AMERICAN EQUITY INVESTMENT LIFE HOLDING CO Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

Management's discussion and analysis reviews our consolidated financial position
at December 31, 2021 compared with December 31, 2020, and our consolidated
results of operations for the years ended December 31, 2021 and 2020, and where
appropriate, factors that may affect future financial performance. This analysis
should be read in conjunction with our audited consolidated financial
statements, notes thereto and selected consolidated financial data appearing
elsewhere in this report.

For information and analysis relating to our financial condition and
consolidated results of operations as of and for the year ended December 31,
2020, as well as for the year ended December 31, 2020 compared with the year
ended December 31, 2019, see Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K
for the year ended December 31, 2020.

Caution 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 Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements 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, and are subject to assumptions, risks and uncertainties.
Statements such as ["guidance", "expect", "anticipate", "strong", "believe",
"intend", "goal", "objective", "target", "position", "potential", "will", "may",
"would", "should", "can", "deliver", "accelerate", "enable", "estimate",
"projects", "outlook", "opportunity"] or similar words, as well as specific
projections of future events or results qualify as forward-looking statements.
Forward-looking statements, by their nature, are subject to a variety of
inherent 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:

•results differing from assumptions, estimates, and models.
•interest rate condition changes.
•investments 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.

For a detailed discussion of these and other factors that may affect our performance, see Section 1A of this report.

Abstract

As previously noted, we began to implement an updated strategy, referred to as
AEL 2.0, after having undertaken a thorough review of our business in 2020.
During 2021, we made significant progress in the execution of the AEL 2.0
strategy in all four key pillars: Go-to-Market, Investment Management, Capital
Structure and Foundational Capabilities. See Item 1. Business - Strategy for
more information on the AEL 2.0 strategy and progress made during 2021.

Excellent customer service teamed with our ability to offer innovative insurance
products that provide principal protection and lifetime income continued to
result in significant sales of our annuity products. In 2021, our sales were
$6.0 billion which increased cash and investments to a balance in excess of
$64.0 billion at December 31, 2021. Our sales for the last five years have
ranged from $3.7 billion to $6.0 billion.

The economic and personal investing environments continued to be conducive to
the sale of fixed index and fixed rate annuity products as retirees and others
looked to put their money in instruments that will protect their principal and
provide them with consistent cash flow sources in their retirement years and a
paycheck for life. Sales of both fixed index and fixed rate annuity products
increased during 2021.

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Total sales increased to $6.0 billion in 2021 compared to $3.7 billion in 2020.
The increase in fixed rate annuity products was driven by the introduction of
competitive three and five-year single premium deferred annuity products at both
American Equity Life and Eagle Life. The increase in fixed index annuity
products was driven by product refreshes at both American Equity Life and Eagle
Life, including the addition of two new proprietary indices to our refreshed
AssetShield product and the introduction of two new products at American Equity
Life. Sales levels in 2021 also benefited from an improving sales environment
compared to 2020. We lowered crediting rates on our single premium deferred
annuity products during the fourth quarter of 2021 in order to focus on sales of
fixed index annuity products as we believe such products align with the
transformation of the Company from a spread based return on equity insurer to
more of a fee-based return on asset insurer.

We continue to be in the midst of an unprecedented period of low interest rates
and low yields for investments with the credit quality we prefer. In response,
we have been reducing policyholder crediting rates for new annuities and
existing annuities. Active management of policyholder crediting rates resulted
in a lower aggregate cost of money during 2021. We continue to have flexibility
to reduce our crediting rates if necessary and could decrease our cost of money
by approximately 62 basis points if we reduce current rates to guaranteed
minimums. We now have 7 sleeves of private asset sectors in which we have
conviction, specifically as a landlord in both single family rental homes and
multi-family apartments, residential whole loans for individuals and
professional investors, infrastructure debt, infrastructure equity, with a
priority around sub-sectors like energy transition, middle market loans to
private companies, and annual recurring revenue based lending to companies in
the software and technology sector. During 2021, we deployed $3.4 billion in
private assets with expected returns in the 5.1% to 5.2% range. In aggregate, we
successfully repositioned the portfolio in 2021 with close to $10 billion of new
assets purchases resulting in an estimated portfolio yield 3.85% at the end of
2021. We are on track to achieve close to or above 4% aggregate portfolio yield
in 2022 as we further ramp our allocation in private assets from approximately
15% at year-end 2021 to 30-40% over time.

On October 18, 2020, we announced an agreement with Brookfield under which
Brookfield will acquire up to a 19.9% ownership interest of common stock in the
Company. The equity investment by Brookfield will take 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 up to an incremental 10.0% equity interest, at the greater value of
$37.00 per share or adjusted book value per share (excluding AOCI and the net
impact of fair value accounting for derivatives and embedded derivatives). The
second equity investment was subject to finalization of a reinsurance
transaction that closed on October 8, 2021, receipt of applicable regulatory
approvals and other closing conditions. Regulatory approval related to the
second equity investment was received on December 29, 2021 and an additional
6,775,000 shares were issued to Brookfield at $37.33 per share in January of
2022. Brookfield also received one seat on the Company's Board of Directors
following the initial equity investment.

On October 18, 2020, the Company's Board of Directors approved a $500 million
share repurchase program. The purpose of the share repurchase program is to both
offset dilution from the issuance of shares to Brookfield and to institute a
regular cash return program for shareholders. On November 19, 2021, the
Company's Board of Directors authorized the repurchase of an additional $500
million of Company common stock. As of December 31, 2021, we have repurchased
approximately 9.1 million shares of our common stock at an average price of
$29.04 per common share. Through February 25, 2022, we have repurchased
approximately 11.6 million shares of our common shares at an average price of
$31.78 per common share and have approximately $630 million remaining under our
share repurchase program.

We specialize in the sale of individual annuities (primarily fixed and fixed
index deferred annuities) through 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.

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 and changes in the
liability for lifetime income benefit riders), changes in fair value of embedded
derivatives, amortization of deferred sales inducements and deferred policy
acquisition costs, other operating costs and expenses and income taxes.

Our profitability largely depends on:

•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 manage our operating expenses, and
•income taxes.

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Life insurance companies are subject to RBC NAIC requirements, and rating agencies use a form of RBC to partly determine the capital strength of insurance companies. Our RBC ratio to December 31, 2021 and December 31, 2020
was 400% and 372%, respectively.

We intend to manage our capitalization in normal economic conditions at a level
that is consistent with rating agency capital at or above the A-level. It may
drift downwards, at times, for reasons including, but not limited to, realized
credit losses or temporary increases in required risk capital for ratings
migrations. This level is intended to reflect a level that is consistent with
the rating agencies expectations for capital adequacy ratios at different points
in an economic cycle. This implies operating with a peak to trough swing whereby
capital is absorbing risk at the low point of the economic cycle.

On August 21, 2020 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, and revised its outlook to "stable" from
"negative" primarily due to capital management actions taken during 2020.

On July 29, 2021, 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. The outlook for these credit
ratings of "stable" was also affirmed by A.M. Best on July 29, 2021.

On April 14, 2021, 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.

Income from products recognized as deposit liabilities is primarily generated by the excess of net investment income earned over interest credited or the cost of providing index credits to the policyholder, or “the spread of investment”. Our investment breakdown is summarized as follows:

                                                              Year Ended 

the 31st of December,

                                                      2021              2020             2019
 Average yield on invested assets                    3.73%             4.12%             4.52%
 Aggregate cost of money                             1.55%             1.69%             1.84%
 Aggregate investment spread                         2.18%             2.43%             2.68%

 Impact of:
 Investment yield - additional prepayment income     0.11%             0.08%             0.06%
 Cost of money benefit from over hedging             0.07%             0.02%             0.03%


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. See
Critical Accounting Policies and Estimates-Deferred Policy Acquisition Costs and
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 and Estimates - Policy Liabilities
for Fixed Index Annuities and Financial Condition - Derivative Instruments.

Average yield on invested assets decreased primarily as a result of a higher
level of cash and cash equivalent holdings during 2021 compared to 2020. The
higher level of cash and cash equivalent holdings was a result of our decision
to execute a series of trades in the fourth quarter of 2020 designed to raise
liquidity to fund block reinsurance transactions and de-risk the investment
portfolio. See Net investment income. Active management of policyholder
crediting rates has continued to lower the aggregate cost of money. We expect to
have flexibility to reduce our crediting rates if necessary and could decrease
our cost of money by approximately 62 basis points if we reduce current rates to
guaranteed minimums.

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Results of operations for the three years ended December 31, 2021

Annuity deposits by product type collected during 2021, 2020 and 2019, were as
follows:

                                                          Year Ended December 31,
      Product Type                                2021             2020             2019
                                                          (Dollars in thousands)
      American Equity Life:
      Fixed index annuities                   $ 2,753,479      $ 1,992,059      $ 4,058,638
      Annual reset fixed rate annuities             6,133            8,128           11,245
      Multi-year fixed rate annuities             855,702          395,982            1,613
      Single premium immediate annuities           59,816           33,461           12,002
                                                3,675,130        2,429,630        4,083,498
      Eagle Life:
      Fixed index annuities                       697,068          345,519          646,903
      Annual reset fixed rate annuities               350               97              199
      Multi-year fixed rate annuities           1,597,292          907,151          232,613
                                                2,294,710        1,252,767          879,715
      Consolidated:
      Fixed index annuities                     3,450,547        2,337,578        4,705,541
      Annual reset fixed rate annuities             6,483            8,225           11,444
      Multi-year fixed rate annuities           2,452,994        1,303,133          234,226
      Single premium immediate annuities           59,816           33,461           12,002
      Total before coinsurance ceded            5,969,840        3,682,397        4,963,213
      Coinsurance ceded                           424,819           35,667          290,040
      Net after coinsurance ceded             $ 5,545,021      $ 3,646,730      $ 4,673,173


Annuity deposits before coinsurance ceded increased 62% during 2021 compared to
2020. Annuity deposits after coinsurance ceded increased 52% during 2021
compared to 2020. The increase in sales in 2021 compared to 2020 was driven by
the sales of multi-year fixed rate annuity products introduced in late 2020 at
both American Equity Life and Eagle Life and increased sales of fixed index
annuities at both American Equity Life and Eagle Life. This growth is due to
fixed index annuity product refreshes at both American Equity Life and Eagle
Life, the introduction of two new products at American Equity Life and strong
sales of single premium deferred annuity products at both Eagle Life and
American Equity Life during the first three quarters of 2021. Sales levels in
2021 also benefited from an improving sales environment compared to 2020.

Prior to January 1, 2021, we had been ceding 80% of the annuity deposits
received from certain multi-year rate guaranteed annuities and 20% of certain
fixed index annuities sold by Eagle Life through broker/dealers and banks to an
unaffiliated reinsurer. Beginning January 1, 2021, no new business is being
ceded to the unaffiliated reinsurer. Effective July 1, 2021, we ceded 100% of an
in-force block of fixed index annuities and began ceding 75% of certain fixed
index annuities issued after July 1, 2021 to North End Re which caused the
increase in coinsurance ceded premiums for the year ended December 31, 2021
compared to 2020.

