stockholders, it does not include the decrease in cash flows expected to be collected as a result of credit losses on financial assets. Therefore, our management reviews net realized investment gains (losses) and analyses of our net investment income, including impacts related to credit losses, in connection with their review of our investment portfolio. In addition, our management examines net income available to common stockholders as part of their review of our overall financial results.

The adjustments made to net income available to common stockholders to arrive at non-GAAP operating income (loss) available to common stockholders for the three and nine months ended September 30, 2023 and 2022 are set forth in the table that follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Reconciliation from net income available to common stockholders to non-GAAP operating income (loss) available to common stockholders:
Net income available to American Equity Investment Life Holding Company common stockholders	$	465,238	$	433,971	$	642,769	$	1,854,891
Adjustments to arrive at non-GAAP operating income (loss) available to common stockholders:
Net realized losses on financial assets, including credit losses	46,771		16,945		93,892		67,724
Change in fair value of derivatives and embedded derivatives	(115,747)		(400,952)		(34,361)		(1,718,972)
Capital markets impact on the change in fair value of market risk benefits	(290,558)		(179,509)		(338,308)		(395,926)
Net investment income	(1,746)		—		372		—
Other revenue	5,969		—		17,907		—
Expenses incurred related to acquisition	9,714		—		9,714		—
Income taxes	75,879		120,802		55,487		441,836
Non-GAAP operating income (loss) available to common stockholders	$	195,520	$	(8,743)	$	447,472	$	249,553

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Non-GAAP operating income (loss) available to common stockholders for the 2023 and 2022 periods includes effects from updates to assumptions as follows:


	Three and Nine Months Ended September 30,
		2023		2022
	(Dollars in thousands)
Increase (decrease) in market risk benefit (gain) loss		$	(32,822)	$	230,832
Increase (decrease) in policy benefit reserves (1)		(2,296)		3,051
Effect on non-GAAP operating income (loss) available to common stockholders		27,568		(181,890)

(1) The effect on policy benefit reserves from updates to assumptions is related to changes in the liability for future policy benefits and the deferred profit liability.

The impact to net income available to common stockholders and non-GAAP operating income (loss) available to common stockholders from assumption updates varies due to the impact of fair value accounting for our fixed index annuity business as non-GAAP operating income (loss) available to common stockholders eliminates the impact of fair value accounting for our fixed index annuity business. While the assumption updates made during 2023 and 2022 were consistently applied, the impact to net income available to common stockholders and non-GAAP operating income (loss) available to common stockholders varies due to the impact of eliminating the fair value accounting for our fixed index annuity business.

The increases in non-GAAP operating income (loss) available to common stockholders for the three and nine months ended September 30, 2023 compared to the same periods in 2022 were primarily due to the favorable impact of assumption updates made during 2023 compared to the unfavorable impact of assumption updates made during 2022. Additionally, non-GAAP operating income (loss) available to common stockholders was positively impacted by increases in annuity product charges and increases in other revenues, partially offset by decreases in net investment income, increases in interest credited to account balances and increases in the amortization of deferred acquisition costs and deferred sales inducements.

Annuity product charges (surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for lifetime income benefit riders) increased 39% to $84.3 million in the third quarter of 2023 and 30% to $218.5 million for the nine months ended September 30, 2023 compared to $60.8 million and $168.7 million for the same periods in 2022. The components of annuity product charges are set forth in the table that follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
	(Dollars in thousands)
Surrender charges	$	45,550		$	19,783		$	105,869		$	50,669
Lifetime income benefit riders (LIBR) fees	38,766			41,036			112,680			118,019
	$	84,316		$	60,819		$	218,549		$	168,688

Withdrawals from annuity policies subject to surrender charges	$	677,964		$	328,503		$	1,738,847		$	785,956
Average surrender charge collected on withdrawals subject to surrender charges	6.7		%	6.0		%	6.1		%	6.4		%

Fund values on policies subject to LIBR fees	$	4,101,172		$	5,061,814		$	12,749,783		$	14,820,475
Weighted average per policy LIBR fee	0.95		%	0.81		%	0.88		%	0.80		%

The increases in annuity product charges for the three and nine months ended September 30, 2023 compared to the same periods in 2022 were attributable to increases in withdrawals from annuity policies subject to surrender charges partially offset by decreases in fees assessed for lifetime income benefit riders due to a smaller volume of business in force subject to the fee.

Net investment income decreased 4% to $586.6 million in the third quarter of 2023 and 4% to $1,690.6 million for the nine months ended September 30, 2023 compared to $609.7 million and $1,769.5 million for the same periods in 2022. The decreases were primarily attributable to decreases in the average invested asset balances partially offset by increases in the average yield earned on average invested assets during the three and nine months ended September 30, 2023 compared to the same periods in 2022. Average invested assets excluding derivative instruments decreased 9% to $49.5 billion for the third quarter of 2023 and 9% to $49.4 billion for the nine months ended September 30, 2023 compared to $54.4 billion and $54.6 billion for the same periods in 2022.

The average yield earned on average invested assets was 4.69% for the third quarter of 2023 and 4.52% for the nine months ended September 30, 2023 compared to 4.48% and 4.33% for the same periods in 2022. The increases in yield earned on average invested assets for the three and nine months ended September 30, 2023 compared to the same periods in 2022 were primarily due to higher short-term interest rates on our floating rate portfolio and attractive new money rates partially offset by lower returns on private assets and partnerships, lower prepayment income and an increase in investment expenses.

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The expected return on investments purchased during the three and nine months ended September 30, 2023 was 7.82% and 6.99%, net of third-party investment management expenses, including $0.6 billion of privately sourced assets with an expected return of 7.83%, and $2.8 billion of privately sourced assets with an expected return of 7.63% for the three and nine months ended September 30, 2023, respectively. The expected return on investments purchased during the three and nine months ended September 30, 2022 was 6.42% and 4.46%, net of third-party investment management expenses, including $1.3 billion of privately sourced assets with an expected return of 6.50% and $3.6 billion of privately sourced assets with an expected return of 5.80% for the three and nine months ended September 30, 2022, respectively.

Change in fair value of derivatives primarily consists of call options purchased to fund annual index credits on fixed index annuities. The components of change in fair value of derivatives are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Call options:
Proceeds received at option expiration	$	126,750	$	4,865	$	199,800	$	308,072
Pro rata amortization of option cost	(175,603)		(167,197)		(496,866)		(492,669)
Change in unrealized gains/losses	(334,173)		24		192,367		(957,924)
Warrants	—		83		1,206		262
Interest rate swaps	—		(14,446)		9,096		(18,112)
	$	(383,026)	$	(176,671)	$	(94,397)	$	(1,160,371)

The differences between the change in fair value of derivatives between periods for call options are primarily due to the performance of the indices upon which our call options are based which impacts the level of gains on call option expirations, the fair values of those call options and changes in the fair values of those call options between periods. The changes in gain (loss) on option expiration and unrealized gains/losses on call options for the three and nine months ended September 30, 2023 compared to the same periods in 2022 are due to equity market performance for the three and nine months ended September 30, 2023 compared to the same periods in 2022. A substantial portion of our call options are based upon the S&P 500 Index with the remainder based upon other equity and bond market indices. The range of index appreciation (after applicable caps, participation rates and asset fees) for options expiring during the three and nine months ended September 30, 2023 and 2022 is as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
S&P 500 Index
Point-to-point strategy	0.0% - 9.9%	0.0% - 0.0%	0.0% - 10.1%	0.0% - 12.5%
Monthly average strategy	0.0% - 8.5%	0.0% - 1.8%	0.0% - 8.5%	0.0% - 8.6%
Monthly point-to-point strategy	0.0% - 7.7%	0.0% - 0.0%	0.0% - 7.7%	0.0% - 12.9%
Volatility control index point-to-point strategy	0.0% - 5.6%	0.0% - 0.0%	0.0% - 5.6%	0.0% - 7.3%
Fixed income (bond index) strategies	0.0% - 5.9%	0.0% - 6.0%	0.0% - 6.0%	0.0% - 6.5%

The change in fair value of derivatives is also influenced by the aggregate cost of options purchased. The aggregate cost of options for the three and nine months ended September 30, 2023 was higher than for the same periods in 2022 as option costs were higher during the first nine months of 2023 compared to the same period of 2022. The aggregate cost of options is influenced by the amount of policyholder funds allocated to the various indices and market volatility which affects option pricing. See Critical Accounting Policies - Policy Liabilities for Fixed Index Annuities included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2022.

Net realized gains (losses) on investments includes gains and losses on the sale of securities and other investments and changes in allowances for credit losses on our securities and mortgage loans on real estate. Net realized gains (losses) on investments fluctuate from year to year primarily due to changes in the interest rate and economic environment and the timing of the sale of investments. See Note 3 - Investments and Note 4 - Mortgage Loans on Real Estate to our unaudited consolidated financial statements and Financial Condition - Credit Losses for a detailed presentation of the types of investments that generated the gains (losses) as well as discussion of credit losses on securities recognized during the periods presented and Financial Condition - Investments and Note 4 - Mortgage Loans on Real Estate to our unaudited consolidated financial statements for discussion of credit losses recognized on mortgage loans on real estate.

