NEW YORK LIFE INSURANCE COMPANY AND SUBSIDIARIES ...

NEW YORK LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS (GAAP Basis)

December 31, 2017 and 2016

Table of Contents

Page Number

Independent Auditor's Report

1

Consolidated Statements of Financial Position

2

Consolidated Statements of Operations

3

Consolidated Statements of Comprehensive Income

4

Consolidated Statements of Equity

5

Consolidated Statements of Cash Flows

6

Notes to Consolidated Financial Statements

Note 1 - Nature of Operations

7

Note 2 - Basis of Presentation

7

Note 3 - Significant Accounting Policies

7

Note 4 - Business Risks and Uncertainties

22

Note 5 - Recent Accounting Pronouncements

23

Note 6 - Investments

25

Note 7 - Derivative Instruments and Risk Management

33

Note 8 - Separate Accounts

40

Note 9 - Fair Value Measurements

41

Note 10 - Investment Income and Investment Gains and Losses

71

Note 11 - Related Party Transactions

77

Note 12 - Policyholders' Liabilities

77

Note 13 - Deferred Policy Acquisition Costs and Sales Inducements

83

Note 14 - Reinsurance

83

Note 15 - Benefit Plans

86

Note 16 - Goodwill and Other Intangible Assets

100

Note 17 - Commitments and Contingencies, Loaned Securities and Repurchase Agreements

101

Note 18 - Income Taxes

104

Note 19 - Debt

107

Note 20 - Equity

109

Note 21 - Supplemental Cash Flow Information

112

Note 22 - Statutory Financial Information

112

Note 23 - Subsequent Events

112

Report of Independent Auditors

To the Board of Directors of New York Life Insurance Company:

We have audited the accompanying consolidated financial statements of New York Life Insurance Company and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as of December 31, 2017 and 2016, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for the years then ended.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New York Life Insurance Company and its subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

March 8, 2018

PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F: (813) 286 6000, us

1

NEW YORK LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Assets

December 31,

2017

2016

(in millions)

Fixed maturities (includes securities pledged to creditors

of $1,325 and $1,298 in 2017 and 2016, respectively):

Available-for-sale, at fair value

$

Securities, at fair value

Equity securities:

Securities, at fair value

Unaffiliated, available-for-sale, at fair value

Affiliated

Mortgage loans (includes mortgage loans carried at fair value

of $1,254 and $1,329 in 2017 and 2016, respectively), net of allowances

Policy loans

Other investments

Total investments

Cash and cash equivalents

Deferred policy acquisition costs

Other assets (includes other assets carried at fair value of $3,701 and

$3,824 in 2017 and 2016, respectively)

Separate account assets

Total assets

$

180,645 $ 17,982

3,744 201 10

30,990 11,787 23,273 268,632 6,387 6,985

12,165 42,947 337,116 $

170,023 16,459

3,062 153 23

29,483 11,510 23,574 254,287 6,198 6,971

11,458 38,964 317,878

Liabilities

Policyholders' account balances

$

Future policy benefits (includes liabilities carried at fair value of

$8,326 and $8,603 in 2017 and 2016, respectively)

Dividends payable to policyholders

Policy claims

Debt (includes debt carried at fair value of $1,786 and $2,022 in 2017 and

2016, respectively)

Collateral received on securities lending

Other liabilities (includes other liabilities carried at fair value of

$4,981 and $5,129 in 2017 and 2016, respectively)

Separate account liabilities

Total liabilities

112,223 $

118,901 1,255 1,309

5,717 1,353

14,114 42,947 297,819

106,331

112,554 1,256 1,272 6,093

1,328

14,597 38,964 282,395

Equity

Accumulated other comprehensive income Retained earnings Total New York Life equity Non-controlling interest Total equity Total liabilities and equity

2,319

1,083

33,477

31,079

35,796

32,162

3,501

3,321

39,297

35,483

$

337,116 $

317,878

The accompanying notes are an integral part of the consolidated financial statements. 2

NEW YORK LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

Revenues

Premiums Fees - universal life and annuity policies Net investment income Net investment gains (losses):

Other-than-temporary impairments on fixed maturities Other-than-temporary impairments on fixed maturities

recognized in accumulated other comprehensive income All other net investment gains Total net investment gains Management fees and other income Total revenues

Years Ended December 31,

2017

2016

(in millions)

$

14,749 $

14,124

1,667

1,594

10,767

9,980

(121)

(280)

28 1,666 1,573 1,572 30,328

32 949 701 1,509 27,908

Expenses

Policyholder benefits Increase in liabilities for future policy benefits Interest credited to policyholders' account balances Dividends to policyholders Operating expenses Total expenses

9,650 5,975 2,896 1,950 6,592 27,063

9,218 5,646 2,808 1,930 6,184 25,786

Income before income tax expense and non-controlling interest Income tax expense Net income Non-controlling interest

Net income attributable to New York Life

3,265 226

3,039 (278)

2,122 484

1,638 (266)