Net income available to common stockholders decreased 33% to $430.3 million in
2021 and increased 159% to $637.9 million in 2020 from $246.1 million in 2019.
The decrease in net income available to common stockholders for the year ended
December 31, 2021 was primarily a result of the impact of assumption updates
made during 2021 compared to the impact of assumption updates made during 2020.

Net income available to common stockholders for the year ended December 31, 2021
was negatively impacted by a decrease in the aggregate investment spread as
previously noted. 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) increased 1% to $53.7 billion for the year ended
December 31, 2021 compared to $53.3 billion in 2020 and increased 2% for the
year ended December 31, 2020 compared to $52.3 billion in 2019. Our investment
spread measured in dollars was $1.2 billion, $1.3 billion, and $1.3 billion for
the years ended December 31, 2021, 2020 and 2019, respectively. Our investment
spread has been negatively impacted by the extended low interest rate
environment and by holding higher levels of cash and cash equivalents (see Net
investment income). The higher levels of cash and cash equivalent holdings
decreased in the fourth quarter of 2021 with the execution of the reinsurance
treaty with North End Re. We expect to invest most of the cash balances above
our target cash levels into traditional fixed income securities and privately
sourced assets during early 2022. The impact of the extended low interest rate
environment and higher cash and cash equivalent holdings has been partially
offset by a lower aggregate cost of money due to our continued active management
of new business and renewal rates. Net income available to common stockholders
for the year ended December 31, 2021 was negatively impacted by an increase in
other operating costs and expenses (see Other operating costs and expenses). We
expect the level of other operating costs and expenses to settle into the $60
million per quarter range for the foreseeable future as we continue to execute
on the AEL 2.0 strategy.

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Net income is impacted by the change in fair value of derivatives and embedded
derivatives which fluctuates from year to year 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. See Change in fair value of derivatives, Change in fair value of
embedded derivatives, Amortization of deferred sales inducements and
Amortization of deferred policy acquisition costs.

We periodically update the key assumptions used in the calculation of
amortization of deferred policy acquisition costs and deferred sales inducements
retrospectively through an unlocking process when estimates of current or future
gross profits/margins (including the impact of realized investment gains and
losses) to be realized from a group of products are revised. In addition, we
periodically update the assumptions used in determining the liability for
lifetime income benefit riders 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 shareholders for 2021, 2020 and 2019 includes the effects of updates to assumptions as follows:

                                                                    Year Ended December 31,
                                                         2021                2020                 2019
                                                                     (Dollars in thousands)
Increase (decrease) in amortization of deferred
sales inducements                                    $ (45,107)         $    428,101          $ (104,707)
Increase (decrease) in amortization of deferred
policy acquisition costs                               (45,662)              646,785            (192,982)
Increase in interest sensitive and index product
benefits                                               243,658               285,825             315,383
Increase (decrease) in change in fair value of
embedded derivatives                                  (122,294)           (2,341,279)             28,208
Effect on net income available to common
stockholders                                           (24,017)              769,611             (35,987)


We review these assumptions quarterly and as a result of these reviews, we made
updates to assumptions during each year. In addition, we implemented an enhanced
actuarial valuation system during 2019, and as a result, our 2019 assumption
updates include model refinements resulting from the implementation.

The most significant assumption updates made in 2021 were to investment spread
assumptions, including the net investment earned rate and crediting rate on
policies, lifetime income benefit rider utilization assumptions, mortality
assumptions, and lapse rate assumptions as discussed below. In addition, we made
assumption updates to change the reinsurance expense assumption associated with
the refinancing of statutory redundant reserves effective October 1, 2021.

Due to the continued low interest rate environment, we updated our assumption
for investment spread for American Equity Life to 2.25% in the near term and
increasing to 2.50% over an eight-year reversion period and our assumption for
crediting/discount rate to 1.55% increasing to 2.10% over an eight-year
reversion period. Prior to these assumption updates, our long-term assumption
for aggregate investment spread was at 2.60% at the end of an eight-year
reversion period, with a near term crediting/discount rate of 1.90% increasing
to 2.10% over an eight-year reversion period. The assumption change to decrease
aggregate investment spread resulted in lower expected future gross profits as
compared to previous estimates and a decrease in the balances of deferred policy
acquisition costs and deferred sales inducements.

We updated lapse rate and mortality assumptions based on historical experience.
For certain annuity products without a lifetime income benefit rider, the lapse
rate assumption was increased in more recent cohorts to reflect higher lapses on
polices with a market value adjustment ("MVA") feature. For other annuity
products with a lifetime income benefit rider, the population was bifurcated
based on whether policies had utilized the rider. For those policies which had
utilized the rider, the lapse rate assumption was decreased in later durations.
The overall mortality assumption was lowered to reflect historical experience.
The net impact of the updates to the lapse rate and mortality assumptions
resulted in higher expected future gross profits as compared to previous
estimates and an increase in the balances of deferred policy acquisition costs
and deferred sales inducements. The net impact of the updates to lapse rate and
mortality assumptions resulted in an increase in the liability for lifetime
income benefit riders due to a greater amount of expected benefit payments in
excess of account values.

We updated the lifetime income benefit rider utilization assumption based on
historical experience. The ultimate utilization assumption was lowered for
policies with a fee rider and certain policies with a no-fee rider. In addition,
the utilization assumption was changed to reflect seasonality with higher
utilization rates during the first quarter of each year. The net impact of the
updates to the utilization assumption resulted in a decrease in the liability
for lifetime income benefit riders due to a lower amount of expected benefits
payments due to lower expected utilization. The net impact of the updates to the
utilization assumption resulted in higher expected future gross profits as
compared to previous estimates and an increase in the balances of deferred
policy acquisition costs and deferred sales inducements.

The most significant assumption update to the calculation of the fair value of
the embedded derivative component of our fixed index annuity policy benefit
reserve in 2021 was the change in lapse rate assumptions discussed above. The
net impact of the updates to the lapse rate assumption resulted in a decrease in
the embedded derivative component of our fixed index annuity policy benefit
reserves as less funds ultimately qualify for excess benefits.

The most significant assumption updates from the 2020 review were to investment
spread assumptions, including the net investment earned rate and crediting rates
on policies, as well as updates to lapse rate and partial withdrawal
assumptions.

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Due to the economic and low interest rate environments, we updated our
assumption for aggregate investment spread to 2.40% in the near-term increasing
to 2.60% over an eight-year reversion period and our assumption for
crediting/discount rate to 1.60% increasing to 2.10% over an eight-year
reversion period. Prior to these assumption updates, our long-term assumption
for aggregate investment spread was steady at 2.60%, with a near term
crediting/discount rate of 1.90% increasing to 2.90% over a 20-year reversion
period. The assumption update to decrease aggregate investment spread resulted
in lower expected future gross profits as compared to previous estimates and a
decrease in the balances of deferred policy acquisition costs and deferred sales
inducements. The decrease in the crediting rate, which is used as the discount
rate in the calculation of the liability for lifetime income benefit riders,
resulted in an increase in the liability for lifetime income benefit riders.

We updated lapse rate and partial withdrawal assumptions based on actual
historical experience. For certain annuity products without a lifetime income
benefit rider, lapse rate and partial withdrawal assumptions were increased
while for certain annuity products with a lifetime income benefit rider, lapse
rate and partial withdrawal assumptions were decreased. The net impact of the
updates to lapse rate and partial withdrawal assumptions resulted in lower
expected future gross profits as compared to previous estimates and a decrease
in the balances of deferred policy acquisition costs and deferred sales
inducements. The net impact of the updates to lapse rate and partial withdrawal
assumptions resulted in an increase in the liability for lifetime income benefit
riders due to a greater amount of expected benefit payments in excess of account
values.

The most significant assumption update to the calculation of the fair value of
the embedded derivative component of our fixed index annuity policy benefit
reserves during 2020 was a decrease in the crediting rate/option budget to 2.10%
from 2.90% as a result of a revised estimate of the cost of options. This
assumption change resulted in a decrease in the fair value of the embedded
derivative component of our fixed index annuity policy benefit reserves due to a
reduction in the projected policy contract values over the expected lives of the
contracts. The net impact of the the updates to lapse and partial withdrawal
assumptions noted above resulted in an increase in the embedded derivative
component of our fixed index annuity policy benefit reserves as more funds
ultimately qualify for excess benefits. In addition, during 2020, we refined the
derivation of the discount rate used in calculating the fair value of embedded
derivatives which increased the discount rate and resulted in a decrease in the
change in fair value of embedded derivatives offset by increases in amortization
of deferred sales inducements and deferred policy acquisition costs.

Non-GAAP operating income available to common stockholders, a non-GAAP financial
measure increased 320% to $290.5 million in 2021 and decreased 87% to $69.1
million in 2020 from $548.2 million in 2019. The increase in non-GAAP operating
income available to common stockholders for the year ended December 31, 2021 was
primarily a result of the impact of assumption updates made during 2021 compared
to the impact of assumption updates made during 2020. Non-GAAP operating income
available to common stockholders and Non-GAAP operating income available to
common stockholders per common share - assuming dilution, excluding the impact
of notable items, for the year ended December 31, 2021 were $368.5 million and
$3.90 per share, respectively. Non-GAAP operating income available to common
stockholders and Non-GAAP operating income available to common stockholders per
common share - assuming dilution, excluding the impact of notable items, for the
year ended December 31, 2020 were $379.2 million and $4.11 per share,
respectively. Non-GAAP operating income available to common stockholders for
both the years ended December 31, 2021 and 2020 was negatively impacted by a
decrease in the aggregate investment spread as previously noted. In addition,
Non-GAAP operating income available to common stockholders for the year ended
December 31, 2021 was negatively impacted by an increase in other operating
costs and expenses (see Other operating costs and expenses).

In addition to net income available to common stockholders, we have consistently
utilized non-GAAP operating income 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
available to common stockholders equals net income available to common
stockholders adjusted to eliminate the impact of items that fluctuate from year
to year 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 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 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 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 available to
common stockholders are important to understand our overall results from
operations and, if evaluated without proper context, non-GAAP operating income
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 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.