Securities sold at losses are generally due to our long-term fundamental concern with the issuers' ability to meet their future financial obligations or to improve our risk or duration profiles as they pertain to our asset liability management.

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Other revenue increased 89% to $20.8 million in the third quarter of 2023 and 84% to $53.9 million for the nine months ended September 30, 2023 compared to $11.0 million and $29.2 million for the same periods in 2022. The components of other revenue are summarized as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Asset liability management fees	$	5,426	$	3,298	$	16,448	$	9,224
Amortization of deferred gain	15,337		7,690		37,445		19,989
	$	20,763	$	10,988	$	53,893	$	29,213

The increases in other revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 were due to the increase in business ceded under the North End Re reinsurance treaty which was effective July 1, 2021 and the execution of a new in-force reinsurance transaction with AeBe which was effective October 3, 2022.

Interest sensitive and index product benefits increased 181% to $193.7 million in the third quarter of 2023 and decreased 25% to $374.0 million for the nine months ended September 30, 2023 compared to $69.0 million and $497.2 million for the same periods in 2022. The components of interest sensitive and index product benefits are summarized as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Index credits on index policies	$	120,894	$	4,648	$	189,934	$	301,431
Interest credited (including changes in minimum guaranteed interest for fixed index annuities)	72,792		64,334		184,050		195,814
	$	193,686	$	68,982	$	373,984	$	497,245

The increase in index credits for the three months ended September 30, 2023 and the decrease in index credits for the nine months ended September 30, 2023 compared to the same periods in 2022 were due to changes in the level of appreciation of the underlying indices (see discussion above under Change in fair value of derivatives ) and the amount of funds allocated by policyholders to the respective index options. Total proceeds received upon expiration of the call options purchased to fund the annual index credits were $126.8 million and $199.8 million for the three and nine months ended September 30, 2023, compared to $4.9 million and $308.1 million for the same periods in 2022. The increase in interest credited for the three months ended September 30, 2023 compared to the same period in 2022 was primarily due to an increase in the average fixed rate being earned on funds earning a fixed rate of interest including funds allocated to the fixed option strategy within our fixed index annuities. The decrease in interest credited for the nine months ended September 30, 2023 compared to the same period in 2022 was due to a decrease in the average balance of funds allocated to the fixed option strategy within our fixed index annuities partially offset by an increase in the average fixed rate being earned on funds earning a fixed rate of interest.

Market risk benefits (gains) losses decreased 482% to $(296.1) million in the third quarter of 2023 and 761% to $(256.5) million for the nine months ended September 30, 2023 compared to $77.6 million and $(29.8) million for the same periods in 2022. The decreases in market risk benefits (gains) losses for the three and nine months ended September 30, 2023 compared to the same periods in 2022 were primarily due to the impact of assumption updates made during the third quarter of 2023 compared to the impact of assumption updates made during the third quarter of 2022. See Net income available to common stockholders and Non-GAAP operating income available to common stockholders, a non-GAAP financial measure above for discussion of the impact of assumption updates for the three and nine months ended September 30, 2023 and 2022. In addition, changes in interest rates and equity markets contributed to the decrease for the three months ended September 30, 2023 compared to the same period in 2022. Changes in interest rates and equity markets partially offset the decrease resulting from the assumption updates for the nine months ended September 30, 2023 compared to the same period in 2022. See Note 8 - Policyholder Liabilities to our unaudited consolidated financial statements for further discussion on market risk benefits.

Amortization of deferred sales inducements increased 5% to $48.4 million in the third quarter of 2023 and 4% to $141.9 million for the nine months ended September 30, 2023 compared to $46.2 million and $136.0 million for the same periods in 2022. Amortization of deferred sales inducements is calculated on a constant-level basis over the expected term of the related contracts. Bonus products represented 62% and 67% of our net annuity account values at September 30, 2023 and September 30, 2022, respectively. See Note 7 - Deferred Policy Acquisition Costs and Deferred Sales Inducements to our unaudited consolidated financial statements for further discussion on deferred sales inducements.

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Change in fair value of embedded derivatives includes changes in the fair value of our fixed index annuity embedded derivatives (see Note 6 - Derivative Instruments to our unaudited consolidated financial statements). The components of change in fair value of embedded derivatives are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Fixed index annuities - embedded derivatives	$	(323,080)	$	(299,144)	$	250,494	$	(2,176,911)

Reinsurance related embedded derivative	(128,726)		(116,230)		(84,096)		(518,096)
	$	(451,806)	$	(415,374)	$	166,398	$	(2,695,007)

The change in fair value of the fixed index annuity embedded derivatives resulted from (i) changes in the expected index credits on the next policy anniversary dates, which are related to the change in fair value of the call options acquired to fund those index credits discussed above in Change in fair value of derivatives ; (ii) changes in the expected annual cost of options we will purchase in the future to fund index credits beyond the next policy anniversary; (iii) changes in the discount rates used in estimating our embedded derivative liabilities; and (iv) the growth in the host component of the policy liability. See Critical Accounting Policies - Policy Liabilities for Fixed Index Annuities included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2022.

The primary reason for the decrease in the change in fair value of the fixed index annuity embedded derivatives during the three months ended September 30, 2023 compared to the same period of 2022 was due to a larger decrease in the fair value of the call options acquired to fund the index credits during the three months ended September 30, 2023 compared to the same period in 2022 which was partially offset by smaller increases in the net discount rates used in the calculation during the three months ended September 2023 compared to the same period in 2022. The primary reasons for the increase in the change in fair value of the fixed index annuity embedded derivatives during the nine months ended September 30, 2023 compared to the same period of 2022 were smaller increases in the net discount rates used in the calculation during the nine months ended September 30, 2023 compared to the same period of 2022 and an increase in the fair value of the call options acquired to fund the index credits during the nine months ended September 30, 2023 compared to a decrease in the fair value of the call options during the nine months ended September 20, 2022. The discount rates used in estimating our embedded derivative liabilities fluctuate based on the changes in the general level of risk free interest rates and our own credit spread. In addition, the three and nine months ended September 30, 2023 were negatively affected by the impact of assumption updates made during the third quarter of 2023 while the three and nine months ended September 30, 2022 were positively affected by the impact of assumption updates made during the third quarter of 2022. See Net income available to common stockholders above for discussion of the impact of assumption updates for the three and nine months ended September 30, 2023 and 2022.

The reinsurance agreements executed in 2022 with AeBe and 2021 with North End Re to cede certain fixed index annuity product liabilities on a coinsurance funds withheld and modified coinsurance basis contain embedded derivatives. The fair value of these embedded derivatives are based on the unrealized gains and losses of the underlying assets held in the funds withheld and modified coinsurance portfolios. For both the three and nine months ended September 30, 2023 and September 30, 2022 the fair value of the underlying assets decreased. The magnitude of the decreases in the fair value of the underlying assets were primarily a result of changes in the general level of interest rates from period to period. See Note 6 - Derivative Instruments for discussion on the reinsurance related embedded derivative.

Amortization of deferred policy acquisition costs decreased 2% to $70.6 million in the third quarter of 2023 and 5% to $207.3 million for the nine months ended September 30, 2023 compared to $71.7 million and $217.2 million for the same periods in 2022. Amortization of deferred policy acquisition costs is calculated on a constant-level basis over the expected term of the related contracts. The decrease in amortization for the three and nine months ended September 30, 2023 compared to the same periods in 2022 is due to a lower overall deferred policy acquisition balance in 2023 compared to 2022 primarily due to a write-off of deferred policy acquisition costs associated with in-force reinsurance transactions executed in the third and fourth quarters of 2022. See Note 7 - Deferred Policy Acquisition Costs and Deferred Sales Inducements to our unaudited consolidated financial statements for further discussion on deferred policy acquisition costs.

Other operating costs and expenses increased 29% to $76.6 million in the third quarter of 2023 and 28% to $226.3 million for the nine months ended September 30, 2023 compared to $59.5 million and $177.1 million for the same periods in 2022 and are summarized as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Salary and benefits	$	54,384	$	46,185	$	156,023	$	115,432
Other	22,246		13,285		70,308		61,705
Total other operating costs and expenses	$	76,630	$	59,470	$	226,331	$	177,137

Salary and benefits increased $8.2 million for the three months ended September 30, 2023 and $40.6 million for the nine months ended September 30, 2023 compared to the same periods in 2022, primarily due to expense associated with a strategic incentive award granted in November 2022 as well as an increase in expense associated with our equity and cash incentive compensation programs.

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Other expenses increased for the three and nine months ended September 30, 2023 primarily due to expenses associated with the Agreement and Plan of Merger with Brookfield Reinsurance Ltd.

Income tax expense was $133.7 million in the third quarter of 2023 and $193.3 million for the nine months ended September 30, 2023 compared to $121.4 million and $518.0 million for the same periods in 2022. The changes in income tax expense were primarily due to changes in income before income taxes as well as changes in the effective income tax rates. The effective income tax rates for the three and nine months ended September 30, 2023 were 21.9% and 22.3%, respectively, and 21.4% and 21.5% for the same periods in 2022, respectively.