$

2,761 $

1,372

The accompanying notes are an integral part of the consolidated financial statements. 3

NEW YORK LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31,

2017

2016

(in millions)

Net income

Other comprehensive income (loss), net of tax: Foreign currency translation adjustment Foreign currency translation adjustment, net

$

3,039 $

1,638

111

(84)

111

(84)

Net unrealized investment gains: Net unrealized investment gains arising during the period Less: reclassification adjustment for net unrealized investment gains included in net income

Net unrealized investment gains, net

977

298

10

73

967

225

Benefit plans: Losses and prior service costs arising during the period Less: amortization of losses and prior service costs included in net periodic benefit costs

Benefit plans, net

(282)

(77) (205)

(197)

(79) (118)

Other comprehensive income, net of tax Comprehensive income Less: comprehensive income attributable to non-controlling interests

Comprehensive income attributable to New York Life

873 3,912 (278)

23 1,661 (266)

$

3,634 $

1,395

The accompanying notes are an integral part of the consolidated financial statements. 4

NEW YORK LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY Years Ended December 31, 2017, 2016 and 2015

(in millions)

Balance, December 31, 2015 Contributions from non-controlling interests Consolidation/deconsolidation of less than 100% owned entities Net income Other comprehensive income, net of tax Total comprehensive income (loss) Balance, December 31, 2016 Distributions from non-controlling interests Consolidation/deconsolidation of less than 100% owned entities Net income Other comprehensive income, net of tax Total comprehensive income

Accumulated Other

Comprehensive Income

$

1,060

--

--

--

23

23

1,083

--

--

--

873

873

Retained Earnings $ 29,707

-- -- 1,372 -- 1,372 31,079 -- -- 2,761 -- 2,761

New York Life Equity $ 30,767

-- -- 1,372 23 1,395 32,162 -- -- 2,761 873 3,634

NonControlling

Interest

Total Equity

$ 3,277 $ 34,044

84

84

(306)

(306)

266

1,638

--

23

266

1,661

3,321

35,483

(84)

(84)

(14)

(14)

278

3,039

--

873

278

3,912

Change in accounting principle - reclass of stranded tax effects

Balance, December 31, 2017

$

363

(363)

--

2,319 $ 33,477 $ 35,796 $

--

--

3,501 $ 39,297

The accompanying notes are an integral part of the consolidated financial statements. 5

NEW YORK LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash Flows From Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Net capitalization of deferred policy acquisition costs Universal life and annuity fees Interest credited to policyholders' account balances Capitalized interest and dividends reinvested Net investment gains Equity in earnings of limited partnerships Deferred income taxes Net change in unearned revenue liability Other Changes in: Other assets and other liabilities Trading securities Acquisitions of investments within consolidated investment companies Dispositions of investments within consolidated investment companies Policy claims Future policy benefits Book overdrafts Net cash provided by operating activities

Years Ended December 31,

2017

2016

(in millions)

$

3,039 $

1,638

51 (186) (1,024) 2,896 (314) (1,572) (638) 246

9 140

(1,193) 1

(2,137) 2,443

33 5,836

(94) 7,536

186 (209) (973) 2,808 (253) (701) (451)

(7) 21 112

488 7

(1,989) 1,330

110 5,414

81 7,612

Cash Flows From Investing Activities:

Proceeds from: Sale of available-for-sale fixed maturities Maturity and repayment of available-for-sale fixed maturities Sale of equity securities Repayment of mortgage loans Sale of other invested assets Sale of trading securities Maturity and repayment of trading securities Repayment of commercial loans

Cost of: Available-for-sale fixed maturities acquired Equity securities acquired Mortgage loans acquired Acquisition of other invested assets Acquisition of trading securities Commercial loans acquired

Securities purchased under agreements to resell Cash collateral received (paid) on derivatives Policy loans Capital expenditures Consolidation and deconsolidation of entities Other Net cash used in investing activities

7,426 20,388

299 3,322 2,415 3,511

838 3,571

(35,622) (237)

(4,778) (2,469) (5,486) (3,542)

(80) 151 (276) (103) 20 -- (10,652)

7,499 19,070

304 3,148 2,139 2,315

661 2,940

(37,192) (16)

(4,987) (1,602) (4,561) (3,132)

73 (71) (178) (102) (128)

4 (13,816)

Cash Flows From Financing Activities:

Policyholders' account balances: Deposits Withdrawals Net transfers to the separate accounts

Contributions from non-controlling interests Distributions to non-controlling interests Increase in loaned securities Derivatives containing a financing element Securities sold under agreements to repurchase Paydowns from debt Proceeds from issuance of debt Other Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

21,862

19,863

(16,334)

(14,214)

(1,664)

(1,480)

776

220

(860)

(136)

25

151

(387)

(174)

--

(5)

(1,146)

(516)

1,035

875

(29)

9

3,278

4,593

27

(23)

189

(1,634)

6,198

7,832

$

6,387 $

6,198

The accompanying notes are an integral part of the consolidated financial statements. 6

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