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The adjustments made to net income available to common stockholders to arrive at
non-GAAP operating income available to common stockholders and non-GAAP
operating income available to common stockholders, excluding notable items for
2021, 2020 and 2019 are set forth in the table that follows:

                                                                      Year Ended December 31,
                                                            2021               2020               2019
                                                                      (Dollars in thousands)
Reconciliation from net income available to common
stockholders to non-GAAP operating income available to
common stockholders:
Net income available to common stockholders             $ 430,317          $ 637,945          $  246,090
Adjustments to arrive at non-GAAP operating income
available to common stockholders:
Net realized losses on financial assets, including
credit losses                                              10,299             59,355               7,361
Change in fair value of derivatives and embedded
derivatives                                              (187,290)          (784,005)            374,468
Income taxes                                               37,184            155,808             (79,736)
Non-GAAP operating income available to common
stockholders                                              290,510             69,103             548,183
Impact of notable items                                    78,036            310,117            (123,739)
Non-GAAP operating income available to common
stockholders, excluding notable items                   $ 368,546          

$379,220 $424,444

Per common share - assuming dilution:
Non-GAAP operating income available to common
stockholders                                            $    3.07          $    0.75          $     5.97
Impact of notable items                                      0.83               3.36               (1.35)
Non-GAAP operating income available to common
stockholders, excluding notable items                   $    3.90          

$4.11 $4.62

Notable items impacting non-GAAP operating income
available to common stockholders:

Impact of actuarial assumption updates                  $  78,036          $ 340,895          $ (123,739)
Tax benefit related to the CARES Act                            -            (30,778)                  -
Total notable items                                     $  78,036          

$310,117 ($123,739)


The amounts disclosed in the reconciliation above are presented net of related
adjustments to amortization of deferred sales inducements and deferred policy
acquisition costs and accretion of lifetime income benefit rider reserves where
applicable. Notable items reflect the after-tax impact to non-GAAP operating
income available to common stockholders for certain items that do not reflect
the company's expected ongoing operations. Notable items primarily include the
impact from actuarial assumption updates. The presentation of notable items is
intended to help investors better understand our results and to evaluate and
forecast those results.

Non-GAAP operating income available to common shareholders for 2021, 2020 and 2019 includes the effects of assumption updates as follows:

                                                                   Year Ended December 31,
                                                         2021               2020                2019
                                                                    (Dollars in thousands)
Increase (decrease) in amortization of deferred
sales inducements                                    $ (66,066)         $   57,467          $ (184,882)
Increase (decrease) in amortization of deferred
policy acquisition costs                               (78,183)             90,970            (288,332)
Increase in interest sensitive and index product
benefits                                               243,658             285,825             315,383
Effect on non-GAAP operating income available to
common stockholders                                    (78,036)           (340,895)            123,739


The impact to net income available to common stockholders and non-GAAP operating
income 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 available to common stockholders eliminates the impact
of fair value accounting for our fixed index annuity business. While the
assumption updates made during 2021, 2020 and 2019 were consistently applied,
the impact to net income available to common stockholders and non-GAAP operating
income available to common stockholders varies due to different amortization
rates being applied to gross profit adjustments included in the valuation.

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Annuity product charges (surrender charges assessed against policy withdrawals
and fees deducted from policyholder account balances for lifetime income benefit
riders) decreased 3% to $242.6 million in 2021 and increased 5% to $251.2
million in 2020 from $240.0 million in 2019. The components of annuity product
charges are set forth in the table that follows:

                                                                    Year Ended December 31,
                                                       2021                  2020                  2019
                                                                    (Dollars in thousands)
Surrender charges                                 $     67,657          $     72,551          $     71,565
Lifetime income benefit riders (LIBR) fees             174,974               178,676               168,470
                                                  $    242,631          $   

251 227 $240,035

Withdrawals from annuity policies subject to
surrender charges                                 $  1,099,098          $    776,305          $    662,795
Average surrender charge collected on withdrawals
subject to surrender charges                               6.2  %                9.3  %               10.8  %

Fund values ​​on policies subject to LIBR charges $22,183,623 $22,986,903 $22,490,676
Weighted average per policy LIBR fees

                      0.79  %               0.78  %               0.75  %


The decrease in annuity product charges during 2021 was attributable to lower
average surrender charges collected on withdrawals subject to surrender charges
primarily due to an increase in market value adjustments on such surrenders and
a decrease in fees assessed for lifetime income benefit riders due to a smaller
volume of business in force subject to the fee slightly offset by an increase in
the average fees being charged as compared to prior periods. See Interest
sensitive and index product benefits below for corresponding expense recognized
on lifetime income benefit riders.

Net investment income decreased 7% to $2.0 billion in 2021 and 5% to $2.2
billion in 2020 from $2.3 billion in 2019. The decrease for 2021 compared to
2020 was attributable to a decrease in the average yield earned on invested
assets during 2021 compared to 2020. Average invested assets excluding
derivative instruments (on an amortized cost basis) increased 3% to $54.8
billion in 2021 and 4% to $53.1 billion in 2020 compared to $51.1 billion in
2019.

The average yield earned on average invested assets was 3.73%, 4.12% and 4.52%
for 2021, 2020 and 2019, respectively. The decrease in yield earned on average
invested assets in 2021 was primarily attributable to an increase in our level
of cash and cash equivalent holdings as previously described and a decline in
yields on our floating rate investment portfolio due to decreases in the average
benchmark rates associated with these investments offset by an increase in mark
to market gains on investment partnerships due to changes in market valuations.

The expected return on investments purchased during 2021 was 3.92%, net of
third-party investment management expenses. Purchases for 2021 included $6.4
billion of fixed maturity securities with an expected return of 3.25% and $3.4
billion of privately sourced assets with an expected return of 5.19%. The
privately sourced assets include investments in investment real estate, middle
market loans, infrastructure debt, mortgage loans and strategic investments in
limited partnerships. The expected return on investments purchased during 2020
and 2019 was 3.84% and 3.88%, respectively.

Change in fair value of derivatives consists of call options purchased to fund
annual index credits on fixed index annuities, and an interest rate swap and
interest rate caps that hedged our floating rate subordinated debentures. The
interest rate swap and interest rate caps were terminated during 2019 and 2020
in conjunction with the redemption of our floating rate subordinated debentures.
The components of change in fair value of derivatives are as follows:

                                                       Year Ended December 31,
                                                 2021            2020           2019
                                                       (Dollars in thousands)
         Call options:

Gain (loss) at option expiration $1,368,381 $15,042 ($190,376)

Change in unrealized gains/losses (20,456) 19,562

 1,098,932
         Warrants                                    810             -               -
         Interest rate swap                            -             -          (1,059)
         Interest rate caps                            -            62            (591)
                                             $ 1,348,735      $ 34,666      $  906,906


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The differences between the change in fair value of derivatives between years
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 years. The changes in gain (loss) on option
expiration and in unrealized gains/losses on call options for the year ended
December 31, 2021 as compared to 2020 are due to equity market performance in
2021 compared to 2020. 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 these years is as follows:

                                                                               Year Ended December 31,
                                                            2021                         2020                         2019
S&P 500 Index
Point-to-point strategy                                 0.0% - 42.6%                 0.0% - 17.4%                 0.0% - 22.3%
Monthly average strategy                                0.0% - 29.4%                 0.0% - 11.9%                 0.0% - 14.7%
Monthly point-to-point strategy                         0.0% - 21.7%                 0.0% - 14.0%                 0.0% - 14.0%

Volatility Control Index Point-to-Point Strategy 0.0% – 9.7%

           0.0% - 9.3%                 0.0% - 10.3%
Fixed income (bond index) strategies                    0.0% - 10.0%                 0.0% - 13.6%                 0.0% - 10.0%


The change in fair value of derivatives is also influenced by the aggregate
costs of options purchased. During 2021, the aggregate cost of options were
lower than in 2020 as option costs generally decreased during 2020 and 2021. The
aggregate cost of options is also influenced by the amount of policyholder funds
allocated to the various indices and market volatility which affects option
pricing. See Critical Accounting Policies and Estimates - Policy Liabilities for
Fixed Index Annuities.

Net realized gains (losses) on investments include 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 4 - Investments and Note 5 - Mortgage Loans on Real Estate
to our audited 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 our
securities recognized during the periods presented and Financial Condition -
Investments and Note 5 - Mortgage Loans on Real Estate to our audited
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.

Other revenue was $15.7 million for the year ended December 31, 2021 and
primarily consists of $5.5 million related to asset liability management fees
and $10.2 million of amortization related to the deferred gain associated with
the cost of reinsurance. Both of these items are associated with the North End
Re reinsurance treaty which was effective July 1, 2021. See Note 9 - Reinsurance
and Policy Provisions to our audited consolidated financial statements for more
information.

Interest sensitive and index product benefits increased 74% to $2.7 billion in
2021 and 20% to $1.5 billion in 2020 from $1.3 billion in 2019. The components
of interest sensitive and index product benefits are summarized as follows:

                                                                     Year Ended December 31,
                                                          2021                 2020                 2019
                                                                      (Dollars in thousands)
Index credits on index policies                      $ 1,977,888          $   747,489          $   587,818
Interest credited (including changes in minimum
guaranteed interest for fixed index annuities)           253,725              198,745              204,474
Lifetime income benefit riders                           449,793              597,036              495,284
                                                     $ 2,681,406          $ 1,543,270          $ 1,287,576


The changes in index credits were attributable 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 $2.0 billion, $0.8
billion and $0.6 billion for the years ended December 31, 2021, 2020 and 2019,
respectively. The increase in interest credited in 2021 was due to increases in
sales of single premium deferred annuity products that receive a fixed rate of
interest partially offset by a reduction in interest credited to funds allocated
to the fixed option within our fixed index annuities due to a decrease in the
average balance allocated to the fixed option. The decrease in benefits
recognized for lifetime income benefit riders for 2021 compared to 2020 was due
to the impact of assumption updates made during 2021 compared to the impact of
assumption updates made during 2020 and the increased level of index credits on
index policies during 2021 compared to 2020. In addition, fund value of policies
with lifetime income benefit riders decreased as a result of the North End Re
reinsurance treaty executed during 2021. See Net income available to common
stockholders above for discussion of the changes in the assumptions used in
determining reserves for lifetime income benefit riders for the years ended
December 31, 2021 and 2020.