Income tax expense and the resulting effective tax rate are based upon two components of income (loss) before income taxes ("pretax income") that are taxed at different tax rates. Life insurance income is generally taxed at a statutory rate of approximately 21.5% reflecting the absence of state income taxes for substantially all of the states that the life insurance subsidiaries do business in. The income (loss) for the parent company and other non-life insurance subsidiaries (the "non-life insurance group") is generally taxed at a statutory tax rate of 28.7% reflecting the combined federal and state income tax rates. The effective income tax rates resulting from the combination of the income tax provisions for the life and non-life sources of income (loss) vary from period to period based primarily on the relative size of pretax income from the two sources.

A U.S. corporate alternative minimum tax (CAMT) based on adjusted financial statement income took effect for tax years beginning after December 31, 2022. Treasury has not yet proposed CAMT implementation guidance; however, based on the statutory rules and tentative and preliminary analysis performed by the company’s control group, the company expects no CAMT liability for 2023.

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Financial Condition

Investments

Our investment strategy is to maximize current income and total investment return through active management while maintaining a responsible asset allocation strategy containing high credit quality investments and providing adequate liquidity to meet our cash obligations to policyholders and others. Our investment strategy is also reflective of insurance statutes, which regulate the type of investments that our life subsidiaries are permitted to make and which limit the amount of funds that may be used for any one type of investment.

As previously noted, as part of our AEL 2.0 investment pillar, we have increased our allocation to private assets in part by partnering with proven asset managers in our focus expansion sectors of commercial real estate, residential real estate including mortgages and single family rental homes, infrastructure debt and equity, middle market lending and lending to revenue, technology and software sector companies.

The composition of our investment portfolio is summarized as follows:


	September 30, 2023				December 31, 2022
	Carrying Amount		Percent		Carrying Amount		Percent
	(Dollars in thousands)
Fixed maturity securities:
U.S. Government and agencies	$	162,885	0.4	%	$	169,071	0.4	%
States, municipalities and territories	2,564,632		6.6	%	3,822,943		8.5	%
Foreign corporate securities and foreign governments	376,549		1.0	%	616,938		1.4	%
Corporate securities	15,327,047		39.2	%	20,201,774		44.8	%
Residential mortgage backed securities	1,179,159		3.0	%	1,366,927		3.0	%
Commercial mortgage backed securities	2,666,615		6.8	%	3,447,075		7.6	%
Other asset backed securities	4,544,208		11.6	%	5,155,254		11.4	%
Total fixed maturity securities	26,821,095		68.6	%	34,779,982		77.1	%

Mortgage loans on real estate	7,253,036		18.6	%	6,778,977		15.0	%
Real estate investments	1,302,185		3.3	%	1,056,063		2.3	%
Limited partnerships and limited liability companies	1,763,551		4.5	%	1,266,779		2.8	%
Derivative instruments	733,784		1.9	%	431,727		1.0	%
Other investments	1,207,672		3.1	%	829,900		1.8	%
	39,081,323		100.0	%	45,143,428		100.0	%
Coinsurance investments (1)	5,505,784				6,181,870
	$	44,587,107			$	51,325,298

(1) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

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Fixed Maturity Securities

Our fixed maturity security portfolio is managed to minimize risks such as interest rate changes and defaults or credit losses while earning a sufficient and stable return on our investments. The largest portion of our fixed maturity securities are in investment grade (typically NAIC designation 1 or 2) publicly traded or privately placed corporate securities.

A summary of our fixed maturity securities by NRSRO ratings is as follows:


	September 30, 2023						December 31, 2022
Rating Agency Rating (2)	Amortized Cost		Carrying Amount		Percent of Fixed Maturity Securities		Amortized Cost		Carrying Amount		Percent of Fixed Maturity Securities
	(Dollars in thousands)
Aaa/Aa/A	$	19,135,971	$	15,898,906	59.4	%	$	24,462,459	$	21,723,282	62.5	%
Baa	12,120,183		10,243,694		38.3	%	14,228,490		12,434,302		35.7	%
Total investment grade	31,256,154		26,142,600		97.7	%	38,690,949		34,157,584		98.2	%
Ba	465,323		408,223		1.6	%	554,605		485,166		1.4	%
B	134,646		113,734		0.4	%	94,185		79,058		0.2	%
Caa	72,400		55,761		0.2	%	20,020		18,540		0.1	%
Ca and lower	34,103		30,489		0.1	%	40,664		39,634		0.1	%
Total below investment grade	706,472		608,207		2.3	%	709,474		622,398		1.8	%
	31,962,626		26,750,807		100.0	%	39,400,423		34,779,982		100.0	%
Coinsurance investments (1)	5,792,530		5,263,837				5,465,596		5,024,635
	$	37,755,156	$	32,014,644			$	44,866,019	$	39,804,617

(1) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

(2) The table excludes residual tranche securities that are not rated with an amortized cost of $58,394 and carrying amount of $70,288 as of September 30, 2023.

The NAIC's Securities Valuation Office ("SVO") is responsible for the day-to-day credit quality assessment of securities owned by state regulated insurance companies. The purpose of such assessment and valuation is for determining regulatory capital requirements and regulatory reporting. Insurance companies report ownership to the SVO when such securities are eligible for regulatory filings. The SVO conducts credit analysis on these securities for the purpose of assigning a NAIC designation and/or unit price. Typically, if a security has been rated by an NRSRO, the SVO utilizes that rating and assigns a NAIC designation based upon the following system:


NAIC Designation						NRSRO Equivalent Rating
1						Aaa/Aa/A
2						Baa
3						Ba
4						B
5						Caa
6						Ca and lower

There are 20 NAIC designation modifiers that are applied to each NAIC designation to determine a security's NAIC designation category.

For most of the bonds held in our portfolio the NAIC designation matches the NRSRO equivalent rating. However, for certain loan-backed and structured securities, as defined by the NAIC, the NAIC rating is not always equivalent to the NRSRO rating presented in the previous table. The NAIC has adopted revised rating methodologies for certain loan-backed and structured securities comprised of non-agency residential mortgage backed securities ("RMBS") and commercial mortgage backed securities ("CMBS"). The NAIC’s objective with the revised rating methodologies for these structured securities is to increase the accuracy in assessing expected losses and use the improved assessment to determine a more appropriate capital requirement for such structured securities. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from structured securities.

The use of this process by the SVO may result in certain non-agency RMBS and CMBS being assigned an NAIC designation that is different than the equivalent NRSRO rating. The NAIC designations for non-agency RMBS and CMBS are based on security level expected losses as modeled by an independent third party (engaged by the NAIC) and the statutory carrying value of the security, including any purchase discounts or impairment charges previously recognized. Evaluation of non-agency RMBS and CMBS held by insurers using the NAIC rating methodologies is performed on an annual basis.

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Our fixed maturity security portfolio is managed to minimize risks such as defaults or impairments while earning a sufficient and stable return on our investments. Our strategy with respect to our fixed maturity securities portfolio has been to invest primarily in investment grade securities. Investment grade is NAIC 1 and 2 securities and Baa3/BBB- and better securities on the NRSRO scale. We expect this strategy to meet the objective of minimizing risk while also managing asset capital charges on a regulatory capital basis.

A summary of our fixed maturity securities by NAIC designation is as follows:


	September 30, 2023								December 31, 2022
NAIC Designation (2)	Amortized Cost		Fair Value		Carrying Amount		Percent of Total Carrying Amount		Amortized Cost		Fair Value		Carrying Amount		Percent of Total Carrying Amount
	(Dollars in thousands)								(Dollars in thousands)
1	$	19,327,495	$	16,056,424	$	16,056,424	60.0	%	$	24,466,961	$	21,752,775	$	21,752,775	62.5	%
2	11,960,953		10,118,937		10,118,937		37.8	%	14,185,506		12,398,001		12,398,001		35.6	%
3	486,580		424,137		424,137		1.6	%	562,190		490,198		490,198		1.5	%
4	116,264		98,929		98,929		0.4	%	109,409		91,495		91,495		0.3	%
5	61,334		45,253		45,253		0.2	%	61,721		36,738		36,738		0.1	%
6	10,000		7,127		7,127		—	%	14,636		10,775		10,775		—	%
	31,962,626		26,750,807		26,750,807		100.0	%	39,400,423		34,779,982		34,779,982		100.0	%
Coinsurance investments (1)	5,792,530		5,263,837		5,263,837				5,465,596		5,024,635		5,024,635
	$	37,755,156	$	32,014,644	$	32,014,644			$	44,866,019	$	39,804,617	$	39,804,617

(1) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

(2) The table excludes residual tranche securities that are not rated with an amortized cost of $58,394 and fair value and carrying amount of $70,288 as of September 30, 2023.

The amortized cost and fair value of fixed maturity securities at September 30, 2023, by contractual maturity, are presented in Note 3 - Investments to our unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference in this Item 2.