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Amortization of deferred sales inducements before gross profit adjustments
decreased in 2021 compared to 2020 primarily due to the impact of assumption
updates made during 2021 compared to the impact of assumption updates made
during 2020. Amortization of deferred sales inducements is based on historical,
current and future expected gross profits. The changes in amortization from
period to period are the result of differences in actual gross profits compared
to expected or modeled gross profits and changes to the underlying business. In
addition, amortization of deferred sales inducements for the year ended December
31, 2021 decreased as index credits on index policies for the year ended
December 31, 2021 were in excess of expected index credits and index credits on
index policies for the same period of 2020. Bonus products represented 65%, 75%
and 76% of our net annuity account values at December 31, 2021, 2020 and 2019,
respectively. The amount of amortization is affected by amortization associated
with fair value accounting for derivatives and embedded derivatives utilized in
our fixed index annuity business and amortization associated with net realized
gains (losses) on investments. Fair value accounting for derivatives and
embedded derivatives utilized in our fixed index annuity business creates
differences in the recognition of revenues and expenses from derivative
instruments including the embedded derivative liabilities in our fixed index
annuity contracts. The change in fair value of the embedded derivatives will not
correspond to the change in fair value of the derivatives (purchased call
options), because the purchased call options are one-year options while the
options valued in the fair value of embedded derivatives cover the expected
lives of the contracts which typically exceed ten years. Amortization of
deferred sales inducements is summarized as follows:

                                                                   Year Ended December 31,
                                                          2021               2020               2019
                                                                    (Dollars in thousands)
Amortization of deferred sales inducements before
gross profit adjustments                              $ 112,790          $ 243,067          $  78,398
Gross profit adjustments:
Fair value accounting for derivatives and embedded
derivatives                                              40,899            202,660             12,189
Net realized losses on investments                         (997)            (7,563)            (2,002)
Amortization of deferred sales inducements after
gross profit adjustments                              $ 152,692          $ 

438 164 $88,585


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 on amortization of deferred sales
inducements for the years ended December 31, 2021 and 2020. See Critical
Accounting Policies and Estimates - Deferred Policy Acquisition Costs and
Deferred Sales Inducements.

Change in fair value of embedded derivatives includes changes in the fair value
of our fixed index annuity embedded derivatives (see Note 7 - Derivative
Instruments to our audited consolidated financial statements). The components of
change in fair value of embedded derivatives are as follows:

                                                                         Year Ended December 31,
                                                             2021                 2020                  2019
                                                                          (Dollars in thousands)
Fixed index annuities - embedded derivatives             $ (876,803)         $ (1,922,085)         $   562,302
Other changes in difference between policy benefit
reserves computed using derivative accounting vs.
long-duration contracts accounting                          520,863               635,298              891,740
Reinsurance related embedded derivative                      (2,362)                    -                    -
                                                         $ (358,302)         $ (1,286,787)         $ 1,454,042


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. The amounts presented as "Other changes in difference between policy
benefit reserves computed using derivative accounting vs. long-duration
contracts accounting" represents the total change in the difference between
policy benefit reserves for fixed index annuities computed under the derivative
accounting standard and the long-duration contracts accounting standard at each
balance sheet date, less the change in fair value of our fixed index annuities
embedded derivative. See Critical Accounting Policies and Estimates- Policy
Liabilities for Fixed Index Annuities.

The primary reason for the increase in the change in fair value of the fixed
index annuity embedded derivatives during 2021 compared to 2020 was the impact
of assumption updates made during 2021 compared to the impact of assumption
updates made during 2020. See Net Income available to common stockholders above
for a discussion of the impact of assumption updates on the fair value of the
fixed index annuity embedded derivative for the years ended December 31, 2021
and 2020.

The increase in change in fair value of the fixed index annuity embedded
derivatives for the year ended December 31, 2021 was also due to an increase in
the net discount rate during the year ended December 31, 2021 compared to a
decrease in the net discount rate during the same period of 2020 offset by a
larger increase in expected index credits on the next policy anniversary dates
resulting from a larger increase in the fair value of the call options acquired
to fund these index credits during year ended December 31, 2021 compared to the
year ended December 31, 2020. 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.

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The reinsurance agreement executed in 2021 with Brookfield to cede certain fixed
index annuity product liabilities on a modified coinsurance basis contains an
embedded derivative. See Note 7 - Derivative Instruments for discussion on this
embedded derivative.

Amortization of deferred policy acquisition costs before gross profit
adjustments decreased in 2021 compared to 2020 primarily due to the impact of
assumption updates made during 2021 compared to the impact of assumption updates
made during 2020. Amortization of deferred policy acquisition costs is based on
historical, current and future expected gross profits. The changes in
amortization from period to period are the result of differences in actual gross
profits compared to expected or modeled gross profits and changes to the
underlying business. In addition, amortization of deferred policy acquisition
costs for year ended December 31, 2021 decreased as index credits on index
policies for the year ended December 31, 2021 were in excess of expected index
credits and index credits on index policies for the same periods of 2020. The
amount of amortization is affected by amortization associated with fair value
accounting for derivatives and embedded derivatives utilized in our fixed index
annuity business and amortization associated with net realized gains (losses) on
investments. As discussed above, fair value accounting for derivatives and
embedded derivatives utilized in our fixed index annuity business creates
differences in the recognition of revenues and expenses from derivative
instruments including the embedded derivative liabilities in our fixed index
annuity contracts. Amortization of deferred policy acquisition costs is
summarized as follows:

                                                                   Year Ended December 31,
                                                          2021               2020               2019
                                                                    (Dollars in thousands)
Amortization of deferred policy acquisition costs
before gross profit adjustments                       $ 181,589          $ 368,139          $  97,736
Gross profit adjustments:
Fair value accounting for derivatives and embedded
derivatives                                              88,576            293,827             (7,618)
Net realized losses on investments                       (1,837)           (12,412)            (2,401)
Amortization of deferred policy acquisition costs
after gross profit adjustments                        $ 268,328          $ 

649,554 $87,717


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 on amortization of deferred
policy acquisition costs for the years ended December 31, 2021 and 2020. See
Critical Accounting Policies and Estimates - Deferred Policy Acquisition Costs
and Deferred Sales Inducements.

Other operating costs and expenses increased 33% to $243.7 million in 2021 and
increased 19% to $183.6 million in 2020 from $154.2 million in 2019 and are
summarized as follows:

                                                           Year Ended December 31,
                                                     2021           2020           2019
                                                           (Dollars in thousands)
     Salary and benefits                          $ 139,155      $  95,815      $  82,883
     Risk charges                                    36,272         45,091         38,342
     Other                                           68,285         42,730         32,928
     Total other operating costs and expenses     $ 243,712      $ 183,636      $ 154,153


Salary and benefits expense increased in 2021 as a result of an increase in
salary and benefits of $22.2 million and an increase of $22.2 million related to
expense recognized under our equity and cash incentive compensation programs
("incentive compensation programs"). The increases in salary and benefits were
due to an increased number of employees related to our continued growth and
implementation of AEL 2.0. The increase in expense for our incentive
compensation programs was primarily due to an increase in the expected payouts
due to a larger number of employees participating in the programs and higher
payouts for certain employees participating in the programs partially due to
progress made in the execution of the AEL 2.0 strategy during 2021. The
increases in salary and benefits for 2021 includes $6.1 million of expenses
associated with talent transition as we implement the AEL 2.0 strategy.

The decrease in risk charges in 2021 compared to 2020 is due to the takeover of an existing reinsurance agreement which was replaced by a new agreement with a lower risk charge. We expect the risk requirement to be approximately $9 million lower per quarter than the previous agreement.

Other expenses increased in 2021 compared to 2020 primarily as a result of
increases in legal and consulting fees related to the implementation of AEL 2.0,
increases in depreciation and maintenance expenses primarily related to software
and hardware assets, and increases in agent conference related expenses as
conferences resumed as we emerge from the COVID-19 pandemic.

We expect the level of other operating costs and expenses to settle into the $60
million per quarter range for the foreseeable future as we continue to execute
on the AEL 2.0 strategy.

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Income tax expense decreased in 2021 primarily due to lower earnings before income taxes. The effective tax rates were 21.4% and 17.7% for 2021 and 2020, respectively.

Income tax expense and the resulting effective tax rate are based upon two
components of income 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 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 vary from year to year based primarily
on the relative size of pretax income from the two sources.

The effective income tax rate for 2021 was not significantly impacted by
discrete tax items. The effective tax rate for 2020 was impacted by a discrete
tax item related to the provision of the Coronavirus Aid, Relief, and Economic
Security Act that allowed net operating losses for 2018 through 2020 to be
carried back to previous tax years in which a 35% statutory tax rate was in
effect. The effective income tax rate excluding the impact of the discrete items
was 21.4% for the year ended December 31, 2020.

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 intend to ramp
up 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:

                                                                                 December 31,
                                                              2021                                          2020
                                                Carrying                                      Carrying
                                                 Amount                 Percent                Amount                 Percent
                                                                            (Dollars in thousands)
Fixed maturity securities:
United States Government full faith and
credit                                       $     37,793                     0.1  %       $     39,771                     0.1  %
United States Government sponsored agencies     1,040,953                     1.7  %          1,039,551                     1.9  %
United States municipalities, states and
territories                                     3,927,201                     6.5  %          3,776,131                     7.0  %
Foreign government obligations                    402,545                     0.7  %            202,706                     0.4  %
Corporate securities                           34,660,234                    57.4  %         31,156,827                    58.1  %
Residential mortgage backed securities          1,125,049                     1.9  %          1,512,831                     2.8  %
Commercial mortgage backed securities           4,840,311                     8.0  %          4,261,227                     8.0  %
Other asset backed securities                   5,271,857                     8.7  %          5,549,849                    10.4  %
Total fixed maturity securities                51,305,943                    85.0  %         47,538,893                    88.7  %

Mortgage loans on real estate                   5,687,998                     9.4  %          4,165,489                     7.8  %
Real estate investments                           337,939                     0.6  %                  -                       -  %
Derivative instruments                          1,277,480                     2.1  %          1,310,954                     2.4  %
Other investments                               1,767,144                     2.9  %            590,078                     1.1  %
                                             $ 60,376,504                   100.0  %       $ 53,605,414                   100.0  %


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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.

Here is a summary of our fixed maturity securities by NRSRO rating:

                                                                                 December 31,
                                                            2021                                              2020
                                            Carrying             Percent of Fixed             Carrying             Percent of Fixed
Rating Agency Rating                         Amount             Maturity Securities            Amount             Maturity Securities
                                                                            (Dollars in thousands)
Aaa/Aa/A                                 $ 28,275,431                        55.2  %       $ 27,883,428                        58.7  %
Baa                                        21,875,939                        42.6  %         18,408,954                        38.7  %
Total investment grade                     50,151,370                        97.8  %         46,292,382                        97.4  %
Ba                                            930,384                         1.8  %            973,581                         2.0  %
B                                             118,065                         0.2  %            122,553                         0.3  %
Caa                                            39,354                         0.1  %             61,037                         0.1  %
Ca and lower                                   66,770                         0.1  %             89,340                         0.2  %
Total below investment grade                1,154,573                         2.2  %          1,246,511                         2.6  %
                                         $ 51,305,943                       100.0  %       $ 47,538,893                       100.0  %


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


As of December 31, 2020, the NAIC had introduced 20 NAIC designation modifiers
that will be applied to each NAIC designation to determine a security's NAIC
designation category. The NAIC has approved new unique risk-based capital
charges for each of the 20 designated categories for reporting effective
December 31, 2021.

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.

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. This strategy meets the objective of minimizing risk while
also managing asset capital charges on a regulatory capital basis.