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Unrealized Losses

The amortized cost and fair value of fixed maturity securities that were in an unrealized loss position were as follows:


	Number of Securities	Amortized Cost		Unrealized Losses, Net of Allowance		Allowance for Credit Losses		Fair Value
		(Dollars in thousands)
September 30, 2023
Fixed maturity securities, available for sale:
U.S. Government and agencies	30	$	172,247	$	(9,772)	$	—	$	162,475
States, municipalities and territories	508	3,036,450		(638,448)		—		2,398,002
Foreign corporate securities and foreign governments	35	471,253		(94,704)		—		376,549
Corporate securities	1,739	17,862,145		(3,606,263)		(2,911)		14,252,971
Residential mortgage backed securities	239	1,265,793		(161,209)		(97)		1,104,487
Commercial mortgage backed securities	294	3,145,221		(490,680)		—		2,654,541
Other asset backed securities	485	4,481,384		(233,326)		(610)		4,247,448
	3,330	30,434,493		(5,234,402)		(3,618)		25,196,473
Coinsurance investments (1)	729	4,206,918		(568,495)		—		3,638,423
	4,059	$	34,641,411	$	(5,802,897)	$	(3,618)	$	28,834,896

December 31, 2022
Fixed maturity securities, available for sale:
U.S. Government and agencies	27	$	165,746	$	(4,637)	$	—	$	161,109
States, municipalities and territories	514	3,265,080		(574,814)		—		2,690,266
Foreign corporate securities and foreign governments	43	590,944		(74,151)		—		516,793
Corporate securities	2,103	21,393,656		(3,224,609)		(3,214)		18,165,833
Residential mortgage backed securities	219	1,235,672		(126,368)		(133)		1,109,171
Commercial mortgage backed securities	339	3,750,331		(391,966)		—		3,358,365
Other asset backed securities	567	4,579,149		(382,563)		—		4,196,586
	3,812	34,980,578		(4,779,108)		(3,347)		30,198,123
Coinsurance investments (1)	698	3,085,834		(504,739)		—		2,581,095
	4,510	$	38,066,412	$	(5,283,847)	$	(3,347)	$	32,779,218

(1) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

The unrealized losses at September 30, 2023 are principally related to the timing of the purchases of certain securities, which carry less yield than those available at September 30, 2023. Approximately 98% of the unrealized losses on fixed maturity securities shown in the above table for both September 30, 2023 and December 31, 2022 are on securities that are rated investment grade, defined as being the highest two NAIC designations.

The increase in unrealized losses from December 31, 2022 to September 30, 2023 was primarily due to an increase in treasury yields and changes in credit spreads during the nine months ended September 30, 2023. The 10-year U.S. Treasury yields at September 30, 2023 and December 31, 2022 were 4.59% and 3.88%, respectively. The 30-year U.S. Treasury yields at September 30, 2023 and December 31, 2022 were 4.73% and 3.97%, respectively.

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The following table sets forth the composition by credit quality (NAIC designation) of fixed maturity securities with gross unrealized losses:


NAIC Designation	Carrying Value of Securities with Gross Unrealized Losses		Percent of Total		Gross Unrealized Losses (1)		Percent of Total
	(Dollars in thousands)
September 30, 2023
1	$	15,465,783	61.3	%	$	(3,286,966)	62.8	%
2	9,168,516		36.4	%	(1,850,926)		35.4	%
3	421,471		1.7	%	(61,873)		1.2	%
4	93,679		0.4	%	(17,335)		0.3	%
5	45,253		0.2	%	(16,081)		0.3	%
6	1,771		—	%	(1,221)		—	%
	25,196,473		100.0	%	(5,234,402)		100.0	%
Coinsurance investments (2)	3,638,423				(568,495)
	$	28,834,896			$	(5,802,897)

December 31, 2022
1	$	18,396,691	60.9	%	$	(2,836,027)	59.4	%
2	11,207,008		37.1	%	(1,825,520)		38.2	%
3	465,867		1.6	%	(72,976)		1.5	%
4	89,686		0.3	%	(17,922)		0.4	%
5	29,075		0.1	%	(25,037)		0.5	%
6	9,796		—	%	(1,626)		—	%
	30,198,123		100.0	%	(4,779,108)		100.0	%
Coinsurance investments (2)	2,581,095				(504,739)
	$	32,779,218			$	(5,283,847)

(1) Gross unrealized losses have been adjusted to reflect the allowance for credit loss of $3.6 million and $3.3 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

Our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022, along with a description of the factors causing the unrealized losses is presented in Note 3 - Investments to our unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference in this Item 2.

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The amortized cost and fair value of fixed maturity securities in an unrealized loss position and the number of months in a continuous unrealized loss position (fixed maturity securities that carry an NRSRO rating of BBB/Baa or higher are considered investment grade) were as follows:


	Number of Securities	Amortized Cost, Net of Allowance (1)		Fair Value		Gross Unrealized Losses, Net of Allowance (1)
		(Dollars in thousands)
September 30, 2023
Fixed maturity securities, available for sale:
Investment grade:
Less than six months	357	$	2,773,912	$	2,613,436	$	(160,476)
Six months or more and less than twelve months	106	565,828		513,514		(52,314)
Twelve months or greater	2,783	26,432,451		21,507,349		(4,925,102)
Total investment grade	3,246	29,772,191		24,634,299		(5,137,892)
Below investment grade:
Less than six months	5	24,499		21,213		(3,286)
Six months or more and less than twelve months	7	33,612		25,488		(8,124)
Twelve months or greater	72	600,573		515,473		(85,100)
Total below investment grade	84	658,684		562,174		(96,510)
	3,330	30,430,875		25,196,473		(5,234,402)
Coinsurance investments (2)	729	4,206,918		3,638,423		(568,495)
	4,059	$	34,637,793	$	28,834,896	$	(5,802,897)

December 31, 2022
Fixed maturity securities, available for sale:
Investment grade:
Less than six months	984	$	6,296,895	$	5,968,793	$	(328,102)
Six months or more and less than twelve months	2,308	24,207,057		20,481,666		(3,725,391)
Twelve months or greater	427	3,761,294		3,153,240		(608,054)
Total investment grade	3,719	34,265,246		29,603,699		(4,661,547)
Below investment grade:
Less than six months	12	51,711		47,494		(4,217)
Six months or more and less than twelve months	34	319,964		265,726		(54,238)
Twelve months or greater	47	340,310		281,204		(59,106)
Total below investment grade	93	711,985		594,424		(117,561)
	3,812	34,977,231		30,198,123		(4,779,108)
Coinsurance investments (2)	698	3,085,834		2,581,095		(504,739)
	4,510	$	38,063,065	$	32,779,218	$	(5,283,847)

(1) Amortized cost and gross unrealized losses have been adjusted to reflect the allowance for credit loss of $3.6 million and $3.3 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

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The amortized cost and fair value of fixed maturity securities (excluding U.S. Government and agencies) segregated by investment grade (NRSRO rating of BBB/Baa or higher) and below investment grade that had unrealized losses greater than 20%, when comparing fair value to amortized cost, and the number of months in a continuous unrealized loss position were as follows:


	Number of Securities	Amortized Cost, Net of Allowance (1)		Fair Value		Gross Unrealized Losses, Net of Allowance (1)
		(Dollars in thousands)
September 30, 2023
Investment grade:
Less than six months	544	$	6,098,139	$	4,641,652	$	(1,456,487)
Six months or more and less than twelve months	62	783,080		569,872		(213,208)
Twelve months or greater	335	4,927,580		3,233,004		(1,694,576)
Total investment grade	941	11,808,799		8,444,528		(3,364,271)
Below investment grade:
Less than six months	7	49,742		35,905		(13,837)
Six months or more and less than twelve months	2	8,114		4,879		(3,235)
Twelve months or greater	6	82,428		59,608		(22,820)
Total below investment grade	15	140,284		100,392		(39,892)
	956	11,949,083		8,544,920		(3,404,163)
Coinsurance investments (2)	389	1,332,514		885,371		(447,143)
	1,345	$	13,281,597	$	9,430,291	$	(3,851,306)
December 31, 2022
Investment grade:
Less than six months	333	$	3,955,378	$	3,062,075	$	(893,303)
Six months or more and less than twelve months	299	4,496,559		3,146,868		(1,349,691)
Twelve months or greater	1	40,351		26,854		(13,497)
Total investment grade	633	8,492,288		6,235,797		(2,256,491)
Below investment grade:
Less than six months	8	61,481		47,057		(14,424)
Six months or more and less than twelve months	7	111,990		71,271		(40,719)
Twelve months or greater	—	—		—		—
Total below investment grade	15	173,471		118,328		(55,143)
	648	8,665,759		6,354,125		(2,311,634)
Coinsurance investments (2)	423	1,250,509		859,395		(391,114)
	1,071	$	9,916,268	$	7,213,520	$	(2,702,748)

(2) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

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The amortized cost and fair value of fixed maturity securities, by contractual maturity, that were in an unrealized loss position are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of our mortgage and other asset backed securities provide for periodic payments throughout their lives, and are shown below as a separate line.