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

                                          December 31, 2021                                                     December 31, 2020
                                                                         Percentage                                                            Percentage
                                                                          of Total                                                              of Total
     NAIC           Amortized                            Carrying         Carrying        Amortized                            Carrying         Carrying
 Designation           Cost           Fair Value          Amount           Amount            Cost           Fair Value          Amount           Amount
                                (Dollars in thousands)                                                (Dollars in thousands)
      1           $ 26,157,531      $ 28,785,839      $ 28,785,839           56.1  %    $ 23,330,149      $ 26,564,542      $ 26,564,542           55.9  %
      2             19,758,594        21,396,020        21,396,020           41.7  %      17,312,485        19,377,013        19,377,013           40.8  %
      3                909,311           941,210           941,210            1.9  %       1,292,124         1,299,455         1,299,455            2.7  %
      4                133,070           147,160           147,160            0.3  %         282,049           256,651           256,651            0.5  %
      5                 16,496            15,357            15,357              -  %          29,396            16,288            16,288              -  %
      6                 24,181            20,357            20,357              -  %          58,533            24,944            24,944            0.1  %
                  $ 46,999,183      $ 51,305,943      $ 51,305,943          100.0  %    $ 42,304,736      $ 47,538,893      $ 47,538,893          100.0  %

The amortized cost and fair value of fixed-maturity securities at December 31, 2021by contractual maturity are disclosed in Note 4 – Investments to our audited consolidated financial statements in this Form 10-K, which is incorporated by reference into this Item 7.

Unrealized losses

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

                                                                                     Unrealized
                                          Number of             Amortized          Losses, Net of        Allowance for
                                         Securities                Cost               Allowance          Credit Losses          Fair Value
                                                                              (Dollars in thousands)
December 31, 2021
Fixed maturity securities, available
for sale:
United States Government full faith
and credit                                      2             $     1,041   

$ (34) $- $1,007
United States Government Sponsored Agencies

                                        6                 760,060                   (90)                   -              759,970
United States municipalities, states
and territories                                42                 190,471                (3,042)              (2,776)             184,653
Foreign government obligations                  3                  43,704                  (843)                   -               42,861
Corporate securities                          600               2,530,864               (38,442)                   -            2,492,422
Residential mortgage backed
securities                                     74                 280,044                (2,093)                 (70)             277,881
Commercial mortgage backed securities         108                 944,407               (17,719)                   -              926,688
Other asset backed securities                 592               3,172,613               (50,107)                   -            3,122,506
                                            1,427             $ 7,923,204          $   (112,370)         $    (2,846)         $ 7,807,988

December 31, 2020
Fixed maturity securities, available
for sale:

United States Government sponsored
agencies                                        3             $   250,521          $        (46)         $         -          $   250,475
United States municipalities, states
and territories                                14                  36,558                (1,044)              (2,844)              32,670

Corporate securities                          103                 856,995               (35,892)             (60,193)             760,910
Residential mortgage backed
securities                                     43                 173,875                (2,526)              (1,734)             169,615
Commercial mortgage backed securities         122               1,034,424               (64,678)                   -              969,746
Other asset backed securities                 558               3,728,144              (146,640)                   -            3,581,504
                                              843             $ 6,080,517          $   (250,826)         $   (64,771)         $ 5,764,920


The unrealized losses at December 31, 2021 are principally related to the timing
of the purchases of certain securities, which carry less yield than those
available at December 31, 2021, and the continued impact the COVID-19 pandemic
had on credit markets. Approximately 85% and 75% of the unrealized losses on
fixed maturity securities shown in the above table for December 31, 2021 and
December 31, 2020, respectively, are on securities that are rated investment
grade, defined as being the highest two NAIC designations.

The decrease in unrealized losses from December 31, 2020 to December 31, 2021
was primarily related to pricing improvements due to improved credit quality for
certain fixed maturity securities during the twelve months ended December 31,
2021 and strategies to reposition the fixed maturity security portfolio that
resulted in the sales of certain securities that were in an unrealized loss
position at December 31, 2020. This decrease was partially offset by an increase
in treasury yields during the twelve months ended December 31, 2021. The 10-year
U.S. Treasury yields at December 31, 2021 and December 31, 2020 were 1.52% and
0.93%, respectively. The 30-year U.S. Treasury yields at December 31, 2021 and
December 31, 2020 were 1.90% and 1.65%, respectively.

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

                                Carrying Value of
                                 Securities with                          Gross
                                 Gross Unrealized       Percent of      Unrealized      Percent of
       NAIC Designation               Losses              Total         Losses (1)        Total
                                                      (Dollars in thousands)
       December 31, 2021
       1                       $        4,174,438           53.5  %    $  (37,884)          33.7  %
       2                                3,197,575           41.0  %       (57,354)          51.0  %
       3                                  376,996            4.8  %       (13,723)          12.2  %
       4                                   33,229            0.4  %        (1,083)           1.0  %
       5                                    9,506            0.1  %        (1,140)           1.0  %
       6                                   16,244            0.2  %        (1,186)           1.1  %
                               $        7,807,988          100.0  %    $ (112,370)         100.0  %

       December 31, 2020
       1                       $        2,625,341           45.5  %    $  (82,045)          32.7  %
       2                                2,286,377           39.7  %      (106,700)          42.5  %
       3                                  650,364           11.3  %       (42,040)          16.8  %
       4                                  178,669            3.1  %       (16,274)           6.5  %
       5                                    4,991            0.1  %        (1,640)           0.7  %
       6                                   19,178            0.3  %        (2,127)           0.8  %
                               $        5,764,920          100.0  %    $ (250,826)         100.0  %

(1) Gross unrealized losses have been adjusted to reflect the provision for credit loss of $2.8 million and $64.8 million from December 31, 2021 and 2020, respectively.

Our investments' gross unrealized losses and fair value, aggregated by
investment category and length of time that individual securities (consisting of
1,427 and 843 securities, respectively) have been in a continuous unrealized
loss position at December 31, 2021 and 2020, along with a description of the
factors causing the unrealized losses is presented in Note 4 - Investments to
our audited consolidated financial statements in this Form 10-K, which is
incorporated by reference in this Item 7.

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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:

                                                                                                                    Gross
                                                                      Amortized                                  Unrealized
                                              Number of              Cost, Net of                              Losses, Net of
                                              Securities            Allowance (1)           Fair Value          Allowance (1)
                                                                                     (Dollars in thousands)
December 31, 2021
Fixed maturity securities, available for
sale:
Investment grade:
Less than six months                             1,024             $   

5,582,431 $5,536,216 ($46,215)
Six months or more and less than twelve months

                                              39                   132,110              130,156                (1,954)
Twelve months or greater                           281                 1,752,779            1,705,640               (47,139)
Total investment grade                           1,344                 7,467,320            7,372,012               (95,308)
Below investment grade:
Less than six months                                12                    43,808               43,057                  (751)
Six months or more and less than twelve
months                                               7                    28,544               25,706                (2,838)
Twelve months or greater                            64                   380,686              367,213               (13,473)
Total below investment grade                        83                   453,038              435,976               (17,062)
                                                 1,427             $   7,920,358          $ 7,807,988          $   (112,370)
December 31, 2020
Fixed maturity securities, available for
sale:
Investment grade:
Less than six months                                54             $     

686 711 $679,337 ($7,374)
Six months or more and less than twelve months

                                             310                 2,201,769            2,118,844               (82,925)
Twelve months or greater                           338                 2,400,833            2,288,755              (112,078)
Total investment grade                             702                 5,289,313            5,086,936              (202,377)
Below investment grade:
Less than six months                                 9                    48,355               47,984                  (371)
Six months or more and less than twelve
months                                              37                   155,451              146,779                (8,672)
Twelve months or greater                            95                   522,627              483,221               (39,406)
Total below investment grade                       141                   726,433              677,984               (48,449)
                                                   843             $   6,015,746          $ 5,764,920          $   (250,826)


(1)Amortized cost and gross unrealized losses have been adjusted to reflect the
allowance for credit loss of $2.8 million and $64.8 million as of December 31,
2021 and 2020, respectively.

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The amortized cost and fair value of fixed maturity securities (excluding United
States Government and United States Government sponsored agency securities)
segregated by investment grade (NRSRO rating of BBB/Baa or higher) and below
investment grade that had unrealized losses greater than 20% and the number of
months in a continuous unrealized loss position were as follows:

                                                                                                                 Gross
                                                                      Amortized                                Unrealized
                                              Number of             Cost, Net of             Fair            Losses, Net of
                                              Securities            Allowance (1)           Value            Allowance (1)
                                                                                    (Dollars in thousands)
December 31, 2021
Investment grade:
Less than six months                                 -             $          -          $       -          $           -
Six months or more and less than twelve
months                                               -                        -                  -                      -
Twelve months or greater                             -                        -                  -                      -
Total investment grade                               -                        -                  -                      -
Below investment grade:
Less than six months                                 -                        -                  -                      -
Six months or more and less than twelve
months                                               -                        -                  -                      -
Twelve months or greater                             -                        -                  -                      -
Total below investment grade                         -                        -                  -                      -
                                                     -             $          -          $       -          $           -
December 31, 2020
Investment grade:
Less than six months                                 1             $      2,453          $   1,909          $        (544)
Six months or more and less than twelve
months                                               4                   21,368             15,589                 (5,779)
Twelve months or greater                             -                        -                  -                      -
Total investment grade                               5                   23,821             17,498                 (6,323)
Below investment grade:
Less than six months                                 1                    5,963              4,323                 (1,640)
Six months or more and less than twelve
months                                               8                   38,046             38,046                      -
Twelve months or greater                             5                    3,875              3,062                   (813)
Total below investment grade                        14                   47,884             45,431                 (2,453)
                                                    19             $     71,705          $  62,929          $      (8,776)


(1)Amortized cost and gross unrealized losses have been adjusted to reflect the
allowance for credit loss of $2.8 million and $64.8 million as of December 31,
2021 and 2020, respectively.

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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)
December 31, 2021
Due in one year or less                    $   762,035      $   761,590

Due between one and five years 509,458 505,312 Due between five and ten years 546,453 535,258 Due between ten and twenty years 638,205 627,275 Due after twenty years

                       1,069,989        1,051,478
                                             3,526,140        3,480,913

Residential mortgage-backed securities 280,044 277,881 Commercial mortgage-backed securities 944,407 926,688 Other asset-backed securities

                3,172,613        3,122,506
                                           $ 7,923,204      $ 7,807,988
December 31, 2020
Due in one year or less                    $     2,324      $     1,864

Due between one and five years 382,843 360,761 Due between five and ten years 396,842 355,188 Due between ten and twenty years 216,725 203,282 Due after twenty years

                         145,340          122,960
                                             1,144,074        1,044,055

Residential mortgage-backed securities 173,875 169,615 Commercial mortgage-backed securities 1,034,424 969,746 Other asset-backed securities

                3,728,144        3,581,504
                                           $ 6,080,517      $ 5,764,920


International Exposure

We hold fixed maturity securities with international exposure. As of
December 31, 2021, 11.8% 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:

                                                    December 31, 2021
                                                                             Percent
                                                                             of Total
                                      Amortized       Carrying Amount/       Carrying
                                        Cost             Fair Value           Amount
                                           (Dollars in thousands)
          Europe                    $ 2,591,444      $       2,852,787          5.6  %
          Asia/Pacific                  397,281                440,845          0.9  %

          Latin America                 239,427                260,903          0.5  %
          Non-U.S. North America      1,351,057              1,497,014      

2.9%

          Australia & New Zealand       326,657                351,018          0.7  %
          Other                         571,475                619,334          1.2  %
                                    $ 5,477,341      $       6,021,901         11.8  %



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

                                                 December 31, 2021
                                                            Carrying Amount/
                                       Amortized Cost          Fair Value
                                               (Dollars in thousands)
            Europe                    $        38,773      $          40,129
            Asia/Pacific                           83                     81

            Latin America                      50,166                 51,817
            Non-U.S. North America             44,904                 45,789
            Australia & New Zealand               497                    482
            Other                              64,470                 67,600
                                      $       198,893      $         205,898


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 its 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 asset-backed securities, we evaluate changes in factors such
as collateral performance, default rates, loss severities and expected cash
flows. At December 31, 2021, the amortized cost and fair value of securities on
the watch list (all fixed maturity securities) are as follows:

                                                                                                     Amortized Cost,         Net Unrealized
                                          Number of           Amortized         Allowance for            Net of              Gains (Losses),             Fair
General Description                      Securities              Cost           Credit Losses           Allowance           Net of Allowance            Value
                                                                                                    (Dollars in thousands)
Corporate securities - Public
securities                                    3              $   6,564          $         -          $      6,564          $           (580)         $ 

5,984

Corporate securities - Private
placement securities                          1                 10,646                    -                10,646                    (1,140)             9,506
Residential mortgage backed
securities                                   14                 27,451                  (70)               27,381                       316             27,697
Commercial mortgage backed
securities                                   10                114,815                    -               114,815                       291            115,106

United States municipalities,
states and territories                        5                 19,062               (2,776)               16,286                      (574)            15,712
                                             33              $ 178,538          $    (2,846)         $    175,692          $         (1,687)         $ 174,005


We expect to recover the unrealized losses, net of allowances, as we did not
have the intent to sell and it was 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 December 31, 2021 is as follows:

Corporate securities: The corporate securities included on the watch list
primarily have exposure to the offshore drilling industry. The decline in value
of these securities is due to the low level of oil prices over a long period of
time. While oil prices have drifted up in recent periods, credit metrics remain
under pressure. In addition, the corporate securities included on the watch list
include a security in the utilities industry that is under financial stress due
to the impact of power outages. While we continue to monitor the status of these
securities, we do not currently expect credit losses on these securities.

Structured securities: The structured securities included on the watch list have
generally experienced higher levels of stress due to the impact COVID-19 is
having on the economy. While there is a heightened level of credit risk for the
structured securities on the watch list, we expect minimal credit losses on
these securities based on our current analyses.

United States municipalities, states and territories: the decline in value of these securities, which are related to retirement homes in the southeast region of United Statesis mainly due to the financial strain that COVID-19 is putting on this industry.

Credit losses

We have a policy and process to identify securities in our investment portfolio
for which we recognize credit loss. See Critical Accounting Policies and
Estimates-Evaluation of Allowance for Credit Losses on Available for Sale Fixed
Maturity Securities and Mortgage Loan Portfolios and Note 4 - Investments to our
audited consolidated financial statements in this Form 10-K, which is
incorporated by reference in this Item 7.

During 2021, we recognized credit losses of $6.2 million related to our fixed
maturity securities which consisted of $6.9 million of credit losses on
commercial mortgage backed securities due to our intent to sell the securities,
partially offset by net recoveries on corporate securities, municipal securities
and residential mortgage backed securities.

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In 2020, we recorded credit losses of $60.4 million on company securities, $1.7 million on residential mortgage-backed securities, $29.2 million on commercial mortgage-backed securities, $0.5 million on other asset-backed securities and $2.8 million on municipal titles.

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 $3.6 billion and $3.6 billion as of
December 31, 2021 and December 31, 2020, respectively. This portfolio consists
of mortgage loans collateralized by the related properties and 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 $408.1 million and
$245.8 million as of December 31, 2021 and December 31, 2020, 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 $1.7 billion and
$366.3 million as of December 31, 2021 and December 31, 2020, 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 December 31, 2021 and 2020, the largest principal amount outstanding for any
single commercial or agricultural mortgage loan was $81.5 million and $34.7
million, respectively, and the average loan size was $5.3 million and $4.8
million, respectively. In addition, the average loan-to-value ratio for
commercial and agricultural mortgage loans combined was 52.3% and 53.6% at
December 31, 2021 and 2020, 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 5 -
Mortgage Loans on Real Estate of our audited consolidated financial statements
of this Form 10-K, which is incorporated by reference in this Item 7.

In the normal course of business, we commit to fund mortgage loans up to 90 days
in advance. At December 31, 2021, we had commitments to fund commercial mortgage
loans totaling $59.0 million, with interest rates ranging from 3.6% to 5.1%.
During 2021 and 2020, due to historically low interest rates, the commercial
mortgage loan industry has been very competitive. This competition has resulted
in a number of borrowers refinancing with other lenders. For the year ended
December 31, 2021, we received $350.6 million in cash for loans being paid in
full compared to $199.5 million for the year ended December 31, 2020. Some of
the loans being paid off have either reached their maturity or are nearing
maturity; however, some borrowers are paying the prepayment fee and refinancing
at a lower rate. As December 31, 2021, we had commitments to fund agricultural
mortgage loans totaling $69.0 million with interest rates ranging from 3.5% to
8.0%, and had commitments to fund residential mortgage loans totaling $242.4
million with interest rates ranging from 6.75% to 24.0%.

See Note 5 - Mortgage Loans on Real Estate to our audited 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 5 - Mortgage Loans on Real Estate to our audited
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:

                                                                        30-59 days           60-89 days           Over 90 days
                                                    Current              past due             past due              past due               Total
As of December 31, 2021:                                                                (Dollars in thousands)
Commercial mortgage loans                        $ 3,628,502          $         -          $         -          $           -          $ 3,628,502
Agricultural mortgage loans                          406,999                    -                    -                      -              406,999
Residential mortgage loans                         1,631,999               34,447                3,030                  7,045            1,676,521
Total mortgage loans                             $ 5,667,500          $    34,447          $     3,030          $       7,045          $ 5,712,022

As of December 31, 2020:
Commercial mortgage loans                        $ 3,578,888          $         -          $         -          $           -          $ 3,578,888
Agricultural mortgage loans                          245,173                    -                    -                      -              245,173
Residential mortgage loans                           346,730               25,449                  111                    167              372,457
Total mortgage loans                             $ 4,170,791          $    25,449          $       111          $         167          $ 4,196,518


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Derivatives

Our derivative instruments primarily consist of call options purchased to
provide the income needed to fund the annual index credits on our fixed index
annuity products. 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.

None of our derivatives qualify for hedge accounting, thus, 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 is
included in Note 7 - Derivative Instruments to our audited consolidated
financial statements in this Form 10-K, which is incorporated by reference in
this Item 7.

Liabilities

Our liability for policy benefit reserves increased to $65.5 billion at
December 31, 2021 compared to $62.4 billion at December 31, 2020. The increase
in policy benefit reserves is due to net cash flows from annuity deposits and
funds returned to policyholders and interest and index credits credited to
policyholders during 2021. Substantially all of our annuity products have a
surrender charge feature designed to reduce the risk of early withdrawal or
surrender of the policies and to compensate us for our costs if policies are
withdrawn early. Our lifetime income benefit rider also reduces the risk of
early withdrawal or surrender of the policies as it provides an additional
liquidity option to policyholders as the policyholder can elect to receive
guaranteed payments for life from their contract without requiring them to
annuitize their contract value and the rider is not transferable to other
contracts. Notwithstanding these policy features, the withdrawal rates of
policyholder funds may be affected by changes in interest rates and other
factors.

See Note 11 - Notes Payable and Amounts Due Under Repurchase Agreements to our
audited consolidated financial statements in this Form 10-K, which is
incorporated by reference in this Item 7 for discussion of our notes payable and
borrowings under repurchase agreements.

See Note 12 – Subordinated debentures to our audited consolidated financial statements for further information regarding our subordinated debentures payable to our subsidiary trusts and the preferred securities issued by them.

Cash and capital resources

Liquidity for insurance transactions

Our insurance subsidiaries' primary sources of cash flow are annuity deposits,
investment income, and proceeds from the sale, maturity and calls of
investments. The primary uses of funds are investment purchases, payments to
policyholders in connection with surrenders and withdrawals, policy acquisition
costs and other operating expenses.

Liquidity requirements are met primarily by funds provided from operations. Our
life subsidiaries generally receive adequate cash flow from annuity deposits and
investment income to meet their obligations. Annuity liabilities are generally
long-term in nature. However, a primary liquidity concern is the risk of an
extraordinary level of early policyholder withdrawals. We include provisions
within our annuity policies, such as surrender charges and bonus vesting, which
help limit and discourage early withdrawals. Our lifetime income benefit rider
also limits the risk of early withdrawals as it provides an additional liquidity
option to policyholders as the policyholder can elect to receive guaranteed
payments for life from their contract without requiring them to annuitize their
contract value and the rider is not transferable to other contracts. At
December 31, 2021, approximately 92% or $48.7 billion of our annuity liabilities
were subject to penalty upon surrender, with a weighted average remaining
surrender charge period of 5.5 years and a weighted average surrender charge
percentage of 9.1%.

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 $1.3 billion for the year ended
December 31, 2021 compared to $39.5 million for the year ended December 31, 2020
with the increase attributable to a $1.9 billion increase in net annuity
deposits after coinsurance and a $587.2 million (after coinsurance) increase in
funds returned to policyholders. In addition, we have a highly liquid investment
portfolio that can be used to meet policyholder and other obligations as needed.
Scheduled principal repayments, calls and tenders of available for sale fixed
maturity securities and net investment income were $3.7 billion and $2.0
billion, respectively, during the year ended December 31, 2021.

Liquidity of the parent company

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 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. These sources provide adequate cash flow for us to meet our
current and reasonably foreseeable future obligations and we expect they will be
adequate to fund our parent company cash flow requirements in 2022.

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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 2022, up to
$407.9 million can 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. American Equity Life had $2.4 billion
of statutory earned surplus at December 31, 2021.

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
December 31, 2021, 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 objective. 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.