	Available for sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
September 30, 2023
Due in one year or less	$	293,328	$	286,462
Due after one year through five years	2,580,361		2,384,922
Due after five years through ten years	4,140,770		3,550,348
Due after ten years through twenty years	6,235,220		4,972,189
Due after twenty years	8,292,416		5,996,076
	21,542,095		17,189,997
Residential mortgage backed securities	1,265,793		1,104,487
Commercial mortgage backed securities	3,145,221		2,654,541
Other asset backed securities	4,481,384		4,247,448
	30,434,493		25,196,473
Coinsurance investments (1)	4,206,918		3,638,423
	$	34,641,411	$	28,834,896

December 31, 2022
Due in one year or less	$	567,599	$	563,298
Due after one year through five years	3,591,040		3,377,197
Due after five years through ten years	4,844,271		4,280,762
Due after ten years through twenty years	7,443,657		6,377,081
Due after twenty years	8,968,858		6,935,663
	25,415,425		21,534,001
Residential mortgage backed securities	1,235,672		1,109,171
Commercial mortgage backed securities	3,750,331		3,358,365
Other asset backed securities	4,579,149		4,196,586
	34,980,577		30,198,123
Coinsurance investments (1)	3,085,834		2,581,095
	$	38,066,411	$	32,779,218

(1) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

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International Exposure

We hold fixed maturity securities with international exposure. As of September 30, 2023, 14.6% of the carrying value of our fixed maturity securities was comprised of corporate debt securities of issuers based outside of the United States and debt securities of foreign governments. Our fixed maturity securities with international exposure are primarily denominated in U.S. dollars. Our investment professionals analyze each holding for credit risk by economic and other factors of each country and industry. The following table presents our international exposure in our fixed maturity portfolio by country or region:


	September 30, 2023
	Amortized Cost		Carrying Amount/ Fair Value		Percent of Total Carrying Amount
	(Dollars in thousands)
Europe	$	1,749,596	$	1,449,616	5.4	%
Asia/Pacific	360,488		286,863		1.1	%
Latin America	252,876		207,677		0.8	%
Non-U.S. North America	916,248		761,773		2.8	%
Australia & New Zealand	798,513		684,674		2.6	%
Other	625,143		515,429		1.9	%
	4,702,864		3,906,032		14.6	%
Coinsurance investments (1)	1,314,990		1,176,443
	$	6,017,854	$	5,082,475

(1) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

All of the securities presented in the table above are investment grade (NAIC designation of either 1 or 2), except for the following:


	September 30, 2023
	Amortized Cost		Carrying Amount/ Fair Value
	(Dollars in thousands)
Europe	$	94,399	$	81,923
Asia/Pacific	36		32
Latin America	45,521		43,339
Non-U.S. North America	22,779		19,710
Australia & New Zealand	231		204
Other	76,344		59,617
	239,310		204,825
Coinsurance investments (1)	67,927		45,648
	$	307,237	$	250,473

(1) Investments held by American Equity Life in a segregated account to support liabilities reinsured under both coinsurance with funds withheld and modified coinsurance reinsurance agreements.

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Watch List

At each balance sheet date, we identify invested assets which have characteristics (i.e., significant unrealized losses compared to amortized cost and industry trends) creating uncertainty as to our future assessment of credit losses. As part of this assessment, we review not only a change in current price relative to amortized cost but the issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength. For corporate issuers, we evaluate the financial stability and quality of asset coverage for the securities relative to the term to maturity for the issues we own. For structured securities, we evaluate changes in factors such as collateral performance, default rates, loss severity and expected cash flows. At September 30, 2023, the amortized cost and fair value of securities on the watch list (all fixed maturity securities) are as follows:


General Description	Number of Securities	Amortized Cost		Allowance for Credit Losses		Amortized Cost, Net of Allowance		Net Unrealized Losses, Net of Allowance		Fair Value
		(Dollars in thousands)
States, municipalities and territories	1	$	20,657	$	—	$	20,657	$	(5,211)	$	15,446
Corporate securities - Public securities	5	31,490		—		31,490		(3,174)		28,316
Corporate securities - Private placement securities	1	5,902		(2,911)		2,991		(1,220)		1,771
Residential mortgage backed securities	42	56,503		(97)		56,406		(9,757)		46,649
Commercial mortgage backed securities	16	140,270		—		140,270		(29,352)		110,918
Other asset backed securities	1	1,632		—		1,632		(17)		1,615
Collateralized loan obligations	23	159,599		(610)		158,989		(22,537)		136,452
	89	$	416,053	$	(3,618)	$	412,435	$	(71,268)	$	341,167

We expect to recover the unrealized losses, net of allowances, as we did not have the intent to sell and it is not more likely than not that we would be required to sell these securities prior to recovery of the amortized cost basis, net of allowances. Our analysis of these securities and their credit performance at September 30, 2023 is as follows:

States, municipalities and territories: The decline in value of this security is primarily due to the security being recently restructured as part of bankruptcy proceedings and uncertainty around the impact of the restructure.

Corporate securities: The corporate securities included on the watch list primarily represent securities in the utilities industry that have potential exposure related to the wildfires in Maui and a security in the utilities industry that is under financial stress due to the impact of power outages.

Structured securities: The structured securities included on the watch list have generally experienced higher levels of stress due to current economic conditions.

Credit Losses

We have a policy and process to identify securities in our investment portfolio for which we recognize credit loss. See Note 3 - Investments to our unaudited consolidated financial statements.

During the nine months ended September 30, 2023, we recognized credit losses of $46.6 million, respectively. The credit losses recognized during the nine months ended September 30, 2023 were primarily due to losses realized on securities in the regional banking sector.

During the three months ended September 30, 2022, we recognized $1.5 million of credit losses which includes $3.0 million of credit losses on structured securities primarily due to our intent to sell such securities as of September 30, 2022 and $0.3 million of credit losses on corporate securities primarily due to our intent to sell such securities as of September 30, 2022 partially offset by a $1.8 million net reduction in credit losses on certain other securities primarily due to a revised financial outlook on securities related to senior living facilities in the Southeastern region of the United States driven in part by a restructuring of its debt facilities. During the nine months ended September 30, 2022, we recognized $14.3 million of credit losses which includes $10.3 million of credit losses on structured securities primarily due to our intent to sell such securities and $6.1 million of credit losses on corporate securities due to $3.3 million of credit losses on a security and $2.8 million of credit losses on securities due to our intent to sell such securities as of June 30, 2022 partially offset by $2.1 reduction in credit losses primarily due to a revised financial outlook on securities related to senior living facilities in the Southeastern region of the United States driven in part by a restructuring of its debt facilities.

Several factors led us to believe that full recovery of amortized cost is not expected on the securities for which we recognized credit losses. A discussion of these factors, our policy and process to identify securities that could potentially have credit loss is presented in Note 3 - Investments to our unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference in this Item 2.

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Mortgage Loans on Real Estate

Our financing receivables consist of three mortgage loan portfolio segments: commercial mortgage loans, agricultural mortgage loans and residential mortgage loans. Our commercial mortgage loan portfolio consists of loans with an outstanding principal balance of $3.5 billion and $3.6 billion as of September 30, 2023 and December 31, 2022, respectively. This portfolio consists of mortgage loans collateralized by the related properties and is diversified as to property type, location and loan size. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and other criteria to attempt to reduce the risk of default. Our agricultural mortgage loan portfolio consists of loans with an outstanding principal balance of $585.0 million and $567.6 million as of September 30, 2023 and December 31, 2022, respectively. These loans are collateralized by agricultural land and are diversified as to location within the United States. Our residential mortgage loan portfolio consists of loans with an outstanding principal balance of $3.4 billion and $2.8 billion as of September 30, 2023 and December 31, 2022, respectively. These loans are collateralized by the related properties and diversified as to location within the United States. Mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances.

At September 30, 2023 and December 31, 2022, the largest principal amount outstanding for any single commercial mortgage loan was $83.3 million and $83.3 million, respectively, and the average loan size was $5.9 million and $5.8 million, respectively. In addition, the average loan-to-value ratio for commercial and agricultural mortgage loans combined was 50.7% and 51.4% at September 30, 2023 and December 31, 2022, respectively, based upon the underwriting and appraisal at the time the loan was made. This loan-to-value ratio is indicative of our conservative underwriting policies and practices for originating mortgage loans and may not be indicative of collateral values at the current reporting date. Our current practice is to only obtain market value appraisals of the underlying collateral at the inception of the loan unless we identify indicators of impairment in our ongoing analysis of the portfolio, in which case, we either calculate a value of the collateral using a capitalization method or obtain a third party appraisal of the underlying collateral. The commercial mortgage loan portfolio is summarized by geographic region and property type in Note 4 - Mortgage Loans on Real Estate to our unaudited consolidated financial statements in this Form 10-Q, incorporated by reference in this Item 2.

In the normal course of business, we commit to fund mortgage loans up to 90 days in advance. At September 30, 2023, we had commitments to fund commercial mortgage loans totaling $259.0 million, with interest rates ranging from 7.42% to 10.42%. During 2023 and 2022, the commercial mortgage loan industry has been very competitive due to relatively attractive returns that can be realized on mortgage loans. For the nine months ended September 30, 2023, we received $122.5 million in cash for loans being paid in full compared to $380.8 million for the nine months ended September 30, 2022. Some of the loans being paid off have either reached their maturity or are nearing maturity. At September 30, 2023, we had commitments to fund agricultural mortgage loans totaling $17.8 million, with interest rates ranging from 3.75% to 9.30%, and had commitments to fund residential mortgage loans totaling $473.8 million with interest rates ranging from 6.70% to 14.20%.

See Note 4 - Mortgage Loans on Real Estate to our unaudited consolidated financial statements, incorporated by reference, for a presentation of our valuation allowance, foreclosure activity and troubled debt restructure analysis. We have a process by which we evaluate the credit quality of each of our mortgage loans. This process utilizes each loan's loan-to-value and debt service coverage ratios as primary metrics. See Note 4 - Mortgage Loans on Real Estate to our unaudited consolidated financial statements, incorporated by reference, for a summary of our portfolio by loan-to-value and debt service coverage ratios.

We closely monitor loan performance for our commercial, agricultural and residential mortgage loan portfolios. Commercial, agricultural and residential loans are considered nonperforming when they are 90 days or more past due. Aging of financing receivables is summarized in the following table:


	Current		30-59 days past due		60-89 days past due		Over 90 days past due		Total
As of September 30, 2023:	(Dollars in thousands)
Commercial mortgage loans	$	3,529,006	$	—	$	—	$	—	$	3,529,006
Agricultural mortgage loans	583,313		—		—		—		583,313
Residential mortgage loans	3,222,123		89,466		29,564		86,593		3,427,746
Total mortgage loans	$	7,334,442	$	89,466	$	29,564	$	86,593	$	7,540,065

As of December 31, 2022:
Commercial mortgage loans	$	3,554,558	$	—	$	—	$	—	$	3,554,558
Agricultural mortgage loans	562,828		—		—		3,135		565,963
Residential mortgage loans	2,751,261		62,450		16,924		34,843		2,865,478
Total mortgage loans	$	6,868,647	$	62,450	$	16,924	$	37,978	$	6,985,999

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Private Assets

The following table is a breakout of our private asset investments as of September 30, 2023 and December 31, 2022.


	September 30, 2023				December 31, 2022
Private Asset Class	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Real estate loans
Commercial	$	3,287,059	6.6	%	$	3,384,240	6.8	%
Residential	3,558,370		7.1	%	3,002,099		6.0	%
Agricultural	583,314		1.2	%	565,963		1.2	%
Total real estate loans	7,428,743		14.9	%	6,952,302		14.0	%

Private credit
Middle market	1,905,178		3.8	%	1,492,727		3.0	%
Specialty finance	695,016		1.4	%	442,555		0.9	%
Infrastructure debt	722,658		1.5	%	554,812		1.1	%

Total private credit	3,322,852		6.7	%	2,490,094		5.0	%

Equity
Residential real estate	1,203,827		2.4	%	961,263		1.9	%
Commercial real estate	103,332		0.2	%	116,779		0.2	%
Infrastructure	188,325		0.4	%	91,485		0.2	%
Core private equity	351,827		0.7	%	363,892		0.7	%
Total equity	1,847,311		3.7	%	1,533,419		3.0	%
Total private assets	$	12,598,906	25.3	%	$	10,975,815	22.0	%

The investment balances within the table above include fixed maturity securities and mortgage loans at amortized cost and real estate and other investments at carrying values as reflected in the consolidated balance sheets.

Derivative Instruments

Our derivative instruments consist of call options purchased to provide the income needed to fund the annual index credits on our fixed index annuity products and interest rate swaps used to hedge against changes in fair value due to changes in interest rates. The fair value of the call options is based upon the amount of cash that would be required to settle the call options obtained from the counterparties adjusted for the nonperformance risk of the counterparty. The nonperformance risk for each counterparty is based upon its credit default swap rate. We have no performance obligations related to the call options. The fair value of the pay fixed/receive float interest rate swaps are determined using internal valuation models that generate discounted expected future cash flows by constructing a projected Secure Overnight Financing Rate (SOFR) curve over the term of the swap.

Our interest rate swaps qualify for hedge accounting and our call options do not qualify for hedge accounting. Any change in the fair value of the derivatives is recognized immediately in the consolidated statements of operations. A presentation of our derivative instruments along with a discussion of the business strategy involved with our derivatives for both our derivatives designated as hedging instruments and our derivatives not designated as hedging instruments is included in Note 6 - Derivative Instruments to our unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference in this Item 2.

Liquidity and Capital Resources

Our insurance subsidiaries generally have adequate cash flows from annuity deposits and investment income to meet their policyholder and other obligations. Net cash flows from annuity deposits and funds returned to policyholders as surrenders, withdrawals and death claims were $(425.3) million for the nine months ended September 30, 2023 compared to $(1,331.0) million for the nine months ended September 30, 2022, with the increase attributable to a $1,539.5 million increase in net annuity deposits after coinsurance partially offset by a $633.8 million (after coinsurance) increase in funds returned to policyholders. We continue to invest the net proceeds from policyholder transactions and investment activities in high quality fixed maturity securities, mortgage loans, and other high quality private assets. We have a highly liquid investment portfolio that can be used to meet policyholder and other obligations as needed.

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We, as the parent company, are a legal entity separate and distinct from our subsidiaries, and have no business operations. We need liquidity primarily to service our debt (senior notes, term loan and subordinated debentures issued to a subsidiary trust), pay operating expenses and pay dividends to common and preferred stockholders. Our assets consist primarily of the capital stock and surplus notes of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends, surplus note interest payments and other statutorily permissible payments from our subsidiaries, such as payments under our investment advisory agreements and tax allocation agreement with our subsidiaries. We expect these sources will provide adequate cash flow for us to meet our current and reasonably foreseeable future obligations.

The ability of our life insurance subsidiaries to pay dividends or distributions, including surplus note payments, will be limited by applicable laws and regulations of the states in which our life insurance subsidiaries are domiciled, which subject our life insurance subsidiaries to significant regulatory restrictions. These laws and regulations require, among other things, our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay.

Currently, American Equity Life may pay dividends or make other distributions without the prior approval of the Iowa Insurance Commissioner, unless such payments, together with all other such payments within the preceding twelve months, exceed the greater of (1) American Equity Life's net gain from operations for the preceding calendar year, or (2) 10% of American Equity Life's statutory capital and surplus at the preceding December 31. For 2023, up to $369.3 million can yet be distributed as dividends by American Equity Life without prior approval of the Iowa Insurance Commissioner. In addition, dividends and surplus note payments may be made only out of statutory earned surplus, and all surplus note payments are subject to prior approval by regulatory authorities in the life subsidiary's state of domicile. At September 30, 2023, American Equity Life had $1.8 billion of statutory earned surplus and $4.0 billion of total adjusted capital.

The maximum distribution permitted by law or contract is not necessarily indicative of an insurer's actual ability to pay such distributions, which may be constrained by business and regulatory considerations, such as the impact of such distributions on surplus, which could affect the insurer's ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends or make other distributions. Further, state insurance laws and regulations require that the statutory surplus of our life subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for their financial needs. Along with solvency regulations, the primary driver in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength ratings from rating agencies. Both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for our insurance subsidiaries which, in turn, could negatively affect the cash available to us from insurance subsidiaries. As of September 30, 2023, we estimate American Equity Life has sufficient statutory capital and surplus, combined with capital available to the holding company, to maintain its insurer financial strength rating. However, this capital may not be sufficient if significant future losses are incurred or a rating agency modifies its rating criteria and access to additional capital could be limited.

Cash and cash equivalents of the parent holding company at September 30, 2023, were $480.8 million. We also have the ability to issue equity, debt or other types of securities through one or more methods of distribution. The terms of any offering would be established at the time of the offering, subject to market conditions.

In January 2022, American Equity Life became a member of the Federal Home Loan Bank of Des Moines ("FHLB") which provides access to collateralized borrowings and other FHLB products. We may also issue funding agreements to the FHLB. Both the collateralized borrowings and funding agreements require us to pledge qualified assets as collateral. Obligations arising from funding agreements, which totaled $0.0 million as of September 30, 2023 are used in investment spread activities.

New Accounting Pronouncements

See Note 1 - Significant Accounting Policies to our unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference in this Item 2.

Regulatory Developments

See "Regulation" in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2022, as modified by the following.

Investments Regulation

State laws and regulations limit the amount of investments that our U.S. insurance subsidiaries may have in certain asset categories, such as below investment grade fixed income securities, real estate equity, other equity investments, and derivatives, and require diversification of investment portfolios. Investments exceeding regulatory limitations may potentially be excluded from admitted assets for purposes of measuring surplus. The Iowa Insurance Division has adopted changes to Iowa law on investment of admitted assets to conform Iowa law more closely to NAIC models in some respects. This new investment law went into effect on July 1, 2023. Under the new law, investment limits are measured as a percentage of the company’s overall admitted assets. In addition, the new law eliminates the requirement for reserve deposits with the Iowa Insurance Department. Certain aggregate limits and single issuer limits have also been adjusted and provide greater flexibility for the investment portfolio.

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Privacy and Cybersecurity

* * *

Following June 30, 2023 the SEC adopted new cybersecurity disclosure rules for public companies. Under the rule, registrants must disclose information about material cybersecurity incidents on a Current Report on Form 8-K within four days of concluding that the incident is material. Registrants must also disclose aspects of their cybersecurity risk management.