On November 21, 2019 we issued 16,000 shares of 5.95% fixed-rate reset
non-cumulative preferred stock, 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. We used a portion of the proceeds to redeem $165 million of our
floating rate subordinated debentures in the fourth quarter of 2019 and the
first quarter of 2020 and contributed $200 million to American Equity Life
during May of 2020.

At June 10, 2020we issued 12,000 6.625% Fixed Rate Reset Non-Cumulative Preferred Shares, Series B with a $1.00 par value per share and a liquidation preference of $25,000 per share, for total net proceeds of
$290.3 million.

On November 30, 2020 we issued 9,106,042 common shares to Brookfield at a value
of $37.00 per share for net proceeds of $333.6 million. On January 7, 2022, we
issued an additional 6,775,000 shares to Brookfield at a value of $37.33 per
share for net proceeds of $252.9 million.

During the fourth quarter of 2020, we repurchased 1.9 million shares of our
common stock for $50 million in the open market under our share repurchase
program. During 2021, we repurchased an additional 3.1 million share of our
common stock for $99.4 million in the open market under our share repurchase
program. In addition, on November 30, 2020 we entered into an accelerated share
repurchase (ASR) agreement with Citibank, N.A. to repurchase an aggregate of
$115 million of our common stock. Under the ASR agreement, we received an
initial share delivery of approximately 3.5 million shares. The final settlement
of 0.5 million shares, which was based on the volume-weighted average price of
our common stock during the term of the transaction, less a discount and subject
to customary adjustments, was delivered on February 25, 2021. The average price
paid for shares repurchased under the ASR was $28.45 per common share. During
2022, we repurchased an additional 2.5 million shares of our common stock
through February 25, 2022 for $105.7 million in the open market under our share
repurchase program. Through February 25, 2022, we have repurchased approximately
11.6 million shares of our common shares at an average price of $31.78 per
common share and have approximately $630 million remaining under our share
repurchase program.

Cash and cash equivalents of the parent holding company at December 31, 2021,
were $362.2 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. On February 15, 2022, we established a new five-year credit
agreement for $300 million in unsecured delayed draw term loan commitments. This
agreement is part of our plans for access to liquidity for general corporate
purposes as we continue to implement our strategic transformation to an at-scale
origination, spread and capital light fee-based business, and to manage capital
to grow as well as produce returns for shareholders. There have been no loans
drawn on this agreement to date.

In January 2022we became a member of the Federal Home Loan Bank of Des Moines
(“FHLB”). No advance has been made under this accession to date.

Statutory accounting practices prescribed or permitted for our life subsidiaries
differ in many respects from those governing the preparation of financial
statements under GAAP. Accordingly, statutory operating results and statutory
capital and surplus may differ substantially from amounts reported in the GAAP
basis financial statements for comparable items. Information as to statutory
capital and surplus and statutory net income for our life subsidiaries as of
December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and
2019 is included in Note 14 - Statutory Financial Information and Dividend
Restrictions to our audited consolidated financial statements.

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In the normal course of business, we enter into financing transactions, lease
agreements, or other commitments. These commitments may obligate us to certain
cash flows during future periods. The following table summarizes such
obligations as of December 31, 2021.

                                                                              Payments Due by Period
                                                               Less Than                                                          After
                                            Total                1 year              1-3 Years            4-5 Years              5 Years
                                                                              (Dollars in thousands)
Annuity and single premium universal
life products (1)                      $ 72,960,114          $ 3,938,038    

$15,703,072 $9,782,847 $43,536,157
Notes payable, including interest payments (2)

                                637,500               25,000                50,000               50,000               512,500
Subordinated debentures, including
interest payments (3)                       220,675                4,850                 9,700                9,700               196,425

Operating leases                             12,574                2,509                 4,564                3,934                 1,567
Mortgage loan funding and other
investments                                 836,400              836,400                     -                    -                     -
Total                                  $ 74,667,263          $ 4,806,797          $ 15,767,336          $ 9,846,481          $ 44,246,649


(1)Amounts shown in this table are projected payments through the year 2072
which we are contractually obligated to pay to our annuity policyholders. The
payments are derived from actuarial models which assume a level interest rate
scenario and incorporate assumptions regarding mortality and persistency, when
applicable. These assumptions are based on our historical experience.

(2) The period during which principal amounts are due is determined by the earlier of the purchase/sale date or the due date of each note payable.

(3) The amount shown is net of equity investments in capital trusts due to the contractual right of set-off upon redemption of the notes.

Critical accounting policies and estimates

The increasing complexity of the business environment and applicable
authoritative accounting guidance require us to closely monitor our accounting
policies. We have identified six critical accounting policies and estimates that
are complex and require significant judgment. The following summary of our
critical accounting policies and estimates is intended to enhance your ability
to assess our financial condition and results of operations and the potential
volatility due to changes in estimates.

Valuation of investments

Our fixed maturity securities classified as available for sale are reported at
fair value. Unrealized gains and losses, if any, on these securities are
included directly in stockholders' equity as a component of accumulated other
comprehensive income (loss), net of income taxes and certain adjustments for
assumed changes in amortization of deferred policy acquisition costs, deferred
sales inducements and policy benefit reserves. Unrealized gains and losses
represent the difference between the amortized cost or cost basis and the fair
value of these investments. We use significant judgment within the process used
to determine fair value of these investments.

GAAP defines fair value as 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. 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 classify financial instruments carried at fair value on 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.

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The following table presents the fair value of fixed-maturity securities, available for sale, by price source and level of hierarchy at December 31, 2021 and 2020, respectively:

                                           Quoted Prices
                                             in Active              Significant           Significant
                                            Markets for             Observable            Unobservable
                                          Identical Assets            Inputs                 Inputs
                                             (Level 1)               (Level 2)             (Level 3)                Total
                                                                        (Dollars in thousands)
December 31, 2021
Priced via third party pricing services  $        32,742          $ 47,204,947          $         -            $ 47,237,689
Priced via independent broker quotations               -                     -                    -                       -

Priced via other methods                          32,695             4,035,559                    -               4,068,254
                                         $        65,437          $ 51,240,506          $         -            $ 51,305,943
% of Total                                           0.1  %               99.9  %                 -    %              100.0  %

December 31, 2020
Pricing through third-party pricing services $33,948 $46,445,244 $-

            $ 46,479,192
Priced via independent broker quotations               -               296,022                    -                 296,022

Priced via other methods                               -               763,679                    -                 763,679
                                         $        33,948          $ 47,504,945          $         -            $ 47,538,893
% of Total                                           0.1  %               99.9  %                 -    %              100.0  %

Management’s evaluation of all available data when determining the fair value of our investments is necessary to properly apply fair value accounting.

We use independent pricing services to estimate the fair value of investment securities. Independent pricing services incorporate a variety of observable market data into 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 December 31, 2021
and 2020.

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Measurement of allowance for credit losses available for Sale of fixed-maturity securities and mortgage loan portfolios

The process to identify available for sale fixed maturity securities that could
potentially require an allowance for credit loss involves significant judgment
and estimates by management. We review and analyze all fixed maturity securities
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 or cost basis of each fixed maturity security 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 fixed
maturity 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 fixed maturity securities that could
potentially have a 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 fair value is 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
fixed maturity securities by assessing all facts and circumstances surrounding
each security. Where the decline in fair value of fixed maturity 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 securities to have
credit loss because we do not intend to sell these securities and it is not more
likely than not we will be required to sell these securities before a recovery
of amortized cost, which may be maturity.

If we intend to sell a fixed maturity security or if it is more likely than not
that we will be required to sell a 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 fixed maturity security but also do not expect to recover
the entire amortized cost basis of the security, a credit loss would be
recognized in operations in 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 unrealized loss on the security.

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 the 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 our "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 cash flow modeling is performed on a security-by-security basis and
incorporates actual cash flows on the residential mortgage backed securities
through the current period, as well as the projection of remaining cash flows
using a number of assumptions including default rates, prepayment rates and loss
severity rates. The default curves we use are tailored to the Prime or Alt-A
residential mortgage backed securities that we own, which assume lower default
rates and loss severity for Prime securities versus Alt-A securities. These
default curves are scaled higher or lower depending on factors such as current
underlying mortgage loan performance, rating agency loss projections, loan to
value ratios, geographic diversity, as well as other appropriate considerations.

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

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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.

For fixed maturity securities which we do not intend to sell and it is not more
likely than not we will be required to sell, but our intent changes due to
changes or events that could not have been reasonably anticipated, a credit loss
may be recognized in operations. Unrealized losses may be recognized in future
periods in operations should we later conclude that the decline in fair value
below amortized cost represents a credit loss pursuant to our accounting policy
described above. The use of different methodologies and assumptions to determine
the fair value of investments and the timing and amount of impairments may have
a material effect on the amounts presented in our consolidated financial
statements.

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 for commercial mortgage loans is calculated by pooling
our loans based on risk rating and property collateral type and applying an
estimated loss ratio against each risk pool. Risk ratings are based on an
analysis of 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 and economic outlook, among others. The loss ratios are
generally based upon historical loss experience for each risk pool and are
adjusted for current and forecasted economic factors management believes to be
relevant and supportable. Economic factors are forecasted for two years with
immediate reversion to historical experience.

A commercial loan is individually evaluated for impairment if it does not
continue to share similar risk characteristics of a pool. A commercial mortgage
loan that is individually evaluated is impaired when it is probable that we will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. If we determine that the value of any specific mortgage loan is
impaired, the carrying amount of the mortgage loan will be reduced to its fair
value, based upon the present value of expected future cash flows from the loan
discounted at the loan's effective interest rate, or the fair value of the
underlying collateral less estimated costs to sell.

The valuation allowance for agricultural and residential mortgage loans are
estimated by deriving probability of default and recovery rate assumptions based
on the characteristics of the loans in our portfolio, historical economic data
and loss information, and current and forecasted economics conditions. Key loan
characteristics impacting the estimate include delinquency status, time to
maturity, original credit scores and loan-to-value ratios.

Policy liabilities for fixed index annuities

We offer a variety of fixed index annuities with crediting strategies linked to
the S&P 500 Index and other equity and bond market indices. We purchase call
options on the applicable indices as an investment to provide the income needed
to fund the annual index credits on the index products. See Financial
Condition-Derivative Instruments. Certain derivative instruments embedded in the
fixed index annuity contracts are recognized in the consolidated balance sheets
at their fair values and changes in fair value are recognized immediately in our
consolidated statements of operations in accordance with accounting standards
for derivative instruments and hedging activities.