ERISA

* * *

On October 31, 2023, the DOL made public further revisions to the definition of investment advice fiduciary, in effect broadening the application of fiduciary status. The comment period ends January 2, 2024, with anticipated final publication in the first quarter of 2024.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We seek to invest our available funds in a manner that will maximize shareholder value and fund future obligations to policyholders and debtors, subject to appropriate risk considerations. We seek to meet this objective through investments that: (i) consist substantially of investment grade fixed maturity securities, (ii) have projected returns which satisfy our spread targets, and (iii) have characteristics which support the underlying liabilities. Many of our products incorporate surrender charges, market interest rate adjustments or other features, including lifetime income benefit riders, to encourage persistency.

We seek to maximize the total return on our fixed maturity securities through active investment management. Accordingly, we have determined that our available for sale portfolio of fixed maturity securities is available to be sold in response to: (i) changes in market interest rates, (ii) changes in relative values of individual securities and asset sectors, (iii) changes in prepayment risks, (iv) changes in credit quality outlook for certain securities, (v) liquidity needs, and (vi) other factors.

Interest rate risk is our primary market risk exposure. Substantial and sustained increases and decreases in market interest rates can affect the profitability of our products and the fair value of our investments. The profitability of most of our products depends on the spreads between interest yield on investments and rates credited on insurance liabilities. We have the ability to adjust crediting rates (caps, participation rates or asset fee rates for fixed index annuities) on substantially all of our annuity liabilities at least annually (subject to minimum guaranteed values). Substantially all of our annuity products have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. In addition, a significant amount of our fixed index annuity policies and many of our annual reset fixed rate deferred annuities were issued with a lifetime income benefit rider which we believe improves the persistency of such annuity products. However, competitive factors, including the impact of the level of surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at levels necessary to avoid narrowing of spreads under certain market conditions.

A major component of our interest rate risk management program is structuring the investment portfolio with cash flow characteristics consistent with the cash flow characteristics of our insurance liabilities. We use models to simulate cash flows expected from our existing business under various interest rate scenarios. These simulations enable us to measure the potential gain or loss in fair value of our interest rate-sensitive financial instruments, to evaluate the adequacy of expected cash flows from our assets to meet the expected cash requirements of our liabilities and to determine if it is necessary to lengthen or shorten the average life and duration of our investment portfolio. The "duration" of a security is the time weighted present value of the security's expected cash flows and is used to measure a security's sensitivity to changes in interest rates. When the durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in value of assets should be largely offset by a change in the value of liabilities.

If interest rates were to increase 10% (47 basis points) from levels at September 30, 2023, we estimate that the fair value of our fixed maturity securities would decrease by approximately $1,067.6 million. The impact on stockholders' equity of such decrease (net of income taxes) would be a decrease of $843.4 million in accumulated other comprehensive income and a decrease in stockholders' equity. The models used to estimate the impact of a 10% change in market interest rates incorporate numerous assumptions, require significant estimates and assume an immediate and parallel change in interest rates without any management of the investment portfolio in reaction to such change. Consequently, potential changes in value of our financial instruments indicated by the simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our investments and liabilities, our net exposure to interest rates can vary over time. However, any such decreases in the fair value of our fixed maturity securities (unless related to credit concerns of the issuer requiring recognition of a credit loss) would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet our liquidity needs, which we manage using the surrender and withdrawal provisions of our annuity contracts and through other means. See Financial Condition - Liquidity for Insurance Operations included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2022 for a further discussion of the liquidity risk.

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The amortized cost of fixed maturity securities that are callable at the option of the issuer, excluding securities with a make-whole provision, was $1.7 billion as of September 30, 2023. We have reinvestment risk related to these redemptions to the extent we cannot reinvest the net proceeds in assets with credit quality and yield characteristics similar to the redeemed bonds. Such reinvestment risk typically occurs in a declining rate environme nt. In addition, we have $4.7 billion of floating rate investments as of September 30, 2023. The majority of these investments are based on the 3 month SOFR rate and are reset quarterly. Should rates decline to levels which tighten the spread between our average portfolio yield and average cost of interest credited on annuity liabilities, we have the ability to reduce crediting rates (caps, participation rates or asset fees for fixed index annuities) on most of our annuity liabilities to maintain the spread at our targeted level. At September 30, 2023, approximately 91% of our annuity liabilities were subject to annual adjustment of the applicable crediting rates at our discretion, limited by minimum guaranteed crediting rates specified in the policies. At September 30, 2023, approximately 14% of our annuity liabilities were at minimum guaranteed crediting rates.

We purchase call options on the applicable indices to fund the annual index credits on our fixed index annuities. These options are primarily one-year instruments purchased to match the funding requirements of the underlying policies. Fair value changes associated with those investments are substantially offset by an increase or decrease in the amounts added to policyholder account balances for fixed index products. The difference between proceeds received at expiration of these options and index credits, as shown in the following table, is primarily due to under or over-hedging as a result of policyholder behavior being different than our expectations.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Dollars in thousands)
Proceeds received at expiration of options related to such credits	$	126,750	$	4,865	$	199,800	$	308,072
Annual index credits to policyholders on their anniversaries	120,894		4,648		189,934		301,431

On the anniversary dates of the index policies, we purchase new one-year call options to fund the next annual index credits. The risk associated with these prospective purchases is the uncertainty of the cost, which will determine whether we are able to earn our spread on our fixed index business. We manage this risk through the terms of our fixed index annuities, which permit us to change caps, participation rates and asset fees, subject to contractual features. By modifying caps, participation rates or asset fees, we can limit option costs to budgeted amounts, except in cases where the contractual features would prevent further modifications. Based upon actuarial testing which we conduct as a part of the design of our fixed index products and on an ongoing basis, we believe the risk that contractual features would prevent us from controlling option costs is not material.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In accordance with the Securities Exchange Act Rules 13a-15(e) and 15d-15(e), our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded the design and operation of our disclosure controls and procedures were effective as of September 30, 2023 in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10 - Commitments and Contingencies to the unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference in this Item 1, for any required disclosure.

Item 1A. Risk Factors

We describe certain factors that may affect our business or operations under "Risk Factors" in Part I, Item 1A, of our 2022 Annual Report on Form 10-K, as modified by the following. Risk Factors numbers A-1 through A-5 are added, and certain paragraphs in Risk Factors numbers 8, 19, 21, and 24 are amended and restated.

Risks Related to the Brookfield Reinsurance Acquisition

A-1. The consummation of the Merger is subject to a number of conditions, many of which are largely outside the parties’ control, and, if these conditions are not satisfied or waived on a timely basis, the Merger may not be completed within the expected timeframe or at all.

On July 4, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Reinsurance Ltd. (“Brookfield Reinsurance”), Arches Merger Sub, Inc. (“Merger Sub”) a wholly owned subsidiary of Brookfield Reinsurance, and solely for the purposes set forth in the Merger Agreement, Brookfield Asset Management Ltd. (“BAM”), pursuant to which Merger Sub will merge with and into the

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Company (the “Merger”) with the Company surviving the Merger and becoming a wholly-owned subsidiary of Brookfield Reinsurance. The completion of the Merger is subject to customary closing conditions, including among others (i) the receipt of approval of the Merger from the Company’s shareholders, (ii) certain regulatory approvals, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, approval by the Financial Industry Regulatory Authority (“FINRA”) of an application by the Company’s broker-dealer subsidiary under FINRA Rule 1017 and the receipt of required regulatory approvals from certain insurance regulators, (iii) approvals from the New York Stock Exchange and Toronto Stock Exchange for listing of the BAM Class A Stock to be issued as stock consideration in the Merger, (iv) the effectiveness of the registration statement on form F-4 filed by BAM pursuant to which the shares of BAM Class A Stock to be issued as stock consideration will be registered with the SEC, (v) the absence of any injunction or restraint otherwise preventing consummation of the Merger, (vi) the absence of a Company Material Adverse Effect (as defined in the Merger Agreement) and (vii) the absence of the imposition of a Burdensome Condition (as defined in the Merger Agreement) by any regulator as part of the regulatory approval process. The obligation of each party to consummate the Merger is also conditioned on the accuracy of the other party’s representations and warranties (subject to certain materiality exceptions) and the other party’s compliance, in all material respects, with its covenants and agreements under the Merger Agreement. Therefore, the Merger may not be completed or may not be completed as timely as expected.

A-2. The failure to satisfy all of the required conditions could delay the completion of the Merger by a significant period of time or prevent it from occurring, which could result in adverse consequences to the Company.

The failure to complete the Merger in a timely manner or the termination of the Merger Agreement could adversely affect the Company’s business, and the Company will be subject to a variety of risks, possible consequences and business uncertainties, including among others: (i) the market price of the Company’s common stock may decline to the extent that the current market price reflects an assumption that the Merger will be consummated; (ii) if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, the Company would be required to pay a termination fee of $102,000,000 to Brookfield Reinsurance; (iii) the Company will have incurred, and will continue to incur, significant expenses for professional services in connection with the Merger for which it will have received little or no benefit if the Merger is not consummated; and (iv) failure to complete the Merger may result in negative publicity or result in a negative impression of the Company in the investment community and with its policyholders and other stakeholders.

A-3. Efforts to complete the Merger could disrupt the Company’s relationships with third parties and employees, divert management’s attention, or result in negative publicity or legal proceedings, any of which could negatively impact the Company’s operating results and ongoing business.

The Company has expended, and continues to expend, significant management time and resources in an effort to complete the Merger, which may have a negative impact on its ongoing business and operations. Uncertainty regarding the outcome of the Merger and the Company’s future could disrupt its business relationships with existing and potential policyholders, suppliers, vendors, landlords and other business partners, who may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. Uncertainty regarding the outcome of the Merger could also adversely affect our ability to recruit and retain key personnel and other employees. The pendency of the Merger may also lead to litigation against the Company and its directors and officers. Such litigation would be distracting to management and, may, in the future, require the Company to incur significant costs. Such litigation could result in the Merger being delayed and/or enjoined by a court of competent jurisdiction, which could prevent the Merger from becoming effective. The occurrence of any of these events individually or in combination could have a material and adverse effect on our business, financial condition and results of operations.

A-4. The Merger Agreement contains provisions that limit the Company’s ability to pursue alternatives to the Merger which could discourage a potential competing acquirer from making an alternative transaction proposal.

The Merger Agreement contains customary restrictions pursuant to which, among other things, the Company is prohibited from soliciting and pursuing alternatives to the Merger and requires the Company to refrain from soliciting alternative transactions, which could discourage a potential third-party acquirer or merger partner from making an alternative transaction proposal.

Additionally, if the Merger Agreement is terminated and the Company determines to seek another transaction, the Company may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger.

A-5. While the Merger Agreement is in effect, the Company is subject to restrictions on its business activities.

The Merger Agreement contains certain restrictions on the Company’s business activities prior to the completion of the Merger. These restrictions could prevent the Company from pursuing attractive business opportunities that may arise prior to the consummation of the Merger. Although the Company may be able to pursue such activities with Brookfield Reinsurance’s consent, Brookfield Reinsurance may not be willing to provide its consent for the Company to do so.

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Risks Relating to Our Business and Economic Conditions

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8. Our information technology and communication systems may fail or suffer a security breach.

We may lose access to or use of our information technology (IT) systems to accurately perform necessary business functions such as issuing new policies, providing customer support, maintaining existing policies, paying claims, managing our investment portfolios, and producing financial statements. Our efforts, policies, and processes to avoid or mitigate systems failures, fraud, cyberattacks, processing errors, and regulatory breaches may fail or prove inadequate. Our disclosure obligations or regulatory requirements related to cybersecurity could make us more vulnerable to such events.

* * *

19. Laws, regulations, accounting, and benchmarking standards may change.

Any of the myriad of insurance statutes and regulations in the various states in which our life insurance subsidiaries transact business, including those related to insurance holding companies, may change at any time with or without warning. Laws affecting our investments or how much capital we must retain, such as insurance rules on admitted assets, rules on enforcing mortgage rights, or others, may change. Accounting standards such as those issued by the FASB, statutory accounting standards, or others may change. For example, the Long Duration Technical Improvements initiative may affect the book value of our assets and have other effects on our financial condition or results. Changes to interest rate benchmarking standards, such as LIBOR's replacements, may change, evolve, or be replaced. U.S. federal laws and rules, such as those related to securities or ERISA, may also change. In addition, those with authority or influence may change their interpretation of such laws or accounting standards, or may disagree with our interpretation of them. We may be unable to adapt to any such changes or disagreements in a timely or effective manner. Tax law changes may also harm us. For example, changes to tax rules or securities regulation on stock repurchases may inhibit our return of capital to shareholders. In addition, should individual income tax rates decrease, some of the income tax advantages of our products would likewise decrease. Moreover, tax law may change or eliminate any of the income tax advantages of our products. Further, changes to the basis of U.S. income taxation (e.g., taxation of unearned gains), corporate tax rates, capital gains tax rates, and other changes, may affect us.

* * *

21. Climate changes, or responses to it, may affect us.

Climate change may increase the frequency and severity of near- or long-term weather-related disasters, public health incidents, and pandemics, and their effects may increase over time. Climate change regulation may harm the value of investments we hold or harm our counterparties, including reinsurers. Our regulators may also increasingly focus their examinations on climate-related risks. Augmented climate-related disclosure requirements, include those related to GAAP or other financial statements or corporate governance, may increase our costs or absorb director or management attention.

* * *

24. Should Brookfield’s Acquisition Not Be Consummated, our shareholder relationships may become strained and we may be subject to opportunistic or coercive takeover proposals that may not enhance value for all shareholders and stakeholders.

Should the Merger with Brookfield Reinsurance fail to be completed, Brookfield or others may change their reinsurance or investment management relationships with us; Brookfield may exercise any rights it retains under its Investment Agreement with us; or Brookfield or other shareholders may sell shares of our common stock. Further, this or other activity may cause opportunistic or coercive behavior on the part of private equity or other firms to compel our takeover on terms not to the advantage of all of our shareholders or stakeholders. This may result in stock price volatility and, despite management’s best efforts, a subsequent change in our control may not maximize long-term shareholder or stakeholder value.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Securities

The following table presents the amount of our share purchase activity for the periods indicated:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (a)	Approximate Dollar Value of Shares That May Yet Be Purchased Under Program
	(shares)	(dollars)		(shares)	(dollars in thousands)






July 1, 2023 - July 31, 2023	—	$	—	—	$	275,825
August 1, 2023 - August 31, 2023	—	$	—	—	$	275,825
September 1, 2023 - September 30, 2023	—	$	—	—	$	275,825



Total	—			—

(a) On November 19, 2021, the Company's Board of Directors authorized the repurchase of an additional $500 million of Company common stock. On November 11, 2022, the Company's Board of Directors authorized the repurchase of an additional $400 million of Company common stock. On March 17, 2023, the Company entered into an accelerated share repurchase (ASR) agreement to repurchases an aggregate of $200 million of Company common stock, and 4.8 million shares were delivered under this agreement. The Company has terminated the ASR agreement.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

Note Regarding Reliance on Statements in Our Contracts and Other Exhibits: We include agreements and other exhibits to this report to provide information regarding their terms and not to provide any other factual or disclosure information about us, our subsidiaries or affiliates, or the other parties to the agreements, or for any other purpose. The agreements and other exhibits may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement or other arrangement and (i) should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) have in many cases been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; (iii) may apply standards of materiality in a way that is different from what may be viewed as material to investors; and (iv) were made only as of the date of the applicable agreement or other exhibit, or such other date or dates as may be specified in the document and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.


Exhibit Number						Description
2.1						Agreement and Plan of Merger, dated July 4, 2023, by and among the Company, the Parent and Merger Sub and, solely for the purposes set forth therein, BAM* (Incorporated by reference to Exhibit 2.1 to Form 8-K filed July 5, 2023) (* Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished.)
10.1 *						Amended and Restated Change in Control Agreement, dated as of July 4, 2023, by and between the Company and Axel Andre (Incorporated by reference to Exhibit 10.1 to Form 8-K filed July 5, 2023)
10.2						Voting Agreement, dated July 4, 2023, by and among the Company, Freestone Re Ltd. and North End RE SPC (Incorporated by reference to Exhibit 10.2 to Form 8-K filed July 5, 2023)
31.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101						The following materials from American Equity Investment Life Holding Company's Quarterly Report on Form 10-Q for the period ended September 30, 2023 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Unaudited Consolidated Financial Statements.
104						The cover page from American Equity Investment Life Holding Company's Quarterly Report on Form 10-Q for the period ended September 30, 2023 formatted in iXBRL and contained in Exhibit 101.

* Denotes management contract or compensatory plan.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:

November 8, 2023

AMERICAN EQUITY INVESTMENT LIFE

HOLDING COMPANY

By:

/s/ Aaron Boushek

Aaron Boushek

Controller

(Principal Accounting Officer)

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Part I - Financial Information Item 1. Financial Statements Note 1 - Significant Accounting Policies Note 8 - Policyholder Liabilities Note 7 - Deferred Policy Acquisition Costs and Deferred Sales Inducements Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Note 3 - Investments Note 4 - Mortgage Loans on Real Estate Note 6 - Derivative Instruments Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Note 10 - Commitments and Contingencies Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

2.1 Agreement and Plan of Merger, dated July 4, 2023, by and among the Company, the Parent and Merger Sub and, solely for the purposes set forth therein, BAM* (Incorporated by reference to Exhibit 2.1 to Form 8-K filed July 5, 2023) (* Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished.) 10.1 * Amended and Restated Change in Control Agreement, dated as of July 4, 2023, by and between the Company and Axel Andre (Incorporated by reference to Exhibit 10.1 to Form 8-K filed July 5, 2023) 10.2 Voting Agreement, dated July 4, 2023, by and among the Company, Freestone Re Ltd. and North End RE SPC (Incorporated by reference to Exhibit 10.2 to Form 8-K filed July 5, 2023) 31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

ANG 10-Q Quarter ended Sept. 30, 2023

Exhibits