Accounting for derivatives prescribes that the contractual obligations for
future annual index credits are treated as a "series of embedded derivatives"
over the expected life of the applicable contracts. Policy liabilities for fixed
index annuities are equal to the sum of the "host" (or guaranteed) component and
the embedded derivative component for each fixed index annuity policy. The host
value is established at inception of the contract and accreted over the policy's
life at a constant rate of interest. We estimate the fair value of the embedded
derivative component 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 including lapse, partial withdrawal and
mortality rates. Our best estimate assumptions for future policy growth include
assumptions for the expected index credits 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. The amounts reported in the consolidated statements of
operations as "Interest sensitive and index product benefits" represent amounts
credited to policy liabilities pursuant to accounting by insurance companies for
certain long-duration contracts which include index credits through the most
recent policy anniversary. The amounts reported in the consolidated statements
of operations as "Change in fair value of embedded derivatives" equal the change
in the difference between policy benefit reserves for fixed index annuities
computed under the derivative accounting standard and the long-duration
contracts accounting standard at each balance sheet date.

In general, the change in the fair value of the embedded derivatives will not
correspond to the change in fair value of the purchased call options because the
purchased call options are generally one year options while the options valued
in the embedded derivatives represent the rights of the contract holder to
receive index credits over the entire period the fixed index annuities are
expected to be in force, which typically exceeds 10 years.

The most sensitive assumptions in determining policy liabilities for fixed index
annuities are 1) the rates used to discount the excess projected contract
values, 2) the expected cost of annual call options we will purchase in the
future to fund index credits beyond the next policy anniversary date and 3) our
best estimate for future policy decrements specific to lapse rates.

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As indicated above, the discount rates used to discount excess projected
contract value are based on applicable risk-free interest rates adjusted for our
nonperformance risk related to those liabilities. If the discount rates used to
discount the excess projected contract values at December 31, 2021 were to
increase by 100 basis points, our reserves for fixed index annuities would
decrease by $546.8 million. A decrease by 100 basis points in the discount rates
used to discount the excess projected contract values would increase our
reserves for fixed index annuities by $627.3 million.

As of December 31, 2021, we utilized an estimate of 2.10% for the expected cost
of annual call options, which is based on estimated long-term account value
growth and a historical review of our actual options costs. If the expected cost
of annual call options we purchase in the future to fund index credits beyond
the next policy anniversary date were to increase by 25 basis points, our
reserves for fixed index annuities would increase by $537.8 million. A decrease
of 25 basis points in the expected cost of annual call options would decrease
our reserves for fixed index annuities by $509.6 million.

Our lapse rate assumptions are based on actual experience and our outlook as to
future expectations for lapse rates. If lapse rates were to increase 10%, our
reserves for fixed index annuities would decrease by $26.1 million. A decrease
in lapse rates of 10% would increase our reserves for fixed index annuities by
$27.2 million.

Liability for lifetime income benefit riders

The liability for lifetime income benefit riders is based on the actual and
present value of expected benefit payments to be paid in excess of projected
policy values recognizing the excess over the expected lives of the underlying
policies based on the actual and present value of expected assessments including
investment spreads, product charges and fees. The inputs used in the calculation
of the liability for lifetime income benefit riders include actual policy
values, actual income account values, actual payout factors, actual roll-up
rates and our best estimate assumptions for future policy growth, expected
utilization of lifetime income benefit riders, which includes the ages at which
policyholders are expected to elect to begin to receive lifetime income benefit
payments and the percentage of policyholders who elect to receive lifetime
income benefit payments, the type of income benefit payments selected upon
election and future assumptions for lapse, partial withdrawal and mortality
rates. The assumptions are reviewed quarterly and updates to the assumptions are
made based on historical results and our best estimates of future experience.
The liability for lifetime income benefit riders is included in policy benefit
reserves in the consolidated balance sheets and the change in the liability is
included in interest sensitive and index product benefits in the consolidated
statements of operations. See Results of Operations for the Three Years Ended
December 31, 2021 in this Item 7 for a discussion and presentation of the
effects of assumption revisions.

The most sensitive assumptions in the calculation of the liability for lifetime
income benefit riders are 1) the expected cost of annual call options we will
purchase in the future, 2) the percentage of policyholders who elect to receive
lifetime income benefit payments, 3) our best estimate for future policy
decrements specific to lapse rates and 4) the net investment earned rate.

We utilize the expected cost of annual call options we will purchase in the
future to project policy values and to discount future cash flows. In addition,
it is a key component in the calculation of expected assessments in the
projection period. As of December 31, 2021, we utilized an estimate of 2.10% 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 the cost of our actual
call options. If the expected cost of annual call options and fixed crediting
rates were to increase by 25 basis points, our liability for lifetime income
benefit riders would decrease by $141.1 million. A decrease of 25 basis points
in the expected cost of annual call options and fixed crediting rates would
decrease our liability for lifetime income benefit riders by $73.9 million.

Our assumptions related to the percentage of policyholders who elect to receive
lifetime income benefit payments is based on actual experience and our outlook
as to future expectations for utilization rates. If the ultimate floor
assumption on the percentage of policyholders who elect to receive lifetime
income benefit payments was increased by 10% at December 31, 2021, our liability
for lifetime income benefit riders would increase by $152.0 million. A decrease
by 10% in the ultimate floor assumption on the percentage of policyholders who
elect to receive lifetime income benefit payments would decrease our liability
for lifetime income benefit riders by $113.0 million.

Our lapse rate assumptions are based on actual experience and our outlook as to
future expectations for lapse rates. If lapse rates were to increase 10%, our
liability for lifetime income benefit riders would decrease by $24 million. A
decrease in lapse rates of 10% would increase our liability for lifetime income
benefit riders by $23.4 million.

The net investment earned rate is a key component in the calculation of expected
assessments in the projection period. The net investment earned rate is based on
current yields being earned in our invested assets portfolio, future
expectations for earned yields and the expected mean reversion period. If the
net investment earned rate were to increase 10 basis points, our liability for
lifetime income benefit riders would decrease by $27.8 million. A decrease in
the net investment earned rate of 10 basis points would increase our liability
for lifetime income benefit riders by $28.6 million.

Deferred policy acquisition costs and deferred sales incentives

Costs relating to the successful production of new business are not expensed
when incurred but instead are capitalized as deferred policy acquisition costs
or deferred sales inducements. Only costs which are expected to be recovered
from future policy revenues and gross profits may be deferred.

Deferred policy acquisition costs and deferred sales inducements are subject to
loss recognition testing on a quarterly basis or when an event occurs that may
warrant loss recognition. Deferred policy acquisition costs consist principally
of commissions and certain costs of policy issuance. Deferred sales inducements
consist of premium and interest bonuses credited to policyholder account
balances.

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For annuity products, these costs are being amortized in proportion to actual
and expected gross profits. Actual and expected gross profits include the the
excess of net investment income earned over the interest credited or the cost of
providing index credits to the policyholders, or the "investment spread"; and to
a lesser extent, product charges and fees net of expected excess payments for
lifetime income benefit riders and certain policy expenses. Actual and expected
gross profits for fixed index annuities also include the impact of amounts
recorded for the change in fair value of derivatives and the change in fair
value of embedded derivatives. Current period amortization is adjusted
retrospectively through an unlocking process when estimates of actual and
expected gross profits (including the impact of net realized gains (losses) on
investments and credit losses recognized in operations) to be realized from a
group of products are updated. Our estimates of future gross profits are based
on actuarial assumptions related to the underlying policies terms, lives of the
policies, yield on investments supporting the liabilities and level of expenses
necessary to maintain the polices over their entire lives. Revisions are made
based on historical results and our best estimates of future experience. See
Results of Operations for the Three Years Ended December 31, 2021 in this Item 7
for a discussion and presentation of the effects of assumption revisions.

The most sensitive assumptions used to calculate amortization of deferred policy
acquisition costs and deferred sales inducements are 1) the net investment
earned rate, 2) our best estimate for future policy decrements specific to lapse
rates and 3) the expected cost of annual call options we will purchase in the
future.

The net investment earned rate is a key component in the calculation of
estimated gross profits. The net investment earned rate is based on current
yields being earned in our invested assets portfolio, future expectations for
earned yields and the expected mean reversion period. If the net investment
earned rate were to increase 10 basis points, our combined balance for deferred
policy acquisition costs and deferred sales inducements at December 31, 2021
would increase by $101.5 million. A decrease in the net investment earned rate
of 10 basis points would decrease our combined balance for deferred policy
acquisition costs and deferred sales inducements at December 31, 2021 by $104.7
million.

Our lapse rate assumptions are based on actual experience and our outlook as to
future expectations for lapse rates. If lapse rates were to increase 10%, our
combined balance of deferred policy acquisition costs and deferred sales
inducements would decrease by $83.9 million. A decrease in lapse rates of 10%
would increase our combined balance of deferred policy acquisition costs and
deferred sales inducements by $87.4 million.

We utilize the expected cost of annual call options we will purchase in the
future to project policy values and to discount future cash flows. In addition,
it is a key component in the calculation of expected gross profits in the
projection period. As of December 31, 2021, we utilized an estimate of 2.10% for
the expected long-term cost of annual call options, which is based on estimated
long-term account value growth and a historical review of the cost of our actual
call options. If the expected cost of annual call options and fixed crediting
rates were to increase by 25 basis points, our combined balance of deferred
policy acquisition costs and deferred sales inducements would decrease by $60.4
million. A decrease of 25 basis points in the expected cost of annual call
options and fixed crediting rates would decrease our combined balance of
deferred policy acquisition costs and deferred sales inducements by $45.1
million.

Deferred taxes

We account for income taxes using the liability method. This method provides for
the tax effects of transactions reported in the audited consolidated financial
statements for both taxes currently due and deferred. Deferred income taxes
reflect the impact of temporary differences between the amount of assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. A temporary difference is a transaction, or amount
of a transaction, that is recognized currently for financial reporting purposes
but will not be recognized for tax purposes until a future tax period, or is
recognized currently for tax purposes but will not be recognized for financial
reporting purposes until a future reporting period. Deferred income taxes are
measured by applying enacted tax rates for the years in which the temporary
differences are expected to be recovered or settled to the amount of each
temporary difference.

The realization of deferred income tax assets is primarily based upon
management's estimates of future taxable income. Valuation allowances are
established when management estimates, based on available information, that it
is more likely than not that deferred income tax assets will not be realized.
Significant judgment is required in determining whether valuation allowances
should be established, as well as the amount of such allowances. When making
such determination, consideration is given to, among other things, the
following:

•future taxable income of a necessary nature excluding the cancellation of temporary differences and carryforwards; •future reversal of existing taxable temporary differences; •taxable capital income from previous carry-back years; and • tax planning strategies.

The actual realization of deferred tax assets and liabilities may differ materially from these estimates due to changes in tax laws as well as unforeseen future transactions affecting the related tax balances.

The realization of deferred income tax assets related to unrealized losses on
our available for sale fixed maturity securities is also based upon our intent
to hold these securities for a period of time sufficient to allow for a recovery
in fair value and not realize the unrealized loss.

New accounting statements

See Note 1 – Significant Accounting Policies to our audited Consolidated Financial Statements in this Form 10-K beginning on page F-12, which is incorporated by reference into this Section 7, for new information on accounting pronouncements .

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